Pegasus Oil & Gas announces results for second quarter of 2007



    /NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN
    THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY
    CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW./

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

    CALGARY, AB, Aug. 16 /CNW/ - Pegasus Oil & Gas Inc. ("Pegasus" or the
"Company") is pleased to announce a successful second quarter with 100%
drilling success, increased production, strategic farm-in and the closing of
an equity financing. The Company has filed its unaudited financial statements
and related management's discussion and analysis ("MD&A") for the three months
and six months ended June 30, 2007 on www.pegasusoilgas.com and www.sedar.com.
Certain selected financial and operational information for the three months
and six months ended June 30, 2007 are set out below and should be read in
conjunction with Pegasus' financial statements and related MD&A.

    
    OPERATIONAL AND CORPORATE HIGHLIGHTS

    -   Q2 2007 drilling program resulted in the drilling of 3 gross (2.9
        net) wells with a 100% success rate

    -   Q2 2007 production of 472 boe/d was up 38% over Q1 2007 production

    -   Cash flow from operations increased to $0.6 million up 33% over
        Q1 2007

    -   Closed a $9 million bought deal equity financing on May 9, 2007

    -   Exited Q2 2007 with working capital of $3.5 million and no bank debt

    -   Entered into a strategic farm-in agreement in the Crossfield area
        giving Pegasus access to over 193,000 contiguous acres of undeveloped
        land

    -   Credit facility increased to $10 million up 67% over Q4 2006 based on
        year-end reserve report


    Corporate Highlights
    -------------------------------------------------------------------------
                                   Three months  Three months     Six months
                                          ended         ended          ended
                                        June 30,     March 31,       June 30,
                                           2007          2007           2007
    -------------------------------------------------------------------------
    Financial ($000s except per
     share amount)
    Petroleum and natural gas sales       1,937         1,443          3,380
    Cash flow from operations
     (note 1)                               599           452          1,052
      Per basic share                      0.02          0.02           0.04
      Per diluted share                    0.02          0.02           0.04
    Net loss                               (709)         (596)        (1,305)
      Per basic share                     (0.03)        (0.02)         (0.05)
      Per diluted share                   (0.03)        (0.02)         (0.05)
    Capital expenditures                  3,734         4,208          7,941
    Working capital (deficiency)          3,489        (1,629)         3,489
    Shareholders' equity (deficiency)    38,561        30,494         38,561
    Shares outstanding
      Class A                            23,940        20,190         23,940
      Class B                             1,012         1,012          1,012
      Options                             2,220         2,120          2,220
    Basic and diluted shares (weighted)
     (note 2)                            26,111        24,672         25,045

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

    Operating
    Average daily production
      Natural gas (mcf/d)                 2,579         1,756            407
      Crude oil (bbls/d)                      5            11              8
      NGLs (bbls/d)                          37            39             38
      Barrels of oil equivalent
       (boe/d)(note 3)                      472           342            407
    Average selling price
      Natural gas ($/mcf)                  7.31          7.61           7.43
      Crude oil ($/bbl)                   53.84         48.08          50.06
      NGLs ($/bbl)                        58.28         55.45          56.82
      BOE ($/bbl)                         45.12         46.84          45.84
    Netback per BOE (6:1) ($)
      Petroleum and natural gas sales     45.12         46.84          45.84
      Royalties                           (7.38)        (7.28)         (7.34)
      Operating costs                    (11.74)       (11.87)        (11.79)
      Transportation costs                (1.28)        (1.16)         (1.25)
      Operating netback                   24.70         26.52          25.45
    -------------------------------------------------------------------------

    Note 1:  Management uses cash flow from operations (comprised of cash
             flow from operating activities before changes in non-cash
             working capital) to analyze operating performance leverage. Cash
             flow from operations as presented does not have any standardized
             meaning prescribed by Canadian GAAP and therefore it may not be
             comparable with the calculation of similar measures for other
             entities.
    Note 2:  Class B share conversion: June 30, 2007 @ $2.68/share;
             March 31, 2007 @ $2.26/share; December 31, 2006
             @ $2.84/share.
    Note 3:  References in this report to boe refer to barrel of oil
             equivalent whereby natural gas volumes have been converted at a
             rate of 6 thousand cubic feet of natural gas to 1 barrel of oil.
    

