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

Peerless Energy Inc.

March 27, 2007 02:01 ET

Peerless Energy Inc. Announces 2006 Fourth Quarter and Year End Results

CALGARY, ALBERTA--(CCNMatthews - March 27, 2007) - Peerless Energy Inc. (TSX:PRY.A)(TSX:PRY.B) ("Peerless" or the "Company") is pleased to report its operating results and the filing of its audited financial statements and related management's discussion and analysis ("MD&A") for the year ended December 31, 2006. Select operational and financial results are outlined below and should be read in conjunction with the Company's audited financial statements and related MD&A which can be found at www.peerlessenergyinc.com or www.sedar.com.

2006 Accomplishments:

- Increased exit production from approximately 900 boe/d in 2005 to approximately 2,625 boe/d in 2006;

- Increased reserves from 3.4 mmboe to 10.02 mmboe (proved plus probable), with a reserve life index greater than 10 years;

- Replaced production by 715% on a proved basis and 1,239% on a proved plus probable basis;

- The Company added total proved plus probable reserves at a finding and development (F&D) cost of $21.04 per boe and a finding, development and acquisition (FD&A) cost of $23.10 per boe for the year;

- Grew its undeveloped land base by 630% to 118,000 net acres;

- Drilled 17 (14.4 net) oil wells and 8 (5.3 net) gas wells for a drilling success rate of 93% (net);

- Identified, negotiated and closed the corporate acquisition of Valiant Energy Inc., which closed on September 14, providing Peerless with an entry point into west central Alberta and the Peace River Arch operating areas;

- Initiated an exploitation drilling program in southeast Saskatchewan for Bakken light oil, growing the production base from 0 boe/d to over 600 boe/d at years end;

- Continued building its substantial risked development drilling inventory adding more than 11 drilling locations for light sweet crude oil and sweet natural gas;

- Increased its bank credit facility with a major Canadian chartered bank to $47 million, and

- Graduated to a TSX listing from the TSX Venture Exchange;



HIGHLIGHTS

Three Months Ended Year Ended
December 31, December 31,
--------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------------

Financial ($000s, except share
data)

Petroleum and natural gas
revenues 11,620 3,885 29,176 4,273
Cash flow from operations (1) 5,706 1,989 15,846 1,882
Per share - basic 0.12 0.10 0.50 0.20
Per share - diluted 0.12 0.10 0.50 0.19
Net income (loss) (5,505) 32 (940) (268)
Per share - basic (0.12) 0.00 (0.03) (0.03)
Per share - diluted (0.12) 0.00 (0.03) (0.03)
Net debt and working capital 44,855 2,969 44,855 2,969
Capital expenditures 14,177 52,887 121,758 63,787
Shares outstanding
Class A 43,753,800 22,895,239 43,753,800 22,895,239
Class B 855,000 855,000 855,000 855,000
Options 2,514,334 1,555,500 2,514,334 1,555,500
Weighted average shares
outstanding
Class A 43,734,072 17,875,053 29,427,497 8,606,480
Class B 855,000 855,000 855,000 529,397
Conversion of Class B shares
(2) 1,400,937 616,600 1,400,937 381,786
--------------------------------------------
Total weighted average shares
outstanding 45,990,009 19,346,653 31,683,431 9,517,663
Stock option dilution
(treasury method) 278,725 896,116 278,725 503,538
--------------------------------------------
Weighted average diluted
shares outstanding 46,268,734 20,242,769 31,962,156 10,021,201
--------------------------------------------

Operating (units as noted)

Production
Crude oil (bbls/d) 1,299 187 696 66
Natural gas (mcf/d) 5,901 2,261 4,001 570
Natural gas liquids (bbl/d) 133 67 104 17
--------------------------------------------
Barrels of oil equivalent
(6:1) (boe/d) 2,415 631 1,467 178
Exit rate as at December 31,
2006 (boe/d) 2,625 900 2,625 900
Average prices
Crude oil and NGLs ($/bbl) 56.67 57.04 64.85 59.47
Natural gas ($/mcf) 7.67 11.86 6.91 11.86
Natural gas liquids (bbl/d) 56.12 60.62 65.33 60.22
--------------------------------------------
Barrels of oil equivalent
(6:1) ($/boe) 52.29 66.91 54.49 65.77
Operating netback per boe ($)
Revenue 52.29 66.91 54.49 65.77
Realized gain on financial
instruments (0.83) - (0.41) -
Royalties 9.31 12.78 8.88 12.71
Operating expenses 9.77 7.92 9.05 7.83
Transportation expenses 1.21 2.28 1.82 2.12
--------------------------------------------
Operating netback 32.83 43.93 35.15 43.11
Wells drilled
Gross 5 5 29 5
Net 5 3.2 21.73 3.2
Success rate (percent) 100 100 93 100

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

(2) For the year ended December 31, 2005, the Class B shares were converted
at the weighted average market price of the Class A shares for the
final 30 days of the year of $3.79 (2005 - $5.81) and added to the
Class A shares to calculate basic shares outstanding.


