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

Peerless Energy Inc.

November 07, 2006 19:04 ET

Peerless Energy Inc. Announces Third Quarter Results and Release of Escrowed Shares

2006 Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 7, 2006) - 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 September 30, 2006. 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.

Q3 2006 CORPORATE HIGHLIGHTS

- Increased cash flow per share 1400% from the quarter ended September 30, 2005 and 36% from the prior quarter ended June 30, 2006.

- Increased production 1827% to 1,445 boe/d from 75 boe/d for the quarter ended September 30, 2005.

- Increased production 629% per diluted share from the quarter ended September 30, 2005.

- Completed Plan of Arrangement with Valiant Energy Inc. ("Valiant") on September 15, 2006, whereby Peerless acquired all of the issued and outstanding shares of Valiant through a Plan of Arrangement for consideration of 18.76 million Class A shares of Peerless.

- Closed bought deal equity financing on August 2, 2006 of 1.95 million flow-through Class A shares at $4.20 per share for gross proceeds of $8.19 million.

- Continued to focus our capital program targeting high netback light oil development in the Bakken play at Viewfield.

- Drilled 7 (6.1 net) oil wells for a net 90% success rate.

- Negotiated increase to credit facility from $28 million to $47 million.

- Began trading on the TSX Exchange (previously listed on the TSX Venture Exchange).

- Achieved Q3 exit production of 2,650 boe/d.



FINANCIAL AND OPERATIONAL HIGHLIGHTS

---------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2006 2005(1) 2006 2005(1)
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Financial ($000's, except per
share data)
Petroleum and natural
gas revenue 7,723 451 17,556 451
Cash flow from (used in)
operations(2) 4,580 114 10,140 (106)
Per share - basic 0.15 0.01 0.37 (0.02)
Per share - diluted 0.15 0.01 0.37 (0.02)
Net income (loss)(3) 1,611 (72) 4,565 (300)
Per share - basic 0.05 (0.01) 0.17 (0.05)
Per share - diluted 0.05 (0.01) 0.17 (0.05)
Net debt and working
capital (deficiency) (35,828) 6,690 (35,828) 6,690
Capital expenditures 87,135 10,786 107,581 10,900
Shares outstanding
Class A 43,725 11,200 43,725 11,200
Class B 855 855 855 855
Stock options 2,493 948 2,493 948
Weighted average shares
outstanding
Class A 27,756 8,983 24,605 5,430
Class B 855 855 855 420
Conversion of Class B
shares(4) 1,851 855 1,851 420
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Weighted average basic
shares outstanding 30,462 10,693 27,311 6,270
Stock option dilution
(treasury method) - 768 - 365
---------------------------------------------------------------------------
Weighted average diluted
shares outstanding 30,462 11,461 27,311 6,635

Operating (units as noted)
Production
Crude oil (bbl/d) 720 75 493 25
Natural gas (mcf/d) 3,742 - 3,361 -
Natural gas liquids (bbl/d) 101 - 94 -
Barrels of oil
equivalent (6:1)(boe/d) 1,445 75 1,147 25

Exit rate (end of
period)(boe/d) 2,650 230 2,650 230

Average prices
Crude oil ($/bbl) 75.63 65.57 72.16 65.57
Natural gas ($/mcf) 5.90 - 6.59 -
Natural gas liquids ($/bbl) 73.31 - 69.92 -
Barrels of oil
equivalent (6:1)($/boe) 58.11 65.57 56.06 65.57

Operating netback per boe($)
Petroleum and natural gas
revenue 58.11 65.57 56.06 65.57
Royalties (9.56) (12.06) (8.58) (12.06)
Operating expenses (8.25) (7.14) (8.55) (7.14)
Transportation expenses (1.98) (0.76) (2.24) (0.76)
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Operating netback 38.32 45.61 36.69 45.61

Wells drilled
Gross 7 - 24 -
Net 6.1 - 17.1 -
Net success rate (percent) 90 - 89 -
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(1) The Company began active oil and gas operations on August 26, 2005. As
such, comparative results from oil and gas activities include only the
36-day period from August 26, 2005 to September 30, 2005.
(2) 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.
(3) The nine month period ended September 30, 2006 includes a non-cash
future income tax recovery of $3,320.
(4) 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 quarter ended September 30, 2006 of $3.16 (2005 $5.00)
and added to the Class A shares.


