Pearl Exploration and Production Ltd.

Pearl Exploration and Production Ltd.

August 28, 2006 12:18 ET

Pearl Announces Third Quarter 2006 Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 28, 2006) - Pearl Exploration and Production Ltd. ("Pearl" or the "Company") (TSX VENTURE:PXX) is pleased to announce the results of the third quarter ended June 30, 2006 in which it continued to build its portfolio of North American oil and gas interests.

The Company completed its acquisition of Pan-Global Energy Ltd. ("Pan-Global") on April 28, 2006, adding production, cash flow and significant heavy oil development potential at Onion Lake. Pan-Global is now a wholly owned subsidiary of Pearl and has been renamed Pearl E&P Canada Ltd. In addition, the Company acquired four leases in the Gulf of Mexico and announced it had entered into a letter agreement to acquire all the issued and outstanding shares of Nevarro Energy Ltd., a junior oil and gas company focused on exploration in western Canada.

On June 12, 2006 the Company announced that it had reached an arrangement with the Onion Lake First Nation ("OLFN") which will allow Pearl to continue with its development drilling program on previously earned lands. During the Quarter, the Company has started the contracting and procurement process to begin development operations at the Onion Lake Field in September.

Also, the parties have begun negotiations to resolve the land dispute under an arrangement that requires that the OLFN not enter into any third party agreements and that the Company not pursue legal remedies until September 2006, and then only if a negotiated agreement has not been reached.

The Company is also preparing for the additional production, cash flow and development opportunities with the anticipated closing of the transaction with Nevarro Energy Ltd. The operational synergy between the Onion Lake Field and the Nevarro heavy oil properties present an exciting development portfolio for Pearl.

An update on other existing properties follows:

- The Company has farmed out 40% of its 100% working interest in the Mustang Island Block to Coldren Oil & Gas Company LP of New Orleans, who will operate during the exploration drilling of the Mustang Island Block. The drilling is expected to begin in October 2006 which reflects the availability of a rig within the operator's drilling operations and regulatory approval of the required Plan of Exploration.

- In April, the Company completed its acquisition of four offshore lease blocks in the Gulf of Mexico. The blocks cover over 10,240 acres in the Gulf of Mexico, and have material oil and gas exploration prospects defined by 3D seismic.

- In mid-May, a three well appraisal drilling program at Topanga was completed with all three wells being cased. The drilling results will be confirmed with the initiation of a testing and completion program for these wells which the operator, Renaissance Petroleum LLC, expects to begin in late August 2006.

- The Company advanced its steam injection pilot activities for the San Miguel heavy oil project ("SM Project"). Two test wells have been completed and the necessary facilities and equipment are in place. Injection operations at the pilot facility to determine the technical and economic feasibility of the SM Project had earlier been expected to start in June 2006. However, the Company experienced a number of delays designing and installing the pilot production facilities for the SM Project. The injection operations started in mid-August 2006.

- At Palo Duro, the operator, PetroGlobe Energy USA Ltd., now expects to begin drilling the first well of a four exploratory well program in September 2006. Previously the Company had reported the well program was expected to begin in July 2006. The operator has advised the Company that the delay is the result of a regional shortage of drilling equipment required for the program. In addition to the Lower Pennsylvania shale gas play, we expect to be testing the potential of several shallower, secondary oil objectives with the four planned wells.

Other activities during the quarter included:

- In May 2006, Pearl initiated an unsolicited offer to acquire all of the outstanding common shares of SignalEnergy Inc. ("Signal") to complement the existing oil and gas portfolio plus add up to $64 million to the balance sheet. An insufficient number of Signal shares were tendered to satisfy a condition of the offer, and the offer was withdrawn on June 21, 2006.

- On June 28, 2006, Pearl entered into a letter agreement to acquire all of the outstanding shares of Nevarro Energy Ltd. ("Nevarro"), a junior oil and gas company focused on exploration with producing properties closely aligned with Pearl's existing acreage on the Alberta/Saskatchewan border of western Canada. The proposed transaction has the unanimous support of the boards of directors of both Nevarro and Pearl. Nevarro shareholders will have a choice of either a cash or share option. For each Nevarro share, the shareholder will receive either: (a) $1.875 cash, 0.125 of a Pearl share, 0.5 of a share in a new joint venture exploration company ("ExploreCo") and 0.20866 of an ExploreCo warrant; or (b) 0.5 of a Pearl share, 0.5 of an ExploreCo share and 0.20866 of an ExploreCo warrant. As a result of this arrangement Nevarro will become a wholly owned subsidiary of the Company. The total consideration for the purchase is approximately $38.3 million which includes the assumption of bank debt in the amount of $6.4 million.

The unaudited financial statements, notes and MD&A are filed on SEDAR and are available on Pearl's website.

Pearl is a public company focused on delivering disciplined growth by establishing a North American portfolio of oil and gas projects with an emphasis on large resource opportunities. Additional information on Pearl is available on our website at

Forward-looking statements: This document contains statements about expected or anticipated future events and financial results that are forward-looking in nature and as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, the regulatory process and actions, technical issues, new legislation, competitive and general economic factors and conditions, the uncertainties resulting from potential delays or changes in plans, the occurrence of unexpected events, and the Company's capability to execute and implement its future plans. Actual results may differ materially from those projected by management. For such statements, we claim the safe harbour for forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995.

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

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