Peerless Energy Inc.
TSX VENTURE : PRY.A
TSX VENTURE : PRY.B

Peerless Energy Inc.

May 17, 2006 17:36 ET

Peerless Energy Inc. Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 17, 2006) - Peerless Energy Inc. (TSX VENTURE:PRY.A) (TSX VENTURE:PRY.B) ("Peerless" or the "Company") is pleased to report its operating results and the filing of its audited financial statements and related management discussion and analysis ("MD&A") for the quarter ending March 31, 2006. Select operational and financial results are outlined below and should be read in conjunction with the Company's unaudited financial statements and related MD&A which can be found at www.peerlessenergyinc.com or www.sedar.com.

In this report, all references to barrels of oil equivalent (boe) are calculated converting natural gas to oil at a ratio of six thousand cubic feet to one barrel of oil.

Q1 2006 CORPORATE HIGHLIGHTS

- Completed the 2006 winter drilling program by drilling 15 (9.4 net) wells with an overall success rate of 88% (net).

- Initiated a Bakken sand exploration effort with 2 (2 net) light oil wells now on production and increased its net land holdings in the play. The Company now has the potential to drill 96 (88.3 net) wells targeting the light oil from the Bakken sand.

- Increased average production by 55% to 976 boe/d (48% light oil and liquids/52% natural gas) from 631 boe/d (40% light oil and liquids/60% natural gas) in Q4-2005, with current production at 1,100 boe/d (43% light oil and liquids/57% natural gas).



FINANCIAL AND OPERATIONAL HIGHLIGHTS

Three months ended Three months ended
March 31, 2006 December 31, 2005
------------------------------------------------------------------------

Financial ($, except share data)

Petroleum and natural gas revenue 4,765,340 3,884,526

Cash flow from operations (1) 2,706,904 1,988,989
Per share - basic 0.11 0.10
Per share - diluted 0.11 0.10

Net income 105,874 31,958
Per share - basic 0.00 0.00
Per share - diluted 0.00 0.00

Net debt and working capital (15,423,300) (2,968,818)

Capital expenditures 15,246,847 52,886,620

Shares outstanding
Class A 23,018,572 22,895,239
Class B 855,000 855,000
Options 1,398,167 1,555,500

Weighted average shares outstanding
Class A 22,989,924 17,875,053
Class B 855,000 855,000
Conversion of Class B shares (2) 1,389,095 616,600
------------------------------------------------------------------------
Weighted average basic shares
outstanding 25,234,019 19,346,653
Stock option dilution (treasury
method) 534,846 896,116
------------------------------------------------------------------------
Weighted average diluted shares
outstanding 25,768,865 20,242,769

Operating (units as noted)

Production
Crude oil (bbl/d) 381 187
Natural gas (mcf/d) 3,049 2,261
Natural gas liquids (bbl/d) 87 67
Barrels of oil equivalent (6:1) (boe/d) 976 631

Exit rate (end of period) (boe/d) 1,025 900

Average prices

Crude oil ($/bbl) 60.07 57.04
Natural gas ($/mcf) 8.02 12.15
Natural gas liquids ($/bbl) 64.96 60.62
Barrels of oil equivalent (6:1) ($/boe) 54.28 66.91

Operating netback per boe ($)
Petroleum and natural gas revenue 54.28 66.91
Royalties 8.34 12.78
Operating expenses 9.86 7.92
Transportation expenses 2.41 2.28
------------------------------------------------------------------------
Operating netback 33.67 43.93

Wells drilled
Gross 15 5
Net 9.4 3.2
Net success rate (percent) 88 100

(1) Management uses cash flow from operations (before changes in
non-cash working capital) to analyze operating performance and
leverage. Cash flow from operations as presented does not have any
standardized meaning prescribed by Canadian GAAP and therefore it
may not be comparable with the calculation of similar measures for
other entities.

(2) To calculate weighted average basic shares outstanding, the Class B
shares were converted at the Class A share price for the final 30
days of the period ended March 31, 2006 of $3.81 (period ended
December 31, 2005 - $5.81) and added to the Class A shares.


OPERATIONS OVERVIEW

In the first three months of 2006, Peerless has focused its efforts on executing its business plan to build a balanced foundation for future growth. As a result of these efforts by its technical team, Peerless executed its capital plan by drilling 15 (9.4 net) wells with a net 88% success rate, with drilling spread throughout its three core producing areas.

