North Peace Energy Releases Third Quarter 2007 Results



    CALGARY, Nov. 23 /CNW/ - North Peace Energy Corp. ("North Peace" or the
"Company") releases operating and financial results for the three months and
nine months ended September 30, 2007.

    
    Highlights of North Peace's third quarter activities include:

    -   Submitted application for pilot project to the Alberta Energy &
        Utilities Board ("EUB")
    -   Formed the core technical team with the addition of Harley Rea as
        Vice President, Engineering
    -   Maintained a strong balance sheet with cash and cash equivalents of
        $12.2 million as at September 30, 2007, and no debt.

    Operations update:

    -   Drilled and cased three additional wells under the future pilot
        location during October and November
        -  Confirmed resource thickness of 10-15 metres
        -  Detected no water or gas thief zones
        -  Finalized the location for the pilot facility and the two Cyclic
           Steam Stimulation ("CSS") pilot wells
        -  Confirmed geological elevations to allow us to drill the two
           horizontal pilot wells in 2008
        -  Encountered over 45m of Wilrich capping shale which is more than
           adequate for steam chamber containment
    -   Surveyed locations for the five delineation wells in the vicinity of
        the pilot location
        -  These wells will be drilled in 2008
        -  Information will be gathered from these wells to begin work on
           future commercial development
    -   Identified potential locations for two additional wells on Block B
        South to continue to evaluate the resource on our land holdings

    CSS Pilot Project update:

        -  Submitted application for pilot project to the EUB
        -  Retained engineering procurement and construction ("EPC") company
           -  Initiated the design basis memorandum for the pilot project
           -  Developing process flow diagrams
           -  Developed construction schedule
        -  Completed preliminary cost estimates; total pilot costs, including
           the drilling of two horizontal wells, are approximately
           $15 million
        -  Purchased a key long lead item in November, namely, a 50 mmBTU
           steam generator in November

    Louis Dufresne, President of North Peace, commenting on third quarter
activities noted "North Peace is progressing rapidly with its development
plans. The three wells just completed have confirmed management's expectations
of the resource. The next step is to construct and operate the pilot and we
are on schedule to have first steam in the ground before the end of 2008. The
results from the pilot will demonstrate production, operating parameters and
thus economic viability of CSS to our resource."


                   Management's Discussion and Analysis of
                              Financial Results
    

    This Management Discussion and Analysis for North Peace Energy Corp.
("North Peace" or the "Company") provides analysis of the Company's financial
results for the three and nine month period ended September 30, 2007. The
following information should be read in conjunction with the unaudited interim
financial statements for the three and nine months ended September 30, 2007,
and the audited financial statements for the year ended December 31, 2006.
    Additional information about North Peace filed with Canadian securities
commissions is available on-line at www.sedar.com.

    
    Date of Report     November 22, 2007
    --------------

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

    During the nine months ended September 30, 2007 the Company has completed
the following significant milestones:

    -   Assembled the management and technical team to allow us to proceed to
        commercial development of the resource project
    -   Raised $20 million to buy out our joint venture partner and obtain
        sole ownership of the asset
    -   Identified Primrose South as a commercial analogue and are using this
        to model and plan future development

    Subsequent to the nine months ended September 30, 2007 the Company has
completed these additional milestones:

    -   Filed our pilot project application with the EUB
    -   Completed 3 wells in the 2007/2008 capital program in addition to the
        9 wells previously drilled
        -  The results from these wells have confirmed management's
           expectations of the resource.
    -   Purchased a 50 mmBTU steam generator, a key long-lead item for the
        pilot project

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

    Interest Income
                                                        Nine months ended
                           2007                 2006      September 30,
    -------------------------------------------------------------------------
                          Q3          Q2          Q3        2007        2006
    -------------------------------------------------------------------------
    Interest
     Income          128,821      67,297           -     226,424      12,563
    -------------------------------------------------------------------------

    Interest income was $128,821 for the third quarter of 2007 from a
redeemable term deposit which bears interest at 4% and matured on September
29, 2007. Interest income was $12,563 over the first nine months of 2006. The
increase in interest income from the second quarter of 2007 is due to more
cash on deposit.

