Delphi Reports Ninth Quarter of Production Growth and Increases Cash Flow and Financial Flexibility

CALGARY, ALBERTA--(Marketwire - July 22, 2009) - Delphi Energy Corp. ("Delphi" or "the Company") (TSX:DEE) is pleased to announce its financial and operational results for the second quarter ended June 30, 2009.

Second Quarter 2009 Highlights

- Achieved record production of 6,809 barrels of oil equivalent per day (boe/d) in the second quarter of 2009, marking the ninth consecutive quarter of production growth.

- Generated funds from operations of $12.4 million ($0.16 per basic share) in the quarter, up from $10.0 million ($0.13 per basic share) in the first quarter of 2009.

- Reduced net debt to $104.1 million at the end of the second quarter of 2009, down $9.1 million from $113.2 million at the end of the first quarter, increasing total credit availability to $35.9 million.

- Drilled one well with a success rate of 100 percent on a net capital program of $3.3 million in the quarter. For the first six months, the net capital program totaled $17.3 million, approximately 77 percent of the first half cash flow.

- The Company's natural gas hedge position extends as far as December 31, 2010 at an average price of $7.34 per mcf and $6.88 per mcf for the remainder of 2009 and 2010, respectively.

- Renewed the Company's total credit facilities at $140.0 million, consisting of a revolving production facility of $125.0 million and an acquisition/development facility of $15.0 million.

Financial Highlights ($ thousands except per unit amounts) Three Months Ended June 30 Six Months Ended June 30 2009 2008 % Change 2009 2008 % Change ---------------------------------------------------------------------------- Petroleum and natural gas sales 23,229 38,569 (40) 47,434 70,781 (33) Per boe 37.49 68.33 (45) 38.62 63.45 (39) Funds from operations 12,371 19,965 (38) 22,388 37,024 (40) Per boe 19.97 35.37 (44) 18.23 33.18 (45) Per share - Basic 0.16 0.29 (45) 0.28 0.54 (48) Per share - Diluted 0.16 0.28 (43) 0.28 0.53 (47) Net earnings (loss) (2,817) 49 - (6,137) (690) 789 Per boe (4.54) 0.09 - (4.99) (0.62) 705 Per share - Basic (0.04) - - (0.08) (0.01) 700 Per share - Diluted (0.04) - - (0.08) (0.01) 700 Capital invested 3,602 7,489 (52) 17,694 33,987 (48) Disposition of properties (74) (2,950) (98) (225) (2,950) (92) ---------------------------------------------------------------------------- Net capital invested 3,528 4,539 (22) 17,469 31,037 (44) Acquisition of properties (218) 3,850 - (218) 3,850 - ---------------------------------------------------------------------------- Total capital 3,310 8,389 (61) 17,251 34,887 (51) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Jun. 30 Dec. 31 2009 2008 % Change ---------------------------------------------------------------------------- Debt plus working capital deficiency (1) 104,100 109,237 (5) Total assets 349,868 364,538 (4) Shares outstanding (000's) Basic 79,067 79,067 - Diluted 86,305 83,798 3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) excludes risk management asset and the related current future income tax liability. Operational Highlights Three Months Ended June 30 Six Months Ended June 30 2009 2008 % Change 2009 2008 % Change ---------------------------------------------------------------------------- Natural gas (mcf/d) 35,641 31,898 12 35,229 31,838 11 Crude oil (bbl/d) 371 368 1 423 378 12 Natural gas liquids (bbl/d) 498 517 (4) 491 444 11 ---------------------------------------------------------------------------- Total (boe/d) 6,809 6,202 10 6,786 6,129 11 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

MESSAGE TO SHAREHOLDERS

Despite the 30 percent drop in the AECO natural gas price in the second quarter as compared to the first quarter of 2009, Delphi accomplished modest growth in average quarterly production volumes, stronger cash flow than in the first quarter and in combination with a minimal capital program, achieved significant net debt reduction during the quarter. At the end of the second quarter, the Company had increased its financial flexibility with $35.9 million of available credit lines. The Company believes it is well positioned for sustainable long-term, organic growth in any business environment. The global recession continues with commodity prices remaining under pressure, however, Delphi believes it can operate effectively in these challenging times and is in a position of relative strength to many of its peer group.

During the second quarter, the Company's field operations were limited due to spring break-up. The Company was, however, able to begin its summer capital program by mid-June with the completion of drilling operations on a well (1.0 net) at Hythe, Alberta by the end of the second quarter and undertook several recompletions. Fracture stimulation and tie-in operations of the drilled well will be completed in the third quarter. The focus of the summer capital program will continue to be directed towards the Hythe and Bigstone properties to take advantage of the multi-zone nature of these assets, low operating costs and quick on-stream capability associated with owned gathering and processing infrastructure. Total net capital expenditures for the second quarter were $3.3 million.

