Pine Cliff Energy Ltd. Announces Fourth Quarter and Annual Results

    CALGARY, April 7 /CNW/ - Pine Cliff Energy Ltd. ("Pine Cliff" or "the
Company") ( (TSX Venture: PNE) is pleased to announce
its financial and operational results for the three months and fiscal year
ended December 31, 2008.


    Annual Financial and Operational Highlights

                                                2008        2007        2006
    Revenue - Oil and Gas                  $ 707,012   $ 582,950   $ 661,100
    Cash Flow from Operations               (725,525)   (784,938)   (168,809)
      Per Share Basic and Diluted              (0.02)      (0.02)      (0.01)
    Net Loss                              (7,541,868) (1,381,454) (1,014,605)
      Per Share Basic and Diluted              (0.17)      (0.04)      (0.03)
    Capital Expenditures and Acquisitions  5,377,190   2,797,763     271,926
    Total Assets                           5,570,015  12,445,994   4,494,010
    Working Capital                        2,316,982   8,378,110   2,963,513
    Shareholders' Equity                   5,044,701  12,205,066   4,239,638
    Oil and Liquids (barrels per day)              1           4           5
    Natural Gas (MCF per day)                    228         198         195

    Quarterly Financial and Operational Highlights

                                   4th         3rd         2nd         1st

    Revenue - Oil and Gas      $ 295,944   $ 129,537   $ 138,415   $ 143,116
    Cash Flow from Operations    (68,211)   (332,184)   (122,517)   (202,613)
      Per Share Basic and
       Diluted                     (0.00)      (0.01)      (0.00)      (0.01)
    Net Loss                  (6,423,691)   (505,953)   (295,111)   (317,113)
      Per Share Basic and
       Diluted                     (0.14)      (0.01)      (0.01)      (0.01)
    Capital Expenditures and
     Acquisitions              1,067,843   1,511,745   2,516,214     281,388
    Total Assets               5,570,015  11,621,915  12,043,617  12,221,650
    Working Capital            2,316,982   3,440,165   5,278,074   7,937,179
    Shareholders' Equity       5,044,701  11,400,311  12,043,617  12,003,398
    Oil and Liquids (barrels
     per day)                          2           1           -           4
    Natural Gas (MCF per day)        453         146         142         168


    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
    The forward-looking information contained herein is expressly qualified
by this cautionary statement.

                                 Three months ended      Twelve months ended
                            December September  December  December  December
                            31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Crude oil and NGLs
     (barrels per day)             2         1         2         1         4
    Natural gas (MCF per day)    453       146       182       228       198
    Total BOE per day(1)          77        25        32        39        37
    (1) Barrels of oil equivalent (BOE) 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.

    During the fourth quarter the Company completed and placed on production
one gross (0.15 net) natural gas well. The well averaged approximately 320 MCF
per day net to the Company during the fourth quarter. Anticipated production
for 2009 from this well is estimated at between 150 and 200 MCF per day net to
the Company. The Company has an expected decline rate of approximately 20
percent on its other production.

                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
      Oil and gas sales      295,944   129,537   112,685   707,012   582,950
    Average Realized Prices
      Crude oil and NGLs
       (per barrel)            53.46    119.90     68.33     90.68     62.75
      Natural gas (per MCF)     6.92      8.74      6.16      8.05      6.91

    Revenue from petroleum and natural gas sales for 2008 increased by
$124,062 from 2007 due to increased natural gas prices and production volumes
due to completion of the above mentioned well. The Company did not have
hedging agreements in either 2008 or 2007 and presently does not have any
future hedging agreements.

                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Crown royalties           74,834    31,888    27,090   162,716   113,257
    Gross overriding
     royalties                10,204     5,568     4,570    28,559    23,755
    Total royalty expense     85,038    37,456    31,660   191,275   137,012

    Crown royalties are significantly higher in 2008 due to the successful
completion of the natural gas well during the fourth quarter of 2008. Gross
overriding royalties are also higher for the same reason.

    New Alberta Crown Royalty Framework (NRF)

    Crown royalty rates in the fourth quarter averaged approximately 25
percent; slightly higher than preceding quarters due to the commencement of
production from the new well. The NRF rates vary by prices as well as
productivity levels. With the current low commodity prices, the new royalty
rates should result in a reduction in the amount the Company will pay to the
Province of Alberta.

    Interest Income
                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Interest income           13,580    21,025    54,443   128,935    76,273

    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 increased its cash balance with
regard to proceeds received from the rights offering done in the fourth
quarter of 2007. The Company was therefore earning interest at higher rates
and on an increased cash balance throughout most of 2008. Interest income for
Q4 2008 decreased by $7,445 from Q3 2008 due to the lower cash balance on hand
as $1.1 million was spent on capital projects in Canada and Argentina in the
fourth quarter of 2008.
    Interest income for 2009 is anticipated to further decline as the Company
continues with its capital program.

    Production Costs
                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Production costs          49,159    27,187    35,090   115,868   134,453
    $ per BOE(1)                7.27     12.17     12.53      8.11     10.48
    (1) Barrels of oil equivalent (BOE) 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.

