Pine Cliff Energy Ltd.

August 29, 2008 23:59 ET

Pine Cliff Energy Ltd. Announces Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2008) -



Highlights

For the periods ended

Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Financial ($)
Revenue - oil and gas 138,415 176,590 281,531 375,105
Funds Flow from
Operations(1) (142,894) (252,435) (302,435) (418,321)
Per Share Basic (0.00) (0.01) (0.01) (0.01)
Per Share Diluted (0.00) (0.01) (0.01) (0.01)
Loss (295,111) (346,274) (612,224) (616,383)
Per Share Basic (0.01) (0.01) (0.01) (0.02)
Per Share Diluted (0.01) (0.01) (0.01) (0.02)
Capital Expenditures 2,516,214 233,648 2,797,602 2,430,124
Total Assets 12,043,617 3,946,888
Working Capital 5,278,074 182,319
Shareholders' Equity 11,799,266 3,749,025
-------------------------------------------------------------------------
OPERATIONS
Oil and NGL's
- Barrels Per Day - 5 1 6
- Average Price
($ per barrel) - 63.29 104.38 60.73
Natural Gas
- MCF Per Day 142 226 155 226
- Average Price
($ per MCF) 10.84 7.22 9.40 7.63
Total Barrels of Oil
Equivalent Per Day(2) 24 43 27 44

(1) Funds flow from operations is not a recognized measure under GAAP.
Management believes that in addition to cash flow from operations,
funds flow from operations is a useful supplemental measure as it
demonstrates the Company's ability to generate the funds necessary to
fund future growth through capital investment. Investors are
cautioned, however, that this measure should not be construed as an
indication of the Company's performance. The Company's method of
calculating this measure may differ from other issuers and
accordingly, it may not be comparable to that used by other issuers.
For these purposes, the Company defines funds flow from operations as
funds provided by operations before changes in non-cash operating
working capital items excluding foreign exchange loss and asset
retirement expenditures.

(2) BOEs are calculated using a conversion ratio of 6 MCF to 1 barrel of
oil. The conversion is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead and as such may be misleading if
used in isolation.


Report to Shareholders

The second quarter of 2008 was marked by difficult drilling conditions in Argentina and operating conditions in Canada.

Canadian Operations:

Pine Cliff's producing property is located in the Sundance area of West Central Alberta in which the Company has a 13.7 percent working interest in 5,280 acres (723 net) of Crown land. Production decreased 16 percent in the second quarter of 2008 compared to the first quarter of the year mainly due to a well that experienced significant production declines and was eventually shut-in during the second quarter.

Pine Cliff is participating in one multi-zone well in the Sundance area (15 percent working interest). The well is expected to be drilled by the end of this year. Pine Cliff will continue to assess appropriate business opportunities and potential acquisitions in the Western Canadian Sedimentary Basin to further supplement its production base.

Argentinean Operations:

Three wells were drilled in the Canadon Ramirez property in Argentina during the first quarter of the year. Testing and evaluating had commenced on the first well but had to be suspended due to an ongoing strike by oilfield workers and a national shortage of diesel fuel. In addition, severe weather disruptions including a winter snow storm, a volcano eruption and an earthquake prevented safe travel to the area for workers and further delayed Pine Cliff's progress.

Pine Cliff has continued to be in contact with the operator to assess when labour issues will be resolved and the diesel shortage situation rectified so that the testing and completing of all three wells may be resumed. At this time, we anticipate restarting activities in September of this year. Based on the results of the three-well program, Pine Cliff has identified several follow-up locations.

Pine Cliff has completed its 3D seismic program on the Laguna de Piedra concession in Argentina. During the second quarter, the data was processed and evaluation is now underway. Pine Cliff has a 25 percent participating interest in this property and anticipates drilling one well in the first quarter of 2009.

The Farmor for Pine Cliff's third potential farm-in (San Jorge Basin) has advised that the provincial government is withdrawing the concession and new terms need to be adopted for the concession. The Farmor and the provincial government continue with their negotiations to resolve this issue. Further details will be provided when additional information is received from the Farmor.

Despite the difficult operating and political conditions in Argentina, the Company remains optimistic in regard to its large land base and the potential for a large number of drill locations on anomalies that may be significant in size. In addition, a shortage of most commodities still exists in Argentina and the Company is of the view that the Argentinean Federal government will likely have to modify its energy policy to once again entice oil and natural gas companies to become more active.

Finance:

Pine Cliff continues to maintain a healthy financial position. At the end of the second quarter of 2008, the Company had positive working capital of $5,278,074 to fund future exploration and development of both the Canadian and international properties.

Outlook:

Although circumstances continue to be challenging, Pine Cliff is looking forward to entering a more active period once again. The Company's sound financial position and high-potential opportunities provide a solid platform from which to move forward.

George F. Fink

President, CEO and Director

August 26, 2008

FORWARD-LOOKING INFORMATION

Certain statements contained in this press release include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this press release includes, but is not limited to: expected cash provided by continuing operations; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and outlook; expansion and growth of our business and operations; and maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; credit risks; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, and may include, without limitation: the risks of foreign operations; foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived therefrom. Except as required by law, Pine Cliff disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

The forward-looking information contained herein is expressly qualified by this cautionary statement.



