Pine Cliff Energy Ltd. Announces Third Quarter Results



    CALGARY, Nov. 26 /CNW/ - Pine Cliff Energy Ltd. (www.pinecliffenergy.com)
(TSX-V:PNE) is pleased to announce its financial and operational results for
the three months and nine months ended September 30, 2007.

    
    Highlights

    For the periods ended
                                Three Months Ended         Nine Months Ended
                                   September 30              September 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    FINANCIAL ($)
    Revenue - oil and gas      95,160       90,386      470,265      490,869
    Funds Flow from
     Operations(1)           (287,764)    (113,095)    (706,085)    (372,415)
      Per Share - Basic         (0.01)       (0.00)       (0.02)       (0.01)
      Per Share - Diluted       (0.01)       (0.00)       (0.02)       (0.01)
    Loss                     (383,510)    (211,784)    (999,893)    (805,030)
      Per Share - Basic         (0.01)       (0.01)       (0.03)       (0.02)
      Per Share - Diluted       (0.01)       (0.01)       (0.03)       (0.02)
    Capital Expenditures      174,289       (3,463)   2,604,413      252,699
    Total Assets                                      4,173,333    4,700,305
    Working Capital
     (Deficiency)                                      (314,684)   3,030,822
    Shareholders' Equity                              3,371,089    4,411,915
    -------------------------------------------------------------------------
    OPERATIONS
    Oil and NGL's
      - Barrels Per Day             1            5            4            6
      - Average Price
       ($ per barrel)           75.83        61.75        62.07        65.00
    Natural Gas
      - MCF Per Day               163          131          204          184
      - Average Price
       ($ per MCF)               5.83         5.17         7.14         7.73
    Total Barrels Per Day(2)       27           27           37           37


    (1) Funds flow from operations is not a recognized measure under GAAP.
    Management believes that in addition to net loss, funds flow from
    operations is a useful supplemental measure as it demonstrates the
    Company's ability to generate the cash necessary to fund future growth
    through capital investment. Investors are cautioned, however, that this
    measure should not be construed as an indication of the Company's
    performance. The Company's method of calculating this measure may differ
    from other issuers and accordingly, it may not be comparable to that used
    by other issuers. For these purposes, the Company defines funds flow
    from operations as funds provided by operations before changes in non-
    cash operating working capital items including foreign exchange loss.

    (2) BOE's are calculated using a conversion ratio of 6 MCF to 1 barrel of
    oil. The 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 and as such may be misleading if used in
    isolation.
    

    FORWARD-LOOKING INFORMATION

    Certain statements contained in this press release include statements
which contain words such as "anticipate", "could", "should", "expect", "seek",
"may", "intend", "likely", "will", "believe" and similar expressions,
statements relating to matters that are not historical facts, and such
statements of our beliefs, intentions and expectations about development,
results and events which will or may occur in the future, constitute
"forward-looking information" within the meaning of applicable Canadian
securities legislation and are based on certain assumptions and analysis made
by us derived from our experience and perceptions. Forward-looking information
in this press release includes, but is not limited to: expected cash provided
by continuing operations; future capital expenditures, including the amount
and nature thereof; oil and natural gas prices and demand; expansion and other
development trends of the oil and natural gas industry; business strategy and
outlook; expansion and growth of our business and operations; and maintenance
of existing customer, supplier and partner relationships; supply channels;
accounting policies; credit risks; and other such matters.
    All such forward-looking information is based on certain assumptions and
analyses made by us in light of our experience and perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. The risks,
uncertainties, and assumptions are difficult to predict and may affect
operations, and may include, without limitation: the risks of foreign
operations; foreign exchange fluctuations; equipment and labour shortages and
inflationary costs; general economic conditions; industry conditions; changes
in applicable environmental, taxation and other laws and regulations as well
as how such laws and regulations are interpreted and enforced; the ability of
oil and natural gas companies to raise capital; the effect of weather
conditions on operations and facilities; the existence of operating risks;
volatility of oil and natural gas prices; oil and gas product supply and
demand; risks inherent in the ability to generate sufficient cash flow from
operations to meet current and future obligations; increased competition;
stock market volatility; opportunities available to or pursued by us; and
other factors, many of which are beyond our control. The foregoing factors are
not exhaustive.
    Actual results, performance or achievements could differ materially from
those expressed in, or implied by, this forward-looking information and,
accordingly, no assurance can be given that any of the events anticipated by
the forward-looking information will transpire or occur, or if any of them do,
what benefits will be derived therefrom. Except as required by law, Pine Cliff
disclaims any intention or obligation to update or revise any forward-looking
information, whether as a result of new information, future events or
otherwise.
    The forward-looking information contained herein is expressly qualified
by this cautionary statement.

