North Peace Energy Updates Operational Progress and Provides Q2 Financial Results



    CALGARY, Aug. 27 /CNW/ - North Peace Energy Corp. ("North Peace" or the
"Company") releases operating and financial results for the three months and
six ended June 30, 2009.

    
    CSS Pilot Project Operations Update:

    Management continues to advance North Peace's Red Earth asset to
commercial production. The pilot facility has been operational since the start
of 2009 with the principal objective of demonstrating the feasibility of
producing economic quantities of bitumen from the Company's resource and
validating economic and technical parameters to optimize the design of future
commercial development.

    Steam Injection Update

    -   L1 Horizontal Pilot Well
           -  Injection was completed in April 2009
           -  75,000 barrels of cold water equivalent were injected into the
              well over a period of 14 weeks at an average rate of 800
              bbls/day
           -  This represents 60% of the intended steam slug size

    -   L2 Horizontal Pilot Well
           -  Injection was completed in July 2009 and an improved steam
              injection strategy was utilized compared to the L1 well
           -  146,000 barrels of cold water equivalent were injected into the
              well over a period of 12 weeks at an average rate of 1,700
              bbls/day and a stabilized final rate of 2,100 bbls/day
           -  This represents 100% of the intended steam slug size

    -   Injection pressures in both wells indicated fracturing occurred in
        the zone of interest and steam chamber containment was achieved
    -   The facility is not generating steam at the current time as both
        wells are on oil production
    -   Steam injection into the L1 well will resume when its production
        ceases

    Production Update

    -   L1 Horizontal Pilot Well
           -  Converted to production operations in May 2009
           -  Cumulative oil produced as at July 31, 2009 is 7,300 barrels,
              cumulative water produced is 21,000 barrels
                 -  Peak oil rate of over 200 bbls/day was reached after six
                    weeks of production
                 -  Average oil production of 80 bbls/day (May - July)
                 -  Cumulative oil cut is 26%
                 -  Post peak oil rate, weekly oil cuts have ranged from
                    35% to 55%
           -  Current oil production, based on field estimates, of
              approximately 35 bbls/day
           -  Cumulative Steam to Oil Ratio ("SOR") until the end of July
              2009 is 10.3
                 -  The SOR continues to decrease as the well produces

    -   L2 Horizontal Pilot Well
           -  Converted to production operations mid-August 2009
           -  As expected, the early period has been dominated by water
              production
                 -  Indications of increasing oil cuts have been observed to
                    date
                 -  Current oil cut is approximately 29% based on field
                    estimates
           -  Initial field estimates indicate oil production rates of
              approximately 150 bbls/day
                 -  Oil production rate continues to increase
                 -  Peak oil production is expected to occur within the next
                    two months

    -   The production side of the pilot facility is currently handling
        production from both wells
    -   Oil production is being trucked and sold to third parties
    -   The average sales price was $53.33 per barrel for June and $44.97 per
        barrel for July
    -   No discernible sand production has been observed and produced oil
        quality is approximately 10 degrees API with viscosity of 90,000
        Centipoises at 16 degrees Celsius
    

    At this early stage of pilot operations, the Company cannot make any
definitive conclusions on the anticipated commercial steam injectivity or
production rates. Because only 60 percent of the target steam slug size was
injected into the L1 well, the expected production period will likely be
shorter than anticipated and will ultimately lead to a higher than expected
first cycle SOR. A refined steam injection strategy augmented by the contained
heat and voidage (vacant area remaining after oil is produced) now present in
the L1 well should result in significantly higher steam injection and
production profiles for the second cycle. The early production results from
the L2 well are positive and the aggregate data gathered from both wells over
several cycles will be used in commercial development planning.

    
    Commercial Development Update:

    -   Work continues on engineering for a 3,000 bbl/d pilot expansion
        project
           -  Process design is nearing completion
           -  The commercial application to the ERCB should be ready for
              submission early 2010
    

    Financial Update:

    -   Completed a $11.6 million financing on June 23, 2009, issuing
    21,109,000 common shares, 10,554,500 warrants to purchase common
    shares
    -   Working capital of $14.3 million and no debt as at June 30, 2009
    -   Capital expenditures of $1.8 million in the second quarter

    Louis Dufresne, President of North Peace, commented "North Peace
continues to operate its pilot wells, monitoring both steam injection and
bitumen production. The L1 well has produced over 7,300 barrels of oil and
continues to produce. Early production data from L2 is positive and we are
encouraged by the significant improvement in the well's injectivity which is
likely the result of refinements in start-up procedures and steaming strategy.
Operating the pilot permits us to learn a great deal about our resource and to
optimize the application of CSS as a recovery process to our reservoir. We are
encouraged by recent trends in oil prices and the economy, and consequently we
believe the timing for us to advance our commercial development will be
ideal."

    
                   Management's Discussion and Analysis of
                              Financial Results

    This Management's 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 six month period ended June 30, 2009. The following
information should be read in conjunction with the unaudited interim financial
statements for the three and six months ended June 30, 2009 and the audited
financial statements for the year ended December 31, 2008.
    Additional information about North Peace filed with Canadian securities
commissions is available on-line at www.sedar.com.

