Monterey Exploration Ltd. Announces Financial and Operating Results for the Three and Six Months Ended June 30, 2009

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2009) - Monterey Exploration Ltd. ("Monterey" or the "Corporation") (TSX:MXL) is pleased to provide its financial and operating results for the three and six months ended June 30, 2009.

Monterey's interim financial statements for the three and six months ended June 30, 2009 and management's discussion and analysis for the three months ended June 30, 2009 are available on SEDAR at www.sedar.com and on Monterey's website at www.montereyexploration.com.

SECOND QUARTER 2009 HIGHLIGHTS

- Achieved average daily production for the quarter of 2,329 barrels of oil equivalent per day ("boe/d"), an 82 percent increase compared with 1,280 boe/d during the comparative quarter in 2008.

- Generated quarterly funds flow from operations of $0.8 million versus $4.4 million of funds flow from operations generated in the second quarter of 2008. The reduction in funds flow from operations is due to Monterey receiving an average natural gas price of $3.60 per mcf, about 60 percent less than the $9.03 per mcf in the second quarter of 2008. Second quarter funds flow from operations per basic and diluted share in 2009 was $0.03.

- Engaged GLJ Petroleum Consultants Ltd. to prepare an independent evaluation of the Discovered Petroleum Initially-In-Place ("DPIP") on 5 net sections of Monterey's Montney landholdings in the Groundbirch area of northeast British Columbia ("NEBC"). The evaluation identified a current best estimate of net 659 billion cubic feet of DPIP in the upper Montney as disclosed in the Corporation's previous press release dated May 14, 2009. As at December 31, 2008, Monterey had no proved or probable reserves assigned to the Groundbirch Montney project.

SUBSEQUENT DEVELOPMENTS

- In July 2009 completed the disposition of 3 sections of undeveloped non-core lands in the Town area of NEBC for total net proceeds of $2.7 million. Monterey had recorded no reserves or production associated with the disposed lands. The proceeds from the disposition will be used to assist in the financing of the Groundbirch area drilling and completion operations scheduled to be carried out in the second half of 2009.

OVERVIEW

Monterey's second quarter capital spending program of $1.1 million was almost entirely directed towards operations at Groundbirch. The expenditures were comprised of the remaining drilling costs associated with the successful vertical Montney exploration test well drilled in the first quarter, the design, consultation and regulatory application costs related to the natural gas facility application, and survey and licensing costs associated with the next phase of exploration and development drilling activity. The Corporation's total capital expenditures for the first half of the year prior to dispositions totaled $5.3 million.

Production averaged 2,329 boe/d in the second quarter and 2,390 boe/d over the first half of the year exceeding the Corporation's guidance of 2,300 to 2,350 boe/d for the first six months of 2009.

Monterey disposed of 3 sections of undeveloped non-core lands in the Town area of NEBC for net proceeds of $2.7 million. The transaction was completed on July 13, 2009. There were no reserves or production recorded by the Corporation with the disposed lands and the proceeds from this disposition will assist in financing Groundbirch area drilling operations scheduled in the second half of 2009.

/T/

FINANCIAL & OPERATING SUMMARIES

Financial: Three Months Ended Six Months Ended
---------- June 30, June 30,
2009 2008 2009 2008
Production Revenue(1)
(000's) $ 5,597 $ 7,227 $ 13,211 $ 13,671

Funds Flow(4) :
(000's) $ 844 $ 4,417 $ 3,464 $ 7,964
Per share(5) :
Basic $ 0.03 $ 0.18 $ 0.11 $ 0.32
Diluted $ 0.03 $ 0.17 $ 0.10 $ 0.31

Net Earnings (loss):
(000's) $ (5,485) $ 601 $ (9,659) $ 1,712
Per share:
Basic $ (0.17) $ 0.02 $ (0.29) $ 0.07
Diluted $ (0.17) $ 0.02 $ (0.29) $ 0.07

