Palliser Oil & Gas Corporation Reports First Quarter 2011 Results, Forecast to Double Production by Year End

/NOT FOR DISTRIBUTION IN THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

CALGARY, May 12 /CNW/ - Palliser Oil & Gas Corporation ("Palliser" or the "Company") (TSX VENTURE: PXL) is pleased to report the financial and operating results for the three months ended March 31, 2011. Certain selected financial and operational information are set out below and should be read in conjunction with Palliser's quarterly financial statements complete with the notes to the financial statements and related MD&A which is planned to be filed and available on www.sedar.com or the Company's website at www.palliserogc.com after the close of business on Monday, May 16, 2011. Interested parties are invited to visit the Company's website to view an updated corporate presentation for May 2011.

HIGHLIGHTS

Three months ended March 31, 2011 and 2010 (unaudited)

       
  Three months ended
  March 31 
    2011   2010
Operating        
Wells drilled (net wells)        
  Oil        5     2
  Natural gas       -    -
  Dry and abandoned       -     -
  Total       5     2
  Success (%)       100%     100%
  Undeveloped land holdings (net acres)       45,395    39,000
Average daily production        
  Crude oil (bbl per day)        1,148    305
  Natural gas (Mcf per day)       317    461
  Barrels of oil equivalent (boe per day, 6:1)      1,200    382
  Crude oil production (%)       96%     80%
Average sales prices        
  Crude oil ($ per bbl)      $  60.57  $  64.77
  Natural gas ($ per Mcf)       $  3.31  $  4.63
  Barrels of oil equivalent ($ per boe, 6:1)    $  58.78  $  57.31
Operating netback($ per boe)        
  Petroleum and natural gas revenue     $  58.78  $  57.31
  Royalties     $  13.96  $  13.45
  Production & operation expenses     $  30.72  $  22.15
  Operating netback (1)     $  14.10  $  21.71
Financial (000's except per share amounts)        
Oil and natural gas revenue     $  6,350 $  1,968
Funds flow from operating activities (2)      $  156 $  77
Loss and comprehensive loss     $  (1,245) $  (358)
  Per share - basic and diluted    $  (0.03) $  (0.01)
Weighted average shares        
outstanding         37,353     24,518
Shares outstanding         43,004    34,368
Capital expenditures (3)     $  18,536 $  1,544
Working capital (net debt)     $  (8,600) $  5,164
Shareholder's equity      $  36,442 $  23,603

(1)  Operating netback is a non-IFRS measure and is the net of petroleum and natural gas revenue, royalties, and production and operating expenses.
(2) Funds flow from operating activities is a non-IFRS measure that represents loss and comprehensive loss before non-cash items such as depletion, depreciation, and amortization, accretion expense, stock-based compensation, deferred tax and decommissioning liability.  Per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net loss per share. Funds flow from operating activities is a key measure as it demonstrates the Company's ability to generate the funds necessary to achieve future growth through capital investment. This table also contains other industry benchmarks and terms, such as working capital (calculated as current assets less current liabilities) and operating netbacks (calculated on a per unit basis as production sales less royalties, transportation and operating costs), which are not recognized measures under IFRS.  Management believes these are useful supplemental measures of, firstly, the total net position of current assets and current liabilities of the Company and secondly, the profitability relative to commodity prices.  Other entities may calculate these figures differently than Palliser.
(3)  Capital expenditures excludes decommissioning liability costs and capitalized stock based compensation.

Report to Shareholders

2011 - FIRST QUARTER HIGHLIGHTS

Acquired 310 boe/d (Dec 2010 average) at Manitou Lake, Saskatchewan

Increased production 314% from 382 boe/d in Q1 2010 (80% heavy oil) to 1,200 boed (96% heavy oil) in Q1 2011

Drilled five (5.0 net) wells and reactivated one (1.0 net) well, resulting in six (6.0 net) oil wells (100% success)

Closed an equity financing at $1.90 per special warrant for gross proceeds of $10.0 million ($9.1 million net).  The special warrants were exercised into an equal number of common shares on March 31, 2011

More than tripled the Company's prospect inventory from 45 locations at the end of 2009 to 141 locations at the end of Q1 2011

Operational Success

The first quarter of 2011 was a very active and successful period for Palliser.  The Company has achieved nine (9) consecutive quarters of production growth since the start of 2009, at which time Palliser was producing 70 boe/d (95% gas), as compared to 1,200 boe/d (96% heavy oil) in the first quarter of 2011.

