/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY
CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW./(Stock Symbol "POG.A & POG.B" - TSX Venture Exchange)
CALGARY, Nov. 20 /CNW/ - Pegasus Oil & Gas Inc. ("Pegasus" or the
"Company") is pleased to announce a successful third quarter with increased
production and cash flow from operations and an expanded drilling inventory.
The Company has filed its unaudited financial statements and related
management's discussion and analysis ("MD&A") for the three and nine months
ended September 30, 2008 on www.pegasusoilgas.com and www.sedar.com. Certain
selected financial and operational information for the three and nine months
ended September 30, 2008 and the 2007 comparatives are set out below and
should be read in conjunction with Pegasus' financial statements and related
MD&A.OPERATIONAL AND CORPORATE HIGHLIGHTS
- 2008 drilling program for the first nine months resulted in the
drilling of 12 gross (8.8 net) wells with a 72% success rate
- Q3 2008 production of 655 boe/d increased 75% over Q3 2007 production
and 8% over Q2 2008 production
- Q3 2008 cash flow from operations increased to $1.4 million as
compared to negative cash flow of $0.4 million for Q3 2007
- Tied in the Company's first Pekisko horizontal well
- Drilled an additional Pekisko horizontal well in Q3 08 on the
100,000 acre strategic 'freehold' farm-in in the Crossfield area,
with now 5 of the 7 farm-in wells drilled to date
- Received pipeline license for the East Irricana (Strathmore) line
which will tie in the remainder of the Company's Pekisko production
- Amassed a large drilling inventory of 40 to 50 potential locations
(average 70% WI) in the Crossfield and Strathmore areas
FINANCIAL AND OPERATIONAL SUMMARY
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Three months ended Nine months ended
September 30 September 30
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2008 2007 2008 2007
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Financial ($000s except
per share amount)
Petroleum and natural gas sales 3,381 1,209 10,399 4,590
Cash flow from operations (Note 1) 1,366 (437) 4,961 615
Per basic share 0.03 (0.02) 0.13 0.02
Per diluted share 0.03 (0.02) 0.13 0.02
Net earnings (loss) (551) (1,574) (828) (2,879)
Per basic share (0.01) (0.05) (0.02) (0.11)
Per diluted share (0.01) (0.05) (0.02) (0.11)
Net capital expenditures 10,941 11,183 24,600 19,125
Working capital (deficiency) (10,017) 3,007 (10,017) 3,007
Shareholders' equity 62,547 48,606 62,547 48,606
Shares outstanding
Class A 34,514 27,580 34,514 27,580
Class B 1,012 1,012 1,012 1,012
Options 2,780 2,495 2,780 2,495
Basic shares (weighted) (Note 2) 40,739 29,105 39,252 26,835
Diluted shares (weighted) (Note 2) 40,739 29,105 39,252 26,835
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Operating
Average daily production
Natural gas (mcf/d) 3,310 2,039 3,217 2,126
Crude oil (bbls/d) 7 11 7 9
NGLs (bbls/d) 95 23 95 33
Barrels of oil
equivalent (boe/d)(Note 3) 655 374 638 396
Average selling price
Natural gas ($/mcf) 8.22 5.43 8.90 6.79
Crude oil ($/bbl) 105.59 58.58 100.64 53.61
NGLs ($/bbl) 91.72 61.86 91.03 58.00
BOE ($/bbl) 56.15 35.15 59.49 42.44
Netback per BOE (6:1) ($)
Petroleum and natural gas sales 56.15 35.15 59.49 42.44
Royalties (10.32) (4.68) (9.56) (6.50)
Operating costs (14.78) (13.90) (13.38) (12.46)
Gas plant turnaround
costs (Note 4) - (12.53) - (3.99)
Transportation costs (0.93) (1.27) (0.98) (1.25)
Operating netback 30.12 2.77 35.57 18.24
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Note 1: Management uses cash flow from operations (comprised of cash
flow from operating activities 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.
Note 2: Class B share conversion: September 30, 2008 @ $1.62/share;
September 30, 2007 @ $2.29/share
Note 3: References in this report to boe refer to barrel of oil
equivalent whereby natural gas volumes have been converted at a
rate of 6 thousand cubic feet of natural gas to 1 barrel of oil.
Note 4: The gas plant turnaround costs relate to the major turnaround
done at the Balzac gas plant in Crossfield, Alberta.Operations Overview
During the first nine months of 2008, Pegasus drilled 12 (8.8 net) wells
with a 72% success rate. Five (4.0 net) wells were drilled in the third
quarter of 2008. Third quarter drilling included one additional exploration
earning well at Strathmore testing the northeast extension of the Pekisko
play. In addition, a Basal Quartz New Pool Wildcat well was drilled and cased
at Crossfield along with one exploratory well in southeast Saskatchewan where
the Company has amassed over 13 net sections of Bakken exploration acreage.
At Strathmore, five of the seven farm-in commitment wells have now been
drilled. Three of the first four wells were successful with combined test
rates of 450 boe/d (270 boe/d net). The fifth Strathmore exploration well
(earning well) drilled in the third quarter was an exploratory test well
targeting the northeast extension of the Pekisko play. The well was drilled
horizontally and encountered somewhat less permeable dolomite than the
previous wells thus defining the north eastern reaches of net pay for this
play. The well did test gas at marginal rates in the 30-40 boe/d range. The
well will be retested later in November to recover the remaining load fluid
(70 m3) and determine if gas deliverability increases to justify a tie-in.
Pegasus has defined, by exploration drilling, a large Pekisko gas saturated
fairway that is six to eight kilometres wide and eight kilometres long.
Pegasus has amassed more than 25 locations within this fairway. To date, the
southern extent of the gas saturated fairway, which could be significant in
size, has not been explored and will only be defined with future delineation
drilling.