    Capacity constraints at the gas plant where the majority of the Company's
natural gas production is processed have been resolved resulting in a lower
cost per unit for processing. This, combined with higher production per well
(due to the new well commencing production in Q4), has resulted in significant
reductions in both total costs and production costs per BOE.
    Production costs for 2009 are anticipated to be in the $6 to $7 per BOE

    General and Administrative
                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    G&A expense              339,344   358,105   335,593 1,338,621 1,294,929

    General and administrative expenditures were similar between 2008 and
2007. The majority of the G&A expenses pertain to the Company's operations in
Argentina. With the unsuccessful completion of the three well program on the
Canadon Ramirez Concession, the Company's Board of Directors and management
are reviewing the Company's involvement in Argentina. Any reduction in
activity in Argentina should result in a future decline in G&A expenses.
    Pine Cliff does not have any employees at the present time but has
engaged Bonterra Energy Corp. (Bonterra Corp) a related party (see Related
Party section), to provide management services and engage the services of
consultants on a contract or temporary basis. Pine Cliff's subsidiary
CanAmericas Energy Ltd. (CanAmericas) has also engaged the consulting services
of two individual professionals as senior management and officers of

    Foreign Exchange Loss (Gain)
                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Foreign exchange loss
     (gain)                  (71,892)   26,816    (6,302) (149,010)   27,827

    The Company maintains foreign denominated bank accounts to facilitate its
foreign operations. The gain on foreign exchange in 2008 and the loss in 2007
relates to the depreciation (2007 appreciation) of the Canadian dollar with
the U.S. dollar.
    Late in Q3 and during Q4, the Company advanced sizable amounts of U.S.
funds to the Company's Argentina operations to cover capital costs. Due to the
rapid appreciation of the US dollar against the Canadian dollar, Pine Cliff
experienced a significant gain in Q4. With the reduced cash balances and
significantly less capital commitments (see Liquidity Section), it is
anticipated that any 2009 gain or loss on foreign exchange will be modest.

    Stock-Based Compensation

    Stock-based compensation for 2008 was $381,503 (2007 - $178,826). The
Company has a stock-based compensation plan. The Company records a
compensation expense over the vesting period based on the fair value of
options granted to employees of the management company (see section "Related
Party Transactions"), directors and service providers in respect of the
Company. The Company issued 1,108,000 stock options in Pine Cliff during the
fourth quarter of 2007 and only 65,000 in 2008, causing an increase in stock
based compensation for 2008 over 2007. The Company estimated the 2008 stock
options fair value at $33,761 ($0.52 per option) using the Black-Scholes
option pricing model, assuming a weighted average risk free interest rate of
2.89 percent, weighted average expected volatility of 72.0 percent, weighted
average expected life of 2.5 years and no annual dividend rate. As of December
31, 2008 approximately $146,000 of unamortized stock based compensation exists
with the majority expected to be amortized in 2009.

    Depletion, Depreciation and Amortization and Dry Hole Exploration Costs

    The Company through its subsidiary CanAmericas spent $7,503,452 on
exploration activities in Argentina to earn interests in specific properties.
During 2008, the Company completed a three well exploration program on the
Canadon Ramirez Concessions in Argentina. The program resulted in no
significant reserves being discovered and as a result $6,171,140 of costs
related to this Concession were expensed as dry hole costs, which included
$34,130 for estimated future abandonment costs. The remaining $1,366,442
relates to the Laguna de Piedra Concession that if the development of this
property is successful and proved reserves are obtained, this amount will be
depleted on the unit of production basis, otherwise this amount will be
charged to operations.
    At December 31, 2008, the estimated total undiscounted amount required to
settle the asset retirement obligations was $123,602 (2007 - $69,182). These
obligations will be settled based on the useful lives of the underlying
assets, which extend up to 13 years into the future. This amount has been
discounted using a credit-adjusted risk-free interest rate of five percent.
The discount rate is reviewed annually and adjusted if considered necessary. A
change in the rate would not have a significant impact on the amount recorded
for asset retirement obligations.
    During 2008, the Company provided $330,465 (2007 - $296,724) for
depletion, depreciation and accretion of its property and equipment. The
increase is related to increased production volumes in 2008 due to the
production from the Company's new well in Q4.

    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 it is not liable for current income tax in 2008. However, the
Government of Argentina charges a capital tax equal to one percent of capital
employed in the country and as a result the Company has reported a current tax
expense of $23,132.

    Non-Controlling Interest

    A private foreign company (Foreign Corp.) owns seven percent of
CanAmericas Energy Ltd. (CanAmericas), a 93 percent owned subsidiary of Pine
Cliff. The loss applicable to non-controlling interest for 2008 was $25,179
(2007 - $49,791). The expense of $25,179 has completely eliminated the
investment amount by Foreign Corp.

                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Loss                   6,423,691   505,953   381,561 7,541,868 1,381,454
    Loss per share             (0.14)    (0.01)    (0.01)    (0.17)    (0.04)

    The increase in the 2008 loss over 2007 was predominantly due to the
provision for dry hole costs of $6,171,140 relating to the unsuccessful
exploration of the Canadon Ramirez Concession. The Company is currently
planning to proceed with the drilling of the Laguna de Piedra Concession in
2009; however, Pine Cliff's management and Board of Directors are currently
examining the Company's involvement in Argentina and may reduce its activities
in that country which may result in reducing overall Company costs.

    Cash Flow from Operations
                                 Three months ended      Twelve months ended
                            December September  December  December  December
    ($)                     31, 2008  30, 2008  31, 2007  31, 2008  31, 2007
    Cash flow from
     operations              (68,211) (332,184)  (67,733) (725,525) (784,938)
    Cash flow from
     operations per share      (0.00)    (0.01)    (0.00)    (0.02)    (0.02)

    Cash flow deficiency decreased in 2008 over 2007 as the Company realized
a foreign exchange gain and had an increase in revenue due to a the new well
that came on production in Q4 2008, which was partially offset by a reduction
in non-cash working capital adjustments. The decrease in cash flow deficiency
from Q4 2008 from Q3 2008 was primarily due to the realized foreign exchange
gain and increased oil and gas sales from the new well.