    General
    -------
    The Company continues to search for investment opportunities in South
America and Canada and to date has been successful in completing three farm-in
arrangements in Argentina whereby Pine Cliff will earn an interest in
1,164,800 gross (605,400 net) acres of prospective land. The total commitment
to earn these interests is approximately $11,240,000 U.S. over the next three
years of which $2,557,495 Cdn ($2,208,066U.S.) has been expended to
September 30, 2007.
    The Argentina government also recently announced that it will be
increasing its export tax on oil, which will have negative implications on
cash netbacks for oil production. Pine Cliff will be studying these
implications as details become available to determine the overall effect on
its operations.
    Financing by a rights offering to existing shareholders has been
completed subsequent to September 30, 2007. Pine Cliff shareholders received
rights to subscribe for one common share for each four shares held and had an
additional subscription privilege to subscribe for any common shares not taken
up on the exercise of rights. The rights offering options had an exercise
price of $1.10 per share. The Company issued 8,312,654 common shares for
proceeds of $9,105,969 net of $37,950 of share issue costs. For further
details concerning the farm-in arrangements and financing of these
arrangements, kindly refer to the applicable sections outlined below in this
release.

    South American Activities
    -------------------------
    The Company through its 93% owned subsidiary CanAmericas Energy Ltd.
("CanAmericas") will be participating in a three well drilling program in the
Canadon Ramirez Concession. This program is scheduled to start in January
2008. CanAmericas is also planning to run a 3D seismic program on its Laguna
de Piedra Concession in the first quarter of 2008. Also the Company is
currently in the process of finalizing the terms and planning its work program
on the exploration permit in the San Jorge Basin concessions. The terms of the
commitments for all three concessions are discussed below.

    Production
    ----------
    Production volumes increased in the nine months of 2007 to 204 MCF per
day from 184 MCF per day for the nine months of 2006. During the third quarter
of each year the operator of the gas plant, where approximately 80 percent of
the Company's production is processed, performs an annual turnaround resulting
in having to shut in wells for lengthy periods of time. The wells were shut in
for a longer period in 2006 than in 2007. The Company's production for the
third quarter of 2007 compared to the second quarter of 2007 decreased from
226 MCF per day to 163 MCF per day due to the turnaround.

    Revenue
    -------
    Revenue from petroleum and natural gas sales was $470,265 during the
first nine months of 2007 compared to $490,869 for the first nine months of
2006. The decline was due to an approximate 8% decline in commodity prices in
the first nine months of 2007 compared to the first three quarters of 2006.
Revenue from the third quarter of 2007 compared to the second quarter of 2007
decreased by $81,430 due to a significant decrease in production (see
discussion above) and lower commodity prices for natural gas.

    Royalties
    ---------
    Royalties consist of Crown royalties of $86,166 (2006 - ($3,544)) paid to
(recovered from) the Province of Alberta and gross overriding royalties of
$19,186 (2006 - $22,833). Crown royalties are significantly higher in the
first three quarters of 2007 due to the expiry of the Crown royalty holiday.
In 2007 gross overriding royalties are lower mainly because of the decline in
commodity prices for natural gas. Royalties for Q3 2007 consist of Crown
royalties of $13,791 (Q2 2007 - $41,585) and gross overriding royalties of
$7,338 (Q2 2007 - $5,296). The decrease in Crown royalties is due to the
decrease in production of natural gas and prices. Gross overriding royalties
increased mainly due to an allocation of a prior year adjustment of $2,538 by
the operator.

    Interest Income
    ---------------
    The Company maintains both Canadian and U.S. investment accounts that pay
interest at prime less various percentages as long as the Company maintains
certain minimum account balances. The Company has reduced its cash balance
with the development of its South American operations and did not earn
interest during Q3. With the funds received as a result of the rights offering
the Company will again receive interest income commencing in Q4.

    Production Costs
    ----------------
    Production costs for the nine months ended September 30, 2007 were
$99,363 or $9.91 per BOE (2006 - $91,066 or $9.14 per BOE). BOE's are
calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The
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 and as such may be misleading if used in isolation. The increase in
Q3 production costs ($32,057) from Q2 production costs ($26,350) was due to
the payment of annual rents related to surface and mineral leases in Q3.

    General and Administrative
    --------------------------
    General and administrative expense for the first nine months of 2007 was
$959,336 ($315,257 in the third quarter) compared to $789,640 for the first
nine months of 2006 and $349,160 for the second quarter of 2007. The primary
reason for the increase in expenses in the first three quarters of 2007 over
the first three quarters of 2006 was due to the Company incurring additional
professional fees related to its activities in South America and for
continuous disclosure obligations. The decrease in expenses of $33,903 in the
third quarter over the second quarter of 2007 was primarily due to reduced
administrative activities in South America and fewer professional fees for
continuous disclosure obligations.
    Pine Cliff does not have any employees at the present time but engages
the services of consultants on a contract or temporary basis. CanAmericas has
on a full time basis engaged the services of two professionals as senior
management and officers of CanAmericas.

