Pace Oil & Gas Emerges As A Growth Oriented Intermediate Producer With Significant Oil And Natural Gas Resource Opportunities

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CALGARY, ALBERTA--(Marketwire - Aug. 11, 2010) - Pace Oil & Gas Ltd. (TSX:PCE) ("Pace or the "Company") is pleased to announce its financial and operating results for the three and six months ended June 30, 2010 and its plans for the remainder of this year.

Pace Oil & Gas Ltd. was formed on June 29, 2010, through the merger of Midnight Oil Exploration Ltd. (Midnight), and Provident Energy Trust's upstream oil and natural gas production business ("PubCo"). PubCo assets provide a solid long life, low decline commodity balanced production base with significant oil resource play potential that is complemented by Midnight's high potential natural gas resource operations in the "sweet spot" of the Deep Basin at Elmworth and Wapiti. Because the transaction was accounted for as PubCo acquiring Midnight, the historic financial results including the second quarter results up to June 29, 2010 are only the results of PubCo and include the results of Midnight for one day. Therefore, the results do not reflect Pace including Midnight or as a fully functioning operating entity. In addition, these results do not reflect the tremendous potential for growth and operating efficiencies we believe Pace will develop and grow over the following quarters.

Pace is a growth oriented intermediate sized oil and sweet natural gas production company operating in Alberta and headquartered in Calgary. Pace is run by the former Midnight team who looks to apply the leading edge skills and expertise proven in its highly successful tight gas resource development in the Deep Basin to the already identified oil resource opportunities of Pace.

Pace has all of the key elements of a highly successful intermediate exploration, development and production company including: a long life production base with solid cash flow (55% from oil and liquids),top tier oil and natural gas resource portfolio and a proven management team with high end technical and business execution skills. Pace is well positioned with a large inventory of oil and gas resource plays to grow organically, through the drill bit, and through selected strategic acquisitions. 

On the oil side, our opportunities are highlighted by our large light oil property at Dixonville, with approximately 150 million barrels of oil in place, it is the cornerstone of our solid long life oil production. This oil pool (30o API) was put under a staged waterflood development to maximize effectiveness and ultimate recovery. We have seen positive early responses from phases 1 and 2 of the waterflood with 500 bbls/d incremental oil production and we will be fast tracking our development of phases 3 and 4. This property has a reserve life index of over 20 years and is currently producing approximately 2,000 bbls/d.

Pace has numerous other oil resource opportunities that we are developing including a Pekisko oil play in Haro. This play has been developing for a couple of years and Pace has over 85 sections of 100% lands and 20 sections of land at 50%. We have successfully drilled and produced oil along this trend and are encouraged by the early results and are developing plans aimed at an expanded and more aggressive drilling program this winter. This area is currently winter access only which requires us to build out the roads and infrastructure to allow us to operate year-round. Last winter two successful oil wells were drilled on our southern joint lands and we plan to complete these wells this winter. It is early in the development of this play but, with primary production from vertical wells and over 1.5 billion barrels of oil in place on our lands, we are cautiously optimistic of the potential of this play.

At Red Earth we have a number of oil opportunities to pursue including offsets to our Keg River discovery of last winter that continues to produce at over 200 barrels of oil per day, and the Slave Point resource play that a number of competitors are aggressively pursuing. We plan to drill 4 Keg River wells in the second half of the year and at least one Slave Point horizontal well with plans to drill four additional wells during Q1 2011. Pace has existing operations and infrastructure at Red Earth and has assembled over 19,000 acres of Slave Point rights and identified over 25 locations on this play. With this footprint and potential to coordinate with our Keg River and Granite Wash opportunities we are able to drill and develop oil opportunities at Red Earth for many years.

In Southern Alberta we plan to drill 9 wells in the second half of the year targeting oil at Turin, Badger and Matziwin. We are doing the initial work up on a couple of waterflood projects that we plan to initiate in the second half of 2011. The Southern Alberta lands are a rich source of oil development and resource projects where we can apply the technology developed in our northern operations for successful and highly profitable projects. The area has some rationalization and operational efficiencies that we have identified and plan to put in place over the next few quarters as we target to reduce the operating costs in this area.