Peerless Overview

On May 27, 2005, when Peerless Energy Inc. completed its Initial Public Offering (IPO), it did so with a strategy to build "a balanced foundation for growth". A foundation that would enable the Company to develop a high quality reserve, production and cash flow base complete with opportunities to increase production by optimization, infill drilling and utilizing the Company's in-house technical expertise.

For the year ending December 31, 2006, being the Company's first full year of operations, Peerless Energy Inc. achieved a great deal of success. In a challenging cost environment, Peerless was able to assemble a high quality, long life, predictable and low risk asset base in Saskatchewan, Alberta and British Columbia.

In the eighteen months period since inception, Peerless has built an asset base that includes approximately 2,625 boe/d of stable long life production with proved plus probable reserves as of December 31, 2006 of 10.02 mmboe.

Starting from zero production and reserves in southeast Saskatchewan, over the past 12 months, the Company has assembled via Crown land sales and drilling, an operated light oil production base of approximately 600 bbls/d of light Bakken oil with associated reserves of 3.41 mmboe. The Company currently has a risked development drilling inventory of more than 120 net drilling locations targeting Bakken oil. This inventory provides the Company with 4 - 5 years of drilling inventory.

In northeast British Columbia, Peerless owns and operates a high quality, liquids rich Bluesky sweet natural gas pool with 225 Bcf original-gas-in-place ("OGIP"). The asset provides Peerless with approximately 570 boe/d of production with low predictable decline rates and a greater than 12 year reserve life index. Additionally, there is approximately 22,600 net acres of undeveloped land along with a drilling inventory of over 22 (16.5 net) locations for sweet natural gas reserves.

In September 2006, Peerless acquired Valiant Energy Inc. by way of a Plan of Arrangement. The assets are approximately 80% operated, and at the time of the acquisition, consisted of approximately 1,100 boe/d of production, 3.01 mmboe of reserves and 92,000 undeveloped net acres of land.

Located primarily in multi zone areas of west central Alberta and the Peace River Arch, the assets are complete with a suite of high impact exploration drilling locations and more than 36 net low risk development drilling locations.

The Company has now fully integrated the acquired assets, and has successfully initiated its first drilling programs in Progress, Leaman, and in the Peace River Arch with a 100% success rate. Peerless plans to focus additional drilling capital to the assets over the next twelve to eighteen months.

Despite the commodity price volatility and the general down turn in the overall energy sector, the management of Peerless still views the business environment positively with relatively strong market fundamentals. Peerless believes adherence to its business plan will position the Company for steady growth and operating success over the long term.

As we move forward in 2007, we will continue to refine our operating plans, expand our presence in our operating regions, explore other promising oil and gas prospects and develop our team and resources to ensure we continue to have the capacity to grow our reserves, production and cash flow per share and to evolve as a respected operator in the oil and gas industry.

Core Area Review

Viewfield, Saskatchewan

In 2006 Peerless implemented and executed an aggressive drilling program in the Bakken light oil resource play at Viewfield, Saskatchewan. Peerless successfully drilled 12 (12 net) horizontals into the large original-oil-in-place Bakken resource play in 2006, with a 100% success rate. The majority of the wells were drilled at Viewfield proper, where Peerless owns and operates the existing processing facility and infrastructure, and is able to have the wells tied in and on production within days of rig release. In addition, Peerless successfully drilled an exploration Bakken horizontal well on the Company's Forget land block.

The Bakken resource play is characterized by a large resource base of 4-5 million barrels of oil-in-place per section. The key to developing the resource is to optimize drainage efficiency. Peerless achieves this by drilling tri-lateral (3-leg) horizontal wells using a pitch-fork geometry and a well density of 8 horizontal wells per section. Peerless' horizontal wells are normally completed without fracture stimulations and typically produce with initial production rates in excess of 150 bbl/d of clean oil with associated gas and liquids and very little water. After initial declines, Peerless' Bakken horizontal wells average over 100 bbl/d of oil production in the first month and stabilize above 50 bbl/d after 3 months of production.

