CALGARY, ALBERTA--(Marketwire - March 21, 2012) - Arsenal Energy Inc. (News - Market indicators) (PINKSHEETS:AEYIF)

Arsenal is pleased to release its Q4 and full year 2011 financial and operating results. Q4 2011 results are highlighted by a 67% increase in cash flow compared to Q4 2010. The cash flow increase is due to a 36% increase in production combined with a 27% increase in unit operating netbacks.

Financial

Cash flow from operations in the fourth quarter of 2011 was $8.4 million ($0.05/share). This is an increase of 67% from the comparable period in 2010. The increase is due to higher production volumes, higher oil prices, and a more oily production mix, partially offset by lower natural gas prices and higher royalties. Annual cash flow of $29.3 million was 64% higher than 2010.

Arsenal's Q4 production mix was 76% liquids and 24% natural gas. Higher oil prices resulted in 25% higher overall boe price compared to Q4 2010. Operating costs were flat year over year as higher operating costs from acquired properties were offset by lower costs from growing Bakken production. Royalty rates were higher compared to 2010 due to higher North Dakota Bakken production. Operating netbacks in Q4 2011 were $36.80/boe, a 27% improvement over Q4 2010. Going forward, over the medium term, operating margins should continue to improve as additional high margin Bakken production is brought on.

Capital expenditures for Q4 2011 included the acquisition of 1500 boe/d of production in mid November for $38.6 million and $40.5 million spent on exploration and development. Total debt at yearend was $55.8 million.

Operations

Q4 2011 production was 2,899 boe/d. This is a 36% improvement over the same period in 2010. Arsenal has a three pronged growth strategy consisting of reserve growth through the acquisition and development of waterflood properties in eastern Alberta, production growth through low risk development of Arsenal's reserve base in the Bakken at Stanley and Lindahl in North Dakota, and exploration for new horizontal multistage frack plays with potential for high impact future growth.

Arsenal closed the acquisition of a 1500 boe/d property for $38.6 million during the fourth quarter of 2011. The purchase included a 550 boe/d oil property at Provost, a 300 boe/d oil property at Princess, and a 650 boe/d gas property at Desan. Arsenal believes that the reserves at Provost and Princess can be materially increased through the expansion and optimization of an existing waterflood and through implementation of new waterfloods. At Provost, Arsenal is replacing failed injection lines, restarting injectors, restarting shut in wells and considering installing additional waterflood patterns. At Princess, Arsenal has begun the regulatory and planning process to institute a new waterflood on the Basal Mannville. Water injection is scheduled to begin in the late summer with response estimated to begin six months later.

At Stanley in North Dakota, in the fourth quarter Arsenal drilled and completed the Gjoa Lynn well (59%WI). The Brenlee well (80%WI) and Amy Elizabeth wells (62%WI) were placed on pump. Current gross production for these wells is 337 boe/d for the Gjoa Lynn, 246 boe/d for the Brenlee and 203 boe/d for the Amy Elizabeth. In the first quarter Arsenal has drilled the Anthony Robert well (80% WI) and should spud the Wade Morris well (80% WI) before the end of March. In addition, operations to frack the non-operated Moen well (20%WI) are scheduled to begin shortly and the non-operated Amundson well (20%WI) is scheduled to spud in April. Gross production from new wells typically average 600 boe/d in their first month, 265 boe/d in their first year, and should produce 550,000 boe of reserves over their life.

Arsenal has exploration projects in the Glauconite at Princess, in the Cardium and Wilrich at Columbia, and in the Viking at Provost. Two horizontal multistage frack Glauconite wells at Princess are permitted and ready to drill on an 8,500 acre land block. The wells are currently scheduled for Q3 2012. At Columbia in the deep basin, Arsenal has a 15,000 acre land block prospective for the Cardium, Wilrich and Gething. An industry participant has recently tested offsetting Cardium with two horizontals. Each has tested at 4 mmcf/d of gas with 50 bbls/mmcf of associated liquids. Over time these wells will establish the long term potential of the Cardium. In addition, another company has licensed an offset well that may test the Wilrich and Gething formations. Arsenal has acquired land on two Viking horizontal plays. Plans are to evaluate these in 2013.

Outlook

With the inclusion of a full quarter of production from the November property acquisition and from the Gjoa Lynn well that commenced production in early December 2011, production in Q1 should show a substantial increase from Q4. Volumes should increase further in Q2 from the frack of the Moen well and the drilling and completion of the Anthony Robert, Wade Morris, and Amundson wells. These anticipated increases will be partially offset by non-core property dispositions expected to be 150 boe/d and shut in of cash flow negative gas production of approximately 100 boe/d. Factoring in the timing of these events, production towards the end of Q2 2012 is anticipated to be approximately 4200 boe/d.

Physical prices for Arsenal's blend of light and medium crudes are currently $30/bbl below West Texas Intermediate which is in turn trading at an $18/bbl discount to Brent prices. So although headline oil prices are very high, realized prices for Arsenal's blend are well below budgeted expectations. The effect on Arsenal's cash flow is further exacerbated by losses from hedges referenced against WTI prices. This price discounting commenced in March 2012. Arsenal's 2012 Q1 results, therefore, should be relatively unaffected.

Arsenal plans to balance cash flow with Capex through the remainder of 2012. This means that Capex projects such as the Glauconite horizontals as well as Bakken wells scheduled for Q3 drilling may be delayed pending resolution of the oil price discounting affecting Arsenal's blend of oil.

Arsenal has filed its Annual Information Form which contains Arsenal's reverses data and other oil and gas information for the year ended December 31, 2011 as mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities of the Canadian Securities Administrators. A copy of Arsenal's Annual Information Form can be obtained on the System for Electronic Document Analysis and Retrieval website at www.sedar.com or by contacting Arsenal.

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Advisory

(1) "Cash flow", "cash flow from operations", "cash flow from operations per share", used interchangeably with "funds from operations", "funds from operations per share" and "netbacks" and "netbacks per boe" are not defined by International Financial Reporting Standards ("IFRS") and are regarded as non-GAAP measures. Funds from operations and funds from operations per share are calculated as cash provided by operating activities before changes in non-cash working capital, decommissioning obligations settled and seismic expenses. Funds from operations is used to analyze the Company's operating performance, the ability of the business to generate the cash flow necessary to fund future growth through capital investment and to repay debt. Funds from operations does not have a standardized measure prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other companies. The Company also presents funds from operations per share whereby per share amounts are calculated using the weighted average number of common shares outstanding consistent with the calculation of net income of loss per share.

(2) The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand feet of gas to one barrel of oil.

Certain statements and information contained in this press release, including but not limited to management's assessment of Arsenal's future plans and operations, production, reserves, revenue, commodity prices, operating and administrative expenditures, funds from operations, capital expenditure programs and debt levels contain forward-looking statements. All statements other than statements of historical fact may be forward looking statements. These statements, by their nature, are subject to numerous risks and uncertainties, some of which are beyond Arsenal's control including the effect of general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling and processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel that may cause actual results or events to differ materially from those anticipated in the forward looking statements. Such forward-looking statements although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated in the statements made and should not unduly be relied on. These statements speak only as of the date of this press release. Arsenal does not intend and does not assume any obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Arsenal's business is subject to various risks that are discussed in its filings on the System for Electronic Document Analysis and Retrieval (SEDAR).