Peregrine Energy Ltd.

Peregrine Energy Ltd.

May 15, 2006 22:01 ET

Peregrine Energy Ltd. Announces First Quarter 2006 Results and Outlines Strategic Direction for the Remainder of the Year

CALGARY, ALBERTA--(CCNMatthews - May 15, 2006) -


Peregrine Energy Ltd. ("Peregrine" or the "Company") (TSX:PEG) announces its first quarter 2006 results as follows:


For the three months ended March 31 2006 2005

Petroleum and natural gas revenue $ 6,584,704 $ 6,924,311
Funds from operations(1) $ 2,459,070 $ 3,428,058
Per share - basic and diluted(1) $ 0.08 $ 0.11
Net loss $ (524,582) $ 897,159
Per share - basic and diluted(1) $ (0.02) $ (0.03)
Capital expenditures $ 2,662,462 $ 5,655,936
Property dispositions $15,695,299 $ -

Weighted average common shares outstanding
- basic and fully diluted 31,570,063 30,141,490
Average Daily Production
Crude oil & NGLS (bbls/day) 760 922
Natural gas (mcf/day) 3,659 4,307
Barrels of oil equivalent (boe/day) (6:1) 1,370 1,640
Average Selling Price
Crude oil & NGLs ($/bbl) $ 55.83 $ 49.99
Natural Gas ($/mcf) $ 8.40 $ 7.16
Barrels of oil equivalent ($/boe@6:1) $ 53.40 $ 46.91
Average field netback ($/boe@6:1) $ 29.51 $ 27.75

(1) "Funds from operations" and "funds from operations per share" are
not recognized measures under Canadian generally accepted accounting
principles ("GAAP"). Funds from operations is calculated by taking
net income and adding back non-cash balances such as depletion,
depreciation and accretion, stock compensation expense, future
income taxes and unrealized financial derivate costs. Management
believes that funds from operations is a useful supplemental measure
to analyze operating performance and provide an indication of the
results generated by the Company's principal business activities.
Peregrine's method of calculating these measures may differ from
other companies, and accordingly, they may not be comparable to
measures used by other companies.

Rationalization of Non-Core Assets Creates Strong Balance Sheet

The sale of 37 non-core properties and prudent financial management strengthened the balance sheet for Peregrine and reduced net debt to approximately 1:1 debt to cash flow.

For the first three months of 2006 the Company realized a decrease in revenue and funds flow from operations as compared to the comparable period in 2005. Although product prices were higher than those received for the same period in 2005, petroleum and natural gas revenue decreased to $6,584,704 in 2006 from $6,924,311 in 2005 as a result of property sales. In addition, even though West Texas Intermedite crude oil averaged US $63.53, the price the Company received for crude oil was negatively impacted by record high crude oil differentials. These differentials have narrowed significantly in the second quarter which will result in higher average sale prices in Q2. Funds from operation for the first three months of 2006 was $2,459,070 ($0.08/basic share). The Company incurred a net loss in the amount of $524,582 mainly as a result of higher depletion and depreciation charges.

Focusing on the 2005 - 2006 go-forward strategy to rationalize assets, Peregrine effectively reduced net debt to $13.4 MM. The rationalization of the non-core properties with the sale of approximately 400 boe/d resulted in a first quarter average production of 1,370 boe/d and a Q1 exit rate of approximately 1,100 boe/d.

The undeveloped land base totals 100,000 net acres, down from 114,000 net acres due to asset sales, of which 65,000 net acres are part of our focussed areas. Although the land base is reduced, the prospect inventory has been high graded and provides potential capital development exceeding $40 MM.

Strategic Operations Stable and Efficient

Peregrine targeted the further development of its primary core assets through the first quarter of 2006. The Buick Creek pipeline in British Columbia is moving ahead and we anticipate the tie-in of the two standing wells (approximately 300 boe/d) to be completed in August 2006. The planned drilling of two additional wells is underway with the locations currently being surveyed and licensed. The Noel, British Columbia play continues to be a priority, with four locations surveyed and two wells budgeted for drilling in Q3 '06.

In Swan Hills, Alberta, Peregrine Energy drilled and completed the first of three wells with a successful flow test. Two follow-up wells are planned for winter 2006/2007. In Grand Forks, Alberta two wells are licensed and drilling will commence in June, 2006.