Total Capital Expenditures
(000's) $ 1,104 $ 2,167 $ (714) $ 14,753

Ending Net Debt (6)
(000's) $ 34,152 $ 21,999 $ 34,152 $ 21,999

Share Data:
Outstanding:
Common 32,902,500 25,106,796 32,902,500 25,106,796
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Total basic 32,902,500 25,106,796 32,902,500 25,106,796
Stock options 3,135,666 2,150,666 3,135,666 2,150,666
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Total diluted 36,038,166 27,257,462 36,038,166 27,257,462
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Weighted average shares
outstanding:
Basic 32,902,500 25,106,796 32,902,500 25,082,508
Diluted 33,136,082 25,329,319 33,136,082 25,305,031
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Operations: Three Months Ended Six Months Ended
----------- June 30, June 30,
2009 2008 2009 2008
Average Daily Production:
Light oil and NGL (bbl/d) 470 181 466 211
Natural gas (mcf/d) 11,151 6,598 11,543 6,883
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Oil equivalent (boe/d) 2,329 1,280 2,390 1,358
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Unit of Production Summary:
Light oil and NGL ($/bbl) 44.81 105.92 41.38 92.87
Natural gas ($/mcf)(1) 3.60 9.03 4.62 8.02
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Oil equivalent ($/boe)(1) 26.42 62.03 30.55 55.32
Royalties ($/boe) (4.29) (11.09) (4.92) (10.49)
Operating expenses ($/boe) (11.93) (13.59) (11.73) (12.98)
Transportation expenses
($/boe) (1.50) (1.62) (1.68) (1.65)
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Operating income(2) ($/boe) 8.70 35.73 12.22 30.20
Unrealized loss on
financial instruments
($/boe) - 8.52 - 8.02
General & administrative(3)
($/boe) (3.46) (4.32) (3.10) (3.98)
Net interest expense
($/boe) (1.25) (2.03) (1.10) (2.02)
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Funds flow(5) ($/boe) 3.99 37.90 8.02 32.22
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Drilling:
Gross Wells:
Natural gas - - 1 7
Oil - - - -
Dry & abandoned - 1 - 1
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Total - 1 1 8
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Net Wells:
Natural gas - - 1.0 2.9
Oil - - - -
Dry & abandoned - 1.0 - 1.0
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Total - 1.0 1.0 3.9
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/T/

OPERATIONAL UPDATE

Monterey is in the final stages of preparation to commence horizontal drilling operations at Groundbirch. As of late July, the Corporation has received all of the licenses required for the next phase of drilling at Groundbirch which consist of two test/development horizontal's on the 5 section 100 percent working interest block, one horizontal step-out well and one vertical exploration test on the 10 section 75 percent working interest land block.

Construction of an 11 mile all season access road in the Groundbirch area has been completed by a competitor. Monterey's first scheduled horizontal location is located 2.5 miles off of this new road and the Corporation is currently constructing the lease access and the surface location for the well. Operators targeting the Montney formation in the Groundbirch area have remained extremely active through the summer months with 8 drilling rigs currently active within 20 miles of Monterey's existing development area.

OUTLOOK

The Corporation's business plan remains focused on value creation for shareholders through strict operational and capital allocation discipline. In this current commodity price environment, it is apparent that successful natural gas companies operating in western Canada will need to focus their technical expertise on finding and developing natural gas plays that can withstand prolonged commodity pricing below $5.00 per mcf. Management believes that the Montney project at Groundbirch is one such play that has the potential to add significant value to Monterey by generating a positive rate of return at today's pricing.

Monterey is increasing the 2009 capital expenditure guidance from the existing $10 million to $13-$15 million based on the scheduled operations at Groundbirch. The recent disposition of undeveloped lands in the Town area will assist in financing the increased expenditures. All remaining capital spending during the second half of the year will be applied towards the Montney project at Groundbirch. Currently, no future capital spending over the remainder of 2009 is anticipated to be applied to near term production addition projects; as a result the Corporation's production guidance for the year is expected to average approximately 2,200 boe/d.

The solid production performance of the underlying asset base through the first half of 2009 and a deep inventory of development projects in excess of $75 million have allowed Monterey to focus all of the remaining 2009 capital program on the Montney project at Groundbirch. Management is very encouraged by the preliminary results observed at Groundbirch on and adjacent to the Corporation's existing land holdings and looks forward to updating the shareholders in the near future as the project continues to develop.

Notes:

(1) Includes gain or loss on financial instruments from commodity price hedging activities.

(2) Funds flow from operations is not defined by Canadian generally accepted accounting principles ("GAAP") and thus is referred to as a non-GAAP measure; other entities may calculate funds flow differently than Monterey. Funds flow from operations is described in the Corporation's management discussion and analysis dated March 31, 2009 and is based on cash provided by operating activities before changes in non-cash working capital and asset retirement expenditures.