OPERATIONS OVERVIEW

In the third quarter of 2006, Peerless continued to focus it's capital activity on the Company's high netback light oil properties in southeast Saskatchewan, primarily on the prolific Bakken resource play at Viewfield. In addition, Peerless continued its successful drilling program at Red Earth, Alberta, and planned a winter completion and tie-in program at Silver in northeast B.C.

During the quarter, Peerless drilled seven wells, resulting in six (5.5 net) oil wells and one (0.6 net) dry hole for a net 90% success rate. The drilling activity consisted of four Bakken and one Midale Marly horizontals in southeast Saskatchewan, and two Slave Point/Granite Wash tests at Red Earth, Alberta.

Core Area Review

Viewfield, Saskatchewan

During the third quarter, Peerless continued to successfully drill pitch-fork tri-lateral horizontal wells in the Bakken resource play. The four (4 net) wells were drilled and completed without fracture stimulations, and produced with consistent initial production rates in excess of 150 bbl/d of clean oil with associated gas and liquids. The wells were part of the Company's ongoing multi-well Bakken drilling program which began in March of 2006. Since the end of the third quarter, Peerless has successfully drilled two additional Bakken horizontal wells and has budgeted to pick up a second drilling rig and drill another three horizontal wells before year-end.

Peerless has now assembled more than 14 sections (13 net) of land in the Bakken resource play and has an inventory of 105 (98 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 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 exposure to 12.1 mmboe of reserves and over 10,000 boe/d of production. Peerless owns and operates all the production facilities and infrastructure which allows for rapid and cost effective tie-in, including gas conservation.

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

Red Earth, Alberta

At Red Earth, Peerless drilled two (1.1 net) wells in the third quarter, resulting in one (0.5 net) Slave Point oil well and one (0.6 net) dry hole.

During the remainder of 2006, Peerless expects to drill one (0.45 net) additional well targeting Slave Point and Granite Wash oil. Peerless continues to work closely with its joint venture partner and together have identified more than 25 potential locations on the Company's extensive 3-D seismic database.

Silver, British Columbia

Due to limited accessibility and relatively weak natural gas prices, activity in the third quarter was quiet at Peerless' Silver property. The Company has estimated 300 boe/d behind pipe from a seven (4.8 net) well first quarter drilling program. Peerless has put together completion and tie-in programs and is arranging services to get a number of those wells on production this winter.

In addition, Peerless plans to drill two more wells at Silver through the remainder of the year for Bluesky and Halfway targets.

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 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. This strong environment also creates challenges with respect to cost pressures and availability of equipment.

In the fourth quarter of 2006, Peerless plans to focus on its low risk development opportunities and prioritizing its large exploration drilling inventory. Peerless' capital budget calls for the drilling of an additional 6 (5.5 net) wells for the balance of 2006, all targeting light oil. In total for 2006, the Company expects to drill 30 (22.6 net) wells in its three project areas targeting high quality, long life sweet natural gas and light oil.

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 2006, with a focused corporate strategy, Peerless continues to build upon its strong asset base developed in 2005. Our high quality oil and natural gas assets and considerable undeveloped land holdings offer significant opportunities to increase production through infill drilling, production optimization and exploration drilling.

Peerless will continue to seek out new opportunities and assets that fit within the Company's business model through proactive management. Peerless has assembled a high quality asset base while protecting its balance sheet - a balanced foundation for growth.

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.

SHARE RELEASE FROM ESCROW

As a result of the Peerless listing graduation from the TSX Venture to the TSX as previously announced on September 15, 2006, there has been a release from escrow of 1,027,250 Peerless Class A shares pursuant to the Escrow Agreement dated May 10, 2005 among Peerless, Olympia Trust Company (as escrow agent) and certain Peerless shareholders, including insiders. The remainder of the 733,751 escrowed Class A shares will be released on November 26, 2006.

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