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Press release from Marketwire

Pace Reports Continued Oil Growth and Record Production During the First Quarter of 2012

Tuesday, May 08, 2012

Pace Reports Continued Oil Growth and Record Production During the First Quarter of 201220:45 EDT Tuesday, May 08, 2012CALGARY, ALBERTA--(Marketwire - May 8, 2012) - 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 March 31, 2012.HIGHLIGHTSIn Q1 2012 Pace continued its transition to an oil weighted producer, increasing oil production and oil weighting. Oil and NGL production increased 23% from Q1 2011 and averaged approximately 7,200 bbls/d (95% oil, 5% NGL) compared to 5,868 bbls/d in Q1 2011. Pace has increased its oil and liquids weighting to approximately 50% of production from 34% in Q2 2010 when the Company was formed. Total production increased to a record of 14,557 boe/d (on a 6:1 conversion) with oil increasing 22% and natural gas production declining 11% from the same period last year. OPERATIONS Pace's capital program for the winter of 2012 focused on its oil opportunities in Southern and Northwest Alberta along with further developing its waterflood projects at Dixonville and Southern Alberta. During the first quarter, the Company drilled 10 (9.4 net) oil wells and completed 14 (11.1 net) wells and placed 11 (8.8 net) wells on stream. In Southern Alberta oil and liquids production increased 27% year over year averaging approximately 2,300 bbls/d in Q1 2012. During the quarter, the Company drilled 6 (5.4 net) oil wells including 1 net vertical oil well and completed 8 (6.5 net) oil wells. During the quarter a total of the 5 gross wells came on production with average 30 day initial production rates of approximately 120 boe/d (80 bbls/d oil) per well.The Company also initiated a waterflood project in Southern Alberta and converted 6 producing wells into injectors and installed 90% of the additional required infrastructure. Water injection on this pool will start in May 2012. In addition, Pace has identified a number of candidates for alkaline, surfactant, polymer ("ASP") floods on Pace's existing oil pools and is developing an implementation scenario. The Company is increasingly optimistic about its opportunities in Southern Alberta where it has more than 300,000 net acres of land. The Company has an inventory of more than 75 locations and expects this inventory to increase with additional developments on its land. The average drilling, completion, equipping cost of the five Q1 2012 horizontal wells decreased 10% from 2011 to $1.8 million and is an early indication of the targeted drilling and completion cost reductions. The Company has identified further initiatives to reduce drilling, completion and equipping costs by more than 25% with expanded development. These initiatives will not only increase the rate of return on existing projects but will expand the Company's commercial inventory. 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 as well as identify exploitation and enhancement opportunities on its large inventory of legacy oil pools. Pace's Southern Alberta oil program continues to deliver strong economic returns and generates ongoing oil growth.In Northwest Alberta the Company continues to enhance and refine its existing light oil production (approximately 1,000 bbls/d) while focusing on efficiencies and cost reduction related to its low decline natural gas production base. At Haro the Company has a large contingent oil resource play with estimated 1.16 billion barrels of assigned Discovered Petroleum Initially-In-Place and is in the early stages of its evaluation. Haro is an area of seasonal access currently restricted to approximately 90 days each winter. Following last year's results our go forward strategy is to limit capital and test completion methods to determine the best practices to economically develop this large resource. This winter the Company completed its second winter of operations drilling 4 (4.0 net) horizontal Pekisko wells and completing 3 (3.0 net) wells. Pace holds over 95 sections of land and this winter's program was spread across approximately 40km and was directed at land preservation and testing various completion techniques. The drilling program maintains most of the Company's lands in the Haro area for another five years. During the quarter the Company employed a more modest and methodical completion program evaluating two different completion techniques. The first completion technique using a solvent and acid wash was performed open hole on two of the wells. Results of solvent tests had varying inflow and the Company concluded the wells require cemented liners and hydraulic fracture treatments to selectively stimulate portions of the laterals. This work will be performed in the winter of 2013. The third well was completed using a multi-stage slickwater frac and was put on restricted test flowback production mid-March for a three week period. This well produced at oil rates of 50 - 100 bbls/d (average of approximately 60 bbls/d of oil) with oil cuts increasing to 40% during clean-up. Unfortunately, in early April the Company ceased all testing operations and shut- in all its Haro South oil production (approximately 100-150 bbls/d) after identifying premature corrosion of its 8" group line. Production will remain shut- in until the line can be accessed and repaired in late 2012. As mentioned Pace is in the early stages in identifying the techniques and processes to unlock this resource and the Company is encouraged with the knowledge gained during the winter's activities in Haro. The 02-36-101-5W6 well continued to produce along the Company's type curve and the Company estimates that this well will produce approximately 150 mbbl of oil over its life. As the Company continues to de-risk this large resource all-weather roads can be built to provide year round access. The Company's Dixonville property with its large Montney "C" oil pool continues to show strong waterflood response and increased production. In Q1 2012 production for the area averaged over 3,200 bbl/d of oil and more than 3,600 boe/d. During Q1 2012, 6 producing wells were converted to water injectors with additional capital incurred to complete 80% of the additional water injection system. In 2012 the Company will convert an additional 11 wells