Arcan Second Quarter Results on Target; Shifts Focus for Balance of 2013 to Debt Reduction

CALGARY, ALBERTA–(Marketwired – Aug. 16, 2013) –

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Arcan Resources Ltd. (TSX VENTURE:ARN) (“Arcan” or the “Corporation“) announces its financial and operating results for the three and six-month periods ended June 30, 2013. Results on key metrics are in line with earlier guidance. Given the current economic climate and the state of the capital markets, Arcan plans to reduce capital spending and evaluate asset sales for the second half of 2013 in order to pay down debt and retain financial flexibility.

“Our production over the past four quarters has remained stable in spite of constrained capital spending,” said Chief Executive Officer Terry McCoy. “Our continuing efforts to improve our drilling and completion efficiencies and reduce operating costs allowed us to deliver solid results in the second quarter, in spite of typical second quarter weather-related challenges. We have now funded our drilling activity from cash flows and asset dispositions over the last twelve months and anticipate that will continue. We are reducing our planned 2013 capital spending from $52.1 million to $40.8 million and are looking at options such as asset sales or joint ventures as debt reduction is now our top priority. The impact of reduced capital is the expected reduction in production targets to an annual average of 3,800 to 4,000 BOE per day for 2013.”

FINANCIAL HIGHLIGHTS

• Funds from operations increased by 32 percent to $12.8 million during the second quarter of 2013 from $9.7 million in the first quarter of the year. Year-over-year, second quarter funds from operations declined by 12 percent from the second quarter of 2012 in spite of an 82 percent drop in capital spending in the same period.

• Reduced capital expenditures by 51 percent in the second quarter of 2013 to $8.3 million from $17.1 million in the first quarter of 2013 due to decreased drilling, completions and work-over spending. Capital expenditures during the second quarter of 2013 were significantly lower than the second quarter of 2012 when Arcan invested $46.4 million on drilling and completions and infrastructure improvements.

• Cash G&A expenses increased to $2.8 million in the second quarter of 2013, from $2.1 million in the first quarter of 2013 due to bank renewal fees and one-time costs associated with closing down StimSol Canada Inc.’s pumping and stimulation division. However, cash G&A expenses have fallen significantly from $4.2 million in the second quarter of 2012 as Arcan has focused on various cost cutting measures throughout the organization over the past year.

• Arcan had drawn $164.5 million on its credit facility of $190.0 million as at the end of the second quarter of 2013. Arcan intends to fund future expenditures from cash flow and focus on debt reduction through the remainder of 2013.

• Arcan continued to build on its hedging program in the quarter and has secured approximately 60 percent of its expected cash flow for the next three years.

OPERATIONAL HIGHLIGHTS

• Production averaged 4,071 BOE per day during the second quarter of 2013, down one percent from the previous quarter due to expected seasonal factors such as spring break-up and wet weather hindering access to well sites.

• Reduced production and operating expenses by five percent to $16.56 per BOE in the second quarter of 2013 from $17.52 per BOE in the first quarter of 2013. This was also a continued improvement from $21.61 per BOE in the second quarter of 2012 due to the ongoing implementation of operating efficiencies in the field.

• Continued waterflood response in Deer Mountain Unit #2 observed through a flat production profile from August 2012 through the second quarter of 2013 with no drilling activity. The waterflood in Ethel was expanded to include two new patterns with results expected in the fourth quarter of 2013.

• Arcan has updated its Deer Mountain and Ethel simulation model to assist in further monitoring, optimizing and predicting waterflood performance.

• Drilling costs continue to decline following the careful and disciplined review of drilling and completions operations earlier in 2013. Arcan continues to implement improvements to various aspects of its field operations with the goal of drilling and completing wells at costs between $4.5 million to $5.0 million.

• Advanced the Ethel pipeline corridor (consisting of natural gas, oil and effluent lines) with the natural gas sales pipeline commencing operations during the quarter. As a result, natural gas produced from the tied in oil wells in Ethel is now conserved. The oil pipeline is currently waiting to be connected into a third-party sales point.