    Date of Report        August 26, 2009
    --------------

    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 in depth. The
initial focus area has approximately 22 sections with 10 to 16 metres of oil
bearing thickness, expected to be technically 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 built and the facility is currently operating.

    Management continues to advance North Peace's Red Earth asset to
commercial production. The pilot CSS plant has been operational since the
start of 2009 with the principal objective of demonstrating the feasibility of
producing economic quantities of bitumen from the Company's resource and
validating economic and technical parameters to optimize the design of future
commercial development.

    
    Company and Project Overview
    ----------------------------

    During the three months ended June 30, 2009 North Peace has completed the
following significant milestones:

    -   Completed a $11.6 million financing on June 23, 2009, issuing
        21,109,000 common shares, 10,554,500 warrants to purchase common
        shares

    Subsequent to June 30, 2009 the Company has completed the following:

    -   Completed steam injection on the second horizontal well (L2) and
        commenced production operations


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

    Quarterly Financial Information

                            2009       2009       2008       2008       2008
                            Q2($)      Q1($)      Q4($)      Q3($)      Q2($)
    -------------------------------------------------------------------------
    Revenues               4,099     26,752    150,963    120,028     39,045
    Net Loss and
     Comprehensive loss  695,369    658,380     30,100    571,983    486,924
    Basic and diluted
     Net Loss Per share    0.012      0.012      0.001      0.012      0.013
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            2008       2007       2007
                            Q1($)      Q4($)      Q3($)
    ---------------------------------------------------
    Revenues              87,905    117,197    128,821
    Net Loss and
     Comprehensive loss  399,290    448,481    282,614
    Basic and diluted
     Net Loss Per share    0.010      0.012      0.007
    ---------------------------------------------------
    ---------------------------------------------------


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

    Interest Income

                                                            Six months ended
                                   2009           2008          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2009       2008
    -------------------------------------------------------------------------
    Interest Income        4,099     26,752     39,045     30,851    126,950
    -------------------------------------------------------------------------

    Interest income was $4,099 for the second quarter of 2009, with the
majority from redeemable term deposits bearing interest at 0.25%. The decrease
in interest income from 2008 and the first quarter of 2009 is due to lower
amounts of cash on deposit following the completion of pilot construction
coupled with lower interest rates.

    Stock-based Compensation
                                                            Six months ended
                                   2009           2008          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2009       2008
    -------------------------------------------------------------------------
    Stock-based
     Compensation        294,031    304,870    150,651    598,901    317,027
    -------------------------------------------------------------------------
    

    Stock-based compensation was $294,031 for the three months ended June 30,
2009. The increase from the same period last year and in the year to date
numbers is due 2008 stock option grants. In addition, $158,795 related to
stock based compensation was capitalized during the six month period relating
to consultants working directly on the capital program and pilot project.
    The average fair value of the options granted during 2009 was $0.33 per
option (2008 - $0.82) assuming an average volatility of 80% (2008 - 80%) on
the underlying shares, a weighted average exercise price of $0.54 (2008 -
$1.46), a risk-free interest rate of 2.11% - 2.23% (2007 - 2.81% - 3.35%), an
expected life of 4 years (2008 - 4 years), and an expected dividend rate of
nil (2008 - nil).

    
    Administrative Expenses

                                                            Six months ended
                                   2009           2008          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2009       2008
    -------------------------------------------------------------------------
    G&A expense
      Salaries,
       Benefits
       and Consulting
       Fees              217,369    201,595    170,976    418,964    347,867
      Legal,
       Accounting
       and Audit Fees     57,367     45,269     23,112    102,636     42,748
      Office rent         64,282     64,891     27,298    129,173     54,595
      Other G&A          165,667    126,680    143,732    292,347    230,791
    -------------------------------------------------------------------------
    Administrative
     Expenses            504,685    438,435    365,118    943,120    676,001
    -------------------------------------------------------------------------
    

    Salaries, Benefits and Consulting Fees

    The increase in salaries, benefits and consulting fees from the first
quarter in 2009 and the same period in 2008 is due to increased staffing as
the Company continues operating the pilot project and begins to advance work
on commercial development of the Red Earth assets.

    Legal, Accounting and Audit Fees

    The increase from the first quarter 2009 is due to additional legal work
during the quarter related to the year end regulatory filings and the increase
from 2008 is related to growth of the Company in size and operations.

    Office Rent

    Office rent for the quarter is consistent with the first quarter of 2009
and has increased from the previous year because the Company relocated to a
larger office space on January 1, 2009.

    
    Depreciation and Accretion

                                                            Six months ended
                                   2009           2008          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2009       2008
    -------------------------------------------------------------------------
    Depletion,
     Depreciation
     and Accretion        17,780     17,742     10,200     35,522     20,136
    -------------------------------------------------------------------------
    

    The Company had depreciation expense of $17,780 for the three months
ended June 30, 2009 compared to $17,742 for the first quarter of 2009 and
$10,200 for the same period in 2008. The increase is due to additional expense
on other assets and increased accretion expense resulting from additional
asset retirement obligations being recognized and subsequently accreted.

