Mr. Terry McCoy reports

ARCAN DELIVERS SOLID PRODUCTION, REDUCED OPERATING EXPENSES AND COMPLETES BANK LINE REVIEW

Arcan Resources Ltd. has commenced its winter drilling program in the third quarter, reduced operating expenses and continued efforts to improve its debt position.

"We are on track with our operating performance, delivering average daily production of 3,924 barrels of oil equivalent in the third quarter, which exceeded our quarterly guidance of 3,650 to 3,850 boe per day," said Terry McCoy, Arcan's chief executive officer. "The wells we drilled last spring continue to meet or exceed our production expectations as our operating teams optimize their development programs. We expect to meet our annual guidance of 3,500 to 3,800 boe per day, despite the impact related to the current short-term shutdown of a third party processing facility."

With the rapid change of market conditions and decline of oil prices in the current quarter, Arcan plans to curtail a portion of its winter drilling program to conserve capital. During the fourth quarter of 2014, the corporation plans to drill four (3.0 net) wells. The first two wells (1.0 net) have been drilled and completed already, and are expected to be on production prior to year-end. These wells are joint interest wells in Morse River and Deer Mountain West. Drilling has commenced on the first of the remaining two wells off of the existing pad site in the Ethel field. These wells are in proximity to the four wells drilled earlier this year and are expected to be completed and placed on production early in the first quarter of 2015. Arcan had originally anticipated drilling up to nine wells (7.0 net) this winter; however, Arcan is evaluating its first quarter 2015 drilling plans in light of current market conditions.

"Our hedging program was designed to stabilize Arcan through the downturns in oil prices," said Doug Penner, Arcan's president. "We've hedged approximately 90 per cent of Arcan's production after royalties through to the end of the year, throughout 2015 and through the first quarter of 2016, using prices above $90 (Canadian) per barrel. We also continue to evaluate options to improve our debt position and provide additional flexibility to invest in accelerating the development of our extensive light oil asset base."

During the quarter, Arcan was able to make further infield adjustments to lower operating costs. This remains a priority, and further cost improvements are expected as optimization efforts advance. Arcan commenced filling the Ethel oil sales pipeline and anticipates the line to be placed in service during December, 2014, providing further improvement in operating and transportation costs.

Arcan's general and administrative costs were lower quarter over quarter, but were elevated due to the costs associated with restructuring efforts last summer and the corporation's staff retention program.

During the corporation's recent semi-annual borrowing base review, the credit facility was revised to $170-million from $180-million. The credit facility matures on May 28, 2015, unless Arcan and its lenders agree to an amendment, renewal or extension.

                   FINANCIAL AND OPERATING HIGHLIGHTS

                                     Three months ended   Nine months ended 
                                         Sept.     Sept.     Sept.     Sept. 
                                     30, 2014  30, 2013  30, 2014  30, 2013 
Financials ($000s except per-share                                          
amounts)                                                                   
Petroleum and natural gas revenue     $30,605   $33,317   $97,372   $97,024 
Cash flow from operating activities     6,981    12,904    24,788    46,835 
Funds from operations                   9,027    11,500    27,641    38,053 
Per share, basic and diluted             0.09      0.12      0.28      0.39 
Net income (loss)                       5,126    (4,622)   (7,785)   (6,530)
Per share, basic and diluted             0.05     (0.05)    (0.08)    (0.07)

Operating                                                                   
Production                                                                 
Crude oil and NGLs (barrels                                                
per day)                                3,802     3,616     3,808     3,898 
Natural gas (thousand cubic feet                                           
per day)                                  728       662       691       393 
Boe per day (6:1)                       3,924     3,726     3,923     3,964 
Average realized price                                                     
Crude oil and NGLs ($ per bbl)         $86.83    $99.70    $92.88    $90.89 
Natural gas ($ per Mcf)                  3.49      2.41      4.30      2.80 
Combined price per boe ($ per boe)      84.79     97.17     90.91     89.66 
Netback ($ per boe)                                                      
Petroleum and natural gas sales         84.79     97.17     90.91     89.66 
Royalties                              (15.29)   (18.60)   (16.27)   (16.53)
Production and operating expenses      (14.13)   (18.87)   (15.43)   (17.62)
Operating netback ($ per boe)           55.37     59.70     59.21     55.51 
Realized economic hedging gains                                             
(losses) -- cash                        (7.60)    (6.21)    (9.52)    (1.14)
G&A                                     (8.57)    (6.15)    (7.38)    (4.85)
Other finance expenses -- cash             --        --        --        -- 
Total                                  (12.73)   (13.05)   (12.55)   (12.32)
Corporate netback                       26.47     34.29     29.76     37.20 

All amounts in the table exclude Stimsol's discontinued 
operations unless otherwise indicated.

