First Calgary Petroleums Reports Second Quarter Results

First Calgary Petroleums Ltd. reports financial results for the six months ended June 30, 2004.

First Calgary Petroleums Ltd., an international exploration company active in Algeria, operates Ledjmet Block 405b and Yacoub Block 406a in the Berkine Basin. In this report, $ refers to the U.S. dollar and C$ refers to the Canadian dollar.

FCP continued to experience excellent drilling results on both of its blocks during the second quarter with the LEC-1 and ZCH-1 exploration wells. With four additional Block 405b wells currently drilling or planned for the remainder of the year (MZLN-1, LES-1, MZLS-1 and LEW-1), the Company will drill seven wells in 2004. In addition to the active drilling program, FCP is continuing to acquire 3D seismic data which will be used to evaluate more of the Company's Berkine lands and identify additional drilling locations.

Ledjmet Block 405b

On Block 405b, there are currently six cased gas and condensate wells, of which the Company drilled five. On a cumulative basis, the wells production tested 91,620 barrels of oil equivalent per day consisting of 424 million cubic feet of gas per day and 21,081 barrels of condensate per day.

The following is a summary of the wells, production test results obtained to date and wells planned for the remainder of the year:


    <<

    -------------------------------------------------------------------------
                                 Barrels of     Million cubic   Barrels of
    Well (1)     Status       oil equivalent     feet of gas    condensate
                                 per day (2)       per day       per day
    -------------------------------------------------------------------------
    MLE-1     Cased & tested       8,911            43            1,745
    -------------------------------------------------------------------------
    MLE-2     Cased & tested      44,330           189           12,874
    -------------------------------------------------------------------------
    MLE-3     Cased & tested      24,743           127            3,643
    -------------------------------------------------------------------------
    MLE-4     Cased & tested       5,090            23            1,223
    -------------------------------------------------------------------------
    MLE-5     Cased & tested       8,546            42            1,596
    -------------------------------------------------------------------------
    LEC-1     Cased & testing
                 in progress
    -------------------------------------------------------------------------
    MZLN-1    Drilling
    -------------------------------------------------------------------------
    LES-1     Drilling
    -------------------------------------------------------------------------
    MZLS-1    2004 Location
    -------------------------------------------------------------------------
    LEW-1     2004 Location
    -------------------------------------------------------------------------
                                  91,620           424           21,081
    -------------------------------------------------------------------------


(1) This table does not include the ZCH-1 well (Block 406a) which production tested 8,545 barrels of hydrocarbon liquids and 56.2 million cubic feet of gas per day.

(2) Using a conversion ratio of 6 thousand cubic feet of gas to 1 barrel of oil equivalent.

During the quarter ended June 30, 2004, FCP completed production testing the MLE-5 appraisal well. The well was drilled to assess the eastern extension of the MLE Field onto a previously undrilled fault block.

Following the MLE-5 well, FCP's drilling programme focused on exploring the acreage west of the MLE Field. The Company drilled and logged the LEC-1 exploration well to total depth of 4,437 metres. LEC-1 is FCP's first exploration well on the Block and one of the targets identified from the 2003 seismic program. The well was drilled to evaluate a structural high, separate from the MLE Field. The wireline logs indicate the presence of 42 meters of net hydrocarbon pay over multiple intervals. A production testing program is currently underway and results are expected to be available in September.

Near the end of the quarter, FCP commenced drilling operations on the MZLN-1 well which has a projected depth of 4,500 meters and offsets the abandoned MZL-1 well, drilled in 1987. The MZLN-1 well has two objectives: to confirm and extend the hydrocarbon pay identified in the MZL-1 borehole and to explore for new reserves in additional geological horizons. MZLN-1 is expected to reach total depth in August.

Subsequent to June 30, 2004, FCP commenced drilling operations on the LES-1 exploration well. This well, having a planned depth of 4,500 meters, is anticipated to reach total depth in September and will be used to evaluate a separate structure on the southern part of Block 405b.

