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Canext Announces Year End Results and Operational Update

CALGARY, ALBERTA--(Marketwire - April 22, 2009) - Canext Energy Ltd. ("Canext" or the "Company") (TSX VENTURE:CXZ) is pleased to announce its operating and financial results for the year ended December 31, 2008.

Highlights:

- Production for the full year averaged 1,066 boe/d up 38% from the previous year,

- Cash flow increased 118% to $9,656,000,

- Cash flow per share increased 45% to $0.12/share,

- Working capital deficiency including bank debt was reduced 20% to $8,120,000,

- Proved reserves increased 94% to 3,532,200 boe,

- Proved and Probable (P+P) reserves increased 112% to 6,554,300 boe,

- Proved and P+P reserves per common share increased 69% and 85% respectively,

- Finding, Development and Acquisitions costs (FD&A) including revisions and changes to future development capital was $16.54/boe Proved and $12.01/boe P + P,

- Operating netback averaged $29.91/boe for the year,

- Recycle ratio (Operating netback/FD&A) was 2.5:1,

- Net Asset Value (NAV) per share based on a 10% discount rate, increased 58% to $1.16/share as disclosed on February 2, 2009,

- Completed a financing for gross proceeds of 10.5 MM$ and sold non core property for proceeds of 6 MM$,

- Acquired 40 square miles of new 3D seismic.

In 2008, Canext moved from an exploration focus to a lower risk development and step out drilling program which continued to drive strong reserve growth. The Company drilled 16 (9.5 net) wells which resulted in 15 (8.8 net) oil/gas or service wells for a 93% success rate. The Company focused its exploration and development efforts on its two core properties. The result was significant reserves growth on the Montney/Doig natural gas resource play at Pouce Coupe and expansion of the Sweeney Triassic oil play

The Company's year end reserve information was press released on February 2, 2009. As mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities issued by the Canadian Securities Administrators, detailed information relating to Canext's reserves and other disclosure documents have now been electronically filed on SEDAR .
The following table summarizes some of the key financial results. Audited consolidated financial statements for the year ended December 31, 2008 with accompanying notes along with management's discussion and analysis have also been filed on SEDAR.

 

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Operational Update:

Canext did not drill any wells in the first quarter of 2009. Instead, the Company focused on low risk completion and tie-in efforts while maintaining a strong balance sheet. Based on field estimates, Canext expects first quarter 2009 production to average 1,150 boe/d, up 4% from the fourth quarter of 2008. Production was negatively impacted by several freeze offs in January and third party compressor modifications at Pouce Coupe. In addition, the Company shut-in approximately 35 boe/d due to low prices and high operating costs. Two (0.8 net) wells were tied in during the first quarter. Following the March 3, 2009 announcement of drilling credits and royalty incentives, additional tie-in operations for two (0.7 net) horizontal wells at Pouce Coupe were delayed until after April 1. At the end of the quarter the Company had four (2.3 net) wells which had not been placed on-stream and would qualify for the reduced royalty. It is expected that two (0.7 net) wells will be brought on-stream in the second quarter. Timing for tie-in of the other wells will depend on strategic decisions including best use of funds and/or gas prices.


Pouce Coupe Montney/Doig Update

During the first quarter of 2009 Canext completed its third horizontal well (45% working interest) in the Montney formation. A modified multi-frac completion technique was employed. Only a third of the well bore was stimulated prior to flowing back the frac fluids. A total of three fracs out of potential eight fracs were completed. The objective was to reduce costs and evaluate the effectiveness of the foam based frac fluid and resin coated sand system. Based on the results, the stimulation of the remainder of the wellbore could be modified and/or timed to higher prices. The staged completion operation could also be used to evaluate the optimum length and number of fracs for a horizontal well.

The operation was successful and the well tested light oil and natural gas. The well began production on April 16 and has averaged 110 barrels of oil per day, 600 mscf/d raw gas along with 30 barrels of water per day for the first four days. The raw gas rate includes 10-15 % CO2 and combined with the water indicates the well is still producing back some frac fluids. This is the second Canext Montney well which has tested light oil. The first well was a vertical well which tested light oil over a 24 hour flow period in December and was subsequently shut-in to produce another higher rate gas zone in the same wellbore. Current plans are to reactivate the oil zone due to the higher price of oil versus the current low gas price. Given the limited Montney oil tests in the area there is some uncertainty as to the longer term potential of both oil wells. Producing high volumes of oil from a low permeability reservoir will provide certain operational challenges. The Company will evaluate opportunities with its partners to enhance production which may include completing additional fracs.