Production during the second quarter of 2009 averaged 6,809 boe/d, an increase of ten percent compared to 6,202 boe/d in the second quarter of 2008 and one percent greater than the first quarter in 2009 of 6,762 boe/d. Second quarter production represented Delphi's ninth consecutive quarter of production growth. New production from the Company's successful first quarter capital program contributed significantly to this modest growth in second quarter production despite significant turnarounds at Bigstone, Alberta and the Company's North East British Columbia operations during the quarter.

Delphi's production continues to receive a premium to the price at AECO due to marketing arrangements, heating content and natural gas hedges. Approximately 53 percent of the Company's natural gas production was hedged at an average price of $7.38 per mcf in the second quarter, resulting in a gain on natural gas contracts of $7.0 million. Delphi's realized natural gas price of $5.81 per mcf in the second quarter represented a premium of 67 percent to the average AECO price in the quarter.

Funds from operations in the second quarter of 2009 were $12.4 million ($0.16 per basic share) compared to $20.0 million ($0.29 per basic share) in the second quarter of 2008, primarily as a result of significantly lower average oil and natural gas prices being partially offset by increased production volumes, reduced royalty rates and an eight percent reduction in cash operating costs per boe.

At June 30, 2009, the Company had net debt of $104.1 million, a $5.1 million decrease from $109.2 million at December 31, 2008. The decrease in net debt during the first six months of 2009 resulted from Delphi's successful capital program totaling only $17.3 million or 77 percent of the cash flow generated in the first six months of 2009. The Company's debt to cash flow ratio on an annualized 2009 cash flow basis was reduced to 2.3:1 at the end of the second quarter from 2.8:1 at the end of the first quarter. Net debt includes bank debt plus working capital deficiency excluding the risk management asset and the related current future income taxes liability.

The annual credit review by the Company's lenders was completed in the second quarter. The Company's lenders continue to be National Bank of Canada and Bank of Nova Scotia. The total credit facilities were renewed at $140.0 million comprised of a revolving $125.0 million production credit facility and a non-revolving $15.0 million acquisition/development credit facility. At the same time, the pricing on the facilities had been adjusted to reflect current market rates for credit facilities of this nature. All other terms of the credit facilities remain unchanged from the previous arrangements.

NORTH WEST ALBERTA

During the second quarter, Delphi achieved record production volumes as a result of the successful first quarter drilling, workover and optimization program primarily focused in the Hythe and Bigstone areas. Operations during the second quarter were limited in scope due to spring breakup which typically restricts the ability to conduct drilling and workover operations until late in the quarter. Operational activities in the second quarter were focused on moving forward projects that would build upon the successes in the first quarter and position the Company to exploit its predictable, repeatable and capital efficient opportunities.

Hythe

At Hythe, the Company drilled and cased one vertical, gas well (1.0 net) during the second quarter. Completion operations have been initiated and a total of six zones will be completed based on log analysis. This well offsets other Delphi producers that have initial three month average production rates ranging from 250 to 600 boe/d. As a follow up to the Doe Creek light oil discovery first announced in September 2008, Delphi has recompleted a 100 percent working interest well which offsets the discovery well. The recompletion was successful and the well tested at rates in excess of 225 barrels of oil per day (bbls/d) over a forty eight hour flow period. The well has been tied-in to Delphi's infrastructure and has been placed on production at a stabilized rate of 160 bbls/d. A horizontal well offsetting the successful oil recompletion has been licensed and will spud prior to the end of July to calibrate the productivity enhancement and increased reserve recovery associated with a multi-stage fracture completion. In reservoirs of this nature, initial production rates and reserve recoveries for horizontal wells are typically two to three times that of vertical wells.

The Company is continuing to move drilling, recompletion and optimization projects forward by obtaining the regulatory and partner approvals necessary for project execution. Timing of the individual projects will be dependent upon commodity pricing and results from completed operations. The second half capital program at Hythe was generated from a project list that exceeds $48.0 million allowing for operational flexibility in regards to project selection. Delphi currently has eight vertical wells and four horizontal wells licensed or in the process of being licensed for the contemplated remaining 2009 capital program.