OUTLOOK

Arcan holds a multi-year inventory of low-risk drilling opportunities targeting light sweet oil in the Swan Hills area. The Corporation recently received approvals for waterflood expansion of the Ethel waterflood scheme. Ongoing waterflood operations in the Deer Mountain Unit #2 and Ethel areas continued to demonstrate expected waterflood response during the second quarter of 2013.

In order to pay down debt, Arcan has reduced its planned 2013 capital budget from $52.1 million to $40.8 million. The Corporation plans to drill two wells in the third quarter (1.2 net wells, one well is 100 percent Arcan and the other well is a joint venture in which Arcan pays 20 percent of the costs for 48 percent of the production). With the lower capital spending Arcan also expects lower production for the year, now anticipating full-year production to average 3,800 to 4,000 BOE per day.

Arcan is considering further joint ventures, farm-outs and similar arrangements in order to support the Corporation’s strategy of operating within cash flow while creating shareholder value. Due to the significant hydrocarbon potential of our land base, sharing development costs with third parties enables Arcan to advance project development while reducing the required level of capital investment.

Arcan is also considering asset divestitures, including a potential sale of the Deer Mountain Unit #2 asset as it is a mature asset with a waterflood already implemented, as compared to the range of development stages of the other areas in Arcan’s asset base.

“Reducing debt is paramount to Arcan,” said President Doug Penner. “Although lower capital spending will impact production in the near term, our longer term vision is to ensure the Corporation has the stable financial position to be able to realize over time the full value of our long-life, high-quality light oil potential over our entire land base. We continue to review alternatives, including monetizing assets, that would strengthen the valuation of Arcan and provide access to the capital required to continue to develop our Swan Hills lands.”

FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS:

Arcan has filed its unaudited condensed interim consolidated financial statements and the accompanying management’s discussion and analysis for the three and six-month periods ended June 30, 2013, with the Canadian securities regulatory authorities. These filings are available for review at www.sedar.com or www.arcanres.com.

About Arcan Resources Ltd.

Arcan Resources Ltd. is an Alberta, Canada corporation that is principally engaged in the exploration and development of light oil resources located in the Western Canadian Sedimentary Basin.

Legal Advisories

BOEs may be misleading, particularly if used in isolation. The calculation of BOEs is based on a conversion ratio of six Mcf of natural gas to one bbl of oil based on an energy equivalency conversion primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared to natural gas is significantly different from six to one, utilizing a BOE conversion ratio of six Mcf to one bbl would be misleading as an indication of value.

Additional information about the Corporation, including the Corporation’s AIF for the year ended December 31, 2012, is available under Arcan’s profile on SEDAR at www.sedar.com.

Non-IFRS Measurements

Arcan’s financial statements have been prepared in accordance with IFRS.

Readers are cautioned that this news release contains the term “funds from operations”, which should not be considered an alternative to, or more meaningful than, “cash provided by operating activities” or “net earnings” as determined in accordance with IFRS as an indicator of Arcan’s performance. Arcan also presents “funds from operations per share”, whereby funds from operations are divided by the basic and diluted weighted average number of common shares of Arcan (each, a “share”) outstanding to determine per share amounts. Arcan also presents “net debt and working capital” which should not be considered an alternative to, or more meaningful than, “current liabilities” or “working capital”. Net debt and working capital is calculated by subtracting the current liabilities (excluding bank debt), bank debt, and convertible debentures from its current assets.

Operating netbacks are presented on an operating segment and consolidated basis. “Operating netbacks” for the exploration and production segment, or “exploration and production netbacks”, represent Arcan’s petroleum and natural gas revenue, less royalties and production and operating expenses. “Operating netbacks” for the pumping and stimulation segment, or “pumping and stimulation operating netbacks”, represent pumping and stimulation services revenue, less cost of sales for pumping and stimulation services. “Consolidated operating netbacks” represent the sum of the operating netbacks for the exploration and production and pumping and stimulation segments. “Corporate netbacks” represent Arcan’s consolidated operating netback, plus other revenue, plus or minus realized economic hedging gains or losses, less cash general and administrative expenses (“Cash G&A”) and cash interest expenses in order to determine the amount of funds generated by production. Operating and corporate netbacks have been presented on a per barrel of oil equivalent (“BOE”) basis, as well.