Peerless has now accumulated over 20 sections (18.4 net) of land in the Bakken resource play and has a current inventory of 134 (127 net) low risk horizontal drilling locations. All of the Peerless land is situated within what has been identified through industry drilling activity as the "sweet spot" of the Bakken prospective fairway. Overall reservoir quality has been consistent and the Peerless drilling activity is focused where natural reservoir permeability is sufficient to sustain economic flow rates without requiring fracture stimulations. Given standard results for the Bakken resource play, the Company has a reserve base exposure of 12.9 mmbbls and initial production exposure of over 12,700 bbl/d first month and 6,350 bbl/d after 3 months. Peerless operates its own production facility and infrastructure which allows for rapid and cost effective tie-in, including gas conservation.

In 2007 Peerless plans to increase drilling activity in the Bakken and has budgeted to drill 28 horizontal wells by year end. In order to execute the Bakken drilling program, Peerless will contract two rigs for the full year and a third for the second half of 2007. About half of the wells drilled will be at Viewfield proper, with the rest split between the Company's Forget and Midale land blocks.

In addition to the Bakken activity, Peerless successfully drilled 1 (1 net) Mississippian horizontal in the Midale Marly formation which stabilized at over 100 bbls/d of light oil.

Silver, British Columbia

Peerless' Silver property is located about 150 kilometers north of the town of Fort St. John, British Columbia. The property currently produces 570 boe/d net to Peerless. Silver is a large, 225 Bcf original-gas-in-place sweet natural gas pool with a reserve life index greater than 12 years (proved plus probable). Year over year production declines for the pool have averaged approximately 8%. Peerless owns and operates the producing infrastructure and facilities in the area.

The primary producing horizon at Silver is the Bluesky formation which occurs at an average depth of 1,100m. Initial production rates range from 250 -- 500 mcf/d with ultimate recoverable reserves of 0.5 --2.0 Bcf per well. Additional exploration potential exists in the Halfway formation, which lies about 75m below the Bluesky.

In the first quarter of 2006, Peerless drilled 7 (4.85 net) wells at Silver. Overall reservoir quality in the Bluesky met Company expectations, however, due to tight supply for services and equipment and road bans, Peerless was unable to get the wells tied-in and on production prior to spring breakup. Final completion operations and pipeline construction are presently underway to bring these wells on production.

In addition to the wells drilled in 2006, Peerless has identified 22 (16 net) infill and development drilling locations and 24 (16.7 net) re-completion opportunities.

With significant production already in place, approximately 22,600 net acres of undeveloped land and numerous drilling and re-completion opportunities, the Silver property offers promising growth potential and also provides Peerless with the effective balance of oil and gas that will further enable the Company to leverage its expansion programs based on commodity prices.

West Central Alberta

Peerless' West Central Alberta core area is characterized by multi-zone, long life stable production with a mix of oil and natural gas. Peerless owns three main properties in the area and currently produces 907 boe/d net to the Company.

Leaman

The Company has an average working interest of 75% in 18 sections of land and owns and operates the production facilities and infrastructure. The property currently produces 415 boe/d net to Peerless from the Pekisko formation. The Company did not drill any wells at Leaman in 2006 but has identified 15 infill and development locations using well control and 3D seismic. Peerless plans to drill 2 (1.9 net) wells at Leaman in the first quarter of 2007.

Niton

Peerless controls an average working interest of 77% in just under 11 sections of land. Peerless owns and operates 174 boe/d of light oil and associated natural gas production from the Rock Creek formation.

Peerless has mapped and identified an additional 14 low risk infill and development Rock Creek locations. In 2007 Peerless plans to drill 1 (0.5 net) well at Niton.

Bigstone

Peerless owns an average working interest of 30% in 7 sections of land. The Company currently produces 135 boe/d of sweet natural gas from the Gething and Cadomin formations.

Using existing well control and seismic Peerless has identified another 14 low risk downspaced drilling locations. Peerless does not have any wells planned in the first half of 2007, and the inclusion of drilling additional wells will be reviewed in the second half of the year.

Peace River Arch

Peerless' Peace River Arch core area is located in northwest Alberta. Peerless currently produces 188 boe/d from the area, primarily from the Red Earth and Progress properties.

Drilling Results

Peerless drilled 29 (21.73 net) wells in 2006, achieving an overall net success rate of 93%. Some of the highlights are listed below;

At Viewfield, Peerless drilled 12 (12 net) Bakken horizontal oil wells with a success rate of 100%. Peerless also drilled 1 (1 net) successful horizontal oil well in Steelman, Saskatchewan.