    Stock-based Compensation
                                                        Nine months ended
                           2007                 2006      September 30,
    -------------------------------------------------------------------------
                          Q3          Q2          Q3        2007        2006
    -------------------------------------------------------------------------
    Stock-based
     Compensation    158,093      94,152           -     307,262   1,466,550
    -------------------------------------------------------------------------

    Stock-based compensation for the third quarter was $158,093. The increase
from the second quarter in 2007 is due to additional option grants in the
quarter and recognition of the expense for existing stock options. $37,315 of
stock based compensation was capitalized during the quarter relating to
consultants working directly on the capital program and pilot project.

    Administrative Expenses
                                                        Nine months ended
                           2007                 2006      September 30,
    -------------------------------------------------------------------------
                          Q3          Q2          Q3        2007        2006
    -------------------------------------------------------------------------
    G&A expense      243,488     331,719      27,544     678,488      73,491
    -------------------------------------------------------------------------

    Administrative expenses for the third quarter amounted to $243,488
compared to $331,719 for the second quarter of 2007 and $27,544 for the same
period last year. The decrease from the second quarter of 2007 is due to
reduced corporate activity during the summer months. The increase from 2006 is
due to staff additions, more activity and the company's growth in size and
operations.

    Depreciation and Accretion
                                                        Nine months ended
                           2007                 2006      September 30,
    -------------------------------------------------------------------------
                          Q3          Q2          Q2        2007        2006
    -------------------------------------------------------------------------
    Depreciation
     and Accretion     9,854       5,332           -      20,518           -
    -------------------------------------------------------------------------

    The Company had depreciation expense during the third quarter of $5,055
related to office furniture and computer equipment. Accretion related to asset
retirement obligations during the third quarter was $4,799. The increase is
due to the passage of time. There was no depreciation or accretion expense
recognized during 2006.

    Future Income Taxes

    During the nine months ended September 30, 2007 the Company recognized
$947,520 as a future income tax liability related to the renunciation of
flow-through shares.

    Summary of Quarterly Results
    ----------------------------

                 2007       2007       2007       2006       2006       2006
                   Q3         Q2         Q1         Q4         Q3         Q2
    -------------------------------------------------------------------------
    Revenues  128,821     67,297     30,306     30,247     12,563          -
    Net Loss
     and
     Compre-
     hensive
     loss     282,614    363,906    133,324     44,955     14,981  1,505,287
    Basic and
     diluted
    Net Loss
     Per share  0.007      0.012      0.008      0.003      0.001      0.131
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    At September 30, 2007 the Company had working capital of $12.1 million.
    The Company's revised 2007 capital program now takes into account a 100
percent working interest, and is $10 million; however, this amount can be
adjusted as circumstances change. The 2007 capital program will be financed
from existing working capital.
    As at September 30, 2007, the payments due under the office lease
commitment are as follows:

    (Cdn $)
    -------------------------------------------------------------------------
    2007                                                              20,562
    2008                                                              82,246
    2009                                                              82,246
    2010                                                              82,246
    2011                                                              82,246
    Thereafter                                                           Nil
    -------------------------------------------------------------------------

    Capital expenditures were as follows:
                                                        Nine months ended
    (Cdn $)                2007                 2006      September 30,
                    ---------------------------------------------------------
                          Q3          Q2          Q3        2007        2006
    -------------------------------------------------------------------------
    Property
     Acquisition      26,535  20,160,921           -  20,187,456           -
    Land & Lease
     Rentals           2,160       8,064   1,615,186      43,854   5,804,255
    Drilling          96,632     131,700           -   1,096,719
    Geological
     Costs             4,143           -           -      34,143           -
    Preliminary
     Pilot Project
     Costs            33,820      26,780           -      65,954           -
    -------------------------------------------------------------------------
    Total            163,290  20,327, 465  1,615,186  21,428,126   5,804,255
    -------------------------------------------------------------------------

    Capitalized stock-based compensation and asset retirement obligation
additions are not included in the above table.