Technical and operational activities are ongoing in an effort to unlock the large volumes of gas in place associated with the Nikanassin formation. One of the vertical wells drilled in the first quarter was successfully completed in the Nikanassin and was mechanically isolated during the second quarter while a prolific uphole Cretaceous sand was production tested. The Company is now in the process of commingling the Nikanassin with several uphole Cretaceous sands with a completion design that will allow for long term performance monitoring of the Nikanassin formation. Pressure transient analysis indicates this well has experienced only minimal pressure depletion even though it is located 775 metres from an offset Nikanassin completion that has cumulative production of 2.2 billion cubic feet (bcf). The pressure and production data support the volumetric calculations of 15 bcf per spacing unit in this part of the Hythe field. A regional study has been initiated to characterize the porosity and permeability relationships, define geologic depositional models and understand the effects of various drilling and completion practices. The outcome of this study will allow Delphi to optimize development of the Nikanassin resource in relation to deliverability and reserve recovery. Toward that end, the Company has identified multiple Nikanassin recompletion opportunities to be pursued in the second half of the year.

Delphi continues to take advantage of attractive opportunities resulting from the current business environment through the acquisition of undeveloped land. During the second quarter, the Company successfully participated in several Crown land sales acquiring 1,280 gross acres at a working interest of 100 percent.

Bigstone

At Bigstone, the Company has licensed and built a location in preparation for drilling an offset to a successful first quarter well that averaged 650 boe/d gross over the first three months of production. In addition, Delphi is continuing to evaluate performance results from several Cardium oil pools on the Bigstone lands and is monitoring industry activity along trend in the Cardium formation. Delphi currently has identified six potential Cardium horizontal oil wells of which two are in the process of being licensed for the contemplated remaining 2009 capital program.

OUTLOOK

Natural gas prices have continued to weaken throughout the first part of the year and are at risk of further reduction as a result of natural gas supply in excess of demand, particularly due to reduced industrial demand from the lower economic activity in North America. Delphi will manage its capital spending prudently in light of the fact that potential lower natural gas prices may prevail for the remainder of 2009. As in prior years, the Company's risk management program provides stability to the Company's cash flow for the remainder of the year allowing a minimum level of capital to be incurred.

The Company will continue to be disciplined in its capital spending, focusing on the lowest risk development projects in its core areas of Bigstone and Hythe. Drilling to develop the resource potential in the Bluesky, Dunvegan or Nikanassin formations from the Hythe property will be considered as part of the second half capital program. Operational risk, capital required and overall capital efficiencies will be the driving factors in pursuing the resource-type plays in the current and expected low natural gas price environment. The Board of Directors has approved a second half capital program of $18.0 to $23.0 million for a total capital program of $35.0 to $40.0 million in 2009.

Cash flow for 2009 is forecast to be between $38.0 million and $43.0 million on an average natural gas price for AECO of approximately $4.25 per mcf. The Company has hedged approximately 51 percent of its natural gas production at $7.34 per mcf for the remainder of 2009 to achieve this forecasted cash flow. Over the year and based on its current capital program, Delphi expects an overall reduction in net debt of approximately $2.0 - $4.0 million from the amount outstanding at December 31, 2008.

Delphi remains confident in its ability to achieve continued per share growth during these challenging times. The Company's expanding inventory of drilling locations gives rise to continued optimism for growth beyond 2009.

On behalf of the Board of Directors and all the employees of Delphi, I would like to thank our shareholders for their continued support and patience in these very difficult and uncertain economic times. Our team's effort remains focused on sustainable economic growth while maintaining the financial strength and flexibility to take advantage of strategic opportunities which may arise in the coming year.

CONFERENCE CALL

A conference call is scheduled for 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, July 23, 2009. The conference call number is 800-565-0813 or 416-695-6616. A brief presentation by David Reid, President and CEO and Brian Kohlhammer, VP Finance & CFO will be followed by a question and answer period.

If you are unable to participate in the conference call, a taped broadcast will be available until August 6, 2009. To access the replay, dial 800-408-3053 or 416-695-5800. The passcode is 3752405. Delphi's second quarter 2009 financial statements and management's discussion and analysis are available on Delphi's website at www.delphienergy.ca and will be available on SEDAR at www.sedar.com within 24 hours.

Delphi Energy is a Calgary-based company that explores, develops and produces oil and natural gas in Western Canada. The Company is managed by a proven technical team. Delphi trades on the Toronto Stock Exchange under the symbol DEE.

Forward-Looking Statements. This release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", may", "will", "should", believe", "intends", "forecast", "plans", "guidance" and similar expressions are intended to identify forward-looking statements or information.