    Operations Overview

    During the second quarter of 2007, Pegasus drilled 3 (2.9 net) wells with
a 100% success rate. All three wells were drilled at the end of the quarter in
the Crossfield area of Central Alberta. Additionally, the Company entered into
a strategic farm-in agreement in the Crossfield area giving Pegasus access to
over 193,000 contiguous acres of undeveloped land. Production for the quarter
increased 38% over the first quarter to average 472 boe/d.
    At the Company's Crossfield property in Central Alberta, 5 (4.3 net)
wells were drilled and cased as potential Basal Quartz gas producers in the
first half of 2007. Two of the wells were drilled in the first quarter of
2007, and three more were spud prior to the end of June. The remaining three
(2.9 net) wells of the eight well program were drilled and cased prior to the
July 31st, 2007 commitment date. The Company has commenced completion and
testing operations on these wells and anticipates preliminary production test
results in the third quarter of 2007. The drilling targets at Crossfield
consist of liquid-rich natural gas pools situated within an incised Basal
Quartz channel sand at approximately 2,100 meters in depth.
    Pegasus significantly expanded its Crossfield core area by signing a
strategic farm-in agreement giving the Company access to over 300 net sections
of undeveloped land. Mineral rights are below the top of the Mannville Group
with prospective drilling targets in the Glauconite, Basal Quartz, Pekisko,
Wabamun and Nisku formations. The agreement also allows for access to
250 square miles of 3D seismic and 1,350 miles of 2D seismic data.
    Production for the second quarter of 472 boe/d was up 38% over the first
quarter 2007 average of 342 boe/d. The Company currently has behind pipe
volumes of 550-650 boe/d for wells that have been tested to date. Of the eight
wells drilled and cased at Crossfield, currently 5 (3.9 net earning) have been
completed and flow tested at a combined rate of 400-500 boe/d (100-125 boe/d
per well) net to Pegasus.

    Outlook

    In the second half of 2007 the Company will be very active participating
in the drilling of 14 (12.6 net) wells. Current plans include the drilling of
9 (8.1 net) wells in the third quarter alone with the balance of the wells
being drilled in the fourth quarter. In addition to Crossfield, Pegasus will
also be drilling wells in the Chigwell and Cygnet areas of Central Alberta.
Pegasus will continue its exploration focus on the existing, and more recently
expanded, Central Alberta asset, as well as the Peace River Arch area of
Alberta.
    With the successful conclusion of drilling and casing all 8 (7.2 net)
wells in the Crossfield area, Pegasus will focus its effort on the testing,
completion and tie-in of these wells. Pegasus anticipates releasing more
detailed test and production information on this program in the third quarter
2007.
    The Balzac gas plant that processes the gas and liquids produced from the
Crossfield area will be shut-in during a 45-day turnaround in August and
September. While the turnaround will affect production volumes and averages
during the third quarter of 2007, the timing allows Pegasus to complete the
testing program and equip and tie-in wells from the 8 well drilling program.
All existing production from the wells in this area will resume after the
turnaround is completed near the end of the third quarter.
    Complimentary to the existing Crossfield area, the recently announced
farm-in agreement is very strategic to the Company's current core area focus
in Central Alberta. The farm-in lands have greatly expanded the Company's land
base and exploratory drilling opportunities in the Crossfield and greater
area. Three wells targeting the Pekisko will be drilled in the fourth quarter
of 2007 with an additional 4 wells being drilled in the first half of 2008.
Geological and geophysical interpretation is ongoing and the Crossfield
property will continue to be a major focus area for the Company. Pegasus now
has access to over 750 square miles of 3D seismic and 1350 miles of 2D
seismic.
    Pegasus spud a Sinclair Doig deep pool test well on July 28th, 2007.
Drilling of this 3,100 meter well is scheduled for 40 days from spud to rig
release. The Company has farmed-in to the mineral rights on these lands on a
pay 100% to earn 70% working interest basis. Pegasus is participating in 100%
of the drill costs for this well.
    In addition to the Sinclair Doig exploration well, Pegasus will be
drilling a high impact exploratory well in the Chinchaga area of Northern
Alberta. The target is light oil and the well is expected to be spud in late
fall, 2007. Pegasus continues to focus on internally generating additional
drilling opportunities using its large seismic datasets, coupled with our
experienced technical team.
    The third quarter of 2007 will be the most active drilling quarter for
Pegasus since inception. The quarter will focus on both our ongoing drilling,
completion and testing of the eight well Basal Quartz program at Crossfield,
as well as our high impact exploration wells. Success from these drilling
efforts will be seen in the fourth quarter of 2007 and into early 2008.
    With the Balzac plant turnaround and weather delays resulting from an
extended break-up, Pegasus is revising its average 2007 guidance to
600-700 boe/d, however, the Company is maintaining its 2007 exit guidance of
1,200 -1,400 boe/d. The majority of the incremental production will be coming
on stream in the fourth quarter of 2007.
    Pegasus has amassed a large drilling inventory of development and
exploration wells and continues to generate additional opportunities that will
position the Company for solid growth in the second half of 2007 and beyond.
    As referred to above, to view Pegasus' unaudited financial statements and
related MD&A for the three months and six months ended June 30, 2007 please
visit www.pegasusoilgas.com or www.sedar.com. To the extent investors do not
have access to the internet, copies of the unaudited financials and related
MD&A can be obtained on request without charge by contacting Pegasus at
(403) 521-5282 or at 101 10th Street NW, Calgary, Alberta T2N 1V4.
    The Company currently has 23.94 million Class A and 1.012 million Class B
Shares outstanding.

    Forward-looking statements

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

    Note: Boe means barrel of oil equivalent on the basis of 1 boe to
6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used
in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural
gas is based on an energy equivalency conversion method primarily applicable
at the burner tip and does not represent a value equivalence at the wellhead.

    The TSX Venture Exchange does not accept responsibility for the
    adequacy or accuracy of this release.

    %SEDAR: 00005637E




For further information:

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

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Pegasus Oil & Gas Inc.

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