    
    Red Earth CSS Pilot
    -------------------
    

    The Red Earth CSS pilot commenced production at the beginning of May
2009. All revenues and expenses from the pilot have been recorded as an
adjustment to the capitalized costs of the project. The daily rate for the
second quarter is calculated over the full 91 days in the quarter, however
since the L1 well was only producing for 61 days, the reported number is not
representative. The average daily production for the month of June only was
151 bbls/day. Operating costs were incurred starting January 2009. The
majority of these operating costs relate to steam generation, which began in
January 2009, and fixed facility costs. Well related operating costs were
incurred with first production in May 2009.

    
                                                            Six months ended
                                   2009           2008          June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2009       2008
    -------------------------------------------------------------------------

    Production (bbls/day)     62          -          -         31          -
    Average sales price
     (CDN$/bbl)            53.33          -          -      53.33          -

    Revenue              218,499          -          -    218,499          -
    Operating Costs
     & Royalties        (838,490)  (472,455)         - (1,310,945)         -
    -------------------------------------------------------------------------
    Net operating
     revenues           (619,991)  (472,455)         - (1,092,446)         -
    -------------------------------------------------------------------------

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

    As at June 30, 2009 the Company had working capital of $14.3 million and
no debt
    On June 23, 2009 the Company completed a private placement equity
offering, issuing a total of 21,109,000 units ("Units"), at a price of $0.55
per Unit for gross proceeds of approximately $11.6 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 $0.75 per share until December 23, 2010.
    The 2009 capital budget includes $5.5 million of drilling capital. The
Company will spend $3.0 to $3.5 million of the drilling budget on between nine
and eleven delineation wells in the Red Earth area. The remaining drilling
capital will be allocated to other exploration locations to be determined
during the third and fourth quarters. This drilling budget will fully satisfy
the Company's flow-through commitment prior to year end. The budget also
allocates capital to advance the commercial application to the ERCB for a
3,000 bbl/d expansion to the Pilot on the Company's Red Earth lands; the
application should be ready for submission early 2010. Current working capital
is sufficient to fund this capital budget, pilot operations and G&A for
2009/2010.
    As at June 30, 2009, the payments due under the office lease commitment
are as follows:

    
    (Cdn $)
    -------------------------------------------------------------------------
    2009                                                              96,432
    2010                                                             192,864
    2011                                                             192,864
    Thereafter                                                           Nil
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    On January 1, 2009 the Company entered into a new lease agreement for a
larger office for $192,864 per year. The new lease will expire December 31,
2011.
    As at June 30, 2009 the Company had a flow through share commitment of $6
million which is to be spent on Canadian Exploration Expenditures ("CEE")
prior to December 31, 2009. As at June 30, 2009 the Company had spent
approximately $542,621 on CEE towards this commitment.

    
    Capital Expenditures

                                                            Six months ended
                                   2009           2008          June 30,
                         ----------------------------------------------------
                              Q2         Q1         Q2       2009       2008
    -------------------------------------------------------------------------
    Land & Lease Rentals   8,512     74,984     19,880     83,496    140,615
    Drilling and
     Completion          262,144    204,157     42,216    466,301  3,580,953
    Geological Costs      41,845     14,626     15,906     56,471     56,299
    Pilot Facilities
      Construction,
       equipment and
       engineering       691,392  3,253,691  2,895,907  3,945,083  3,084,396
      Capitalized plant
       overhead and
       operations        619,991    472,455          -  1,092,446          -
    Other                181,311    191,035     64,730    372,346     92,043
    -------------------------------------------------------------------------
    Total              1,805,195  4,210,948  3,038,639  6,016,143  6,954,306
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Company is a development stage enterprise and therefore capitalizes
net revenue and depreciation until the Company commences its planned
commercial operations. The Company has capitalized $1,092,446 of net revenue
for the six months ended June 30, 2009 related to pilot operations.
    Capitalized stock-based compensation and asset retirement obligation
additions are not included in the above table.

    
    Additional Disclosure for Venture Issuers without Significant Revenues
    ----------------------------------------------------------------------
    

    The Company has no expensed exploration or research and development
costs. Capitalized exploration costs are related to the purchase of oil sands
leases, the drilling of 17 delineation wells and the related geological
assessments. Capitalized development costs relate to the construction of the
Company's CSS pilot project and the drilling of two horizontal production
wells.

    
    Share Capitalization
    --------------------

    The following table shows the common shares, stock options, purchase
warrants and performance warrants issued and outstanding at June 30, 2009:

                                                               June 30, 2009
    -------------------------------------------------------------------------

    Common shares outstanding                                     76,179,800
    Weighted average number of shares outstanding
     during the period                                            55,887,170
    Stock options outstanding                                      6,065,000
    Performance warrants outstanding                               6,300,000
    $0.75 Warrants outstanding                                    10,554,500
    $2.00 Warrants outstanding                                     6,666,650
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at August 26, 2009, there were no changes to the amounts in the above
table.