The Company has also recently completed the 550 km(2) 3D seismic acquisition program covering the Block's western acreage. Processing of the field data is in progress and initial interpretation of this survey is expected to be completed during the third quarter. FCP now has 3D seismic data covering essentially the entire Block and is well positioned to explore the balance of its undrilled lands.

Yacoub Block 406a

During the second quarter FCP drilled its first discovery on Block 406a, ZCH-1. The exploration well, located on the southeast portion of the Block, is approximately 30 km from the nearest producing hydrocarbon accumulations. The cumulative initial production test rates, completed in July, were 8,545 barrels of hydrocarbon liquids (comprised of 6,376 barrels of light oil and 2,169 barrels of condensate) and 56.2 million cubic feet of natural gas per day from several geological zones at various wellhead flowing pressures. The well encountered multiple light oil reservoirs and multiple gas reservoirs with high yields of associated condensate. Test results are being further analyzed to project reservoir sizes and to assess production potential.

FCP holds its hydrocarbon rights in Block 406a pursuant to a joint venture between the Company and Sonatrach, held 49% and 51% respectively. A portion of the total recoverable natural gas reserves will be considered strategic reserves and will be excluded by Algerian law from the joint venture.

Encouraged by the ZCH-1 results, FCP has commenced a 613 km(2) 3D seismic program on the Block to delineate the size of the structure and define both appraisal and further exploration drilling locations. The acquisition, processing and initial interpretation of this survey are expected to be completed around the end of the year.

The ZCH-1 discovery on Block 406a is significant for the Company. With a sizeable unexplored acreage position on this structural trend, it has the potential to add materially to the Company's reserves. This discovery provides an excellent complement and balance to the gas and condensate discoveries on Ledjmet Block 405b.

Management's Discussion and Analysis

Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements for the three and six month periods ended June 30, 2004 and 2003 and the audited financial statements and MD&A for the year ended December 31, 2003.

Operations and Capital Expenditures

FCP operates in Algeria where it has the rights to explore and appraise two large acreage blocks, Ledjmet Block 405b and Yacoub Block 406a. The Company's rights and obligations are set out in hydrocarbon agreements with Sonatrach, the national oil company of Algeria, which represents the interest of the state.

The hydrocarbon agreements require FCP to conduct certain drilling and seismic activities over periods of time. The exploration and appraisal phases of the agreements that extend for five years are divided into two periods with each period containing a minimum work commitment. In each agreement, the first period is for three years, and the Company then has the option to enter a second exploration period of two years. Following the exploration and appraisal phase of each agreement, the Company and Sonatrach will obtain exploitation permits for any reserves determined to be commercial, subject to certain exclusions, and all lands not subject to an exploitation permit will be returned to the government.

Ledjmet Block 405b

The Company is in the third year of the first exploration period of the Block 405b hydrocarbon agreement. The first exploration period will end in December 2004. At June 30, 2004, FCP has met all of the first period work commitments with the drilling of the LEC-1 exploration well, which is currently being tested. Based upon the drilling results obtained to date and the seismic data on the Block, the Company is optimistic about the exploration potential of the undrilled lands to the west of the MLE and LEC discoveries. Accordingly, FCP expects to commit to the second exploration period, at which time FCP will be required to relinquish 30% of the Block's acreage. The work commitment for the two year second exploration period includes acquiring additional seismic and drilling one exploration well by December 31, 2006.

As part of the Block 405b hydrocarbon agreement, FCP obtained the right to appraise and develop the MLE reserves discovered with the MLE-1 well. FCP has now drilled four MLE appraisal wells: MLE-2, MLE-3, MLE-4 and MLE-5. As compensation for the right to access the MLE discovery, the Company is committed to pay Sonatrach a fee of $0.25 per barrel of oil equivalent calculated on the total estimated recoverable MLE reserves. The access fee will be determined at the time the MLE reserves are declared commercial by Sonatrach and will be payable as a deduction from Sonatrach's share of the MLE development expenditures.