to water injectors that will be completed late in Q2 or early Q3 2012. Once this work is completed pressure maintenance will be in place over the entire pool. As part of our program of operating cost reduction and execution efficiency the Company will also look to optimize this field by reducing workover, power and maintenance costs and increasing up-time. This large oil pool has significant upside to the Company as the 188 mmbbl oil pool currently has remaining proved reserves of 16.2 mmbbl and is booked at less than 12% recovery. Pace is also in the early stages of work to review potential for ASP application as an enhanced recovery scheme for this pool. Enhanced recovery schemes have additional potential to increase production and add low cost reserves for many years to come at Dixonville. In Red Earth, numerous area operators have highlighted the significant light oil resource potential of the Slave Point. Pace is well positioned with over 30,000 net acres of Slave Point rights that can be pursued over the next winter's program. Pace will continue to monitor industry activity as it establishes area best practices and surrounding activity helps de-risk Pace lands. 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.Financial Highlights:Financial(000s, except per share amounts)Q1 2012Q1 2011Q4 2011Funds from operations$14,727$24,599$26,159Per share- Basic0.310.520.55Per share- Diluted0.310.520.55Net income (loss)$(4,986)$1,687$454Per share- Basic(0.11)0.040.01Per share- Diluted(0.11)0.040.01Total capital expenditures$41,696$45,732$44,129Net acquisitions (dispositions)-(2,000)23Net debt212,873173,245186,129OperationsAverage daily productionOil & NGLs (bbls/d)7,1925,8686,965Natural gas (mcf/d)44,19049,64043,442Combined (boe/d)14,55714,14114,205% Oil & NGLs49%41%49%($/boe)Sales price$47.82$45.22$53.04Royalties(12.51)(9.26)(13.01)Operating expenses(16.11)(13.51)(13.84)Transportation expenses(2.11)(1.68)(2.01)Operating netback$17.09$20.77$24.18In Q1 2011 operating costs were higher than normal as Pace recorded one-time prior period charges on non-operated properties of $1.06 per boe for settlements of processing fees, 13th month adjustments, and maintenance charges. In addition adverse weather and road conditions at Haro increased road maintenance costs and chemical and power costs budgeted for the entire calendar year were incurred in the first quarter. Normalizing these expenses out of the remaining portion of the year, Pace expects annual operating costs to be between $13.75 and $14.50/boe for calendar year 2012.OUTLOOK At Pace, we were early to identify the changes taking place in the natural gas markets and made an aggressive move to transition to an oil weighted producer. Over the past two years we have directed over 90% of our capital to oil opportunities and have transitioned from a gas weighted producer (65% gas on a 6:1 basis) to approximately 50% oil and NGL weighted with 85% of our sales coming from oil. In addition we have built a large oil exploitation inventory and a large oil resource play inventory with the scale and flexibility to pace development through commodity price volatility.Through the past two years we have been successful in increasing our oil production, our oil reserves and our oil weighted cash flows. Pace has strategically built and will continue to build an abundance of development and exploitation oil opportunities on its large land base. Despite the current weakness in gas prices, we have a solid cash flow base and are well positioned for continued growth from our large inventory of oil prospects on our high quality asset base. With the successful results of our program supported by the low decline production base and our large and long-term inventory of oil development opportunities we have a clear path to continued oil growth and adding value. Our capital program is designed to be flexible and we generally target our capital spending to approximate our cash flow. With the widening of oil differentials, our Haro oil volumes being shut-in until late 2012 and continued weak gas prices we are anticipating lower cash flow. Consistent with our stated direction we have adjusted the capital program for the year and expect total capital expenditures to be approximately $85 million for 2012. Despite reduced capital and shut in volumes, we expect year over year oil growth of approximately 15% with oil and liquids production to average 7,000 to 7,300 bbls/d in 2012 and are forecasting gas production to average 41 mmcf/d to 44 mmcf/d. Pace has been focused in its plan and successful in its execution to build a top tier oil weighted real-growth company with a solid asset base and a clear path of continued growth and success.CONFERENCE CALL Pace will host a conference call to discuss Q1 2012 financial results. The conference call will take place on Wednesday, May 9, 2012 at 09:00 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=168440A 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 # 383898. In addition, the webcast will be archived on Pace's website at www.paceoil.ca for a limited time. Pace Oil & Gas Ltd. is a Calgary, Alberta based intermediate sized oil-weighted company with a large portfolio of near term oil resource opportunities in the Western Canadian Sedimentary Basin. Pace has a growing oil production base in the Peace River Arch area with its large Montney pool at Dixonville, its Slave Point light oil resource play at Red Earth and in Southern Alberta, is successfully developing and exploiting a large inventory of identified Mannville channels. In Northwest Alberta, the Company is in the early stages of exploring a large Pekisko oil resource play. Pace has a large land inventory of over 800,000 net acres and a large 3-D seismic database to identify drilling opportunities and uses the newest proven technologies in horizontal drilling, multi-stage completions, and enhanced oil recovery processes to grow its production and reserve base. Pace's common shares trade under the symbol PCE on the TSX and PACEF on the OTC.ADVISORY Natural 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 STATEMENTS Certain 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; andother 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.caORChad KalmakoffPace Oil & Gas Ltd.VP Finance & CFO(403) 303-8504ckalmakoff@paceoil.cawww.paceoil.ca