As stated previously, the drilling commitment for the remaining two
Strathmore farm-in wells has been extended into the first quarter of 2009.
Additionally, the Company has the option to extend the farm-in on freehold
land after the initial farm-in agreement commitment phase is completed and the
wells have been evaluated.
The pipeline and tie-in operation for the 03-19 Pekisko well was
completed and the well was brought on stream at the end of October. This
production signifies the first Pekisko production from the Strathmore farm-in
project. The production rates and flowing pressures will be closely monitored
to better determine the deliverability and decline rate for this well.
The EUB recently granted approval for a 12 kilometre pipeline
installation at Strathmore. Construction of the main pipeline (60% WI)
commenced in mid November. It is anticipated that the pipeline will be
constructed, installed and operational by year end. The pipeline will serve as
the main production feeder system for existing behind pipe production volumes,
as well as any volumes resulting from future Pekisko drilling at Strathmore.
At Crossfield, the 16-15 New Pool Wildcat was drilled and cased. On
completion, the well flowed gas after fracture stimulation and is currently
suspended. The well will be considered for tie-in as future development and
pipeline infrastructure expands in this area and economics justify tie-in.
The Company has amassed 13 net sections of Bakken exploration acreage in
southeast Saskatchewan. One horizontal test well was drilled into this
exploration play and encountered low porosity and permeability Bakken
reservoir and is presently suspended. The additional Bakken acreage continues
to be evaluated for future exploration drilling opportunities.
Production for the third quarter of 2008 averaged 655 boe/d representing
a 75% increase over the third quarter of 2007. The Company has behind pipe
volumes of approximately 250 to 300 boe/d for wells that have been tested to
date. Approximately 300 boe/d gross (180 boe/d net) is expected to be on
production at year-end once the 12 kilometre pipeline is installed. The
Company estimates it will exit the year at approximately 850 to 900 boe/d once
the pipeline is completed and operational.
OUTLOOK
The Company continues to focus on its large freehold farm-in agreement at
Strathmore with continued efforts to exploit the Ellerslie and Basal Quartz at
Crossfield. Pegasus has already earned 25 gross sections of land (60% WI) from
the first five wells drilled at Strathmore. The Company has the opportunity to
earn an additional 4 to 10 gross sections of land depending on the type of
drilling operation undertaken for the remaining two wells. This coupled with
the ability to extend the drilling program into the option phase of the
farm-in period, and the proximal nature of the land base offsetting the
Company's Crossfield Ellerslie and Basal Quartz exploration and development
success experienced to-date, has positioned the company with a sizeable core
area.
The installation of the Strathmore main gathering pipeline and the
commencement of Pekisko production will be the main focus for the fourth
quarter of 2008.
A second farm-in to a twelve section freehold land base in the Redland
area was initiated in the second quarter of 2008. The farm-in is a one well
commitment targeting the Pekisko formation. Approximately 200 miles of 2D
seismic and 90 square miles of 3D seismic are included for review in the
farm-in. Interpretation is on going and the first well will spud at the end of
2008.
The Company continues to amass and refine its large drilling inventory of
40-50 (average 70% WI) development and exploratory locations targeting the
Basal Quartz, Ellerslie, and Pekisko formations, with a focus on long-life
reserves on lower royalty freehold lands.
Pegasus has increased its capital budget slightly to $27.6 million (up
from $26 million) that would result in the drilling of approximately 13 (9.8
net) wells in 2008. With a current line of credit of $17.4 million, Pegasus
will be able to execute the 2008 capital program and exit the year with a
healthy balance sheet.
Pegasus continues to expand its large drilling inventory and high-grade
drilling opportunities and at the same time deploying prudent fiscal
management during this unique and indecisive equity market cycle.
As referred to above, to view Pegasus' unaudited financial statements and
related MD&A for the three and nine months ended September 30, 2008 please
visit www.pegasusoilgas.com or www.sedar.com. To the extent investors do not
have access to the internet, copies of the unaudited financials and related
MD&A can be obtained on request without charge by contacting Pegasus at (403)
521-5282 or at 101 10th Street NW, Calgary, Alberta T2N 1V4.
The Company currently has 34.566 million Class A and 1.012 million Class
B Shares outstanding.
Forward-looking statements - This document contains forward-looking
statements. More particularly, this document contains statements concerning
the Company's planned exploration and development activities, planned capital
expenditures and anticipated rates of production.
The forward-looking statements are based on certain key expectations and
assumptions made by Pegasus, including expectations and assumptions concerning
prevailing commodity prices and exchange rates, availability and cost of
labour and services, the timing of receipt of regulatory approvals, the
performance of existing wells, the success obtained in drilling new wells, the
performance of new wells and the sufficiency of budgeted capital expenditures
in carrying out the Company's planned activities.
Although Pegasus believes that the expectations and assumptions on which
the forward-looking statements are based are reasonable, undue reliance should
not be placed on the forward-looking statements because Pegasus can give no
assurance that they will prove to be correct. Since forward-looking statements
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks. These
include, but are not limited to, the risks associated with the oil and gas
industry in general (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),
commodity price and exchange rate fluctuations and uncertainties resulting
from potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. These risks are set out in more
detail in the Company's Annual Information Form which has been filed on SEDAR
and can be accessed at www.sedar.com.
The forward-looking statements contained in this press release are made
as of the date hereof and Pegasus 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.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000
cubic feet of natural gas. Boe's may be misleading, particularly if used in
isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas
is based on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalence at the wellhead.The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this release.%SEDAR: 00005637E
For further information: Patrick Mills, President and Chief Executive
Officer, (403) 521-6307; Darcy Anderson, Chief Financial Officer, (403)
521-6302; Kevin Angus, Executive Vice President, (403) 521-6306