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

    There were no off balance sheet arrangements, other than the office lease
commitment.

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

    As at June 30, 2009, the Company accrued legal costs of $125,000 payable
to a firm in which a director is a partner. These costs were for general legal
services and legal work for the equity financing in June 2009.

    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.

    Impairment of Property and Equipment

    Property costs are reviewed at least annually to consider whether there
are conditions that may indicate impairment. The carrying values of petroleum
and natural gas properties are compared to their net recoverable amount as
estimated by quantifiable evidence of the market value of similar assets or
geological resources. If the carrying value is found to exceed the estimated
net recoverable amount a write down will be recorded.

    Asset Retirement Obligations

    The Company is required to provide for future removal and restoration
costs. The Company must estimate these costs in accordance with existing laws,
contracts or other policies. The fair value of the liability for the Company's
asset retirement obligations is recorded in the period in which it is expected
to be incurred, discounted to its present value using the Company's
risk-adjusted interest rate and expected inflation rate. The offset to the
liability is recorded in the carrying amount of property and equipment. The
liability amount is increased each reporting period due to the passage of time
and the amount of accretion is charged to earnings in the period. Revisions to
the estimated timing of cash flows or to the original estimated undiscounted
cost could also result in an increase or decrease to the obligation. Actual
costs incurred upon settlement of the retirement obligation are charged
against the obligation to the extent of the liability recorded.

    Income Tax Accounting

    The determination of the Company's income and other tax liabilities
requires interpretation of complex laws and regulations. All tax filings are
subject to audit and potential reassessment after the lapse of considerable
time.

    Stock-Based Compensation

    The Company uses the fair value method for valuing stock option grants.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model. This model requires the
Company's management to make estimates and assumptions for the following:
dividend yield; expected volatility and risk-free rate. A zero dividend yield
is used as the Company does not pay dividends; the volatility is a calculation
based on a peer company comparison because of our lack of trading history and
the risk-free rate is obtained from the Bank of Canada.

    
    Changes in Accounting Policies (including initial adoption)
    -----------------------------------------------------------
    
    The International Accounting Standards Board ("IASB") has issued an
amendment to IFRS 1"Additional Exemptions for First-time Adopters". Included
in the amendment issued in July 2009 by the IASB are transition exemptions for
oil and gas companies following full cost accounting. The transition
exemptions allow full cost companies to allocate their existing full cost PP&E
balances using reserve values or volumes to IFRS compliant units of account
without requiring retroactive adjustment, subject to an initial impairment
test. The Company intends to adopt the transition exemptions.

    
    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". Readers are cautioned that these
descriptions are not exhaustive. Certain additional risks and uncertainties
are discussed below.

    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 recent downturn in the capital markets may limit the Company's
ability to raise the capital necessary to undertake or complete projects
capital expenditures after 2010 if the capital market conditions do not
improve. If debt or equity financing is available, there is no assurance that
it will be on terms acceptable to the Company.
    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 have a
credit facility.

    Capital Markets

    Based on the current working capital balance the Company currently has
sufficient capital to fund corporate and operational expenses until the end of
2010. However, the recent downturn in the capital markets may limit the
Company's ability to raise the capital necessary to undertake expanded
operations after 2010 if the capital market conditions do not improve. If debt
or equity financing is available, there is no assurance that it will be on
terms acceptable to the Company. The Company has flexibility in timing future
capital expenditures related to commercial development and will investigate
all options to obtain the required funds to grow the Company.

    Oil & Gas Prices

    World prices for crude oil and natural gas have decreased significantly.
The Company's CSS pilot project will continue to operate notwithstanding the
prevailing commodity price environment as its purpose is to validate the
economic and technical parameters of the commercial project.
    Crude oil prices, while a significant factor, are one of many factors in
the Company's decision to advance a commercial project. The Company will
monitor commodity prices as it is evaluating production performance data from
the pilot project. The Company will utilize this data and then current and
anticipated crude oil and natural gas prices in evaluating the feasibility of
a commercial project.

    New Alberta Royalty Regime

    The Province of Alberta implemented the new Royalty Framework ("NRF") on
January 1, 2009. In the current pricing environment, the implementation of the
NRF is not materially adverse to the economics of the Company's proposed
commercial project. As the commodity price increases, the payments made to the
Province of Alberta under the NRF increase, however, this is partially offset
as the economics of the commercial project also improve with increased
commodity prices.