(3) Funds flow from operations per share is not defined by Canadian GAAP and thus is referred to as a non-GAAP measure. Funds flow from operations per share, is described in the Corporation's management discussion and analysis, and calculated by dividing funds flow by the weighted average number of shares outstanding during the period consistent with the calculation of net income per share.

(4) Total capital expenditures is not defined by Canadian GAAP and thus is referred to as a non-GAAP measure. Total capital expenditures, is described in the Corporation's management discussion and analysis, and is equal to the property and equipment additions, as disclosed under Investing activities in the Statements of Cash Flows of the Corporation financial statements, plus the outlays in respect of oil and gas properties acquisitions and corporate acquisitions (including the costs of the acquisition and the allocation to long lived asset retirement ), less the net proceeds received from the disposition of oil and gas properties.

(5) Net debt is not defined by Canadian GAAP and thus is referred to as a non-GAAP measure. Net debt, is described in the Corporation's management discussion and analysis, and is equal to total bank indebtedness plus capital lease obligations and less working capital (excluding financial instrument assets or liabilities).

(6) Operating income is not defined by GAAP and thus is referred to as a non-GAAP measure; other entities may calculate operating income differently than Monterey. Operating income, is described in the Corporation's management discussion and analysis, and is calculated by deducting the sum of royalty, operating and transportation expenses from production revenue and gains or losses from financial instruments.

(7) Excludes capitalized general & administrative expenditures and stock-based compensation expense.

Forward Looking Statements & Advisories

This press release contains forward-looking statements, including but not limited to, statements concerning the use of proceeds from the land disposition at Town, scheduled drilling operations at Grounbirch, certain expected actions to be performed and completed by industry partners, the performance characteristics of production from Monterey's developed oil and gas properties, approval and timing of applications and requests made to regulatory authorities, the access to and availability of production facilities, expectations regarding the ability to add to reserves through exploration and development activities, projections and costs and expenses and crude oil and natural gas production levels. Additionally, the use of any of the words "anticipate", "continue", "estimate", "expect", "forecast", "future", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Corporation's control, including the impact of general economic conditions; volatility in market prices for crude oil and natural gas; industry conditions; currency fluctuation; imprecision of reserve estimates; liabilities inherent in crude oil and natural gas operations;
environmental risks; incorrect assessments of the value of acquisitions and exploration and development programs; competition from other producers; the lack of availability of qualified personnel or management; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; hazards such as fire, explosion, blowouts, cratering, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; stock market volatility; and ability to access sufficient capital from internal and external sources. As a consequence, Monterey's actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Although Monterey believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements as the Corporation can give no assurance that such expectations will prove to be correct. Actual results may differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Monterey. In addition to other factors and assumptions which may be identified in this press release and other documents filed by the Corporation, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which Monterey operates; the ability of the Corporation to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Corporation has an interest in to operate the field in a safe, efficient and effective manner; Monterey's ability to obtain financing on acceptable terms including Monterey's continued access to existing credit facilities; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Corporation to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Corporation operates; and Monterey's ability to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list of factors is not exhaustive. Forward-looking statements contained in this press release are made as at the date of this press and Monterey disclaims any intent or obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

However, in the event that subsequent events are reasonably likely to cause actual results to differ materially from material forward-looking statements or information previously disclosed by Monterey for a period that is not yet complete, Monterey will provide disclosure on such events and the anticipated impact of such events.

Discovered Petroleum Initially in Place

This press release contains references to estimates of gas classified as Discovered Petroleum initially in Place ("DPIP") in the Corporation's Groundbirch area in British Columbia which are not, and should not be confused with oil and gas reserves. "Discovered Petroleum Initially in Place" is defined in the COGE Handbook as the quantity of hydrocarbons that are estimated, as of a given date, to be contained in known accumulations. DPIP is divided into recoverable and unrecoverable portions, with the estimated future recoverable portion classified as reserves and contingent resources. There is no certainty that it will be commercially viable to produce any portion of this DPIP. Resources do not constitute, and should not be confused with, reserves.

