Capitol Energy Announces 2006 Year End Results

    All amounts in thousands of Canadian dollars unless otherwise specified

    TSX: CPX

    CALGARY, March 8 /CNW/ - Capitol Energy Resources Ltd. ("Capitol" or the
"Company") (TSX: CPX), is pleased to report its year end financial results.

    NOTE: All amounts are in thousands of Canadian dollars unless otherwise
specified and all prior period share and per share references have been
adjusted to reflect Capitol's one for five share consolidation in May 2005.
Capitol's December 31, 2006 financial statements may be viewed on the
Company's website (

    2006 Highlights

    2006 represented Capitol's third year of operations. During 2006, Capitol
achieved significant growth in production, cash flow and reserves from the
development of the Company's primary asset, the Dixonville Montney "C" oil
pool. The successful 2006 Montney development drilling program increased
Capitol's reserve estimates of original oil in place ("OOIP") to 263 million
barrels as determined by the Company's independent reserves evaluator and as
previously announced on February 15, 2007.
    The Montney "C" is a very large pool by recent standards and is still in
the early stages of development, with a significant percentage of recoverable
reserves in the probable and possible categories. Full development of the pool
will require approximately 125 additional wells. Some of Capitol's key
operating accomplishments for 2006 are highlighted below:

    -  Capitol drilled 54 gross wells (51.7 net wells) including
       44 horizontal wells at Dixonville for a 95% net success rate overall
       and a 100% success rate at Dixonville.
    -  Favourable drilling results, well performance and updated mapping at
       Dixonville resulted in original oil in place increasing by 28% to
       263 mbbls.
    -  Average 2006 sales volumes were 2,913 boe per day an increase of 190%
       over 2005, with a December average sales volume of 3,894 boe per day.
    -  Proved reserve volumes increased to 14,924 mboe at December 31, 2006,
       an increase of 71% over proved reserve volumes at December 31, 2005.
       Proved plus probable reserves increased to 29,955 mboe at December 31,
       2006, an increase of over 96% from December 31, 2005.
    -  Finding, development and acquisition costs were $20.63 per proved boe
       and $7.11 per proved plus probable boe calculated pursuant to National
       Instrument 51-101.
    -  Capitol's proved plus probable reserve life index ("RLI") was
       approximately 20 years at December 31, 2006 while the proved RLI was
       approximately 10 years based on year end production rates of
       4,200 boe per day.
    -  The Company commenced a waterflood pilot in October 2006 on the
       Dixonville Montney "C" pool and applied in December 2006 to increase
       the waterflood area to approximately 20% of the Dixonville Montney
       "C" pool. Positive waterflood response led to the recognition of
       additional reserves at December 31, 2006. Capitol is continuing to
       observe favourable response to water injection in the pilot waterflood
       area, including reduced gas/oil ratios ("GOR's") in two producing
       wells and a reduced GOR with an increasing oil rate in a third
       producing well immediately offsetting the two water injection wells.
    -  Maintained a favourable capital and operating cost structure during a
       period of rapid cost escalation and resource shortages in the
    -  Received approval from the EUB to drill up to 32 wells per section
       with no inter well minimum distance restrictions to allow for the
       optimal development of the Dixonville pool at an interval of
       approximately 100 meter inter well spacing on average.
    -  Received EUB approval in December to construct a sales line from the
       Dixonville Montney "C" Battery to the Clear Hills Nova meter station,
       allowing Capitol to eliminate third party processing fees on
       associated gas.
    -  Cash flow increased by 242%. Cash flow per share of $0.56.

