North Peace Energy Announces Operations Update and Second Quarter Results



    CALGARY, Aug. 27 /CNW/ - North Peace Energy Corp. ("North Peace" or the
"Company") releases operating and financial results for the three and six
months ended June 30, 2008.

    
    Operations and Financial Highlights:
      -  Completed a $26 million financing on August 7, 2008, issuing
         13,333,300 common shares, 6,666,650 warrants to purchase common
         shares and 3,636,360 flow-through shares.
      -  Working capital position of approximately $25 million subsequent to
         the recent financing.
      -  Received Energy Resources Conservation Board ("ERCB") and Alberta
         Environment approval in June for a Cyclic Steam Stimulation ("CSS")
         pilot project at Red Earth.
      -  Invested $2.9 million procuring equipment for the CSS pilot project
         in the second quarter of 2008.

    CSS Pilot Project Update:
      -  Completed drilling of the two horizontal wells in August on budget
           -  Bitumen saturated sands, consistent with previously determined
              reservoir characteristics and quality, were encountered over
              the entire horizontal section of both wells
      -  Hired all key field operations employees
      -  Commenced facility construction
           -  Steam injection is expected to commence during November, on
              schedule and on budget

    Commercial Project Update:
      -  Drilling of the remaining delineation wells required for the first
         10,000 bbl/d phase of our 30,000 bbl/d commercial project is
         scheduled to commence in November
      -  Advancing commercial engineering and environmental work and the
         Company expects to file an application with the ERCB in mid-2009
      -  Subject to successful pilot project results, the Commercial project
         remains on schedule with first steam expected in 2012
    

    Louis Dufresne, President of North Peace, said the Company now has all
the pieces in place for its CSS pilot project which remains the key building
block for the commercial project.
    "Engineering is complete, all major equipment has been procured, and the
project is fully funded," he said. "The remainder of the year is populated
with significant milestones, including construction completion and first steam
in November, culminating in pilot oil production either late in 2008 or in
early 2009."

    
                   Management's Discussion and Analysis of
                              Financial Results
    

    This Management's Discussion and Analysis of North Peace Energy Corp.
("North Peace" or the "Company") provides analysis of the Company's financial
results for the three and six month periods ended June 30, 2008. The following
information should be read in conjunction with the Company's unaudited interim
financial statements for the three and six months ended June 30, 2008, and the
audited financial statements for the year ended December 31, 2007.
    Additional information about North Peace filed with Canadian securities
commissions is available on-line at www.sedar.com.
    See "Forward-Looking Statements" below.

    
    Date of Report           August 26, 2008
    --------------

    Overview
    --------
    

    North Peace has an early stage in-situ oil sands play in northern Alberta
with an estimated 2 to 3.1 billion barrels of Discovered Petroleum
Initially-In-Place. The Company has a 100% working interest in 86,400 acres of
Crown oil sands leases in the Peace River area. The lands have the benefit of
over 300 legacy logs and are surrounded by accessible oil and gas production
infrastructure. The target Bluesky zone is a regional sand, deposited in a
near shore marine environment at approximately 400 metres depth. The initial
focus area has 24 contiguous land sections with 10 to 16 metres of oil bearing
thickness, sufficient to advance a 30,000 bbl/d commercial project. North
Peace is currently advancing the development of its resource using a robust
and proven in-situ thermal recovery process, Cyclic Steam Stimulation ("CSS").
A pilot project consisting initially of two horizontal CSS wells has been
engineered, regulatory approval has been obtained and the project is fully
funded. Pilot facility construction has commenced and construction completion
is scheduled for November. The Company does not currently have any oil and gas
production.

    
    Overall Performance
    -------------------

    During the three months ended June 30, 2008 the Company has completed the
following significant milestones:

      -  Received Energy Resources Conservation Board ("ERCB") and Alberta
         Environment EPEA approval for our CSS pilot project
      -  Procured $2.9 million of equipment for the CSS pilot project

    Financial Results
    -----------------

    Quarterly Financial Information

                            2008       2008       2007       2007       2007
                              Q2         Q1         Q4         Q3         Q2
    -------------------------------------------------------------------------
    Revenues              39,045     87,905    117,197    128,821     67,297
    Net Loss and
     Comprehensive loss  486,924    399,290    448,481    282,614    363,906
    Basic and diluted
     Net Loss Per share    0.013      0.010      0.012      0.007      0.012
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            2007       2006       2006
                              Q1         Q4         Q3
    ---------------------------------------------------
    Revenues              30,306     30,247     12,563
    Net Loss and
     Comprehensive loss  133,324     44,955     14,981
    Basic and diluted
     Net Loss Per share    0.008      0.003      0.001
    ---------------------------------------------------
    ---------------------------------------------------


    Results of Operations
    ---------------------

    Interest Income

                                                            Six months ended
                                   2008           2007          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2008       2007
    -------------------------------------------------------------------------
    Interest Income       39,045     87,905     67,297    126,950     97,603
    -------------------------------------------------------------------------
    

    Interest income was $39,045 for the second quarter of 2008, with the
majority derived from redeemable term deposits bearing interest at 2.75%. The
increase in interest income in the first half of 2008 from the first half 2007
is due to more cash on deposit. Interest income is down from the first quarter
of 2008 and the same period in 2007 due to reduced cash on hand as the Company
executed its capital program.