At Red Earth, Alberta, Peerless participated in the drilling of 6 (2.80 net) wells, resulting in 2 (0.94 net) Granite Wash oil wells, 2 (0.94 net) Slave Point oil wells and 2 (0.94 net) dry holes for a success rate of 67%.

At Silver, British Columbia, Peerless drilled 7 (4.85 net) wells in the first quarter drilling season with a success rate of 100%.



The following table summarizes the Company's 2006 drilling results:

---------------------------------------------------------------------------
Year ended
2006 2005
---------------------------------------------------------------------------
Gross Net(i) Gross Net(i)
---------------------------------------------------------------------------
Crude oil 17 14.88 5 3.20
Natural gas 6 4.68 - -
Standing 2 0.62 - -
Dry & abandoned 4 1.55 - -
---------------------------------------------------------------------------
Total 29 21.73 5 3.20
---------------------------------------------------------------------------
Success rate (%) 86 93% 100 100
---------------------------------------------------------------------------
(i)based on after earned working interest


2007 Drilling Program Update

In 2007, Peerless plans to drill a minimum of 34 (30 net) wells, focusing drilling activity on the Company's light oil Bakken resource play at Viewfield, Saskatchewan. To date Peerless has drilled 12 (9.15 net) wells, resulting in 11 (8.70 net) oil wells and 1 (0.45 net) dry hole for a success rate of 95%.

At Viewfield, Saskatchewan, Peerless has successfully drilled 7 (5.50 net) Bakken light oil horizontal wells, all of which are completed and on production.

At Progress, Alberta, Peerless recently drilled a successful Halfway light oil well which is now completed and tied-in at a production rate in excess of 100 boe/d.

At Leaman, Alberta, Peerless recently drilled 2 Pekisko oil wells which are currently being flow- lined to a central processing facility. Initial production is expected in the first week of April.

In addition, Peerless participated (20% net) in a significant exploration discovery in its Peace River Arch core area of Alberta. The well tested at a stabilized rate of approximately 20 mmscf/d. The well has been completed and tied in and it is anticipated that this well will begin initial production within the next 2 weeks. Initial production may be rate restricted due to possible infrastructure constraints.

Additionally, the Company farmed out a well in the Peace River Arch area of Alberta and retains a net 40% working interest in a well which is currently being completed and evaluated.

Reserves

Reserves at December 31, 2006

Peerless' year end reserve evaluation as at December 31, 2006 was prepared by the independent engineering firm Sproule Associates Limited ("Sproule") in accordance with National Instrument 51-101 ("NI 51-101"). Sproule evaluated 100% of Peerless' reserves. The Sproule December 31, 2006 price forecast was used to determine all estimates of future net revenue (also referred to as net present value or "NPV"). The Company's reserves committee, comprised of independent and appropriately qualified directors, has reviewed and accepted the evaluation prepared by Sproule.

Highlights

- Proved reserves totaled 6.04 mmboe.

- Proved plus probable reserves totaled 10.015 mmboe, with a reserve life index of 10.45 years using a 2006 exit rate of 2,625 boe/d.

- Replaced production by 715% on a proved basis and 1,239% on a proved plus probable basis.

- Peerless' recycle ratio was 1.7 based on an operating netback of $35.15 per boe and proved plus probable reserve additions.

- Based on capital expenditures of $90.88 million (including $44.96 million of future development costs on a proved plus probable basis), the total proved plus probable finding and development (F&D) costs for the period ended December 31, 2006 amounted to $21.04 per boe.

- Based on capital expenditures of $166.72 million (including $44.96 million of future development costs on a proved plus probable basis), the total proved plus probable finding, development and acquisition (FD&A) costs for the period ended December 31, 2006 amounted to $23.10 per boe.

- Proved developed producing reserves represent 72% of total proved reserves and 44% of total proved plus probable reserves.

The following cautionary statements are specifically required by NI 51-101:

- Estimates of future net revenue used in calculating discounted and undiscounted net present values do not represent fair market value.

- Due to the effects of aggregation, estimates of reserves and future net revenues for individual properties may not reflect the same confidence level as estimates of reserves and future net revenues for all properties.

- A boe conversion ratio of 6 mcf equals 1 barrel of oil equivalent has been used. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf equals 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

- The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.