Production
----------

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Crude oil and NGLs
(barrels per day) - 4 5 1 6
Natural gas (mcf per day) 142 168 226 155 226
Total BOE per day(1) 24 32 43 27 44
-------------------------------------------------------------------------
(1) BOEs are calculated using a conversion ratio of 6 MCF to 1 barrel of
oil. The conversion is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead and as such may be misleading if
used in isolation


Production volumes for natural gas decreased 31 percent in the first half of 2008 compared to the first half of 2007 and 16 percent in Q2 2008 compared to the first quarter of 2008. During the third quarter of 2007, one of the Company's commingled gas wells with various production zones started to produce sand and production declined significantly. The operator of the well performed an unsuccessful workover in December of 2007 to attempt to optimize production from all zones. Production continued to decline and the well was eventually shut-in in June.



Revenue
-------

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
(Cdn $) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue:
Oil and gas sales 138,415 143,116 176,590 281,531 375,105
Average Realized Prices
Crude oil and NGLs
(per barrel) - 56.91 63.29 104.38 60.73
Natural gas (per MCF) 10.84 8.17 7.22 9.40 7.63
-------------------------------------------------------------------------


The decrease in revenue from oil and natural gas sales was due to a significant decline in production in the first six months of 2008 compared to the first half of 2007, despite the higher commodity prices for natural gas in 2008. Revenue from the second quarter of 2008 compared to the first quarter of 2008 was approximately the same as the rise in commodity prices for natural gas offset the decrease in production.



Royalties
---------

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
($) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Crown royalties 21,864 34,130 41,585 55,994 72,375
Gross overriding
royalties 10,049 2,738 5,296 12,787 11,848
-------------------------------------------------------------------------
Total royalty expense 31,913 36,868 46,881 68,781 84,223
-------------------------------------------------------------------------


Crown royalties were significantly lower in the first half of 2008 due to the decreased production volumes on wells subject to Crown royalties. Gross overriding royalties were comparable for the same periods largely due to the increase in commodity prices for natural gas, which offset the decrease in production. The decrease in Crown royalties quarter over quarter was mainly due to the decreased production volumes on the wells subject to crown royalties. Gross overriding royalties increased primarily as a result of the increase in natural gas commodity prices.



Interest Income
---------------

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
($) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Interest income 26,162 68,168 4,594 94,330 21,830
-------------------------------------------------------------------------


The Company maintains both Canadian and US investment accounts that pay interest at prime less various percentages as long as the Company maintains certain minimum account balances. The Company has increased its cash balance with regard to proceeds received from the rights offering done in the fourth quarter of 2007. The Company was therefore earning interest at higher rates and on an increased cash balance. Interest income for Q2 2008 decreased by $42,006 from Q1 2008 due to the lower cash balance on hand as $2.5 million was spent on capital projects in Argentina in the second quarter of 2008.



Production Costs
----------------

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
($) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Production costs 13,273 26,249 26,350 39,522 67,306
$ per BOE 7.25 9.55 6.79 8.51 8.93
-------------------------------------------------------------------------


Production costs for the six months ended June 30, 2008 were $39,522 or $8.51 per BOE (2007 - $67,306 or $8.93 per BOE). The reduction in production costs quarter over quarter was due to lower gas compression and transportation charges resulting from the lower production volumes during the quarter.



General and Administrative (G&A) Expense
----------------------------------------


Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
($) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
G&A expense 359,043 282,129 349,160 641,172 644,079
-------------------------------------------------------------------------


General and administrative expenditures were comparable between the first six months of 2008 and the first six months of 2007. The increase in expenses in the second quarter over the first quarter of 2008 was primarily due to increased professional fees due to continuous disclosure requirements relating to year end reporting and increased banking costs due to Argentina's Government charging a 0.6 percent transfer fee on all cash deposits and withdrawals from Argentinean bank accounts.

Pine Cliff does not have any employees at the present time but engages the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. (CanAmericas) has also engaged the services of two individual professionals as senior management and officers of CanAmericas.



Foreign Exchange Gain (Loss)
----------------------------

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
($) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Foreign exchange gain
(loss) 101,624 2,310 (11,228) 103,934 (19,648)
-------------------------------------------------------------------------


The Company maintains foreign denominated bank accounts to facilitate its foreign operations. The gain on foreign exchange in the first half of 2008 and the loss in the first half of 2007 relates to the depreciation of the Canadian dollar from December 31, 2007 to June 30, 2008, as opposed to a foreign exchange loss in 2007 as the Canadian dollar appreciated over that period. The majority of the foreign exchange gain in the first half of the year was recorded in the second quarter of 2008 as the Canadian dollar depreciated more over that period.

Stock Based Compensation

------------------------

Stock based compensation for the first half of 2008 was $206,424 (2007 - $58,520). The Company has a stock-based compensation plan. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees of the management company (see section "Related Party Transactions"), directors and consultants in respect of the Company. The Company issued 1,108,000 stock options in Pine Cliff during the fourth quarter of 2007 and only 65,000 in the first half of 2008, causing an increase in stock based compensation for 2008 over 2007. The Company estimated the 2008 stock options fair value at $33,761 ($0.52 per option) using the Black-Scholes option pricing model, assuming a weighted average risk free interest rate of 2.89 percent, weighted average expected volatility of 72.1 percent, weighted average expected life of 2.5 years and no annual dividend rate. As of June 30, 2008 approximately $321,000 of unamortized stock based compensation exists and will be amortized over two years, approximately $201,000 in 2008 and $120,000 in 2009.