    
    Stock-based Compensation

                                                            Six months ended
                                   2008           2007          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2008       2007
    -------------------------------------------------------------------------
    Stock-based
     Compensation        150,651    166,376     94,152    317,027    149,169
    -------------------------------------------------------------------------

    Stock-based compensation for the second quarter of 2008 was $306,232. $
150,651 of the stock-based compensation was expensed relating to the
recognition of the expense for existing stock options as there were no
additional option grants in the first half of 2008. $155,581 of stock based
compensation was capitalized during the quarter relating to consultants
working directly on the capital program and pilot project.

    Administrative Expenses

                                                            Six months ended
                                   2008           2007          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2008       2007
    -------------------------------------------------------------------------
    G&A expense          365,118    310,883    331,719    676,001    435,000
    -------------------------------------------------------------------------

    Administrative expenses for the second quarter amounted to $365,118
compared to $310,883 for the first quarter of 2008 and $331,719 for the same
period last year. The increase from the first quarter of 2008 is due to
increased investor relations activity. The increase from the same period in
2007 is due to the Company's growth in size and level of activity.

    Depletion, Depreciation and Accretion

                                                            Six months ended
                                   2008           2007          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2008       2007
    -------------------------------------------------------------------------
    Depletion,
     Depreciation and
     Accretion            10,200      9,936      5,332     20,136     10,664
    -------------------------------------------------------------------------

    The Company had depreciation expense during the second quarter of 2008 of
$5,920 related to office furniture and computer equipment. Accretion related
to asset retirement obligations in the second quarter of 2008 was $4,280. The
increase from the same period last year is due to additional wells. The change
from the previous quarter is due to the passage of time.

    Liquidity and Capital Resources
    -------------------------------
    

    As at June 30, 2008, the Company had working capital of $2 million.
    The Board of Directors has approved a 2008/2009 capital budget of
$20 million to build the pilot project and complete a winter 2008/2009
delineation drilling program.
    On August 7, 2008 the Company completed a private placement equity
offering, issuing a total of 13,333,300 units ("Units"), at a price of $1.50
per Unit and 3,636,360 flow-through common shares ("Flow-Through Shares"), at
a price of $1.65 per Flow-Through Share for gross proceeds of approximately
$26 million. Each Unit consists of one common share and half of one common
share purchase warrant ("$2.00 Warrant"). Each full $2.00 Warrant entitles the
holder to acquire one common share at an exercise price of $2.00 per share
until February 7, 2010.
    The proceeds from the financing are sufficient to fully fund the
$20 million 2008/2009 capital budget and the additional funds raised will be
used for potential contingencies during pilot construction. Following
construction and first steam injection the remaining funds will be used to
increase the number of wells drilled in the winter 2008/2009 delineation
drilling program and for commercial project engineering.
    As at June 30, 2008, the payments due under the office lease commitment
are as follows:

    
    (Cdn $)
    -------------------------------------------------------------------------
    2008                                                              41,123
    2009                                                              82,246
    2010                                                              82,246
    2011                                                              82,246
    Thereafter                                                           Nil
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures were as follows:

                                                            Six months ended
                                   2008           2007          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2008       2007
    -------------------------------------------------------------------------
    Property
     Acquisition               -          - 20,160,921          - 20,160,921
    Land & Lease
     Rentals              19,880    120,735      8,064    140,615     41,694
    Drilling              42,216  3,538,738    131,700  3,580,953  1,000,087
    Geological Costs      15,906     40,393          -     56,299     30,000
    Pilot Facilities   2,895,907    188,489          -  3,084,396          -
    Pilot Project
     Costs                64,730     27,314          -     92,043          -
    Other                      -          -     26,780          -     32,134
    -------------------------------------------------------------------------
    Total              3,038,639  3,915,669 20,327,465  6,954,306 21,264,836
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Share Capitalization

    Capitalized stock-based compensation and asset retirement obligation
additions are not included in the above table.
    The following table shows the common shares, stock options and performance
warrants issued and outstanding at June 30, 2008:

                                                               June 30, 2008
    -------------------------------------------------------------------------

    Common shares outstanding                                     38,101,140
    Weighted average number of shares outstanding
     during the period                                            38,059,057
    Stock options outstanding                                      2,230,000
    Performance warrants outstanding                               6,300,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at August 26, 2008, there were 55,070,800 common shares, 3,770,000
stock options, 6,300,000 performance warrants and 6,666,650 purchase warrants
outstanding.

    Off Balance Sheet Arrangements
    ------------------------------

    There were no off balance sheet arrangements as at June 30, 2008.

    Transactions with Related Parties
    ---------------------------------

    As at June 30, 2008, the Company accrued legal costs of $30,000 payable to
a firm in which a director is a partner.

    Critical Accounting Estimates
    -----------------------------
    

    The preparation of financial statements requires the Company to make
judgements, assumptions and estimates in the application of generally accepted
accounting principles that have a significant impact on the financial results
of the Company. Actual results could differ from those estimates. A
comprehensive discussion of the Company's significant accounting policies is
contained in the financial statements for the year ended December 31, 2007.

    
    Accounting Policies
    -------------------

    For the impact of new accounting policies please refer to note 2 of the
unaudited financial statements as at June 30, 2008.

