Mr. Don Klapko reports

EQUAL ENERGY REPORTS FIRST QUARTER 2013 RESULTS AND DECLARES SECOND QUARTER DIVIDEND

Equal Energy Ltd. has released its first quarter 2013 financial results, including higher production from its liquids-rich natural gas Hunton property in central Oklahoma. Equal's board of directors has approved the company's second quarterly dividend payment of five U.S. cents per share on its common shares, payable on June 30, 2013, to shareholders of record at the close of business on June 3, 2013. All currency figures in this release are expressed in United States dollars unless otherwise indicated.

For the first quarter of 2013, Equal's production was from its central Oklahoma properties. Year-earlier U.S. production also included other properties that were subsequently sold. For additional transparency, Equal's first quarter 2013 disclosure includes certain comparisons of the same Oklahoma operations in the same period of 2012. Equal has completed the move of its headquarters to Oklahoma City, from Calgary, as of March 15, 2013. The company now reports financial results in U.S. currency and according to U.S. GAAP (generally accepted accounting principles).

Central Oklahoma highlights

• First quarter 2013 production averaged 6,280 barrels of oil equivalent per day (boe/d), up 4 per cent from 6,040 boe/d (net of royalties).
• Current production rates are averaging around 6,500 boe/d.
• Three wells were spudded during the first quarter; all were producing by mid-April.
• The company had a 100-per-cent drilling success rate, with all three wells performing at or above production type curve.
• Average capital expenditures for the first three new wells drilled, including infrastructure costs, in 2013 were $2.7-million, down 8 per cent from $2.9-million per well drilled in early 2012.

"Our new strategy of focusing on the Hunton play in central Oklahoma is paying off," said Don Klapko, president and chief executive officer. "We continue to target average production of 6,400 boe per day for the full year 2013."

Equal expects to achieve its central Oklahoma growth target by drilling up to seven additional Hunton wells in the remaining nine months of 2013, building on the company's perfect success rate so far this year. Commodity prices relative to last year appear to be moving in the company's favour for the planned wells remaining in 2013. The company will reassess its drilling program after the sixth well is drilled to ensure proper capital efficiency hurdles are being achieved.

Equal has also added attractive hedges for 2013 and 2014 as a result of an improved price environment for natural gas during the first quarter, and a strengthening of prices for certain NGL (natural gas liquids) components subsequent to the quarter-end. The improving prices, some of them now locked in, combined with meeting the company's production targets, increase the company's confidence that it will achieve its 2013 cash flow budget of $33-million. Budgeted cash flow doesn't include estimates of balance sheet items or cash flow from discontinued operations.

Three Hunton wells spudded in first quarter 2013 now producing

Equal, which continues to run its one-rig drilling program, spudded three wells during the first quarter of 2013 with a 100-per-cent success rate. The first well was completed and initiated production during the quarter; the second and third wells were drilled from the same pad and were completed back to back in April. The three wells are currently producing at a combined rate of 250 boe per day, net to Equal. Hunton wells typically take an average of 90 days to reach peak production and generally maintain that peak rate for around 18 months.

Capital expenditures for the first three wells of 2013, including infrastructure costs, were $8.1-million or $2.7-million per well, comparing favourably with expected average Hunton well costs of $2.8-million per well. Cost savings have been realized by drilling multiple wells from a single pad, improved drilling efficiencies and importantly, employees' and contractors' continued focus on cost reduction.

Equal's fourth well of 2013 is drilled, and drilling on the fifth well is under way from the same pad. When the rig is finished drilling the fifth well, both wells will be completed for production.

Balance sheet and liquidity remain strong; Equal adds hedges in 2013 and 2014

In the first quarter of 2013, Equal generated cash flow before balance sheet changes, a non-GAAP financial measure reconciled to a GAAP financial measure later in this release, of $7.1-million. At March 31, 2013, Equal had $21.5-million of cash on hand and $125-million (Canadian), or the U.S. dollar equivalent, available on its credit facility.

Further solidifying its budgeted 2013 cash flow of $33-million, Equal has entered into swap contracts to hedge certain components of its NGL production for the remainder of 2013. Conway NGL hedges include 300 barrels per day of propane (April to December) and 200 barrels per day of natural gasoline (May to December), also referred to as C5+, at 91 cents and $2 per gallon, respectively. Additionally, Equal added another 2,000 million British thermal units per day of Nymex (New York Mercantile Exchange) natural gas at $4.34 per one million British thermal units for 2014 (1,932,000 cubic feet per day at $4.49). Cubic feet are converted using a rate of 1,035,000 British thermal units to 1,000 cubic feet.

For the remainder of 2013, Equal has 15,502 million British thermal units per day of natural gas production hedged, or 78 per cent of forecasted natural gas production, at a weighted average price of $3.72 per one million British thermal units (14,978,000 cubic feet per day at $3.85). The company also has 200 barrels per day of WTI (West Texas Intermediate) crude oil swaps at a price of $101.50 (Canadian) through 2013, in addition to the NGL components, as described above, approximately, 21 per cent of forecasted total liquids production is locked in for the remainder of 2013.

Two thousand fourteen hedges comprise 14,000 million British thermal units per day of natural gas production hedged at a weighted average price of $4.13 per one million British thermal units (13,527,000 cubic feet per day at $4.27).