Depletion, Depreciation and Accretion

-------------------------------------

During the first half of 2008 the Company provided $128,544 (2007 - $160,773) for depletion, depreciation and accretion of its property and equipment. The decrease is related to lower production volumes in 2008. Depletion, depreciation and accretion declined modestly from the first quarter of 2008 due to lower production volumes.

Income Taxes

------------

The Company follows the liability method of accounting for income taxes under which the income tax provision is based on the temporary differences in the accounts calculated using income tax rates expected to apply in the year in which the temporary differences will reverse. The Company has sufficient tax pools so that it is not liable for current income tax.

The Company has the following tax pools which can be used to reduce future taxable income:



Rate of
Utilization
% Amount
-------------------------------------------------------------------------
Undepreciated capital costs 25 $ 372,596
Foreign exploration expenditures 10 2,687,074
Share issue costs 20 109,311
Canadian exploration expenditures 100 392,110
Canadian development expenditures 30 260,768
Canadian oil and gas expenditures 10 622,757
Non-capital loss carry forward(*) 100 2,527,335
-------------------------------------------------------------------------
$ 6,971,951
-------------------------------------------------------------------------
(*) $750,298 expires 2026, $1,523,672 expires 2027 and $253,365 expires
in 2028


Non-Controlling Interest

------------------------

A private foreign company (Foreign Corp.) owns seven percent of CanAmericas. The first half loss applicable to non-controlling interest for 2008 of $25,179 (2007 - $23,457) and the Q2 2008 loss applicable to non-controlling interest of $1,837 (Q1 2008 - $23,342) relates to its share of revenues and costs associated with CanAmericas' South American activities to a maximum of its original equity investment. Until CanAmericas is producing net income there will be no further losses allocated to the non-controlling interest.



Loss
----

Three months ended Six months ended
June 30, Mar 31, June 30, June 30, June 30,
($) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Loss 295,111 317,113 346,274 612,224 616,383
Loss per share (0.01) (0.01) (0.01) (0.01) (0.02)
-------------------------------------------------------------------------


The loss incurred in the first half of 2008 remained at similar levels to the loss incurred in the first half of 2007 as the decrease in oil and gas revenue was offset by lower royalties, production costs, increased interest income and a foreign exchange gain as the Canadian dollar depreciated against the US dollar. The decrease in loss from Q2 2008 over Q1 2008 is primarily due to higher general and administrative costs for the Company's South American operations, which was offset by foreign exchange gains.

Funds Flow from Operations

--------------------------

Funds flow from operations increased to negative $302,435 in the first six months of 2008 from negative $418,321 in the first half of 2007. The increase from 2007 was due to the foreign exchange gain, increased interest income and decreased royalties and production costs, which was offset by lower oil and gas revenue. The second quarter 2008 funds flow of ($142,894) increased from the first quarter of 2008 of ($159,541) due to the increased foreign exchange gain in Q2 2008 offset partially by increased general and administrative costs regarding the Company's South American activities.

The following reconciliation compares funds flow for the first six months of 2008 and the corresponding 2007 period to the Company's cash flow from operating activities as calculated according to Canadian generally accepted accounting principles:



2008 2007
-------------------------------------------------------------------------
Cash flow from operating activities ($429,064) ($378,004)
Items not affecting funds flow
Accounts receivable 40,884 (87,854)
Prepaid expenses 9,553 2,535
Accounts payable and accrued liabilities (27,742) 64,650
Foreign exchange gain (loss) 103,934 (19,648)
-------------------------------------------------------------------------
Funds flow for the period ($302,435) ($418,321)
-------------------------------------------------------------------------


Related Party Transactions

--------------------------

Pine Cliff has a management agreement with Bonterra Energy Corp. (Bonterra Corp.), a wholly owned subsidiary of Bonterra Energy Income Trust and a company with common directors and management, to have Bonterra Corp. provide executive services (President and CEO, CFO and COO), accounting services, oil and gas administration and office administration. The management fee consists of a monthly fee of $19,800, three percent of net earnings before income taxes, $250 per month per operated producing well and $150 per month per water injector well plus out of pocket costs. Total fees for the six months ended June 30, 2008 were $118,800 (2007 - $108,000) plus minimal out of pocket costs. This agreement can be cancelled by either party by giving 90 days notice.

Commitments

-----------

The Company has two farm-in agreements and one pending farm-in agreement in South America which require future expenditure commitments as outlined in Note 9 to the financial statements.

Liquidity and Capital Resources

-------------------------------

As of June 30, 2008, Pine Cliff had positive working capital of $5,278,074 (December 31, 2007 - $8,378,110). These funds will be used to fund future exploration and development of Canadian and international properties.

The TSX Venture Exchange does not accept responsibility for the adequacy

or accuracy of this release.