    
    Project and Company Outlook
    ---------------------------
    
    During the first half of 2009 the Company was focused on pilot
operations. The data collected from the pilot will be used in evaluating the
feasibility of future commercial operations. Data will be collected
continuously over the life of the pilot horizontal wells and used to design
future commercial development.
    In the second half of 2009, the Company will spend $3.0 to $3.5 million
of the drilling budget on between nine and eleven delineation wells in the Red
Earth area. $2.0 to $2.5 million of drilling capital will be allocated to
other exploration locations to be determined during the third and fourth
quarter. The Company is also investigating the possibility of adding
additional development horizontal wells to the existing pilot. The decision to
drill these additional wells will be based on the remaining capacity of the
pilot facilities, the economic returns from the wells and obtaining the
required regulatory approvals. Capital has also been allocated to advance the
front-end engineering work and the regulatory approval process for a 3,000
bbl/d pilot expansion. With the current economic conditions, the 3,000 bbl/d
expansion is considered to be a more economically attractive option than
proceeding with the development of a 10,000 bbl/d first phase commercial
project. However the 3,000 bbl/d option will still require improvements in the
current commodity price environment to generate sufficient returns to justify
the up-front construction costs. Cash flow from the 3,000 bbl/d expansion can
then be used to fund additional commercial phases.

    
    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
International Accounting Standards Board ("IASB") issued an amendment to IFRS
1 "Additional Exemptions for First-time Adopters" in July 2009 for oil and gas
companies following full cost accounting. This amendment will enable an entity
to measure exploration and evaluation assets at the amount determined under
the entity's previous accounting principles and it also provides for the
measurement of oil and gas assets in the development or production phase,
among other things, by allocating the amount determined by the entity's
previous accounting principles to the underlying assets on a pro rata basis
using reserve volumes or reserve values at the date of transition. 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 will 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 in the fourth quarter of 2009.

    
    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 MD&A 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.
    In particular, this MD&A contains forward-looking statements pertaining,
directly or indirectly, to the following: business and operations strategies
including the operations at North Peace's pilot project and potential
commencement of a subsequent commercial project.
    The forward-looking statements contained in this MD&A are based on a
number of expectations and assumptions that may prove to be incorrect. In
addition to other assumptions identified in this MD&A, assumptions have been
made regarding, among other things: that North Peace will continue to conduct
its operations in a manner consistent with past operations; the continuance of
existing (and in certain circumstances, proposed) tax and royalty regimes; the
general continuance of current industry conditions; the accuracy of the
estimates of North Peace's resource volumes; the ability of North Peace to
obtain equipment, services and supplies in a timely manner and within budget
to carry out its activities; the timely receipt of required regulatory
approvals; the ability of North Peace to obtain financing on acceptable terms;
future oil and gas prices and future cost assumptions.
    No assurance can be given that these expectations will prove to be
correct and such forward-looking statements included in this MD&A should not
be unduly relied upon. Actual results could differ materially as a result of
changes in North Peace's plans, changes in commodity prices, regulatory
changes, general economic, market and business conditions 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; lack
of diversification; and overall technical and economic feasibility of the
Company's project. These statements speak only as of the date of this MD&A or
as of the date specified in the documents accompanying this MD&A, 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,
                                                          2009          2008
    (Cdn $)
    -------------------------------------------------------------------------
    Assets

    Current assets
      Cash and cash equivalents (note 4)          $ 14,828,094  $ 18,119,752
      Accounts receivable                              431,180       922,537
      Prepaid expenses                                  37,170        86,290
    -------------------------------------------------------------------------
                                                    15,296,444    19,128,579

    Oil and gas properties (note 5)                 60,994,347    54,875,482
    Other assets                                        45,105        48,097
    Future income tax asset                                  -       557,477
    -------------------------------------------------------------------------
                                                  $ 76,335,896  $ 74,609,635
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accruals               $    949,856  $  8,788,438

    Asset retirement obligations (note 6)              519,771       442,303
    Future income tax liability                        584,520             -
    -------------------------------------------------------------------------
                                                     2,054,147     9,230,741
    -------------------------------------------------------------------------

    Shareholders' equity
      Equity Instruments (note 7)                   76,657,353    67,158,445
      Contributed surplus (note 8)                   3,571,618     2,813,922
      Deficit                                       (5,947,222)   (4,593,473)
    -------------------------------------------------------------------------
                                                    74,281,749    65,378,894

    -------------------------------------------------------------------------
                                                  $ 76,335,896  $ 74,609,635
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Future Operations (note 1)
    Commitments (note 10)

    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,
                              2009          2008          2009          2008
    -------------------------------------------------------------------------

    Revenue
      Interest Income $      4,099  $     39,045  $     30,851  $    126,950
    -------------------------------------------------------------------------
                             4,099        39,045        30,851       126,950
    -------------------------------------------------------------------------

    Operating expenses
      General and
       administrative      504,685       365,118       943,120       676,001
      Stock-based
       compensation        294,031       150,651       598,901       317,027
      Depletion,
       depreciation and
       accretion            17,780        10,200        35,522        20,136
    -------------------------------------------------------------------------
                           816,496       525,969     1,577,543     1,013,164
    -------------------------------------------------------------------------

    Net Loss before
     taxes            $    812,397  $    486,924  $  1,546,692  $    886,214

    Future Income Tax
     reduction            (117,028)            -      (192,943)            -
    -------------------------------------------------------------------------

    Net Loss and
     Comprehensive Loss    695,369       486,924     1,353,749       886,214

