Petrolifera Confirms Its Financial Integrity as Capital Markets Deteriorate



    CALGARY, Oct. 9 /CNW/ - Petrolifera Petroleum Limited (PDP - TSX) wishes
to comment on recent share price movements, capital and credit markets and
current activity being conducted by the company.

    ARGENTINA AND FINANCIAL MATTERS

    The company wishes to confirm that during the months of July and August
in the third quarter 2008 its production has been relatively stable at
approximately 8,000 boe/d, similar to levels reported for the second quarter
2008. There were some minor crude oil production declines in September 2008
due to adjustments being made in the Puesto Morales Norte Field with respect
to pumping systems designed to handle the changing fluid mix with the water
injection that is occurring at the present time as part of the waterflood
program. These changes to extraction rates are expected to restore production
rates in the fourth quarter in line with expectations of the impact of the
waterflood as contained in our recent Fall 2008 Corporate Presentation, which
is posted on our website at www.petrolifera.ca. We would note that the
expected waterflood impact is occurring, offsetting normal declines that arise
from the production process. We are awaiting final September natural gas sales
levels and we will be reporting to our shareholders our Third Quarter 2008
operating and financial results on November 11, 2008 when our Board of
Directors will convene to review these results and the company's 2009
operating and financial plan and budget.
    Prices have been stable in Argentina for crude oil, albeit at much below
world prices, especially as has been the case since last December 2007, when
the imposition of increased export taxes reduced the effective wellhead price
to US$42 per barrel. This price was subsequently negotiated up to $47 per
barrel without any concessions from the governing authorities. It should also
be noted that as the Canadian dollar has weakened recently, our realized price
in August 2008, for example, was $49.87 per barrel when translations of the US
dollar, the Argentinean peso and the Canadian dollar were incorporated into
Canadian dollar reporting, which is used in Petrolifera's financial
statements. All of Petrolifera's production occurs in Argentina.
    Operationally, we are conducting drilling operations in Argentina using
one drilling rig and one service rig at the present time. Presently, we are
testing an exploratory well on Vaca Mahuida which encountered live 29 degree
API oil during drilling and initial swab tests. A number of hydraulic fracs
will be conducted over several intervals to determine well productivity from
identified shallow Centenario sandstone reservoirs at around 800 meters
subsurface. The Centenario was the primary objective of this well, labeled VM
2007. Should this well prove commercial, management anticipates early
production with good follow-up potential. Petrolifera also has another well,
VM 2001, standing cased awaiting testing on the Vaca Mahuida block. The
company has an effective 75 percent working interest in this project.
    The lone drilling rig under contract presently is drilling an exploratory
well to evaluate a Centenario/Basement play on the Rinconada Norte block
northeast of Puesto Morales. This is also a shallow test and the well is
likely to be cased for further evaluation based on live oil shows while
drilling. The rig is scheduled to return to Puesto Morales to drill two
low-risk infill wells within the Puesto Morales Field for additional near-term
deliverability. These are the type of Argentinean programs and drilling
Petrolifera anticipates pursuing during the next several months until further
price increases or increased investment incentives emerge in that economy and
more particularly until credit and capital markets stabilize or improve.
    Petrolifera is currently generating a healthy net operating income from
its production base in Argentina. On a preliminary basis, before review by
Petrolifera's auditors and the company's Audit Committee and Board of
Directors, cash flow from operations before changes in working capital ("cash
flow") has been exceeding monthly average cash flow reported for the second
quarter of 2008. First half of 2008 cash flow and other financial results were
previously reported to capital markets in August 2008. The company is striving
to reduce cash outlays to be more aligned with internally generated funds to
maintain its excellent balance sheet and financial flexibility as it prepares
for increased activity in Colombia and Peru. As at August 31, 2008,
Petrolifera only had $4 million of net debt, including other long term
investments and assuming the asset backed commercial paper ("ABCP") resolution
is completed shortly, the notes arising from the resolution are issued and the
company is able to finalize a negotiated long-term credit facility, secured by
the notes to be issued to replace ABCP owned by the company. This was offered
to Petrolifera by a Canadian chartered bank for approximately the equivalent
of the carrying value of the ABCP on our balance sheet and would further
enhance corporate liquidity. There can be no assurance that this proposed
resolution and term credit facility will be finalized.
    In the meantime, at August 31, 2008 the company had approximately a
$25 million surplus of available long-term reserve backed credit available to
supplement its internally generated cash flow and with the ABCP resolution,
would have access to another approximately $10 million which could become
available on a long term basis, which would further improve reported working
capital as all debt related to ABCP would be classified as long term. Working
capital at August 31, 2008 was $11.8 million, including $16.6 million of cash
and after provision for $16 million of short term borrowings which, as
indicated above, would become long term debt under the ABCP resolution and
finalization of the amended bank credit facility.

    COLOMBIA

    In Colombia, Petrolifera has prepared the surface location and access
road for the La Pinta well scheduled to commence drilling this year on the
Sierra Nevada license in the Lower Magdalena Basin. A suitable helicopter
transportable drilling rig was located in Ecuador and mobilized to Colombia
where it is currently be being refurbished prior to its relocation to the La
Pinta drill site. This will occur as quickly as possible to meet the license's
requirements. Thereafter a La Pinta follow-up well if warranted by success or
drilling of the Brillante prospect on the same license is anticipated in 2009.
    A 120 square kilometer 3D seismic program on the Turpial license in the
Middle Magdalena Basin is scheduled to commence shortly.

