Galleon's successful drilling drives significant production growth



    CALGARY, Aug. 14 /CNW/ - Galleon Energy Inc. ("Galleon" or the
"Corporation"). The positive financial and operating results for Q2 2007 are a
direct outcome of the significant drilling success achieved by Galleon.
    Drilling activity since June 30, 2007 continues to build momentum with
the addition of new discoveries. The drilling program has delivered a new deep
liquids rich natural gas discovery at Eaglesham, a new Dawson Montney gas
discovery located 10 miles from the existing main gas pools, and the initial
completion of one wildcat light sweet oil well at Puskwa south of the main
pool. In addition, two new deep light oil discoveries in new exploration areas
in the Peace River arch have been drilled in third quarter 2007.

    
    Some of the key accomplishments in second quarter 2007 include:

    -   Production averaged 13,372 Boe/d, an increase of 56% from Q2 2006 and
        an increase of 12% from Q1 2007. Compared to Q2 2006, Q2 2007
        production volumes increased as follows: light oil 89%, heavy oil
        32%, natural gas 51%, and natural gas liquids 156%. This strong
        production growth is expected to continue in 2007 at a rate of
        between 5 to 15% per quarter.

    -   Funds from operations were $32.8 million ($0.55 per basic share), a
        49% increase from Q2 2006 and a 9% increase from Q1 2007. This
        increase is mainly as a result of production increases and lower
        operating costs.

    -   Quarterly earnings were $3.3 million with 2007 earnings of
        $7.2 million.

    -   Operating costs were $8.63/Boe, a decrease of 13% from Q2 2006 and a
        3% decrease from Q1 2007. Capital investment in facilities and
        infrastructure in 2006 has contributed to this improved cost
        structure.

    -   9 gross wells were drilled of which seven (6.6 net) were cased for
        production including one light oil well (0.6 net), one heavy oil well
        (1.0 net) and 5 natural gas wells (5.0 net); resulting in a success
        rate of 78%.

    -   Spent $23.9 million on exploration and development activities and
        raised $30 million in equity financing to fund the exploration
        program reducing bank debt to $177.9 million at June 30, 2007.
    

    Strong production and cash flow growth in core areas
    ----------------------------------------------------

    The Puskwa light sweet oil, the Dawson Montney gas and the Eaglesham oil
and gas projects are delivering strong sustainable growth in production, cash
flow and earnings.
    At Puskwa, production averaged 2,128 BOE/d (16% of corporate production)
during Q2 2007. This represents an increase of 326% from average production in
Q2 2006. In Q2 2007, Puskwa generated 27% of corporate funds from operations
with an operating netback of $49.78/BOE. This demonstrates the premium pricing
and cost efficiencies of this project. The production rate for the second
quarter reflects the rate restrictions imposed by the EUB on all but two
producing wells and is not indicative of the production capacity in the area.
    The drilling success and the implementation of enhanced oil
recovery/waterflood projects will continue to drive the light oil production
growth from Puskwa in the second half of 2007.
    In the Montney gas project at Dawson, production averaged 3,826 BOE/d or
23 Mmcf/d (29% of corporate production) during Q2 2007. Year over year, this
is an increase of 180%. This project made up 31% of funds from operations and
had an operating netback or $32.74/BOE or $5.46/Mcf. Despite short term
softness in natural gas prices, this project is delivering strong production
and cash flow growth.
    The combination of low operating costs and high well productivity and
reserves continue to make this a profitable project for the company at natural
gas prices of above $2.60 to $2.80/Mcf.
    At Eaglesham, average production in Q2 2007 was 1,713 BOE/d (13% of
corporate production). This compares to 150 BOE/d in Q2 2006. The operating
netback for second quarter 2007 was $29.83/BOE or $4.97/Mcf. Eaglesham
generated 13% of corporate funds from operations.