    The following table indicates the common shares and stock options issued
and outstanding at September 30, 2007:

                                                          September 30, 2007
    -------------------------------------------------------------------------
    Common shares outstanding                                     38,050,640
    Weighted average number of shares outstanding
     during the period                                            28,640,173
    Stock options outstanding                                      2,280,500
    Purchase warrants outstanding                                          -
    Performance warrants outstanding                               6,300,000
    -------------------------------------------------------------------------
    

    As at November 22, 2007, there were 38,050,640 common shares outstanding,
2,280,500 stock options and 6,300,000 performance warrants.

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

    There were no off balance sheet arrangements.

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

    During the three month period ended September 30, 2007, the Company paid
general and administrative expenses of $nil (12 months ended December 31, 2006
- $6,955) to a company controlled by a director, officer and shareholder of
the Company. As at September 30, 2007, the Company accrued legal costs of
$374,065 payable to a firm in which a director is a partner. Included in this
accrual are $203,564 of costs related to the Juno qualifying transaction,
$74,974 related to the June 28, 2007 equity financing and $70,527 related the
June 28, 2007 property transaction. During the first nine months of 2007
$58,060 of legal costs were paid to the same law firm.

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

    The significant estimates made by management include stock-based
compensation expense and asset retirement obligations.

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

    For the impact of new accounting standards related to financial
instruments, comprehensive income and other assets please refer to note 4 of
the unaudited interim financial statements as at September 30, 2007.

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

    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.

    Disclosure Controls and Procedures over Financial Reporting
    -----------------------------------------------------------

    Disclosure controls and procedures have been designed to ensure that
information required to be disclosed by North Peace is accumulated and
communicated to our management as appropriate to allow timely decisions
regarding required disclosure. A control system, no matter how well conceived
or operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.

    Internal Controls over Financial Reporting
    ------------------------------------------

    The Chief Executive Officer and Chief Financial Officer of North Peace
are responsible for designing internal controls over financial reporting or
causing them to be designed under their supervision in order to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
Canadian GAAP. The Company has identified the following weaknesses in internal
controls over financial reporting:

    
        a) Due to the limited number of staff at North Peace, it is not
           feasible to achieve complete segregation of incompatible duties.

        b) Due to the limited number of staff, North Peace does not have a
           sufficient number of finance personnel with all the technical
           accounting knowledge to address all complex and non-routine
           accounting transactions that may arise.
    

    These weaknesses in North Peace's internal controls over financial
reporting result in a more than remote likelihood that a material misstatement
would not be prevented or detected. Management and the board of directors work
to mitigate the risk of a material misstatement in financial reporting;
however, there can be no assurance that this risk can be reduced to less than
a remote likelihood of a material misstatement.
    Other than the matters discussed above, there were no changes in the
third quarter of 2007 in the Company's internal controls over financial
reporting that have materially affected, or are reasonably likely to
materially affect the Company's internal controls over financial reporting.

    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; 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.
    Formerly North Peace Energy Inc. and Juno Capital Corp. (see note 2)

    Balance Sheets, as at

    -------------------------------------------------------------------------
                                                 September 30,   December 31,
                                                         2007           2006
    (Cdn $)                                        (unaudited)      (audited)
    -------------------------------------------------------------------------
    Assets

    Current assets
      Cash and cash equivalents (note 5)         $ 12,216,885   $  3,282,421
      Accounts receivable                             315,047         46,119
      Prepaid expenses                                 29,887         36,000
    -------------------------------------------------------------------------
                                                   12,561,819      3,364,540

    Oil and gas properties (note 6)                30,270,204      8,658,242
    Advance on oil and gas properties                       -        323,232
    Deferred transaction charges (note 2)                   -        136,709
    Other assets                                       58,404              -
    -------------------------------------------------------------------------
                                                 $ 42,890,427   $ 12,482,723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accruals              $    422,625   $     95,083

    Asset retirement obligations (note 7)             290,009        167,971
    Future income taxes (note 8)                      947,520              -
    -------------------------------------------------------------------------
                                                    1,660,154        263,054
    -------------------------------------------------------------------------

