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Press release from Marketwire

Pace Reports Improved Oil Weighting With Solid Third Quarter Financial and Operating Results

Monday, November 07, 2011

Pace Reports Improved Oil Weighting With Solid Third Quarter Financial and Operating Results22:27 EST Monday, November 07, 2011CALGARY, ALBERTA--(Marketwire - Nov. 7, 2011) - Pace Oil & Gas Ltd. ("Pace" or the "Company") (TSX:PCE) is pleased to provide an update of its operations and its financial results for the three months ended Sept 30, 2011.During Q3 2011, Pace continued to increase its oil weighting and reduce its operating costs while developing its top tier conventional and resource oil and gas opportunities. In Q3 2011, Pace increased its oil and liquids weighting to 45% and increased total oil and liquids production 30% from Q3 2010. Overall production increased 9% compared to Q3 2010 despite 18mmcf/d of natural gas production being shut in for 11 days due to a third party pipeline turnaround in Northwest Alberta. Pace is also pleased to report that it has decreased its operating expenses in Q3 2011 to $13.38/boe from $15.21/boe in Q3 2010. Both the improvement in oil weighting and the decrease in operating expenses have resulted in a 63% increase in funds from operations to $21 million in Q3 2011 compared to Q3 2010 of $13 million and a 41% per share increase to $0.45 per share from $0.32 per share respectively. Pace's capital program this quarter focused on Peace River Arch assets in Dixonville and its Southern Alberta core area where it had a 100% success in developing its oil properties with horizontal wells. Pace continues to direct substantially all of its investments to its oil properties while growing its resource opportunity base and selectively targeting its high quality sweet gas resource opportunities. Financial Highlights: ProductionQ3 2011 production increased 9% from Q3 2010 and averaged 13,558 boe/d. Q3 2011 oil and liquids production increased 30% to 6,061 bbls/d from 4,668 bbls/d in Q3 2010. Q3 2011 oil and liquids weighting increased to 45% of total production from 38% in Q3 2010. Funds from Operations IncreasesQ3 2011 petroleum and natural gas sales increased 30% to $58.1 million from $44.7 million in Q3 2010. Q3 2011 funds from operations increased 63% to $21.2 million compared to $13.0 million in Q3 2010. Q3 2011 funds from operations per share increased 41% to $0.45/share compared to $0.32/share in Q3 2010. Operating Netback IncreasesQ3 2011 operating expenses decreased 12% to $13.38/boe from $15.21/ boe in Q3 2010. Q3 2011 operating netbacks per boe increased 34% to $20.40/boe from $15.20/boe in Q3 2010. Capital ProgramDrilled 10 gross (9.7 net) oil wells with 100% success including 2 gross (2.0 net) vertical oil wells in Dixonville and 8 gross (7.7 net) oil wells in Southern Alberta.Balance Sheet FlexibilityNet debt at September 30, 2011 was $166 million (Bank debt $152 million with $123 million available on existing credit facilities of $275 million). Five oil hedges in place: 1,000 bbls/d swap at $93.95 Cdn for calendar year 2011; 500 bbls/d collar at $95.00 to $107.20 Cdn for April to December, 2011; 500 bbls/d collar at $95.00 to $108.00 Cdn for April to December, 2011; 500 bbls/d collar at $95.00 to $117.75 Cdn for calendar year 2012; and 500 bbls/d swap at $93.03 Cdn for calendar year 2012. Financial(000s, except per share amounts)Q3 2011Q3 2010Q2 2011YTD 2011YTD 2010Funds from operations$21,174$12,980$25,920$71,693$34,255Per share- Basic0.450.320.541.510.98Per share- Diluted0.450.320.541.500.98Net income (loss)$5,524$(2,500)$9,042$16,253$(3,565)Per share- Basic0.12(0.06)0.190.34(0.10)Per share- Diluted0.12(0.06)0.190.34(0.10)Total capital expenditures$21,794$9,070$15,910$83,436$40,147Net acquisitions (dispositions)---(2,000)4,473Net debt166,273158,692163,459166,273158,692OperationsAverage daily productionNatural gas (mcf/d)44,98146,40849,11147,89441,514Oil & NGLs (bbls/d)6,0614,6686,0776,0033,918Combined (boe/d)13,55812,40314,26213,98510,837% Oil & NGLs45%38%43%43%36%($/boe)Sales price$46.58$39.14$50.32$47.40$41.16Royalties(10.53)(7.02)(10.87)(10.22)(6.58)Operating expenses(13.38)(15.21)(13.20)(13.36)(17.19)Transportation expenses(2.27)(1.71)(2.14)(2.03)(1.85)Operating netback$20.40$15.20$24.11$21.79$15.54OPERATING HIGHLIGHTSPace's investments this quarter continued to focus on oil activities with the additional field work on its waterflood in Dixonville, the start of its horizontal drilling program in Southern Alberta and expanding oil handling in Rainbow through facility expansions and battery upgrades. The unusually adverse weather and operating conditions in Q2 2011 and into Q3 2011 slowed operations and delayed bringing behind pipe production on stream. In the latter part of Q3 2011 Pace resumed its focused capital program including drilling a total of 10 gross (9.7 net) oil wells with 100% success. In Dixonville, Pace's light oil Montney "C" oil pool continues to show strong waterflood response and increased oil production. Pace has initiated Phase 4 of the waterflood expansion and expects to have the entire pool under waterflood by the end of Q1 2012. In Q3 2011, Pace drilled 2 gross (2.0 net) vertical