Summary of Oil and Natural Gas Reserves
As at December 31, 2006 - Forecast Prices and Costs (1)

Gross Company Interest Reserves
(before deduction of royalties payable, not including royalties receivable)
---------------------------------------------------------------------------
Light and Natural
Medium Crude Heavy Natural Gas 6:1 Oil
Oil Oil Gas Liquids Equivalent
(Mbbl) (Mbbl) (MMcf) (Mbbl) (Mboe)
---------------------------------------------------------------------------
Proved
Developed Producing 1,555.4 - 14,560.2 388.6 4,370.6
Developed Non-Producing 41.5 - 925.0 29.3 224.9
Undeveloped 1,154.0 - 1,667.0 12.8 1,444.6
--------------------------------------------------------------------------
Total Proved 2,750.8 - 17,151.0 430.7 6,040.1
Probable 2,351.0 5.7 8,670.0 174.0 3,975.6
---------------------------------------------------------------------------
Total Proved plus
Probable 5,101.8 5.7 25,821.0 604.7 10,015.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Net Company Interest Reserves
(after deduction of royalties payable, including royalties receivable)

---------------------------------------------------------------------------
Light and Natural
Medium Crude Heavy Natural Gas 6:1 Oil
Oil Oil Gas Liquids Equivalent
(Mbbl) (Mbbl) (MMcf) (Mbbl) (Mboe)
---------------------------------------------------------------------------
Proved
Developed Producing 1,347.6 - 11,586.0 303.6 3,582.3
Developed Non-Producing 37.8 - 737.0 23.6 184.1
Undeveloped 1,021.5 - 1,313.0 8.5 1,248.8
---------------------------------------------------------------------------
Total Proved 2,406.9 - 13,636.0 335.7 5,015.2
Probable 2,159.0 5.5 6,912.0 133.3 3,449.8
---------------------------------------------------------------------------
Total Proved plus Probable 4,565.9 5.5 20,547.0 468.9 8,464.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Based on Sproule's December 31, 2006 escalated price forecast as shown
below.


Net Present Value Summary at December 31, 2006 - Forecast Prices and Costs

Before tax NPV of cash flow uses Sproule's December 31, 2006 escalated price forecast. Benchmark oil and NGL prices are used which are adjusted for quality of oil or NGL produced and for transportation costs. Benchmark gas prices are used which are adjusted for heat content, the existence of any marketing contracts, and for transportation costs. The calculated NPVs include a deduction for estimated future well abandonment costs.



Before Future Income Tax Expenses and Discounted at

0% 5% 10% 15% 20%
(M$) (M$) (M$) (M$) (M$)
------------------------------------------------------------------------
Proved
Developed Producing 136,126 112,475 96,887 85,803 77,481
Developed Non-producing 6,750 5,818 5,087 4,499 4,019
Undeveloped 32,585 24,238 18,195 13,668 10,178
------------------------------------------------------------------------
Total Proved 175,461 142,531 120,168 103,970 91,678
Probable 136,236 90,471 65,975 50,911 40,808
------------------------------------------------------------------------
Total Proved plus Probable 311,697 233,002 186,143 154,881 132,486
------------------------------------------------------------------------
------------------------------------------------------------------------
The tables summarize the data contained in the Peerless Report, and, as
a result, may contain slightly different numbers than such report due to
rounding. Also, due to rounding, certain columns may not add exactly.


Price Forecast

Sproule employed the following pricing, exchange rate and inflation rate assumptions as of December 31, 2006 in estimating Peerless' reserves data using forecast pricing and costs.



Edmonton Cromer
Par Price Medium
WTI 40 29.3 Edmonton Infla- Exchange
Cushing degrees degrees AECO-C Pentanes Edmonton tion Rate
Oklahoma API API Spot($/ Plus Butanes Rate ($US/
Year ($US/bbl) ($/bbl) ($/bbl) mmbtu) ($/bbl) ($/bbl)(%/yr) $Cdn)
--------------------------------------------------------------------------
2007 65.73 74.10 63.72 7.72 75.88 55.23 5.0 0.870
2008 68.82 77.62 66.75 8.59 79.49 57.85 4.0 0.870
2009 62.42 70.25 60.41 7.74 71.94 52.36 3.0 0.870
2010 58.37 65.56 56.38 7.55 67.14 48.87 2.0 0.870
2011 55.20 61.90 53.24 7.72 63.40 46.14 2.0 0.870
2012 56.31 63.15 54.31 7.85 64.67 47.07 2.0 0.870
2013 57.43 64.42 55.40 7.99 65.98 48.02 2.0 0.870
2014 58.58 65.72 56.52 8.12 67.30 48.98 2.0 0.870
2015 59.75 67.04 57.65 8.26 68.66 49.97 2.0 0.870
2016 60.95 68.39 58.81 8.40 70.04 50.97 2.0 0.870
2017 62.17 69.76 60.00 8.54 71.45 52.00 2.0 0.870

