North Peace Energy Releases Second Quarter 2007 Results



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

    
    Highlights of North Peace's second quarter activities include:

    -   Obtained 100 percent interest in our landholding by buying out our
        joint venture partner's 30 percent share
    -   Successfully completed a $20 million equity financing
    -   Strengthened balance sheet with cash and cash equivalents of
        $12.6 million as at June 30, 2007, and no debt.
    

    Louis Dufresne, President of North Peace, commenting on second quarter
activities noted "the acquisition of the remaining 30% of this asset was an
important, strategic success in a busy quarter. We now have the ability to
operate with autonomy and flexibility having taken over sole ownership of this
asset. Our planning for the pilot project remains on schedule and we are
advancing to construction planned to start late 2008."

    
    Purchase of JV Partner's 30 percent working interest

    -   Now control 100 percent of the asset, and therefore sole ownership
    -   $20 million total cost
        -  $15 million in cash
        -  $5 million in NPE shares (2,270,430 common shares at $2.20 per
           share)
    -   Accretive to shareholders
        -  30 percent of 2.0 to 3.1 billion barrels of discovered resource
           over entire land base
           -  Paid $0.03 to $0.02 per barrel of discovered resource
        -  Includes 30 percent of 1.0 to 1.6 billion barrels in Block B South
           -  At an assumed 30 percent recovery rate the Company paid $0.22
              to $0.12 per barrel of recoverable resource
    -   Highlights management's confidence in commercial potential of land
        base

    CSS Project update:

    -   Increased the 2007 budget to $10 million as result of obtaining 100%
        interest in the land holdings
    -   Finalized a drilling program for additional delineation wells to
        commence in fall 2007
    -   Initiated the process for environmental and EUB approvals and are
        beginning the design basis memorandum for the pilot project
    -   Advancing the process of locking up resources for construction
        -  Identified multiple alternatives for the long-lead items such as
           boilers
        -  Have begun dialogue with potential individuals to work on
           construction of the pilot

    Equity Financing

    -   Total gross proceeds of $20 million
    -   Issued 9,523,810 subscription receipts
    -   Price of $2.10 per subscription receipts, exchanged for common shares
        effective June 28, 2007
    -   Use of Proceeds
        -  Cash portion of property acquisition price ($15 million)
        -  Advance previously announced Cyclic Steam Stimulation ("CSS")
           delineation program
        -  General working capital purposes
    

    Discovered Resources, in accordance with Canadian Oil and Gas Evaluation
Handbook ("COGEH"), are those quantities of oil and gas estimated on a given
date to be remaining in, plus those quantities already produced from, known
accumulations. Discovered resources are divided into economic and uneconomic
categories, with the estimated future recoverable portion classified as
reserves and contingent resources, respectively. No proved or probable
reserves have been assigned to the lands at this time because the bitumen has
not been shown to be economically recoverable. As North Peace is in the early
stages of the project, the resources have not yet been shown to be recoverable
or unrecoverable, thus, they have been classified as discovered resources and
reported as in-place volumes. There is no certainty that it will be
economically viable or technically feasible to produce any portion of the
reported discovered resources.

    
                   Management's Discussion and Analysis of
                              Financial Results
    

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

    
    Date of Report           August 23, 2007
    --------------
    

    Overall Performance
    -------------------
    During the six months ended June 30, 2007 the Company completed a
property acquisition of the remaining 30 percent ownership in its land
holdings in the Red Earth area of northern Alberta, bringing our ownership to
100 percent. Consideration for the acquisition consisted of $15,000,000 in
cash and $4,994,946 in common shares of North Peace (2,270,430 common shares
at a deemed price of $2.20 per share).
    North Peace completed an equity financing and issued 9,523,810
subscription receipts for common shares of the Corporation at an issue price
of $2.10 per subscription receipt. The effective date for the exchange of
subscription receipts for common shares was June 28, 2007.

