Pine Cliff Energy Ltd.

November 26, 2007 23:59 ET

Pine Cliff Energy Ltd. Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2007) - Pine Cliff Energy Ltd. (www.pinecliffenergy.com) (TSX-V:PNE) is pleased to announce its financial and operational results for the three months and nine months ended September 30, 2007.



Highlights

For the periods ended
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
-------------------------------------------------------------------------
FINANCIAL ($)
Revenue - oil and gas 95,160 90,386 470,265 490,869
Funds Flow from
Operations(1) (287,764) (113,095) (706,085) (372,415)
Per Share - Basic (0.01) (0.00) (0.02) (0.01)
Per Share - Diluted (0.01) (0.00) (0.02) (0.01)
Loss (383,510) (211,784) (999,893) (805,030)
Per Share - Basic (0.01) (0.01) (0.03) (0.02)
Per Share - Diluted (0.01) (0.01) (0.03) (0.02)
Capital Expenditures 174,289 (3,463) 2,604,413 252,699
Total Assets 4,173,333 4,700,305
Working Capital
(Deficiency) (314,684) 3,030,822
Shareholders' Equity 3,371,089 4,411,915
-------------------------------------------------------------------------
OPERATIONS
Oil and NGL's
- Barrels Per Day 1 5 4 6
- Average Price
($ per barrel) 75.83 61.75 62.07 65.00
Natural Gas
- MCF Per Day 163 131 204 184
- Average Price
($ per MCF) 5.83 5.17 7.14 7.73
Total Barrels Per Day(2) 27 27 37 37


(1) Funds flow from operations is not a recognized measure under GAAP.
Management believes that in addition to net loss, funds flow from
operations is a useful supplemental measure as it demonstrates the
Company's ability to generate the cash 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 including foreign exchange loss.

(2) BOE's 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.


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.

General
-------

The Company continues to search for investment opportunities in South America and Canada and to date has been successful in completing three farm-in arrangements in Argentina whereby Pine Cliff will earn an interest in 1,164,800 gross (605,400 net) acres of prospective land. The total commitment to earn these interests is approximately $11,240,000 U.S. over the next three years of which $2,557,495 Cdn ($2,208,066U.S.) has been expended to September 30, 2007.

The Argentina government also recently announced that it will be increasing its export tax on oil, which will have negative implications on cash netbacks for oil production. Pine Cliff will be studying these implications as details become available to determine the overall effect on its operations.

Financing by a rights offering to existing shareholders has been completed subsequent to September 30, 2007. Pine Cliff shareholders received rights to subscribe for one common share for each four shares held and had an additional subscription privilege to subscribe for any common shares not taken up on the exercise of rights. The rights offering options had an exercise price of $1.10 per share. The Company issued 8,312,654 common shares for proceeds of $9,105,969 net of $37,950 of share issue costs. For further details concerning the farm-in arrangements and financing of these arrangements, kindly refer to the applicable sections outlined below in this release.

South American Activities
-------------------------

The Company through its 93% owned subsidiary CanAmericas Energy Ltd. ("CanAmericas") will be participating in a three well drilling program in the Canadon Ramirez Concession. This program is scheduled to start in January 2008. CanAmericas is also planning to run a 3D seismic program on its Laguna de Piedra Concession in the first quarter of 2008. Also the Company is currently in the process of finalizing the terms and planning its work program on the exploration permit in the San Jorge Basin concessions. The terms of the commitments for all three concessions are discussed below.

Production
----------

Production volumes increased in the nine months of 2007 to 204 MCF per day from 184 MCF per day for the nine months of 2006. During the third quarter of each year the operator of the gas plant, where approximately 80 percent of the Company's production is processed, performs an annual turnaround resulting in having to shut in wells for lengthy periods of time. The wells were shut in for a longer period in 2006 than in 2007. The Company's production for the third quarter of 2007 compared to the second quarter of 2007 decreased from 226 MCF per day to 163 MCF per day due to the turnaround.