PINE CLIFF ENERGY LTD.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
As at June 30, 2008 (unaudited) and December 31, 2007

2008 2007
-------------------------------------------------------------------------
Assets
Current
Cash $5,336,317 $5,769,448
Restricted term investment (Note 2) - 2,689,601
Accounts receivable 112,788 71,904
Prepaid expenditures 38,021 28,468
-------------------------------------------------------------------------
5,487,126 8,559,421
-------------------------------------------------------------------------
Property and Equipment (Note 5)
Property and equipment 7,436,439 4,638,837
Accumulated depletion and depreciation (879,948) (752,264)
-------------------------------------------------------------------------
Net Property and Equipment 6,556,491 3,886,573
-------------------------------------------------------------------------
$12,043,617 $12,445,994
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities
(Note 3) $209,052 $181,311

Asset Retirement Obligations 35,299 34,438
Non-controlling Interests (Note 4) - 25,179
-------------------------------------------------------------------------
244,351 240,928
-------------------------------------------------------------------------
Commitments (Note 9)
Shareholders' Equity
Share capital (Note 7) 14,588,722 14,588,722
Contributed surplus 547,889 341,465
Deficit (3,337,345) (2,725,121)
Accumulated other comprehensive income - -
-------------------------------------------------------------------------
11,799,266 12,205,066
-------------------------------------------------------------------------
$12,043,617 $12,445,994
-------------------------------------------------------------------------
-------------------------------------------------------------------------



PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF LOSS, COMPREHENSIVE LOSS AND DEFICIT
-------------------------------------------------------------------------
For the periods ended June 30 (unaudited)

Three Months Six Months
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue
Oil and gas sales $138,415 $176,590 $281,531 $375,105
Royalties (31,913) (46,881) (68,781) (84,223)
Interest income 26,162 4,594 94,330 21,830
-------------------------------------------------------------------------
132,664 134,303 307,080 312,712
-------------------------------------------------------------------------
Expenses
Production costs 13,273 26,350 39,522 67,306
General and
administrative 359,043 349,160 641,172 644,079
Foreign exchange
loss (gain) (101,624) 11,228 (103,934) 19,648
Stock based
compensation 90,979 21,244 206,424 58,520
Depletion,
depreciation and
accretion 63,075 81,167 128,544 160,773
-------------------------------------------------------------------------
424,746 489,149 911,728 950,326
-------------------------------------------------------------------------
Loss before Taxes
and Non-Controlling
Interests (292,082) (354,846) (604,648) (637,614)
-------------------------------------------------------------------------
Taxes (Note 6)
Current 4,866 - 32,755 -
Future - - - -
-------------------------------------------------------------------------
4,866 - 32,755 -
-------------------------------------------------------------------------
Loss before
Non-Controlling
Interests (296,948) (354,846) (637,403) (637,614)
Loss applicable to
non-controlling
interests (Note 4) 1,837 8,572 25,179 21,231
-------------------------------------------------------------------------
Loss and
Comprehensive loss
for the Period (295,111) (346,274) (612,224) (616,383)
Deficit, Beginning
of Period (3,042,234) (1,613,776) (2,725,121) (1,343,667)
-------------------------------------------------------------------------
Deficit, End of
Period ($3,337,345) ($1,960,050) ($3,337,345) ($1,960,050)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss Per Share -
Basic and Diluted ($0.01) ($0.01) ($0.01) ($0.02)
-------------------------------------------------------------------------



PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
-------------------------------------------------------------------------
For the periods ended June 30 (unaudited)

Three Months Six Months
2008 2007 2008 2007
-------------------------------------------------------------------------
Operating
Activities
Loss for the
period ($295,111) ($346,274) ($612,224) ($616,383)
Items not
affecting cash
Stock based
compensation 90,979 21,244 206,424 58,520
Depletion,
depreciation
and accretion 63,075 81,167 128,544 160,773
Foreign exchange
loss (gain) (101,624) 11,228 (103,934) 19,648
Loss applicable
to non-
controlling
interests (1,837) (8,572) (25,179) (21,231)
-------------------------------------------------------------------------
(244,518) (241,207) (406,369) (398,673)
-------------------------------------------------------------------------
Change in non-
cash working
capital
Accounts
receivable (6,341) 1,996 (40,884) 87,854
Prepaid
expenditures (4,494) 2,291 (9,553) (2,535)
Accounts payable
and accrued
liabilities 31,212 (26,114) 27,742 (64,650)
-------------------------------------------------------------------------
20,377 (20,937) (22,695) 20,669
-------------------------------------------------------------------------
Cash Used in
Operating Activities (224,141) (262,144) (429,064) (378,004)
-------------------------------------------------------------------------
Financing Activities
Issue of shares
under stock
option plan - 65,750 - 67,250
-------------------------------------------------------------------------
Cash Provided by
Financing Activities - 65,750 - 67,250
-------------------------------------------------------------------------
Investing Activities
Property and
equipment
expenditures (2,516,214) (233,648) (2,797,602) (2,430,124)
Proceeds on
disposal of
restricted term
investments - - 2,689,601 -
Change in non-cash
working capital
Accounts payable
and accrued
liabilities (3,704) 28,367 - 28,367
-------------------------------------------------------------------------
Cash Used in
Investing
Activities (2,519,918) (205,281) (108,001) (2,401,757)
-------------------------------------------------------------------------
Foreign exchange
gain (loss) on
cash held in
foreign currency 101,624 (11,228) (103,934) (19,648)
-------------------------------------------------------------------------
Net Cash Outflow (2,642,435) (412,903) (433,131) (2,732,159)
Cash, Beginning
of Period 7,978,752 595,764 5,769,448 2,915,020
-------------------------------------------------------------------------
Cash, End of Period $5,336,317 $182,861 $5,336,317 $182,861
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Interest Paid $- $- $- $-
Cash Taxes Paid $- $- $- $-




Notes to the Consolidated Financial Statements

Periods ended June 30, 2008 and 2007 (unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and methods of application followed in the
preparation of the interim financial statements other than those
described below are the same as those followed in the preparation of
Pine Cliff Energy Ltd.'s (the Company or Pine Cliff) 2007 annual
financial statements. These interim financial statements do not
include all disclosures required for annual financial statements. The
interim financial statements as presented should be read in
conjunction with the 2007 annual financial statements.