Montney oil wells and converted 4 wells to water injectors. For the balance of the year Pace plans to drill 5 additional vertical wells and 5 horizontal wells with 1 additional vertical well and 7 additional horizontal wells currently planned for 2012. Pace's Dixonville property continues to deliver increased production and increased recoverable light oil reserves. Further maximizing production and improving the recovery factor from this 100% owned light oil pool using tertiary flood techniques is part of Pace's Engineered Oil Initiative. This project is still in the early stages but we believe that tertiary flood techniques like ASP (alkaline surfactant polymer) and related technologies represent significant additional production and reserve upside at Dixonville. In Northwest Alberta, Pace focused its capital on facility enhancements including an upgrade of a battery in Rainbow that will allow for expanded oil takeaway and reduced operating costs from this area. In Haro, Pace is planning a winter program for its Pekisko oil resource play which will see 3 – 5 gross wells drilled and total capital of under $10 million. Building off of our earlier completions and production data, Pace will utilize enhanced completion techniques to maximize the deliverability and recovery of this large oil resource. With the installation of our facilities last winter we do not need nor plan additional pipelining and facility projects this year which will allow us to more efficiently direct capital to this winter's program. We are optimistic that our continued efforts will identify key processes to economically develop this large scale oil resource opportunity in which Pace has over 95 net sections of land.In our Southern Alberta core area, Pace has over 287,000 net acres (over 445 net sections) to exploit. Pace drilled 8 gross (7.7 net) wells in the quarter including 6 gross (6.0 net) horizontal oil wells and 2 gross (1.7 net) vertical oil wells. Four wells are currently on production while four additional wells are in various stages of being completed and or being tied-in and will be on production before year end. Pace applies its proprietary interpretation techniques on its extensive 3D seismic data base to locate these prospects. During Q3 2011, Pace began exploration and development of an additional resource play and while this opportunity is in its early stages of development, the Company expects to have preliminary results by the end of Q2 2012 after further development in the ensuing months. In addition, Pace is focusing on a number of candidates for ASP floods on Pace's existing oil pools and is currently developing an implementation scenario. Pace has extensive knowledge of the many play types in Southern Alberta and is able to develop and grow its prospect inventory through the successful deployment of horizontal drilling and advanced completion technologies. Pace's Southern Alberta oil program delivers strong economic returns and generates ongoing oil growth. In Red Earth, numerous area operators have highlighted the significant light oil resource potential of the Slave Point. Pace is well positioned with over 29 net sections of Slave Point rights that will be pursued during Q4 2011 and Q1 2012. Building off our Slave Point program last winter, Pace is planning an expanded multi-well horizontal drilling program this winter. From our previous successful programs in the Granite Wash and Keg River Pace has created a significant operating platform from which the Slave Point oil can be efficiently developed. Pace is pursuing selective investments in its Deep Basin sweet gas area with the drilling of a Cadomin horizontal well (0.6 net) in Elmworth in Q4 2011 with a follow up location planned for Q1 2012. Pace has accumulated a significant acreage position in the Deep Basin from which it can pursue the resource plays in the Cadomin and Nikanassin while also being able to benefit from higher liquids content in the uphole Cretaceous reservoirs. Pace has a large drill ready inventory of locations to pursue on over 65 net sections when gas prices improve.OUTLOOKPace has been successful on a number of fronts in 2011. Pace has delivered strong year over year growth particularly in oil production, in oil weighting and cash flow per share, while reducing operating cost and generating stronger netbacks. Pace has substantial growth potential in several "resource plays" accompanied by a large low risk conventional reserve base from which to grow organically. Throughout 2011 we have focused on our oil opportunities and have restricted our natural gas investments. Despite delays in getting certain of our planned projects on-line due to extremely harsh operating conditions, our third quarter production met our forecast and we expect average production for 2011 to be on the lower end of our prior guidance of 14,000 to 15,000 boe/d and exit the year at the higher end of this guidance. We expect our capital program for the year to total approximately $100 - $110 million as previously forecasted. For 2012 we will manage our capital program by aligning it with our expected cash flow. Details of our capital program and our 2012 guidance are expected to be released mid-December.On June 28, 2011 