Revenue
-------

Revenue from petroleum and natural gas sales was $470,265 during the first nine months of 2007 compared to $490,869 for the first nine months of 2006. The decline was due to an approximate 8% decline in commodity prices in the first nine months of 2007 compared to the first three quarters of 2006. Revenue from the third quarter of 2007 compared to the second quarter of 2007 decreased by $81,430 due to a significant decrease in production (see discussion above) and lower commodity prices for natural gas.

Royalties
---------

Royalties consist of Crown royalties of $86,166 (2006 - ($3,544)) paid to (recovered from) the Province of Alberta and gross overriding royalties of $19,186 (2006 - $22,833). Crown royalties are significantly higher in the first three quarters of 2007 due to the expiry of the Crown royalty holiday. In 2007 gross overriding royalties are lower mainly because of the decline in commodity prices for natural gas. Royalties for Q3 2007 consist of Crown royalties of $13,791 (Q2 2007 - $41,585) and gross overriding royalties of $7,338 (Q2 2007 - $5,296). The decrease in Crown royalties is due to the decrease in production of natural gas and prices. Gross overriding royalties increased mainly due to an allocation of a prior year adjustment of $2,538 by the operator.

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

The Company maintains both Canadian and U.S. investment accounts that pay interest at prime less various percentages as long as the Company maintains certain minimum account balances. The Company has reduced its cash balance with the development of its South American operations and did not earn interest during Q3. With the funds received as a result of the rights offering the Company will again receive interest income commencing in Q4.

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

Production costs for the nine months ended September 30, 2007 were $99,363 or $9.91 per BOE (2006 - $91,066 or $9.14 per BOE). BOE's 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. The increase in Q3 production costs ($32,057) from Q2 production costs ($26,350) was due to the payment of annual rents related to surface and mineral leases in Q3.

General and Administrative
--------------------------

General and administrative expense for the first nine months of 2007 was $959,336 ($315,257 in the third quarter) compared to $789,640 for the first nine months of 2006 and $349,160 for the second quarter of 2007. The primary reason for the increase in expenses in the first three quarters of 2007 over the first three quarters of 2006 was due to the Company incurring additional professional fees related to its activities in South America and for continuous disclosure obligations. The decrease in expenses of $33,903 in the third quarter over the second quarter of 2007 was primarily due to reduced administrative activities in South America and fewer professional fees for continuous disclosure obligations.

Pine Cliff does not have any employees at the present time but engages the services of consultants on a contract or temporary basis. CanAmericas has on a full time basis engaged the services of two professionals as senior management and officers of CanAmericas.

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

In February 2006, the Company incorporated CanAmericas to explore and develop oil and gas properties primarily in South America. CanAmericas is owned 93 percent by the Company and seven percent by a foreign private corporation ("Foreign Corp."). CanAmericas was initially financed with $1,400,000 U.S. for 5,600,000 common shares from the Company and $100,000 U.S. for 400,000 common shares from Foreign Corp. Further Canadian funds, from Pine Cliff, have also been loaned to CanAmericas and converted to US funds. The funds held in US cash have caused a loss in foreign exchange as the Canadian dollar appreciated against the US dollar in 2007 and 2006. The first nine months of 2007 the Company had a foreign exchange loss of $34,129 ($52,157 - 2006).

Stock Based Compensation
------------------------

Stock based compensation for the first three quarters of 2007 was $88,043 (2006 - $175,061). The Company has a stock-based compensation plan for Pine Cliff. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees, directors and consultants in respect of the Company. The Company issued 102,000 stock options in Pine Cliff during the nine months of 2007. The Company estimated the stock options fair value at $44,712 ($0.44 per option) using the Black-Scholes option pricing model, assuming a weighted average risk free interest rate of 4.35 percent, weighted average expected average volatility of 62.7 percent, weighted average expected average life of 2.8 years and no annual dividend rate.

Depletion, Depreciation, and Accretion
--------------------------------------

During the first three quarters of 2007 the Company provided $223,260 (2006 - $183,337) for depletion, depreciation and accretion of its property and equipment. The increase is related to additional production volumes in 2007. Depletion, depreciation and accretion decreased in the third quarter of 2007 ($62,487) compared to the second quarter of 2007 ($81,167) due to reduced production volumes, caused by downtime in the gas plant, where approximately 80 percent of the Company's production is processed as the operator performed an annual turnaround in Q3.