    Liquidity and Capital Resources

    As of December 31, 2008, Pine Cliff had positive working capital of
$2,316,982 (December 31, 2007 - $8,378,110). These funds will be used to cover
the Company's budgeted 2009 capital expenditures of $750,000 in relation to
the drilling of its Laguna de Piedra Concession as well as miscellaneous
capital costs in respect of its Canadian oil and gas operations. The Company
is currently focusing on reducing general and administrative expenses related
to its Argentina operations with a goal to bring operating cash flow into
    The following consolidated financial statements and notes to the
consolidated financial statements have been provided for further details.

    Pine Cliff Energy Ltd.
    Consolidated Balance Sheets

    As at December 31

                                                          2008          2007
      Cash                                         $ 2,624,556   $ 5,769,448
      Restricted term investment (Note 3)                    -     2,689,601
      Accounts receivable                              107,200        71,904
      Prepaid expenditures                              29,602        28,468
                                                     2,761,358     8,559,421

    Property and Equipment (Note 7)
      Property and equipment                         3,878,550     4,638,837
      Accumulated depletion and depreciation        (1,069,893)     (752,264)
                                                     2,808,657     3,886,573
                                                   $ 5,570,015   $12,445,994
      Accounts payable and accrued liabilities       $ 444,376     $ 181,311

    Asset Retirement Obligations (Note 8)               80,938        34,438
                                                       525,314       215,749
    Non-controlling Interests (Note 5)                       -        25,179
    Commitments (Note 10)
    Shareholders' Equity (Note 9)
      Share capital                                 14,588,722    14,588,722
      Contributed surplus                              722,968       341,465
      Deficit                                      (10,266,989)   (2,725,121)
      Accumulated other comprehensive income                 -             -
                                                     5,044,701    12,205,066
                                                   $ 5,570,015   $12,445,994

    Pine Cliff Energy Ltd.
    Consolidated Statements of Loss, Comprehensive Loss and Deficit

    For the years ended December 31

                                                          2008          2007
      Oil and gas sales                              $ 707,012     $ 582,950
      Royalties                                       (191,275)     (137,012)
      Interest income                                  128,935        76,273
                                                       644,672       522,211
      Production costs                                 115,868       134,453
      General and administrative                     1,338,621     1,294,929
      Foreign exchange loss (gain)                    (149,010)       27,827
      Stock-based compensation                         381,503       178,826
      Dry hole exploration costs (Note 7)            6,171,140             -
      Depletion, depreciation and accretion            330,465       296,724
                                                     8,188,587     1,932,759
    Loss Before Taxes and Non-controlling Interests (7,543,915)   (1,410,548)
    Taxes (Note 6)
      Current                                           23,132             -
      Future                                                 -        20,697
                                                        23,132        20,697
    Loss before Non-Controlling Interests           (7,567,047)   (1,431,245)
    Loss applicable to non-controlling interests
     (Note 5)                                           25,179        49,791
    Loss and Comprehensive Loss for the Year        (7,541,868)   (1,381,454)
    Deficit, beginning of year                      (2,725,121)   (1,343,667)
    Deficit, end of year                          $(10,266,989) $ (2,725,121)
    Loss Per Share - Basic and Diluted (Note 9)   $      (0.17) $      (0.04)

    Pine Cliff Energy Ltd.
    Consolidated Statements of Cash Flow

    For the years ended December 31

                                                          2008          2007
    Operating Activities
      Loss for the year                            $(7,541,868)  $(1,381,454)
      Items not affecting cash
        Stock-based compensation                       381,503       178,826
        Dry hole exploration costs                   6,171,140             -
        Depletion, depreciation and accretion          330,465       296,724
        Unrealized foreign exchange loss (gain)              -        27,827
        Future income taxes                                  -        20,697
        Loss applicable to non-controlling interests   (25,179)      (49,791)
                                                      (683,939)     (907,171)
      Change in non-cash working capital
        Accounts receivable                            (35,296)      113,097
        Prepaid expenditures                            (1,134)      (25,814)
        Accounts payable and accrued liabilities        (5,156)       34,950
                                                       (41,586)      122,233
    Cash Used in Operating Activities                 (725,525)     (784,938)
    Financing Activities
      Issue of shares under employee stock option plan       -        74,750
      Issue of shares pursuant to rights offering            -     9,143,919
      Issue costs                                            -       (71,309)
    Cash Provided by Financing Activities                    -     9,147,360
    Investing Activities
      Property and equipment expenditures           (5,377,190)   (2,797,763)
      Restricted term investment                     2,689,601    (2,689,601)
      Change in non-cash working capital
        Accounts payable and accrued liabilities       268,222         7,197
    Cash Used In Investing Activities               (2,419,367)   (5,480,167)
    Unrealized foreign Exchange Gain (Loss) on
     Cash Held in Foreign Currency                           -       (27,827)
    Net Cash Inflow (Outflow)                       (3,144,892)    2,854,428
    Cash, Beginning of Year                          5,769,448     2,915,020
    Cash, End of Year                               $2,624,556    $5,769,448
    Cash Interest Paid                              $        -    $        -
    Cash Taxes Paid                                 $   34,126    $        -

    Notes to the Financial Statements

    For the Years Ended December 31, 2008 and 2007


           Basis of Presentation

           The consolidated financial statements have been prepared by
           management in accordance with Canadian generally accepted
           accounting principles as described below.


           These consolidated financial statements include the accounts of
           the Company and its 93 percent owned subsidiaries CanAmericas
           Energy Ltd. (CanAmericas) and CanAmericas (Argentina) Energy Ltd.
           (CanAmericas Argentina) (see note 5). Inter-company transactions
           and balances are eliminated upon consolidation.

           Measurement Uncertainty

           The preparation of financial statements in conformity with GAAP
           requires management to make estimates and assumptions that affect
           the reported amounts of assets and liabilities and disclosure of
           contingent assets and liabilities as at the date of the balance
           sheets as well as the reported amounts of revenues, expenses, and
           cash flows during the periods presented. Such estimates relate
           primarily to unsettled transactions and events as of the date of
           the financial statements. Actual results could differ materially
           from estimated amounts.