    Foreign Exchange Gain (Loss)
    ----------------------------
    In February 2006, the Company incorporated CanAmericas to explore and
develop oil and gas properties primarily in South America. CanAmericas is
owned 93 percent by the Company and seven percent by a foreign private
corporation ("Foreign Corp."). CanAmericas was initially financed with
$1,400,000 U.S. for 5,600,000 common shares from the Company and $100,000 U.S.
for 400,000 common shares from Foreign Corp. Further Canadian funds, from Pine
Cliff, have also been loaned to CanAmericas and converted to US funds. The
funds held in US cash have caused a loss in foreign exchange as the Canadian
dollar appreciated against the US dollar in 2007 and 2006. The first nine
months of 2007 the Company had a foreign exchange loss of $34,129 ($52,157 -
2006).

    Stock Based Compensation
    ------------------------
    Stock based compensation for the first three quarters of 2007 was $88,043
(2006 - $175,061). The Company has a stock-based compensation plan for Pine
Cliff. The Company records a compensation expense over the vesting period
based on the fair value of options granted to employees, directors and
consultants in respect of the Company. The Company issued 102,000 stock
options in Pine Cliff during the nine months of 2007. The Company estimated
the stock options fair value at $44,712 ($0.44 per option) using the
Black-Scholes option pricing model, assuming a weighted average risk free
interest rate of 4.35 percent, weighted average expected average volatility of
62.7 percent, weighted average expected average life of 2.8 years and no
annual dividend rate.

    Depletion, Depreciation, and Accretion
    --------------------------------------
    During the first three quarters of 2007 the Company provided $223,260
(2006 - $183,337) for depletion, depreciation and accretion of its property
and equipment. The increase is related to additional production volumes in
2007. Depletion, depreciation and accretion decreased in the third quarter of
2007 ($62,487) compared to the second quarter of 2007 ($81,167) due to reduced
production volumes, caused by downtime in the gas plant, where approximately
80 percent of the Company's production is processed as the operator performed
an annual turnaround in Q3.

    Income Taxes
    ------------
    The Company follows the liability method of accounting for income taxes
under which the income tax provision is based on the temporary differences in
the accounts calculated using income tax rates expected to apply in the year
in which the temporary differences will reverse. The Company has sufficient
tax pools so that it is not liable for current income tax.
    The Company and its subsidiaries have the following tax pools which can
be used to reduce their future taxable income:

    
                                                        Rate of
                                                      Utilization
                                                           %         Amount
    -------------------------------------------------------------------------
    Undepreciated capital costs                              25     $324,237
    Foreign exploration expenditures                         10    2,557,496
    Share issue costs                                        20      126,145
    Non-capital loss carry forward(*)                       100    1,646,551
    Canadian exploration expenditures                       100      392,110
    Canadian development expenditures                        30      427,201
    Canadian oil and gas expenditures                        10      728,371
    -------------------------------------------------------------------------
                                                                  $6,202,111
    -------------------------------------------------------------------------
    (*)$757,797 expires 2026 and $888,754 expires 2027
    

    Non-Controlling Interest
    ------------------------
    As described above, Foreign Corp. owns seven percent of CanAmericas. The
first nine months loss applicable to non-controlling interest for 2007 of
$28,495 (2006 - $36,716) and the Q3 2007 loss applicable to non-controlling
interest of $7,264 (Q2 2007 - $8,572) relates to its share of revenues and
costs associated with CanAmericas' South American activities.

    Loss
    ----
    The loss in the first nine months of 2007 was $999,893 ($383,510 in the
third quarter) compared to $805,030 in the corresponding 2006 period and
$346,274 in the second quarter of 2007. The loss incurred in the first three
quarters of 2007 increased from the first three quarters of 2006 due primarily
to higher general and administrative costs in respect of the Company's South
American operations as well as less revenue from lower commodity prices and
higher royalties due to the expiry of Crown royalty holidays early in Q1 2007.
These increases in expenditures and reduction of revenues were offset by a
reduction in 2007 of future taxes of $94,000 and a reduction in stock based
compensation expense of $87,000. The increase in loss from Q3 2007 over Q2
2007 is due to lower production and commodity prices for natural gas.

    Funds Flow from Operations
    --------------------------
    Funds flow from operations decreased to negative $706,085 in the first
nine months of 2007 from negative $372,415 in the first nine months of 2006.
The decreases from 2006 were due to the increased activity in South America,
higher crown royalty payments and less interest income earned. Negative funds
flow in the third quarter of 2007 of ($287,764) compared to the second quarter
of 2007 of ($252,435) was higher due to less revenue because of lower
production and lower commodity prices for natural gas, which was partially
offset by lower administrative costs with regard to its South American
activities.
    The following reconciliation compares funds flow for the first nine
months of 2007 and the corresponding 2006 period to the Company's cash flow
from operating activities as calculated according to Canadian generally
accepted accounting principles:

    
                                                           2007         2006
    -------------------------------------------------------------------------
    Cash flow from operating activities               ($550,285)   ($149,734)
    Items not affecting funds flow
      Due from related party                                  -      (16,006)
      Accounts receivable                              (111,059)    (217,258)
      Prepaid expenses                                   20,444       (1,048)
      Accounts payable and accrued liabilities          (31,056)      28,500
      Due to related party                                    -          165
      Asset retirement obligations settled                    -       35,123
      Foreign exchange loss                             (34,129)     (52,157)
    -------------------------------------------------------------------------
    Funds flow for the period                         ($706,085)   ($372,415)
    -------------------------------------------------------------------------
    