On the gas side, we are pursuing a disciplined approach to our gas development. In the Deep Basin, the primary resource horizons that Pace will continue to develop are the multi-zone stacked sands of the Cretaceous and the high potential Cadomin and Nikanassin. Pace and other operators in these areas have generated excellent production rates from long horizontal sections and multi staged fracture stimulations. During the second half of the year, we plan to complete uphole zones in two Cadomin horizontal wells that both had IP rates of over 10mmcf/d gross and have produced over 2 bcf of gas combined to date. In addition to the resource opportunities in the Cadomin and the Nikanassin, Pace also has the uphole conventional Cretaceous horizons which have been the backbone of the Deep Basin area for over 20 years. Pace continues to discover new gas resource targets in the Deep Basin and we look forward to updating our shareholders about our results from these new opportunities in the coming quarters.

The table below presents certain pro-forma operating information which represents the summation of the results of Midnight and PubCo for the periods presented. The combined pro forma results assume the entities were combined effective the beginning of the reporting period and do not reflect actual reported results:

  Q2 2010 YTD 2010
  Midnight PUB Combined Midnight PUB Combined
Production            
Oil (bbl/d) 570 3,323 3,893 519 3,337 3,856
Gas (mcf/d) 9,706 40,372 50,078 9,118 39,026 48,144
NGL (bbl/d) 127 195 322 125 187 312
Total (boe/d) 2,315 10,246 12,561 2,164 10,028 12,192
             
Operating netback ($/boe)            
Sales price $ 35.94 $ 39.53 $ 38.87 $ 38.55 $ 42.44 $ 41.75
Royalties (6.55) (5.24) (5.48) (7.26) (6.31) (6.48)
Operating expenses (8.69) (17.26) (15.68) (8.71) (18.44) (16.71)
Transportation expenses (0.56) (2.05) (1.78) (0.43) (1.94) (1.67)
Operating netback $ 20.14 $ 14.98 $ 15.93 $ 22.15 $ 15.75 $ 16.89
             
Capital expenditures, net (000s) $ 3,439 $ 9,245 $ 12,684 $ 18,355 $ 35,550 $ 53,905

From an accounting perspective, the Arrangement has been accounted for as a reverse-takeover under GAAP and as such the historic financial information up to June 29, 2010 is solely from PubCo which was "carved-out" of Provident's financial statements. Pace commenced operations as an integrated entity on June 29th and started trading on the Toronto Stock Exchange under the symbol PCE on July 5, 2010. The financial and operating results included in the unaudited interim financial statements and MD&A prior to June 29th include only the PubCo assets which were managed by Provident during that period and include the combined results for one day.

Concurrent with the Arrangement, Pace put in place a $220 million revolving term credit facility with a syndicate of banks. At June 30, 2010 Pace had drawn $152.8 million on the facility and had a working capital deficit of $9.4 million for net debt of $162.2 million. Today, the Company has 40,027,130 shares outstanding and 2,312,250 options outstanding.

Outlook

The completion of the Arrangement has transformed our Company. Pace is an intermediate sized producer with solid cash flow, a strong balance sheet and a proven and dedicated team to pursue an abundance of oil and gas resource opportunities. We have built a world class natural gas resource base in the Deep Basin and added a large long life oil production base with a tremendous oil resource play portfolio. New technologies are evolving that continue to improve the production and ultimate recovery of our identified resources. Pace will apply these technologies to its new properties to unlock the large opportunities that exist.

For the remainder of 2010, Pace expects to spend between $40 and $45 million. Approximately 55-60% of the expenditures will be focused on oil activities and 40-45% on natural gas opportunities. Production is targeted to average between 12,500 boe/d and 13,000 boe/d for the remainder of the year. The lack of investment during the second quarter will result in a slight production decline in Q3 to approximately 12,250 boe/d. However, with commencement of Pace capital program, production is expected to increase to over 13,250 boe/d in the fourth quarter.

Pace plans to drill 14 oil wells and 5 gas wells in the second half of 2010. The oil projects include 9 wells in Southern Alberta, 4 wells at Red Earth; and 1 well in NW Alberta. In addition to these oil drilling operations, Pace plans to initiate phase three of the Dixonville waterflood and complete 2 oil wells in Haro that were drilled in the winter of 2009/2010. Our gas projects will focus on our Deep Basin properties. We are currently drilling our first Cadomin horizontal well as Pace at Elmworth and plan to drill two additional Cadomin horizontal wells in 2010. The remaining 2 wells will be horizontal wells drilled at Bilbo.