    Shareholders' equity
      Common shares (note 9)                       42,006,341     12,292,052
      Performance warrants                          1,466,550      1,466,550
      Contributed surplus (note 10)                   414,077         33,500
      Deficit                                      (2,656,695)    (1,572,433)
    -------------------------------------------------------------------------
                                                   41,230,273     12,219,669

    -------------------------------------------------------------------------
                                                 $ 42,890,427   $ 12,482,723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments (note 12)
    Financial Instruments (note 13)

    Signed on behalf of the Board:

    "Ian Robertson", Director

    "William S Maslechko", Director



    North Peace Energy Corp.
    Formerly North Peace Energy Inc. and Juno Capital Corp. (see note 2)

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

                              Three months ended        Nine months ended
                                 September 30,             September 30,
    (Cdn $)                      2007         2006         2007         2006
    -------------------------------------------------------------------------
    Revenue
      Interest Income     $   128,821  $    12,563  $   226,424  $    12,563
    -------------------------------------------------------------------------
                              128,821       12,563      226,424       12,563
    -------------------------------------------------------------------------

    Operating expenses
      General and
       administrative         243,488       27,544      678,488       73,491
      Stock-based
       compensation           158,093            -      307,262    1,466,550
      Depletion,
       depreciation and
       accretion                9,854            -       20,518            -
    -------------------------------------------------------------------------
                              411,435       27,544    1,006,268    1,540,041
    -------------------------------------------------------------------------

    Net Loss and
     Comprehensive Loss   $   282,614  $    14,981  $   779,844  $ 1,527,478
    -------------------------------------------------------------------------

    Deficit at beginning
     of period              2,182,018    1,512,497    1,572,433            -
      Costs relating to
       Juno transaction
       (note 2)               192,063            -      304,418            -

    Deficit at end of
     period               $ 2,656,695  $ 1,527,478  $ 2,656,695  $ 1,527,478
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net Loss per share
     (note 14)
      Basic               $     0.007  $     0.001  $     0.027  $     0.173
      Diluted             $     0.007  $     0.001  $     0.027  $     0.173
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    North Peace Energy Corp.
    Formerly North Peace Energy Inc. and Juno Capital Corp. (see note 2)

    Statements of Cash Flows
    (unaudited)

    -------------------------------------------------------------------------

                              Three months ended        Nine months ended
                                 September 30,             September 30,
    (Cdn $)                      2007         2006         2007         2006
    -------------------------------------------------------------------------
    Cash provided by (used
     in):

    Operating Activities
      Net Loss and
       Comprehensive loss
       for the period     $  (282,614) $   (14,981) $  (779,844) $(1,527,478)
      Non-cash charges to
       earnings
      Depletion,
       depreciation and
       accretion                9,854            -       20,518            -
      Stock-based
       compensation           158,093            -      307,262    1,466,550
    -------------------------------------------------------------------------
                             (114,667)     (14,981)    (452,064)     (60,928)
      Net change in non
       cash working
       capital
        Accounts receivable   (25,246)      (3,843)    (251,557)     (12,480)
        Prepaid expenses       (9,255)       3,000        6,113       (8,500)
        Accounts payable
         and accruals           5,994      (11,173)    (133,066)      68,993
    -------------------------------------------------------------------------
                             (143,174)     (26,997)    (830,574)     (12,915)
    -------------------------------------------------------------------------
    Investing Activities
      Additions to oil and
       gas properties        (163,290)  (1,615,186) (21,428,126)  (5,804,255)
      Advance on oil and
       gas properties               -   (1,188,670)           -   (1,589,950)
      Other assets             (8,877)           -      (67,405)           -
      Net change in non
       cash working capital
        Accounts receivable         -            -      323,232            -
        Accounts payable
         and accruals         (28,071)           -       97,010            -
    -------------------------------------------------------------------------
                             (200,238)  (2,803,856) (21,075,289)  (7,394,205)
    -------------------------------------------------------------------------
    Financing Activities
      Net proceeds on issue
       of common shares       (36,392)     195,000   30,514,779   10,662,852
      Cash acquired from
       Juno Capital Corp.
       (note 2)                     -            -      261,845            -
      Deferred financing
       charges                      -      (11,524)      24,354      (84,007)
      Net change in non cash
       working capital
        Transaction Costs
         related to Juno
         transaction
         (note 2)            (192,063)                 (192,063)
        Accounts payable and
         accruals             183,410      (19,993)     231,412      (28,993)
    -------------------------------------------------------------------------
                              (45,045)     163,483   30,840,327   10,549,852
    -------------------------------------------------------------------------