    Related Party Transactions
    --------------------------
    Due to a delay in financing caused by changing plans to finance by a
private placement to a rights offering the Company required interim short term
loans and as of September 30, 2007 the Company had borrowed a total of
$500,000 from the President and CEO of the Company. Subsequent to
September 30, 2007 after completion of the rights offering this amount has
been repaid. The loan carried interest of Canadian prime plus 1%. The proceeds
were used to cover operations expenses until the completion of the rights
offering.
    Pine Cliff has a management agreement with Bonterra Energy Corp.
("Bonterra Corp."), a wholly owned subsidiary of Bonterra Energy Income Trust
and a company with common directors and management, to have Bonterra Corp.
provide executive services (President and CEO, CFO and COO), accounting
services, oil and gas administration and office administration. The management
fee consists of a monthly fee of $18,000, three percent of net earnings before
income taxes, $250 per month per operated producing well and $150 per month
per water injector well plus out of pocket costs. Total fees for the nine
months ended September 30, 2007 were $162,000 (2006 - $162,000) plus minimal
out of pocket costs. This agreement can be cancelled by either party by giving
90 day's notice.

    Liquidity and Capital Resources
    -------------------------------
    As of September 30, 2007, Pine Cliff had working capital of ($314,684)
(December 31, 2006 - $2,963,513). As mentioned above under the "General"
heading the Company has completed a rights offering resulting in net proceeds
of approximately $9.1 million. These funds will be used to fund future
exploration and development and property acquisitions in Canada and
internationally.
    The farm-in arrangements for two of the concessions in Argentina by
CanAmericas required guarantees for the commitments that were made. Prior to
completion of the rights offering these guarantees of $3,690,000 US by means
of letters of guarantee were secured by guarantees from the president and the
chief operating officer of the Company. The line of credit bears interest at
US or CDN prime plus 2% per annum. Subsequent to September 30, 2007 the
secured guarantee from the officers of the Company is no longer required and
has been cancelled and has been replaced with a cash restriction on
CanAmericas' cash to maintain a minimum balance of 1.25 times the amount of
outstanding letters of guarantees and letters of credit.
    As of September 30, 2007 CanAmericas has issued letters of guarantee in
the amount of $3,411,618 US.
    The Company has entered into commitments in relation to its farm-ins on
three parcels of land in Argentina. A summary of the commitments is provided
in note 8 to the financial statements.
    Additional information relating to the Company may be found on SEDAR.COM.
as well as on the Company's website at www.pinecliffenergy.com or by
contacting George F. Fink, President, and CEO or Garth E. Schultz, Vice
President - Finance, and CFO at (403) 269-2289 or by fax at (403) 265-7488.


    
    PINE CLIFF ENERGY LTD.
    CONSOLIDATED BALANCE SHEETS
    -------------------------------------------------------------------------
    As at September 30, 2007 (unaudited) and
     December 31, 2006

                                                           2007         2006
    -------------------------------------------------------------------------
    Assets
    Current
      Cash (Note 2)                                    $302,297   $2,915,020
      Accounts receivable                                73,942      185,001
      Prepaid expenditures                               23,098        2,654
    -------------------------------------------------------------------------
                                                        399,337    3,102,675
    -------------------------------------------------------------------------
    Property and Equipment (Note 5)
      Property and equipment                          4,453,300    1,848,887
      Accumulated depletion and depreciation           (679,304)    (457,552)
    -------------------------------------------------------------------------
    Net Property and Equipment                        3,773,996    1,391,335
    -------------------------------------------------------------------------
                                                     $4,173,333   $4,494,010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities         $210,684     $139,162
      Due to related party (Note 3)                     503,337            -
    -------------------------------------------------------------------------
                                                        714,021      139,162

