Pegasus Oil & Gas announces results for third quarter of 2007


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

    CALGARY, Nov. 22 /CNW/ - Pegasus Oil & Gas Inc. ("Pegasus" or the
"Company") is pleased to announce a successful third quarter with 82% 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
nine months ended September 30, 2007 on and Certain selected financial and operational information for the
three months and nine months ended September 30, 2007 are set out below and
should be read in conjunction with Pegasus' financial statements and related


    -   Q3 2007 drilling program resulted in the drilling of 13 gross
        (8.5 net) wells with a 82% success rate

    -   Based on the successful Q3 drilling program, current production based
        on field estimates has reached approximately 700 boe/d (48% increase
        over Q2 2007 average) with 300-350 boe/d of tested behind pipe

    -   Successful execution of the 8 (6.4 net earning) well Basal Quartz
        drilling program at Crossfield resulting in approximately
        525-575 boe/d net with an implied capital efficiency of approximately
        $19,000/flowing boe. Total Crossfield production, net to Pegasus,
        will be approximately 650-700 boe/d when the remaining wells are
        tied-in in the fourth quarter

    -   Closed a $12 million bought deal equity financing on September 11,

    -   Exited Q3 2007 with positive working capital of $3 million and no
        bank debt

    -   Commenced drilling of the first of seven Pekisko horizontal wells on
        the 193,000 acre strategic 'freehold' farm-in in the Crossfield area

    -   Board approved 2008 capital budget of up to $19.5 million which would
        result in the drilling of approximately 15 (10.7 net) wells next year

    -   Received EUB pre-submission H2S approval for a Devonian test at

    Corporate Highlights

                                  Three months   Four months    Nine months
                                      ended          ended          ended
                                  September 30,  September 30,  September 30,
                                      2007           2006           2007
                                                  (note 4)
    Financial ($000s except per
     share amount)
    Petroleum and natural gas sales        1,209           304         4,590
    Cash flow (deficit) from
     operations (Note 1)                    (437)         (285)          615
      Per basic share                      (0.02)        (0.02)         0.02
      Per diluted share                    (0.02)        (0.02)         0.02
    Net loss                              (1,574)         (777)       (2,879)
      Per basic share                      (0.05)        (0.06)        (0.11)
      Per diluted share                    (0.05)        (0.06)        (0.11)
    Capital expenditures                  11,183         4,539        19,125
    Working capital                        3,007         3,672         3,007
    Shareholders' equity                  48,606        14,644        48,606
    Shares outstanding
      Class A                             27,580        11,990        27,580
      Class B                              1,012         1,012         1,012
      Options                              2,495         1,300         2,495
    Basic and diluted shares
     (weighted) (Note 2)                  29,105        13,045        26,835


    Average daily production
      Natural gas (mcf/d)                  2,039           414         2,126
      Crude oil (bbls/d)                      11             1             9
      NGLs (bbls/d)                           23             1            33
      Barrels of oil equivalent
       (boe/d) (Note 3)                      374            77           396
    Average selling price
      Natural gas ($/mcf)                   5.43          5.77          6.79
      Crude oil ($/bbl)                    58.58         57.24         53.61
      NGLs ($/bbl)                         61.86         41.58         58.00
      BOE ($/bbl)                          35.15         35.11         42.44
    Netback per BOE (6:1) ($)
      Petroleum and natural gas sales      35.15         35.11         42.44
      Royalties                            (4.68)        (7.23)        (6.50)
      Operating costs                     (13.90)       (12.33)       (12.46)
      Gas plant turnaround costs
       (Note 5)                           (12.53)            -         (3.99)
      Transportation costs                 (1.27)        (1.53)        (1.25)
      Operating netback                     2.77         14.02         18.24

    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: September 30, 2007 @ $2.29/share;
              September 30, 2006 @ $2.49/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
    Note 4:   The Company changed its year-end from May 31 to December 31.
    Note 5:   The gas plant turnaround costs relate to the major turnaround
              done at the Balzac gas plant in Crossfield, Alberta.