The Company still has two (1.25 net) wells which have successfully tested gas and are waiting on tie-ins. One non operated horizontal (25% working interest) is expected to be placed on-stream later in the second quarter. The second well is a 100% working interest vertical well which tested gas in the lower and upper Montney formation. The Company has applied for regulatory approval to commingle the zones and anticipates bringing the well on-stream in the third quarter. Since both wells qualify for the recently announced 5% maximum royalty rate it is economic to tie-in and produce these wells at current gas prices.
A senior producer has recently drilled three horizontal horizontals in a section directly offsetting Canext acreage. Another senior producer has licensed to drill four horizontals per section. Based on drilling three horizontals per section in the lower Montney and two horizontals per section in the upper Montney, the Company estimates it has inventory of 32 net horizontals. Canext is not planning any drilling in 2009 at Pouce Coupe given the current short term weakness for natural gas prices and additional production history is required before targeting any Montney oil. The Company has discretionary capital should one of its partners decide to drill a well at Pouce Coupe.

Sweeney

In December 2008 Canext drilled two (0.75 net) step-out wells. The first well (49.5% working interest) was completed without stimulation and placed on production in January. For the first three months production has averaged 45 bopd with a 4% watercut. The well was completed in a position structurally lower than offsetting wells supporting the current interpretation of the pool oil/water contact. The second well (25% working interest) was perforated, acidized and stimulated with a 5 tonne hydraulic fracture. Unfortunately the well did not yield economic quantities of oil and operations were suspended. Based on pressure transient analysis of the hydrocarbon zone in this well, the Company has decided not to pursue a larger frac at this time.

In February 2009, one of the wells drilled last summer was shut-in due to high operating costs. The well (60% working interest) was producing 30 bopd with a 75% watercut. The well will remain shut-in until oil prices recover or the Company constructs its own central battery with water disposal. The Company is not expecting further production from this well until at least 2010.

Production from the Company's best well (60% working interest) was gradually increased during the first quarter. The well peaked at 240 bopd with a 7% watercut before limitations on surface pumping equipment were reached. Based on pumping fluid levels, higher production rates would be possible with a larger pumpjack. Production from the field has now been shut-in for spring break-up which is estimated to last for 8-10 weeks. During this time, the Company is proceeding with a comprehensive reservoir pressure monitoring program on all the wells in the pool. This information will be used to analyze the potential to down space allowing for more low risk infill wells and to confirm the potential for secondary recovery opportunities such as water flooding. In addition, pressure transient analysis will be used to estimate potential benefits of different types and sizes of stimulations. To date, none of the producing wells have been stimulated.

For strategic reasons, Canext deferred plans to drill three (2.2 net) step out wells in the first quarter of 2009. The Company is planning to scout and survey three (1.8 net) locations to drill new quarter sections directly offsetting the best producer. This program would commence late summer or early fall. The Company estimates these lower risk wells could provide a significant economic benefit given they would qualify for a drilling credit and lower royalties. The three (2.2 net) step out wells originally planned for this year are scheduled for the 2009/2010 winter drilling season. Actual timing on all wells will be based on current market conditions and funding capability.

Property Disposition

Canext is currently evaluating opportunities to sell certain non core assets. The Company has received expressions of interest and letters of intent on multiple properties. If successful, the proceeds will be initially applied to reduce debt and then to fund an expanded development drilling program at Sweeney.

Outlook

Production for the second quarter is expected to average 1,000 - 1,100 boe/d as new production brought on-stream at Pouce Coupe will be offset by production shut-in at Sweeney for spring break-up. The Company is forecasting production in 2009 to average 1,200 boe/d which would be a 12% increase over last year. In achieving this target the Company is subject to certain operational risks including strategic decisions which may include delaying tie-ins and/or deferring development drilling based on low commodity prices or continued global uncertainty which dictates a more cautious approach to utilizing existing bank lines.

The Company's current production mix is weighted heavily (80%) towards natural gas. With the recent Montney oil discoveries and high impact lower risk Sweeney opportunities, the production mix is expected to get oilier throughout the year. Canext is well positioned to take advantage of Alberta Government incentives with its impressive development drilling inventory and under levered balance sheet at a time of reduced industry activity.

The Company will also continue to evaluate merger and acquisition opportunities which can be completed to the benefit of all Canext's shareholders. These include transactions to strengthen the balance sheet and cash flow allowing for an expanded development drilling program.

Reader advisory:

The term "BOE" may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio for natural gas of 6 mscf: 1 bbl has been used which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Investors are cautioned that the preceding statement of the Company may include certain estimates, assumptions and other forward-looking information. The actual future performance, developments and/or results of the Company may differ materially from any or all of the forward-looking statements, which include current expectations, estimates and projections, in all or part attributable to general economic conditions and other risks, uncertainties and circumstances partly or totally outside the control of the Company, including natural gas/oil prices, reserve estimates, drilling risks, future production of gas and oil, rates of inflation, changes in future costs and expenses related to the activities involving the exploration, development and production of gas and oil hedging, financing availability and other risks related to financial activities.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

 
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