The Company adopted Section 1535, "Capital Disclosures", Section
3862, "Financial Instruments - Disclosures" and Section 3863,
"Financial Instruments - Presentation." All the above Sections were
required to be adopted for fiscal years beginning on or after
October 1, 2007. As a result the Company has added Note 10 providing
the required disclosures regarding the Company's objectives, policies
and processes for managing capital and the significance of financial
instruments for the entity's financial position and performance; and
the nature, extent and management of risks arising from financial
instruments to which the entity is exposed.

Accounting Changes

In February 2008, the CICA issued Section 3064, "Goodwill and
Intangible Assets," replacing Section 3062, "Goodwill and Other
Intangible Assets" and Section 3450, "Research and Development
Costs." Various changes have been made to other sections of the CICA
Handbook for consistency purposes. The new Section will be applicable
to financial statements relating to fiscal years beginning on or
after October 1, 2008. Accordingly, the Company will adopt the new
standards for its fiscal year beginning January 1, 2009. This
standard establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented enterprises.
Standards concerning goodwill are unchanged from the standards
included in the previous Section 3062. The Company does not expect
that the adoption of this new Section will have a material impact on
its consolidated financial statements.

2. RESTRICTED TERM INVESTMENT AND BANKING AGREEMENT

The Company has a line of credit through its subsidiary CanAmericas
in the amount of US $3,690,000, which can be drawn by means of
letters of guarantee and letters of credit. The line of credit bears
interest at US or CDN prime plus 2 percent per annum depending on the
currency borrowed. The line of credit is repayable on demand.
The Company had a letter of guarantee to cover its commitment to
spend US $2,142,446 for drilling three wells on the Canadon Ramirez
Concession. The guarantee expired January 31, 2008.

The Company had a performance security agreement whereby a guarantee
to spend US $1,120,000 on the Laguna de Peidra concession has been
reassigned to Export Development Canada for a fee. The reassignment
reduces the Company's requirement to maintain 1.25 times the letter
of guarantee in its bank account. The guarantee expired June 30,
2008.

3. RELATED PARTY TRANSACTIONS

Bonterra Energy Income Trust (Bonterra), an organization with common
directors and management and former parent of the Company, through
its wholly owned subsidiary Bonterra Energy Corp. (Bonterra Corp.)
provides management services and office administration to the
Company. Total fees for the three month period were $118,800
(2007 - $108,000) plus minimal out of pocket costs. As of June 30,
2008, Pine Cliff owed Bonterra Corp. $486 (December 31, 2007 -
$3,976).

Pine Cliff acquired its Canadian oil and gas properties from Novitas
Energy Ltd. (Novitas). As of June 30, 2008, Pine Cliff owed Novitas
$7,095 (December 31, 2007 - $Nil) for invoiced expenditures by the
operator of those oil and gas properties. Novitas is a wholly owned
subsidiary of Bonterra.

These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.

4. NON-CONTROLLING INTERESTS

The Company has incorporated a subsidiary company, CanAmericas Energy
Ltd. (CanAmericas) to explore and develop oil and gas properties
primarily in South America. CanAmericas is 93 percent owned by the
Company and seven percent by a foreign private corporation (Foreign
Corp.). CanAmericas was initially financed by investments of
US $1,400,000 for 5,600,000 common shares from the Company and
US $100,000 for 400,000 common shares from Foreign Corp.
Changes to non-controlling interest were as follows:



June December
30, 2008 31, 2007
---------------------------------------------------------------------
Non-controlling interest, January 1 $25,179 $74,970
Loss applicable to non-controlling interest (25,179) (49,791)
---------------------------------------------------------------------
Non-controlling interest, end of period $- $25,179
---------------------------------------------------------------------


Foreign Corp. has been granted an option to acquire an additional
1,000,000 common shares of CanAmericas at US $0.25 per common share.
Fifty percent of the options vested on January 13, 2007 and the
remaining 50 percent vested on January 13, 2008. All the options will
expire on January 13, 2011.



5. PROPERTY AND EQUIPMENT

June 30, 2008 December 31, 2007
---------------------------------------------------------------------
Accumulated Accumulated
Depletion and Depletion and
Cost Depreciation Cost Depreciation
---------------------------------------------------------------------
Petroleum and natural
gas properties and
related equipment $7,382,927 $857,382 $4,585,325 $734,384
Furniture, equipment
and other 53,512 22,566 53,512 17,880
---------------------------------------------------------------------
$7,436,439 $879,948 $4,638,837 $752,264
---------------------------------------------------------------------
---------------------------------------------------------------------


As of June 30, 2008, the Company spent $5,387,901 for exploration
activities for the Canadon Ramirez Concession and Laguna de Piedra
Concession as discussed in Note 9. These costs presently have been
excluded from costs subject to depletion and depreciation.