    Increase in cash and
     cash equivalents        (388,457)  (2,667,370)   8,934,464    3,142,732

    Cash and cash
     equivalents, beginning
     of period             12,605,342    6,264,489    3,282,421      454,387
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end of
     period               $12,216,885  $ 3,597,119  $12,216,885  $ 3,597,119
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental disclosure:
      Cash interest
       received           $   129,762  $         -  $   133,882  $         -
      Cash taxes paid     $         -  $         -  $         -  $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    NORTH PEACE ENERGY CORP.
    Formerly North Peace Energy Inc. and Juno Capital Corp. (see note 2)

    Notes to Financial Statements
    As at September 30, 2007 (unaudited), as at December 31, 2006 (audited)
    -------------------------------------------------------------------------

    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 2). The
        Company is in the development stage and its principal business
        activity is the exploration, exploitation and development and
        production of petroleum and natural gas resources in the Province of
        Alberta.

    2.  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, 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 $112,355 for
        North Peace Energy Inc. These costs were recorded as deferred
        transaction costs and at the date of the transaction they were
        recognized in the deficit. Additional transaction costs of $192,063
        were recorded in the three months ended September 30, 2007 for legal
        expenses which were in excess of the original estimate made by
        management.

    3.  Basis of presentation

        The accompanying financial statements have been prepared without
        audit. 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, 2006. These
        financial statements should be read in conjunction with the audited
        year-end financial statements for North Peace Energy Inc.

        Prior year figures are for North Peace Energy Inc. and certain
        figures have been reclassified to conform to the presentation adopted
        in 2007.

        All common shares, stock options and warrants have been adjusted for
        the effects of the 10:1 share exchange and the 1:5 consolidation
        (note 2).

    4.  Adoption of new accounting policies

        Financial Instruments

        On January 1, 2007 the Company adopted three new standards issued by
        the CICA relating to the accounting for and disclosure of financial
        instruments.

          -  Section 3855 - "Financial Instruments - Recognition and
             Measurement" prescribes when a financial asset, financial
             liability, or non-financial derivative is to be recognized on
             the balance sheet as well as its measurement amount depending on
             its classification. This Section also specifies how gains and
             losses on financial instruments are to be presented.
          -  Section 3865 - "Hedges" expands on and replaces Accounting
             Guideline 13 - "Hedging Relationships" by specifying how hedge
             accounting is to be applied and what disclosures are necessary
             when it is applied.
          -  Section 1530 - "Comprehensive Income" introduces new standards
             for reporting and disclosure of comprehensive income.
             Comprehensive income is the change in equity of the Company
             during that period from transactions and other events and
             circumstances from non-owner sources including changes in the
             fair value of financial instruments designated as cash flow
             hedges as well as foreign currency translation amounts related
             to self-sustaining foreign operations.

        At January 1, 2007 the Company's financial instruments include
        accounts receivable, and accounts payable and accrued liabilities.
        Accounts receivable is measured at amortized cost consistent with the
        "loan and receivable" classification. The financial liabilities are
        all measured at amortized cost consistent with the "other"
        classification. The fair value of these financial instruments
        approximate carrying value due to their short term to maturity.

        The Company does not hold any derivative financial instruments or any
        embedded derivatives and does not apply hedge accounting under
        Section 3865.

        In addition, the Company does not have any items related to
        comprehensive income for the nine months ended September 30, 2007;
        and accordingly, comprehensive loss is equivalent to net loss.