    Asset Retirement Obligations                         41,749       40,240
    Non-controlling Interests (Note 4)                   46,474       74,970
    -------------------------------------------------------------------------
                                                        802,244      254,372
    -------------------------------------------------------------------------
    Commitments (Note 8)
    Shareholders' Equity
      Share capital (Note 6)                          5,461,209    5,377,343
      Contributed surplus                               253,440      205,962
      Deficit                                        (2,343,560)  (1,343,667)
      Accumulated other comprehensive income
       (Note 1)                                               -            -
    -------------------------------------------------------------------------
                                                      3,371,089    4,239,638
    -------------------------------------------------------------------------
                                                     $4,173,333   $4,494,010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    PINE CLIFF ENERGY LTD.
    CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
    -------------------------------------------------------------------------
    For the periods ended September 30
    (unaudited)
                                   Three Months               Nine Months
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Revenue
      Oil and gas sales       $95,160      $90,386     $470,265     $490,869
      Royalties               (21,129)       6,307     (105,352)     (20,175)
      Interest income               -       31,042       23,830       89,754
    -------------------------------------------------------------------------
                               74,031      127,735      386,743      560,448
    -------------------------------------------------------------------------
    Expenses
      Production costs         32,057       23,136       99,363       91,066
      General and
       administrative         315,257      220,442      959,336      789,640
      Foreign exchange
       loss (gain)             14,481       (2,748)      34,129       52,157
      Stock based
       compensation            29,523       62,962       88,043      175,061
      Dry hole costs                -            -            -        5,550
      Depletion, depreciation
       and accretion           62,487       54,329      223,260      183,337
    -------------------------------------------------------------------------
                              453,805      358,121    1,404,131    1,296,811
    -------------------------------------------------------------------------
    Loss before Taxes and
     Non-Controlling
     Interests               (379,774)    (230,386)  (1,017,388)    (736,363)
    -------------------------------------------------------------------------
    Income Taxes (Recovery)
      Current                       -            -            -            -
      Future                   11,000       (7,632)      11,000      105,383
    -------------------------------------------------------------------------
                               11,000       (7,632)      11,000      105,383
    -------------------------------------------------------------------------
    Loss before
     Non-controlling
     interests               (390,774)    (222,754)  (1,028,388)    (841,746)
    Loss applicable to
     non-controlling
     interests (Note 4)         7,264       10,970       28,495       36,716
    -------------------------------------------------------------------------
    Loss and Comprehensive
     Income for the Period   (383,510)    (211,784)    (999,893)    (805,030)
    Deficit, Beginning of
     Period                (1,960,050)    (922,308)  (1,343,667)    (329,062)
    -------------------------------------------------------------------------
    Deficit, End
     of Period            ($2,343,560) ($1,134,092) ($2,343,560) ($1,134,092)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss Per Share
     - Basic and Diluted
     (Note 6)                  ($0.01)      ($0.01)      ($0.03)      ($0.02)
    -------------------------------------------------------------------------



    PINE CLIFF ENERGY LTD.
    CONSOLIDATED STATEMENTS OF CASH FLOW
    -------------------------------------------------------------------------
    For the periods ended September 30
    (unaudited)
                                   Three Months               Nine Months
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Operating Activities
      Loss for the period   ($383,510)   ($211,784)   ($999,893)   ($805,030)
      Items not
       affecting cash
        Stock based
         compensation          29,523       62,962       88,043      175,061
        Dry hole costs              -            -            -        5,550
        Depletion,
         depreciation and
         accretion             62,487       54,329      223,260      183,337
        Future income
         taxes (recovery)      11,000       (7,632)      11,000      105,383
        Foreign exchange
         loss (gain)           14,481       (2,748)      34,129       52,157
        Loss applicable to
         non-controlling
         interests             (7,264)     (10,970)     (28,495)     (36,716)
    -------------------------------------------------------------------------
                             (273,283)    (115,843)    (671,956)    (320,258)
    -------------------------------------------------------------------------
      Change in non-cash
       working capital
        Due from related
         party                      -            -            -       16,006
        Accounts receivable    23,205      (53,793)     111,059      217,258
        Prepaid expenditures  (17,909)       1,651      (20,444)       1,048
        Accounts payable and
         accrued liabilities   95,706      (33,540)      31,056      (28,500)
        Due to related party        -            -            -         (165)
      Asset retirement
       obligations settled          -      (35,123)           -      (35,123)
    -------------------------------------------------------------------------
                              101,002     (120,805)     121,671      170,524
    -------------------------------------------------------------------------
    Cash Used in Operating
     Activities              (172,281)    (236,648)    (550,285)    (149,734)
    -------------------------------------------------------------------------
    Financing Activities
      Issue of shares under
       stock option plan        3,000            -       70,250       11,700
      Issue of shares by
       subsidiary                   -            -            -      113,670
      Share issue costs       (37,950)           -      (37,950)           -
      Change in non-cash
       working capital
        Accounts payable
         and accrued
         liabilities           32,500            -       32,500            -
      Proceeds received
       from related party     503,337            -      503,337            -
    -------------------------------------------------------------------------
    Cash Provided by
     Financing Activities     500,887            -      568,137      125,370
    -------------------------------------------------------------------------
    Investing Activities
      Property and equipment
       expenditures          (174,289)       3,463   (2,604,413)    (252,699)
      Change in non-cash
       working capital
        Accounts payable and
         accrued liabilities  (20,400)           -        7,967            -
        Due to related party        -            -            -            -
    -------------------------------------------------------------------------
    Cash Used in Investing
     Activities              (194,689)       3,463   (2,596,446)    (252,699)
    -------------------------------------------------------------------------
    Foreign exchange loss
     on cash held in
     foreign currency         (14,481)       2,748      (34,129)     (52,157)
    -------------------------------------------------------------------------
    Net Cash Inflow
     (Outflow)                119,436     (230,437)  (2,612,723)    (329,220)
    Cash, Beginning of
     Period                   182,861    3,236,178    2,915,020    3,334,961
    -------------------------------------------------------------------------
    Cash, End of Period      $302,297   $3,005,741     $302,297   $3,005,741
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Interest Paid             $-           $-           $-           $-
    Cash Taxes Paid                $-           $-           $-           $-



    Notes to the Interim Consolidated Financial Statements

    Periods ended September 30, 2007 and 2006 unaudited

    1.  SIGNIFICANT ACCOUNTING POLICIES

        The accounting policies and methods of application followed in the
        preparation of the interim financial statements other than described
        below are the same as those followed in the preparation of the
        Company's 2006 annual financial statements. These interim financial
        statements do not include all disclosures required for annual
        financial statements. The interim financial statements as presented
        should be read in conjunction with the 2006 annual financial
        statements.