    Puskwa operations update
    ------------------------

    To the south of the main Puskwa pool, one wildcat well (100% interest)
which tested a new structure was cased on July 30, 2007. This well produced
clean oil and the productivity will be assessed once completion and testing
operations have ended.
    In the main Puskwa light oil pool, a further development well (100%
interest) has been drilled. Although completion operations have just begun,
initial results indicate that this well is capable of producing oil volumes at
rates similar to those of previously drilled wells in the pool. This well will
initially be restricted to a EUB-imposed production volume limitation. The
continued drilling success in the main Puskwa pool confirms the significant
reserve accumulation of light oil from the Beaverhill Lake formation.
    Two rigs are currently drilling development locations in the main Puskwa
pool. Up to 4 additional wells are planned in the remainder of 2007. Galleon
has access to 45 sections (100% interest except for 1 section) on the Puskwa
Beaverhill Lake fairway.

    Dawson Montney gas operations update
    ------------------------------------

    Subsequent to second quarter 2007, Galleon has successfully expanded the
main fairway of the Montney gas play by drilling one well which is located 10
miles from the existing main producing area. This well tested in excess of
1.5 Mmcf/d (250 BOE/d). Galleon has access to over 537 sections of land in
this play with an average working interest of approximately 90% and has
identified over 300 drilling locations. Galleon has a 30 well program planned
for the second half of 2007.

    Eaglesham operations update
    ---------------------------

    Galleon has completed testing operations on a deep gas well (65%
interest) at Eaglesham. The well encountered over 100 feet of gas pay with
natural gas liquids. Test rates were 4.5 Mmcf/d plus natural gas liquids of
90 Bbls/d, for a total of over 800 BOE/d of gross production. This well is
expected to be placed on-stream within the next two weeks at an initial rate
in excess of 2 Mmcf/d gross.
    At Eaglesham, Galleon has completed another significant Cretaceous gas
well (60% interest).  The calculated absolute open flow potential of this well
is approximately 26 Mmcf/d (4,333 BOE/d).  This well is expected to be placed
on production at a rate of 2 Mmcf/d gross during the third quarter of 2007.
    Galleon has expanded its exploration program at Eaglesham this summer by
successfully acquiring over 32 square miles of 3D seismic. The data is in the
process of being interpreted. Galleon has access to over 70 sections (average
working interest of 72%) of land in the Eaglesham area.

    New exploration areas update
    ----------------------------

    At Mcleans Creek, Alberta, one well tested at 500 BOE/d (50% interest) of
light sweet oil. At Kimiwan, Alberta one well tested 200 BOE/d (55% interest)
of light sweet oil. Three to four follow up locations have been identified.
    Subsequent to June 30, 2007, Galleon completed an acquisition of oil and
gas properties in the Eaglesham/Kakut area of Alberta for $15.1 million. This
strategic consolidation acquisition further strengthens Galleon's land
position and control of infrastructure in the area. Galleon continues to
pursue other acquisitions which have an attractive intrinsic value and which
are accretive on a cash flow and reserve basis.


    
    Results of Operations

    Three months ended June 30          2007                  2006
    -------------------------------------------------------------------------
                                   1,216,855 BOE           778,992 BOE

    ($000s)                                   $/BOE                   $/BOE
    -------------------------------------------------------------------------
    Revenues                      60,735       49.91      36,517       46.88
    Royalties                    (13,609)     (11.18)     (6,980)      (8.96)
    ARTC and gas cost allowance    2,603        2.14       3,595        4.62
    Transportation costs          (1,408)      (1.16)       (950)      (1.22)
    Operating costs              (10,507)      (8.63)     (7,716)      (9.91)
    -------------------------------------------------------------------------
    Net                           37,814       31.08      24,466       31.41
    G&A                           (1,797)      (1.48)     (1,068)      (1.37)
    Interest costs                (2,682)      (2.20)     (1,098)      (1.41)
    Capital and other taxes         (502)      (0.41)       (231)      (0.30)
    Realized gain on
     financial derivative              -           -           -           -
    -------------------------------------------------------------------------
    Funds from operations         32,833       26.99      22,069       28.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Six months ended June 30            2007                  2006
    -------------------------------------------------------------------------
                                   2,286,770 BOE         1,553,570 BOE