In the Tofield, Alberta area, seismic assessments identified six locations and four wells are budgeted for drilling through the next two quarters.

Opportunities for Increased Share Value

The rationalization of non-core assets and prudent financial management has created a strong balance sheet for the Company. This turnaround has restored our corporate footing and adds more strength to the pending acquisition of Peregrine by Mahalo Energy Ltd. ("Mahalo").

As previously announced, the Company has entered into an arrangement agreement with Mahalo, pursuant to which, subject to satisfaction of certain conditions, Mahalo will acquire all of the issued and outstanding common shares of the Company through a Plan of Arrangement (the "Arrangement") for total consideration of approximately $90 million, including the assumption of approximately $13 million of net debt.

The Agreement contemplates that each Peregrine shareholder will receive 0.48 of a common share of Mahalo for each common share of Peregrine. Through the completion of the Arrangement, all outstanding convertible securities of Peregrine will be exchanged for comparable convertible securities of Mahalo on the same exchange ratio. Upon completion of the Arrangement shareholders of Peregrine will own approximately 26% of the issued and outstanding Mahalo common shares.

The Arrangement will require the approval of 66 2/3% of the votes cast at Peregrine's shareholders' meeting on May 31, 2006. The proposed transaction will also require Court of Queen's Bench of Alberta and other regulatory approval.

The acquisition will allow the two companies to create a very strong team with tremendous upside potential for accretive growth and increased shareholder value. The combined knowledge of multi-well unconventional programs as well as first-hand experience in the United States will facilitate future deals and solid opportunities.

Although Peregrine is excited about its current opportunities and can continue to execute its existing plan, this new entity offers both companies significantly more flexibility and opportunity. The combined entity initially will be producing approximately 3,200 boe/d. Going forward, the new entity can drill over 100 wells in 2006 and exit the year at 4,400/boe/d. Moving into 2007, the potential exists to drill over 200 wells, with a combined undeveloped land base of over 200,000 net acres. Capital is forecast to be split 90 - 10 unconventional and conventional.

This proposed arrangement also creates the critical mass necessary to exploit the benefits of a strong balance sheet, services and drilling opportunities. Mahalo currently has four rigs under contract which positions all of the high priority assets for on-time, on-budget drilling. Access to sufficient human resources allows for efficient implementation of long-range plans.

The ultimate focus of this potential Peregrine/Mahalo entity is to maximize shareholder value through the continued development of unconventional gas plays and the high grading of conventional properties. Our go-forward strategy will work from a strong balance sheet to exploit core assets, while adding prospects to the inventory and presenting a strong 'win-win' opportunity for both Peregrine and Mahalo shareholders.

Peregrine's Board of Directors has received a fairness opinion on this proposed transaction and has determined that the Arrangement is in the best interests of Peregrine and Peregrine shareholders. They have recommended that Peregrine shareholders vote in favour of the Arrangement. On behalf of the Board of Directors and the management team of Peregrine, we are asking shareholders for their support in the acquisition of Peregrine by Mahalo.

For additional information on the Company, please go to the Company's profile on SEDAR at or the Company's website at


Except for historical financial information contained herein, the matters discussed in this document may be considered forward-looking statements. Such statements include declarations regarding management's intent, belief or current expectations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) that the information is of a preliminary nature and may be subject to further adjustment, (ii) the possible unavailability of financing, (iii) risks related to the exploration and development of oil and gas properties, (iv) the impact of price fluctuations and the demand and pricing for oil and natural gas, (v) the seasonal nature of the business, (vi) start-up risks, (vii) general operating risks, (viii) dependence on third parties, (ix) changes in government regulation, (x) the effects of competition, (xi) dependence on senior management, (xii), impact of the Canadian economic conditions, (xiv) fluctuations in currency exchange rates and interest rates.

The Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.

Contact Information

  • Peregrine Energy Ltd.
    Gary Gardiner
    President, CEO & Director
    (403) 451-3500
    (403) 451-3501 (FAX)
    Peregrine Energy Ltd.
    Willie Dawidowski
    VP Finance & CFO
    (403) 451-3500
    (403) 451-3501 (FAX)
    Peregrine Energy Ltd.
    Bill Gallacher
    (403) 237-9949
    (403) 237-0903 (FAX)