Exall Energy Corporation announces results for the three and nine months ended September 30, 2012

CALGARY, Nov. 14, 2012 /CNW Telbec/ - Exall Energy Corporation ("Exall " or the "Company") (TSX:EE EE.DB) is pleased to announce its International Financial Reporting Standards ("IFRS") compliant financial and operating results for the three and nine months ended September 30, 2012.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

• Current production estimate is 1,050 boepd,
• The second well of the Summer-Fall program was placed on production at a stable rate of 175 bopd (128 bopd net) through the Exall gathering and treating facilities,
• The third well of the program was drilled, completed as a slant-hole and production tested. The well produced 500 barrels of clean oil during the last 24 hours of the test. The well was placed on production at a stable rate of 260 bopd (185 bopd net) through the Exall gathering and treating facilities,
• The next two wells, the fourth and fifth of the 2012 Summer-Fall drilling program were drilled during October and are currently undergoing completion and testing procedures,
• Exall is continuing to test options for facilities alterations to remedy high producing well backpressure in the North Channel wells. Pipeline pressure on the North leg of the gathering system is high due to the 220 meter  elevation change along the route over Marten Mountain. The Company believes that the back-pressure is inhibiting maximum production from the wells in that area and will be taking appropriate measures to remedy the problem,
• Disposal of produced water into the Water Disposal Well drilled and completed by Exall during Q1 is now pipelined from the battery, which is expected to reduce trucking and disposal costs by $50,000 per month net to Exall,
• Field construction of the main power line by ATCO and installation of distribution systems on the wellsites has been completed with substantial anticipated savings in generator rental and fuel costs, expected to be approximately $100,000 per month net to Exall, and
• Exall disposed of its 14.5% non-operating working interest in its Jayar, Alberta property to a private company effective September 30, 2012.  The Acquirer paid cash proceeds to Exall of $1,800,000 on closing and will forward an additional $240,000 on November 15, 2012.

Production

Exall's average daily production for the third quarter of 2012 decreased 6 percent to 991 barrels of oil per day ("boe/d") from 1,049 boe/d in the third quarter of 2011. As at November 13, 2012 Exall's net production rate is as outlined below:

http://files.newswire.ca/357/Program.doc

Low reservoir pressure in the eastern extent of the South Marten Mountain waterflood project has resulted in reduced production from four wells. An application was submitted for an amended waterflood scheme which included the addition of three producing wells to the scheme and conversion of one well to water injection. Exall has received approval by the ERCB for the amended waterflood scheme. Water injection in the eastern extent of the South Marten Mountain waterflood project commenced April 1^st, 2012. Pressure, however, has not been re-established as a result of the April 1, 2012 injection primarily as a result of a high permeability streak identified in the reservoir. Additional work is ongoing in an effort to change the waterflood pattern and re-establish additional production from the south waterflood.

The result, year to date, has been that all new production brought on through the first nine months of 2012 has replaced the lost production in the south waterflood and the declines in the mature central waterflood.

Outlook

Exall though 2012 has focused its capital in the development of its Central and North Waterflood Gilwood Channel Play in the Marten Mountain Prospect area.  Eight gross (5.45 net) wells have been spud with ten gross (6.83 net) wells drilled and cased through the first nine months of 2012 adding six gross (4.30 net) producing wells which were tied in and are on stream by September 30, 2012 through the Company-owned pipeline and battery facilities.  One gross (0.72 net) Water Source well and one gross (0.36 net) Water Disposal well were drilled, completed and tied in during the first nine months of 2012.

During the fourth quarter of 2012 Exall plans to drill, case and tie-in through the Company-owned pipeline and battery facilities two gross (1.44 net) wells plus drill one gross (0.72 net) Water Source well servicing the North Waterflood. Additionally, one gross (0.74 net) well will be converted into a Water Injection well servicing the North Waterflood.

While 2012 has been a challenging year for Exall as a result of the South waterflood response, 2013 is expected to result in the production growth previously anticipated for 2012 in the fourth quarter of 2011. The declines being seen in the South waterflood have been leveling off over the past quarter and with additional remediation work, should provide a stable base of production for future corporate production growth.