    HIGHLIGHTS                                                     Six month
                                                  Year       Year     period
                                                 ended      ended      ended
    ($ thousands except per                   December   December   December
    share amounts)                            31, 2006   31, 2005   31, 2004
    Petroleum and natural gas sales             54,070     19,803      1,151
    Cash flow from (used in) operations         28,292      8,283       (246)
      $ per share, basic                          0.56       0.21      (0.01)
    Net income (loss)                            1,216      9,000     (1,244)
      $ per share, basic and diluted              0.02       0.23      (0.06)
    Exploration and development additions
     (excluding acquisitions)                   81,418     61,744      8,941
    Corporate acquisitions                           -     49,514          -
    Net working capital                        (39,580)   (10,403)     8,367
    Total assets                               190,498    136,524     29,665
    Shareholders' equity                       140,264    114,702     23,012
    Number of shares outstanding (000's)
      Weighted average - diluted                50,568     39,835     21,401
      Outstanding at end of period              52,975     47,988     22,356
    OPERATING (average daily sales)
      Oil (bbls/d)                               2,177        835        134
      Natural gas (mcf/d)                        4,414      1,015         60
    Total (boe/d) (gas at 6 mcf: 1 boe)          2,913      1,004        144
    NETBACK ($/boe)
    Average selling price                        50.87      54.02      43.39
    Royalties, net of ARTC                      (12.32)    (13.61)    (10.88)
    Production and transportation                (7.10)     (8.17)     (9.76)
    Operating netback                            31.45      32.24      22.75
    DRILLING (net wells)
      Oil                                         44.0       27.8        2.4
      Natural gas                                  5.3        5.0          -
      Dry                                          2.4        2.3          -
    Total wells                                   51.7       35.1        2.4

    Fourth Quarter 2006 Highlights

    Sales volumes averaged 3,494 barrels of oil equivalent per day during the
fourth quarter of 2006, 21% over the third quarter of 2006 and 124% over the
fourth quarter of 2005.

    -  Cash flow from operations increased to $7,719 or $0.15 per share
    -  Exploration and development additions of $18,271.


    The 2006 Dixonville program focused on further development of the Montney
"C" pool and the initiation of a waterflood pilot in the fourth quarter of
2006. Capitol has observed positive response on its waterflood pilot and
expects to expand the waterflood area in 2007 upon approval from the EUB.
    During 2006, Capitol drilled 44 (44 net) horizontal oil wells with a 100%
success rate.
    Capitol received approval from the EUB in the fourth quarter to drill up
to 32 wells per section with no inter well minimum distance restrictions to
allow for the optimal development of the Dixonville pool. This equates to an
average inter well spacing of approximately 100 meters. Capitol estimates that
it has a drilling inventory at Dixonville of at least two years and expects to
drill 35 to 45 development wells during 2007.


    During the fourth quarter, Capitol drilled and tied in five gas wells
(3.8 net) at Helen. Capitol continues to optimize production infrastructure to
handle the gas volumes associated with the successful drilling program.
    Capitol plans to drill 3 to 5 exploratory wells during 2007.


    On November 15, 2006, Capitol adopted a shareholders' rights plan to
ensure that all shareholders of the Company are treated equally and equitably
in connection with any take-over bid for the Company. The plan was not adopted
in response to, or in anticipation of, any known take-over bid.
    During the fourth quarter, Capitol hedged approximately 35% of forecasted
gross production for calendar 2007 on a costless collar basis to protect the
near term capital expenditure budget and cash flow. At December 31, 2006,
1,300 bbls of oil per day were hedged at an average $US WTI floor and ceiling
price of $60.77 and $71.95 respectively and 2,000 gigajoules of gas per day
were hedged at a $C floor price of $6.50 and an average ceiling price of
$9.44. Capitol has not hedged any production beyond 2007.


    Production is forecasted to be approximately 4,400 to 4,700 boe per day
on or around spring break up. Capitol expects to spend $55,000 to $65,000 on
its capital programs during 2007 with approximately 85% directed to Dixonville
development and 15% on other low risk exploration prospects.
    Capitol's management is confident given positive production performance,
waterflood response and ongoing geologic and engineering work in the
Dixonville Montney "C" pool, that it has removed the technical risk from the
continued development of the Dixonville oil pool. Capitol's Management and
Board believe that continued drilling and time will result in possible
reserves moving to the proved and probable categories, with ultimate
recoveries, with waterflood, converging on 20% to 30% of the OOIP.
    On March 5, 2007, Capitol received a tertiary recovery screening study by
an accredited third party expert which identified an incremental 25 to
30 million barrels of recoverable oil over and above the amounts identified
through waterflood.
    Shareholders are invited to attend Capitol's 2006 Annual and Special
Meeting of Shareholders scheduled for 3:00 PM, Thursday May 10, 2007 at the
Metropolitan Conference Center, Grand Lecture Theatre, located at 333-4th
Avenue S.W. Calgary, Alberta.
    On behalf of the Directors and staff of Capitol Energy Resources Ltd.



