Pegasus Oil & Gas Inc. Announces Financial and Operating Results for the year ended December 31, 2008



    (Stock Symbol "POG.A & POG.B" - TSX Venture Exchange)

    CALGARY, April 17 /CNW/ - Pegasus Oil & Gas Inc. ("Pegasus" or the
"Company") advises today that it has filed its audited financial statements
and related management's discussion and analysis ("MD&A") for the year ended
December 31, 2008 on www.pegasusoilgas.com and www.sedar.com. Certain selected
financial and operational information for the year ended December 31, 2008 and
the year ended December 31, 2007 is set out below and should be read in
conjunction with Pegasus' audited financial statements and related MD&A.

    
    HIGHLIGHTS

    -   2008 production increased 41% to 637 boe/d as compared to 2007
    -   Funds generated by operations grew 242% to $5.4 million in 2008 as
        compared to 2007
    -   2008 drilling program resulted in the drilling of 12 gross (8.8 net)
        wells with a 60% success rate
    -   Exited the year with 2,682,000 boe proved and 4,393,000 boe proved
        plus probable reserves representing an increase from year end 2007 of
        10% and 27%, respectively
    -   Drilled 5 of the 7 well Pekisko drilling program on the 193,000 acre
        strategic 'freehold' farm-in in the Strathmore area
    -   Exited year-end with a working capital deficiency of $13.2 million as
        compared to the maximum available under bank line of $17.4 million
    -   Closed a $14 million bought deal equity financing on February 28,
        2008


    FINANCIAL AND OPERATIONAL SUMMARY

    -------------------------------------------------------------------------
                           Three months ended              Year ended
                              December 31                  December 31
    -------------------------------------------------------------------------
                           2008          2007          2008          2007
    -------------------------------------------------------------------------
    Financial ($000s
     except per share
     amount)

    Petroleum and
     natural gas sales       2,575         2,421        12,974         7,010
    Funds generated
     from operations
     (Note 1)                  488           980         5,449         1,594
      Per basic share         0.01          0.03          0.13          0.05
      Per diluted share       0.01          0.03          0.13          0.05
    Cash flows generated
     from operating
     activities                 49          (395)        6,182         1,716
    Net income (loss)       (1,377)        5,071        (2,205)        2,193
      Per basic share        (0.03)         0.16         (0.05)         0.08
      Per diluted share      (0.03)         0.16         (0.05)         0.08
    Net capital
     expenditures            2,780         8,354        27,380        27,479
    Working capital
     (deficiency)          (13,194)       (4,371)      (13,194)       (4,371)
    Shareholders' equity    61,527        51,210        61,527        51,210
    Shares outstanding
      Class A               34,566        27,580        34,566        27,580
      Class B                1,012         1,012         1,012         1,012
      Options                2,728         2,495         2,728         2,495
    Basic shares
     (weighted) (Note 2)    44,677        32,900        43,521        29,042
    Diluted shares
     (weighted) (Note 2)    44,677        33,171        43,521        29,453
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating
    Average daily
     production
      Natural gas (mcf/d)    3,161         3,181         3,203         2,392
      Crude oil (bbls/d)         5             3             6             8
      NGLs (bbls/d)            104            81            97            45
      Barrels of oil
       equivalent
       (boe/d)(Note 3)         635           614           637           451
    Average selling price
      Natural gas ($/mcf)     7.11          6.29          8.45          6.62
      Crude oil ($/bbl)      45.99         65.18         89.40         54.85
      NGLs ($/bbl)           50.02         75.34         80.06         65.88
      BOE ($/bbl)            44.04         42.82         55.62         42.57
    Netback per BOE
     (6:1) ($)
      Petroleum and
       natural gas sales     44.04         42.82         55.62         42.57
      Royalties              (9.01)        (7.23)        (9.42)        (6.75)
      Operating costs
       (Note 4)             (17.40)       (12.65)       (14.39)       (12.53)
      Gas plant turnaround
       costs (recovery)
       (Note 5)                  -          0.58             -         (2.42)
      Transportation costs   (0.95)        (0.90)        (0.97)        (1.13)
      Operating netback      16.68         22.61         30.83         19.74
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 1:   Management uses funds generated from operations (comprised of
              cash flow from operating activities before changes in non-cash
              working capital and abandonment expenditures) to analyze
              operating performance leverage. Funds generated from operations
              as presented does not have any standardized meaning prescribed
              by Canadian GAAP and therefore it may not be comparable with
              the calculation of similar measures for other entities.
    Note 2:   Class B share conversion: December 31, 2008 @ $1.00/share;
              December 31, 2007 @ $1.90/share.
    Note 3:   References in this report to boe refer to barrel of oil
              equivalent whereby natural gas volumes have been converted at a
              rate of 6 thousand cubic feet of natural gas to 1 barrel of
              oil.
    Note 4:   2007 equalization costs for the Balzac gas plant in Crossfield,
              Alberta amounted to $4.27/boe for the three months ended
              December 31, 2008 and $1.42/boe for the year ended December 31,
              2008.
    Note 5:   The gas plant turnaround costs relate to the major turnaround
              done at the Balzac gas plant in Crossfield, Alberta.
    