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

    Interest Income
                                                            Six months ended
                                2007            2006             June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2007       2006
    -------------------------------------------------------------------------
    Interest Income       67,297     30,306          -     97,603          -
    -------------------------------------------------------------------------

    Interest income was $67,297 for the second quarter of 2007 due to the
redeemable term deposit which bears interest at 4% and matures on
September 29, 2007. There was no interest income the first half of 2006. The
increase in interest income from the first quarter of 2007 is due to more cash
on deposit.

    Stock-based Compensation

                                                            Six months ended
                                2007            2006             June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2007       2006
    -------------------------------------------------------------------------
    Stock-based
     Compensation         94,152     55,017  1,466,550    149,169  1,466,550
    -------------------------------------------------------------------------

    Stock-based compensation for the second quarter was $94,152. The increase
from the first quarter in 2007 is due to additional options grants in the
quarter and recognition of the expense for existing stock options. The
stock-based compensation expense in the second quarter of 2006 is due to the
recognition of the expense for performance warrants of $1,466,550.

    Administrative Expenses

                                                            Six months ended
                                2007            2006             June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2007       2006
    -------------------------------------------------------------------------
    G&A expense          331,719    103,281     38,737    435,000     45,947
    -------------------------------------------------------------------------

    Administrative expenses for the second quarter amounted to $331,719
compared to $103,281 for the first quarter of 2007 and $38,737 for the same
period last year. The increase is due to staff additions, increased activity
during the quarter and the company's increase in size and operations.

    Depreciation and Accretion

                                                            Six months ended
                                2007            2006             June 30,
    -------------------------------------------------------------------------
                              Q2         Q1         Q2       2007       2006
    -------------------------------------------------------------------------
    Depreciation and
     Accretion             5,332      5,332          -     10,664          -
    -------------------------------------------------------------------------
    

    The Company had depreciation expense during the second quarter of $1,973
related to office furniture and computer equipment. Accretion related to asset
retirement obligations during the second quarter of $3,359. The increase is
due to the passage of time. There was no depreciation or accretion expense
recognized during 2006.

    Future Income Taxes

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

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

                 2007       2007       2006       2006       2006       2006
                   Q2         Q1         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------

    Revenues   67,297     30,306     30,247     12,563          -          -
    Net Loss
     and
     Compre-
     hensive
     loss     363,906    133,324     44,955     14,981  1,505,287      7,210
    Basic and
     diluted
     Net Loss
     Per share  0.012      0.008      0.003      0.001      0.131      18.03
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    This financial data has been prepared in accordance with Canadian
generally accepted accounting principles expressed in Canadian dollars.

    Liquidity and Capital Resources
    -------------------------------
    At June 30, 2007 the Company had working capital of $12.7 million.

    After completing the acquisition of the 30 percent working interest in
are land holdings we now own the full 100 percent working interest. The
Company's revised 2007 capital program now taking into account a 100 percent
interest is $10 million; however, this amount can be adjusted as circumstances
change. The 2007 capital program will be financed from existing working
capital.
    As at June 30, 2007, the payments due under the office lease commitment
are as follows:

    
    (Cdn)
    -------------------------------------------------------------------------
    2007                                                              41,123
    2008                                                              82,246
    2009                                                              82,246
    2010                                                              82,246
    2011                                                              82,246
    Thereafter                                                           nil
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures were as follows:

                                                          Six months ended
                               2007              2006         June 30,
                       ------------------------------------------------------
                               Q2       Q1         Q2        2007       2006
    -------------------------------------------------------------------------
    Property
     Acquisition       20,160,921        -          -  20,160,921          -
    Land & Lease
     Rentals                8,064   33,630  1,200,251      41,694  4,189,069
    Drilling              131,700  868,387          -   1,000,087          -
    Geological Costs            -   30,000          -      30,000          -
    Other                  26,780    5,354          -      32,134          -
    -------------------------------------------------------------------------
    Total              20,327,465  937,371  1,200,251  21,264,836  4,189,069
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capitalized stock-based compensation and asset retirement obligation
additions are not included in the above table.
    The following table indicates the common shares and stock options issued
and outstanding at June 30, 2007:

                                                                     June 30,
                                                                        2007
    -------------------------------------------------------------------------
    Common shares outstanding                                     38,050,640
    Weighted average number of shares outstanding during the
     period                                                       23,934,940
    Stock options outstanding                                      2,375,500
    Purchase warrants outstanding                                          -
    Performance warrants outstanding                               6,300,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    As at August 23, 2007 there were 38,050,640 common shares outstanding,
2,280,500 stock options and 6,300,000 performance warrants.