    Deficit at
     beginning of period 5,251,853     3,504,466     4,593,473     3,105,176
    -------------------------------------------------------------------------

    Deficit at end of
     period           $  5,947,222  $  3,991,390  $  5,947,222  $  3,991,390
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net Loss per share
    (note 11)
      Basic and
       Diluted        $      0.012  $      0.013  $      0.024  $      0.023
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    North Peace Energy Corp.
    (A Development Stage Company)
    Statements of Cash Flows
    (unaudited)


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

                              Three months ended           Six months ended
                                   June 30,                    June 30,
                              2009          2008          2009          2008
    -------------------------------------------------------------------------

    Cash provided by
     (used in):

    Operating
     Activities
      Net Loss        $   (695,369) $   (486,924) $ (1,353,749) $   (886,214)
      Non-cash charges
       to earnings
        Depletion,
         depreciation
         and accretion      17,780        10,200        35,522        20,136
        Stock-based
         compensation      294,031       150,651       598,901       317,027
        Future income
         tax reduction    (117,028)            -      (192,943)            -
    -------------------------------------------------------------------------
                          (500,586)     (326,073)     (912,269)     (549,051)
      Net change in non
       cash working
       capital
        Accounts
         receivable        146,579       204,557       525,281       210,471
        Prepaid expenses    24,589       (13,479)       49,120        (1,243)
        Accounts payable
         and accruals       27,014        14,332       (99,933)      (76,636)
    -------------------------------------------------------------------------
                          (302,404)     (120,663)     (437,801)     (416,459)
    -------------------------------------------------------------------------
    Investing Activities
      Additions to oil
       and gas
       properties       (1,701,824)   (3,038,639)   (5,850,535)   (6,954,306)
      Other assets               -        (3,537)      (11,919)       (8,512)
      Net change in non
       cash working capital
        Accounts
         receivable       (229,424)      (52,600)      (33,924)     (124,049)
        Accounts payable
         and accruals     (582,571)      809,039    (7,825,254)    2,006,311
    -------------------------------------------------------------------------
                        (2,513,819)   (2,285,737)  (13,721,632)   (5,080,556)
    -------------------------------------------------------------------------
    Financing Activities
      Proceeds on issue
       of common shares,
       net of share issue
       costs            10,782,430        50,500    10,781,170        50,500
      Net change in
       non cash working
       capital
        Accounts payable
         and accruals       86,605             -        86,605             -
    -------------------------------------------------------------------------
                        10,869,035        50,500    10,867,775        50,500
    -------------------------------------------------------------------------

    Increase (Decrease)
     in cash and cash
     equivalents         8,052,812    (2,355,900)   (3,291,658)   (5,446,515)

    Cash and cash
     equivalents,
     beginning of
     period              6,775,282     6,873,778    18,119,752     9,964,393
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of period    $ 14,828,094  $  4,517,878  $ 14,828,094  $  4,517,878
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental
     disclosure:
      Interest
       received       $     49,396  $    246,413  $    150,673  $    308,551
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    North Peace Energy Corp.
    (A Development Stage Company)

    Notes to Financial Statements
    As at and for the periods ended June 30, 2009 and 2008 (unaudited)

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

    1.  Nature of operation and future operations

        North Peace Energy Corp. (the "Company" or "North Peace") resulted
        from the amalgamation of Juno Capital Corp. and North Peace Energy
        Inc. pursuant to the provisions of the Business Corporations Act
        (Alberta) on February 6, 2007. 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.

        North Peace is a development stage enterprise whose principle focus
        is the creation of shareholder value through the production of heavy
        oil from its oil sands leases at its Red Earth project. Production
        from its pilot project has commenced in the first half of 2009,
        however production of commercial quantities is not expected for two
        to three years.

        The Company's Red Earth project contains a 100% working interest in
        86,400 acres of Crown oil sands leases in the Peace River area. The
        target geological zone is the Bluesky formation which is a regional
        sand, deposited in a near shore marine environment at approximately
        400 metres depth. North Peace is currently advancing the development
        of its resource using Cyclic Steam Stimulation ("CSS"). A pilot
        project consisting initially of two horizontal CSS wells has been
        built and the facility is currently operating.

        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. If the
        going concern assumption was not appropriate for these financial
        statements, adjustments might be necessary to the carrying value of
        assets and liabilities, the reported revenues and expenses and the
        balance sheet classifications used.

        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. Recent market events, including
        disruption of credit markets and other financial systems and the
        deterioration of global economic conditions have resulted in
        significant declines in commodity prices and made completing
        financings more difficult. As at June 30, 2009 the Company had
        working capital of $14.3 million and no debt. The Company has a flow
        through commitment of $6 million to be spent on Canadian Exploration
        Expenditures ("CEE") prior to December 31, 2009. As at June 30, 2009
        the Company had spent $542,621 towards this commitment. The Company
        has sufficient working capital to satisfy its flow through
        commitment.