More particularly and without limitation, this release contains forward looking statements and information relating to the Company's risk management program, petroleum and natural gas production, future funds from operations, capital programs, commodity prices, costs and debt levels. The forward-looking statements and information are based on certain key expectations and assumptions made by Delphi, including expectations and assumptions relating to prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates, the performance of existing wells, the success of drilling new wells, the capital availability to undertake planned activities and the availability and cost of labour and services.

Although the Company believes that the expectations reflected in such forward-looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in tax, royalty and environmental legislation. Additional information on these and other factors that could affect the Company's operations or financial results are included in reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). The forward-looking statements and information contained in this press release are made as of the date hereof for the purpose of providing the readers with the Company's expectations for the coming year. The forward-looking statements and information may not be appropriate for other purposes. Delphi 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.

Basis of Presentation. For the purpose of reporting production information, reserves and calculating unit prices and costs, natural gas volumes have been converted to a barrel of oil equivalent (boe) using six thousand cubic feet equal to one barrel. A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms with the Canadian Securities Administrators' National Instrument 51-101 when boes are disclosed. Boes may be misleading, particularly if used in isolation.

Non-GAAP Measures. The release contains the terms "funds from operations", "funds from operations per share", "net debt", "cash operating costs" and "netbacks" which are not recognized measures under Canadian generally accepted accounting principles. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations is a non-GAAP measure and has been defined by the Company as net earnings plus the addback of non-cash items (depletion, depreciation and accretion, stock-based compensation, future income taxes and unrealized gain/(loss) on risk management activities) and excludes the change in non-cash working capital related to operating activities and expenditures on asset retirement obligations and reclamation. The Company also presents funds from operations per share whereby amounts per share are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. Delphi's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP. The Company has defined net debt as the sum of long term debt plus working capital excluding the current portion of future income taxes and risk management asset/liability. Net debt is used by management to monitor remaining availability under its credit facilities. Cash operating costs have been defined as the sum of operating expenses, transportation expenses, general and administrative expenses and interest costs.

MANAGEMENT DISCUSSION AND ANALYSIS

(All tabular amounts are stated in thousands of dollars, except per unit amounts)

The management discussion and analysis has been prepared by management and reviewed and approved by the Board of Directors of Delphi Energy Corp. ("Delphi" or "the Company"). The discussion and analysis is a review of the financial results of the Company based upon accounting principles generally accepted in Canada. Its focus is primarily a comparison of the financial performance for the six months ended June 30, 2009 and 2008 and should be read in conjunction with the audited financial statements and accompanying notes for the years ended December 31, 2008 and 2007. The discussion and analysis has been prepared as of July 21, 2009.

OPERATIONAL AND FINANCIAL HIGHLIGHTS

Delphi delivered another record quarterly production average of 6,809 barrels of oil equivalent per day (boe/d), representing the ninth consecutive quarter of production growth and a 10 percent increase from the comparable period in 2008. This consistent production growth in varying economic conditions speaks to the quality of the Company's core assets, management and staff and inventory of opportunities. Natural gas production comprised 87 percent of the Company's average production.

Funds flow from operations in the second quarter of 2009 was $12.4 million or $0.16 per basic share, compared to $20.0 million or $0.29 per basic share in 2008, primarily as a result of lower average oil and natural gas prices for the quarter offset by the growth in production volumes, reduced royalty rates and an eight percent reduction in cash operating costs per boe to the comparative quarter. Delphi's risk management program continued to contribute to funds from operations providing the Company with $7.0 million in realized gains in the quarter.

Delphi's financial position continues to remain strong in the second quarter of 2009, providing financial flexibility to execute the remainder of its 2009 capital program and reduce debt from current levels. At June 30, 2009, the Company had net debt of $104.1 million on total credit facilities of $140.0 million, providing excess financial capacity of approximately $35.9 million. The net capital program in the first half of the year was $17.3 million, approximately 77 percent of cash flow, contributing to the net debt reduction of $5.1 million from December 31, 2008.

The annual credit review by the Company's lenders was completed in the second quarter. The Company's lenders continue to be National Bank of Canada and Bank of Nova Scotia. The total credit facilities were renewed at $140.0 million comprised of a revolving $125.0 million production credit facility and a non-revolving $15.0 million acquisition/development credit facility. At the same time, the pricing on the facilities has been adjusted to reflect current market rates for credit facilities of this nature. All other terms of the credit facilities remain unchanged from the previous arrangements.