    Off Balance Sheet Arrangements
    ------------------------------
    There were no off balance sheet arrangements.

    Transactions with Related Parties
    ---------------------------------
    During the three month period ended June 30, 2007, the Company paid
general and administrative expenses of $nil (12 months ended December 31 2006
- $6,955) to a company controlled by a director, officer and shareholder of
the Company. As at June 30, 2007 the Company accrued legal costs of $90,000
payable to a firm in which a director is a partner. During the first half of
2007 $58,060 of legal costs were paid to the same law firm.

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

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

    Financial Instruments and Other Risks
    -------------------------------------
    The Company's carrying value of cash and cash equivalents, interest
receivable and accounts payable and accruals approximates its fair value due
to the immediate or short-term maturity of these instruments.

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

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

    
        a) Due to the limited number of staff at North Peace, it is not
           feasible to achieve complete segregation of incompatible duties.
        b) Due to the limited number of staff, North Peace does not have a
           sufficient number of finance personnel with all the technical
           accounting knowledge to address all complex and non-routine
           accounting transactions that may arise.
    

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

    Forward-Looking Statements
    --------------------------
    Certain statements contained in this release constitute forward-looking
statements that involve known and unknown risks, uncertainties and other
factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. No assurance can be
given that these expectations will prove to be correct and such
forward-looking statements included in this release 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 release
or as of the date specified in the documents accompanying this release, as the
case may be.
    The Company undertakes no obligation to publicly update or revise any
forward-looking statements except as expressly required by applicable
securities laws.



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

    Balance Sheets, as at
    -------------------------------------------------------------------------
                                                       June 30,  December 31,
                                                          2007          2006
    (Cdn $)                                         (unaudited)     (audited)
    -------------------------------------------------------------------------
    Assets

    Current assets
      Cash and cash equivalents (note 5)          $ 12,605,342  $  3,282,421
      Accounts receivable                              289,801        46,119
      Prepaid expenses                                  20,632        36,000
    -------------------------------------------------------------------------
                                                    12,915,775     3,364,540

    Oil and gas properties (note 6)                 30,069,599     8,658,242
    Advance on oil and gas properties                        -       323,232
    Deferred transaction charges (note 2)                    -       136,709
    Other assets                                        54,583             -
    -------------------------------------------------------------------------
                                                  $ 43,039,957  $ 12,482,723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accruals               $    261,293  $     95,083

    Asset retirement obligations (note 7)              285,210       167,971
    Future income taxes (note 8)                       947,520             -
    -------------------------------------------------------------------------
                                                     1,494,023       263,054
    -------------------------------------------------------------------------

    Shareholders' equity
      Common shares (note 9)                        42,042,733    12,292,052
      Performance warrants                           1,466,550     1,466,550
      Contributed surplus (note 10)                    218,669        33,500
      Deficit                                       (2,182,018)   (1,572,433)
    -------------------------------------------------------------------------
                                                    41,545,934    12,219,669

    -------------------------------------------------------------------------
                                                  $ 43,039,957  $ 12,482,723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments (note 12)
    Financial Instruments (note 13)


    Signed on behalf of the Board:

    "Ian Robertson", Director

    "William S Maslechko", Director



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

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

    -------------------------------------------------------------------------
                           Three months ended           Six months ended
                                  June 30,                   June 30,
    (Cdn $)                   2007          2006          2007          2006
    -------------------------------------------------------------------------