6. TAXES

A one percent Argentinean capital tax is payable in respect of the
exploration costs for the Canadon Ramirez and the Laguna de Piedra
Concessions.

The Company continues to record a full valuation allowance for its
future income tax assets as the recoverability is uncertain.

7. SHARE CAPITAL

Authorized

Unlimited number of Common Shares without nominal or par value.

Unlimited number of Class B Preferred Shares without nominal or par

value which may be issued in one or more series.



Issued Number Amount
---------------------------------------------------------------------
Common Shares
Balance, January 1, 2008 and June 30, 2008 42,275,695 $14,588,722
---------------------------------------------------------------------
---------------------------------------------------------------------


The number of shares used to calculate diluted net earnings per share

for the periods ended June 30:



Three Months Six Months
2008 2007 2008 2007
---------------------------------------------------------------------
Basic shares
outstanding 45,275,695 36,841,239 45,275,695 36,783,109
Dilutive effect of
share options 1,259,551 1,414,928 1,096,758 1,255,498
Diluted shares
outstanding 46,535,246 38,256,167 46,372,453 38,038,607
---------------------------------------------------------------------


A summary of the status of the Company's stock option plan as of
June 30, 2008 and December 31, 2007, and changes during the six month
and twelve month periods ending on those dates is presented below:



June 30, 2008 December 31, 2007
---------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
---------------------------------------------------------------------
Outstanding at
beginning of period 3,053,000 $0.62 2,420,000 $0.29
Options granted 65,000 1.15 1,108,000 1.16
Options exercised - - (440,000) 0.17
Options cancelled - - (35,000) 0.40
---------------------------------------------------------------------
---------------------------------------------------------------------
Outstanding at end
of period 3,118,000 $0.63 3,053,000 $0.62
---------------------------------------------------------------------
---------------------------------------------------------------------
Options exercisable
at end of period 1,872,500 $0.30 1,162,500 $0.18
---------------------------------------------------------------------
---------------------------------------------------------------------

The following table summarizes information about stock options
outstanding at June 30, 2008:

Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 6/30/08 Life Price At 6/30/08 Price
-------------------------------------------------------------------------
$0.15 1,090,000 1.5 years $0.15 1,090,000 $0.15
0.50-0.60 825,000 1.5 years 0.51 742,500 0.51
0.70-0.80 80,000 1.5 years 0.72 40,000 0.72
1.10-1.20 1,083,000 2.5 years 1.18 - -
1.40-1.50 40,000 2.5 years 1.49 - -
-------------------------------------------------------------------------
$0.15-$1.50 3,118,000 1.9 years $0.63 1,872,500 $0.30
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The Company records a compensation expense over the vesting period
based on the fair value of options granted to employees of the
management team (See Note 3), directors and consultants. The Company
issued 65,000 (December 31, 2007 - 1,108,000) stock options with an
estimated fair value of $33,761 (December 31, 2007 - $547,080)
($0.52 per option (December 31, 2007 - $0.49 per option)) using the
Black-Scholes option pricing model with the following key
assumptions:



June December
30, 2008 31, 2007
---------------------------------------------------------------------
Weighted-average risk free interest rate (%) 2.89 4.13
Dividend yield (%) 0.00 0.00
Expected life (years) 2.5 2.5
Weighted-average volatility (%) 72.1 64.8
---------------------------------------------------------------------


8. SEGMENTED INFORMATION

The Company has operations in Canada and in South America. All
operating activities are related to exploration, development and
production of petroleum and natural gas:



South
($) Canada America Total
Three Months Ended June 30, 2008
Revenue, gross 163,880 697 164,577
Loss before non-controlling interest 149,674 147,274 296,948
Capital expenditures 2,796 2,513,418 2,516,214

Six Months Ended June 30, 2008
Revenue, gross 355,106 20,755 375,861
Loss before non-controlling interest 303,876 333,527 637,403
Capital expenditures 10,222 2,787,380 2,797,602
Property and equipment 1,006,019 5,550,473 6,556,491
Total assets 4,474,825 7,568,792 12,043,617

Three Months Ended June 30, 2007
Revenue, gross 178,704 2,480 181,184
Loss before non-controlling interest 120,396 234,450 354,846
Capital expenditures 630 233,018 233,648

Six Months Ended June 30, 2007
Revenue, gross 383,055 13,880 396,935
Loss before non-controlling interest 213,277 424,337 637,614
Capital expenditures 38,901 2,391,223 2,430,124

December 31, 2007
Property and equipment 1,111,830 2,774,743 3,886,573
Total assets 6,428,371 6,017,623 12,445,994


9. COMMITMENTS

The Company has two farm-in agreements and one pending farm-in
agreement in South America which require future expenditure
commitments as outlined below:

Canadon Ramirez Concession

Pine Cliff, has committed to pay 100 percent of costs totaling
US $5,500,000, including the 21 percent Value Added Tax (V.A.T.), for
work to be conducted on the concession within two years to earn a
49 percent participating interest.