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 and its subsidiaries have the following tax pools which can be used to reduce their future taxable income:


Rate of
Utilization
% Amount
-------------------------------------------------------------------------
Undepreciated capital costs 25 $324,237
Foreign exploration expenditures 10 2,557,496
Share issue costs 20 126,145
Non-capital loss carry forward(*) 100 1,646,551
Canadian exploration expenditures 100 392,110
Canadian development expenditures 30 427,201
Canadian oil and gas expenditures 10 728,371
-------------------------------------------------------------------------
$6,202,111
-------------------------------------------------------------------------
(*)$757,797 expires 2026 and $888,754 expires 2027


Non-Controlling Interest
------------------------

As described above, Foreign Corp. owns seven percent of CanAmericas. The first nine months loss applicable to non-controlling interest for 2007 of $28,495 (2006 - $36,716) and the Q3 2007 loss applicable to non-controlling interest of $7,264 (Q2 2007 - $8,572) relates to its share of revenues and costs associated with CanAmericas' South American activities.

Loss
----

The loss in the first nine months of 2007 was $999,893 ($383,510 in the third quarter) compared to $805,030 in the corresponding 2006 period and $346,274 in the second quarter of 2007. The loss incurred in the first three quarters of 2007 increased from the first three quarters of 2006 due primarily to higher general and administrative costs in respect of the Company's South American operations as well as less revenue from lower commodity prices and higher royalties due to the expiry of Crown royalty holidays early in Q1 2007. These increases in expenditures and reduction of revenues were offset by a reduction in 2007 of future taxes of $94,000 and a reduction in stock based compensation expense of $87,000. The increase in loss from Q3 2007 over Q2 2007 is due to lower production and commodity prices for natural gas.

Funds Flow from Operations
--------------------------

Funds flow from operations decreased to negative $706,085 in the first nine months of 2007 from negative $372,415 in the first nine months of 2006. The decreases from 2006 were due to the increased activity in South America, higher crown royalty payments and less interest income earned. Negative funds flow in the third quarter of 2007 of ($287,764) compared to the second quarter of 2007 of ($252,435) was higher due to less revenue because of lower production and lower commodity prices for natural gas, which was partially offset by lower administrative costs with regard to its South American activities.

The following reconciliation compares funds flow for the first nine months of 2007 and the corresponding 2006 period to the Company's cash flow from operating activities as calculated according to Canadian generally accepted accounting principles:



2007 2006
-------------------------------------------------------------------------
Cash flow from operating activities ($550,285) ($149,734)
Items not affecting funds flow
Due from related party - (16,006)
Accounts receivable (111,059) (217,258)
Prepaid expenses 20,444 (1,048)
Accounts payable and accrued liabilities (31,056) 28,500
Due to related party - 165
Asset retirement obligations settled - 35,123
Foreign exchange loss (34,129) (52,157)
-------------------------------------------------------------------------
Funds flow for the period ($706,085) ($372,415)
-------------------------------------------------------------------------


Related Party Transactions
--------------------------

Due to a delay in financing caused by changing plans to finance by a private placement to a rights offering the Company required interim short term loans and as of September 30, 2007 the Company had borrowed a total of $500,000 from the President and CEO of the Company. Subsequent to September 30, 2007 after completion of the rights offering this amount has been repaid. The loan carried interest of Canadian prime plus 1%. The proceeds were used to cover operations expenses until the completion of the rights offering.

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 $18,000, 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 nine months ended September 30, 2007 were $162,000 (2006 - $162,000) plus minimal out of pocket costs. This agreement can be cancelled by either party by giving 90 day's notice.

Liquidity and Capital Resources
-------------------------------

As of September 30, 2007, Pine Cliff had working capital of ($314,684) (December 31, 2006 - $2,963,513). As mentioned above under the "General" heading the Company has completed a rights offering resulting in net proceeds of approximately $9.1 million. These funds will be used to fund future exploration and development and property acquisitions in Canada and internationally.