Yacoub Block 406a

The Company is in the first year of the second exploration period of the Block 406a hydrocarbon agreement. With the drilling of the ZCH-1 exploration well, FCP has satisfied all of its first exploration period work commitments. The second exploration period will end in November 2005 and its work commitment includes the acquisition of seismic and drilling two additional exploration wells. The cost of this commitment is currently estimated at $12.75 million. If the Company fails to satisfy this work obligation, the rights, other than for which an exploitation permit has been granted or requested, will be returned and the Company will be liable to pay Sonatrach a penalty of $12.75 million.

Capital Expenditures

Capital expenditures for the six months ended June 30, 2004 totaled $38.5 million compared to $17.6 million in the comparable period in 2003. Of the 2004 expenditures, $30.5 million related to drilling, completion and testing activities, $5.0 million was spent on seismic and $3.0 million related to administrative and support services for the Algerian operations.

Capital expenditures for the three months ended June 30, 2004 totaled $24.4 million compared to $8.9 million in 2003. In the second quarter of 2004 the Company production tested the MLE-5 appraisal well, completed drilling the LEC-1 and ZCH-1 exploration wells and continued a 550 km(2) 3D seismic programme on Block 405b. Of the second quarter 2004 expenditures, $19.4 million related to drilling, completion and testing activities, $4.1 million was spent on seismic and $0.9 million related to administrative and support services for the Algerian operations.

Following the ZCH-1 discovery, the Company increased its Block 406a 2004 capital programme to include a 613 km(2) 3D seismic program estimated to cost $6.0 million. This seismic data will be used to identify future drilling locations.

Liquidity and Capital Resources

FCP continues to rely on equity to fund its operations and capital programs. The Company had working capital of $48.7 million at June 30, 2004 compared to $83.1 million at December 31, 2003. Changes in the Company's working capital are primarily a function of the timing and magnitude of its equity financings and capital expenditures. The $34.4 million reduction in working capital for the six months ended June 30, 2004 is attributed to $38.5 million of capital expenditures, $7.0 million in proceeds from the exercise of options and warrants and $2.9 million to fund operations. During the three months ended June 30, 2004, the $26.0 million reduction in the Company's working capital is attributed to $24.4 million of capital expenditures, $0.4 million in proceeds from the exercise of options and warrants and $2.0 million to fund operations.

FCP has an active seismic and drilling program planned for the remainder of 2004 that will be funded substantially by the Company's working capital. It is expected the Company will require additional capital prior to the end of 2004 to fund operations and future capital spending. The capital markets presently appear receptive to the oil and gas sector and the Company believes this environment will continue into the foreseeable future. In addition, the development of the Block 405b reserves through to commercial production will require significant funding that is expected to be in the form of equity, debt, joint ventures or some combination thereof. The Company has been approached by a number of parties seeking to fund the Ledjmet development. To date, no financing arrangements have been made, however, the Company is optimistic the necessary funding will be available when required under reasonable commercial terms.

The Company is listed on the Toronto Stock Exchange and the AIM market of the London Stock Exchange. For the six months ended June 30, 2004, $7.0 million has been received from the issuance of 2,422,725 common shares pursuant to the exercise of stock options and warrants. During the three months ended June 30, 2004 the Company received $0.4 million for the issuance of 194,333 common shares from the exercise of stock options and warrants.

The fully-diluted number of shares outstanding at August 5, 2004, June 30, 2004 and December 31, 2003 were as follows:


                                       August 5,     June 30,    December 31,
                                         2004          2004          2003
    -------------------------------------------------------------------------
    Common shares                    165,529,411   165,479,411   163,056,686
    Employee stock options             9,077,668     9,012,668     9,018,401
    Common share purchase warrants       154,549       204,549     1,913,209
    Non-employee stock options           900,000       900,000       900,000
    -------------------------------------------------------------------------
    Fully-diluted shares outstanding 175,661,628   175,596,628   174,888,296
    -------------------------------------------------------------------------