    Financial Instruments and Other Instruments
    -------------------------------------------

    The Company's carrying value of cash and cash equivalents, accounts
receivable and accounts payable and accruals approximates its fair value due
to the immediate or short-term maturity of these instruments.

    Risks and Uncertainties
    -----------------------
    

    North Peace is exposed to operational and regulatory risks and
uncertainties in the normal course of business that can influence its future
financial performance. A summary of certain of these risks is set out below
under "Forward-Looking Statements" and a more detailed description of these
risks is presented in the Company's Information Circular dated April 18, 2008
which is available on SEDAR at www.sedar.com.  Readers are cautioned that
these descriptions are not exhaustive.

    
    Outlook
    -------
    

    The majority of the capital spending during the balance of 2008 will be
focused on completing the pilot project. The two CSS horizontal were drilled
following the equity financing. Construction of pilot facilities has
commenced, with first steam injection expected in November. Initial production
response should occur approximately two months following steam injection and
is expected late in the fourth quarter 2008 or early 2009.
    Additional delineation drilling work will commence in the winter of
2008/2009 to confirm an area sufficient to construct the first 10,000 bbl/d
phase of a 30,000 bbl/d commercial project. Pilot production information
combined with the data gathered from this drilling program will allow the
Company to advance commercial engineering and in mid 2009 North Peace expects
to be in a position to submit an application to the ERCB for the first
10,000 bbl/d phase of the commercial project.

    
    International Financial Reporting Standards ("IFRS")
    ----------------------------------------------------
    

    In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed
that the changeover to IFRS from Canadian GAAP will be required for publicly
accountable enterprises effective for the interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2011. The
AcSB issued the "omnibus" exposure draft of IFRS with comments due July 31,
2008, wherein early adoption by Canadian entities is also permitted. The
Canadian Securities Administrators ("CSA") has also issued Concept Paper
52-402, which requested feedback on the early adoption of IFRS as well as the
use of US GAAP by domestic issuers. The transition from current Canadian GAAP
to IFRS is a significant undertaking that may materially affect the Company's
reported financial position and results of operations.
    The Company has not completed development of its IFRS changeover plan,
which will include project structure governance, resourcing and training,
analysis of key GAAP differences and a phase plan to assess accounting
policies under IFRS as well as potential IFRS 1 ("First Time Adoption of
IFRS") exemptions. The Company hopes to complete its project scoping, which
will include a timetable for assessing the impact on data systems, internal
controls over financial reporting and business activities, such as financing
and compensation arrangements during 2009.
    The International Accounting Standards Board ("IASB") has stated that it
plans to issue an exposure draft relating to certain amendments to IFRS 1 in
order to make it more useful to Canadian entities adopting IFRS for the first
time. One such exemption relating to full cost oil and gas accounting is
expected to result in a reduced administrative transition from the current
Acg-16 to IFRS. It is anticipated that this exposure draft will not result in
an amended IFRS 1 standard until late 2009. The amendment will potentially
permit the Company to apply IFRS prospectively to its full cost pool, rather
than the retrospective assessment of capitalized exploration and development
expenses, with the proviso that the ceiling test, under IFRS standards, is
conducted at the transition date.

    
    Discovered Petroleum Initially-In-Place
    ---------------------------------------
    

    Discovered Petroleum Initially-In-Place (equivalent to Discovered
Resources) is that quantity of petroleum that is estimated, as of a given
date, to be contained in known accumulations prior to production. The
recoverable portion of Discovered Petroleum Initially-In-Place includes
production, reserves, and contingent resources. There is no certainty that the
Discovered Petroleum Initially-In-Place will ever be produced.

    
    Forward-Looking Statements
    --------------------------
    

    Certain statements contained in this release and MD&A including
statements relating to future development plans including the application of
CSS, anticipated costs and expenditures, anticipated production capacity and
business strategies, constitute forward-looking statements that involve known
and unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such
forward-looking statements. No assurance can be given that these expectations
will prove to be correct and such forward-looking statements should not be
unduly relied upon. Actual results will differ and could differ materially as
a result of changes in North Peace's plans, changes in commodity prices,
regulatory changes, including but not limited to changes in royalty regimes,
tax laws and environmental regulations, general economic, market and business
conditions, ability to access sufficient capital in the future, failure to
obtain required regulatory approvals, as well as production, development and
operating performance and other risks associated with oil and gas operations
including anticipated success of resource prospects and the expected
characteristics of resource prospects; results of the Company's pilot project
and delineation program; anticipated capital requirements, project rates of
return and estimated project life; estimates of original discovered resource;
estimates of recovery factors; estimates of the geologic and other attributes
and characteristics of the Company's property; the effectiveness and economic
feasibility of utilizing CSS, lack of diversification; and overall technical
and economic feasibility of the Company's project. Readers are cautioned that
the foregoing list of factors is not exhaustive. Additional information on
these and other factors that could affect North Peace's operations or
financial results are included in reports on file with applicable securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com) or at North Peace's website (www.northpec.com). These
statements speak only as of the date of this release or as of the date
specified in the documents accompanying this release, as the case may be. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements except as expressly required by applicable
securities laws.