Drilling in 2013 will continue to focus on the Central / North Waterflood Channel extension incorporating the results from the 2012 3D Seismic program (see map - http://files.newswire.ca/357/Exall.pdf) to de-risk the drills to the extent possible. These drills will include up to five gross exploration wells (in red) and up to ten gross development wells (in pink) depending on cash flow, debt levels and the ability for the Company to issue additional equity.

Exall is a light oil-weighted company with high operating margins. This puts the Company in a favorable position to exploit existing opportunities and potentially take advantage of opportunities that arise. Exall will continue to focus on organic growth through exploitation and expansion of its existing oil producing properties.

Results of Operations

Production for the third quarter of 2012 averaged 991 boe/d a 6 percent decrease over the same quarter in 2011.  On a year over year basis production has increased 8 percent to 1,072 boe/d in 2012 due primarily to the continued drilling success on the north waterflood channel at Marten Mountain / Mitsue, Alberta.

For the nine months ended September 30, 2012 oil and natural gas liquids accounted for 92 percent of production which is expected to increase as the oil production from additional successful drills in the Marten Mountain area of Alberta are placed on production.

The average price received per boe in the third quarter of 2012 decreased 7 percent over the same period in 2011 to $77.43. The average price received per boe in the first nine months of 2012 decreased 5 percent over the same period in 2011 to $79.90.

The price for light, sweet oil at Edmonton in 2012 averaged $84.34 per barrel in the third quarter and $86.67 for the first nine months of 2012, down from an average of $94.32 for the first nine months of 2011.  Alberta natural gas at AECO averaged $2.19 per mcf in the third quarter of 2012, $2.18 per mcf for the first nine months of 2012 and is currently trading at approximately $3.23 per mcf.

The Company's Marten Mountain oil production attracts a price approximating the Edmonton light, sweet oil price due to its high quality.  The Company's Marten Mountain gas production attracts a premium price due to its high heat content. The Company has not entered into any commodity hedges to date.

Oil and gas sales in the third quarter of 2012 decreased 12 percent from the same period in 2011 as a result of the 6 percent decrease in production and the 7 percent decrease in commodity prices received on a period over period basis. For the nine months ended September 30, 2011 oil and gas sales increased 2 percent to $23,458 with oil and liquids sales contributing 98 percent of the sales.  The 2 percent increase for the nine months ended September 30, 2012 from the same period in 2011 was a result of the 8 percent increase in production and the 5 percent decrease in commodity prices received on a period over period basis.

The decreased royalty rate and royalties per boe paid in the third quarter of 2012 is reflective of two facts; 1) during the third quarter of 2012 commodity prices declined by approximately 7 percent from those received during the third quarter of 2011, and 2) Exall had a significant amount of its production coming from the 3.0 gross (2.13 net) wells brought on during the third quarter that were producing under the New Oil Well Production Period ("NOWPP") and as such were paying a maximum royalty rate of 5 percent.

The decreased royalty rate and royalties per boe paid in the first nine months of 2012 is reflective of two facts; 1) during the first nine months of 2012 commodity prices declined by approximately 5 percent from those received during the first nine months of 2011, and 2) Exall had a significant amount of its production coming from the 6.0 gross (4.03 net) wells brought on during the first nine months of 2012, wells that were producing under the NOWPP and as such were paying a maximum royalty rate of 5 percent.

Operating expenses in the third quarter of 2012 increased 27 percent from the same period in 2011, primarily as a result of; 1) increases in trucking costs by $108, reflective of increased water production associated with the South waterflood operations, costs which have been reduced as a result of the tie in of the water disposal well at the 16-31 Exall owned battery site, 2) increases in operator costs by $65, reflective of increased production operations, 3) increased equipment rental costs of $22, costs which were substantially reduced with the installation of the electric drive compressor in the third quarter of 2012, 4) increased mineral lease costs of $23 as a result of Exall's substantial land acquisition program in the third quarter of 2011, and 5) increased costs associated with equipment maintenance of $23, costs which have been reduced as a result of the installation of the electric drive compressor in the third quarter of 2012.  On a per boe basis, operating costs increased 33 percent, to $12.42 per boe due the items listed above.