    ($000s)                                   $/BOE                   $/BOE
    -------------------------------------------------------------------------
    Revenues                     113,709       49.72      72,747       46.83
    Royalties                    (24,625)     (10.77)    (15,841)     (10.20)
    ARTC and gas cost allowance    5,237        2.29       4,570        2.94
    Transportation costs          (2,995)      (1.31)     (2,056)      (1.32)
    Operating costs              (19,985)      (8.74)    (14,781)      (9.51)
    -------------------------------------------------------------------------
    Net                           71,341       31.19      44,639       28.74
    Other Revenue                      -           -           -           -
    G&A                           (3,061)      (1.34)     (2,228)      (1.43)
    Interest costs                (4,928)      (2.15)     (1,838)      (1.18)
    Capital and other taxes         (722)      (0.32)       (457)      (0.29)
    Realized gain on financial
     derivative                      373        0.16           -           -
    -------------------------------------------------------------------------
    Funds from operations         63,003       27.54      40,116       25.84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Quarterly
     Highlights          2007                          2006
    --------------------------------- ---------------------------------------
                     Q2        Q1        Q4        Q3        Q2        Q1
    Production
    Light oil
     (Bbl/d)         3,317     3,127     2,419     1,823     1,753     1,859
    Heavy oil
     (Bbl/d)         2,247     2,081     2,100     1,984     1,705     1,580
    Natural Gas
     (Mcf/d)        45,314    38,845    36,733    33,068    30,014    30,445
    Liquids
     (Bbl/d)           256       206       230       102       100        93
    BOE/d           13,372    11,888    10,869     9,420     8,560     8,606
    -------------------------------------------------------------------------
    Total BOE
     produced    1,216,855 1,069,915   999,982   866,646   778,992   774,578
    -------------------------------------------------------------------------
    Daily BOE of
     production
     per million
     Class A
     shares -
     basic(1)          226       206       191       172       165       173

    Prices (net of
     transportation)
    Light oil
     ($/Bbl)         70.12     63.24     61.12     75.65     75.63     65.66
    Heavy oil
     ($/Bbl)         35.89     36.55     31.16     47.01     42.69     24.71
    Crude oil
     ($/Bbl)         56.30     52.57     47.19     53.35     59.39     46.78
    Natural Gas
     ($/Mcf)          7.14      7.36      6.84      5.58      5.97      7.36
    NGLs ($/Bbl)     59.67     56.64     56.02     69.83     65.71     57.62

    Per BOE ($)
    Revenues         49.91     49.51     45.26     46.06     46.88     46.77
    Royalties, net
     of ARTC & GCA   (9.04)    (7.84)    (6.02)    (7.20)    (4.34)   (10.18)
    Transportation
     costs           (1.16)    (1.47)    (1.37)    (1.25)    (1.22)    (1.43)
    Operating
     costs           (8.63)    (8.86)    (9.65)   (10.66)    (9.91)    (9.12)
    -------------------------------------------------------------------------
    Net              31.08     31.34     28.22     26.95     31.41     26.04
    -------------------------------------------------------------------------
    Other revenue        -         -         -         -         -         -
    G&A              (1.48)    (1.18)    (2.67)    (0.80)    (1.37)    (1.50)
    Interest         (2.20)    (2.10)    (1.49)    (1.39)    (1.41)    (0.95)
    Capital and
     other taxes     (0.41)    (0.21)    (0.21)    (0.33)    (0.30)    (0.29)
    Realized gain
     on financial
     derivative          -      0.35         -         -         -         -
    -------------------------------------------------------------------------
    Funds from
     operations      26.99     28.20     23.85     24.43     28.33     23.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1)Restated to reflect a three-for-two Class A share split in June 2006.