BOE Disclosure

Disclosure provided herein in respect of barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Non-GAAP Measures

Within this press release, references are made to terms commonly used in the oil and gas industry. Management uses funds flow from operations, operating income and capital expenditures to analyze operating performance. These measures do not have standardized meanings prescribed by GAAP, and may not be comparable to similar measures presented by other companies. For this press release the measures used are: (i) Funds flow from operations is determined by using cash flow from operations before changes in non-cash operating working capital and asset retirement expenditures; (ii) Operating income is calculated by deducting royalties, operating costs and transportation costs from sales revenues and hedging gains / (losses); (iii) Total capital expenditures is equal to capital expenditures plus the recorded cost of oil and gas properties of corporate acquisitions, including the costs of the acquisition and the allocation to long lived asset retirement; (iv) Funds flow per basic and funds flow per diluted share is calculated by dividing funds flow as described earlier, by the total number of respective weighted average basic and diluted common shares outstanding during the period; (v) Net debt is equal to total bank indebtedness plus capital lease obligations less/(plus) non-cash working capital/(deficit); and (vi) fully diluted share figures are calculated by adding the number of common shares underlying the outstanding stock options to the number of common shares outstanding (i.e. basic outstanding common shares) at the respective date. For additional information concerning Monterey's use of non-GAAP measures and reconciliations to the applicable GAAP measures, please see Monterey's management's discussion and analysis for the three and six months ended June 30, 2009 available at www.sedar.com.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with Monterey's unaudited interim Financial Statements for the three month and six months ended June 30, 2009 and audited Financial Statements and notes thereto for the year ended December 31, 2008. The Financial Statements have been prepared in Canadian dollars and in accordance with Canadian generally accepted accounting principles ("GAAP").

This MD&A contains forward-looking statements, non-GAAP measures, and disclosures of barrels of oil equivalent volumes. Readers are referred to the advisories concerning forward-looking statements, non-GAAP measures, and barrels of oil equivalent conversions are contained under the heading "Forward Looking Statements & Advisories". Disclosures in respect of the non-GAAP measures and Forward Looking Statements & Advisories are contained at the end of this MD&A.

Additional information regarding Monterey Exploration Ltd. such as the audited Financial Statements, Annual Information Form and other disclosure documents can be found on SEDAR at www.sedar.com or on the Corporation's website www.montereyexploration.com.

This MD&A is dated August 12, 2009.

Monterey Exploration Ltd. ("Monterey" or the "Corporation") is continued under the Business Corporations Act (Alberta) and is engaged in the acquisition, exploration, development and production of natural gas, natural gas liquids and crude oil in the Western Canadian Sedimentary Basin.

FREQUENTLY USED TERMS

In this document certain terms are used frequently. For instance, Monterey Exploration Ltd. is commonly referred to as either "Monterey" or the "Corporation" and barrels of oil equivalent are regularly noted with the term "boe".

/T/

Term or abbreviation
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"boe" Barrel(s) of oil equivalent
"mcf" Thousand cubic feet
"bbl" Barrel
"GJ" Gigajoule
"LIBOR" London Interbank Offered Rate
"m" preceding a volumetric measure 1,000 units of the volumetric measure
"mm" preceding a volumetric measure 1,000,000 units of the volumetric
measure
"NGL" Natural gas liquids
"NEBC" Northeast British Columbia
"Upper Lake" Upper Lake Oil and Gas Ltd.

/T/

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In determining estimates required to prepare the Corporation's financial statements, management uses available information it considers to be reasonable under the circumstances. Readers are cautioned that actual results could differ from these estimates. Except for the items disclosed under "Accounting Pronouncements and Account Policy Changes", the accounting policies and estimates used to prepare the financial statements for the three and six months ended June 30, 2009 are consistent with those disclosed in Monterey's financial statements and MD&A for the year ended December 31, 2008. For a detailed discussion of the accounting policies and critical accounting estimates used please refer to the Corporation's December 31, 2008 year ended financial statements and MD&A.

ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING POLICY CHANGES

During the first quarter of 2009, Monterey adopted CICA handbook section 3064, Goodwill and Intangible Assets. The handbook section applies to goodwill subsequent to initial recognition and establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. Adoption of the new disclosure requirement did not have an impact on the Corporation's financial statements or disclosure in the notes to the financial statements.