Operating expenses for the nine months ended September 30, 2011 increased 49 percent from the same period in 2011, primarily as a result of; 1) increases in trucking costs by $349, reflective of increased water production associated with the South waterflood operations, costs which have been reduced as a result of the tie in of the water disposal well at the 16-31 Exall owned battery site, 2) increases in operator costs by $83, reflective of increased production operations, 3) increased equipment rental costs of $268, costs which were substantially reduced with the installation of the electric drive compressor in the third quarter of 2012, 4) increased fuel and power costs of $, costs which were substantially reduced with the installation of the electric drive compressor in the third quarter of 2012, 5) increases in chemical and treating costs of $96, reflective of increased production operations, and 6) increased costs associated with equipment maintenance of $179, costs which have been reduced as a result of the installation of the electric drive compressor in the third quarter of 2012.  On a per boe basis, operating costs increased 37 percent, to $13.21 per boe due the items listed above.

Operating Netback

Operating netbacks in the third quarter of 2012 decreased 2 percent to $51.73 per boe compared to the third quarter 2011 operating netbacks of $52.82 per boe.  This is primarily the result of; 1) the commodity price decline of 7 percent on a third quarter over third quarter basis, 2) the royalty rate improvement of 37 percent on a third quarter over third quarter basis, and 3) the increase in operating expenses of 33 percent on a third quarter over third quarter basis.

On a nine month period over nine month basis, 2012 operating netbacks increased by 4 percent to $53.14 per boe.  Again, this is primarily the result of the overall royalty price improvement of 42 percent on a nine month over nine month basis The decreased royalty rate and royalties per boe paid in the first nine months of 2012 is reflective of two facts; 1) during the first nine months of 2012 commodity prices declined by approximately 5 percent from those received during the first nine months of 2011, and 2) Exall had a significant amount of its production coming from the 6.0 gross (4.03 net) wells brought on during the first nine months of 2012, wells that were producing under the NOWPP and as such were paying a maximum royalty rate of 5 percent.

The abandonment expense represents the expense incurred above the carrying value of the decommissioning liabilities. During the first nine months of 2012 Exall incurred $351, or $1.20 per boe, of decommissioning cost in order to abandon one water source well and one water injection well in the Overlea are of Mitsue, Alberta. The water source well was originally drilled in 2004, while the water injection well was drilled in 2002. These expenses are not indicative of the costs to abandon wells in the area as Exall encountered cementing problems during the abandonment operations.

Depletion is calculated using the unit-of-production method based on total estimated proved plus probable reserves.  DD&A for the third quarter of 2012 was $2,139 compared to $2,009 for the same period in 2011. DD&A in for the first nine months of 2012 was $6,835 or $23.28 per boe compared to $4,981 or $18.31 per boe for the same period in 2011.  DD&A expenses per boe in 2012 have increased 27 percent from 2011; a result of the continued successful capital investment program at Marten Mountain, Alberta.

General and administration costs represent the costs required to effectively operate a public company. The increase in costs from 2012 reflect the increased cost of staffing commitments made in conjunction with the anticipated increase in production and capital expenditures in 2012 from 2011, as Exall continues to achieve positive results with regard to its drilling program in the Marten Mountain, Mitsue area.

General and administration expenses per boe in 2012 have increased 159 percent from 2011 on a quarter over quarter basis, as a result of the 56 percent increase in gross administrative costs and the 32 percent decrease in overhead recoveries.  General and administration expenses per boe in 2012 have increased 7 percent from 2011, on a year over year basis due the 22 percent increase in gross administrative costs partially offset by the 34 percent increase in overhead recoveries.  Management is continually monitoring general and administrative expenses to ensure that they are being managed effectively and efficiently.

The share based payment expense represents the expense for options granted and are recorded over the vesting period of the options. Additional unamortized stock-based compensation costs will be charged to income over the remaining vesting period of the options outstanding as well as any additional options that may be granted in the future.  See note 9 of the September 30, 2012 interim financial statements for additional details on the options granted and outstanding.