           Amounts recorded for depletion, depreciation and accretion costs
           and amounts used for ceiling test calculations are based on
           estimates of crude oil and natural gas reserves and future costs
           required to develop those reserves. Stock-based compensation is
           based upon expected volatility and option life estimates. Asset
           retirement obligations are based on estimates of abandonment
           costs, timing of abandonment, inflation and interest rates. The
           provision for income taxes is based on judgements in applying
           income tax law and estimates on the timing, likelihood and
           reversal of temporary differences between the accounting and tax
           bases of assets and liabilities. These estimates are subject to
           measurement uncertainty and changes in these estimates could
           materially impact the financial statements of future periods.

           Revenue Recognition

           Revenues associated with sales of petroleum and natural gas are
           recorded when title passes to the customer.

           Joint Interest Operations

           Significant portions of the Company's oil and gas operations are
           conducted jointly with other parties and accordingly the financial
           statements reflect only the Company's proportionate interest in
           such activities.

           Petroleum and Natural Gas Properties and Related Equipment

           The Company follows the successful efforts method of accounting
           for petroleum and natural gas properties and related equipment.
           Costs of exploratory wells are initially capitalized pending
           determination of proved reserves. Costs of wells which are
           assigned proved reserves remain capitalized, while costs of
           unsuccessful wells are charged to earnings. All other exploration
           costs including geological and geophysical costs are charged to
           earnings as incurred. Development costs, including the cost of all
           wells, are capitalized.

           Producing properties are assessed annually or more frequently as
           economic events dictate, for potential impairment. Impairment is
           assessed by comparing the estimated net undiscounted future cash
           flows to the carrying value of the asset. If required, the
           impairment recorded is the amount by which the carrying value of
           the asset exceeds its fair value.

           Costs related to undeveloped properties are excluded from the
           depletion base until it is determined whether or not proved
           reserves exist or if impairment of such costs has occurred. These
           properties are assessed at least annually to determine whether
           impairment has occurred.

           Depreciation and depletion of capitalized costs of oil and gas
           producing properties are calculated using the unit of production
           method. Development and exploration drilling and equipment costs
           are depleted over the remaining proved developed reserves.
           Depreciation of other plant and equipment is provided on the
           straight line method. Straight line depreciation is based on the
           estimated service lives of the related assets which is estimated
           to be ten years.

           Furniture, Equipment and Other

           These assets are recorded at cost and are depreciated on a
           straight line basis over five to ten years.

           Income Taxes

           The Company accounts for income taxes using the liability method.
           Under this method, the Company records a future income tax asset
           or liability to reflect any difference between the accounting and
           tax bases of assets and liabilities, using substantively enacted
           income tax rates. The effect on future tax assets and liabilities
           of a change in tax rates is recognized in net earnings in the
           period in which the change occurs. Future income tax assets are
           only recognized to the extent it is more likely than not that
           sufficient future taxable income will be available to allow the
           future income tax asset to be realized.

           Asset Retirement Obligations

           The Company recognizes an Asset Retirement Obligation (ARO) in the
           period in which it is incurred when a reasonable estimate of the
           fair value can be made. On a periodic basis, management will
           review these estimates and changes, if any, will be applied
           prospectively. The fair value of the estimated ARO is recorded as
           a long-term liability, with a corresponding increase in the
           carrying amount of the related asset. The capitalized amount is
           depleted on a unit-of-production basis over the life of the
           reserves. The liability amount is increased each reporting period
           due to the passage of time and the amount of accretion is charged
           to earnings in the period. Revisions to the estimated timing of
           cash flows or to the original estimated undiscounted cost would
           also result in an increase or decrease to the ARO. Actual costs
           incurred upon settlement of the obligations are charged against
           the ARO to the extent of the liability recorded.

           Stock-based Compensation

           The Company accounts for stock-based compensation using the fair-
           value method of accounting for stock options granted to directors,
           officers, employees and other service providers using the Black-
           Scholes option pricing model. Stock-based compensation expense is
           recorded over the vesting period with a corresponding amount
           reflected in contributed surplus. Stock-based compensation expense
           is calculated as the estimated fair value of the options at the
           time of grant, amortized over their vesting period. When stock
           options are exercised, the associated amounts previously recorded
           as contributed surplus are reclassified to common share capital.
           The Company has not incorporated an estimated forfeiture rate for
           stock options that will not vest, rather, the Company accounts for
           actual forfeitures as they occur.

           Financial Instruments

           Financial instruments are measured at fair value on initial
           recognition of the instrument, into one of the following five
           categories: held-for trading, loans and receivables, held-to-
           maturity investments, available-for-sale financial assets or other
           financial liabilities.

           Subsequent measurement of financial instruments is based on their
           initial classification. Held-for-trading financial assets are
           measured at fair value and changes in fair value are recognized in
           net earnings. Available-for-sale financial instruments are
           measured at fair value with changes in fair value recorded in
           other comprehensive income until the instrument is derecognized or
           impaired. The remaining categories of financial instruments are
           recognized at amortized cost using the effective interest rate

           Cash and restricted cash are classified as held-for-trading and
           are measured at fair value which equals the carrying value and any
           gains or losses are recognized in earnings in the period they
           occur. Accounts receivable are classified as loans and receivables
           which are measured at amortized costs. Accounts payable and
           accrued liabilities are classified as other financial liabilities,
           which are measured at amortized cost.

           Foreign Currency Translation

           The Company translates foreign currency denominated monetary
           assets and liabilities of its integrated foreign subsidiaries at
           the exchange rate in effect at the balance sheet date and non-
           monetary assets and liabilities are translated at historical
           exchange rates. Revenues and expenses are translated at estimated
           transaction date exchange rates except depletion and depreciation
           expense, which is translated at the same historical exchange rates
           as the related assets. Exchange gains or losses are included in
           the determination of net income as foreign exchange gain or loss.