Pace instituted a one year Normal Course Issuer Bid allowing the company to purchase up to 5% of its stock on the open market with a daily limit of 33,123 common shares in accordance with the TSX rules. To date the Company has purchased and cancelled 306,900 shares at an average price of $5.18 per share.EXECUTIVE ANNOUNCEMENTPace is pleased to announce the appointment of Mr. Todd Brown as Vice President and Chief Operating Officer. Mr. Brown has enjoyed a very successful career in the petroleum industry bringing over 20 years of upstream oil and gas technical and managerial experience. Mr. Brown is a P.Eng and graduated from the University of Saskatchewan. Mr. Brown has experience in all facets of oil and gas operations and has been highly active in resource play identification and exploitation with an industry leader. CONFERENCE CALLPace will host a conference call to discuss Q3 2011 financial results. The conference call will take place on Tuesday, November 8, 2011 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time).To access and /or participate in the conference call dial 1-877-407-0782 (Toll-Free Canada/USA) or dial: 1-201-689-8567 (International). Participants are advised to dial into the call five minutes prior to the starting time to register. To access and listen to the simultaneous webcast by internet, enter in your web browser: http://www.investorcalendar.com/IC/CEPage.asp?ID=166436 A replay of the conference call will be available for a limited time by dialing 1-877-660-6853. The replay passcode is Account # 286 Conference ID # 382437. In addition, the webcast will be archived on Pace's website at www.paceoil.ca for a limited time.Pace has all of the elements of a top-tier intermediate producer. Pace has a solid oil production base in Dixonville, a significant oil resource play inventory in Southern Alberta combined with its light oil property in Red Earth, plus a prolific natural gas resource base in the sweet spot of the Deep Basin. The Company is excited about the opportunities it has identified and looks forward to delivering solid results in the months and years ahead. Pace trades on the TSX under the symbol PCE.ADVISORYNatural gas is converted to barrels of oil equivalent ("boe") at a ratio of six thousand cubic feet to one barrel of oil. Boe's may be misleading, particularly if used in isolation.FORWARD-LOOKING STATEMENTSCertain statements contained within this press release constitute forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. The use of any of the words "targeting", "continue", "until", "forecast", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. In addition, this press release contains forward-looking statements with respect to: (i) production volumes and expectations regarding the timing of when additional production volumes will be brought on stream; (ii) Pace's drilling plans and the results therefrom including expectations regarding well completions and the start-up of new wells; (iii) future development and exploration activities and the timing thereof; (iv) Pace's plans for the development of its proven and probable undeveloped reserves. With respect to the forward-looking statements contained in this press release, Pace has made assumptions regarding: prevailing commodity prices and exchange rates; availability of labour and drilling equipment; future operating expenses including processing and gathering fees; timing and amount of capital expenditures; government regulation in the areas of taxation, royalty rates and environmental protection; production of new and existing wells and the timing of new wells coming on-stream; and the performance characteristics of oil and natural gas properties. Although Pace 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 Pace 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. These statements speak only as of the date of this press release or as of the date specified in the documents incorporated by reference into this press release, as the case may be. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to:volatility in market prices for oil and natural gas, and in exchange rates;liabilities inherent in oil and natural gas operations and limitations on insurance;changes or fluctuations in production levels;stock market volatility and market valuation of our stock;uncertainties associated with estimating oil and natural gas reserves;competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions and exploration and development programs;geological, technical, drilling, production and processing problems;changes in legislation including changes in tax laws, royalty rates and incentive programs relating to the oil and natural gas industry; and other factors which are included under "Risk Factors" in Pace's Annual Information Form on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The forward-looking statements contained in this document speak only as of the date of this document and Pace does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.FOR FURTHER INFORMATION PLEASE CONTACT: Fred WoodsPace Oil & Gas Ltd.President & CEO(403) 303-8505fwoods@paceoil.caORJudy StriplingPace Oil & Gas Ltd.Executive Vice-President & CFO(403) 303-8502jstripling@paceoil.ca