        Financial instruments - recognition and measurement

        On January 1, 2007, the Company adopted Section 3855 of the Canadian
        Institute of Chartered Accounts' ("CICA") Handbook, "Financial
        Instruments - Recognition and Measurement" and Section 3861 Financial
        Instruments - Presentation and Disclosure. It sets out the standards
        for recognizing and measuring financial instruments in the balance
        sheet and the standards for reporting gains and losses in the
        financial statements. Financial assets available for sale, assets and
        liabilities held for trading and derivative financial instruments,
        part of a hedging relationship or not, have to be measured as fair
        value.

        The Company has made the following classifications:

        -  Accounts receivable are classified as loans and receivables and
           are recorded at amortized cost using the effective interest
           method. Gains and losses are recognized in net earnings when the
           asset is derecognized.

        -  Accounts payable and accrued liabilities are classified as other
           financial liabilities and are recorded at amortized cost using the
           effective interest method. Gains and losses are recognized in net
           earnings when the liability is derecognized.

        The adoption of this Section is done retroactively without
        restatement of the consolidated financial statements of prior
        periods. Further, because the Company does not currently utilize
        hedges or other derivative financial instruments, the adoption of
        these sections has had no material impact on the Company's
        consolidated loss, cash flows or retained earnings as of January 1,
        2007 and September 30, 2007.

        The Company has reviewed its contracts for embedded derivatives. An
        embedded derivative is a component of a financial instrument or
        another contract of which the characteristics are similar to a
        derivative. This had no impact on the consolidated financial
        statements.

        Comprehensive income

        On January 1, 2007, the Company adopted Section 1530 of the CICA
        Handbook, "Comprehensive Income". It describes reporting and
        disclosure recommendations with respect to comprehensive income and
        its components. Comprehensive income is the change in shareholders'
        equity, which results from transactions and events from sources other
        than the Company's shareholders. These transactions and events
        include unrealized gains and losses from changes in fair value of
        certain financial instruments.

        The adoption of this Section had no impact on the Company's
        presentation. However, should the Company have transactions resulting
        in an impact to comprehensive income the Company will present a
        consolidated statement of comprehensive income as a part of the
        consolidated financial statements.

        Equity

        On January 1, 2007, the Company adopted Section 3251 of the CICA
        Handbook "Equity" replacing Section 3250 "Surplus". This describes
        standards for the presentation of equity and changes in equity for
        reporting the period as a result of the application of Section 1530
        "Comprehensive Income".

        Accounting changes

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

    2.  BANKING AGREEMENT

        The Company has secured a line of credit through its subsidiary
        CanAmericas Energy Ltd. ("CanAmericas") in the amount of
        $3,690,000 US, which can be drawn by means of letters of guarantee
        and letters of credit. The line of credit bears interest at US or CDN
        prime plus 2% per annum depending on the currency borrowed. The line
        of credit is repayable on demand and was secured by guarantees from
        the president and chief operating officer in the amount of
        $4,612,500 CDN.

        CanAmericas has issued letters of guarantee worth $3,411,618 as of
        September 30, 2007 (see Note 8).

        Subsequent to September 30, 2007 security provided by the president
        and chief operating officer has been cancelled and replaced with a
        cash restriction on CanAmericas' main bank account to maintain a
        minimum balance of 1.25 times the amount of outstanding letters of
        guarantee and letters of credit (see Note 9).

    3.  RELATED PARTY TRANSACTIONS

        Due to related party consists of a loan from the president and
        shareholder of the Company. Subsequent to September 30, 2007 the loan
        has been repaid. The loan bears interest at prime plus one percent.
        The loan accrued interest for the nine month period of $3,337
        (2006 - $nil).

        Bonterra Energy Income Trust, an organization with common directors
        and management and former parent of the Company, through its wholly
        owned subsidiary Bonterra Energy Corp. ("Bonterra Corp.") provides
        management services and office administration to the Company (see
        Note 7). Total fees for the nine month period were $162,000 (2006 -
        $162,000) plus minimal out of pocket costs.

        These transactions are in the normal course of operations and are
        measured at the exchange amount, which is the amount of consideration
        established and agreed to by the related parties.