Pace has all of the elements of a top-tier intermediate producer. Pace has its large oil development at Dixonville plus additional oil opportunities in Northwest Alberta, Red Earth and in Southern Alberta. Pace also has a world class natural gas resource base in the sweet spot of the Deep Basin. Pace's increased size and critical mass will allow us to more effectively and efficiently develop our oil and gas resource opportunities.

Overall these are demanding and difficult times for junior and gas focused companies. Our successful transition to an intermediate sized company with a more balanced production platform and a large opportunity base of oil resource plays have positioned Pace well for the future.

The Pace team is in place and we are very excited about the tremendous opportunities and potential we have identified. We look forward to the future with a certain amount of prudence given the current overall global economic environment but with the energy and excitement of a positive outlook for our company and its potential to succeed. We are excited about the opportunities that we have identified and look forward to applying our leading edge skills and expertise to increase shareholder value.

Copies of the interim consolidated financial statements and Management's Discussion and Analysis in respect of the three and the six months ended June, 2010 will be filed on SEDAR and can be accessed at www.sedar.com or by visiting Pace's website at www.paceoil.ca.

Pace is a growth oriented intermediate sized oil and sweet natural gas production company operating in Alberta and headquartered in Calgary with over 500 identified drilling locations. Common Shares of Pace are listed on the Toronto Stock Exchange under the symbol "PCE".

Forward Looking Statements – Certain statements contained within this press release, and in certain documents incorporated by reference into this press release including our interim consolidated financial statements for the three and six months ended June 30, 2010 and the Management's Discussion and Analysis thereon, 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. Forward looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. 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, this press release and the documents incorporated by reference within contain the following forward looking statements pertaining to, without limitation, the following: Pace's future production volumes and the timing of when additional production volumes will come on stream; Pace's realized price of commodities in relation to reference prices; future commodity prices; the Company's future royalty rates and the realization of royalty incentives; Pace's expectation of reducing operating costs on a per unit basis; the relationship of Pace's interest expense and the Bank of Canada interest rates; increases in general and administrative expenses and recoveries; future development and exploration activities and the timing thereof; the future tax liability of the Company; the estimated future contractual obligations of the Company; the future liquidity and financial capacity of the Company; and its ability to fund its working capital and forecasted capital expenditures. In addition, 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.

With respect to the forward looking statements contained in this press release and the documents incorporated by reference, Pace has made assumptions regarding: future commodity prices; the impact of royalty regimes and certain royalty incentives, the timing and the amount of capital expenditures; production of new and existing wells and the timing of new wells coming on stream; future proved finding and development costs; future operating expenses including processing and gathering fees; the performance characteristics of oil and natural gas properties; the size of oil and natural gas reserves; the ability to raise capital and to continually add to reserves through exploration and development; the continued availability of capital, undeveloped land and skilled personnel; the ability to obtain equipment in a timely manner to carry out exploration and development activities; the ability to obtain financing on acceptable terms; the ability to add production and reserves through exploration and development activities; and the continuation of the current tax and regulation.

We believe the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. 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. The actual results could differ materially from those anticipated in these forward looking statements as a result of the risk factors set forth including: volatility in market prices for oil and natural gas; counterparty credit risk; access to capital; changes or fluctuations in production levels; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; stock market volatility and market valuation of Pace stock; geological, technical, drilling and processing problems; limitations on insurance; changes in environmental or legislation applicable to our operations, and our ability to comply with current and future environmental and other laws; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; and the other factors discussed under "Risk Factors" in our Joint Information Circular dated May 10, 2010 filed on SEDAR. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward looking statements contained in this press release and the documents incorporated by reference herein 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.

Pace Oil & Gas Ltd.
Fred Woods
President and CEO
(403) 303-8505
(403) 264-0085 (FAX)
fwoods@paceoil.ca
or
Pace Oil & Gas Ltd.
Judy Stripling
Executive Vice-President and CFO
(403) 303-8502
(403) 264-0085 (FAX)
jstripling@paceoil.ca
www.paceoil.ca