Financial highlights:

• Operating netbacks decreased by 11 per cent to $55.37 per barrel of oil equivalent in the third quarter from $62.22 per boe in the second quarter, and fell 7 per cent from $59.70 in the third quarter of 2013. Operating netbacks were lower in the quarter due to the decrease in oil prices that impacted revenues.
• Funds from operations rose 20 per cent to $9.0-million during the third quarter from $7.5-million in the second quarter. In year-over-year results, funds from operations fell from $11.5-million in the third quarter of 2013.
• Arcan further decreased the draw on its bank line by $10.1-million, reflecting its continuing efforts to pay down debt. At the end of the third quarter, Arcan had $144.4-million drawn on its credit facilities, down from $154.5-million in the second quarter. This is also a reduction from $164.4-million in the third quarter of 2013. As of the date hereof, the credit facility is drawn by approximately $136.2-million.
• During the corporation's recent semi-annual borrowing base review, the credit facility was revised to $170-million from $180-million. The credit facility matures on May 28, 2015, unless Arcan and its lenders agree to an amendment, renewal or extension.
• The company invested $3.4-million of capital during the third quarter, with the majority of the capital being invested in upgrading Arcan's Ethel battery. Arcan also completed the sale of the Ethel oil sales pipeline during the third quarter for $5.2-million. Third quarter capital expenditures were in line with Arcan's reduced summer budget, and expenditures are expected to rise during the winter drilling months. Capital spending was comparable with $3.6-million in the second quarter of 2014 and down from $7.4-million in the third quarter of 2013.
• The company reduced general and administrative expenses by 3 per cent in the third quarter to $8.57 per boe, down from $8.82 per boe in the second quarter, but higher than $6.15 per boe in the third quarter of 2013. G&A expenses in the third quarter of 2014 were impacted by staff retention initiatives and costs resulting from restructuring initiatives.
• The company amalgamated with Stimsol on Sept. 30, 2014, and on Oct. 3, 2014, completed the sale of all Stimsol assets. The associated property, plant and equipment were sold for total gross proceeds of $2.5-million, with Arcan receiving $500,000 and $2.0-million going to a third party for the termination of a previous hydrochloric acid supply contract.

Operational highlights:

• Production was reduced by 4 per cent in the third quarter to average 3,924 boe per day, down slightly from 4,105 boe per day in the second quarter. In the third quarter of 2013, production averaged 3,726 boe per day. Arcan's fourth quarter production will be impacted by the unplanned and short-term shutdown and maintenance at a third party gas plant. This has shut in approximately 1,200 boe per day of production, with a resumption expected in early December.
• The company reduced operating costs by 11 per cent to $14.13 per boe in the third quarter, down from $15.83 in the second quarter and $18.87 in the third quarter of 2013. Arcan benefited from its efforts to introduce additional operating efficiencies, as well as the operation of the sales gas pipeline through Ethel to Deer Mountain.
• Further reductions in operating costs are expected with the electrification expansion in the Ethel field, which Arcan anticipates will reduce power expenses and downtime. Arcan will also benefit from the expected tie-in of the Ethel oil sales line, which is expected to reduce trucking expenses.
• Arcan anticipates drilling four (3.0 net) wells during the current fourth quarter 2014 drilling program and is evaluating its first quarter 2015 drilling plans in light of current market conditions.

Outlook

Arcan continues to advance its objective of delivering sustainable and profitable light oil production from long-life, conventional light oil plays in the Swan Hills. The majority of identified prospects is drillable from existing pad sites or readily available access from existing road and pipeline infrastructure. Based on geological assessment and offset production performance, Arcan has high-graded 120 of these locations. Arcan expects to continue to expand application of the water flood process to enhance oil recovery, improve production decline rates and provide incremental economic value.

As a key aspect of its strategy, the corporation is seeking reductions in companywide operating costs. Currently, efforts are advancing for the electrification of the Ethel field, which Arcan anticipates will reduce power generation costs, and the tie-in of the Ethel sales pipeline to Deer Mountain, which is expected to reduce trucking costs. Arcan is seeking to maintain costs at or below $15 per boe. This cost-conscious approach also extends to other aspects of the corporation's operational platform. Arcan is planning to drill, complete and tie in wells for a cost ranging from $4.5-million to $5.0-million. To meet this target, additional operational improvements are being made in the field, and efforts are being taken to instill a culture of disciplined, cost-effective operations.

Arcan has increased its activity levels in the fourth quarter and has spudded the third well of the winter drilling program. All of the wells drilled in the fourth quarter of 2014 are expected to be completed and tied in prior to spring breakup. Arcan is evaluating the balance of its winter program in light of current market conditions. Reductions from the nine (7.0 net) wells originally planned are intended to preserve capital during the current period of weak oil prices. The corporation has designed its capital programs to fall within funds from operations due to limited access to capital and its debt ceiling. Arcan also continues to actively pursue options to reduce its debt burden or expand its development program.

The corporation continues to benefit from positive production results from wells in last year's drilling program and continued water flood response and expansion. Arcan expects fourth quarter production to be in line to meet its annual guidance of 3,500 to 3,800 boe per day for 2014.

Financial statements and management's discussion and analysis

Arcan has filed its unaudited condensed interim consolidated financial statements and the accompanying management's discussion and analysis for the three- and nine-month period ended Sept. 30, 2014, with the Canadian securities regulatory authorities. These filings are available for review at SEDAR or the Arcan website.

We seek Safe Harbor.