        The Company also adopted Section 1506 - "Accounting Changes" the only
        impact of which is to provide disclosure of when an entity has not
        applied a new source of GAAP that has been issued but is not yet
        effective. This is the case with Section 3862 - "Financial
        Instruments Disclosures" and Section 3863 - "Financial Instruments
        Presentations" which are required to be adopted for fiscal years
        beginning on or after October 1, 2007. The Company will adopt these
        standards on January 1, 2008 and it is expected the only effect on
        the Company will be incremental disclosures regarding the
        significance of financial instruments for the entity's financial
        position and performance; and the nature, extent and management of
        risks arising from financial instruments to which the entity is
        exposed.

        Other Assets

        Office equipment is recorded at cost. Amortization is provided on a
        declining balance basis at 30%.

    5.  Cash and cash equivalents

        Included in cash and cash equivalents are redeemable term variable
        rate deposits of $8,500,000 and $2,500,000 which currently bear
        interest at 4.25% and mature on June 28, 2008 & September 28, 2008
        respectively.

    6.  Oil and gas properties

                                                  September 30,  December 31,
        (Cdn $)                                           2007          2006
        ---------------------------------------------------------------------
        Oil and gas interests                     $ 30,270,204  $  8,658,242
        Accumulated depletion and depreciation               -             -
        ---------------------------------------------------------------------
                                                  $ 30,270,204  $  8,658,242
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At September 30, 2007, the Company has no reserves or production.
        Accordingly, no provision for depletion expense has been made.

        On June 28, 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 $4,994,946 in common shares of North Peace
        (2,270,430 common shares at a deemed price of $2.20 per share).

        Stock-based compensation of $73,315 was capitalized during the nine
        months ended September 30, 2007.

    7.  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 natural gas interests.

                                                  September 30,  December 31,
        (Cdn $)                                           2007          2006
        ---------------------------------------------------------------------

        Asset retirement obligations, beginning
         of period                                $    167,971  $          -
        Increase in liabilities                        110,521       167,971
        Accretion                                       11,517             -
        Change in estimates                                  -             -
        ---------------------------------------------------------------------

        Asset retirement obligations,
         end of period                            $    290,009  $    167,971
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The total undiscounted amount of cash flows required to settle the
        obligations as measured at September 30, 2007 is estimated to be
        $337,106 (2006 - 178,283). These obligations will be settled based on
        the useful lives of the underlying assets, which ranges from one to
        three years. The credit-adjusted risk free rate at which the
        estimated cash flows were discounted was 8% and the estimated
        inflation rate used to project future costs was 2%.

    8.  Future Income Taxes

        The Company renounced $3,158,400 of flow-through shares in the first
        quarter and recognized $947,520 as a future income tax liability at a
        30.00% effective tax rate.

    9.  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 (restated,
         note 3)                                    16,555,400  $ 12,292,052
        Juno Capital Corp shares (note 2)              505,000       147,030
        Tax effect of Flow-through share
         renouncement (note 8)                               -      (947,520)
        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, September 30, 2007                 38,050,640  $ 42,006,341
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

          i.   During the nine months ended September 30, 2007, 9,196,000
               warrants were exercised for common shares at $0.75 per warrant
               for gross proceeds of $6,897,000.

          ii.  North Peace 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 6).

          iv.  Share issue cost 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:

                                                      Range of       Average
                                          Number      Exercise      Exercise
                                      of options        Prices         Price
        ---------------------------------------------------------------------

        Balance, December 31, 2006
         (restated, note 3)              840,000  $       1.00  $       1.00
        Juno Capital Corp options
         (note 2)                         50,500          1.00          1.00
        Options granted                1,390,000   1.00 - 2.62          1.71
        Options exercised                      -             -             -
        ---------------------------------------------------------------------
        Balance, September 30, 2007    2,280,500  $1.00 - 2.62  $       1.43
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The average fair value of the options granted during the first nine
        months of 2007 is $1.03 per option assuming an average volatility of
        90% on the underlying shares, an exercise price between $1.00 and
        $2.62, 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 $380,577 in the first nine
        months of 2007, of which $73,315 was capitalized to oil and gas
        properties.

