Galleon announces Q2 2009 financial and operational results

    CALGARY, Aug. 13 /CNW/ - Galleon Energy Inc. (TSX: GO) ("Galleon" or the
"Corporation") announces second quarter 2009 financial and operational
results. Additional information including unaudited consolidated financial
statements, notes and management's discussion and analysis may be viewed at or


    -   Drilled and cased for production 7 (6.8 net) wells in Q2 2009: 3
        (3 net) Eastern Montney gas wells, 2 (1.8 net) Central Montney gas
        wells, 1 (1.0 net) light oil resource well and 1 (1.0 net) multi zone
        shallow gas well;
    -   Revenues (including realized net gains of $3.8 million from financial
        derivatives) of $54.1 million and funds from operations of $29.6
        million ($0.39/share) were generated from average production of
        16,076 BOE/d (64% gas) in Q2 2009;
    -   Operating expenses averaged $9.43/BOE in Q2 2009, a decrease of 26%
        from Q2 2008 and a 12% decrease from Q1 2009. Operating expenses from
        Galleon's four major properties, comprising 68% of total production,
        have averaged $5.85/BOE in 2009;
    -   In Q2 2009, an operating netback of $24.11/BOE (including $2.58/BOE
        of realized net gains from financial derivatives) was recorded. This
        netback continues to be strong as crude oil and NGL production
        comprises 36% of total production;
    -   A loss of $22.0 million was recorded in Q2 2009 which includes an
        unrealized loss of $25.0 million relating to crude oil financial
        derivatives marked to market at June 30, 2009;
    -   In Q2 2009, exploration and development capital expenditures of $19.6
        million (including $7.8 million in plant and facility expenditures)
        were incurred and the disposition of $4.6 million of minor properties
        was completed;
    -   On June 23, 2009, an equity financing closed for gross proceeds of
        $36 million through the issuance of 7,500,000 Class A shares;
    -   At June 30, 2009, net debt was $233.2 million comprised of $235.8
        million in bank debt and positive working capital of $2.6 million.
        Credit facilities of $310 million are available to the Corporation.

    Eastern Montney
    In the second quarter of 2009, Galleon successfully drilled three (100%
interest) Eastern Montney horizontal multi-fractured wells. Results have met
Galleon's expectations. All three wells were drilled from the same surface pad
thereby reducing tie in costs. Galleon has slowed the pace of the drilling
program in this area because of low gas prices, but this program will be
accelerated when gas prices increase. Galleon plans to continue utilizing pad
drilling as the pool continues to be developed. Galleon has identified 350
horizontal drilling locations on over 200 sections of owned land within the
delineated Eastern Montney fairway.
    In Q2 2009, Galleon completed an optimization study of the Eastern
Montney gas gathering system. A new booster compressor is planned to be
installed to lower line pressure and recover some of the gas backed out by the
high pressure horizontal wells. This project is scheduled for completion at
the beginning of Q4 2009 subject to regulatory approvals. Galleon continues to
view this play as being one of the most economic gas projects in the Western
Canadian basin.
    The first horizontal well 02/03-21 (100% interest) (drilled in Q1 2008
and on stream during Q2 2008) has produced approximately 0.6 Bcf in the last
13 months. Current production is approximately 0.8 MMcf/d excluding oil and
NGLs. On average per well, the Eastern Montney natural gas wells have produced
approximately 15 Bbls of oil and NGLs per 1 Mmcf.

    Central Montney
    Production in the Central Montney project No. 1 increased to a record
level of 2,339 BOE/d net in the second quarter of 2009. This production level
was achieved from wells on production at the end of Q1 2009. Currently a plant
expansion is in progress in this project and is scheduled for completion at
the end of the third quarter 2009.
    In Q2 2009, one light oil well was drilled with encouraging results in
the Central Montney project No. 1. Two successful natural gas wells were
drilled in the Central Montney project No. 2 in Q2 2009.

    Light oil

    In 2009, Galleon has identified two new light oil projects:

        1. The initial horizontal light oil well (100% interest) in the
           Nordegg project is currently producing over 100 BOE/d net of oil
           and associated gas. To date, this key well has produced over
           94,500 barrels of oil and 0.45 Bcf of natural gas. Prior to the
           end of 2009, Galleon plans to delineate the size of the pool by
           drilling up to 4 wells.
        2. The new Doig light oil resource project has been tested with two
           successful wells drilled to date. The first horizontal well has
           been producing for approximately 8 months. This well has produced
           over 10,000 barrels of oil and is currently producing
           approximately 60 BOE/d net. The second horizontal well is located
           approximately 3.2 km from the first well. It has been recently
           completed and is producing at a similar rate to the first well. Up
           to 3 wells are planned prior to the end of 2009 to further
           delineate the size of the pool. Galleon currently has access to
           over 10 sections of land in this project.