BUSINESS ENVIRONMENT Benchmark Prices Three Months Ended June 30 Six Months Ended June 30 2009 2008 % Change 2009 2008 % Change ---------------------------------------------------------------------------- Natural Gas NYMEX (US $/mmbtu) 3.71 10.69 (65) 4.14 9.39 (56) AECO (CDN $/mcf) 3.47 10.22 (66) 4.21 9.10 (54) Crude Oil West Texas Intermediate (US $/bbl) 59.62 123.98 (52) 51.46 110.94 (54) Edmonton Light (CDN $/bbl) 65.88 126.07 (48) 57.88 111.79 (48) Foreign Exchange Canadian to US dollar 1.17 1.01 16 1.21 1.01 20 US to Canadian dollar 0.86 0.99 (13) 0.83 0.99 (16) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Natural Gas

United States natural gas prices are commonly referenced to the New York Mercantile Exchange Henry Hub in Louisiana (NYMEX) while Canadian natural gas prices are typically referenced to the Canadian Alberta Energy Company interconnect with the TransCanada Alberta system (AECO). Natural gas prices are influenced more by North American supply and demand than global fundamentals, however, with the growth in natural gas liquefaction and regasification facilities around the world this North American supply and demand balance is subject to disruption from time to time. The increase in capacity of natural gas liquefaction and regasification facilities has resulted in natural gas in North America becoming a global commodity, more so through the winter heating season than the summer cooling season, with influences from world weather conditions and global supply in the form of liquefied natural gas (LNG) delivered to the United States.

In the second quarter of 2009, the U.S. Northeast and Midwest and Central Canada experienced below average seasonal temperatures resulting in reduced average demand for natural gas for electrical generation and industrial demand remains significantly reduced due to the current economic slowdown. Downward pressure on natural gas prices began early in 2009 and has continued into the second quarter as natural gas storage numbers continue to grow over the five year average levels. AECO averaged $3.47 per mcf in the second quarter and continues to decline through the summer. The drop in natural gas prices has had a significant effect on the active drilling rig count in both Canada and the United States.

For internal forecasting purposes, Delphi is expecting a challenging natural gas market in 2009 and anticipates AECO to average between $4.00 and $5.00 per mcf. Delphi continues to monitor the variables affecting the price of natural gas in order to ensure its capital program is in line with expected funds flow from operations.

Crude Oil

West Texas Intermediate at Cushing, Oklahoma (WTI) is the benchmark reference for North American crude oil prices. Canadian crude oil prices are based upon postings, primarily at Edmonton, Alberta and represent the WTI price adjusted for quality and transportation differentials as well as the US/CDN dollar exchange rate.

Through the second quarter of 2009, the price for crude oil fluctuated between U.S. $45.00 and $72.00 per barrel. Crude oil supplies continued to grow in the quarter as demand remained reduced due to the slowdown in global economies and use of energy. WTI averaged U.S. $59.62 per barrel for the quarter compared to U.S. $123.98 per barrel for the same quarter in the prior year, a decrease of 52 percent. The average price of U.S. $59.62 per barrel was, however, 38 percent higher than the first quarter average of U.S. $43.08 per barrel.

In the second quarter of 2009, the value of the Canadian dollar increased against its U.S. counterpart as the demand for the United States dollar as a safe haven in these uncertain economic times decreased. This negative effect to the price of oil for Canadian producers was compounded by a widening basis differential between U.S. and Canadian markets. In the second quarter of 2009, Canadian crude oil prices averaged $65.88 per barrel compared to $126.07 per barrel for the same quarter in the prior year, a decrease of 48 percent.

Prices for heavy oil and other lesser quality crude oils trade at a discount or differential to light crude oil due to the additional costs involved in the refining process. The average differential in the second quarter of 2009 was $3.54 per barrel compared to $21.43 per barrel in 2008. The decrease in the average differential, offset by lower light oil prices, resulted in Bow River crude prices averaging $62.36 per barrel compared to $104.63 per barrel in the second quarter of 2008.

For internal forecasting purposes, Delphi anticipates WTI to average between U.S. $50.00 and $60.00 per barrel for 2009 with the Canadian dollar to remain between $1.10 and $1.25 per U.S. dollar.

Industry Cost of Services

The drop in commodity prices in the latter half of 2008 and through 2009 so far have had a significant negative effect on cash flow available for capital programs and hence drilling and field activity. Drilling contractors and oilfield service companies have had to reduce the rates charged for equipment and labour in order to remain competitive and as active as possible, but at a much slower pace than in previous years. The overall uncertainty in the economy has also led to reduced demand for oilfield services and equipment as companies have been unable to raise external sources of funding to pursue capital programs.

FINANCIAL STRATEGY

The Company