    
    NORTH PEACE ENERGY CORP.
    (A Development Stage Company)

    Balance Sheets, as at
    (unaudited)
    -------------------------------------------------------------------------
                                                       June 30,  December 31,
                                                          2008          2007
    -------------------------------------------------------------------------
    Assets

    Current assets
      Cash and cash equivalents (note 4)          $  4,517,878  $  9,964,393
      Accounts receivable                              277,178       363,600
      Prepaid expenses                                  47,603        46,360
    -------------------------------------------------------------------------
                                                     4,842,659    10,374,353

    Oil and gas properties (note 5)                 39,959,843    32,711,756
    Other assets                                        51,639        54,703
    -------------------------------------------------------------------------
                                                  $ 44,854,141  $ 43,140,812
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accruals               $  2,874,329  $    944,654

    Asset retirement obligations (note 6)              378,290       215,820
    Future income taxes                                550,929       915,900
    -------------------------------------------------------------------------
                                                     3,803,548     2,076,374
    -------------------------------------------------------------------------

    Shareholders' equity
      Common shares (note 7)                        42,453,432    42,037,961
      Performance warrants (note 7)                  1,466,550     1,466,550
      Contributed surplus (note 8)                   1,122,001       665,103
      Deficit                                       (3,991,390)   (3,105,176)
    -------------------------------------------------------------------------
                                                    41,050,593    41,064,438

    -------------------------------------------------------------------------
                                                  $ 44,854,141  $ 43,140,812
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments (note 10)
    Subsequent events (note 13)

    Signed on behalf of the Board:

    "Ian Robertson", Director

    "Don Garner", Director



    NORTH PEACE ENERGY CORP.
    (A Development Stage Company)

    Statements of Loss, Comprehensive Loss and Deficit
    (unaudited)
    -------------------------------------------------------------------------

                              Three months ended           Six months ended
                                   June 30,                    June 30,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------

    Revenue
      Interest Income $     39,045  $     67,297  $    126,950  $     97,603
    -------------------------------------------------------------------------
                            39,045        67,297       126,950        97,603
    -------------------------------------------------------------------------

    Operating expenses
      General and
       administrative      365,118       331,719       676,001       435,000
      Stock-based
       compensation        150,651        94,152       317,027       149,169
      Depletion,
       depreciation and
       accretion            10,200         5,332        20,136        10,664
    -------------------------------------------------------------------------
                           525,969       431,203     1,013,164       594,833
    -------------------------------------------------------------------------

    Net Loss and
     Comprehensive
     Loss             $    486,924  $    363,906  $    886,214  $    497,230

    Deficit at
     beginning of
     period              3,504,466     1,818,112     3,105,176     1,572,433
      Costs relating
       to Juno
       transaction
       (note 3)                  -             -             -       112,355
    -------------------------------------------------------------------------

    Deficit at end of
     period           $  3,991,390  $  2,182,018  $  3,991,390  $  2,182,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net Loss per share
     (note 12)
      Basic and
       Diluted        $      0.013  $      0.012  $      0.023  $      0.021
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    NORTH PEACE ENERGY CORP.
    (A Development Stage Company)

    Statements of Cash Flows
    (unaudited)
    -------------------------------------------------------------------------

                              Three months ended           Six months ended
                                   June 30,                    June 30,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------

    Cash provided by
     (used in):

    Operating
     Activities
      Net Loss        $   (486,924) $   (363,906) $   (886,214) $   (497,230)
      Non-cash charges
       to earnings
        Depletion,
         depreciation
         and accretion      10,200         5,332        20,136        10,664
        Stock-based
         compensation      150,651        94,152       317,027       149,169
    -------------------------------------------------------------------------
                          (326,073)     (264,422)     (549,051)     (337,397)
      Net change in
       non cash working
       capital
        Accounts
         receivable        204,557      (158,377)      210,471      (226,311)
        Prepaid expenses   (13,479)       16,772        (1,243)       15,368
        Accounts payable
         and accruals       14,332       (21,105)      (76,636)     (139,060)
    -------------------------------------------------------------------------
                          (120,663)     (427,132)     (416,459)     (687,400)
    -------------------------------------------------------------------------
    Investing
     Activities
      Additions to oil
       and gas
       properties       (3,038,639)  (20,327,465)   (6,954,306)  (21,264,836)
      Other assets          (3,537)      (32,224)       (8,512)      (58,528)
      Net change in non
       cash working
       capital
        Accounts
         receivable        (52,600)      399,361      (124,049)      323,232
        Accounts payable
         and accruals      809,039      (647,434)    2,006,311       125,081
    -------------------------------------------------------------------------
                        (2,285,737)  (20,607,762)   (5,080,556)  (20,875,051)
    -------------------------------------------------------------------------
    Financing
     Activities
      Proceeds on
       issue of common
       shares               50,500    28,773,671        50,500    30,551,171
      Cash acquired
       from Juno
       Capital Corp.
       (note 3)                  -             -             -       261,845
      Deferred financing
       charges                   -             -             -        24,354
      Net change in non
       cash working
       capital
        Accounts payable
         and accruals            -         5,027             -        48,002
    -------------------------------------------------------------------------
                            50,500    28,778,698        50,500    30,885,372
    -------------------------------------------------------------------------