    Capital Expenditures

    Three months ended June 30   2007                    2006
    -------------------------------------------------------------------------
    ($000s)                                      %                       %

    Land                           1,812           8       5,501           9
    Geological and geophysical     3,200          13       4,748           8
    Drilling and completion       15,240          64      26,465          45
    Plant and facilities           3,547          15      22,166          38
    Other assets                     141           -          48           -
    -------------------------------------------------------------------------
    Exploration and
     Development Expenditures     23,940         100      58,928         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended June 30     2007                    2006
    -------------------------------------------------------------------------
    ($000s)                                      %                       %

    Land                           5,445           6      12,229          10
    Geological and geophysical     6,130           7      17,070          14
    Drilling and completion       55,793          66      52,575          42
    Plant and facilities          17,595          21      42,300          34
    Other assets                     186           -         (85)          -
    -------------------------------------------------------------------------
    Exploration and
     Development Expenditures     85,149         100     124,089         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    GALLEON ENERGY INC.
    Consolidated Balance Sheets as at                  June 30,  December 31,
    ($000s) (unaudited)                                   2007          2006
    -------------------------------------------------------------------------
    ASSETS

    CURRENT
      Accounts receivable                               26,122        24,639
      Deposits and prepaid expenses                      2,552         1,839
      Fair value of financial derivative                   642           190
    -------------------------------------------------------------------------
                                                        29,316        26,668

    Goodwill                                            16,022        10,139
    Property and equipment                             653,774       577,758
    -------------------------------------------------------------------------
                                                       699,112       614,565
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    CURRENT
      Accounts payable and accrued liabilities          38,461        54,695
      Bank loan                                        168,091       122,996
    -------------------------------------------------------------------------
                                                       206,552       177,691

    Asset retirement obligation                         23,748        21,432
    Future income taxes                                 55,082        32,287
    -------------------------------------------------------------------------
                                                       285,382       231,410
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY

    Share capital                                      359,916       339,869
    Contributed surplus                                 14,955        11,619
    Retained earnings                                   38,859        31,667
    -------------------------------------------------------------------------
                                                       413,730       383,155
    -------------------------------------------------------------------------
                                                       699,112       614,565
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    GALLEON ENERGY INC
    Consolidated Statements of Earnings, Comprehensive Income and Retained
    Earnings

    ($000s, except per share amounts)
    (unaudited)
                                   Three months             Six months
                                   ended June 30           ended June 30
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------
    REVENUE
    Petroleum and natural gas
     revenue                      60,735      36,517     113,709      72,747
    Royalties, net of ARTC
     and GCA                     (11,006)     (3,385)    (19,388)    (11,271)
    -------------------------------------------------------------------------
                                  49,729      33,132      94,321      61,476

    EXPENSES
    Operating                     10,507       7,716      19,985      14,781
    Transportation                 1,408         950       2,995       2,056
    General and administration     1,797       1,068       3,061       2,228
    Interest                       2,682       1,098       4,928       1,838
    Stock-based compensation       2,193       2,718       4,054       4,011
    Accretion                        356         153         673         296
    Depletion and depreciation    24,979      13,404      47,001      26,164
    Realized gain on financial
     derivative                        -           -        (373)          -
    Unrealized loss (gain) on
     financial derivative             26           -        (453)          -
    -------------------------------------------------------------------------
                                  43,948      27,107      81,871      51,374

    Earnings before taxes          5,781       6,025      12,450      10,102
    Income taxes
    Capital and other taxes          502         231         722         457
    Future income taxes
     (recovery)                    2,008      (2,191)      4,536         (80)
    -------------------------------------------------------------------------
                                   2,510      (1,960)      5,258         377