On January 26, 2011, Palliser acquired 100% working interest, operated heavy oil properties which were producing approximately 310 boe/d (net) of heavy oil, located adjacent to Palliser's existing Manitou, Saskatchewan properties.  The properties which were  acquired for $14.0 million, including a battery and salt water disposal facility, were evaluated by Gilbert Lausten Jung using the GLJ January 1, 2011 price forecast, with the Company interest reserves estimated at 755 Mbbls Total Proved plus Probable valued at $19.62 million (using 10% NPV).    Palliser has started to optimize and expand the existing facilities including conversion of an existing shut in well to salt water disposal and has plans to reactivate currently shut in wells after spring break up, when the new disposal well is ready to be placed in service.  Several drilling locations have also been identified by utilizing the existing 3 dimensional seismic which was acquired as part of the Acquisition.

Palliser has increased the 2011 capital program from $25 million at the start of the year to $42 million (including the $14 million acquisition). The expanded capital program will include the drilling of 26 (26.0 net) wells, reactivation of 11 (11.0 net) wells and installation of new salt water disposal facilities in Edam and Manitou, Saskatchewan and at Lloydminster, Alberta.  The 2011 capital spending program commenced in the first quarter with six (6.0 net) operations in the greater Lloydminster core area.   Five wells were drilled in Q1 with four wells being completed for heavy oil production, and the fifth well being cased for heavy oil production waiting on completion after break up, as it was drilled very late in the quarter.  One reactivation was initiated late in the quarter, and is expected to add oil production in the second quarter. While the new wells had minimal contribution to overall production levels in the first quarter, they are anticipated to be brought on full production after spring break up.

On March 15, 2011 the Company completed an offering of 5,264,000 special warrants at a price of $1.90 per special warrant, resulting in gross proceeds to the Corporation of $10.0 million.  Each special warrant was converted to one Common Share upon the Corporation's receipt for a final short form prospectus on March 31, 2011.

Outlook

Palliser will start post spring breakup activities by reactivating five (5) wells for heavy oil production in the second quarter, and targets the start up of Company operated salt water disposal facilities in each of the producing areas of Edam and Manitou, Saskatchewan, and Lloydminster, Alberta.  By the end of Q2, when these new salt water disposal facilities are forecast to be operational, the Company will re-start its drilling program.  As a result, the second half of the year represents approximately 70% of the entire capital expenditure program in which the Company plans to drill 19 (19.0 net) wells and reactivate an additional five (5.0 net) wells.

Production in the first quarter of 2011 was below expectations, due to delays in optimizing the Manitou properties while modifications to the existing battery are being implemented, and due to water disposal capacity constraints and access restrictions related to spring breakup.   Nine shut-in wells in the greater Lloydminster area will be re-started when these issues are forecast to be fully resolved around the end of the second quarter.  Palliser expects that production will increase in each quarter of 2011, with the most significant production additions being realized in the second half of 2011.  As a result, Palliser is revising its expected guidance as related to average production for 2011 to 1,600 - 1,800 boe/d, with plans to maintain a strong balance sheet and exit the year with less than one times debt to fourth quarter 2011 annualized cash flow.  The Company is maintaining its 2011 exit production target range of 2,350 - 2,600 boe/d.

Palliser encountered Q1 production and operating costs of $30.72/boe which are higher than historical averages ($19.97/boe year average 2010).  The Company views these higher costs as both temporary and seasonal.  The increase is attributable to new wells encountering higher than normal costs for service work, higher than normal trucking and water disposal fees and higher propane and lease maintenance costs due to a colder than normal winter.  In Q1, the Company produced several high water cut wells for extended periods of time, in order to design the new water disposal facilities and flow lines, and to determine the impact on follow up locations in the proposed drilling program.  It is anticipated that these costs will return to pre-2011 levels when operated water disposal facilities are on stream at the end of Q2.