Outlook

For the remainder of 2013, the company plans to maintain a balanced and prudent approach by:

• Maintaining Equal's strong balance sheet (net debt to cash flow less than 1:1) and protecting the dividend;
• Staying focused on cost management and efficient execution of the drilling program;
• Evaluating drilling plan at midyear to ensure optimal allocation of capital;
• Management estimating six wells to replace produced reserves, eight wells to keep production flat and 10 wells to result in an approximate 4-per-cent rate of production growth;
• Initial results of the first three wells encouraging and indicating 25-per-cent-to-35-per-cent rates of return, based on May 2, 2013, strip commodity prices;
• Testing one or two oil play concepts on the company's held by production acreage;
• Increasing the acreage acquisition program in the company's central Oklahoma area of focus.

Central Oklahoma production becoming more liquids rich

Net production of natural gas liquids (NGL) in the first quarter of 2013 was largely responsible for overall growth in central Oklahoma volumes, compared with the first quarter of 2012. Wells drilled in late 2011 and early 2012 have contributed to overall production growth. The liquids content of the production has increased to 52 per cent, from 50 per cent last year, with the continued increase in British thermal unit content of existing production.

      COMPARABLE PRODUCTION VOLUMES AND PRODUCING WELLS FOR CENTRAL OKLAHOMA
                                   
                                                    Three months ended March 31,           
                                                    2013                    2012
Net production per day
NGL (bbl)                                          3,084                   2,847
Natural gas (mcf)                                 18,232                  18,018
Oil (bbl)                                            157                     190
Total (boe)                                        6,280                   6,040
Producing wells at period-end                        132                     129

Central Oklahoma

Revenue and energy prices prices of natural gas, NGL and oil that the company produces can vary significantly which impacts the company's revenues and cash flows.

Excluding both hedges and properties other than central Oklahoma, revenues declined by 4 per cent from last year as lower NGL prices more than offset production gains in the first quarter of 2013. NGL production generated 62 per cent of the company's revenue stream.

Central Oklahoma production expenses and production taxes

Equal Energy was able to substantially reduce production expenses in the first quarter of 2013 compared with a year earlier through a continued focus on cost reductions.

Equal first quarter 2013 financial results

NGL, natural gas and oil revenues for the first quarter of 2013 totalled $14.8-million, down 17 per cent from $17.8-million a year earlier as a result of lower NGL prices and lower production due to northern Oklahoma properties divested in 2012.

Interest expense totalled $1-million in the first quarter of 2013, down 47 per cent from $1.8-million a year earlier due to lower debt balances, as debt was repaid with asset sale proceeds during 2012.

General and administrative expenses (G&A) were $3.2-million, or $5.58 per boe in the first quarter of 2013, compared with $2.3-million or $3.48 per boe in the first quarter of 2012. Lower production volumes due to asset sales, costs associated with the transitioning of the company's headquarters from Calgary to Oklahoma City and converting to a U.S. domestic filer with the U.S. Securities and Exchange Commission have resulted in higher per boe costs. Management expects G&A costs to decline as the transition activities are completed.

Cash costs, including production expense, production taxes, interest expense and G&A were $15.01 per boe for the first quarter of 2013, down 11 per cent from $16.89 per boe in the first quarter of 2012, which includes northern Oklahoman assets divested in 2012.

Equal incurred an aftertax loss of $200,000 on continuing operations compared with a year-earlier profit of $3.1-million. The key factors were weaker NGL prices, lower production due to asset sales, unrealized losses on commodity hedges and non-recurring costs associated with moving the company's headquarters to Oklahoma City. After taking into account income from discontinued operations, Equal reported net income of $1.5-million or four cents per share, compared with $4-million or 11 cents per share a year earlier. Income from discontinued operations in the first quarter of 2013 was attributable to prior period accounting adjustments for accrual of production volumes and royalties.

 
                  CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME/(LOSS)
                               (in thousands, except per share data)                
                                                                           Three months ended March 31,
                                                                                 2013              2012
Revenues
NGL, natural gas and oil revenues                                             $14,805           $17,776
Gain (loss) on commodity contracts                                             (3,271)              809
Total revenues                                                                 11,534            18,585
Expenses
Production                                                                      3,455             5,984
Production taxes                                                                  926               998
General and administrative, including share-based compensation                  3,154             2,293
Interest expense                                                                  949             1,843
Depletion and depreciation                                                      4,867             5,998
Amortization of deferred charges                                                  110               109
Accretion of asset retirement obligation                                          101               106
(Gain) on sale of assets                                                          (28)                -
Foreign exchange (gain)                                                          (969)           (2,768)
                                                                               12,565            14,563
Income (loss) from continuing operations before taxes                          (1,031)            4,022
Taxes
Deferred tax (expense) benefit                                                    801              (948)
Income/(loss) from continuing operations                                         (230)            3,074
Discontinued operations
Income from discontinued operations                                             1,762               878
Net income                                                                      1,532             3,952
Other comprehensive income/(loss)
Foreign currency translation adjustment (loss)                                     61            (3,641)
Comprehensive income                                                            1,593               311
Earnings per share information
Basic earnings (loss) per share from continuing operations                      (0.01)             0.09
Basic earnings per share from discontinued operations                            0.05              0.02
Basic earnings per share                                                         0.04              0.11
Diluted earnings (loss) per share from continuing operations                    (0.01)             0.09
Diluted earnings per share from discontinued operations                          0.05              0.02
Diluted earnings per share                                                       0.04              0.11

We seek Safe Harbor.