The farm-in arrangements for two of the concessions in Argentina by CanAmericas required guarantees for the commitments that were made. Prior to completion of the rights offering these guarantees of $3,690,000 US by means of letters of guarantee were secured by guarantees from the president and the chief operating officer of the Company. The line of credit bears interest at US or CDN prime plus 2% per annum. Subsequent to September 30, 2007 the secured guarantee from the officers of the Company is no longer required and has been cancelled and has been replaced with a cash restriction on CanAmericas' cash to maintain a minimum balance of 1.25 times the amount of outstanding letters of guarantees and letters of credit.

As of September 30, 2007 CanAmericas has issued letters of guarantee in the amount of $3,411,618 US.

The Company has entered into commitments in relation to its farm-ins on three parcels of land in Argentina. A summary of the commitments is provided in note 8 to the financial statements.

Additional information relating to the Company may be found on SEDAR.COM. as well as on the Company's website at www.pinecliffenergy.com or by contacting George F. Fink, President, and CEO or Garth E. Schultz, Vice President - Finance, and CFO at (403) 269-2289 or by fax at (403) 265-7488.



PINE CLIFF ENERGY LTD.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
As at September 30, 2007 (unaudited) and
December 31, 2006

2007 2006
-------------------------------------------------------------------------
Assets
Current
Cash (Note 2) $302,297 $2,915,020
Accounts receivable 73,942 185,001
Prepaid expenditures 23,098 2,654
-------------------------------------------------------------------------
399,337 3,102,675
-------------------------------------------------------------------------
Property and Equipment (Note 5)
Property and equipment 4,453,300 1,848,887
Accumulated depletion and depreciation (679,304) (457,552)
-------------------------------------------------------------------------
Net Property and Equipment 3,773,996 1,391,335
-------------------------------------------------------------------------
$4,173,333 $4,494,010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities $210,684 $139,162
Due to related party (Note 3) 503,337 -
-------------------------------------------------------------------------
714,021 139,162

Asset Retirement Obligations 41,749 40,240
Non-controlling Interests (Note 4) 46,474 74,970
-------------------------------------------------------------------------
802,244 254,372
-------------------------------------------------------------------------
Commitments (Note 8)
Shareholders' Equity
Share capital (Note 6) 5,461,209 5,377,343
Contributed surplus 253,440 205,962
Deficit (2,343,560) (1,343,667)
Accumulated other comprehensive income
(Note 1) - -
-------------------------------------------------------------------------
3,371,089 4,239,638
-------------------------------------------------------------------------
$4,173,333 $4,494,010
-------------------------------------------------------------------------
-------------------------------------------------------------------------



PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
-------------------------------------------------------------------------
For the periods ended September 30
(unaudited)
Three Months Nine Months
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue
Oil and gas sales $95,160 $90,386 $470,265 $490,869
Royalties (21,129) 6,307 (105,352) (20,175)
Interest income - 31,042 23,830 89,754
-------------------------------------------------------------------------
74,031 127,735 386,743 560,448
-------------------------------------------------------------------------
Expenses
Production costs 32,057 23,136 99,363 91,066
General and
administrative 315,257 220,442 959,336 789,640
Foreign exchange
loss (gain) 14,481 (2,748) 34,129 52,157
Stock based
compensation 29,523 62,962 88,043 175,061
Dry hole costs - - - 5,550
Depletion, depreciation
and accretion 62,487 54,329 223,260 183,337
-------------------------------------------------------------------------
453,805 358,121 1,404,131 1,296,811
-------------------------------------------------------------------------
Loss before Taxes and
Non-Controlling
Interests (379,774) (230,386) (1,017,388) (736,363)
-------------------------------------------------------------------------
Income Taxes (Recovery)
Current - - - -
Future 11,000 (7,632) 11,000 105,383
-------------------------------------------------------------------------
11,000 (7,632) 11,000 105,383
-------------------------------------------------------------------------
Loss before
Non-controlling
interests (390,774) (222,754) (1,028,388) (841,746)
Loss applicable to
non-controlling
interests (Note 4) 7,264 10,970 28,495 36,716
-------------------------------------------------------------------------
Loss and Comprehensive
Income for the Period (383,510) (211,784) (999,893) (805,030)
Deficit, Beginning of
Period (1,960,050) (922,308) (1,343,667) (329,062)
-------------------------------------------------------------------------
Deficit, End
of Period ($2,343,560) ($1,134,092) ($2,343,560) ($1,134,092)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss Per Share
- Basic and Diluted
(Note 6) ($0.01) ($0.01) ($0.03) ($0.02)
-------------------------------------------------------------------------



PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
-------------------------------------------------------------------------
For the periods ended September 30
(unaudited)
Three Months Nine Months
2007 2006 2007 2006
-------------------------------------------------------------------------
Operating Activities
Loss for the period ($383,510) ($211,784) ($999,893) ($805,030)
Items not
affecting cash
Stock based
compensation 29,523 62,962 88,043 175,061
Dry hole costs - - - 5,550
Depletion,
depreciation and
accretion 62,487 54,329 223,260 183,337
Future income
taxes (recovery) 11,000 (7,632) 11,000 105,383
Foreign exchange
loss (gain) 14,481 (2,748) 34,129 52,157
Loss applicable to
non-controlling
interests (7,264) (10,970) (28,495) (36,716)
-------------------------------------------------------------------------
(273,283) (115,843) (671,956) (320,258)
-------------------------------------------------------------------------
Change in non-cash
working capital
Due from related
party - - - 16,006
Accounts receivable 23,205 (53,793) 111,059 217,258
Prepaid expenditures (17,909) 1,651 (20,444) 1,048
Accounts payable and
accrued liabilities 95,706 (33,540) 31,056 (28,500)
Due to related party - - - (165)
Asset retirement
obligations settled - (35,123) - (35,123)
-------------------------------------------------------------------------
101,002 (120,805) 121,671 170,524
-------------------------------------------------------------------------
Cash Used in Operating
Activities (172,281) (236,648) (550,285) (149,734)
-------------------------------------------------------------------------
Financing Activities
Issue of shares under
stock option plan 3,000 - 70,250 11,700
Issue of shares by
subsidiary - - - 113,670
Share issue costs (37,950) - (37,950) -
Change in non-cash
working capital
Accounts payable
and accrued
liabilities 32,500 - 32,500 -
Proceeds received
from related party 503,337 - 503,337 -
-------------------------------------------------------------------------
Cash Provided by
Financing Activities 500,887 - 568,137 125,370
-------------------------------------------------------------------------
Investing Activities
Property and equipment
expenditures (174,289) 3,463 (2,604,413) (252,699)
Change in non-cash
working capital
Accounts payable and
accrued liabilities (20,400) - 7,967 -
Due to related party - - - -
-------------------------------------------------------------------------
Cash Used in Investing
Activities (194,689) 3,463 (2,596,446) (252,699)
-------------------------------------------------------------------------
Foreign exchange loss
on cash held in
foreign currency (14,481) 2,748 (34,129) (52,157)
-------------------------------------------------------------------------
Net Cash Inflow
(Outflow) 119,436 (230,437) (2,612,723) (329,220)
Cash, Beginning of
Period 182,861 3,236,178 2,915,020 3,334,961
-------------------------------------------------------------------------
Cash, End of Period $302,297 $3,005,741 $302,297 $3,005,741
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Interest Paid $- $- $- $-
Cash Taxes Paid $- $- $- $-




Notes to the Interim Consolidated Financial Statements

Periods ended September 30, 2007 and 2006 unaudited

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and methods of application followed in the
preparation of the interim financial statements other than described
below are the same as those followed in the preparation of the
Company's 2006 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 2006 annual financial
statements.