    Revenue
      Interest Income $     67,297  $          -  $     97,603  $          -
    -------------------------------------------------------------------------
                            67,297             -        97,603             -
    -------------------------------------------------------------------------

    Operating expenses
      General and
       administrative      331,719        38,737       435,000        45,947
      Stock-based
       compensation         94,152     1,466,550       149,169     1,466,550
      Depletion,
       depreciation
       and accretion         5,332             -        10,664             -
    -------------------------------------------------------------------------
                           431,203     1,505,287       594,833     1,512,497
    -------------------------------------------------------------------------

    Net Loss and
     Comprehensive
     Loss             $    363,906  $  1,505,287  $    497,230  $  1,512,497
    -------------------------------------------------------------------------

    Deficit at
     beginning of
     period              1,818,112         7,210     1,572,433             -
      Costs relating
       to Juno
       transaction
       (note 2)                  -             -       112,355             -

    Deficit at end
     of period        $  2,182,018  $  1,512,497  $  2,182,018  $  1,512,497
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net Loss per share
     (note 14)
      Basic           $      0.012  $      0.131  $      0.021  $      0.264
      Diluted         $      0.012  $      0.131  $      0.021  $      0.264
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    North Peace Energy Corp.
    Formerly North Peace Energy Inc. and Juno Capital Corp. (see note 2)
    Statements of Cash Flows
    (unaudited)

    -------------------------------------------------------------------------
                           Three months ended           Six months ended
                                  June 30,                   June 30,
    (Cdn $)                   2007          2006          2007          2006
    -------------------------------------------------------------------------

    Cash provided by
     (used in):

    Operating Activities
      Net Loss and
       Comprehensive
       loss for the
       period         $   (363,906) $ (1,505,287) $   (497,230) $ (1,512,497)
      Non-cash charges
       to earnings
        Depletion,
         depreciation
         and accretion       5,332             -        10,664             -
        Stock-based
         compensation       94,152     1,466,550       149,169     1,466,550
    -------------------------------------------------------------------------
                          (264,422)      (38,737)     (337,397)      (45,947)
    Net change in non-cash
     working capital
      Accounts receivable (158,377)       (8,637)     (226,311)       (8,637)
      Prepaid expenses      16,772       (11,500)       15,368       (11,500)
      Accounts payable
       and accruals        (21,105)      157,654      (139,060)       80,166
    -------------------------------------------------------------------------
                          (427,132)       98,780      (687,400)       14,082
    -------------------------------------------------------------------------

    Investing Activities
      Additions to oil
       and gas
       properties      (20,327,465)   (1,200,251)  (21,264,836)   (4,189,069)
      Advance on oil
       and gas
       properties                -      (401,280)            -      (401,280)
      Other assets         (32,224)            -       (58,528)            -
      Net change in
       non-cash working
       capital
        Accounts
         receivable        399,361             -       323,232             -
        Accounts payable
         and accruals     (647,434)            -       125,081             -
    -------------------------------------------------------------------------
                       (20,607,762)   (1,601,531)  (20,875,051)   (4,590,349)
    -------------------------------------------------------------------------

    Financing Activities
      Net proceeds on
       issue of common
       shares           28,773,671     5,197,852    30,551,171    10,467,852
      Cash acquired from
       Juno Capital Corp.
       (note 2)                  -             -       261,845             -
      Deferred financing
       charges                   -       (72,483)       24,354       (72,483)
      Net change in non-cash
       working capital
        Accounts payable
         and accruals        5,027        (9,000)       48,002        (9,000)
    -------------------------------------------------------------------------
                        28,778,698     5,116,369    30,885,372    10,386,369
    -------------------------------------------------------------------------

    Increase in cash
     and cash
     equivalents         7,743,804     3,613,618     9,322,921     5,810,102

    Cash and cash
     equivalents,
     beginning of
     period              4,861,538     2,650,871     3,282,421       454,387
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of period    $ 12,605,342  $  6,264,489  $ 12,605,342  $  6,264,489
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental
     disclosure:
      Cash interest
      received        $      4,120  $          -  $      4,120  $          -
      Cash taxes paid $          -  $          -  $          -  $          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

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

    1.  Nature of Operations

        North Peace Energy Corp. (the "Company") was amalgamated pursuant to
        the provisions of the Business Corporations Act (Alberta) on
        February 6, 2007, the result of a reverse takeover (note 2). The
        Company is in the development stage and its principal business
        activity is the exploration, exploitation and development and
        production of petroleum and natural gas resources in the Province of
        Alberta.