Escalated Rate of 2.0% per year thereafter


Gross Company Interest Reserve Reconciliation - Forecast Prices and Costs

6:1 Oil Equivalent (Mboe)
-----------------------------------
Proved
Total Probable Plus Probable
Proved
--------------------------------------------------------------------------
December 31, 2005 - opening balance 2,214 1,166 3,380
Acquisitions 1,981 917 2,898
Revisions - existing properties 62 (223) (161)
Discoveries 80 280 360
Extensions 2,123 1,836 3,959
Dispositions - - -
Production (421) - (421)
-----------------------------------
December 31, 2006 - closing balance 6,040 3,976 10,016
-----------------------------------
-----------------------------------


Finding, Development and Acquisition (FD&A) Costs

Total Proved Finding and Development Costs
(as per NI 51-101) Since
($000s) 2006 2005 Inception
--------------------------------------------------------------------------
Capital expenditures excluding acquisitions and
dispositions 45,919 6,116 52,035
Change in future development capital 24,233 135 24,368
-----------------------
Total capital 70,152 6,251 76,403
Reserve additions excluding acquisitions,
dispositions & revisions (Mboe) 2,203 223 2,426
-----------------------
Total proved finding and development costs ($/Boe) 31.84 28.03 31.49
-----------------------
-----------------------


Total Proved Plus Probable Finding and Development Costs
(as per NI 51-101) Since
($000s) 2006 2005 Inception
-------------------------------------------------------------------------
Capital expenditures excluding acquisitions and
dispositions 45,919 6,116 52,035
Change in future development capital 44,964 673 45,637
----------------------
Total capital 90,883 6,789 97,672
Reserve additions excluding acquisitions,
dispositions & revisions (Mboe) 4,319 350 4,669
----------------------
Total proved finding and development costs ($/Boe) 21.04 19.40 20.92
----------------------
----------------------


Total Proved Finding, Development and Acquisition Costs
(all in, which includes acquisitions and
dispositions) Since
($000s) 2006 2005 Inception
-------------------------------------------------------------------------
Capital expenditures including acquisitions and
dispositions 121,758 61,360 183,118
Change in future development capital 24,233 135 24,368
------------------------
Total capital 145,991 61,495 207,486
Reserve additions including acquisitions and
dispositions (Mboe) 4,184 2,328 6,512
------------------------
Total proved finding and development costs
($/Boe) 34.89 26.42 31.86
------------------------
------------------------


Total Proved Plus Probable Finding, Development & Acquisition Costs
(all in, which includes acquisitions and
dispositions) Since
($000s) 2006 2005 Inception
-------------------------------------------------------------------------
Capital expenditures including acquisitions and
dispositions 121,758 61,360 183,118
Change in future development capital 44,964 673 45,637
------------------------
Total capital 166,722 62,033 228,755
Reserve additions including acquisitions and
dispositions (Mboe) 7,217 3,493 10,710
------------------------
Total proved finding and development costs
($/Boe) 23.10 17.76 21.36
------------------------
------------------------


The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

Recycle Ratio

Peerless' 2006 corporate netback (operating netback less G&A, taxes and interest and including hedging gains) was $35.15/boe.



Recycle Ratio 2006
-------------------------------------------------------------------
Proved Exploration and Development without FDC 1.1
Proved plus Probable Exploration and Development with FDC 1.7
Total Proved FD&A, without FDC 1.2
Total Proved plus Probable FD&A, without FDC 2.1
Total Proved FD&A, with FDC 1.0
Total Proved plus Probable FD&A, with FDC 1.5


Total exploration and development costs incurred in the most recent financial year, and the change during that year in estimated future development costs, generally will not reflect total finding and development costs related to reserve additions for that year.

Outlook

The current business environment for the oil and gas sector remains attractive. Although the price for natural gas is expected to be soft in the short term, longer term commodity prices are expected to be strong. Relatively low interest rates, high demand for energy and reasonable access to capital markets provide for a strong business environment in the oil and gas sector.

Peerless aims to be a top quartile performer among the junior oil and gas sector in growth of reserves, production and cash flow per share. In 2007, with a focused corporate strategy, Peerless will build upon its strong asset base developed in 2006. Our high quality oil and gas assets and considerable undeveloped land holdings offer significant opportunities to increase production through infill drilling, production optimization and exploration drilling.

Peerless is planning to invest in further developing and improving production from its current assets by drilling and completing wells in all three core areas. As an opportunity-driven Company, Peerless continually seeks out other opportunities and assets that fit within the Company's business model. By effectively managing its strategies, Peerless has assembled a high quality asset base while protecting its balance sheet - a balanced foundation for growth.