           Basic and Diluted per Share Calculations

           Basic earnings per share are computed by dividing earnings by the
           weighted average number of shares outstanding during the year.
           Diluted per share amounts reflect the potential dilution that
           could occur if options to purchase shares were exercised. The
           treasury stock method is used to determine the dilutive effect of
           common share options, whereby proceeds from the exercise of common
           share options or other dilutive instruments are assumed to be used
           to purchase common shares at the average market price during the


           Capital Disclosures

           Effective January 1, 2008, the Company prospectively adopted the
           Canadian Institute of Chartered Accountants (CICA) Section 1535,
           "Capital Disclosures" which establishes standards for disclosing
           information about the Company's capital and how it is managed. It
           requires disclosures of the Company's objectives, policies and
           processes for managing capital, the quantitative data about what
           the Company regards as capital, whether the Company has complied
           with any capital requirements and if it has not complied, the
           consequences of such non-compliance. The only effect of adopting
           this standard is disclosures about the Company's capital and how
           it is managed (see Note 11).

           Financial Instruments Disclosures and Presentation

           Effective January 1, 2008, the Company prospectively adopted
           Section 3862, "Financial Instruments - Disclosures" and Section
           3863, "Financial Instruments - Presentation." These new accounting
           standards replaced Section 3861, "Financial Instruments -
           Disclosure and Presentation." Section 3862 requires additional
           information 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. The additional
           disclosures required under these standards are included in
           Note 11.

           Recent Accounting Pronouncements

           In February 2008, the CICA issued Section 3064, "Goodwill and
           Intangible Assets", replacing Section 3062, "Goodwill and Other
           Intangible Assets" and Section 3450, "Research and Development
           Costs". Various changes have been made to other sections of the
           CICA Handbook for consistency purposes. The new section will be
           applicable to financial statements relating to fiscal years
           beginning on or after October 1, 2008. The Company adopted these
           standards for its fiscal year beginning January 1, 2009 with no
           impact on its consolidated financial statements.

           In January 2009, the CICA issued Section 1582, "Business
           Combinations", which replaces former guidance on business
           combinations. Section 1582 establishes principles and requirements
           of the acquisition method for business combinations and related
           disclosures. This statement applies prospectively to business
           combinations for which the acquisition date is on or after the
           beginning of the first annual reporting period beginning on or
           after January 2011 with earlier adoption permitted. The Company
           plans to adopt this standard prospectively effective January 1,
           2009 and does not expect the adoption of this statement to have a
           material impact on the Company's results of operations or
           financial position.

           In January 2009, the CICA issued Sections 1601, "Consolidated
           Financial Statements", and 1602, "Non-controlling Interests",
           which replaces existing guidance. Section 1601 establishes
           standards for the preparation of consolidated financial
           statements. Section 1602 provides guidance on accounting for a
           non-controlling interest in a subsidiary in consolidated financial
           statements subsequent to a business combination. These standards
           are effective on or after the beginning of the first annual
           reporting period beginning on or after January 2011 with earlier
           application permitted. The Company plans to adopt these standards
           effective January 1, 2009 and does not expect the adoption will
           have a material impact on the results of operations or financial

           The Accounting Standards Board has confirmed the convergence of
           Canadian GAAP with International Financial Reporting Standards
           (IFRS) will be effective January 1, 2011. The Company has
           performed an initial scoping process in order to ensure successful
           implementation within the required timeframe. The impact on the
           Company's consolidated financial statements is not reasonably
           determinable at this time. Key information will be disclosed as it
           becomes available during the transition period.


           The Company has a line of credit through its subsidiary
           CanAmericas to the lower of its available amount of cash or U.S.
           $3,690,000, which can be drawn by means of letters of guarantee
           and letters of credit. The line of credit may be cancelled without
           notice. No letters of guarantee or credit are currently

           The Company had a letter of guarantee (supported by a restricted
           term investment) to cover its commitment to spend U.S. $2,142,446
           for drilling three wells on the Canadon Ramirez Concession. The
           guarantee expired January 31, 2008.

           The Company had a performance security agreement whereby a
           guarantee to spend U.S. $1,120,000 on the Laguna de Piedra
           concession had been reassigned to Export Development Canada for a
           fee. The guarantee expired June 30, 2008.


           Bonterra Oil & Gas Ltd. (Bonterra O&G), a corporation with common
           directors and management and the former parent of the Company,
           through its wholly owned subsidiary Bonterra Energy Corp.
           (Bonterra Corp) has provided management services to the Company.
           Fees paid for management services totalled $237,600 (2007 -
           $216,000) for the year. The management services agreement may be
           cancelled by the Company with 90 days notice.

           As of December 31, 2008, the Company owed $592 (2007 - $3,976) to
           Bonterra Corp for operating expenditures paid on its behalf.

           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.


           The Company incorporated subsidiary companies, 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 Company (Foreign Corp.). CanAmericas
           was initially financed by investments of U.S. $1,400,000 for
           5,600,000 common shares from the Company and U.S. $100,000 for
           400,000 common shares from Foreign Corp.

           Changes to non-controlling interest were as follows:

                                                       2008          2007
           Non-controlling interest, January 1     $    25,179   $    74,970
           Loss applicable to non-controlling
            interest                                   (25,179)      (49,791)
           Non-controlling interest, December 31   $         -   $    25,179

           Foreign Corp. has been granted options to acquire an additional
           1,000,000 common shares of CanAmericas at U.S. $0.25 per common
           share. The options vested 50 percent on each of January 13, 2007
           and January 13, 2008 and expire on January 13, 2011.