Exall recorded $116 or $1.27 per boe of non-cash, stock based compensation expense for the three months ended September 30, 2012 and $615 or $2.09 per boe for the first nine months of 2012. In comparison, Exall recorded $507 or $5.28 per boe of non-cash, stock based compensation expense for the three months ended September 30, 2011 and $771 or $2.86 per boe for the first nine months of 2011.

Finance costs represent the costs required to effectively finance the capital program of Exall. Exall recorded $2,268 or $5.97 per boe of interest expense for the nine months ended September 30, 2012. In comparison, Exall recorded $401 or $1.47 per boe of interest expense for the nine months ended September 30, 2011. The significant increase in interest expenses from 2011 are directly attributable to the convertible debenture financing completed by the Corporation on March 29, 2012 and April 11, 2012 and the increased capital expenditures in 2012 as compared to 2011.

Additionally, Exall recorded $126 or $0.76 per boe of accretion expenses for the nine months ended September 30, 2012. In comparison, Exall recorded $25 or $0.09 per boe of accretion expense for the nine months ended September 30, 2011.

Liquidity and Capital Resources

Exall has a revolving demand credit facility with a Canadian chartered bank for $36.0 million that bears interest at the lender's base prime rate plus 1.50 percent which is reviewed periodically by the bank. At September 30, 2012, the Company had approximately $33.7 million outstanding on its revolving credit facility and an approximate working capital deficit, excluding bank indebtedness, of $3.2 million for total net debt of approximately $36.9 million. As at September 30, 2012, the Company was not in compliance with the working capital covenant on its loan facility.  The Company has received a waiver from the bank confirming that they will not demand the loan as a result of the September 30, 2012 working capital covenant violation. The waiver is valid from September 30, 2012 until the Company files its annual 2012 covenant compliance certificate with the bank on or before March 31, 2013.

During the nine month period ended September 30, 2012, the Company used funds received through its March 2012 and April 2012 brokered convertible debenture private placement, proceeds from the September 2012 Jayar asset disposition and cash flow from operations to fund capital expenditures and other financial requirements.  For the remaining quarter of 2012 and 2013, the Company's capital expenditures will be limited by the cash flow available from operations, additional debt or equity as market conditions may allow and additional asset sales if the Company so chooses.

On March 8, 2012, Exall announced that its bought deal offering, announced March 7, 2012, of 7.75% convertible unsecured subordinated debentures maturing March 31, 2017 (the "Debentures"), had been increased by $10 million, to $20 million.  The offering was underwritten by a syndicate of underwriters co-led by Stonecap Securities Inc. and Emerging Equities Inc. and including Acumen Capital Finance Partners Limited, Dundee Securities Ltd. and Raymond James Ltd.  Exall also granted the underwriters an over-allotment option to purchase up to an additional $3 million of Debentures on the same terms, exercisable in whole or in part for a period of 30 days following closing.  On April 11, 2012 the over-allotment option was exercised in full, as such the total gross proceeds to Exall from the sale of the Debentures was $23 million.

As part of its capital management program, Exall compares its net corporate debt (the total amount of bank loan, net of working capital, excluding convertible debentures) to the annual, or annualized, funds from operations before changes in working capital (See Advisories - Non-GAAP Measurement - Funds Flow). Maintaining a ratio of less than 2:1 is a Company target but can be subject to significant short-term fluctuations.

(1) See Advisories Non-GAAP Measurements - Funds From Operations

While Q3 2012 debt to funds from operations are higher than the targeted 2:1 ratio, the debt incurred through 2012 was done in order to complete the aggressive 56 section 3D seismic program and the aggressive land acquisition program which has yielded an increase of 134,815 net acres. The results of the 3D Seismic program have been successful to date and further drilling is expected to confirm early success thus de-risking multiple drilling locations on a significant portion of the acreage acquired from Q2 2011 to Q1 2012. Had the 3D Seismic program and the land acquisition programs not been completed the debt to funds from operations would have been approximately 1.7:1.

Going Concern Assessment

The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As at September 30, 2012, the Company had a working capital deficit, excluding bank indebtedness, of $3.2 million, a cash flow from operating activities of $11,707 and a comprehensive income of $2,823 and for the 3 months ended September 30, 2012 a cash flow from operating activities of $3,291 and a comprehensive income of $549.

