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TSX Venture Exchange: VHO

CALGARY, May 16, 2016 /CNW/ - Virginia Hills Oil Corp. ("Virginia Hills" or the "Company") announces its operating and financial results for the three months ended March 31, 2016 and that its unaudited interim consolidated financial statements and related Management's Discussion and Analysis ("MD&A") for the quarter ended March 31, 2016 are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com or on the Company's website at www.virginiahillsoil.com.

In the first quarter of 2016, the Company continued to focus on optimizing its production base and cost structure in its Red Earth core area. The Company implemented several cost savings initiatives related to labour, fuel gas and chemical consumption, and continued its electrification program in its core Otter operating area. Marginal capital was allocated to the electrification of its two main water injection facilities in the Otter field during the quarter as commodity pricing fell below levels needed for the Company and the industry to invest economically on production related projects.

During the first quarter the Company initiated clean up and repair operations on two pipeline spills and a casing failure that had occurred in 2015. In addition, operations were suspended on a total of 16 kilometers of pipeline that the Company deemed to be an environmental and regulatory risk. These projects negatively impacted production expenses by $4.68 per boe (approximately $600,000) for the first quarter with total production of 100 boe/d shut in due to the failures and subsequent repair operations. The Company has completed the majority of the clean-up operations associated with the pipeline spills and does not anticipate any additional material costs being allocated to these projects in 2016.

FIRST QUARTER OF 2016 FINANCIAL AND OPERATIONAL HIGHLIGHTS

OPERATIONS UPDATE AND OUTLOOK  

Commodity prices in the first quarter of 2016 were down 22% year over year and continued to prevail at levels not anticipated by either Virginia Hills or the industry in general. To better position for a low price environment in the short to medium term, the Company has continued to focus on completing its cost optimization initiatives in the greater Red Earth area. The Company has gained momentum on these projects and expects to see production expenses dropping back below historical levels over the remainder of 2016. Concurrently the Company has now completed the majority of the clean-up work related to the pipeline spills that had occurred in 2015 and does not anticipate any material expenditure's on these projects for the remainder of 2016.

The low decline nature of the Company's production has enabled it to hold production relatively static year over year after accounting for both the disposition of approximately 100 boe/d in Q2 2015 and the shut in of 100 boe/d in the first quarter of 2016 related to pipeline spill and repair operations. Commodity prices have now stabilized at levels significantly higher than what was experienced during the first quarter of 2016 enabling the Company to position for a conservative production and cost optimization capital program starting in the third quarter of 2016. The Company anticipates keeping average production levels relatively flat at 1,450 to 1,550 boe/d over this time period with this optimization program and does not anticipate spending any drilling related capital until stable pricing exceeds $50 US/bbl. WTI.  The Company will provide further guidance to its 2016 budget as details are finalized in Q2/Q3, 2016.

Staff and Board Update

Virginia Hills current Vice President of Finance, Chief Financial Officer Tracie Noble has informed management and the board of directors that she is resigning from her position with the Company effective June 3, 2016. In addition David Johnson did not stand for re-election as a director of Virginia Hills at the Company's annual and special meeting on April 5, 2016. Virginia Hills would like to thank both Tracie and Dave for their many years of service and wish them well in their future endeavours.

The Company is in the process of selecting a new chief financial officer to replace Ms. Noble and announcement will be made upon conclusion of its selection process.

FORWARD LOOKING STATEMENTS: This news release contains forward-looking statements. More particularly, this news release contains statements concerning Virginia Hills' expectations regarding improvement to the Company's cost structure, the implementation and timing of effect of optimization projects and the timing thereof; future costs allocated to pipeline clean-up and repair; expectations regarding decreases in future operating costs; the Company's ability to maintain current production levels; the timing of the Company commencing drilling operation; the Company's ability to identify and hire a replacement Chief Financial Officer in a timely manner; the timing of releasing the Company's capital budget; and future oil prices. In addition, the use of any of the words "guidance", "initial, "scheduled", "can", "will", "prior to", "estimate", "anticipate", "believe", "potential", "should", "unaudited", "forecast", "future", "continue", "may", "expect", "project", and similar expressions are intended to identify forward-looking statements.

The forward-looking statements contained herein are based on certain key expectations and assumptions made by the Company, including but not limited to expectations and assumptions concerning the success of optimization and efficiency improvement projects, including the water flood projects discussed herein, the availability of capital, current legislation, receipt of required regulatory approval, the success of future drilling and development activities,  the performance of existing wells, the performance of new wells, general economic conditions, availability of required equipment and services and prevailing commodity prices. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties.

Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (including, operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; as the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations, changes in legislation affecting the oil and gas industry and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures.

The forward-looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

NON-GAAP MEASURES: This news release contains the terms "funds flow from operations", "net debt", "field netback" and "operating netback" which do not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with the calculation of similar measures by other companies. Management uses funds flow from operations to analyze operating performance and leverage. Management believes "net debt" is a useful supplemental measure of the total amount of current and long-term debt of the Company. Mark-to-market risk management contracts are excluded from the net debt calculation. Management believes "field netback" and "operating netback" are useful supplemental measures of the amount of revenues received after royalties and production and transportation costs, and the amount of revenues received after royalties, operating, transportation costs and realized gain (loss) on derivatives. Additional information relating to certain of these non-GAAP measures, including the reconciliation between funds flow from operations and cash flow from operating activities can be found in the MD&A.

BOE ADVISORY: To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (boe). We use the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release

SOURCE Virginia Hills Oil Corp.