           The Company has recorded a full valuation allowance for its future
           income tax assets as their recoverability is determined not to be
           more likely than not.

                                                       2008          2007
                                                      Amount        Amount
           Future income tax assets:
           Capital assets                          $ 1,807,256   $   182,907
           Asset retirement obligation                  20,235         8,610
           Share issue costs                            20,929        33,627
           Loss carry-forward                          898,328       421,880
           Valuation allowance                      (2,746,748)     (647,024)
                                                   $         -   $         -

           Income tax expense differs from the amounts that would be computed
           by applying Canadian federal and provincial income tax rates as

                                                       2008          2007
           Loss before income taxes and
            non-controlling interests              $(7,543,915)  $(1,410,548)
           Combined federal and provincial income
            tax rates                                     29.5%         32.1%
           Income tax provision calculated using
            statutory tax rates                     (2,225,455)     (452,786)
           Increase (decrease) in income taxes
            resulting from:
             Stock-based compensation                  112,543        57,403
             Argentina capital tax                      23,132             -
             Loss applicable to non-controlling
              interests                                  7,428        15,983
             Change in valuation allowance           2,099,724       264,453
             Change in tax rates                        18,135       126,875
             Other                                     (12,375)        8,769
           Income tax provision                    $    23,132   $    20,697

           The Company has the following tax pools, which may be used to
           reduce taxable income in future years, limited to the applicable
           rates of utilization:
                                                        Rate of
                                                            %         Amount
           Undepreciated capital costs                      25   $   406,824
           Foreign exploration expenditures                 10     5,496,995
           Canadian oil and gas property
            expenditures                                    10       589,981
           Canadian development expenditures                30       586,943
           Canadian exploration expenditures               100       392,110
           Share issue costs                                20        83,715
           Non-capital loss carryforward(1)                100     3,593,315
           (1) $707,698 expires 2026, $929,726 expires 2027, $1,955,891
               expires 2028


                             2008                        2007
                                     Accumulated                 Accumulated
                                   Depletion and               Depletion and
                           Cost     Depreciation       Cost     Depreciation
            and natural
            and related
            equipment  $ 3,825,037   $ 1,041,902   $ 4,585,325   $   734,384
            and other       53,513        27,991        53,512        17,880
                       $ 3,878,550   $ 1,069,893   $ 4,638,837   $   752,264

           As of December 31, 2008, the Company spent $7,503,452 (2007 -
           $2,575,676) for exploration activities for the Canadon Ramirez
           Concession and Laguna de Piedra Concession as discussed in
           Note 10. In 2008, the exploration costs related to the Canadon
           Ramirez Concession of $6,171,140 (which included $34,130 of asset
           retirement obligations) were written-off to dry hole costs as the
           three well program was unsuccessful. Exploration costs of
           $1,366,442 included in petroleum and natural gas properties and
           related equipment presently have been excluded from costs subject
           to depletion and depreciation.


           At December 31, 2008, the estimated total undiscounted amount
           required to settle the asset retirement obligations was $123,602
           (December 31, 2007 - $69,182). Costs for asset retirement have
           been calculated assuming a two percent inflation rate for 2009 and
           thereafter. These obligations will be settled based on the useful
           lives of the underlying assets, which extend up to 13 years into
           the future. This amount has been discounted using a credit-
           adjusted risk-free interest rate of five percent.

           Changes to asset retirement obligations were as follows:

                                                       2008          2007
           Asset retirement obligations, January 1 $    34,438   $    40,240
           Adjustment to asset retirement
            obligation                                  44,778        (7,814)
           Liabilities settled during the year               -             -
           Accretion                                     1,722         2,012
           Asset retirement obligations,
            December 31                            $    80,938   $    34,438



           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.

                                  2008                        2007
           Issued         Number        Amount        Number        Amount
            of year     45,275,695   $14,588,722    36,523,041   $ 5,377,343
            to rights
            offering             -             -     8,312,654     9,143,919
           Share issue
            costs                              -                     (71,309)
           Issued on
            of stock
            options              -             -       440,000        74,750
            surplus to
            capital                            -                      43,322
           Future tax
            benefit of
            issue costs                        -                      20,697
           Balance, end
            of year     45,275,695   $14,588,722    45,275,695   $14,588,722

           The number of common shares used to calculate diluted loss per
           share for the year ended December 31, 2008 is 45,275,695 (2007 -
           38,291,597). The exercise of outstanding stock options would have
           no dilutive effect on per share amounts.

           On October 25, 2007, the Company completed a rights offering
           whereby 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 $9,072,610 net of $71,309 of share
           issue costs.

           A summary of the changes of the Company's contributed surplus is
           presented below:

           Contributed surplus
           ($)                                         2008          2007
           Balance, beginning of year                  341,465       205,961
           Stock-based compensation expensed
            (non-cash)                                 381,503       178,826
           Stock-based options exercised (non-cash)          -       (43,322)
           Balance, end of year                        722,968       341,465

           The deficit balance is composed of accumulated losses.

           The Company may grant options for up to 4,527,569 (2007 -
           3,605,583) common shares. The exercise price of each option
           granted equals the market price of the common share on the date of
           grant and the options' maximum term is five years.