    2.  Reverse Takeover

        On February 6, 2007, Juno Capital Corp. ("Juno") completed its
        qualifying transaction (the "Transaction") with North Peace Energy
        Inc. to acquire all of the issued and outstanding common shares of
        North Peace Energy Inc. in exchange for ten common shares of Juno for
        each issued and outstanding common share of North Peace Energy Inc.
        All outstanding and unexercised stock options and warrants of North
        Peace Energy Inc. were exchanged for equivalent stock options and
        warrants of Juno having regard for the foregoing ten for one ratio.

        Upon completion of the Transaction, Juno consolidated its common
        shares on the basis of one consolidated common share for each five
        issued and outstanding common shares, and amalgamated with North
        Peace Energy Inc. to form the Company under the name "North Peace
        Energy Corp."

        The Transaction has been accounted for as a reverse take-over of Juno
        by North Peace Energy Inc. For accounting purposes, North Peace
        Energy Inc. is the acquirer and the combined entity is considered to
        be the continuation of North Peace Energy Inc., except for the
        authorized and issued share capital which is that of Juno.

        The net assets of Juno were recorded on the balance sheet, as
        follows:
                                                        Number
        (Cdn $)                                      of Shares        Amount
        ---------------------------------------------------------------------

        Assets acquired                                         $    271,016
        Liabilities assumed                                          123,986
        ---------------------------------------------------------------------
        Net assets acquired                                     $    147,030
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Consideration
          Common shares (2,525,000 Juno common shares) 505,000  $    134,422
          Stock options at fair value (252,500 Juno
           stock options)                               50,500        12,608
        ---------------------------------------------------------------------
        Total share capital                                     $    147,030
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The fair value of the net assets of the Company deemed to have been
        acquired by North Peace Energy Inc. was $147,030, consisting of cash
        of $261,845, accounts receivable and prepaid expenses of $9,171 and
        accounts payable of $123,986.

        Transaction costs were $112,355 for North Peace Energy Inc. These
        costs were recorded as deferred transaction costs and at the date of
        the transaction they were recognized in the deficit.

    3.  Basis of presentation

        The accompanying financial statements have been prepared without
        audit. These interim financial statements have been prepared
        following the same accounting policies and methods used in the
        financial statements for the year ended December 31, 2006. These
        financial statements should be read in conjunction with the audited
        year-end financial statements for North Peace Energy Inc.

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

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

    4.  Adoption of new accounting policies

        Financial Instruments

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

           -  Section 3855 - "Financial Instruments - Recognition and
              Measurement" prescribes when a financial asset, financial
              liability, or non-financial derivative is to be recognized on
              the balance sheet as well as its measurement amount depending
              on its classification. This Section also specifies how gains
              and losses on financial instruments are to be presented.

           -  Section 3865 - "Hedges" expands on and replaces Accounting
              Guideline 13 - "Hedging Relationships" by specifying how hedge
              accounting is to be applied and what disclosures are necessary
              when it is applied.

           -  Section 1530 - "Comprehensive Income" introduces new standards
              for reporting and disclosure of comprehensive income.
              Comprehensive income is the change in equity of the Company
              during that period from transactions and other events and
              circumstances from non-owner sources including changes in the
              fair value of financial instruments designated as cash flow
              hedges as well as foreign currency translation amounts related
              to self-sustaining foreign operations.