As of June 30, 2008, the Company has expended Cdn $4,406,467
(US $4,027,388) including V.A.T of Cdn $749,250 (US $685,111) on the
Canadon Ramirez Concession. The V.A.T amount is recoverable against
V.A.T liabilities generated on the sale of petroleum production in
Argentina. The V.A.T amount has been capitalized to exploration
costs, as its recoverability can not be determined until a successful
producing property is established.



Commitment by Year (US $000's)

Year Amount
---- ------
2008 1,094
-----
-----


San Jorge Basin Permit

Pine Cliff, has committed to pay 100 percent of costs totaling
US $4,620,000 including V.A.T. to earn a 60 percent participating
interest in the entire permit. As of June 30, 2008, no amounts have
been expended on this permit. The V.A.T amount is recoverable against
V.A.T liabilities generated on the sale of petroleum production in
Argentina. CanAmericas' commitment and earn-in in this property is
subject to final granting of the concession by the provincial
government to the Farmor and final terms to date have not been agreed
to by the provincial government with the Farmor. Further details will
be provided by Pine Cliff when additional information is received
from the Farmor.

Laguna de Piedra Concession

Pine Cliff through its subsidiaries has paid 40 percent of costs
totaling US $1,120,000 including V.A.T. to earn a 25 percent
participating interest in the entire permit.

The V.A.T amount is recoverable against V.A.T liabilities generated
on the sale of petroleum production in Argentina. The V.A.T amount
has been capitalized to exploration costs, as its recoverability can
not be determined until a successful producing property is
established.

The Company issued a letter of guarantee to spend US $1,120,000 for
work to be conducted on this Concession. The guarantee expired
July 1, 2008.

The success of the South American operations and recoverability of
the capitalized costs related thereto are dependent upon the
development of successful producing properties. This may require
additional financing in amounts sufficient to continue the on-going
development of the South American operations and to meet the related
obligations as they become due.

10. FINANCIAL AND CAPITAL RISK MANAGEMENT

Financial Risk Factors
----------------------

The Company undertakes transactions in a range of financial
instruments including:

- Cash deposits;
- Receivables;
- Payables;

The Company's activities result in exposure to a number of financial
risks including market risk (commodity price risk, interest rate
risk, foreign exchange risk, credit risk, and liquidity risk).
Financial risk management is carried out by senior management under
the direction of the Board of Directors.

The Company does not enter into risk management contracts. The
Company sells its oil and gas commodities at market prices at the
date of sale in accordance with the Board directive.

Capital Risk Management
-----------------------

The Company's objectives when managing capital are to safeguard the
Company's ability to continue as a going concern, to continue
providing returns to its Shareholders and benefits for other
stakeholders, and to maintain an optimal capital structure to reduce
the cost of capital. In order to maintain or adjust the capital
structure, the Company may issue new shares.

The Company monitors capital on the basis of the ratio of budgeted
exploration capital requirements to current working capital. This
ratio is calculated using the projected cash requirements for six
months to a year in advance and maintaining a working capital balance
of approximately six months to satisfy this requirement on a
continuous basis.

The Company believes that maintaining approximately a six month
current working capital balance to the exploration capital budget
requirement is an appropriate basis to allow it to continue its
future development of the Company's largest assets; the "Canadon
Ramirez Concession," "Laguna de Piedra Concession" and the "San Jorge
Basin Concession."

The following section (a) of this note provides a summary of our
underlying economic positions as represented by the carrying values,
fair values and contractual face values of our financial assets and
financial liabilities. The Company's working capital to capital
expenditure requirement ratio is also provided.

The following section (b) addresses in more detail the key financial
risk factors that arise from the Company's activities including its
policies for managing these risks.

a) Financial assets, financial liabilities

The carrying amounts, fair value and face values of the Company's
financial assets and liabilities other than cash are shown in
Table 1.



Table 1

As at June 30, 2008 As at December 31, 2007
---------------------------------------------------------------------
Carrying Fair Face Carrying Fair Face
($000) Value Value Value Value Value Value
---------------------------------------------------------------------
Financial assets
Restricted term
investments - - - 2,689 2,689 2,689
Accounts
receivable 113 113 138 72 72 81

Financial
liabilities
Accounts payable
and accrued
liabilities 209 209 209 181 181 181
---------------------------------------------------------------------

The budgeted capital expenditure to working capital base figures for
June 30, 2008 and December 31, 2007 are presented below:

June December
($000) 30, 2008 31, 2007
---------------------------------------------------------------------
Budgeted capital expenditure (December 31, 2007) 6,425 6,425
Expenditures 2008 (2,798) -
---------------------------------------------------------------------
Budgeted capital expenditure 3,627 6,425
---------------------------------------------------------------------
Number of months budgeted 6 12
---------------------------------------------------------------------
Current assets 5,487 8,559
Current liabilities (209) (181)
---------------------------------------------------------------------
Working capital 5,278 8,378
---------------------------------------------------------------------
Working capital to budgeted capital
expenditure (in months) 8.7 15.7
---------------------------------------------------------------------


b) Risks and mitigations

Market risk is the risk that the fair value or future cash flow of
the Company's financial instruments will fluctuate because of changes
in market prices. Components of market risk to which Pine Cliff is
exposed are discussed below.

Commodity price risk
--------------------

The Company's principal operation is the exploration and possible
development of its oil and gas properties in Argentina. The Company
also engages in the exploration and development of oil and natural
gas properties in Canada. Fluctuations in prices of these commodities
may directly impact the Company's performance and ability to continue
with its operations.