Recent Highlights

Subsequent to the end of the first quarter, Palliser acquired numerous abandoned & reclaimed wellbores in the Edam, Saskatchewan producing area from a senior producer.  The Company plans to re-enter three (3) of these wellbores for conversion to salt water disposal service, with the expectation that the new Palliser operated water disposal facilities will be operational by the end of the second quarter.  This acquisition is significant as it provides the Company with a complete water disposal solution at Edam.  Edam is expected to be the Company's most active area in 2011, with 15 (15.0 net) operations to be undertaken after break up.

In addition to Edam, the Company has made significant progress on its other salt water disposal projects.  Palliser commissioned the salt water disposal facility at Lloydminster, and has been disposing 100% of the salt water from the Company's heavy oil wells on the Alberta side of the border since May 10, 2011.  One well, which was shut in for all of Q1, is now pipeline connected and will be restarted in May.  At Manitou Lake, Saskatchewan, Palliser re-completed an existing well for salt water disposal.  The Company is in the process of reversing the flow of an existing pipeline from the oil battery to this well and expects to start water disposal before the end of June.

The new disposal facilities in all of these areas, in conjunction with flow lines, will result in significant operating cost savings and enable the Company to optimize all existing wells and reactivate all of the currently shut-in wells, with additional capacity to service the remainder of the 2011 drilling and reactivation program and beyond.  It is anticipated that these salt water disposal facilities and associated flow lines will result in an estimated operating cost savings of $3,500,000 in 2011, with the facilities paying out in 7-8 months.

A key component to ensuring the success of the operations and attention to detail is having sufficient staff to manage ever expanding projects.  Palliser is pleased to report that it has recently hired a Senior Production Engineer and a Senior Area Geologist in its Calgary office, as well as experienced field staff in the Lloydminster core area.  These additional staff, along with streamlined operational processes, will put the Company in a strong position to execute the remainder of its 2011 program while focusing on improving operational efficiencies.

Summary

In 2011, Palliser is well positioned to double production from current levels and deliver considerable growth on a per share basis in production, reserves, cash flow and net asset value.

An updated corporate presentation has been posted on the company's website.  The company anticipates that it will file the Q1 Financial statements and the MD&A on SEDAR and the Corporations website following the close of business on Monday, May 16, 2011.

On behalf of the Board of Directors,

"Signed"
Kevin Gibson

President and Chief Executive Officer

May 12, 2011

For further information regarding Palliser Oil & Gas Corporation, the reader is invited to visit the Company's website at www.palliserogc.com.

Palliser is a Calgary-based emerging junior oil and gas company currently focused on high netback conventional heavy oil production in the greater Lloydminster area of both Alberta and Saskatchewan.

Cautionary Statements

Certain information contained in this press release constitutes forward-looking statements, including, without limitation, the Corporation management's assessment of future plans and operations, anticipated exploration and development opportunities, drilling inventory and wells to be drilled, capital expenditures and the timing thereof, drilling programs and drilling efficiencies, the quantity of undeveloped land and drilling locations and inventory, operating costs, debt levels, credit facilities.  By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the party's control including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources, inability to meet or continue to meet listing requirements, the inability to obtain required consents, permits or approvals and the risk that actual results will vary from the results forecasted and such variations may be material.  Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Corporation's actual results, performance or achievement could differ materially from those expressed in or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Corporation will derive therefrom.

The forward-looking statements contained in this press release are made as of the date of this press release.  Palliser disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, Palliser undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above.

Production volumes are commonly expressed on a barrel of equivalent ("BOE") basis whereby natural gas volumes are converted at a ratio of six thousand cubic feet to one barrel of oil.  The intention is to convert oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. The term BOE may be misleading, particularly if used in isolation.  The conversion ratio is based on an energy equivalent method and does not represent an economic value equivalency at the wellhead.

The TSX Venture Exchange has neither approved nor disapproved the contents of this press release.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this Press release.

 

SOURCE Palliser Oil

For further information:

Kevin Gibson
President and CEO
kevin@palliserogc.com
(403) 209-5717
 
 
 
 
        Ivan J. Condic
Vice President, Finance & CFO
ivan@palliserogc.com
(403) 209-5718

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Palliser Oil & Gas Corporation

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