    NET EARNINGS AND
     COMPREHENSIVE INCOME          3,271       7,985       7,192       9,725
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS,
     BEGINNING OF PERIOD          35,588      19,581      31,667      17,841
    -------------------------------------------------------------------------
    RETAINED EARNINGS,
     END OF PERIOD                38,859      27,566      38,859      27,566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET EARNINGS AND
     COMPREHENSIVE INCOME
     PER SHARE
    Basic                           0.06        0.15        0.12        0.19
    Diluted                         0.05        0.15        0.12        0.18
    Weighted average Class A
     shares - basic           59,204,393  52,003,462  58,506,523  50,838,999
            - diluted         61,175,217  54,838,259  60,427,881  53,471,081



    GALLEON ENERGY INC.
    Consolidated Statements of Cash Flows
    ($000s) (unaudited)


                                   Three months             Six months
                                   ended June 30           ended June 30
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------
    Cash provided by (used in):

    OPERATING ACTIVITIES
      Net earnings                 3,271       7,985       7,192       9,725
      Items not requiring cash:
        Future income taxes        2,008      (2,191)      4,536         (80)
        Depletion and
         depreciation             24,979      13,404      47,001      26,164
        Accretion                    356         153         673         296
        Stock-based compensation   2,193       2,718       4,054       4,011
        Unrealized loss (gain)
         on financial derivative      26           -        (453)          -
      Abandonment costs             (109)          -        (456)          -
      Change in non-cash
       working capital            (1,619)       (214)     (3,682)      5,838
    -------------------------------------------------------------------------
                                  31,105      21,855      58,865      45,954
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
      Issue of common shares      31,378         742      32,178      57,687
      Share issue costs           (1,632)          -      (1,636)     (3,459)
      Bank loan                  (21,323)     61,540      45,095      46,325
    -------------------------------------------------------------------------
                                   8,423      62,282      75,637     100,553
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
      (Additions to) disposal
       of equipment inventory       (272)          -         453           -
      Additions to oil and gas
       properties                (23,668)    (58,928)    (85,602)   (124,089)
      Acquisition of oil and
       gas properties             (5,900)    (25,854)    (34,606)    (25,856)
      Change in non-cash
       working capital            (9,688)        995     (14,747)      3,788
    -------------------------------------------------------------------------
                                 (39,528)    (83,787)   (134,502)   (146,157)
    -------------------------------------------------------------------------
    CHANGE IN CASH                     -         350           -         350
    CASH, BEGINNING AND END
     OF PERIOD                         -         350           -         350
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    SUPPLEMENTARY INFORMATION
      Cash interest paid           2,933       1,252       5,168       1,992
      Cash taxes paid                168         538         333         765
    -------------------------------------------------------------------------
    

    Galleon has approximately 59.8 million Class A shares and 922,500 Class B
shares issued and outstanding which trade on the TSX under the symbols "GO.A"
and "GO.B".

    ADVISORY: Certain information regarding Galleon Energy Inc. in this news
release including management's assessment of future plans and operations,
number, type and timing of wells to be drilled, the plan and development of
certain prospects, production estimates, expected production growth and
production additions and the timing thereof may constitute forward-looking
statements under applicable securities laws and necessarily involve risks
including, without limitation, risk that regulatory approval to allow
increased production at Puskwa will not be obtained or be delayed for an
extended period of time, 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, capital expenditure
costs, including drilling, completion and facilities costs, whether the
potential sale of non-core assets will be completed, unexpected decline rates
in wells, wells not performing as expected, 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, actual results may differ materially from those anticipated in
the forward-looking statements. Readers are cautioned that the foregoing list
of factors 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 (www.sedar.com), at Galleon's
website (www.galleonenergy.com). 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 laws.

    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
wellhead.




For further information:

For further information: www.galleonenergy.com OR CONTACT: Steve
Sugianto, President and Chief Executive Officer, (403) 261-9287,
steves@galleonenergy.com; Glenn R. Carley, Executive Chairman, (403) 261-9277,
glennc@galleonenergy.com; Shivon Crabtree, Vice President and Chief Financial
Officer, (403) 261-9276

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GALLEON ENERGY INC.

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