    (Decrease) Increase
     in cash and cash
     equivalents        (2,355,900)    7,743,804    (5,446,515)    9,322,921

    Cash and cash
     equivalents,
     beginning of
     period              6,873,778     4,861,538     9,964,393     3,282,421
    -------------------------------------------------------------------------

    Cash and cash
     equivalents, end
     of period        $  4,517,878  $ 12,605,342  $  4,517,878  $ 12,605,342
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental
     disclosure:
      Interest
       received       $    246,413  $      4,120  $    308,551  $      4,120
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    NORTH PEACE ENERGY CORP.
    (A Development Stage Company)

    Notes to Financial Statements
    As at June 30, 2008 (unaudited), as at December 31, 2007
    -------------------------------------------------------------------------

    1.  Nature of Operations

        North Peace Energy Corp. (the "Company") was amalgamated pursuant to
        the provisions of the Business Corporations Act (Alberta) on
        February 6, 2007, the result of a reverse takeover (note 3). The
        Company's principal business activity is the exploration,
        exploitation and development and production of petroleum and natural
        gas resources in the Province of Alberta. To date the Company has not
        earned significant revenue and is therefore considered to be a
        development stage company.

        These financial statements are prepared on the assumption that the
        Company will continue as a going concern and realize its assets and
        discharge its liabilities in the normal course of business. The
        recoverability of the amounts shown for petroleum and natural gas
        assets is dependent upon the discovery of economically recoverable
        oil and gas resources and the ability of the Company to obtain
        financing necessary to complete the exploration and development and
        the success of future operations.

        These interim financial statements have been prepared following the
        same accounting policies and methods used in the financial statements
        for the year ended December 31, 2007 except as noted. These financial
        statements should be read in conjunction with the audited year-end
        financial statements for North Peace Energy Corp.

    2.  Adoption of new accounting policies

        Effective January 1, 2008 the Company adopted Section 1535, Capital
        Disclosures, Section 3862, Financial Instruments - Disclosures, and
        Section 3863, Financial Instruments - Presentation. Section 1535
        specifies the disclosure of an entity's objectives, policies and
        processes for managing capital, quantitative data about what the
        entity regards as capital, whether the entity has complied with all
        capital requirements, and if it has not complied, the consequences of
        such non-compliance.

        Sections 3862 and 3863 specify standards of presentation and enhanced
        disclosures on financial instruments. These Sections will require the
        Company to increase disclosure on the nature and extent of risks
        arising from financial instruments and how the entity manages those
        risks.

        The adoption of these new accounting standards did not impact the
        amounts reported in the Company's financial statements; however, it
        did result in expanded note disclosure (see Note 11).

        The CICA has amended Section 1400, "General Standards of Financial
        Statement Presentation", which is effective for interim periods
        beginning on or after January 1, 2008, to include requirements to
        assess and disclose the Company's ability to continue as a going
        concern (note 1).

        In February 2008, the CICA issued Section 3064, Goodwill and
        Intangible Assets, replacing Section 3062, Goodwill and Other
        Intangible Assets and Section 3450, Research and Development Costs.
        The new Section will be effective on January 1, 2009. Section 3064
        establishes standards for the recognition, measurement, presentation
        and disclosure of goodwill and intangible assets subsequent to its
        initial recognition. Standards concerning goodwill are unchanged from
        the standards included in the previous Section 3062.

    3.  Reverse Takeover

        On February 6, 2007, Juno Capital Corp. ("Juno") completed its
        qualifying transaction (the "Transaction") with North Peace Energy
        Inc. to acquire all of the issued and outstanding common shares of
        North Peace Energy Inc. in exchange for ten common shares of Juno for
        each issued and outstanding common share of North Peace Energy Inc.
        All outstanding and unexercised stock options and warrants of North
        Peace Energy Inc. were exchanged for equivalent stock options and
        warrants of Juno having regard for the foregoing ten for one ratio.

        Upon completion of the Transaction, Juno consolidated its common
        shares on the basis of one consolidated common share for each five
        issued and outstanding common shares, and amalgamated with North
        Peace Energy Inc. to form the Company under the name "North Peace
        Energy Corp."

        The Transaction has been accounted for as a reverse take-over of Juno
        by North Peace Energy Inc. For accounting purposes, North Peace
        Energy Inc. is the acquirer and the combined entity is considered to
        be the continuation of North Peace Energy Inc., except for the
        authorized and issued share capital which is that of Juno.

        The net assets of Juno were recorded on the balance sheet in the
        first quarter of 2007 as follows:

                                                        Number
        (Cdn $)                                      of Shares        Amount
        ---------------------------------------------------------------------
        Assets acquired                                         $    271,016
        Liabilities assumed                                          123,986
        ---------------------------------------------------------------------
        Net assets acquired                                     $    147,030
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Consideration
          Common shares (2,525,000 Juno common shares) 505,000  $    134,422
          Stock options at fair value (252,500 Juno
           stock options)                               50,500        12,608
        ---------------------------------------------------------------------
        Total share capital                                     $    147,030
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The fair value of the net assets of the Company deemed to have been
        acquired by North Peace Energy Inc. was $147,030, consisting of cash
        of $261,845, accounts receivable and prepaid expenses of $9,171 and
        accounts payable of $123,986. Transaction costs were $304,418 at the
        date of the transaction and they were recognized in the deficit.