    CAPITAL EXPENDITURES

    Capital expenditures for the three month period ended December 31, 2008
were approximately $2.8 million as compared to approximately $8.4 million for
the three months ended December 31, 2007. The expenditures were down from the
previous period because Pegasus did not drill any wells in the fourth quarter
of 2008. Instead the majority of expenditures related to the building of the
12 kilometer pipeline to tie in the Company's production at Strathmore. For
the year, Pegasus incurred capital expenditures of $28.5 million as compared
to $27.5 million for the year ended December 31, 2007. During the year ended
December 31, 2008 the Company drilled 12 gross (8.8 net) wells as compared to
28 (19.6 net) wells for the year ended December 31, 2007. The majority of the
wells drilled in 2008 were at Strathmore and Crossfield which are part of the
Company's central Alberta core area. The four wells drilled at Strathmore
along with a Saskatchewan well were done horizontally which is why the cost
per well increased in 2008.
    On May 15, 2008 the Company disposed of its Whitecourt, Alberta property
for $1.1 million. At the time of sale the property was producing approximately
20 boe/d.

    
                           Three months ended              Year ended
                              December 31                  December 31
                           2008          2007          2008          2007
    -------------------------------------------------------------------------
    Drilling and
     completions       $ 1,271,928   $ 7,237,268   $22,381,003   $22,311,271
    Facilities and
     equipment           1,210,245       942,087     4,428,942     3,763,361
    Land and seismic       298,315       166,691     1,655,932     1,744,197
    Property disposition         -             -    (1,100,000)            -
    Property
     acquisition (Note)          -             -             -      (366,290)
    Equipment and
     furniture                   -         7,730        14,586        26,128
    -------------------------------------------------------------------------
    Total              $ 2,780,488   $ 8,353,776   $27,380,463   $27,478,667
    -------------------------------------------------------------------------
    Note: Credit relates to a purchase price adjustment on the 2006
          Crossfield property acquisition.


    2008 DRILLING RESULTS
    -------------------------------------------------------------------------
                           Three months ended             Year ended
                            December 31, 2008          December 31, 2008
                          ---------------------------------------------------
                             Gross           Net         Gross           Net
    Gas                          -             -             8           5.3
    Oil                          -             -             -             -
    Suspended                    -             -             3           3.0
    Dry and abandoned            -             -             1           0.5
                          ---------------------------------------------------
    Total                        -             -            12           8.8
                          ---------------------------------------------------
    Success %                                  -                         60%
                          ---------------------------------------------------

    DEBT

    Pegasus exited 2008 with a working capital deficiency of $13.2 million.
Pegasus currently has access to a credit facility of $17.4 million of which
$10.1 million was drawn at December 31, 2008. The credit facility has an
annual review date of May 31, 2009 and there is no assurance that the facility
will not be reduced.


    NET INCOME (LOSS), FUNDS GENERATED (USED) AND CASH FLOW GENERATED (USED)
    BY OPERATIONS

                            Three months ended              Year ended
                              December 31                  December 31
                           2008          2007          2008          2007
    -------------------------------------------------------------------------
    Net income (loss)   (1,377,368)    5,071,883    (2,205,253)    2,193,195
      Per basic share        (0.03)         0.16         (0.05)         0.08
      Per diluted share      (0.03)         0.16         (0.05)         0.08
    -------------------------------------------------------------------------
    Funds  generated
     (used) by operations  487,786       979,507     5,448,992     1,594,342
      Per basic share         0.01          0.03          0.13          0.05
      Per diluted share       0.01          0.03          0.13          0.05
    -------------------------------------------------------------------------
    Cash flow generated
     (used) by operations   49,081      (395,216)    6,181,580     1,716,226
    

    Funds generated by operations increased 242% for the year ended December
31, 2008 as compared to 2007 mainly because production increased by 41% and
commodity prices increased by 31% over 2007. For the three months ended
December 31, 2008, funds generated by operations decreased 50% as compared to
the previous period because of increased operating costs, interest expenses
and general and administrative expenses. The operating costs were negatively
impacted by a $250,000 equalization charge relating to 2007. Pegasus had
positive earnings in 2007 because of the significant future income tax
recovery of $5,855,000.