Financial instruments - recognition and measurement

On January 1, 2007, the Company adopted Section 3855 of the Canadian
Institute of Chartered Accounts' ("CICA") Handbook, "Financial
Instruments - Recognition and Measurement" and Section 3861 Financial
Instruments - Presentation and Disclosure. It sets out the standards
for recognizing and measuring financial instruments in the balance
sheet and the standards for reporting gains and losses in the
financial statements. Financial assets available for sale, assets and
liabilities held for trading and derivative financial instruments,
part of a hedging relationship or not, have to be measured as fair
value.

The Company has made the following classifications:

- Accounts receivable are classified as loans and receivables and
are recorded at amortized cost using the effective interest
method. Gains and losses are recognized in net earnings when the
asset is derecognized.

- Accounts payable and accrued liabilities are classified as other
financial liabilities and are recorded at amortized cost using the
effective interest method. Gains and losses are recognized in net
earnings when the liability is derecognized.

The adoption of this Section is done retroactively without
restatement of the consolidated financial statements of prior
periods. Further, because the Company does not currently utilize
hedges or other derivative financial instruments, the adoption of
these sections has had no material impact on the Company's
consolidated loss, cash flows or retained earnings as of January 1,
2007 and September 30, 2007.

The Company has reviewed its contracts for embedded derivatives. An
embedded derivative is a component of a financial instrument or
another contract of which the characteristics are similar to a
derivative. This had no impact on the consolidated financial
statements.

Comprehensive income

On January 1, 2007, the Company adopted Section 1530 of the CICA
Handbook, "Comprehensive Income". It describes reporting and
disclosure recommendations with respect to comprehensive income and
its components. Comprehensive income is the change in shareholders'
equity, which results from transactions and events from sources other
than the Company's shareholders. These transactions and events
include unrealized gains and losses from changes in fair value of
certain financial instruments.

The adoption of this Section had no impact on the Company's
presentation. However, should the Company have transactions resulting
in an impact to comprehensive income the Company will present a
consolidated statement of comprehensive income as a part of the
consolidated financial statements.

Equity

On January 1, 2007, the Company adopted Section 3251 of the CICA
Handbook "Equity" replacing Section 3250 "Surplus". This describes
standards for the presentation of equity and changes in equity for
reporting the period as a result of the application of Section 1530
"Comprehensive Income".

Accounting changes

The Company also adopted Section 1506, "Accounting Changes," the only
impact of which is to provide disclosure of when an entity has not
applied a new source of GAAP that has been issued but is not yet
effective. This is the case with Section 3862, "Financial Instruments
Disclosures" and Section 3863, "Financial Instruments Presentations"
which are required to be adopted for fiscal years beginning on or
after October 1, 2007. The Company will adopt these standards on
January 1, 2008 and it is expected the only effect on the Company
will be incremental disclosures regarding 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.

2. BANKING AGREEMENT

The Company has secured a line of credit through its subsidiary
CanAmericas Energy Ltd. ("CanAmericas") in the amount of
$3,690,000 US, 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% per annum depending on the currency borrowed. The line
of credit is repayable on demand and was secured by guarantees from
the president and chief operating officer in the amount of
$4,612,500 CDN.

CanAmericas has issued letters of guarantee worth $3,411,618 as of
September 30, 2007 (see Note 8).

Subsequent to September 30, 2007 security provided by the president
and chief operating officer has been cancelled and replaced with a
cash restriction on CanAmericas' main bank account to maintain a
minimum balance of 1.25 times the amount of outstanding letters of
guarantee and letters of credit (see Note 9).

3. RELATED PARTY TRANSACTIONS

Due to related party consists of a loan from the president and
shareholder of the Company. Subsequent to September 30, 2007 the loan
has been repaid. The loan bears interest at prime plus one percent.
The loan accrued interest for the nine month period of $3,337
(2006 - $nil).

Bonterra Energy Income Trust, 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 (see
Note 7). Total fees for the nine month period were $162,000 (2006 -
$162,000) plus minimal out of pocket costs.