    4.  Cash and cash equivalents

        Included in cash and cash equivalents is a redeemable term variable
        rate deposit totaling $3,760,056 which currently bears interest at
        2.75 % and matures on June 28, 2009. The term deposits are fully
        redeemable, without penalty, 30 days after the date of investment and
        therefore classified as cash and cash equivalents.

    5.  Oil and gas properties

                                                       June 30,  December 31,
        (Cdn $)                                           2008          2007
        ---------------------------------------------------------------------

        Oil and gas interests                     $ 39,959,843  $ 32,711,756
        ---------------------------------------------------------------------
                                                  $ 39,959,843  $ 32,711,756
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company is advancing a Cyclic Steam Stimulation ("CSS") project
        on its land holdings. The initial focus area has
        24 contiguous land sections with 10 to 16 metres of oil bearing
        thickness, sufficient to advance a 30,000 bbl/d commercial project. A
        pilot project consisting initially of two horizontal CSS wells has
        been engineered and construction of the pilot facility has commenced.

        At June 30, 2008, the Company has no reserves or production.
        Accordingly, no provision for depletion expense has been made.

        In 2007, the Company completed a property acquisition of the
        remaining 30 percent ownership in its land holdings in the Red Earth
        area of northern Alberta. Consideration for the acquisition consisted
        of $15,000,000 in cash and $4,994,947 in common shares of North Peace
        (2,270,430 common shares at a deemed price of $2.20 per share).

        Stock-based compensation of $139,871 (2007 - $180,173) was
        capitalized during the six months ended June 30, 2008.

        No impairment has been recognized on oil and gas interests for the
        six months ended June 30, 2008.

    6.  Asset retirement obligations

        The following table represents the reconciliation of the carrying
        amount of the obligation associated with the retirement of the
        Company's petroleum and gas interests.

                                                       June 30,  December 31,
        (Cdn $)                                           2008          2007
        ---------------------------------------------------------------------

        Asset retirement obligations,
         beginning of period                      $    215,820  $    167,971
        Increase in liabilities                        156,842       206,509
        Accretion                                        8,561        12,621
        Change in estimates                             (2,933)     (171,281)
        ---------------------------------------------------------------------

        Asset retirement obligations,
         end of period                            $    378,290  $    215,820
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The total undiscounted amount of cash flows required to settle the
        obligations as measured at June 30, 2008 is estimated to be $711,214
        (2007 - 220,860). These obligations will be settled based on the
        useful lives of the underlying assets, which ranges from one to ten
        years. The credit-adjusted risk free rate at which the estimated cash
        flows were discounted was 8% (2007 - 8%) and the estimated inflation
        rate used to project future costs was 2% (2007 - 2%).

    7.  Share Capital

        (a) Authorized

            Unlimited number of common shares
            Unlimited number of first preferred shares issuable in series
            Unlimited number of second preferred shares issuable in series

        (b) Issued

                                                        Number
                                                     of Shares        Amount
        ---------------------------------------------------------------------
        Balance, December 31, 2006                  16,555,400  $ 12,292,052
        Juno shares (note 3)                           505,000       147,030
        Tax effect of flow-through share
         renouncement                                        -      (915,900)
        Warrants exercised (i)                       9,196,000     6,897,000
        Equity financing (ii)                        9,523,810    20,000,001
        Property acquisition (iii)                   2,270,430     4,994,947
        Share issue costs (iv)                               -    (1,377,169)
        ---------------------------------------------------------------------
        Balance December 31, 2007                   38,050,640    42,037,961
        Tax effect of previously incurred
         share issue costs                                   -       364,971
        Stock Options exercised                         50,500        50,500
        ---------------------------------------------------------------------
        Balance June 30, 2008                       38,101,140  $ 42,453,432
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        i.   In 2007, 9,196,000 warrants were exercised for common shares at
             $0.75 per warrant for gross proceeds of $6,897,000.
        ii.  The Company issued 9,523,810 subscription receipts for common
             shares of the Corporation at an issue price of $2.10 per
             subscription receipt for gross proceeds of $20,000,001. The
             effective date for the exchange of subscription receipts for
             common shares was June 28, 2007.
        iii. On June 28, 2007 2,270,430 common shares at a deemed price of
             $2.20 per share were issued as partial consideration for a
             property acquisition (see note 5).
        iv.  Share issue costs relate to the costs incurred for the equity
             issuance of 9,523,810 subscription receipts and the issuance of
             2,270,430 common shares as partial payment for the property
             acquisition.

        (c) Stock options

        Changes in the number of shares issuable under outstanding options
        were as follows:

                                                                    Weighted
                                                      Range of       Average
                                          Number      Exercise      Exercise
                                      of options        Prices         Price
        ---------------------------------------------------------------------
        Balance, December 31, 2006       840,000  $       1.00  $       1.00
        Juno options (note 3)             50,500          1.00          1.00
        Options granted                1,390,000   1.00 - 2.62          1.71
        Options exercised                      -             -             -
        ---------------------------------------------------------------------
        Balance, December 31, 2007     2,280,500  $1.00 - 2.62  $       1.43
        Options exercised                 50,500          1.00          1.00
        ---------------------------------------------------------------------
        June 30, 2008                  2,230,000  $1.00 - 2.62  $       1.44
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The average fair value of the options granted during 2007 is
        $1.03 per option assuming an average volatility of 90% on the
        underlying shares, a weighted average exercise price of $1.71, a
        risk-free interest rate of 3.89% - 4.58%, an expected life of
        5 years, and an expected dividend rate of 0%. The majority of the
        options vest 1/3 per year on the first, second and third anniversary
        of the date of the grant. Options issued to consultants vest upon
        completion of consulting work or at equal amounts at 6 months,
        18 months and 30 months after the date of grant.