    2009 GUIDANCE
    Galleon plans to direct a large portion of the capital expenditure
program in Q3 2009 towards optimizing infrastructure and increasing facility
capacity. The plant expansion in Central Montney project No. 1 has received
necessary regulatory approvals with completion expected at the end of the
third quarter of 2009. Drilling projects are anticipated to receive the
largest portion of the Q4 2009 and Q1 2010 capital budget in order to take
advantage of the benefits from the recently announced Alberta royalty
incentive programs and to fill the expanded facility capacity. This approach
is both financially prudent and positions Galleon to quickly ramp up
production as commodity prices recover.
    At the end of the third quarter 2009, the Central Montney No. 1 natural
gas plant is expected to be temporarily shut in for up to 3 weeks due to the
plant capacity expansion from 14 MMcf/d to 28 MMcf/d. Once fully operational
in early October 2009, it is expected that an additional net 1,200 BOE/d
production will be processed through the expanded plant.
    In third quarter 2009, the Eastern Montney gas gathering system will be
optimized to lower line pressures and recover some of the gas backed out by
the high pressure horizontal wells. Incremental production is expected.
However, during this process, production will be temporarily reduced for a
period of approximately 1-2 weeks.
    Based on current commodity prices, Galleon plans to drill up to 22 wells
in the second half of 2009 of which 60% will target light oil. One vertical
well and up to 6 horizontal wells are planned in the Eastern Montney project
to capture new reserves and to further advance the developed area of the
project. Up to 3 wells are planned in the Central Montney No. 2 project to
further advance the developed area of the project. Up to 4 horizontal Nordegg
oil wells are planned to increase production and to prove up reserves in this
new project. Up to 3 wells are planned in the Doig light oil resource project.
One exploration well is planned in B.C. targeting light oil. The remaining 4
wells will be development locations on existing Galleon projects.
    Production in 2009 is expected to average approximately 17,000 BOE/d.

    Forward-Looking Statements and Advisories

    Statements herein that are not historical facts may be considered forward
looking statements including management's assessment of future plans and
operations, timing of facilities expansion and the effects thereof, expected
production rates, drilling plans and the timing thereof, capital expenditures,
the timing thereof and the method of funding thereof. These forward-looking
statements sometimes include words to the effect that management believes or
expects a stated condition or result. All estimates and statements that
describe the Corporation's objectives, goals or future plans are
forward-looking statements. Since forward-looking statements address future
events and conditions, by their very nature they involve inherent risks and
uncertainties including, without limitation, risks associated with oil and gas
exploration, development, exploitation, production, marketing and
transportation, loss of markets, volatility of commodity prices, currency
fluctuations, imprecision of reserve estimates, environmental risks,
competition from other producers, inability to retain drilling rigs and other
services, incorrect assessment of the value of acquisitions, failure to
realize the anticipated benefits of acquisitions, delays resulting from or
inability to obtain required regulatory approvals and ability to access
sufficient capital from internal and external sources. As a consequence,
Galleon's actual results may differ materially from those expressed in, or
implied by, the forward-looking statements.
    Forward-looking statements or information are based on a number of
factors and assumptions which have been used to develop such statements and
information but which may prove to be incorrect. Although Galleon believes
that the expectations reflected in such forward-looking statements or
information are reasonable, undue reliance should not be placed on
forward-looking statements because Galleon can give no assurance that such
expectations will prove to be correct. In addition to other factors and
assumptions which may be identified in this document, assumptions have been
made regarding, among other things: the impact of increasing competition; the
general stability of the economic and political environment in which Galleon
operates; the timely receipt of any required regulatory approvals; the ability
of Galleon to obtain qualified staff, equipment and services in a timely and
cost efficient manner; drilling results; the ability of the operator of the
projects which Galleon has an interest in to operate the field in a safe,
efficient and effective manner; the ability of Galleon to obtain financing on
acceptable terms; field production rates and decline rates; the ability to
replace and expand oil and natural gas reserves through acquisition,
development or exploration; the timing and costs of pipeline, storage and
facility construction and expansion; the ability of Galleon to secure adequate
product transportation; future oil and natural gas prices; currency, exchange
and interest rates; the regulatory framework regarding royalties, taxes and
environmental matters in the jurisdictions in which Galleon operates; and the
ability of Galleon to successfully market its oil and natural gas products.
    Readers are cautioned that the foregoing list of factors and assumptions
is not exhaustive. Additional information on these and other factors that
could effect Galleon's operations and financial results are included in
reports on file with Canadian securities regulatory authorities and may be
accessed through the SEDAR website (, or at Galleon's website
( Furthermore, the forward-looking statements contained
in this news release are made as at the date of this news release and Galleon
does not undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required by applicable securities

    BOEs and Netbacks

    Disclosure provided herein in respect of barrels of oil equivalent (boe)
may be misleading, particularly if used in isolation. A boe conversion ratio
of 6 Mcf: 1 Bbl is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
    Operating netbacks/BOE excludes Gas Cost Allowance and are calculated by
subtracting royalties and operating costs from revenues.

    Non-GAAP Measurements

    This news release contains terms commonly used in the oil and gas
industry, such as funds from operations, funds from operations per share, and
operating netback. These terms are not defined by GAAP and should not be
considered an alternative to, or more meaningful than, cash provided by
operating activities or net earnings as determined in accordance with Canadian
GAAP as an indicator of Galleon's performance. Management believes that in
addition to net earnings, funds from operations is a useful financial
measurement which assists in demonstrating the Corporation's ability to fund
capital expenditures necessary for future growth or to repay debt. Galleon's
determination of funds from operations may not be comparable to that reported
by other companies. All references to funds from operations throughout this
report are based on cash flow from operating activities before changes in
non-cash working capital and abandonment expenditures. The Corporation
calculates funds from operations per share by dividing funds from operations
by the weighted average number of Class A shares outstanding.
    Galleon uses the term net debt in this news release. This measure does
not have any standardized meaning prescribed by Canadian GAAP and therefore
may not be comparable to similar measures presented by other companies.

    %SEDAR: 00019659E

For further information:

For further information: OR CONTACT (403)
261-6012; Steve Sugianto, President and Chief Executive Officer; Glenn R.
Carley, Executive Chairman; Shivon Crabtree, Vice President and Chief
Financial Officer

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