Fairborne Energy Ltd.- First Quarter Interim Report and News Release

CALGARY, ALBERTA--(Marketwire - May 4, 2010) - Fairborne Energy Ltd. (TSX:FEL)

HIGHLIGHTS


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                                            Three months ended March 31,
                                         2010           2009        CHANGE
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Financial ($thousands, except
 per share amounts)
Petroleum and natural gas
 revenue                               63,382         68,545            (8%)
Funds generated from operations(1)     39,555         32,970            20%
 Per share - basic                      $0.39          $0.38             3%
 Per share - diluted                    $0.38          $0.38             -
Cash flow from operations
(including changes in working
 capital)                              43,522         34,782            25%
 Per share - basic                      $0.42          $0.40             5%
 Per share - diluted                    $0.42          $0.40             5%
Net income (loss)                       3,809         (4,691)          181%
 Per share - basic                      $0.04         $(0.05)          180%
 Per share - diluted                    $0.04         $(0.05)          180%
Exploration and development
 expenditures                          65,546         52,645            25%
Acquisitions, net of
 dispositions                           1,464              -             -
Working capital deficit                34,611         31,641             9%
Bank indebtedness                     102,536        209,925           (51%)
Convertible debentures                 96,993         95,024             2%
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Operations (Units as noted)


Average production
 Natural gas (Mcf per day)             60,878         67,520           (10%)
 Crude oil (bbls per day)               3,000          3,599           (17%)
 Natural gas liquids (bbls per
  day)                                    686            572            20%
 Sulphur (tonnes per day) (2),(4)          54             93           (42%)
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 Total (BOE per day)                   13,886         15,517           (11%)
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Average sales price (3)
 Natural gas ($ per Mcf)                 5.75           6.39           (10%)
 Crude oil ($ per bbl)                  79.24          56.98            39%
 Natural gas liquids ($ per
  bbl)                                  48.71          27.24            79%
 Sulphur ($ per tonne) (4)                  -         185.15             -
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Netback per BOE ($ per BOE)
 Petroleum and natural gas
  sales (3)                             44.97          43.35             4%
 Sulphur block revenue                   5.57           3.83            45%
 Royalties                              (4.43)         (5.78)          (23%)
 Operating expenses                     (8.82)        (12.47)          (29%)
 Transportation                         (1.03)         (1.14)          (10%)
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 Operating netback                      36.26          27.79            30%
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Wells drilled (gross)                      16             16             -
Undeveloped land (net acres)          229,270        222,936             3%
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1) Funds generated from operations is calculated using cash flow from
   operations as presented in the consolidated statement of cash flows
   before non-cash working capital and asset retirement expenditures.
2) A BOE conversion ratio has been calculated using a conversion rate of
   one tonne of sulphur to one barrel.
3) Excludes the change in fair value of derivatives.
4) Excludes the sale of inventory at the West Pembina sulphur block.

STRATEGIC CAPITAL SPENDING INITIATES PERFORMANCE GROWTH FOR 2010

In the first quarter of 2010, Fairborne executed a focused capital program which resulted in exit production of 15,500 BOE per day, up 14% from fourth quarter average production of 13,542 BOE per day. First quarter drilling included the development of light crude oil properties at Sinclair and Brazeau and the liquid rich natural gas properties at Harlech and Westerose, as well as the continued successful development of the natural gas Wilrich play in Marlboro. The initial impact of the successful capital program was reflected in first quarter financial and operating results which included:

- Exit production of 15,500 BOE per day at the end of the quarter (68 MMcf per day of natural gas, 4,200 bbls per day of light oil and NGL's);

- First quarter average production of 13,886 BOE per day (61 MMcf per day of natural gas, 3,686 bbls per day of light oil and NGL's), up 3% from fourth quarter 2009 production of 13,542 BOE per day;

- Capital expenditures of $67 million, including $11.2 million on land and seismic and $43.9 million on drilling and completions activities;

- Drilling program of 16 (12.8 net) wells including four (3.6 net) oil wells at Sinclair; three (2.5 net) liquid rich natural gas wells at Harlech; the first (0.9 net) horizontal oil well in Brazeau, two (1.7 net) horizontal gas wells in Marlboro and two (2.0 net) horizontal wells at Westerose;

- Funds generated from operations of $39.6 million ($0.39 per share), 20% higher than the first quarter of 2009 ($33.0 million);

- Operating netback of $36.26 per BOE with operating costs of $8.82 per BOE;

- Above-average realized natural gas prices with 42% of first quarter natural gas production hedged at an average price of $6.59 per Mcf.

- 34% of natural gas production hedged for the balance of 2010 at an average price of $6.58 per Mcf.

- The Company has received approval from its banking syndicate to maintain its borrowing base at the current level of $285 million.