The measures referenced above do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Management believes that funds from operations, net debt and working capital and both operating and corporate netbacks are useful supplemental measures as they indicate Arcan’s ability to fund future growth through capital investment and/or to repay debt. These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding Arcan’s liquidity and its ability to generate funds to finance its operations. Please see the section “Results of Operations – Netbacks” for reconciliations between both operating netbacks and corporate netbacks to revenue.

Arcan determines funds from operations as cash flow from operating activities before changes in non-cash working capital as follows:

Arcan determines net debt and working capital as follows:

Forward-Looking Information and Statements

This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words ”expect”, ”anticipate”, ”continue”, “considering”, “would”, ”estimate”, ”guidance”, ”objective”, ”ongoing”, ”may”, ”will”, ”project”, ”should”, ”believe”, ”plans”, ”intends”, “possible” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to, among other things, the following: anticipated commodity prices for both oil and natural gas; the potential of significant asset divestitures, including a sale of the core Deer Mountain Unit #2 asset; the ability of Arcan to pay down debt and retain financial flexibility; the timing, method and results of drilling and waterflood operations; anticipated production volumes; impact of and estimated waterflood recoveries; ability of Arcan to spend capital below operating cash flow during the balance of 2013 and on a going-forward basis; future revenues; future liquidity and financial capacity and resources including the availability of such resources; Arcan’s expected cash flows; results of operations and financial ratios; the volume and product mix of Arcan’s oil and gas production; matters relating to the joint venture agreement.; Arcan’s risk management programs; Arcan’s 2013 capital program including the costs associated therewith; Arcan’s pursuit and examination of joint ventures, farm-outs and other similar arrangements, as well as sales of non-core assets; expectations respecting the financing and completion of Arcan’s capital program; the expected benefits of continued infrastructure development; and the expected benefits of Arcan’s hedging program.

The forward-looking information and statements contained in this news release reflect several material factors and expectations and assumptions of Arcan including, without limitation: that Arcan will continue to conduct its operations in a manner consistent with past operations; new well completions; the accuracy of current horizontal production data, historical well production and waterflood results; the general continuance of current or, where applicable, assumed industry conditions; continuity of reservoir conditions across Arcan’s land base; availability of sources to fund Arcan’s capital and operating requirements as needed; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; expectations respecting Arcan’s reserves generally; the continuance of laws and regulations relating to environmental matters; ability to retain key employees and executives; assumptions relating to the cost of future wells; the ability of Arcan to operate a capital expenditure program that is less than funds from operations; and certain commodity price and other cost assumptions.

Arcan believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; unanticipated operating results or production declines; for reasons currently unforeseen, the current drilling locations identified by Arcan may prove to be unsuitable or unavailable and drilling on the locations identified may not occur; third party pipeline issues may adversely impact Arcan in a manner or magnitude which is currently unanticipated; changes in tax or environmental laws or royalty rates; increased debt levels or debt service requirements; reductions to the amounts available under the Credit Facility as well as amendments thereto that are unfavourable to Arcan; inaccurate estimation of Arcan’s oil and gas reserves volumes; limited, unfavourable or no access to debt or equity capital markets; increased costs and expenses; the impact of competitors; reliance on industry partners; circumstances may arise, including changes in accounting policies, regulations or economic conditions, which could change the assumptions, estimates or expectations or the information provided; shareholder value may not be maximized in the manner suggested by Arcan or at all; there may be circumstances where, for unforeseen reasons, a reallocation of funds may be necessary as may be determined at the discretion of Arcan and there can be no assurance as at the date of this news release as to how those funds may be reallocated; should any one of a number of issues arise, Arcan may find it necessary to alter its current business strategy and/or capital expenditure program; and certain other risks detailed from time to time in Arcan’s public disclosure documents including, without limitation, those risks identified in this news release, and in the AIF, copies of which are available on Arcan’s SEDAR profile at www.sedar.com.

The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Arcan does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.

Neither 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.