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Madalena comments on Argentine oil pricing

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Hydrocarbon Engineering,

Madalena Energy Inc. (Madalena or the company) has provided the following comments on recent proposed changes to regulated Argentina oil prices, and preliminary information on its 2016 capital budget.

On 23 November 2015, the Argentine Republic elected a new centre-right government. Consistent with its campaign platform, currency controls were relaxed in December 2015 and the Argentine peso (AR$) underwent a devaluation to reflect its purchasing power in the global economy. As outlined in Madalena's news release on 17 December 2015, a large percentage of the company's costs are denominated in AR$. As a result, the company's cost to produce a barrel of oil in Argentina is expected to decrease in US dollar (US$) equivalent terms.

In discussions with Madalena and other Argentina producers, the regulators in Argentina have advised that 2016 oil pricing is expected to be set at approximately US$67.50/bbl for Medanito crude quality oil, which maintains a premium to Brent and WTI pricing. Although the regulators have indicated the US$67.50 will be the posted price for the year there can be no certainty that the oil price will not be further adjusted within the year. For reference, the US$67.50 price equals AR$911/bbl at the current 13.5:1 AR$ to US$ foreign exchange rate, compared to the early December 2015 posted price of approximately US$75/bbl or AR$735/bbl at the previous 9.8:1 foreign exchange rate.

The company believes the newly elected federal government is implementing its stated policy of providing a fiscal and regulatory environment that supports development of Argentina's domestic energy resources.

With further clarity in Argentina on both the devaluation of the AR$ and the oil pricing environment, the company will move to finalise its 2016 budget in the coming weeks. This budget will be based on the company's expectations for US$67.50 Medanito oil pricing throughout 2016 and will include all expenditures associated with Madalena's commitments in Argentina. Given the current commodity price environment in Canada, Madalena plans to continue to defer all discretionary capital expenditures on its non-core Canadian assets.

With approximately 95% of Madalena's oil production priced relative to Argentina's premium regulated oil market and a high quality asset base in Argentina, Madalena continues to be well positioned to prudently move forward in the current commodity price cycle.

Madalena's management and board of directors will continue to monitor the Argentina political, market and commodity price environment, with a view to protecting the Company's financial position in the context of its contractual and regulatory obligations.

Adapted from press release by Francesca Brindle

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