The Company's management currently does not use risk management
contracts to set price parameters for its production.

Sensitivity Analysis

The Company is still in the exploration stage of development of its
exploration properties and as such generates nominal cash flow or
earnings from these properties. In addition, the Company's petroleum
and natural gas operations provide only moderate cash flow, and as
such, changes of US $1.00 per barrel in the price of crude oil,
$0.10 per MCF in the price of natural gas and $0.01 change in the
Cdn/US exchange rate would have no material impact on the Company.

Interest rate risk
------------------

Interest rate risk refers to the risk that the value of a financial
instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. Interest rate risk
arises from interest bearing financial assets and liabilities that
Comaplex uses. The principal exposure to the Company is on its cash
balances which have a variable interest rate which gives rise to a
cash flow interest rate risk.

Pine Cliff's cash consists of Canadian dollar, US dollar and
Argentinean Pesos investment chequing accounts. Since these funds
need to be accessible for the development of the Company's capital
projects, management does not reduce its exposure to interest rate
risk through entering into term contracts of various lengths. As
discussed above, the Company generally manages its capital such that
its budgeted capital requirements to current working capital ratio
are approximately six months.

Sensitivity Analysis

Based on historic movements and volatilities in the interest rate
markets and management's current assessment of the financial markets,
the Company believes that a one percent variation in the Canadian
prime interest rate is reasonably possible over a 12 month period. No
income tax effect has been calculated as the Company has more than
sufficient tax pools.

The following illustrates the annual impact of a one percent
fluctuation in the Canadian prime interest rate:



As at As at
June 30, 2008 December 31, 2007
-------------------------------------------------------------------------
Plus 1% Minus 1% Plus 1% Minus 1%
($000) Earnings Equity Earnings Equity Earnings Equity Earnings Equity
-------------------------------------------------------------------------
Financial
assets
---------
Cash
deposits 53 53 (53) (53) 58 58 (58) (58)
Restricted
term
investments - - - - 27 27 (27) (27)
Accounts
receivable - - - - - - - -
Financial
liabilities
------------
Accounts
payable and
accrued
liabilities - - - - - - - -
-------------------------------------------------------------------------
Total increase
(decrease) 53 53 (53) (53) 85 85 (85) (85)
-------------------------------------------------------------------------


Foreign exchange risk
---------------------

The Company has foreign operations, but no revenue from production
from the foreign properties and currently sells all of its Canadian
product sales in Canadian currency. The Company has a US cash and
Argentina Pesos cash balance and earns an insignificant amount of
interest on its US and Argentinean Pesos bank accounts. Funds held in
foreign denominated accounts are generally held for short periods of
time, as the Company transfers and converts Canadian funds to foreign
currency as payment for foreign currency denominated payables come
due. As such, Pine Cliff does not mitigate CAD/USD/ARG exchange rate
risk by using risk management contracts.

Credit risk
-----------

Credit risk is the risk that a contracting party will not complete
its obligations under a financial instrument and cause the Company to
incur a financial loss. Pine Cliff is exposed to credit risk on all
financial assets included on the balance sheet. To help mitigate this
risk the Company maintains the majority of its cash balances with a
major Canadian chartered bank and invests in secure financial
instruments.

Of the accounts receivable balance at June 30, 2008 ($98,000) and
December 31, 2007 ($72,000), all relate to product sales with
Canadian oil and gas companies and interest income from major
Canadian chartered banks all of which have always paid within 30 to
60 days.

The Company assesses quarterly if there has been any impairment of
the financial assets of the Company. During the six month period
ended June 30, 2008, there was no impairment provision required on
any of the financial assets of the Company due to historical success
of collecting receivables. The Company does not have any significant
credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics.

The carrying value of accounts receivable approximates their fair
value due to the relatively short periods to maturity on this
instrument. The maximum exposure to credit risk is represented by the
carrying amount on the balance sheet. There are no material financial
assets that the Company considers past due.

Liquidity risk
--------------

Liquidity risk includes the risk that, as a result of Pine Cliff's
operational liquidity requirements:

- The Company will not have sufficient funds to settle a
transaction on the due date,

- Pine Cliff will not have sufficient funds to continue with its
financing of its major exploration projects,

- The Company will be forced to sell assets at a value which is
less than what they are worth, or

- Pine Cliff may be unable to settle or recover a financial asset
at all.

To help reduce these risks, the Company:

- Has a general capital policy of maintaining approximately six
months of budgeted capital requirements as its working capital
base.

- Maintains a continuous evaluation approach as to the
requirements for its largest exploration programs; the Canadon
Ramirez Concession, Laguna de Piedra Concession and the pending
San Jorge Basin Concession.

Contact Information

  • Pine Cliff Energy Ltd.
    George F. Fink
    President and CEO
    (403) 269-2289
    Fax: (403) 265-7488

    OR

    Pine Cliff Energy Ltd.
    Randy M. Jarock
    COO
    (403) 269-2289
    Fax: (403) 265-7488


    OR


    Pine Cliff Energy Ltd.
    Kirsten Kulyk
    Manager, Investor Relations
    (403) 269-2289
    Fax: (403) 265-7488
    info@pinecliffenergy.com