Looking forward, Peerless' capital expenditure budget of $56 million for exploration and development activities for 2007 will be funded by a combination of primarily cash flow and its credit facility. The 2007 capital budget provides for $54 million to be spent on drilling and completion operations, and $2.0 million on land and seismic. In total, the Company expects to drill 34 (30 net) wells in its four project areas targeting high quality, long life sweet natural gas and light oil.

The success achieved by Peerless in 2006 would not have been possible without the dedicated efforts of its employees, officers and its Board of Directors. It is because of this hard work and dedication that the Company's strategy for growth has been implemented so quickly and efficiently.

FOURTH QUARTER RESULTS



Peerless' summarized financial and operating results for the fourth quarter
of 2006 compared to the fourth quarter of 2005 are as follows:

Three Months Ended
December 31 Percent
Financial ($000s, except share data) 2006 2005 Change
---------------------------------------------------------------------------
Petroleum and natural gas revenues 11,620 3,885 199
Cash flow from operations (1) 5,706 1,989 187
Per share - basic 0.12 0.10 20
Per share - diluted 0.12 0.10 20
Net income (loss) (5,505) 32 (17,303)
Per share - basic (0.12) 0.00 -
Per share - diluted (0.12) 0.00 -
Net debt and working capital 44,855 2,969 1,411
Capital expenditures 14,177 52,887 (73)
Shares outstanding
Class A 43,753,800 22,895,239 91
Class B 855,000 855,000 -
Options 2,514,334 1,555,500 62
Weighted average shares outstanding
Class A 43,734,072 17,875,053 145
Class B 855,000 855,000 -
Conversion of Class B shares (2) 1,400,937 616,600 127
-----------------------
Total weighted average shares
outstanding 45,990,009 19,346,653 138
Stock option dilution (treasury
method) 278,725 896,116 (69)
-----------------------
Weighted average diluted shares
outstanding 46,268,734 20,242,769 129
Production
Crude oil (bbls/d) 1,299 187 595
Natural gas (mcf/d) 5,901 2,261 161
Natural gas liquids (bbl/d) 133 67 99
Barrels of oil equivalent (6:1) (boe/d) 2,415 631 283
Exit rate production (boe/d) 2,625 900 192
Average prices
Crude oil ($/bbl) 56.67 57.04 (1)
Natural gas ($/mcf) 7.67 11.86 (35)
Natural gas liquids ($/bbl) 56.12 60.62 (7)
Barrels of oil equivalent (6:1) ($/boe) 52.29 66.91 (22)
Operating netback per boe ($)
Revenue 52.29 66.91 (22)
Realized gain on financial instruments (0.83) - -
Royalties 9.31 12.78 (27)
Operating expenses 9.77 7.92 23
Transportation expenses 1.21 2.28 (47)
Operating netback 32.83 43.93 (25)
Interest 439 6 7,217
General and administrative 1,276 386 231
$ per boe 5.74 6.66 (14)
Depletion, depreciation and accretion 6,106 1,289 374
$ per boe 27.48 22.21 24
Wells drilled
Gross 5 5 -
Net 5 3.2 56
Success rate (percent) 100 100 -

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

(2) For the year ended December 31, 2005, the Class B shares were converted
at the weighted average market price of the Class A shares for the
final 30 days of the year of $3.79 (2005 - $5.81) and added to the
Class A shares to calculate basic shares outstanding.


Fourth Quarter Operations

Production

Production for the fourth quarter of 2006 increased by 283% when compared to the fourth quarter of 2005 as a result of successful 2006 drilling results, the impact of the three acquisitions completed in late 2005, and the acquisition of Valiant Energy Inc. ("Valiant") via Plan of Arrangement completed in 2006. The 20% shift in production mix from natural gas and liquids to crude oil is due to the Company's drilling success in its light oil Bakken play in southeast Saskatchewan, as well as the Company's 2006 acquisition.

Revenue

Oil and gas revenue increased by 199% due to a 283% increase in production from its drilling program and acquisitions, offset by a 22% decrease in realized price per boe mostly owing to lower natural gas prices in 2006. The Company also realized gains on its derivative financial instruments, as discussed below.

Derivative Instruments

In the fourth quarter of 2006 the Company had a realized gain of $0.2 million from its use of various derivative instruments. This compares to a gain of nil in the fourth quarter of 2005, when the Company had no hedges in place.



