Rally Energy Revises 2007 Capital Program

Rally Energy's Board of Directors has approved a $135 million two year capital program, $86 million in a revised 2007 program and $49 million in a new 2008 program. The 2007 and 2008 programs are directed at accelerating development of the Corporation's core assets at the Issaran Oil Field in Egypt and at the Salsabil Gas Field in Pakistan. These capital budget amounts are in addition to a $62 million revised capital program for 2006 of which $14 million was spent in the first half of this year and $12.8 million has been allocated to the purchase price of an additional 7.5% working interest in Pakistan.

The 2007 - 2008 capital programs include a total of 146 wells to be drilled in Egypt and Pakistan, the installation of central oil cleaning and thermal production facilities in Egypt and the construction of a gas processing facility in Pakistan.

Management currently expects that the full capital program will be funded from working capital, proceeds from the disposition of non-core Canadian assets, cash flow and available credit facilities.

The main changes from last year's Global Development Plan and recent updates are:


Conventional Drilling and Production

Excellent drilling results and primary production from the Nukhul formation and extension of the Nukhul play to the east and west of Issaran field increases expected production and recognized reserves.

Thermal Development

The successful thermal pilot program at Issaran leads to early expansion and acceleration of the thermal development plan. This is expected to lower average daily production for 2006 due to dedication of the existing rig to the drilling of seven thermal wells but is expected to have a significant impact on production, recognized reserves and future growth of the Corporation in upcoming years. We have initiated discussions to contract a second rig to start operations in the second quarter of 2007.



Increased working interest to 30% in the Safed Koh Concession, through the acquisition of an additional 7.5% interest, has a significant impact on production and reserves. This transaction, announced on June 12, 2006, is expected to close in the next 30 to 60 days as soon as the Corporation receives necessary approvals from the Government of Pakistan.

Production Start-up

Delay in gas production start-up and execution of a gas pricing agreement in Pakistan lowers average corporate production forecast for 2006 but will track previous plans for 2007. Pipeline and gas processing plant construction has begun and the operator's current best estimate for first production is January 2007. Discussions and negotiations are ongoing with government authorities to finalize the pricing agreement.

Production guidance for Pakistan does not include any potential gas production increases from the drilling of two large exploration prospects in 2007 and 2008.


The revised budgets reflect a decision to sell the Corporation's Canadian assets and to deploy sales proceeds to capital programs in the Issaran and Safed Koh concessions to achieve significant increases in corporate production in 2007 and 2008.

Canadian Assets Sale

The Corporation executed today an arm's length Letter of Intent with Northern Hunter Energy Inc., a private oil and gas company, for the sale of all of its assets in Canada for a purchase price of $11 million ($8 million in cash and $3 million in shares). The agreement, with an effective date of October 1, 2006, is subject to certain conditions and closing is scheduled for November 18, 2006.


The Corporation's average production during the first half of September exceeded 6,200 BOE per day.

Based in Calgary, Alberta, Canada, Rally Energy is an oil and gas exploration, development and production company. The Corporation's primary area of operations is in Egypt, where it has a 100% operating interest in the Issaran Oilfield, a significant heavy oil development opportunity with strong growth potential. In Pakistan, the Corporation holds a 22.5% interest in the Safed Koh Block, where it is participating in the development of a large natural gas/condensate discovery. In Canada, Rally Energy is active in Alberta and Saskatchewan with varied working interests in several producing properties.