    Operations Overview

    During the third quarter of 2007, Pegasus drilled 13 (8.5 net) wells with
an 82% success rate. Three (2.6 net earning) wells were drilled at Crossfield
fulfilling the BQ/Ellerslie farm-in agreement for that area. The balance of
the wells were drilled at Cygnet/Chigwell, Alberta with one abandoned well at
Sinclair, Alberta. Pegasus incurred capital expenditures of $11.1 million for
the quarter, with the year to date total being $19.1 million. The Company
expects to invest an additional $9.5 million in the fourth quarter.
    At the Company's Crossfield property in Central Alberta, the remaining
3(2.6 net earning) wells of an 8 (6.4 net earning) well BQ/Ellerslie drilling
program were drilled and cased in the third quarter. Two of the wells were
fracture stimulated and one well is currently perforated and standing to
further evaluate the extended build-up analysis. To date, approximately
275 boe/d is on production with another 250-300 boe/d behind pipe with an
anticipated on-stream date of December 15th, 2007. The implied capital
efficiency for this program was approximately $19,000/flowing boe.
    Pegasus significantly expanded its Crossfield core area through the
signing of a strategic farm-in agreement on freehold mineral lands. The
agreement gives 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 access to 250 square miles of 3D seismic
and 1,350 miles of 2D seismic data. Pegasus has committed to drill seven wells
on these freehold lands. The first Pekisko horizontal well is currently
drilling and results from this well are expected prior to year-end.
    During the fourth quarter of 2007, the Company drilled an exploratory
well in the Chinchaga area of Northern Alberta which has been dry and
abandoned. Pegasus finalized an eleven section farm-in in this area and will
be spudding an additional exploratory Slave Point test in early 2008.
    Production for the third quarter averaged 374 boe/d, down slightly from
the second quarter. The decrease in quarterly production was a direct result
of the major turnaround at the Balzac Gas Plant. Major plant turnarounds on
this facility are conducted every five years. The turnaround lasted longer
than originally scheduled impacting third quarter volumes and cash flow;
however all of the production was brought back on-stream in November after the
turnaround was completed. Turnaround costs of approximately $431,000 were
included in operating costs for the quarter.
    With the new well tie-ins at Crossfield, current corporate production has
increased substantially to approximately 700 boe/d (based on field estimates).
The Company also has behind pipe volumes of 300-350 boe/d for wells that have
been tested to date.


    Pegasus' recently announced freehold 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. Noteworthy is the fact that
approximately 190,000 acres are freehold mineral based and thus these lands
are not encumbered by the Alberta governments recently announced crown royalty
changes. In the fourth quarter of 2007, the Company will initiate drilling on
these lands providing a strategic royalty advantage to its Alberta assets.
This is significant considering 70-80% of Pegasus' 2008 drilling activity will
be focused on these lower royalty rate freehold lands.
    Three wells targeting the Pekisko formation on freehold lands will be
drilled in the fourth quarter of 2007. The additional four wells of a seven
well program will be drilled in the first half of 2008. Prospective horizons
in the area range from the top of the Mannville formation to the deeper seated
Wabamun and Nisku formations. Geological and geophysical interpretation is
ongoing and, with access to over 250 square miles of 3D seismic and additional
2D seismic the Crossfield property, will continue to be a major focus area for
the Company.
    With the success of the BQ/Ellerslie drilling program at Crossfield,
Pegasus continues to high grade its drilling inventory in this play. It is
anticipated that an additional 3 wells will be drilled next year to further
delineate the pool boundaries adding production and reserves at attractive F&D
metrics in this core area.
    The Company has generated two high impact exploration opportunities under
its 750 square miles of 3D seismic. One of the high impact wells is scheduled
for the first quarter of 2008 and the other well will be drilled in the second
half of the year.
    The extended Balzac Gas Plant turnaround resulted in an additional 45
days of unscheduled downtime affecting 2007 average production. Pegasus is now
estimating average production of approximately 500 boe/d for 2007. All shut-in
volumes were brought back on-stream in November after the gas plant turnaround
was completed. With current production of approximately 700 boe/d,
300-350 boe/d of behind pipe volumes being tied-in or awaiting tie-in and an
active fourth quarter drilling program, the Company is expecting its 2007 exit
production to be approximately 1,200 boe/d. Achieving the exit volume will
depend on the fourth quarter drilling success and the ability to have these
new volumes tied-in and producing by year-end.
    Pegasus is budgeting capital expenditures of up to $19.5 million for
2008. This would result in the drilling of approximately 15 (10.7 net) wells.
As discussed, approximately 70-80% of these wells are planned on the freehold
lands in the Crossfield and Strathmore areas. The 2008 capital budget will be
finalized in early 2008.
    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 2008.
    As referred to above, to view Pegasus' unaudited financial statements and
related MD&A for the three months and nine months ended September 30, 2007
please visit or 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 27.58 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
    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. 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.

    %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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