    Operating Results and Selected Quarterly Information

                               2004                      2003
    (000's of
     U.S. dollars)         Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Interest and
     other income      $    238 $    415 $    315 $     81 $    118 $    124
    Expenses
      General and
       administrative     1,048      910      962      660      539      442
      Stock-based
       compensation       1,375    1,389    3,579      233      214      653
      Foreign exchange
       loss (gain)        1,137      292     (320)    (192)     633      421
      Write-off Yemen
       investment             -        -    1,035        -        -        -
      Earthquake
       donation               -        -        -        -    1,000        -
      Other expenses         92       90      290       34       97        8
    -------------------------------------------------------------------------
                          3,652    2,681    5,546      735    2,483    1,524
    Net loss             (3,414)  (2,266)  (5,231)    (654)  (2,365)  (1,400)
    Net loss
     per share            (0.02)   (0.01)   (0.03)   (0.01)   (0.02)   (0.01)

    Share capital       172,376  171,897  165,181   62,463   62,295   62,194

    Working capital
     (deficiency)        48,664   74,659   83,110   (1,150)  10,383   19,947
    Capital assets      107,267   82,886   68,708   52,106   41,061   29,085
    Other liabilities      (174)    (151)    (123)     (92)     (91)     (61)
    -------------------------------------------------------------------------
    Shareholders'
     equity            $155,757 $157,394 $151,695 $ 50,864 $ 51,353 $ 48,971
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                               2002
    (000's of
     U.S. dollars)         Q4       Q3
    -------------------------------------
    Interest and
     other income      $     75 $     84
    Expenses
      General and
       administrative       543      743
      Stock-based
       compensation          31      214
      Foreign exchange
       loss (gain)          (81)      60
      Write-off Yemen
       investment             -        -
      Earthquake
       donation               -        -
      Other expenses          5        5
    -------------------------------------
                            498    1,022
    Net loss               (423)    (938)
    Net loss per share    (0.01)   (0.01)

    Share capital        40,351   38,482

    Working capital
     (deficiency)         6,640   13,954
    Capital assets       18,862   10,053
    Other liabilities       (22)     (22)
    -------------------------------------
    Shareholders'
     equity            $ 25,480 $ 23,985
    -------------------------------------
    -------------------------------------
The Company's interest and other income for the three and six month periods ended June 30, 2004, were higher compared with the 2003 comparable periods as a result of higher average cash and term-deposit balances on hand during 2004.

The Company's general and administrative expenses were $2.0 million for the six months ended June 30, 2004 compared with $1.0 million in the comparable 2003 period. For the three months ended June 30, 2004 and 2003, the general and administrative expenses were $1.0 and $0.5 million, respectively. The increased expense during 2004 is primarily attributed to increased employee levels, administrative support, investor relations expenses and stock exchange listing fees.

Stock-based compensation expense was $2.8 million for the six months ended June 30, 2004 compared with $0.9 million in the comparable 2003 period. For the three months ended June 30, 2004 and 2003, the stock-based compensation expense was $1.4 and $0.2 million, respectively. The increased 2004 expense is primarily attributed to the accrued vesting of options granted in the fourth quarter of 2003 and to higher estimated option fair values.

The Company recorded a foreign exchange loss of $1.4 million for the six months ended June 30, 2004, of which $1.1 million was incurred during the second quarter. The loss primarily resulted from the effects of the weakening U.S. dollar against Canadian dollar deposits held during the quarter. A $0.6 million loss was recorded in the comparable 2003 period due primarily from foreign exchange rate changes on British pound holdings generated from the February 2003 public share offering. The Company changed its functional currency in the fourth quarter of 2003 from the Canadian dollar to the U.S. dollar. The functional currency is the unit of reference by which all foreign currency transactions are measured and foreign exchange gains or losses determined.

Business Risks and Uncertainties

The MD&A for the year ended December 31, 2003 includes an overview of certain of the business risks and uncertainties facing the Company. Those risks remain in effect as at June 30, 2004.

Outlook

The Company has an active exploration program planned for the remainder of the year. The Company has two drilling rigs contracted and will continue its exploration drilling on a number of seismically identified structures.

In addition, work is continuing to formulate plans for the MLE development, which is a major undertaking for the Company. Carrying this project through to commercial production as expeditiously as possible continues to be a priority.
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