CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - Arsenal Energy Inc. ("Arsenal" or the "Company") (News - Market indicators) (PINKSHEETS:AEYIF) is pleased to release its 2012 Q2 results. Production for the second quarter increased by 95% to 3,555 boe/d compared to Q2 2011. Revenue increased by 45% to $18.4 million and cash flow increased by 52% to $6.5 million. Second quarter revenue and cash flow increases were not proportional to the production increase due to historically wide oil price differentials and low natural gas prices.

Full financial details are contained in the financial statements and MD&A filed on SEDAR and on the Company's website.

Financial

Funds from operations for Q2 2012 totaled $6.5 million or $0.04 per share versus $4.3 million or $0.03 per share for Q2 2011. The increase in cash flow is due to increased production volumes from an acquisition in November 2011 and from new Bakken wells in North Dakota. Wide oil price differentials and low gas prices resulted in a decrease in operating netbacks to $25.20 per boe in Q2 2012 from $38.44/boe in Q2 2011. Operating costs and royalties were marginally lower compared to the same period in 2011. Unit overhead decreased from $7.50/boe to $3.33/boe due to higher year over year production.

Oils produced and sold in Western Canada and North Dakota are currently discounted to West Texas Intermediate (WTI) which in turn is discounted to world prices. These discounts are caused by the rapid rate of production growth in North Dakota and Alberta and the resulting transportation bottlenecks that have developed throughout the system. In the second quarter, Arsenal's blended oil sales received a price $20 below WTI which was, in turn, $15 below world prices.

Arsenal recorded net income of $7 million for the second quarter. The income included the reversal of a mark to market loss recorded in the first quarter from Arsenal's hedge program. The six month net income of $2.3 million is more indicative of the company's profitability.

Operations

Production averaged 3,555 boe/d during the second quarter, up 95% compared to the second quarter of 2011. The increase was from new Bakken wells in North Dakota and from an acquisition that closed in November of 2011. Arsenal's Q2 production mix was 73% oil and liquids and 27% natural gas.

In the first quarter of 2012, Arsenal drilled the Anthony Robert Bakken horizontal well and spud the Wade Morris Bakken horizontal well, both in North Dakota. Both wells were completed with multistage fracks and placed on production in June. Results from the Anthony Robert were previously released. The Wade Morris well plugged off with frack sand during the cleanup flow. The well was placed on production at 200 bbls/d from the heel for two weeks at which time a coiled tubing rig opened up the first mile of the horizontal section. The well was then flowed for two weeks at 400 bbls/d. A service rig is currently on the well drilling out the remaining horizontal section and installing equipment for pumping operations. Arsenal has an 84% WI in each well. Arsenal anticipates that both wells will be type North Dakota Bakken wells.

Outlook

Arsenal has been advised by joint interest operators of their intention to drill 10 (1.5 net) Bakken North Dakota horizontals before yearend. The average cost of a North Dakota Bakken well has declined to $8.3 million from $10 million at Stanley and from $8.5 million to $8 million at Lindahl in 2011 due to a more competitive service company pricing environment.

Arsenal expects to spud the first of two horizontal wells into the Glauconite channel system at Princess, Alberta in the second week of August. The wells should be completed with multistage fracks by the end of September and placed on production. If the program is successful, Arsenal has a large follow up program.

As previously announced, in the deep basin of Alberta, Arsenal has acquired 9,600 net acres of land on an emerging Cardium play. Wells drilled by other operators in the play are coming on stream at approximately 4 mmcf/d of gas with 50 bbls/mmcf of liquids. Most of the liquids are high netback condensates. Arsenal is planning to test its acreage in 2013.

The oil price differentials for the remainder of the year look to be narrowing. Rail capacity in North Dakota has increased to 250,000 bbls/d and a similar amount of pipeline capacity should come on over the next 6 to 12 months. Bakken differentials should narrow to the level of light Canadian streams. Month to month volatility is very high and differentials are difficult to hedge. Volumes are expected to increase during Q3 with the addition of the Anthony Robert and Wade Morris Bakken North Dakota wells and the two Glauconite horizontals at Princess. Arsenal is preparing drill sites on 4 operated high working interest (74%) Bakken North Dakota horizontal wells but plans to hold off initiating drilling operations until pricing becomes more transparent.

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Advisory

All barrels of oil equivalent (boe) conversions in this report are deprived by converting natural gas to oil at the ratio of six thousand cubic feet (Mcf) of natural gas to one barrel (bbl) of oil. Certain financial values are presented on a boe basis and such measurements may not be consistent with those used by other companies. Boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf: 1 bbl) and is based on an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain financial measures referred to in this release, such as funds from operations and funds from operations per share, are not prescribed by generally accepted accounting principles (GAAP). Funds from operations is a key measure that demonstrates the ability to generate cash to fund expenditures. Funds from operations is calculated by taking the cash provided by operations from the consolidated statement of cash flows and adding back changes in non-cash working capital. Funds from operations per share is calculated using the same methodology for determining net income per share. These non- GAAP financial measures may not be comparable to similar measures presented by other companies. These financial measures are not intended to represent operating profits for the period nor should they be viewed as an alternative to cash provided by operating activities, net income or other measures of financial performance calculated in accordance with GAAP.

Management uses certain industry benchmarks such as field netback to analyze financial and operating performance. Field netback has been calculated by taking oil and gas revenue less royalties, operating costs and transportation costs. This benchmark does not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. Management considers field netback as an important measure to demonstrate profitability relative to commodity prices.

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 an 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).