        During the three months ended September 30, 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 400,000 options were issued by the Company for the position
        of Vice President, Engineering. An additional 5,000 stock options
        were granted to current employees. All these options vest 1/3 per
        year on the first, second and third anniversary of the date of the
        grant.

        The following table sets forth information about stock options
        outstanding as at September 30, 2007.

                                                          Options Exercisable
                            Options Outstanding                      Weighted
                                 Weighted                             Average
        Range of                 Average      Remaining                Price
        Exercise   Number of      Price      Contractual   Options     Per
        Price      Options      Per Share     Life (yrs) Exercisable   Share
        ---------------------------------------------------------------------
        $1.00      1,465,500      $1.00         3.30      163,833      $1.00
        $1.55 -
         $2.62       815,000       2.21         4.70            -          -
        ---------------------------------------------------------------------

                   2,280,500      $1.43         3.88      163,833      $1.00
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (d) Purchase Warrants

                                                     Number of      Exercise
                                                      Warrants         Price
        ---------------------------------------------------------------------

        Balance, December 31, 2006 (restated,
         note 3)                                     9,196,000  $       0.75
        Warrants issued                                      -             -
        Warrants exercised                          (9,196,000)         0.75
        ---------------------------------------------------------------------
        Balance, September 30, 2007                          -  $          -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (e) Performance Warrants

                                                     Number of      Exercise
                                                      Warrants         Price
        ---------------------------------------------------------------------

        Balance, December 31, 2006 (restated,
         note 3)                                     6,300,000  $       0.50
        Warrants issued                                      -             -
        Warrants exercised                                   -             -
        ---------------------------------------------------------------------
        Balance, September 30, 2007                  6,300,000  $       0.50
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Exercisable, September 30, 2007                      -  $          -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The remaining contractual life of the outstanding and exercisable
        performance warrants is 3.25 years.


    10. Contributed surplus

                                                  September 30,  December 31,
        (Cdn $)                                           2007          2006
        ---------------------------------------------------------------------

        Balance, beginning of period              $     33,500  $          -
        Stock-based compensation
          Expensed                                     307,262        33,500
          Capitalized                                   73,315             -
        ---------------------------------------------------------------------
        Balance, end of period                    $    414,077  $     33,500
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    11. Related party transactions

        As at September 30, 2007, there is a balance of $374,065 (December
        31, 2006 - $105,000) in accounts payable due to a law firm in which a
        director is a partner. Included is this accrual are $203,564 of costs
        related to the Juno qualifying transaction, $74,974 related to the
        June 28, 2007 equity financing and $70,527 related the June 28, 2007
        property transaction. The Juno qualifying transaction costs are
        recorded in retained earnings, the equity financing costs are
        recorded in share capital and the property acquisition costs are
        recorded in oil and gas properties. During the first nine months of
        2007 $58,060 of legal costs were paid to the same law firm.

    12. Commitments

        As at September 30, 2007, the Company was committed under a lease for
        office premises, requiring future minimum rental payments of $82,246
        (2005 - nil) per annum plus operating costs, expiring December 31,
        2011.

    13. Financial instruments

        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.

    14. Loss per Share

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

                           Three months ended           Nine months ended
                              September 30,               September 30,
                      -------------------------------------------------------
                           2007          2006          2007          2006
        ---------------------------------------------------------------------

        Net loss
         (Cdn $)      $   (282,614) $    (14,981) $   (779,844) $ (1,527,478)
        Weighted
         average
         number of
         shares
         outstanding    38,050,640    15,556,400    28,640,173     9,002,089
        Basic loss
         per share    $      0.007  $      0.001  $      0.027  $      0.173
        Diluted loss
         per share    $      0.007  $      0.001  $      0.027  $      0.173

        ---------------------------------------------------------------------

        The Company is in a loss position for the period, therefore all
        dilutive instruments are anti-dilutive in nature.
    
    %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, www.northpec.com Or Stephanie K
Mesher, Bryan Mills Iradesso, (403) 503-0144 ext. 216, smesher@bmir.com

Organization Profile

NORTH PEACE ENERGY CORP.

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