During the second quarter of 2008, the accounting standards board ("AcSB") has confirmed the date of changeover to international financial reporting standards ("IFRS") will be for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Management has taken steps to educate its staff and reviewed its accounting systems to determine the differences between Canadian GAAP and IFRS. An implementation plan for the changeover from Canadian GAAP to IFRS will be prepared later in 2009. Changes in accounting policies are likely going to have a material impact on Monterey's financial statements; however Management is not able to quantify the impacts at this time.

INTERNAL CONTROLS REPORTING

Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer, together with other members of Management, have designed Monterey's disclosure controls and procedures to provide reasonable assurance that material information relating to the Corporation is disclosed in a timely manner and free from material misstatement. As at December 31, 2008, an evaluation of the effectiveness of Monterey's disclosure controls and procedures was conducted in accordance with Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual Financial and Interim Filings, based on that evaluation, the Chief executive Officer and the Chief Financial Officer concluded that the design and operation of Monterey's disclosure controls and procedures were effective as at December 31, 2008.

Internal Controls over Financial Reporting

Also in accordance with Multilateral Instrument 52-109, the Chief Executive Officer and Chief Financial Officer of Monterey are responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. The Chief Executive Officer and Chief Financial Officer directed the assessment of the design and operating effectiveness of Monterey's internal controls over financial reporting as at December 31, 2008 and based on that assessment determined that the Corporation's internal control over financial reporting was, in all material respects, appropriately designed and operated effectively.

During the six months ended June 30, 2009, there have been no material changes in the design or operation of the Corporation's internal controls over financial reporting.

Summary

Due to inherent limitations of a control system, including the Corporation's disclosure controls and procedures and internal controls over financial reporting, no matter how well conceived or operated may not prevent or detect misstatements, errors or fraud and can only provide reasonable assurance that the objectives of the control system are met.

RISKS & UNCERTAINTIES

Some of the risks that Monterey is exposed to which impact Management's ability to execute the Corporation's business plan include but are not limited to:

- Exploration, development and production activities

Monterey's success depends upon its ability to find, secure rights, acquire, develop and commercially produce oil and natural gas reserves. Risks associated with the exploration, finding and development and production of oil and gas reserves is impacted by: attracting, hiring and retaining knowledgeable and experienced staff; competition for prospective land for exploration and development activities; geological and operational risks; application of changing or new technologies, imprecision of reserve estimates and valuation; timely receipt of required regulatory approvals; ability to secure or obtain equipment, services and supplies when needed; weather; field operating risks; and existence and ability to access production infrastructure to deliver production to market.

Management attempts to manage and overcome these risks by careful addition of staff, early identification and evaluation of opportunities; careful planning of operations and development of contingency plans; developing continuing relationships with reliable suppliers of services, equipment and supplies; and carrying appropriate levels of insurance.

- Global financial crisis

During 2008 market conditions and events led to significant disruptions of international credit markets and the overall deterioration of worldwide economic conditions leading to increased volatility in markets (including financial and product markets), reduced liquidity, widening of corporate spreads, increased credit losses and tightening of credit conditions. Governments throughout the world have been required to intervene in preventing the collapse of banks, insurers and financial institutions. These conditions have impacted Monterey due to continued volatility of commodity prices, currency exchange, interest rates, access to and the amount of debt and equity financing available, and the Corporation's valuations (stock market trading price and net asset value) have been negatively impacted.

Management has attempted to mitigate the impacts of the global recession and uncertain credit markets by disposing of non-core properties to reduce debt, reducing the size of the capital expenditure program to approximate funds flow from operations, fixing the cost of debt through the issue of guaranteed notes and entering into a new credit facility that allows Monterey to continue to access up to $45 million in borrowings from the lender. The Corporation has access to borrowings under the credit facility until the lender's next review which is scheduled to be completed prior to June 1, 2010.

- Capital requirements

The Corporation's core business requires sufficient funds for the future acquisition, exploration, development and production of oil and natural gas reserves. Economic conditions, such as the current worldwide recession can cause significant volatility of commodity prices meaning that internal generation of funds or reasonable return of investment is uncertain. In addition the global credit crisis can result in a reduction in the access to, timing, amount and cost of debt thus making Monterey's ability to conduct or complete exploration and development activities more difficult.

Management ensures that projects are adequately evaluated to estimate viability under challenging economic conditions. In addition development of capital spending plans are carefully prepared and are subject to ongoing review to ensure that sufficient financial resources are available