        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 recent downturn in the capital markets may limit the Company's
        ability to raise the capital necessary to undertake commercial
        development capital expenditures after 2010 if the capital market
        conditions do not improve. If debt or equity financing is available,
        there is no assurance that it will be on terms acceptable to the
        Company.

        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 have a credit facility.

    2.  Adoption of new accounting policies

        The International Accounting Standards Board ("IASB") has issued an
        amendment to IFRS 1 "Additional Exemptions for First-time Adopters".
        Included in the amendment issued in July 2009 by the IASB are
        transition exemptions for oil and gas companies following full cost
        accounting. The transition exemptions allow full cost companies to
        allocate their existing full cost PP&E balances using reserve values
        or volumes to IFRS compliant units of account without requiring
        retroactive adjustment, subject to an initial impairment test. The
        Company intends to adopt the transition exemptions.

        The Company is currently assessing which accounting policies will be
        affected by the change to IFRS and the potential impact of these
        changes on its financial position and results of operations.

    3.  Basis of presentation

        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, 2008 except as noted. These financial
        statements should be read in conjunction with the audited year-end
        financial statements for North Peace Energy Corp.

    4.  Cash and cash equivalents

        Included in cash and cash equivalents is a redeemable term variable
        rate deposit totaling $13.5 million which currently bears interest at
        0.25 % and matures on August 7, 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 $)                                           2009          2008
        ---------------------------------------------------------------------

        Oil and gas interests                     $ 42,969,406  $ 42,442,785
        Pilot Project
          Equipment and construction                16,415,000    12,432,697
          Startup costs                                195,000             -
          Capitalized operations                     1,414,941             -
        ---------------------------------------------------------------------
                                                  $ 60,994,347  $ 54,875,482
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company is advancing a Cyclic Steam Stimulation ("CSS") project
        on its land holdings. A pilot project consisting initially of two
        horizontal CSS wells has been built and is currently operating. At
        June 30, 2009, the Company has no reserves or commercial production.
        Accordingly, no provision for depletion expense has been made.

        Stock-based compensation for consultants of $158,795 was capitalized
        during the six months ended June 30, 2009 (2008 - $93,864 recovery).

        Deposits with the Energy Resources and Conservation Board of $495,382
        (2008 - $126,782) were included in oil and gas properties as at June
        30, 2009.

    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 $)                                           2009          2008
        ---------------------------------------------------------------------

        Asset retirement obligations, beginning
         of period                                $    442,303  $    215,820
        Additions                                       64,507       212,296
        Accretion                                       20,611        17,120
        Change in estimates                             (7,650)       (2,933)
        ---------------------------------------------------------------------

        Asset retirement obligations, end
         of period                                $    519,771  $    442,303
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The total undiscounted amount of cash flows required to settle the
        obligations as measured at June 30, 2009 is estimated to be
        $1,273,466 (2008 - $1,121,365). 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 - 10% (2008 - 8%) and the
        estimated inflation rate used to project future costs was 2% (2008 -
        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
        ---------------------------------------------------------------------
        Common Shares

        Balance December 31, 2007                   38,050,640  $ 42,037,961
        Tax effect on previously incurred share
         issue costs                                         -       364,971
        Stock Options exercised                         50,500        50,500
        Equity financing (i)                        16,969,660    22,999,951
        Share issue costs (ii)                               -    (1,774,667)
          Tax effect of share issue costs                    -       479,736
        ---------------------------------------------------------------------
        Balance December 31, 2008                   55,070,800  $ 64,158,452
        Equity financing (iii)                      21,109,000     9,393,505
        Share issue costs (iv)                               -      (828,780)
          Tax effect of share issue costs                    -       217,738
        Tax effect of flow through shares                    -    (1,500,000)
        ---------------------------------------------------------------------
        Balance June 30, 2009                       76,179,800  $ 71,440,915

                                                        Number
                                                   of Warrants        Amount
        $0.75 Share Purchase Warrants

        Balance December 31, 2008                            -  $          -
        Equity financing (iii)                      10,554,500     2,216,445
        ---------------------------------------------------------------------
        Balance June 30, 2009                       10,554,500     2,216,445

        $2.00 Share Purchase Warrants

        Balance December 31, 2007                            -  $          -
        Equity financing (i)                         6,666,650     2,999,993
        ---------------------------------------------------------------------
        Balance December 31, 2008 and June 30, 2009  6,666,650  $  2,999,993

        Total Equity Instruments                                $ 76,657,353
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

           i.    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.

                 The fair value of the warrants is $0.45 per warrant assuming
                 a volatility of 80% on the underlying shares, a risk-free
                 interest rate of 2.75%, an expected life of 1.5 years and an
                 expected dividend rate of 0%.

           ii.   Share issue costs relate to the costs incurred for the
                 equity issuance on August 7, 2008.

           iii.  On June 23, 2009 the Company completed a private placement
                 equity offering, issuing a total of 21,109,000 units
                 ("Units"), at a price of $0.55 per Unit for gross proceeds
                 of approximately $11.6 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 $0.75 per share until December
                 23, 2010.