--------------------------------------------------------------------------
Type Index Price Volume Term
--------------------------------------------------------------------------
Costless Cdn$75.00/bbl to Sep 1/06 to
collar WTI oil Cdn$87.00/bbl 300 bbls/d Aug 31/07

Costless AECO natural Cdn$6.50/Gj to Nov 1/06 to
collar gas Cdn$7.85/Gj 2,000 Gj/d Mar 31/07
--------------------------------------------------------------------------


Royalties Expense

Royalties for the fourth quarter of 2006 amounted to $2.1 million as compared to $0.7 million in the fourth quarter of 2005, an increase of 179%. The large increase is due to the successful drilling results and the various acquisitions. Royalties, as a percentage of oil and gas revenues were 18% of Q4 2006 compared to 19% in Q4 of 2005. The slight decreased is a result of the Company's successful drilling program in southeast Saskatchewan and Red Earth, Alberta where the related oil production is subject to Crown Royalty holding.

Operating Expenses

Operating expenses per boe increased 23% to $9.77 in the fourth quarter 2006 from $7.63 in the fourth quarter of 2005. The increase is due to higher operating costs per boe associated with the properties acquired in 2006, and higher repairs and costs of maintenance and field labour, consistent with higher overall service costs experienced in the oil and gas industry.

Transportation Expenses

The Company saw transportation expenses per boe decrease 47% from $2.28 in the fourth quarter of 2005 to $1.21 in the fourth quarter of 2006. The decrease is due to lower transportation costs associated with the properties acquired from Valiant in 2006. In the prior year, nearly all of the Company's natural gas production came from its core areas in British Columbia where gas transportation fees have been higher than those in Alberta.

General and Administrative Expenses

General and administrative expenses per boe decreased 14% to $5.74 in the fourth quarter of 2006 from $6.66 in the fourth quarter of 2005. The prior year's quarter represented the Company's first year of operations, where general and administrative expenses accumulated for the full year, whereas production wasn't generated until August 2005. In addition, 2 properties were purchased part way through Q4 2005, so the resulting production is not for the entire quarter. 2006 represents a full quarter of both general and administrative expenses and production. Gross expenses increased $0.9 million or 230% in 2006 resulting from higher salaries, benefits and related employee costs due to a larger staff, professional fees, consulting fees, and other costs needed to support the growth of the Company's operations. Capitalized and recovered general and administrative expenses were also higher due to an increase in technical staff and an increase in capital projects and producing wells operated by the Company.

Interest Expense

Interest expense increased 7,217% to $0.4 million in 2006 from $nil in 2005. In 2005, the Company did not draw on its bank line until the northeast British Columbia assets were purchased on November 9, while in the fourth quarter of 2006 the Company had an average debt and working capital deficiency of over $39.0 million.

Depletion, Depreciation and Accretion

Depletion and depreciation are calculated based upon capital expenditures, production rates and proved reserves. Depletion and depreciation expense per boe increased 24% to $27.48 in the fourth quarter of 2006 from $22.21 in the fourth quarter of 2005. The increase is a result of higher overall finding costs consistent with higher industry service costs, and the Company's acquisition in 2006 which carried a higher cost per barrel compared to Peerless' existing properties.

Net Income

Net income decreased 17,303% from a slight gain of $32,000 in Q4 of 2005 to a loss of $5.5 million in Q4 of 2006. The majority of the loss in 2006 is due to a future tax expense of $4.7 million recorded in the quarter. The tax expense was a result of certain tax assets at the end of Q3 being reclassified to a tax liability at year end.

ADVISORY - FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements concerning the Company's expectations of future production, cash flow, earnings and expansion of its oil and gas property interests and concerning the Company's exploration and development drilling, seismic operations, regulatory applications, payout estimates, capital expenditures, number and drilling locations for 2007, seismic acquisitions and facility upgrades. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), acquisitions, commodity price, price and exchange rate fluctuation and uncertainties resulting from competition from other producers and ability to access sufficient capital from internal and external sources. Additional information on these and other risk factors that could affect the Company's operations and/or financial results are included in the Company's reports on file with Canadian securities regulatory authorities.

The forward-looking statements or information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Oil and Gas Advisory

This press release contains disclosure expressed as "Boe/d". Boe means barrel of oil equivalent and Boe/d means Boe per day. All oil and natural gas equivalency volumes have been derived using the ratio of 6,000 cubic feet of natural gas to 1 barrel of oil. Boe equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of 6,000 cubic feet of natural gas to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

In this press release: (i) mmboe means million boe; (ii) boe/d means boe per day; (iii) bbls/d means barrels per day; (iv) mcf means thousand cubic feet; (v) mmck means million cubic feed; (vi) mcf/d means thousand cubic feet per day; and (vii) mmcf/d means million cubic feet per day.

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

Contact Information

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