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 to
explore and develop oil and gas properties primarily in South
America. CanAmericas is owned 93 percent by the Company and
seven percent by a foreign private corporation ("Foreign Corp.").
CanAmericas was initially financed by investments of $1,400,000 U.S.
for 5,600,000 common shares from the Company and $100,000 U.S. for
400,000 common shares from Foreign Corp.

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



5. PROPERTY AND EQUIPMENT

September 30, 2007 December 31, 2006
Accumulated Accumulated
Depletion and Depletion and
Cost Depreciation Cost Depreciation
---------------------------------------------------------------------
Petroleum and
natural gas
properties and
related equipment $1,842,292 $665,229 $1,803,124 $450,365
Seismic 2,557,495 - - -
Furniture,
equipment and
other 53,512 14,075 45,763 7,187
---------------------------------------------------------------------
$4,453,299 $679,304 $1,848,887 $457,552
---------------------------------------------------------------------
---------------------------------------------------------------------


As of September 30, 2007, the Company spent $2,557,495 for Seismic
activities for the Canadon Ramirez Concession and Laguna de Piedra
Concession as discussed in Note 8. These costs presently have been
excluded from costs subject to depletion and depreciation.

6. 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, 2007 36,523,041 $5,377,343
Shares issued pursuant to Company
option plan 410,000 70,250
Share issue costs - (37,950)
Future income tax on share issue costs - 11,000
Transfer of contributed surplus to
share capital - 40,566
---------------------------------------------------------------------
Balance, September 30, 2007 36,933,041 $5,461,209
---------------------------------------------------------------------
---------------------------------------------------------------------


The number of common shares used to calculate diluted loss per share
for the period ended September 30, 2007 of 38,257,031 (2006 -
37,797,380) included the basic weighted average number of shares
outstanding of 36,758,479 (2006 - 36,473,441) plus 1,498,552 (2006 -
1,323,939) shares related to the dilutive effect of share options.
A summary of the status of the Company's stock option plan as of
September 30, 2007 and December 31, 2006, and changes during the nine
month and twelve month periods ending on those dates is presented
below:



September 30, 2007 December 31, 2006
---------------------------------------------------------------------
Options Weighted- Options Weighted-
Average Average
Exercise Exercise
Price Price

Outstanding at
beginning of
period 2,420,000 $0.29 1,686,000 $0.16
Options granted 102,000 1.01 895,000 0.52
Options exercised (410,000) 0.15 (103,000) 0.15
Options cancelled (35,000) 0.40 (58,000) 0.21
---------------------------------------------------------------------
Outstanding at
end of period 2,077,000 $0.35 2,420,000 $0.29
---------------------------------------------------------------------
---------------------------------------------------------------------
Options exercisable
at end of period 1,192,500 $0.18 740,000 $0.16
---------------------------------------------------------------------
---------------------------------------------------------------------

The following table summarizes information about stock options
outstanding at September 30, 2007:

Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 9/30/07 Life Price At 9/30/07 Price
---------------------------------------------------------------------
$0.15 1,120,000 2.2 years $0.15 1,120,000 $0.15
0.50-0.60 825,000 2.2 years 0.51 32,500 0.56
0.70-0.80 80,000 2.2 years 0.72 40,000 0.72
1.15 12,000 2.2 years 1.15 - -
1.49 40,000 3.2 years 1.49 - -
---------------------------------------------------------------------
$0.15-$1.49 2,077,000 2.2 years $0.35 1,192,500 $0.18
---------------------------------------------------------------------
---------------------------------------------------------------------


The Company records a compensation expense over the vesting period
based on the fair value of options granted to employees, directors
and consultants. Unvested options as of September 30, 2007 vest
833,500 in 2008 and 51,000 in 2009.