    4.  NON-CONTROLLING INTERESTS

        The Company has incorporated a subsidiary company, CanAmericas to
        explore and develop oil and gas properties primarily in South
        America. CanAmericas is owned 93 percent by the Company and
        seven percent by a foreign private corporation ("Foreign Corp.").
        CanAmericas was initially financed by investments of $1,400,000 U.S.
        for 5,600,000 common shares from the Company and $100,000 U.S. for
        400,000 common shares from Foreign Corp.

        Foreign Corp. has been granted an option to acquire an additional
        1,000,000 common shares of CanAmericas at $0.25 U.S. per common
        share. Fifty percent of the options vested on January 13, 2007, and
        the remaining 50% will vest on January 13, 2008, and all the options
        will expire on January 13, 2011.

    5.  PROPERTY AND EQUIPMENT

                               September 30, 2007        December 31, 2006
                                        Accumulated              Accumulated
                                      Depletion and            Depletion and
                              Cost     Depreciation     Cost    Depreciation
        ---------------------------------------------------------------------
        Petroleum and
         natural gas
         properties and
         related equipment $1,842,292     $665,229   $1,803,124     $450,365
        Seismic             2,557,495            -            -            -
        Furniture,
         equipment and
         other                 53,512       14,075       45,763        7,187
        ---------------------------------------------------------------------
                           $4,453,299     $679,304   $1,848,887     $457,552
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As of September 30, 2007, the Company spent $2,557,495 for Seismic
        activities for the Canadon Ramirez Concession and Laguna de Piedra
        Concession as discussed in Note 8. These costs presently have been
        excluded from costs subject to depletion and depreciation.

    6.  SHARE CAPITAL

        Authorized

        Unlimited number of Common Shares without nominal or par value.

        Unlimited number of Class B Preferred Shares without nominal or par
        value which may be issued in one or more series.

        Issued                                           Number       Amount
        ---------------------------------------------------------------------
        Common Shares
        Balance, January 1, 2007                     36,523,041   $5,377,343
        Shares issued pursuant to Company
         option plan                                    410,000       70,250
        Share issue costs                                     -      (37,950)
        Future income tax on share issue costs                -       11,000
        Transfer of contributed surplus to
         share capital                                        -       40,566
        ---------------------------------------------------------------------
        Balance, September 30, 2007                  36,933,041   $5,461,209
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The number of common shares used to calculate diluted loss per share
        for the period ended September 30, 2007 of 38,257,031 (2006 -
        37,797,380) included the basic weighted average number of shares
        outstanding of 36,758,479 (2006 - 36,473,441) plus 1,498,552 (2006 -
        1,323,939) shares related to the dilutive effect of share options.

        A summary of the status of the Company's stock option plan as of
        September 30, 2007 and December 31, 2006, and changes during the nine
        month and twelve month periods ending on those dates is presented
        below:

                               September 30, 2007        December 31, 2006
        ---------------------------------------------------------------------
                              Options    Weighted-      Options    Weighted-
                                           Average                   Average
                                          Exercise                  Exercise
                                             Price                     Price

        Outstanding at
         beginning of
         period             2,420,000        $0.29    1,686,000        $0.16
        Options granted       102,000         1.01      895,000         0.52
        Options exercised    (410,000)        0.15     (103,000)        0.15
        Options cancelled     (35,000)        0.40      (58,000)        0.21
        ---------------------------------------------------------------------
        Outstanding at
         end of period      2,077,000        $0.35    2,420,000        $0.29
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Options exercisable
         at end of period   1,192,500        $0.18      740,000        $0.16
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The following table summarizes information about stock options
        outstanding at September 30, 2007:

                          Options Outstanding           Options Exercisable
                   ----------------------------------- ----------------------
                                 Weighted-
                                   Average  Weighted-              Weighted-
        Range of        Number   Remaining    Average       Number   Average
        Exercise   Outstanding Contractual   Exercise  Exercisable  Exercise
        Prices      At 9/30/07        Life      Price   At 9/30/07     Price
        ---------------------------------------------------------------------
        $0.15        1,120,000   2.2 years      $0.15    1,120,000     $0.15
         0.50-0.60     825,000   2.2 years       0.51       32,500      0.56
         0.70-0.80      80,000   2.2 years       0.72       40,000      0.72
         1.15           12,000   2.2 years       1.15            -         -
         1.49           40,000   3.2 years       1.49            -         -
        ---------------------------------------------------------------------
        $0.15-$1.49  2,077,000   2.2 years      $0.35    1,192,500     $0.18
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company records a compensation expense over the vesting period
        based on the fair value of options granted to employees, directors
        and consultants. Unvested options as of September 30, 2007 vest
        833,500 in 2008 and 51,000 in 2009.