PRODUCTION AND OPERATING RESULTS

Fairborne's first quarter drilling program resulted in 16 (12.8 net) new wells, the majority of which were brought on production during the month of March for first quarter exit production of 15,500 BOE per day. Current production remains consistent between 15,500 and 16,000 BOE per day, with approximately 68 MMcf per day of natural gas and 4,200 bbls per day of crude oil and natural gas liquids. With the majority of additional production commencing at the end of the quarter, first quarter average production of 13,886 BOE per day was 3% higher than fourth quarter 2009 production of 13,542 BOE per day.

The benefits of cost reduction initiatives which began in 2009 were sustained through the first quarter of 2010 with operating costs of $8.82 per BOE and an operating netback of $36.26 per BOE. Funds generated from operations of $39.6 million were used to partially fund the first quarter capital expenditure program of $67 million with the balance of spending funded from working capital, leaving $148 million of available credit (net of working capital) at the end of the quarter. With spring break-up, second quarter capital spending is expected to be approximately $12 million.

FOCUSED ASSET DEVELOPMENT

Fairborne's first quarter capital program was focused on the continued advancement of emerging plays and the development of identified projects within the Company's asset base which could provide the greatest return in light of current market conditions. Based on the continuation of low natural gas prices, a portion of first quarter capital spending was allocated to crude oil and liquid rich natural gas properties to help maintain strong netbacks and stable cash flow.

- Sinclair: Ongoing development of the high netback Sinclair oil property through drilling of four wells (3.6 net) and continued implementation of the successful waterflood pilot project. Additional wells and waterflood expansion are planned for the remainder of 2010.

- Brazeau: In the Brazeau Belly River Unit 6, Fairborne drilled, completed, and brought on production one (0.9 net) horizontal well during the first quarter. This well has been on production for approximately 30 days and produces at a stabilized rate of 200 barrels per day of 42º API oil. The Company has identified a number of follow up locations in the Unit and Fairborne is planning to drill up to three (2.7 net) additional wells during the remainder of 2010.

- Marlboro: Fairborne continued the development of the Wilrich play on its Marlboro property with two (1.7 net) successful horizontal wells drilled and completed prior to spring breakup. A third well was drilling at the end of the first quarter and will be completed in late June or early July 2010. Concurrently, a compression expansion project was completed, and with the first quarter drilling, has resulted in sales gas increasing from 20 MMcf per day (12 MMcf per day net) at the beginning of January 2010 to 31 MMcf per day (21 MMcf per day net). The Company plans to drill up to nine additional Wilrich horizontal wells in the second half of 2010. Fairborne has continued to grow its land position on the Wilrich fairway and currently controls 83.1 (59.2 net) sections.

- Harlech: Fairborne continues to develop the Harlech area targeting multizone vertical wells. The zones targeted (Viking, Mannville, Glauconite and Gething) result in liquid rich natural gas and condensate production. During the first quarter, Fairborne drilled three (2.5 net) vertical wells with combined incremental production of 5.1 MMcf per day and 325 bbls per day of condensate and natural gas liquids, providing netbacks in excess of $30 per BOE. The Company plans to drill up to three additional wells in the second half of 2010.

OUTLOOK

We are pleased with the results we have achieved in the first four months of 2010. Although natural gas prices continue to remain weak, we have assembled a diverse portfolio of assets that allow us the opportunity to react to market conditions and re-allocate our spending in order to maintain high operating netbacks and achieve strong cash flows. Our success over the past few months has provided a significant increase in production at the end of the first quarter. Moving forward in 2010, cash flow from operations will benefit from increased production levels as well as our risk management program with 34% of natural gas production for the balance of 2010 hedged at an average price of $6.58 per Mcf. We continue to exercise financial discipline to maintain a strong balance sheet and ensure we have the financial flexibility to take advantage of growth opportunities as they arise.

Steven R. VanSickle

President & CEO

May 3, 2010

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") was prepared at, and is dated, May 3, 2010. This document is provided by the management of Fairborne Energy Ltd. ("Fairborne" or the "Company") to review first quarter 2010 activities and results as compared to the same period in the previous year, and should be read in conjunction with the unaudited interim consolidated financial statements including selected notes for the three months ended March 31, 2010 and the audited consolidated financial statements including notes for the years ended December 31, 2009 and 2008. The MD&A should be read in conjunction with the Company's MD&A for the year ended December 31, 2009, as disclosure which is unchanged from the December 31, 2009 MD&A has not been duplicated herein. Additional information relating to Fairborne, including Fairborne's annual information form, is available on SEDAR at www.sedar.com

Nature of Business: Fairborne is a growth-oriented exploration and production company. The Company maintains its head office in Calgary and is engaged in the business of exploring for, developing, acquiring and producing crude oil and natural gas in Western Canada. Fairborne follows a strategy of balancing risk and reward by focusing on opportunities by geographic area and prospect type. Within the selected areas, the Company develops a portfolio of exploration and development prospects in conjunction with an active acquisition strategy. Fairborne resulted from the reorganization of Fairborne Energy Trust (the "Trust") on December 19, 2007 (the "Reorganization").