    PERU

    The company continues to evaluate and interpret the results of its
extensive 2D seismic program over Ucayali Block 107 in Peru. We remain
optimistic about the hydrocarbon potential of this block.
    The establishment of a seismic base camp and the line surveying program
on Maranon Block 106 in northern Peru is underway following receipt of
approval of the Environmental Impact Assessment conducted over the past year.
    Petrolifera's award of Block 133 offsetting Block 107 is awaiting
Presidential decree later this year.

    GENERAL

    We remain mindful of the difficult credit and capital market conditions
throughout the world, including in certain countries in South America. Over
the near term, we intend to conduct a prudent program focusing on risk
reduction to maintain financial strength and integrity. This will be reflected
in our proposed 2009 operating and financial plan and capital budget which
will be tabled with our Board of Directors in mid-November 2008. We will
endeavor in the appropriate circumstances to introduce joint venture
partnerships to facilitate risk mitigation. We will also manage the timing of
significant outlays while meeting obligations to ensure to the extent possible
the significant participation by our shareholders in the upside potential of
the oil and gas properties and assets we have secured over the past several
years. We will also continue to examine new opportunities to expand and
diversify the company's exposure in Latin America under the direction of our
strengthened technical staff with an emphasis on lower risk opportunities
which can be managed in conjunction with our risk averse approach.
    We are of the opinion that our shares are undervalued in relation to the
net asset value of the company and that capital market forces, including the
impact of the share price falling under marginable levels as set by banks and
other lending institutions, have adversely and unduly influenced the price of
our common shares in the stock market. This share price deterioration has also
occurred for most junior Canadian oil companies engaged in international
activity, regardless of financial or operating results, apparently due to the
desire of many investors to sell in a search for cash or immediate liquidity
in a flight to perceived quality. We also understand concerns about the risk
of declining commodity prices arising from the credit crisis and the potential
impact on economic activity throughout the world has led to high levels of
redemptions among mutual funds holding the shares of energy companies. These
forces have overridden fundamentals and adversely affected our share price as
well.
    We would also remind investors and shareholders that as we do not
presently receive world prices for our production in Argentina, due to that
country's export tax policy, we are accordingly not exposed to declining oil
prices impacting on our cash flow from operations until WTI reaches a level of
approximately $61 per barrel.

    Forward looking information:

    This press release contains "forward-looking information" including: the
anticipated impact of changes to extraction rates on production rates in the
Puesto Morales Norte Field, the timing and likelihood or otherwise of
production from the exploratory well on Vaca Mahuida, future exploration and
development plans and the expected impact of the ABCP resolution on
Petrolifera's available long-term credit. Forward-looking information is
frequently characterized by words such as "plan", expect", "project",
"intend", "believe", "anticipate", estimate", "may", "will", "could",
"potential", "proposed" and other similar words, or statements that certain
events or conditions "may" or "will" occur. These statements are only
predictions. Forward-looking information is based on the opinions and
estimates of management at the date the statements are made, and are subject
to a variety of risks and uncertainties and other factors that could cause
actual events or results to differ materially from those projected in the
forward-looking statements. These factors include the inherent risks involved
in the exploration and production of crude oil, natural gas and natural gas
liquids, the uncertainties involved in interpreting drilling results and other
geological data, fluctuating oil prices, the availability of required
equipment, the possibility of unanticipated costs and expenses, uncertainties
relating to the availability and costs of financing needed in the future and
other factors including unforeseen delays. Readers are reminded that net
operating income, cash flow from operations before working capital changes and
cash flow do not have standardized meanings prescribed by Canadian generally
accepted accounting principles ("GAAP") and therefore may not be comparable to
similar measures used by other companies. Cash flow is calculated before
changes in non-cash working capital, pension funding and asset retirement
expenditures. The most comparable measure calculated in accordance with GAAP
would be net earnings. Cash flow from operations before working capital
changes includes all cash flow from operating activities and is calculated
before changes in non-cash working capital. The most comparable measure
calculated in accordance with GAAP would be net earnings. Net operating income
is calculated by deducting field operating costs and royalties from petroleum
and natural gas revenue from sales of production and net earnings is also the
most comparable measure calculated in accordance with GAAP. Management uses
these non-GAAP measurements for its own performance measures and to provide
its shareholders and investors with a measurement of the company's efficiency
and its ability to fund a portion of its future growth expenditures. All
references to barrels of oil equivalent (boe) are calculated on the basis of
6mcf:1bbl. Boes may be misleading, particularly if used in isolation. This
conversion is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. For a description of the risks and uncertainties facing Petrolifera
and its business and affairs, readers should refer to Petrolifera's Annual
Information Form for the year ended December 31, 2007, which is available at
www.sedar.com. Petrolifera undertakes no obligation to update forward-looking
statements if circumstances or management's estimates or opinions should
change, unless required by law. Due to the risks and uncertainties inherent in
forward-looking information, the reader is cautioned not to place undue
reliance on this forward-looking information.





For further information:

For further information: Richard A.Gusella, Executive Chairman, (403)
538-6201, Or Gary D. Wine, President and Chief Operating Officer, (403)
539-8454, Inquiries@petrolifera.ca, www.petrolifera.ca

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PETROLIFERA PETROLEUM LIMITED

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