    President and Chief Executive Officer

    March 8, 2007

                     ABOUT CAPITOL ENERGY RE

SOURCES LTD. Capitol Energy Resources Ltd. is a junior oil and gas, exploration and production company. Capitol's primary asset is a conventional Montney oil pool, at Dixonville Alberta, with 263 million barrels of original oil in place as at December 2006. Development of the pool will include drilling on reduced spacing with all necessary regulatory approvals already in place, and conversion of producing wells to water injection to maintain reservoir pressure all of which will result in optimal oil recoveries. Capitol has approximately 125 additional well locations identified in the pool and 25 additional exploration locations that will provide the Company with visible production growth. Capitol's engineering studies and production histories of similar oil pools indicate primary and secondary oil recovery rates of 20% to 30% of original oil in place are achievable. Capitol currently has approximately 53 million shares outstanding (57 million including outstanding dilutives). In addition to the substantial reserves base, Capitol has 48,092 net acres of undeveloped land and 250 km of proprietary 2D seismic and 64 square kilometers of proprietary 3D seismic. Management and directors represent approximately 11% of the basic shares outstanding. Additional information about Capitol including, Capitol's December 31, 2006 financial statements and Management's Discussion and Analysis may be viewed on SEDAR ( or the Company's website ( The TSX has neither approved nor disapproved the contents of this press release. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS and NON-GAAP SUPPLEMENTAL MEASURES Certain statements regarding Capitol Energy Resources Ltd. including management's assessment of future plans and operations, may constitute forward-looking statements under applicable securities laws and necessarily involve known and unknown risks and uncertainties, most of which are beyond Capitol's control. These risks may cause actual financial and operating results, performance, levels of activity and achievements to differ materially from those expressed in, or implied by, such forward-looking statements. Such risks and uncertainties include, but are not limited to: the impact of general economic conditions in Canada and the United States; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; the lack of availability of qualified personnel; fluctuations in commodity prices; the results of exploration and development drilling and related activities; imprecision in reserve estimates; the production and growth potential of Capitol's assets; fluctuations in foreign exchange or interest rates; the ability to access sufficient capital from internal and external sources; and obtaining required approvals of regulatory authorities. Many of these risk factors are discussed in further detail in our Annual Information Form on file with Canadian securities commissions and Capitol's website. Readers are also referred to the risk factors described in other documents that Capitol files from time to time with securities regulatory authorities. Accordingly, Capitol gives no assurance nor makes any representations or warranty that the expectations conveyed by the forward-looking statements will prove to be correct and actual results may differ materially from those anticipated in the forward looking statements. Capitol undertakes no obligation to publicly update or revise any forward-looking statements. Capitol may use the terms "cash flow from operations", "cash flow", "cash flow per share", and "netbacks" which are not recognized measures under Canadian generally accepted accounting principles (GAAP). Management believes that in addition to net earnings, cash flow and netbacks are a useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities. Investors are cautioned, however, that these measures should not be construed as an alternative to net earnings determined in accordance with GAAP, as an indication of Capitol's performance. Capitol's method of calculating cash flow may differ from other companies, and accordingly it may not be comparable to measures used by other companies. Capitol calculates cash flow from operations before the changes in non-cash working capital, unrealized amounts on financial derivative contracts, expenditures on asset retirement costs and office lease inducements related to operating activities. In addition, the terms "cash flow" and "funds from" may be used interchangeably. In conformity with National Instrument 51-101, Standards for Disclosure of Oil and Gas Activities ("NI 51-101), natural gas volumes have been converted to barrels of oil equivalent ("boe") using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. This ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that the term "boe" may be misleading, particularly if used in isolation.

For further information:

For further information: Monty Bowers, President & CEO, Capitol Energy
Resources Ltd., Phone: (403) 508-6321, Fax: (403) 508-6309; Doug Dearing, Vice
President, Finance & CFO, Capitol Energy Resources Ltd., Phone: (403)
508-6320, Fax: (403) 508-6309

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