                 The fair value of the warrants is $0.21 per warrant assuming
                 a volatility of 80% on the underlying shares, a risk-free
                 interest rate of 2.23%, an expected life of 1.5 years and an
                 expected dividend rate of 0%.

           iv.   Share issue costs relate to the costs incurred for the
                 equity issuance on June 23, 2009

        (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, 2007   2,280,500  $ 1.00 - 2.62   $       1.43
        Options exercised              (50,500)          1.00           1.00
        Options granted              1,830,000    1.18 - 1.50           1.46
        ---------------------------------------------------------------------
        Balance, December 31, 2008   4,060,000  $ 1.00 - 2.62   $       1.45
        Options granted              2,455,000    0.28 - 0.55           0.54
        Options forfeited             (450,000)   1.00 - 1.50           1.17
        ---------------------------------------------------------------------
        Balance, June 30, 2009       6,065,000  $ 0.28 - 2.62   $       1.10
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The average fair value of the options granted during 2009 was $0.33
        per option (2008 - $0.82) assuming an average volatility of 80% (2008
        - 80%) on the underlying shares, a weighted average exercise price of
        $0.54 (2008 - $1.46), a risk-free interest rate of 2.11% - 2.23%
        (2007 - 2.81% - 3.35%), an expected life of 4 years (2008 - 4 years),
        and an expected dividend rate of 0% (2008 - 0%).

        Stock options issued to employees vest 1/3 per year on the first,
        second and third anniversary of the date of the grant. Options issued
        to consultants vest at equal amounts at 6 months, 18 months and 30
        months after the date of grant. All options expire 5 years after the
        initial grant date.

        The Company has recognized stock-based compensation of $757,696
        during the six months ended June 30, 2009 and $158,795 was
        capitalized to oil and gas properties.

        In 2008, the Company granted 1,830,000 stock options at a weighted
        average exercise price of $1.46 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. These options have the same vesting terms as existing
        options and 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 June 30, 2009.

                           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
        ---------------------------------------------------------------------
        $0.28 -
         $0.50        50,000      $0.28         4.64            -          -
        $0.51 -
         $1.00     3,520,000      $0.70         2.42      756,667      $1.00
        $1.01 -
         $2.00     2,095,000      $1.53         3.92      165,000      $1.76
        $2.00 -
         $3.00       400,000      $2.62         2.92      266,667      $2.62
        ---------------------------------------------------------------------
                   6,065,000      $1.11         3.12    1,188,334      $1.47
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (d) Performance Warrants

                                                     Number of      Exercise
                                                      Warrants         Price
        ---------------------------------------------------------------------
        Balance, December 31, 2007                   6,300,000  $       0.50
        ---------------------------------------------------------------------
        Balance, December 31, 2008 and
         June 30, 2009                               6,300,000  $       0.50
        ---------------------------------------------------------------------

        Exercisable, June 30, 2009                           -  $          -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The performance warrants may 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, 2009 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%.
        During 2006, all the substantive criteria were considered probable
        and the $1,466,550 was expensed.

        The remaining contractual life of the outstanding and exercisable
        performance warrants is 1.50 years.

    8.  Contributed surplus

                                                       June 30,  December 31,
        (Cdn $)                                           2009          2008
        ---------------------------------------------------------------------

        Balance, beginning of period              $  2,813,922  $  2,131,653
        Stock-based compensation
          Expensed                                     526,806       794,233
          Capitalized                                   58,768       183,983
          Increase/(Decrease) in fair value of
           non-employee options
            Expensed                                    72,095       (18,100)
            Capitalized                                100,027      (277,847)
        ---------------------------------------------------------------------
        Balance, end of period                    $  3,571,618  $  2,813,922
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  Related party transactions

        As at June 30, 2009, the Company accrued legal costs of $125,000
        payable to a firm in which a director is a partner. These costs were
        for general legal services and legal work for the equity financing in
        June 2009. 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 January 1, 2009, the Company was committed under a lease for
        office premises, requiring future minimum rental payments of $192,864
        per annum (2007 - $82,246), expiring December 31, 2011.

        The Company has a flow through share commitment of $6 million which
        is to be spent on Canadian Exploration Expenditures ("CEE") prior to
        December 31, 2009. As at June 30, 2009 the Company had spent $542,621
        of CEE towards this commitment.

    11. 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,
                      -------------------------------------------------------
                              2009          2008          2009          2008
        ---------------------------------------------------------------------
        Net loss
         (Cdn $)      $   (695,369) $   (486,924) $ (1,353,749) $   (886,214)
        Weighted
         average number
         of shares
         outstanding    56,694,569    38,067,473    55,887,170    38,059,057
        Basic loss per
         share        $      0.012  $      0.013  $      0.024  $      0.023
        Diluted loss
         per share    $      0.012  $      0.013  $      0.024  $      0.023

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

        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.
    





For further information:

For further information: Louis Dufresne, President & CEO, James
Glessing, Vice President, Finance & CFO, North Peace Energy Corp., 630, 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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