Mr. Edmund Shimoon reports

CALVALLEY PETROLEUM INC., (TSX: CVI.A) ANNOUNCES RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2014 AND PROVIDES OPERATIONS UPDATE

Calvalley Petroleum Inc. has provided its financial results for the three and 12 months ended Dec. 31, 2014 (all amounts in U.S. dollars unless otherwise stated).

Highlights:

• During 2014, the company was unable to carry out many elements of its development plan for the Yemen assets due to restrictions on the availability of services. Yemen has been subject to significant political uncertainty during the year, and the situation has yet to stabilize. The safety and security of staff in the region are of critical importance to the company. The uncertain security situation in the country has made it very difficult to mobilize the necessary equipment and personnel into Yemen, and, as a result, development projects are being deferred indefinitely.
• Due in part to the decline in world oil prices, the company's results for both the quarter and the year have been significantly impacted by a non-cash impairment provision. The calculation for the impairment provision has been based on the company's production profile under its proved plus probable reserve development case, a price forecast based on prices indicated by the forward pricing curve as at Jan. 7, 2015, and a discount rate of 30 per cent. If the company had used as a basis the proved developed producing reserve volume forecast, the price forecast adopted by the independent engineering firm for the company's reserve evaluation and a discount rate of 20 per cent, the non-cash impairment amount would not be significantly different.
• Excluding the impairment provision of $88.1-million, the company incurred a loss of nil per share ($300,000) in the fourth quarter of 2014, compared with earnings of eight cents per share ($6.0-million) in the fourth quarter of 2013. For the year ended Dec. 31, 2014, excluding the impairment provision, earnings were nil per share ($200,000), compared with 28 cents per share ($23.2-million) in 2013. Inventory of crude oil at the end of Dec. 31, 2014, was approximately 46,200 barrels and represents an increase of 16,600 barrels from Dec. 31, 2013.
• The company's working interest share of production volumes before royalties and taxes averaged 1,430 barrels per day for the year, representing a 43-per-cent decline from 2,520 barrels per day for 2013. For the fourth quarter of 2014, production volumes were 1,760 barrels per day, compared with 2,390 barrels per day in the comparable period of 2013. The decline in production year over year is due to a combination of the shut-in of the Al Roidhat field, due to marketing restrictions and production curtailments experienced during the year. During the fourth quarter of 2014, production operations were curtailed for 10 days due to a labour dispute.
• In the fourth quarter of 2014, the company sold an average of 2,920 barrels per day of crude oil, compared with 2,460 barrels per day in the comparable period of 2013. For the year ended Dec. 31, 2014, crude oil exports have averaged 1,260 barrels per day, compared with 2,330 barrels per day in the comparable period of 2013. For the fourth quarter of 2014, the average sale price received was $74.23 per barrel, which represents a discount of $2.35 to the dated Brent crude price of $76.58 for the quarter. The product netback for the last quarter of 2014 was $16.82 per barrel, and for the year ended Dec. 31, 2014, the netback of $22.49 per barrel represents a decrease of 47 per cent from $42.13 per barrel for 2013, reflecting both lower realized prices for crude oil and higher operating costs.
• Funds flow from operations (cash flow) for the fourth quarter was three cents per share ($2.6-million), compared with 10 cents per share ($8.0-million) in the prior-year period. For the year ended Dec. 31, 2014, cash flow was seven cents per share ($5.2-million), down 82 per cent from 38 cents per share ($31.2-million) in the prior-year period.
• Capital expenditures in the fourth quarter of $2.3-million include the costs of equipment ordered earlier in 2014 for the planned capital program and received in Yemen in the quarter, and project services, down from $2.8-million in the fourth quarter of 2013. Capital expenditures for the year of $6.8-million are down 29 per cent from capital expenditures of $9.6-million for 2013.
• During the fourth quarter, the company purchased for cancellation 3,403,837 shares at an average price of $1.12 ($1.27 (Canadian)) per share under the company's normal course issuer bid (NCIB). For the year ended Dec. 31, 2014, the company has purchased for cancellation a total of 3,655,006 shares at an average price of $1.14 ($1.29 (Canadian)) per share under the NCIB.
• The annual per-share calculations included in this release are based on 77,217,884 weighted average number of shares outstanding. The fourth-quarter per-share amounts are based on 75,126,232 weighted average number of shares outstanding. The company had 74,386,820 shares outstanding at Dec. 31, 2014.
• On Aug. 18, 2014, the board of directors declared a special dividend of seven cents per common share, payable to shareholders of record on Aug. 29, 2014. The dividend was paid in cash on Sept. 15, 2014.
• Calvalley has a strong balance sheet with approximately $75-million in working capital at Dec. 31, 2014. The value of the volumes of crude oil held in inventory at Dec. 31, 2014, reflect market value.

Operations update

In early February, 2015, members of the cabinet of the government of Yemen resigned, and, more recently, several foreign embassies have closed their offices and suspended diplomatic services. Amidst the significant concerns for the safety and security of all Yemen staff, contractors and foreign workers, and the uncertain political environment, the company is maintaining production operations; however, all activity on capital projects is being deferred until the business and operating environment improves.