The Company issued 102,000 stock options with an estimated fair value
of $44,712 ($0.44 per option) using the Black-Scholes option pricing
model with the following key assumptions in 2007:



Weighted-average risk free interest rate (%) 4.35
Dividend yield (%) 0.00
Expected life (years) 2.8
Weighted-average volatility (%) 62.7


7. SEGMENTED INFORMATION

The Company, with the incorporation of CanAmericas in February, 2006,
has operations in Canada and South America; all operating activities
are related to exploration, development and production of petroleum
and natural gas as follows:



South
($) Canada America Total
Three Months Ended
September 30, 2007
Revenue, gross 95,160 - 95,160
Loss before non-controlling
interest 171,413 219,361 390,774
Capital expenditures 462 173,827 174,289

Nine Months Ended
September 30, 2007
Revenue, gross 478,215 13,380 492,095
Loss before non-controlling
interest 384,690 643,698 1,028,388
Capital expenditures 39,168 2,565,245 2,604,413
Property and equipment 1,177,063 2,596,934 3,773,996
Total assets 1,326,853 2,846,480 4,173,333

Three Months Ended
September 30, 2006
Revenue, gross 107,073 14,355 121,428
Loss before non-controlling
interest 58,194 164,560 222,754
Capital expenditures (3,666) 203 (3,463)

Nine Months Ended
September 30, 2006
Revenue, gross 542,709 37,914 580,623
Loss before non-controlling
interest 291,001 550,745 841,746
Capital expenditures 227,384 25,315 252,699

December 31, 2006
Property and equipment 1,352,759 38,576 1,391,335
Total assets 3,254,440 1,239,570 4,494,010


8. COMMITMENTS

The Company has entered into three farm-in agreements in South
America which require future expenditure commitments as outlined
below:

Canadon Ramirez Concession

Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has
committed to pay 100% of costs totaling $5,500,000 US, including the
21% Value Added Tax ("V.A.T."), for work to be conducted on the
concession within two years to earn a 49% participating interest.
As of September 30, 2007, the Company has expended $2,520,266 CDN
($2,173,406 US) including V.A.T of $426,014 CDN ($367,371 US) on
seismic costs in respect of the Canadon Ramirez Concession. The V.A.T
amount is recoverable against V.A.T liabilities generated on sale of
petroleum production in Argentina.



Commitment by Year ($000's US)

Year Amount
---- ------
2007 4,630
2008 870
------
5,500
------
------


The Company has entered into a Letter of Guarantee to cover its
commitment to spend $2,291,618 US for drilling three wells on this
Concession. The guarantee expires January 31, 2008. Subsequent to
September 30, 2007 the guarantee has been reduced by $149,172 US for
funds spent on this project.

San Jorge Basin Permit

Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has
committed to pay 100% of costs totaling $4,620,000 US including
V.A.T. to earn a 60% participating interest in the entire permit. As
of September 30, 2007, no amounts have been expended on this permit.
The V.A.T amount is recoverable against V.A.T liabilities generated
on sale of petroleum production in Argentina.



Commitment by Year ($000's US)

Year Amount
---- ------
2007 300
2008 2,595
2009 1,725
------
4,620
------
------


Laguna de Piedra Concession

Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has
committed to pay 40% of costs totaling $1,120,000 US including V.A.T.
to earn a 25% participating interest in the entire permit.
As of September 30, 2007, the Company has expended $36,329 CDN
($34,660 US) including V.A.T of $4,832 CDN ($4,617 US) on seismic
costs in respect of the Laguna de Piedra Concession. The V.A.T amount
is recoverable against V.A.T liabilities generated on sale of
petroleum production in Argentina.



Commitment by Year ($000's US)

Year Amount
---- ------
2007 310
2008 810
------
1,120
------
------


The Company entered into a Letter of Guarantee to spend $1,120,000 US
for work to be conducted on this Concession. The guarantee expires
July 1, 2008. Subsequent to September 30, 2007 the Company has
entered into a performance security agreement whereby the guarantee
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 (see Note 2).
The success of the South American operations and recoverability of
the capitalized costs related thereto are dependent upon the
development of successful producing properties. Specifically, this
will 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.

9. SUBSEQUENT EVENT - SHARE ISSUANCE

Subsequent to September 30, 2007 the Company has completed a rights
offering. The Company shareholders were granted the right to purchase
one common share for every four common shares held with an exercise
price of $1.10 per share. The Company issued 8,312,654 common shares
for proceeds of $9,105,969 net of $37,950 of share issue costs.

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