        The Company has recognized stock-based compensation of $456,898
        during the six months ended June 30, 2008, of which $139,871 was
        capitalized to oil and gas properties.

        In 2007, 500,000 options issued to consultants contingent on them
        joining as employees were canceled and 250,000 of these contingent
        options were retained by the consultants as part of an engagement to
        support the Company. In addition 1,140,000 options were issued by the
        Company to management, employees, consultants and directors during
        2007.

        The following table sets forth information about stock options
        outstanding as at June 30, 2008.


                          Options Outstanding           Options Exercisable
                                Weighted                            Weighted
        Range of                 Average   Remaining                 Average
        Exercise    Number of      Price Contractual      Options      Price
        Price         Options  Per Share  Life (yrs)  Exercisable  Per Share
        ---------------------------------------------------------------------
        $1.00       1,415,000      $1.00        3.48      505,000      $1.00
        $1.55-$2.62   815,000       2.21        3.95      136,667      $2.59
        ---------------------------------------------------------------------
                    2,230,000      $1.43        3.69      641,667      $1.34
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (d) Performance Warrants

                                                     Number of      Exercise
                                                      Warrants         Price
        ---------------------------------------------------------------------
        Balance, December 31, 2006                   6,300,000  $       0.50
        ---------------------------------------------------------------------
        Balance, December 31, 2007 and
         June 30, 2008                               6,300,000  $       0.50
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Exercisable, June 30, 2008                           -  $          -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The performance warrants must be exercised the earlier of: (a)
        immediately following a liquidity event whereby the Board of the
        Company determines to liquidate all or substantially all of the
        assets of the Company, (b) immediately following an offer to purchase
        at least 66 2/3% of the outstanding common shares for cash or similar
        consideration (other than pursuant to a reverse take-over) that is
        received and taken up and paid for by the offeror, or (c)
        December 31, 2010, otherwise they expire.

        The performance warrants vest immediately if (a) or (b) above occurs,
        or after the shares are listed on a recognized stock exchange and all
        of the following performance criteria are satisfied; (i) the Company
        has a market capitalization of at least $30,000,000; (ii) at least
        32,000,000 equity shares are outstanding; and (iii) the Company meets
        or exceeds the minimum listing requirements of a Tier 1 Issuer as
        defined in the policies of the TSX Venture Exchange (collectively the
        "Performance Criteria"). If the Performance Criteria are met, the
        warrants vest as follows: 2,700,000 performance warrants upon
        achieving a share price of $1.00 per share, 1,800,000 performance
        warrants upon achieving a share price of $1.50 per share and
        1,800,000 performance warrants upon achieving a share price of
        $2.00 per share. Share prices are calculated based on the ten day
        weighted average trading price per share of the Company.

        As at June 30, 2008 all performance criteria related to the Company
        have been satisfied except the minimum listing requirements for a
        Tier 1 Issuer on the TSX Venture Exchange.

        The fair value of the performance warrants was estimated at
        $1,466,550 using the Black-Scholes option pricing model assuming
        expected volatility of 90% and an expected life of between one and
        three years with corresponding risk-free rates of 4.07% to 4.16%.

        The remaining contractual life of the outstanding and exercisable
        performance warrants is 2.50 years.

    8.  Contributed surplus

                                                       June 30,  December 31,
        (Cdn $)                                           2008          2007
        ---------------------------------------------------------------------

        Balance, beginning of period              $    665,103  $     33,500
        Stock-based compensation
          Expensed                                     300,512       451,430
          Capitalized                                   75,744       120,394
          Decrease/Increase in fair value of
           non-employee options                                       59,779
            Expensed                                    16,515
            Capitalized                                 64,127
        ---------------------------------------------------------------------
        Balance, end of period                    $  1,122,001  $    665,103
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  Related party transactions

        As at June 30, 2008, the Company accrued legal costs of $30,000
        (2007 - nil) payable to a firm in which a director is a partner. All
        related party transactions are in the normal course of operations,
        related party transactions entered into by the Company have been
        measured at the exchange amount established and agreed to by the
        related parties.

    10. Commitments

        As at June 30, 2008, the Company was committed under a lease for
        office premises, requiring future minimum rental payments of $82,246
        per annum plus operating costs, expiring December 31, 2011.

    11. Financial instruments

        The Board of Directors has overall responsibility for the
        establishment and oversight of the Company's risk management
        framework. The Company's risk management policies are established to
        identify and analyze the risk faced by the Company, to set
        appropriate risk limits and controls, and to monitor risks and
        adherence to market conditions and the Company's activities.

        Credit risk

        Credit risk is the risk of financial loss to the Company if a
        customer or counterparty to a financial instrument fails to meet its
        contractual obligations. At June 30, 2008, the Company's accounts
        receivable relates to interest income and GST refunds.

