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

Peerless Energy Inc.

August 09, 2007 17:32 ET

Peerless Energy Inc. Announces Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 9, 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 unaudited interim consolidated financial statements and related management discussion and analysis ("MD&A") for the quarter ending June 30, 2007. Select operational and financial results are outlined below and should be read in conjunction with the Company's unaudited interim consolidated financial statements and related MD&A which can be found at www.peerlessenergyinc.com or www.sedar.com.


HIGHLIGHTS

- Recorded its 9th consecutive quarter of record average production, averaging 3,257 boe/d, representing an increase of 221% over the quarter ended June 30, 2006, and 28% over the quarter ended March 31, 2007;

- Achieved record cashflow from operations of $9.35 million and cashflow from operations per share of $0.18, representing an increase of 64% over the quarter ended June 30, 2006, and 50% over the quarter ended March 31, 2007;

- Invested approximately $10 million in drilling 7 (6.5 net) oil wells for a net success rate of 100%;

- Maintained its top quartile operating netback, realizing $35.82 per boe;

- Lowered operating and transportation costs collectively per unit by over 15% compared to the quarter ended March 31, 2007;

- Continued to focus its capital program targeting high netback light oil development in the Bakken play at Viewfield, Saskatchewan;

- Closed its previously announced credit facility increase from $47 million to $66.5 million with a major Canadian chartered bank; and

- Continued to maintain an unlevered balance sheet with a current debt to cashflow ratio of approximately 1X.



FINANCIAL AND OPERATING SUMMARY

Three months ended Six months ended
June 30, % June 30, %
2007 2006 Change 2007 2006 Change
----------------------------------------------------------------------------
Financial
($, except
share data)
Petroleum and
natural gas
revenue 16,242 5,068 220 28,700 9,833 192
Cash flow from
operations (1) 9,350 2,853 228 15,859 5,560 185
Per share
- basic 0.18 0.11 64 0.30 0.22 36
Per share
- diluted 0.18 0.11 64 0.30 0.21 43
Net earnings (2) 555 2,848 (81) 1,017 2,954 (66)
Per share
- basic 0.01 0.11 (91) 0.02 0.11 (82)
Per share
- diluted 0.01 0.11 (91) 0.02 0.11 (82)
Net debt and
working capital
(deficiency) (38,572) (17,749) 117 (38,572) (17,749) 117
Capital
expenditures 9,950 5,199 91 28,294 20,446 38
Shares
outstanding
Class A 49,625,909 23,018,572 116 49,625,909 23,018,572 116
Class B 855,000 855,000 - 855,000 855,000 -
Options 2,470,834 1,607,667 54 2,470,834 1,607,667 54
Weighted
average shares
outstanding
Class A 49,617,338 23,018,572 116 49,539,920 23,004,327 115
Class B 855,000 855,000 - 855,000 855,000 -
Conversion of
Class B
shares (3) 1,601,896 1,957,500 (18) 1,601,896 1,957,500 (18)
----------------------------------------------------------------------------
Weighted
average basic
shares
outstanding 52,074,234 25,831,072 102 51,996,816 25,816,827 101
Stock option
dilution
(treasury
method) 939,520 238,695 294 936,152 262,280 257
----------------------------------------------------------------------------
Weighted
average
diluted
shares
outstanding 53,013,754 26,069,767 103 52,932,968 26,079,107 103

Operating
(units as
noted)
Production
Crude oil
(bbl/d) 1,313 373 252 1,292 377 243
Natural gas
(mcf/d) 9,749 3,283 197 8,234 3,167 160
Natural gas
liquids
(bbl/d) 319 96 232 241 91 165
Barrels of oil
equivalent
(6:1) (boe/d) 3,257 1,016 221 2,905 996 192
Average prices
Crude oil
($/bbl) 67.36 77.62 (13) 63.97 68.80 (7)
Natural gas
($/mcf) 7.58 6.07 25 7.67 7.01 9
Natural gas
liquids ($/bbl) 50.54 70.33 (28) 53.00 68.00 (22)
Barrels of oil
equivalent
(6:1) ($/boe) 54.80 54.81 - 54.57 54.55 -
Netbacks
($ per boe)
Petroleum and
natural gas
revenue 54.80 54.81 - 54.57 54.55 -
Realized gain
on financial
instruments 0.33 - - 0.54 - -
Royalties (9.79) (7.42) 32 (10.17) (7.87) 29
Operating
expenses (8.15) (7.73) 5 (8.92) (8.77) 2
Transportation
expenses (1.37) (2.46) (44) (1.50) (2.44) (39)
----------------------------------------------------------------------------
Operating
netback 35.82 37.20 (4) 34.52 35.47 (3)
Other income 0.28 0.36 (22) 0.29 0.67 (57)
General and
administrative (2.79) (4.21) (34) (2.87) (3.43) (16)
Interest
expense (1.76) (2.69) (35) (1.79) (1.94) (8)
----------------------------------------------------------------------------
Corporate
netback 31.55 30.66 3 30.15 30.77 (2)
Wells drilled
Gross 7 2 250 20 17 18
Net 6.5 1.5 333 16.1 10.9 48
Net success
rate (percent) 100 100 - 97 90 8

(1) Management uses cash flow from operations (before changes in non-cash
working capital and asset retirement expenditures) 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) The three and six month periods ended June 30, 2006 include a non-cash
future income tax recovery of $2,648,195 and $2,453,487, respectively.