On March 8, 2012, Exall announced that its bought deal offering, announced March 7, 2012, of 7.75% convertible unsecured subordinated debentures maturing March 31, 2017 (the "Debentures"), had been increased by $10 million, to $20 million.  The offering was underwritten by a syndicate of underwriters co-led by Stonecap Securities Inc. and Emerging Equities Inc. and including Acumen Capital Finance Partners Limited, Dundee Securities Ltd. and Raymond James Ltd.  Exall also granted the underwriters an over-allotment option to purchase up to an additional $3 million of Debentures on the same terms, exercisable in whole or in part for a period of 30 days following closing.  On April 11, 2012 the over-allotment option was exercised in full, as such the total gross proceeds to Exall from the sale of the Debentures was $23 million.

On October 23, 2012, Exall announced that it had closed its previously announced (September 24, 2012) fully marketed public offering of common shares issued on a "CEE flow-through" basis under the Income Tax Act (Canada) by way of a short form prospectus. Under the Offering, the Company issued 3,221,000 Flow-through Shares at a price of $1.00 per Flow-through Share for total gross proceeds of $3,221,000.

Fair Value of Financial Instruments

The Company's financial instruments as at September 30, 2012 include cash, accounts receivable, accounts payable, accrued liabilities, convertible debentures and the bank indebtedness.  The fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity.  The Company's bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.  The Company's convertible debentures have been classified as debt, net of issue costs and net of the value of the conversion feature at the date of issue which has been classified as part of shareholders' equity. The liability portion is measured at amortized cost and will accrete up to the principal balance at maturity using the effective interest rate method. The accretion and the interest paid are expensed as a finance expense in the consolidated statement of earnings and comprehensive income. The value of the conversion feature was determined at the time of issue as the difference between the principal value of the debentures and the discounted cash flows assuming a 9.00% rate for the 7.75% debentures. Additional information concerning the Company's financial instruments and related risks are in note 14 to the consolidated financial statements.

Oil and gas property expenditures were $7,051 for the third quarter of 2012.  During the third quarter of 2012 the Company completed the drilling operations on the first well of the summer-fall program. The well, located in the southern pool area, was a re-entry side-track of a well drilled in Q1. The well was initially drilled horizontally into a zone of clean sand with good gas shows, although apparently poor permeability. The side-track was planned to intersect better quality reservoir in a more central channel location, completion of the well occur during the third quarter of 2012. Additionally, Exall drilled two gross (1.45 net) wells identified on the North Waterflood Channel on the 2012 3D Seismic program. Both wells were tied in during the third quarter and are currently on production. The three gross wells (2.17 net) are currently contributing approximately 360 net boe/d to Exall's production.

Oil and gas exploration and development expenditures were $16,179 for the third quarter of 2011.  During the third quarter of 2011 the Company participated in drilling of 3.0 gross wells (2.10 net), in the Marten Mountain / Mitsue area.

The Company has acquired additional rights in 25,600 gross (20,851 net) acres of undeveloped land in the Mitsue area, during the nine months ended September 30, 2012. As at September 30, 2012, the Company had 195,360 gross acres (144,989 net acres) of undeveloped land in Canada, in the Marten Mountain / Mitsue area of Alberta.

Capitalization

The Company had 66,634,854 shares, and 4,584,500 options to purchase shares outstanding as at September 30, 2012.  As at November 13, 2012 the Company has 66,634,854 shares and 4,584,500 options outstanding.

About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 63,413,854 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE. The Company's convertible debentures are listed on the Toronto Stock Exchange under the trading symbol EE.DB.

Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

PDF available at: http://stream1.newswire.ca/media/2012/11/14/20121114_C7916_DOC_EN_20595.pdf

SOURCE: EXALL ENERGY CORPORATION

Exall Energy Corporation

Frank S. Rebeyka
Vice Chairman
Tel: 403-815-6637

Roger N. Dueck
President & CEO
Tel: 403-237-7820 x 223
info@exall.com

Please visit Exall Energy's website at: www.exall.com

Renmark Financial Communications Inc.
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