        Cash and cash equivalents consist of cash bank balances and
        short-term deposits redeemable in less than 90 days. When applicable,
        the Company manages the credit exposure related to short-term
        investments by selecting counter parties based on credit ratings and
        monitors all investments to ensure a stable return. The carrying
        amount of accounts receivable and cash and cash equivalents
        represents the maximum credit exposure.

        Liquidity risk

        Liquidity risk is the risk that the Company will not be able to meet
        its financial obligations as they are due. The Company's approach to
        managing liquidity is to ensure, as far as possible, that it will
        have sufficient liquidity to meet its liabilities when due, under
        both normal and stressed conditions without incurring unacceptable
        losses or risking harm to the Company's reputation.

        The Company prepares periodic capital expenditure budgets, which are
        regularly monitored and updated as considered necessary. Further, the
        Company utilizes authorizations for expenditures on both operated and
        non-operated projects to further manage capital expenditures. The
        Company does not yet have a revolving reserve based credit facility.

        Market risk

        Market risk is the risk that changes in foreign exchange rates,
        commodity prices, and interest rates will affect the Company's net
        earnings or the value of financial instruments. The objective of
        market risk management is to manage and control market risk exposures
        within acceptable limits, while maximizing returns.

        Foreign currency exchange rate risk

        Foreign currency exchange rate risk is the risk that the fair value
        or future cash flows will fluctuate as a result of changes in foreign
        exchange rates. The Company had no forward exchange rate contracts in
        place as at or during the six months ended June 30, 2008.

        Commodity price risk

        Commodity price risk is the risk that the fair value or future cash
        flows will fluctuate as a result of changes in commodity prices. From
        time to time, the Company may use both financial derivatives and
        physical delivery sales contracts to manage market risks. Any such
        transactions would be approved by the Board of Directors. The Company
        has not entered into any financial or physical delivery sales
        contract on future production at June 30, 2008.

        Interest rate risk

        Interest rate risk is the risk that future cash flows will fluctuate
        as a result of changes in market interest rates. The Company's
        exposure is limited to interest rate fluctuations on its cash in its
        bank account which bears a floating rate of interest, historically
        between 2.75% and 4.50%. The Company had no interest rate swap or
        financial contracts in place as at or during the six months ended
        June 30, 2008.

        Fair value

        The Company's carrying value of cash and cash equivalents, accounts
        receivable and accounts payable and accruals approximates its fair
        value due to the immediate or short-term maturity of these
        instruments.

        Capital Management

        The Company's objectives when managing capital is to safeguard its
        ability to continue as a going concern, so that it can continue to
        provide returns to shareholders and benefits for other stakeholders.
        The Company manages the capital structure and makes adjustments to it
        in light of changes in economic conditions and the risk
        characteristics of the underlying assets.

        As the Company does not have any externally imposed capital
        requirements, for the purposes of this disclosure, the Company has
        defined its capital to mean its long-term debt (nil) and
        shareholders' equity and working capital, as determined each
        reporting date.

        There have been no changes to capital management in the six months
        ended June 30, 2008.

    12. Loss per Share

        The following is a reconciliation of basic and diluted loss per
        share.

                                Three months ended          Six months ended
                                      June 30,                  June 30,
                          ---------------------------------------------------
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------

        Net loss (Cdn $)  $  (486,924) $  (363,906) $  (886,214) $  (497,230)
        Weighted average
         number of shares
         outstanding       38,067,473   30,187,813   38,059,057   23,934,940
        Basic loss per
         share            $     0.013  $     0.012  $     0.023  $     0.021
        Diluted loss per
         share            $     0.013  $     0.012  $     0.023  $     0.021
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company is in a loss position for the period, therefore all
        dilutive instruments which include stock options and performance
        warrants are anti-dilutive in nature.

    13. Subsequent Events

        On July 29, 2008 the Company granted 1,540,000 stock options at an
        exercise price of $1.50 per share to management, employees,
        consultants and directors. 475,000 of the stock options granted to
        management will be exercisable only when the Company's previously
        announced cyclic steam pilot project demonstrates first oil
        production.

        On August 7, 2008 the Company completed a private placement equity
        offering, issuing a total of 13,333,300 units ("Units"), at a price
        of $1.50 per Unit and 3,636,360 flow-through common shares ("Flow-
        Through Shares"), at a price of $1.65 per Flow-Through Share for
        gross proceeds of approximately $26 million. Each Unit consists of
        one common share and half of one common share purchase warrant. Each
        full warrant entitles the holder to acquire one common share at an
        exercise price of $2.00 per share until February 7, 2010.
    

    %SEDAR: 00019211E




For further information:

For further information: Louis Dufresne, President & CEO; James
Glessing, Vice President, Finance & CFO, North Peace Energy Corp., 470, 505 -
3rd Street SW, Calgary, Alberta, T2P 3E6, Telephone (403) 262-6024, Facsimile:
(403) 262-6072, E-mail: info@northpec.com Or Stephanie K Mesher; Bryan Mills
Iradesso, (403) 503-0144 ext. 216, smesher@bmir.com, www.northpec.com

Organization Profile

NORTH PEACE ENERGY CORP.

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