The company recently closed its technical office in London, and is reducing working hours and salaries for all management and staff in the Calgary office to reduce its fixed costs of operation.

The company's agreement in Yemen is a production sharing agreement. The agreement effectively defines each party's interest in each barrel of oil sold. Management uses this production sharing entitlement as an indicator for decision making to ensure profitability under the agreement is optimized both in the short term and the long term.

To optimize profitability, it is advantageous to ensure that the total cost incurred to produce a barrel of oil is less than the effective cost of the pro rata entitlement under the production sharing agreement allocated for the recovery of costs, which is referred to as cost oil. The agreement effectively allows 45 per cent of each barrel sold as cost oil to cover allowable operating costs, general and administrative costs, and current and historical capital costs incurred. As noted in the highlights section, operating costs of $26.45 per barrel in Yemen were up significantly in 2014 due mainly to the lower volume of crude oil produced. Incorporating estimated G&A costs to establish an estimate for total allowable costs incurred (excluding capital costs), total estimated allowable costs incurred in 2014 exceeded $33 on a per-barrel basis.

To ensure the company is capable of recovering current and historical operating, G&A, and capital costs under the agreement, using the referenced estimated allowable cost per barrel of $33 per barrel (operating and G&A costs only), and grossing this per-barrel cost using a denominator of 45 per cent, the calculated required sales price for a barrel of crude oil is approximately $73 per barrel.

Using an estimated allowable cost per barrel to cover operating and G&A costs (excluding capital costs) of $25 per barrel, the calculated required sales price for a barrel of crude oil, which ensures the company is effectively recovering its costs incurred, is approximately $55 per barrel.

To ensure the company manages through an extended period of anticipated low crude oil prices, the company is making every effort to work with all stakeholders in block 9 to manage costs effectively in order that the impact of reduced revenues is shared fairly by all stakeholders.

Corporate update

The company has reviewed several diversification opportunities outside Yemen. No potential transactions have been identified to date.

Calvalley has a healthy balance of cash and working capital for investment purposes, and will continue to review investment, diversification and other opportunities that can optimize shareholder value.

The company welcomes Nabil Nassef, PEng, to the board of directors of Calvalley. Mr. Nassef is a graduate in civil engineering from the University of Alberta. Mr. Nassef has over 35 years of experience in the oil and gas industry in both Western Canada and, more recently, in Yemen. Mr. Nassef represented Calvalley as general manager in Yemen during the years 2000 to 2009. Mr. Nassef is fluent in speaking, writing and translating the Arabic language. Mr. Nassef currently provides consulting services to Calvalley in an advisory capacity.

On Feb. 23, 2015, the Alberta Securities Commission released its decision, and dismissed all allegations against the company and former employees. A copy of the decision is available on the ASC website. The ASC alleged that, in early 2009, the company purchased shares pursuant to a normal course issuer bid while in possession of material information relating to its reserves, which had not been disclosed to the public. The commission found that the information in question was not material. With respect to allegations against the chairman and chief executive officer of the company, the ASC found that his conduct breached Section 221.1(2) of the Securities Act (Alberta), and was contrary to the public interest by making a misleading or untrue statement to ASC staff during a formal investigative interview. The commission's conclusion is set out at page 85 of the ASC decision. The matter will now move to a second phase to determine whether (and, if so, what) orders for sanctions and costs ought to be made. The ASC decision also commented on various practices followed by the company at the material time. The company is currently reviewing the decision to determine whether additional modifications to current practices are advisable. The board of directors fully supports this initiative.

Financial information

Significant financial information is included in the attached table, and is discussed further in the company's management discussion and analysis.

                                       FINANCIAL HIGHLIGHTS
                      (in thousands of U.S. dollars except per-share amounts)

                                                         Three months ended               Year ended
                                                                    Dec. 31,                 Dec. 31,
                                                       2014            2013         2014        2013    
 
Revenue (gross)                                      19,964          25,065       39,851      92,960   
Revenue from crude oil sales (net of royalties)      12,511          15,707       24,984      58,264   
Adjusted EBITDA (1)                                   3,739           9,451        7,133      36,477   
Operating income (loss) (1)                         (87,207)          7,524      (85,720)     29,063   
Earnings (loss)                                     (88,444)          5,999      (87,911)     23,176   
Per share                                             (1.18)           0.08        (1.14)       0.28     
Capital expenditures                                  2,332           2,815        6,784       9,588    
Funds flow from operations (1)                        2,598           8,042        5,163      31,179   
Per share                                              0.03            0.10         0.07        0.38     
Cash flow from operating activities                   5,056           6,267        5,564      30,360   

(1) See non-international financial reporting standards measures disclosure in Dec. 31, 2014, MD&A
    filed on SEDAR.

Filing of reports on SEDAR

Calvalley's management's discussion and analysis, and audited condensed consolidated financial statements for the year ended Dec. 31, 2014, can be found for viewing by electronic means on SEDAR. They can also be found on the company's website.

We seek Safe Harbor.