As a result of the relative price strength of light oil, Peerless has chosen to re-allocate the remainder of its capital program to its significant light oil inventory of opportunities. The results of this effort will be reflected in the remaining quarters of 2006.

Each of the Company's operating areas is characterized by a mix of low-risk development opportunities, medium risk exploitation opportunities, and exploration locations, all within a well developed and accessible producing infrastructure. In its three core project areas, the Company's in-house technical personnel have identified more than 95 net infill/step-out development locations on Company lands. This provides significant depth and balance to the Company's development drilling inventory for 2006.

Core Area Review

Viewfield, Saskatchewan

During the first quarter of 2006, the Company drilled 2 (2 net) Bakken light oil wells that are now on production producing high netback 46 degrees API light oil to the Company's operated facility. In addition, the Company's facilities in the Viewfield area are tied into the regional gas conservation system and the Company is able to conserve the associated gas without the need to construct further gas facilities.

Peerless anticipates drilling a minimum of 3 more wells targeting the Bakken sand play in the balance of 2006. The Company now has over 8,000 net acres prospective for Bakken light oil development which exposes Peerless to up to 65 mmboe of original oil in place and the potential for over 85 net drilling locations.

In addition to the Bakken sand, Peerless plans on drilling a minimum of 2 (1.5 net) additional Mississippian horizontal wells targeting light oil in Viewfield and Steelman.

Silver, British Columbia

Peerless drilled and cased 7 (4.8 net) wells with 100% success targeting the main producing Bluesky sweet natural gas pool. A combination of a short winter season and a scarcity of service equipment prevented the Company from completing and tying-in the wells, which is estimated to equate to 200 - 250 boepd. The Company anticipates being able to access three of these locations in the summer for completion and equipping. The balance of the locations are scheduled to be completed in the fourth quarter of 2006.

Peerless plans on drilling two more locations prior to the end of the year at Silver.

Red Earth, Alberta

In Red Earth, Peerless has drilled 5 (2.35 net) exploration wells resulting in 2 (1.0 net) oil wells, 1 (0.45 net) cased gas well and 2 (0.9 net) wells that were dry and abandoned. The oil wells produce 42 degrees API sweet crude oil.

For the balance of 2006, Peerless has identified 2 (1.0 net) summer accessible drilling locations offsetting the first quarter discoveries.

In Red Earth, Peerless works closely with its joint venture partner and together have now identified more than 25 potential locations all located on the Company's extensive 3-D seismic database.

OUTLOOK

The current business environment for the oil and gas sector remains attractive. Although the price for natural gas is expected to be soft in the short term, longer term prices are expected to be strong. Relatively low interest rates, high demand for energy and reasonable access to capital markets provide for a strong business environment in the oil and gas sector. This strong environment also creates challenges with respect to cost pressures and availability of equipment.

Looking forward, Peerless' capital budget calls for the drilling of an additional 9 wells for the balance of 2006, targeting primarily light oil. In total, the Company expects to drill 24 (net 15.2) wells in its three project areas targeting high quality, long life sweet natural gas and light oil.

Peerless aims to be a top quartile performer among the junior oil and gas sector in growth of reserves, production and cash flow per share. In 2006, with a focused corporate strategy, Peerless will build upon its strong asset base developed in 2005. Our high quality oil and natural gas assets and considerable undeveloped land holdings offer significant opportunities to increase production through infill drilling, production optimization and exploration drilling.

Peerless will continue to seek out new opportunities and assets that fit within the Company's business model through proactive management. Peerless has assembled a high quality asset base while protecting its balance sheet - a balanced foundation for growth.

As referred to above, to view Peerless' audited annual financial statements and accompanying MD&A, please visit www.peerlessenergyinc.com or www.sedar.com.

ADVISORY

This press release may contain forward-looking statements including management's assessment of future plans and operations, expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., 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 reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), acquisitions, commodity price and exchange rate fluctuation and uncertainties resulting from competition from other producers and ability to access sufficient capital from internal and external sources. Additional information on these and other factors that could affect Peerless' operations and/or financial results are included in Peerless' reports on file with Canadian securities regulatory authorities.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Peerless Energy Inc.
    Wade Becker
    President and Chief Executive Officer
    (403) 263-1590
    (403) 263-1591 (FAX)
    or
    Peerless Energy Inc.
    Dan Toews
    Vice President, Finance and Chief Financial Officer
    (403) 263-1590
    (403) 263-1591 (FAX)
    Website: www.peerlessenergyinc.com