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

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

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

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

        Other Assets

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

    5.  Cash and cash equivalents

        Included in cash and cash equivalents are redeemable term deposits of
        $8,500,000 and $3,000,000 which bear interest at 4.00% and mature on
        September 26, 2007 & June 28, 2008 respectively.

    6.  Oil and gas properties

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

        Oil and gas interests                     $ 30,069,599  $  8,658,242
        Accumulated depletion and depreciation               -             -
        ---------------------------------------------------------------------
                                                  $ 30,069,599  $  8,658,242
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

        On June 28, 2007 the Company completed a property acquisition of the
        remaining 30 percent ownership in its land holdings in the Red Earth
        area of northern Alberta. Consideration for the acquisition consisted
        of $15,000,000 in cash and $4,994,946 in common shares of North Peace
        (2,270,430 common shares at a deemed price of $2.20 per share).

        Stock-based compensation of $36,000 was capitalized during the six
        months ended June 30, 2007.

    7.  Asset retirement obligations

        The following table represents the reconciliation of the carrying
        amount of the obligation associated with the retirement of the
        Company's petroleum and natural gas interests.

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

        Asset retirement obligations, beginning
         of period                                $    167,971  $          -
        Increase in liabilities                        110,521       167,971
        Accretion                                        6,718             -
        Change in estimates                                  -             -
        ---------------------------------------------------------------------
        Asset retirement obligations, end of
         period                                   $    285,210  $    167,791
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

    8.  Future Income Taxes

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

    9.  Share Capital

        (a)   Authorized

              Unlimited number of common shares
              Unlimited number of first preferred shares issuable in series
              Unlimited number of second preferred shares issuable in series

        (b)   Issued
                                                        Number
                                                     of Shares        Amount
        ---------------------------------------------------------------------

        Balance, December 31, 2006 (restated,
         note 3)                                    16,555,400  $ 12,292,052
        Juno Capital Corp shares (note 2)              505,000       147,030
        Tax effect of Flow-through share
         renouncement (note 8)                               -      (947,520)
        Warrants exercised (i)                       9,196,000     6,897,000
        Equity financing (ii)                        9,523,810    20,000,001
        Property acquisition (iii)                   2,270,430     4,994,947
        Share issue costs (iv)                               -    (1,340,777)
        ---------------------------------------------------------------------
        Balance, June 30, 2007                      38,050,640  $ 42,042,733
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

        ii.   North Peace issued 9,523,810 subscription receipts for common
              shares of the Corporation at an issue price of $2.10 per
              subscription receipt for gross proceeds of $20,000,001.  The
              effective date for the exchange of subscription receipts for
              common shares was June 28, 2007.

        iii.  On June 28, 2007 2,270,430 common shares at a deemed price of
              $2.20 per share were issued as partial consideration for a
              property acquisition (see note 6).

        iv.   Share issue cost relate to the costs incurred for the equity
              issuance of 9,523,810 subscription receipts and the issuance of
              2,270,430 common shares as partial payment for the property
              acquisition.

        (c)   Stock options

        Changes in the number of shares issuable under outstanding options
        were as follows:

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

        Balance, December 31, 2006
         (restated, note 3)              840,000  $       1.00  $       1.00
        Juno Capital Corp options
         (note 2)                         50,500          1.00          1.00
        Options granted(i)               735,000   1.00 - 2.62          1.89
        Contingent options granted(ii)   750,000   1.00 - 2.62          1.54
        Options exercised                      -             -             -
        ---------------------------------------------------------------------
        Balance, June 30, 2007         2,375,500  $1.00 - 2.62  $       1.45
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        i.    The average fair value of the options granted during the first
              half of 2007 is $1.11 per option assuming an average volatility
              of 90% on the underlying shares, an exercise price between
              $1.00 and $2.62, a risk-free interest rate of 3.89% - 4.58%, an
              expected life of 5 years, and an expected dividend rate of 0%.
              The majority of the options vest 1/3 per year on the first,
              second and third anniversary of the date of the grant. Options
              issued to consultants vest upon completion of consulting work
              or at equal amounts at 6 months, 18 months and 30 months after
              the date of grant. The Company has recognized stock-based
              compensation of $185,169 in the first half of 2007, of which
              $36,000 was capitalized to oil and gas properties.