           A summary of the status of the Company's stock option plan as of
           December 31, 2008 and December 31, 2007, and changes during the
           years ended on those dates are presented below:

                            December 31, 2008           December 31, 2007
                         Options         Weighted-   Options        Weighted-
                                         Average                     Average
                                         Exercise                    Exercise
                                          Price                       Price
            of year      3,053,000   $      0.62     2,420,000   $      0.29
            granted         65,000          1.15     1,108,000          1.16
            exercised            -             -      (440,000)         0.17
             cancelled           -             -       (35,000)         0.40
            at end of
            year         3,118,000   $      0.63     3,053,000   $      0.62
            at end of
            year         2,003,500   $      0.33     1,162,500   $      0.18

                          Options Outstanding           Options Exercisable
                   ----------------------------------- ----------------------
                                   Average  Weighted-              Weighted-
        Range of        Number   Remaining    Average       Number   Average
        Exercise   Outstanding Contractual   Exercise  Exercisable  Exercise
        Prices     At 12/31/08        Life      Price  At 12/31/08     Price
        $0.15        1,090,000   1.1 years      $0.15    1,090,000     $0.15
         0.50 - 0.60   825,000   1.1 years       0.51      800,000      0.51
         0.70 - 0.75    80,000   1.1 years       0.72       80,000      0.72
         1.10 - 1.20 1,083,000   1.5 years       1.17       13,500      1.17
         1.40 - 1.50    40,000   2.1 years       1.49       20,000      1.49
        $0.15 - 1.50 3,118,000   1.3 years     $0.63     2,003,500     $0.33

           The Company records compensation expense over the vesting period
           based on the fair value of options granted to employees, directors
           and consultants. Unvested options as of December 31, 2008 vest
           1,057,000 in 2009 and 57,500 in 2010.

           The Company issued 65,000 in 2008 (2007 - 1,108,000) stock options
           with an estimated fair value of $33,761 (2007 - $547,080) ($0.52
           per option (2007 - $0.49 per option)) using the Black-Scholes
           option pricing model with the following key assumptions:

                                                       2008          2007
                                                       ----          ----
           Weighted-average risk free interest
            rate (%)                                   2.89          4.14
           Dividend yield (%)                             -             -
           Expected life (years)                        2.5           2.5
           Weighted-average volatility (%)             72.0          64.8


           The Company had two farm-in agreements in South America which
           require future expenditure commitments as outlined below:

           Canadon Ramirez Concession

           Pine Cliff, through its subsidiaries, has paid 100 percent of
           costs totaling U.S. $5,500,000, including a 21 percent Value Added
           Tax (V.A.T.), for work to be conducted on the concession to earn a
           49 percent participating interest, which included a three well
           drilling program. As of December 31, 2008, all costs relating to
           this concession, including V.A.T. of $1,052,944 (U.S. $967,961),
           have been expensed to dry hole costs as described in Note 7. There
           are no further material farm-in commitments on this property, but
           the Company may decide to do additional exploratory programs in
           the future.

           Laguna de Piedra Concession

           Pine Cliff, through its subsidiaries, has paid 40 percent of costs
           totaling US $1,120,000 including V.A.T. to earn a 25 percent
           participating interest in the entire permit. The Company has plans
           to participate in a one well project which is expected to be
           drilled in 2009.

           The V.A.T amount is recoverable against V.A.T liabilities
           generated on the sale of petroleum production in Argentina. The
           V.A.T amount has been capitalized to exploration costs, as its
           recoverability can not be determined until a successful producing
           property is established.

           The success of the South American operations and recoverability of
           the capitalized costs related thereto are dependent upon the
           development of successful producing properties. This may require
           additional financing to continue the on-going development of the
           South American operations and to meet the related obligations as
           they become due.


           Financial Risk Factors
           The Company undertakes transactions in a range of financial
           instruments including:

           -  Cash deposits;
           -  Receivables;
           -  Payables;

           The Company's activities result in exposure to a number of
           financial risks including market risk (commodity price risk,
           interest rate risk, foreign exchange risk, credit risk, and
           liquidity risk). Financial risk management is carried out by
           senior management under the direction of the Board of Directors.

           The Company does not enter into risk management contracts. The
           Company sells its oil and gas commodities at market prices at the
           date of sale in accordance with the Board directive.

           Capital Risk Management
           The Company's objectives when managing capital are to safeguard
           the Company's ability to continue as a going concern, to continue
           providing returns to its Shareholders and benefits for other
           stakeholders, and to maintain an optimal capital structure to
           reduce the cost of capital. In order to maintain or adjust the
           capital structure, the Company may issue debt or new shares.

           The Company monitors capital on the basis of the ratio of budgeted
           exploration capital requirements to current working capital. This
           ratio is calculated using the projected cash requirements for a
           year in advance and maintaining a working capital balance of at
           least six months to satisfy this requirement on a continuous

           The Company believes that maintaining approximately a six month
           current working capital balance to the exploration capital budget
           requirement is an appropriate basis to allow it to continue its
           future development of the Company's assets.

           The following section (a) of this note provides a summary of the
           Company's underlying economic positions as represented by the
           carrying values, fair values and contractual face values of our
           financial assets and financial liabilities. The Company's working
           capital to capital expenditure requirement ratio is also provided.

           The following section (b) addresses in more detail the key
           financial risk factors that arise from the Company's activities
           including its policies for managing these risks.

           a) Financial assets, financial liabilities

           The carrying amounts, fair value and face values of the Company's
           financial assets and liabilities other than cash are shown in
           Table 1.

           Table 1

                                                   As at December 31, 2008
                                            Carrying        Fair         Face
           ($000)                             Value        Value        Value
           Financial assets
           Accounts receivable                  107          107          142
           Financial liabilities
           Accounts payable and accrued
            liabilities                         444          444          444

           The budgeted capital expenditure to working capital base figures
           for December 31, 2008 is presented below:

           December 31,
           ($000)                                                       2008
           Budgeted capital expenditure(1)                               750
           Current assets                                              2,761
           Current liabilities                                          (444)
           Working capital                                             2,317
           Working capital to budgeted capital expenditure (in months)  37.1
           (1) Budgeted capital expenditure represents the Company's
               estimated future twelve month capital expenditures.

           b) Risks and mitigations

           Market risk is the risk that the fair value or future cash flow of
           the Company's financial instruments will fluctuate because of
           changes in market prices. Components of market risk to which Pine
           Cliff is exposed are discussed below.

