Petro-Reef Resources Ltd. Announces 2012 Q2 Financial and Operating Results

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2012) - Petro-Reef Resources Ltd. (TSX VENTURE:PER), ("Petro-Reef" or the "Company") is pleased to release its financial and operating results for the three and six month periods ended June 30, 2012. This press release should be read in conjunction with the Company's June 30, 2012 quarterly financial statements and MD&A filed on Sedar.

Financial Summary

		Three months ended June 30
		2012		2011		% Change
Oil and gas revenue	$	2,522,702	$	2,249,472		12
Cash flow from operations (1)		511,217		953,248		(46	)
Per share - basic and diluted		0.01		0.02		(52	)
Net income		926,424		1,363		-
Per share - basic and diluted		0.01		0.00		-
Net debt (1)		12,695,625		13,793,310		(8	)
Capital expenditures	$	756,242	$	2,368,000		(68	)
Shares outstanding - end of period		62,239,477		56,261,477		11
		Six months ended June 30
		2012		2011		% Change
Oil and gas revenue	$	5,378,595	$	5,371,751		0
Cash flow from operations (1)		1,738,981		2,587,396		(33	)
Per share - basic and diluted		0.03		0.05		(44	)
Net income (loss)		815,042		(1,052,232	)	-
Per share - basic and diluted		0.01		(0.02	)	-
Net debt (1)		12,695,625		13,793,310		(8	)
Capital expenditures	$	1,602,074	$	5,996,000		(73	)
Shares outstanding - end of period		62,239,477		56,261,477		11
(1) Non GAAP measure

Daily Production and Commodity Prices

Three months ended June 30	2012	2011	% Change
Daily production
Oil and NGLs (bbl/d)	341	163	109
Natural gas (mcf/d)	1,866	2,555	(27	)
Oil equivalent (boe/d @ 6:1)	652	589	11
Realized commodity prices ($CDN)
Oil and NGLs (bbl)	68.88	91.68	(25	)
Natural gas (mcf)	2.28	3.81	(40	)
Oil equivalent (boe @ 6:1)	41.53	42.15	(1	)

Average prices for oil and gas dropped sharply in Q2 2012 as the average oil price dropped 25% and the average gas price fell by 40%.However, the average price per boe remained level as oil production increased to 52% of total production from 28% in Q2 2011.

Daily production volumes increased by 11% to 652 boe/d in the three months ended June 30, 2012 as compared to 589 boe/d for the same period in 2011. Oil volumes increased by 109% quarter over quarter while gas production decreased by 27%. In Q2 2012 oil and NGL production comprised 52% of total production as compared to 28% in Q2 2011.

Six months ended June 30	2012	2011	% Change
Daily production
Oil and NGLs (bbl/d)	325	229	42
Natural gas (mcf/d)	2,303	2,808	(18	)
Oil equivalent (boe/d @ 6:1)	709	697	2
Realized commodity prices ($CDN)
Oil and NGLs (bbl)	75.19	81.06	(7	)
Natural gas (mcf)	2.28	3.94	(42	)
Oil equivalent (boe @ 6:1)	41.42	42.72	(3	)

Average prices for oil and gas decreased in the six months ended June 30, 2012 as the average oil price dropped 7% and the average gas price fell by 42%.However, the average price per boe only decreased by 3% as oil production increased by 42% as compared to the same period in 2011.

Daily production volumes increased by 2% to 709 boe/d in the six months ended June 30, 2012 as compared to 697 boe/d for the same period in 2011. Oil volumes increased by 42% while gas production decreased by 18%. In the six months ended June 30, 2012 oil and NGL production comprised 46% of total production as compared to 33% in 2011.

Revenue by product
Three months ended June 30	2012	2011	% Change
CDN $
Oil revenue	2,134,766	1,365,342	56
Natural gas revenue	387,936	884,130	(56	)
Total revenue	2,522,702	2,249,472	12

In Q2 2012 oil revenues comprised 85% of total revenue as compared to 61% in Q2 2011. Oil revenue increased by 56% while natural gas revenue decreased by 56%.

Six months ended June 30	2012	2011	% Change
CDN $
Oil revenue	4,429,626	3,427,498	29
Natural gas revenue	948,969	1,944,254	(51	)
Total revenue	5,378,595	5,371,752	0

For the six months ended June 30, 2012 oil revenues comprised 82% of total revenue as compared to 64% in the same period in 2011. Oil revenue increased by 29% while natural gas revenue decreased by 51%.