        ii.   In addition, 750,000 stock options have been granted to
              consultants with an exercise price between $1.00 and $2.62;
              these options are contingent on the consultants joining the
              Company as employees. These options vest 1/3 per year on the
              first, second and third anniversary of the date of the grant.
              The contingency on the options was effective until June 30,
              2007 and at that point if the consultants had not joined as
              employees of the Company, the options expire. However it was
              mutually agreed to extend the contingency until July 31, 2007.

        Subsequent to June 30, 2007, 500,000 of the contingent options were
        canceled and 250,000 of the contingent options were formally issued
        to the consultants as part of an engagement to support the Company.
        In addition 400,000 options were issued by the Company for the
        position of Vice President, Engineering. All these options vest 1/3
        per year on the first, second and third anniversary of the date of
        the grant.

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

                                    Options       Options Exercisable
                                  Outstanding
                                    Weighted  Remaining            Weighted
                                    Average    Contra-   Options   Average
        Range of         Number of   Price      ctual    Exerci-    Price
        Exercise Price    Options  Per Share  Life (yrs)  sable   Per Share
        ---------------------------------------------------------------------
        $1.00             1,715,500    $1.00     3.62     100,500     $1.00
        $1.55 - $2.62       660,000     2.60     4.91           -         -
        ---------------------------------------------------------------------
                          2,375,500    $1.45     4.12     100,500     $1.00
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (d)   Purchase Warrants

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

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

        (e)   Performance Warrants

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

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

        Exercisable, June 30, 2007                           -  $          -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The remaining contractual life of the outstanding and exercisable
        performance warrants is 3.5 years.

    10. Contributed surplus
                                                       June 30,  December 31,
        (Cdn $)                                           2007          2006
        ---------------------------------------------------------------------

        Balance, beginning of period              $     33,500  $          -
        Stock-based compensation
          Expensed                                     149,169        33,500
          Capitalized                                   36,000             -
        ---------------------------------------------------------------------
        Balance, end of period                    $    218,669  $     33,500
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. Related party transactions

        As at June 30, 2007, there is a balance of $90,000 (December 31, 2006
        - $105,000) due to a law firm in which a director is a partner.
        During the first half of 2007 $58,060 of legal costs were paid to the
        same law firm.

    12. Commitments

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

    13. Financial instruments

        Fair value

        The Company's carrying value of cash and cash equivalents, interest
        receivable and accounts payable and accruals approximates its fair
        value due to the immediate or short-term maturity of these
        instruments.

    14. Loss per Share

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

                          Three months ended            Six months ended
                                June 30,                     June 30,
                      -------------------------------------------------------
                              2007          2006          2007          2006
        ---------------------------------------------------------------------

        Net loss
         (Cdn $)      $   (363,906) $ (1,505,287) $   (497,230) $ (1,512,497)
        Weighted
         average number
         of shares
         outstanding    30,187,813    11,449,467    23,934,940     5,724,833
        Basic loss
         per share    $      0.012  $      0.131  $      0.021  $      0.264
        Diluted loss
         per share    $      0.012  $      0.131  $      0.021  $      0.264

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

        The Company is in a loss position for the period, therefore all
        dilutive instruments are anti-dilutive in nature.
    

    %SEDAR: 00019211E




For further information:

For further information: Louis Dufresne, President & CEO, James
Glessing, Vice President, Finance & CFO, North Peace Energy Corp., 470, 505 -
3rd Street SW, Calgary, Alberta, T2P 3E6, Telephone (403) 262-6024, Facsimile:
(403) 262-6072, E-mail: info@northpec.com, www.northpec.com; Or Stephanie K
Mesher, Bryan Mills Iradesso, (403) 503-0144 ext. 216, smesher@bmir.com

Organization Profile

NORTH PEACE ENERGY CORP.

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