    REVIEW OF OPERATIONS

    In 2008, Pegasus drilled 12 (8.8 net) wells with a 60% success rate. Over
80% of the 'net' wells drilled during the year were exploratory wells with the
majority of the drilling activity focused in the Company's core areas of
Crossfield and Strathmore in Central Alberta.
    Average production increased 41% to 637 boe/d for the calendar year as
compared to 2007. Fourth quarter 2008 production averaged 635 boe/d,
relatively unchanged from the third quarter average of 655 boe/d with no wells
drilled during the fourth quarter.
    Reserves increased to 2,682,000 boe total proved and 4,393,000 boe total
proved plus probable representing an increase from year end 2007 of 10% and
27%, respectively. Proved reserves account for 61% of the total booked
reserves. The total proved and total proved plus probable reserve life index
is 11.6 years and 19.0 years respectively, based on average fourth quarter
2008 production.
    No wells were drilled in the fourth quarter of 2008 as the Company
focused its capital on the 12 kilometre main pipeline installation (60% WI) at
Strathmore. The pipeline was commissioned and operational in early January
2009 and two additional Pekisko wells were brought on stream. The third
Pekisko well has been tested at 60 boe/d (60% net) and will be considered for
tie-in when commodity prices improve. The pipeline has allowed the Company to
keep its 2009 first quarter field estimated production level with the fourth
quarter of 2008.
    Two commitment wells remain undrilled as part of the Strathmore farm-in
agreement. The commitment date for these remaining wells is June 30th, 2009.
Currently, five locations have been either acquired, or licensed, to
facilitate the commitment timeline. Pegasus has restructured the farm-in
agreement to allow for the drilling of developmental stepout wells into this
play as part of the remaining farm-in agreement. Vertical wells will be
targeted offsetting existing production, and along the new pipeline route, as
part of the remaining commitment. Capital costs are estimated at $400,000 to
evaluate a well and approximately $1.1 million to complete, equip and tie in a
successful well.

    OUTLOOK

    In the first quarter of 2009, the Company limited capital expenditures to
two well bore completions in the Redland area. Both well bore completions were
part of the twelve section farm-in on freehold land in the area. The first
well was successful and flow tested at 800 mcf/d (50% WI), or approximately
125 boe/d gross, from the Pekisko formation. Surface equipment is currently
being installed and the pipeline infrastructure already exists to this surface
location. The second well (100% WI) tested 15-25 boe/d of 30 degree API oil.
Pressure transient analysis will be analyzed to determine the economic
viability of equipping this well.
    Pegasus has amassed a large inventory of development and infill drilling
opportunities but go-forward capital spending will be limited to the remaining
farm-in commitment at Strathmore to further preserve the Company's balance
sheet. Additional capital expenditures will be evaluated if, and when, equity
markets and commodity prices improve justifying an expanded capital program.
    With the overall global economic slowdown, curtailed access to capital
markets and a further decline in commodity prices, the Company will focus on
balance sheet preservation, reduced capital expenditures and is currently
reviewing its corporate strategy based on the current environment. The
majority of Pegasus' drilling upside exists on lands with very long tenure
minimizing the requirement for near term capital exposure.

    ANNUAL MEETING

    Pegasus' Annual Meeting is scheduled for 10:00 am on Friday, May 29, 2009
in the Viking Room at the Calgary Petroleum Club, 319 5th Avenue SW, Calgary,
Alberta.
    As referred to above, to view Pegasus' audited financial statements and
related MD&A for the year ended December 31, 2008 and the year ended December
31, 2007 please visit our web site at www.pegasusoilgas.com or www.sedar.com.
To the extent investors do not have access to the internet, copies of the
audited financials and related MD&A can be obtained on request without charge
by contacting Pegasus at (403) 521-5282 or at 101 10th Street NW Calgary,
Alberta, T2N 1V4.
    The Company currently has 34.566 million Class A and 1.012 million Class
B Shares outstanding.

    Forward-looking statements - This document contains forward-looking
statements. More particularly, this document contains statements concerning
the Company's planned exploration and development activities, planned capital
expenditures and anticipated rates of production.
    The forward-looking statements are based on certain key expectations and
assumptions made by Pegasus, including expectations and assumptions concerning
prevailing commodity prices and exchange rates, availability and cost of
labour and services, the timing of receipt of regulatory approvals, the
performance of existing wells, the success obtained in drilling new wells, the
performance of new wells and the sufficiency of budgeted capital expenditures
in carrying out the Company's planned activities.
    Although Pegasus believes that the expectations and assumptions on which
the forward-looking statements are based are reasonable, undue reliance should
not be placed on the forward-looking statements because Pegasus can give no
assurance that they will prove to be correct. Since forward-looking statements
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks. These
include, but are not limited to, the risks associated with the oil and gas
industry in general (e.g., operational risks in development, exploration and
production; delays or changes in plans with respect to exploration or
development projects or capital expenditures; the uncertainty of reserve
estimates; the uncertainty of estimates and projections relating to
production, costs and expenses, and health, safety and environmental risks),
commodity price and exchange rate fluctuations and uncertainties resulting
from potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. These risks are set out in more
detail in the Company's Annual Information Form which has been filed on SEDAR
and can be accessed at www.sedar.com.
    The forward-looking statements contained in this press release are made
as of the date hereof and Pegasus undertakes no obligation to update publicly
or revise any forward-looking statements or information, whether as a result
of new information, future events or otherwise, unless so required by
applicable securities laws.

    Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000
cubic feet of natural gas. Boe's may be misleading, particularly if used in
isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas
is based on an energy equivalency conversion method primarily applicable at
the burner.

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

    %SEDAR: 00005637E




For further information:

For further information: Patrick Mills, President and Chief Executive
Officer, (403) 521-6307; Darcy Anderson, Chief Financial Officer, (403)
521-6302; Kevin Angus, Executive Vice President, (403) 521-6306

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Pegasus Oil & Gas Inc.

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