(3) To calculate weighted average basic shares outstanding, the Class B
shares were converted at the Class A share price for the final 30 days
of the period ended June 30, 2007 of $3.48 (period ended June 30, 2006 -
$3.04) and added to the Class A shares.


OPERATIONS OVERVIEW

Peerless' capital program executed in the second quarter of 2007 continued to focus on the Company's high netback light oil properties in southeast Saskatchewan, primarily on the prolific Bakken resource play. In addition, the Company drilled a successful Midale oil well at Colgate, leading to a follow-up horizontal well in the third quarter.

During the quarter, Peerless drilled 7 (6.5 net) wells, resulting in 7 (6.5 net) oil wells for a 100% success rate. The drilling activity consisted of 6 (6 net) Bakken horizontal wells and 1 (0.5 net) Midale vertical well.

Core Area Review

Viewfield, Saskatchewan

During the second quarter, Peerless continued to successfully drill horizontal wells in the Bakken resource play, drilling 6 (6 net) oil wells. Four of the Bakken horizontal wells were drilled at the Company's prolific Viewfield property and all have been completed without fracture stimulations and placed on production. Initial production rates were consistent with Peerless' other Bakken wells in the area, with initial production rates of approximately 150 bbl/d of clean oil with associated gas. In addition, Peerless initiated drilling programs elsewhere on the Bakken prospective fairway at the Company's Huntoon and Forget South properties. Both of these wells were drilled at the end of the second quarter and are awaiting fracture stimulation.

Starting from zero production and reserves in southeast Saskatchewan, over the past 15 months, the Company has assembled 25 sections (23 net) of land in the Bakken resource play, and via the drill bit has built an operated light oil production base of over 750 bbls/d, primarily within what has been identified through industry drilling activity as the "sweet spot" of the Bakken prospective fairway. The Company currently has a risked development drilling inventory of more than 120 net drilling locations targeting Bakken light oil. This inventory provides the Company with a 4 - 5 year inventory of drilling locations. Peerless owns and operates all the production facilities and infrastructure which allows for rapid and cost effective tie-in, including gas conservation.

Looking forward to the second half of 2007, Peerless intends to initiate a plan to capture significant liquids production associated with its Viewfield natural gas production. It is anticipated this work will be completed near the end of the fourth quarter.

Peerless is currently executing its third quarter drilling program which will see the Company drill 6 (3.5 net) Bakken wells. In addition, in southeast Saskatchewan, Peerless will drill 3 (2.5 net) high impact horizontals targeting light oil in the Midale Marly formation.

Peace River Arch

In the third quarter, Peerless has continued its successful business strategy of farming out portions of its suite of high impact exploration prospects. The Company is currently participating as to a 10% capital interest in a high impact Kiskatinaw exploration well at Flatrock, British Columbia. Peerless will have an after-earned interest of 40% in this well. The well was spud early in the third quarter of 2007.

Additionally, the Company will be drilling up to 3 light oil prospects at Grande Prairie and Niton, furthering its exposure to high netback light oil.

OUTLOOK

The current business environment for focused junior producers with light oil drilling inventories continues to be favorable. Although the price for natural gas may experience weakness in the short term, longer term fundamentals point to a strengthening in the price of the commodity. We continue to see relatively low interest rates, high demand for energy and reasonable access to capital markets, which provide for a strong business environment for the oil and gas sector.

During this period of relative price weakness, Peerless has dedicated over 95% of its capital budget to drilling and growing its high netback, light oil drilling inventory, while maintaining an unlevered balance sheet.

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 four of its 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.

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 approximately $52 million to be spent on drilling and completion operations, and $4 million on land and seismic. In total, the Company expects to drill a minimum of 34 (30 net) wells in its four project areas targeting high quality, long life sweet natural gas and light oil.

As referred to above, to view Peerless' unaudited interim consolidated financial statements and accompanying MD&A, please visit www.peerlessenergyinc.com or www.sedar.com.

ADVISORY

This press release may contain forward-looking statements including management's assessment of future plans and operations, expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ materially 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 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 factors that could affect Peerless' operations and/or financial results are included in Peerless' reports on file with Canadian securities regulatory authorities.

BOE PRESENTATION

Petroleum and natural gas reserves and volumes are converted to an equivalent measurement basis referred to as a "barrel of oil equivalent" ("boe") on the basis of 6 thousand cubic feet of natural gas equal to 1 barrel of oil. This conversion is based on an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that boe figures may be misleading, particularly if used in isolation.

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