Earnings and Cash Flow Summary

Three months ended June 30	2012		2011		% Change		2012		2011		% Change
CDN $							($/boe)		($/boe)
Gross Revenue	2,522,702		2,249,472		12		41.53		42.15		(1	)
Royalties	(347,700	)	(369,899	)	(6	)	(5.72	)	(6.93	)	(17	)
Revenue after royalties	2,175,002		1,879,573		16		35.81		35.22		2
Operating expenses	827,282		831,653		(1	)	13.62		15.58		(13	)
Operating netback (1)	1,347,720		1,047,920		29		22.19		19.64		13
Realized gain (loss) on financial derivative instruments	(19,354	)	304,819		-		(0.32	)	5.71		-
General & administrative expenses	660,246		303,152		118		10.87		5.68		91
Interest expense	156,903		96,339		63		2.58		1.81		43
Cash flow from operations (1)	511,217		953,248		(46	)	8.42		17.86		(53	)
Unrealized gain (loss) on financial derivative instruments	1,594,928		394,883		304		26.26		7.40		-
Other income	-		-		-		0.00		0.00
Stock based compensation	33,208		192,717		(83	)	0.55		3.61		(85	)
Accretion	10,996		17,386		(37	)	0.18		0.33		(44	)
Depletion and depreciation	1,135,517		1,229,832		(8	)	18.70		23.04		(19	)
Income before income taxes	926,424		(91,804	)	-		15.25		(1.72	)	-
Deferred income tax (recovery)	-		(93,167	)	-		0.00		(1.75	)	-
Net Income	926,424		1,363		-		15.25		0.03		-
Per Share - Basic	0.01		0.00
Per Share - Diluted	0.01		0.00

Six months ended June 30	2012		2011		% Change		2012		2011		% Change
CDN $							($/boe)		($/boe)
Gross Revenue	5,378,595		5,371,751		0		41.42		42.72		(3	)
Royalties	(623,225	)	(882,957	)	(29	)	(4.80	)	(7.02	)	(32	)
Revenue after royalties	4,755,370		4,488,794		6		36.62		35.70		3
Operating expenses	1,646,413		1,677,727		(2	)	12.68		13.34		(5	)
Operating netback (1)	3,108,957		2,811,067		11		23.94		22.36		7
Realized gain (loss) on financial derivative instruments	(117,292	)	479,954		-		(0.90	)	3.82		-
General & administrative expenses	961,284		507,876		89		7.40		4.04		83
Interest expense	291,400		195,749		49		2.24		1.56		44
Cash flow from operations (1)	1,738,981		2,587,396		(33	)	13.39		20.58		(35	)
Unrealized gain (loss) on financial derivative instruments	1,523,909		(508,790	)	-		11.74		(4.05	)	-
Other income	230,252		250,919		(8	)	1.77		2.00		(11	)
Stock based compensation	120,579		333,253		(64	)	0.93		2.65		(65	)
Accretion	21,960		34,329		(36	)	0.17		0.27		(38	)
Depletion and depreciation	2,535,561		2,867,450		(12	)	19.53		22.80		(14	)
Income (loss) before income taxes	815,042		(905,507	)	-		6.28		(7.20	)	-
Deferred income tax expense	-		146,725		-		0.00		1.17		-
Net Income (loss)	815,042		(1,052,232	)	-		6.28		(8.37	)	-
Per Share - Basic	0.01		(0.02	)
Per Share - Diluted	0.01		(0.02	)

(1)	Non-GAAP measure

Forward-Looking Statements: All statements, other than statements of historical fact, set forth in this news release, including without limitation, assumptions and statements regarding reservoirs, resources and reserves, future production rates, exploration and development results, financial results, and future plans, operations and objectives of the Corporation are forward-looking statements that involve substantial known and unknown risks and uncertainties. Some of these risks and uncertainties are beyond management's control, including but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of foreign exchange rates, environmental risks, industry competition, availability of qualified personnel and management, availability of materials, equipment and third party services, stock market volatility, timely and cost effective access to sufficient capital from internal and external sources. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by the Corporation at the time of preparation, may prove to be incorrect. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.

Reference is made to barrels of oil equivalent (BOE). Barrels of oil equivalent may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101, a BOE conversion ratio for natural gas of 6 Mcf: 1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.