Echo Energy Canada Inc. report indicates reductions in oil and gas reserves

Echo Energy Canada Inc. report indicates reductions in oil and gas reserves

Echo Energy Canada Inc. is providing an update on the independent reserves assessment and evaluation of its oil and gas reserves effective December 31, 2008. The reserves report was prepared by GLJ Petroleum Consultants Ltd., an internationally recognized leader in oil and gas asset evaluations, pursuant to recommendations of National Instrument 51-101.

The reserve report received on Friday by the Reserve Committee and the Audit Committee of the Board of Directors of the Company reports highly significant declines in the valuation of reserves from the opening balance at the start of the year. Part of the reason for this discrepancy is the performance of the existing wells, and management is currently evaluating how to improve performance of the wells.

This report from GLJ Petroleum Consultants Ltd. enables the Company to fully comprehend its gross and net proved and probable reserves attributable to the property interests utilizing GLJ’s customary methods and procedures and in accordance with standard industry practices and to estimate the future net revenue to be realized with respect to such reserves. The estimated reserves and future net revenues were determined in accordance with the requirements of NI 51-101 and the Canadian Oil and Gas Evaluation Handbook (“COGEH”), using forecast price and costs assumptions and were presented as required by Form 51-101F2.

This reserves report has caused Management to review the Company’s impairment test for valuation of oil and gas properties and to clarify that this test restricts the net capitalized costs from exceeding an amount equal to the estimated undiscounted value of future net revenues from proven oil and gas reserves based on current forecasted prices and costs, after deducting estimated future operating expenses, income taxes and site restoration costs. Management has concluded that the impairment test will result in a very significant write-down in the carrying value of oil and gas reserves as at December 31, 2008, and also noted that this will be partially offset by a significant favourable impact on the provision for future income taxes.

This revaluation of oil and gas reserves will also result in significant increases in the provision for depletion of oil and gas reserves and amortization of the gas gathering pipeline and compressor system in 2008 and future years.

Because of the potential impact on the bank borrowing base, Management has sent a copy of the reserves report to the bank. Management believes that the net cash flows from proved producing reserves forecasted in the new reserves report correspond with the previously reported estimate of the bank’s independent engineer. However, Management is awaiting the bank’s review and cannot at this time provide any assurance as to the bank’s possible response.

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