        The Company issued 102,000 stock options with an estimated fair value
        of $44,712 ($0.44 per option) using the Black-Scholes option pricing
        model with the following key assumptions in 2007:

        Weighted-average risk free interest rate (%)       4.35
        Dividend yield (%)                                 0.00
        Expected life (years)                               2.8
        Weighted-average volatility (%)                    62.7

    7.  SEGMENTED INFORMATION

        The Company, with the incorporation of CanAmericas in February, 2006,
        has operations in Canada and South America; all operating activities
        are related to exploration, development and production of petroleum
        and natural gas as follows:

                                                         South
        ($)                                 Canada      America        Total
        Three Months Ended
         September 30, 2007
        Revenue, gross                      95,160            -       95,160
        Loss before non-controlling
         interest                          171,413      219,361      390,774
        Capital expenditures                   462      173,827      174,289

        Nine Months Ended
         September 30, 2007
        Revenue, gross                     478,215       13,380      492,095
        Loss before non-controlling
         interest                          384,690      643,698    1,028,388
        Capital expenditures                39,168    2,565,245    2,604,413
        Property and equipment           1,177,063    2,596,934    3,773,996
        Total assets                     1,326,853    2,846,480    4,173,333

        Three Months Ended
         September 30, 2006
        Revenue, gross                     107,073       14,355      121,428
        Loss before non-controlling
         interest                           58,194      164,560      222,754
        Capital expenditures                (3,666)         203       (3,463)

        Nine Months Ended
         September 30, 2006
        Revenue, gross                     542,709       37,914      580,623
        Loss before non-controlling
         interest                          291,001      550,745      841,746
        Capital expenditures               227,384       25,315      252,699

        December 31, 2006
        Property and equipment           1,352,759       38,576    1,391,335
        Total assets                     3,254,440    1,239,570    4,494,010

    8.  COMMITMENTS

        The Company has entered into three farm-in agreements in South
        America which require future expenditure commitments as outlined
        below:

        Canadon Ramirez Concession

        Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has
        committed to pay 100% of costs totaling $5,500,000 US, including the
        21% Value Added Tax ("V.A.T."), for work to be conducted on the
        concession within two years to earn a 49% participating interest.

        As of September 30, 2007, the Company has expended $2,520,266 CDN
        ($2,173,406 US) including V.A.T of $426,014 CDN ($367,371 US) on
        seismic costs in respect of the Canadon Ramirez Concession. The V.A.T
        amount is recoverable against V.A.T liabilities generated on sale of
        petroleum production in Argentina.

        Commitment by Year ($000's US)

        Year            Amount
        ----            ------
        2007             4,630
        2008               870
                        ------
                         5,500
                        ------
                        ------

        The Company has entered into a Letter of Guarantee to cover its
        commitment to spend $2,291,618 US for drilling three wells on this
        Concession. The guarantee expires January 31, 2008. Subsequent to
        September 30, 2007 the guarantee has been reduced by $149,172 US for
        funds spent on this project.

        San Jorge Basin Permit

        Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has
        committed to pay 100% of costs totaling $4,620,000 US including
        V.A.T. to earn a 60% participating interest in the entire permit. As
        of September 30, 2007, no amounts have been expended on this permit.
        The V.A.T amount is recoverable against V.A.T liabilities generated
        on sale of petroleum production in Argentina.

        Commitment by Year ($000's US)

        Year            Amount
        ----            ------
        2007               300
        2008             2,595
        2009             1,725
                        ------
                         4,620
                        ------
                        ------

        Laguna de Piedra Concession

        Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has
        committed to pay 40% of costs totaling $1,120,000 US including V.A.T.
        to earn a 25% participating interest in the entire permit.

        As of September 30, 2007, the Company has expended $36,329 CDN
        ($34,660 US) including V.A.T of $4,832 CDN ($4,617 US) on seismic
        costs in respect of the Laguna de Piedra Concession. The V.A.T amount
        is recoverable against V.A.T liabilities generated on sale of
        petroleum production in Argentina.

        Commitment by Year ($000's US)

        Year            Amount
        ----            ------
        2007               310
        2008               810
                        ------
                         1,120
                        ------
                        ------

        The Company entered into a Letter of Guarantee to spend $1,120,000 US
        for work to be conducted on this Concession. The guarantee expires
        July 1, 2008. Subsequent to September 30, 2007 the Company has
        entered into a performance security agreement whereby the guarantee
        has been reassigned to Export Development Canada for a fee. The
        reassignment reduces the Company's requirement to maintain 1.25 times
        the Letter of Guarantee in its bank account (see Note 2).

        The success of the South American operations and recoverability of
        the capitalized costs related thereto are dependent upon the
        development of successful producing properties. Specifically, this
        will require additional financing in amounts sufficient to continue
        the on-going development of the South American operations and to meet
        the related obligations as they become due.

    9.  SUBSEQUENT EVENT - SHARE ISSUANCE

        Subsequent to September 30, 2007 the Company has completed a rights
        offering. The Company shareholders were granted the right to purchase
        one common share for every four common shares held with an exercise
        price of $1.10 per share. The Company issued 8,312,654 common shares
        for proceeds of $9,105,969 net of $37,950 of share issue costs.
    





For further information:

For further information: George F. Fink, President, and CEO or Garth E.
Schultz, Vice President - Finance, and CFO at (403) 269-2289 or by fax at
(403) 265-7488

Organization Profile

Pine Cliff Energy Ltd.

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