           Commodity price risk
           The Company's principal operation is the exploration and possible
           development of its oil and gas properties in Argentina. The
           Company also engages in the exploration and development of oil and
           natural gas properties in Canada. Fluctuations in prices of these
           commodities may directly impact the Company's performance and
           ability to continue with its operations.

           The Company's management currently does not use risk management
           contracts to set price parameters for its production.

           Sensitivity Analysis

           The Company is still in the exploration stage of development of
           its exploration properties and as such generates nominal cash flow
           or earnings from these properties. In addition, the Company's
           petroleum and natural gas operations provide only moderate cash
           flow and as such changes in commodity would have no material
           impact on the Company.

           Interest rate risk
           Interest rate risk refers to the risk that the value of a
           financial instrument or cash flows associated with the instrument
           will fluctuate due to changes in market interest rates. Interest
           rate risk arises from interest bearing financial assets and
           liabilities that Pine Cliff uses. The principal exposure to the
           Company is on its cash balances which have a variable interest
           rate which gives rise to a cash flow interest rate risk.

           Pine Cliff's cash consists of Canadian dollar, U.S. dollar and
           Argentinean Pesos investment chequing accounts. Since these funds
           need to be accessible for the development of the Company's capital
           projects, management does not reduce its exposure to interest rate
           risk through entering into term contracts of various lengths. As
           discussed above, the Company generally manages its capital such
           that its budgeted capital requirements to current working capital
           ratio are at least six months.

           Foreign exchange risk
           The Company has foreign operations, but no revenue from production
           from the foreign properties and currently sells all of its
           Canadian product sales in Canadian currency. The Company has a
           U.S. cash and Argentina Pesos cash balance and earns an
           insignificant amount of interest on its U.S. and Argentinean Pesos
           bank accounts. Funds held in foreign denominated accounts are
           generally held for short periods of time, as the Company transfers
           and converts Canadian funds to foreign currency as payments for
           foreign currency denominated payables come due. As such, Pine
           Cliff does not mitigate exchange rate risk by using risk
           management contracts.

           Credit risk
           Credit risk is the risk that a contracting party will not complete
           its obligations under a financial instrument and cause the Company
           to incur a financial loss. Pine Cliff is exposed to credit risk on
           all financial assets included on the balance sheet. To help
           mitigate this risk, the Company maintains the majority of its cash
           balances with a major Canadian chartered bank and invests in
           secure financial instruments.

           Substantially all of the accounts receivable balance at
           December 31, 2008 ($107,000) and December 31, 2007 ($72,000)
           relates to product sales with Canadian oil and gas companies and
           interest income from major Canadian chartered banks, all of which
           have consistently been received within 30 to 60 days. The Company,
           through its subsidiary CanAmericas, has also a receivable of
           $35,000 for Argentina V.A.T. on non-capital expenditures. The
           Company has taken a full allowance on the V.A.T., as the Company
           has no Argentina income subject to V.A.T. against which to claim
           the receivable.

           The Company assesses quarterly if there has been any impairment of
           the financial assets of the Company. The Company does not have any
           significant credit risk exposure to any single counterparty or any
           group of counterparties having similar characteristics.

           The carrying value of accounts receivable approximates their fair
           value due to the relatively short periods to maturity on this
           instrument. Currently no accounts receivable is greater than 90
           days. The maximum exposure to credit risk is represented by the
           carrying amount on the balance sheet. There are no material
           financial assets that the Company considers past due.

           Liquidity risk
           Liquidity risk includes the risk that, as a result of Pine Cliff's
           operational liquidity requirements:

           -  The Company will not have sufficient funds to settle a
              transaction on the due date,
           -  Pine Cliff will not have sufficient funds to continue with its
              financing of its major exploration projects,
           -  The Company will be forced to sell assets at a value which is
              less than what they are worth, or
           -  Pine Cliff may be unable to settle or recover a financial asset
              at all.

           To help reduce these liquidity risks, the Company:

           -  Has a general capital policy of maintaining at least six months
              of budgeted capital requirements as its working capital base.
           -  Maintains a continuous evaluation approach as to the
              requirements for its largest exploration programs; the Canadon
              Ramirez Concession and Laguna de Piedra Concession.


           The Company has operations in Canada and in South America. All
           operating activities are related to exploration, development and
           production of petroleum and natural gas:

           ($)                               Canada      America       Total
           Year Ended December 31, 2008
           Revenue, gross                   814,901       21,046      835,947
           Loss before non-controlling
            interest                        621,501    6,945,546    7,567,047
           Capital expenditures             607,941    4,769,249    5,377,190
           Property and equipment         1,416,693    1,391,964    2,808,657
           Total assets                   3,884,908    1,685,107    5,570,015

           Year Ended December 31, 2007
           Revenue, gross                   631,963       27,260      659,223
           Loss before non-controlling
            interest                        560,826      870,419    1,431,245
           Capital expenditures              50,234    2,747,529    2,797,763
           Property and equipment         1,111,830    2,774,743    3,886,573
           Total assets                   6,428,371    6,017,623   12,445,994

           Neither the TSX Venture Exchange nor its Regulation Services
           Provider (as that term is defined in the policies of the TSX
           Venture Exchange) accepts for the adequacy or accuracy of this

    %SEDAR: 00021536E

For further information:

For further information: Further information relating to the Company may
be found on as well as on the Company's website at or by contacting: George F. Fink, President and CEO,
Randy M. Jarock, COO, or Kirsten Kulyk, Manager, Investor Relations,
Telephone: (403) 269-2289, Fax: (403) 265-7488, Email:

Organization Profile

Pine Cliff Energy Ltd.

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