Pace Oil & Gas Ltd. Reports Year End 2010 Financial and Operating Results-Driven by Strong and Growing Oil Production

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CALGARY, ALBERTA--(Marketwire - March 8, 2011) - Pace Oil & Gas Ltd. (Pace) (TSX:PCE) is pleased to announce its Q4 2010 and year-end Financial and Operating highlights to its shareholders.

"2010 was a transformational year for Pace. We have grown significantly and strategically. We substantially increased our oil weighting and opportunity base and are targeting to increase oil production to 50% of our total production by the end of 2011," said Fred Woods, President and Chief Executive Officer of Pace Oil & Gas Ltd. "We have an enviable asset base with numerous opportunities to exploit. Our high percentage of proved producing reserves and our low future development costs speak to the high-quality, low-risk character of these assets."

Pace was created on June 29, 2010 when Midnight Oil Exploration Ltd. purchased Provident Energy Trust's upstream oil and gas assets. Operating primarily in Alberta, Pace has grown its production and reserves as well as increased its oil weighting through its organic program and strategic acquisitions. Pace has a proven ability to develop and apply leading edge technologies to unlock production and reserves from its vast resource base. Pace continues to focus its efforts and capital resources on its numerous oil projects and has deferred its large scale gas projects until natural gas prices recover.

CORPORATE HIGHLIGHTS:

The following disclosure provides a comparison of Q4 2010 to Q3 2010 to reflect a more meaningful analysis than year over year as the Arrangement to form Pace occurred on June 29, 2010.

Production Increases

Funds from Operations Increases

Operating Netback Increases

Balance Sheet and Financial Flexibility Improves

Successful Capital Program

Reserves and Finding Costs

Operating Highlights

FOURTH QUARTER FINANCIAL AND OPERATING RESULTS
 
Financial
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(000s, except per share amounts)
 

 
Q4 2010
 

 

 
Q4 2009
 

 

 
Q3 2010
 

 

 
2010
 

 

 
2009
 
Funds from operations
 
$ 18,103
 

 
$ 13,300
 

 
$ 12,980
 

 
$ 52,358
 

 
$ 47,829
 

 
Per share- Basic
 

 
0.44
 

 

 
0.41
 

 

 
0.32
 

 

 
1.43
 

 

 
1.47
 

 
Per share- Diluted
 

 
0.44
 

 

 
0.41
 

 

 
0.32
 

 

 
1.43
 

 

 
1.47
 
Net loss
 
$ (2,115 )
 
$ (11,977 )
 
$ (8,177 )
 
$ (397,213 )
 
$ (58,642 )

 
Per share- Basic
 

 
(0.05 )
 

 
(0.37 )
 

 
(0.20 )
 

 
(10.85 )
 

 
(1.80 )

 
Per share- Diluted
 

 
(0.05 )
 

 
(0.37 )
 

 
(0.20 )
 

 
(10.85 )
 

 
(1.80 )
Capital expenditures
 
$ 19,133
 

 
$ 11,552
 

 
$ 9,070
 

 
$ 59,280
 

 
$ 71,050
 
Net acquisitions
 

 
50,524
 

 

 
23
 

 

 
-
 

 

 
172,017
 

 

 
435
 
Net debt
 

 
153,647
 

 

 
8,284
 

 

 
158,692
 

 

 
153,647
 

 

 
8,284
 
Operations
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Average daily production
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Natural gas (mcf/d)
 

 
46,184
 

 

 
40,518
 

 

 
46,408
 

 

 
42,691
 

 

 
42,805
 

 
Oil & NGLs (bbls/d)
 

 
5,391
 

 

 
3,655
 

 

 
4,668
 

 

 
4,289
 

 

 
4,116
 

 
Combined (boe/d)
 

 
13,089
 

 

 
10,408
 

 

 
12,403
 

 

 
11,405
 

 

 
11,251
 

 
% Oil & NGLs
 

 
41 %
 

 
35 %
 

 
38 %
 

 
38 %
 

 
37 %
($/boe)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Sales price
 
$ 42.51
 

 
$ 41.08
 

 
$ 39.14
 

 
$ 41.55
 

 
$ 35.48
 

 
Royalties
 

 
(7.38 )
 

 
(6.27 )
 

 
(7.02 )
 

 
(6.81 )
 

 
(3.44 )

 
Operating expenses
 

 
(13.81 )
 

 
(15.84 )
 

 
(15.21 )
 

 
(16.21 )
 

 
(15.23 )

 
Transportation expenses
 

 
(1.77 )
 

 
(1.37 )
 

 
(1.71 )
 

 
(1.83 )
 

 
(1.46 )
Operating Netback
 
$ 19.55
 

 
$ 17.60
 

 
$ 15.20
 

 
$ 16.70
 

 
$ 15.35
 

OPERATING HIGHLIGHTS:

Pace has a focused and large production base in its four key operating areas of Dixonville, Northwest, Red Earth and Southern Alberta and is working on exploitation and development in each of these core areas. In addition, we are selectively expanding and committing capital in our new Pekisko oil resource play in Haro, in Northwest Alberta.

Dixonville

Pace's 100% working interest Montney oil (30 degree API) waterflood at Dixonville continues to perform above early model expectations. In Q4 2010, Pace acquired additional lands in the area including a keyhole section enabling us to design a more effective waterflood. With this acquisition, Pace's injector and producer pattern can be more effectively designed to improve maximum sweep efficiency and ultimately maximize oil recovery. Pace completed Phase 3 of the waterflood in January 2011 wherein certain oil producers were converted to water injectors in the central part of the pool to increase the overall recovery. Waterflood response from this Phase is expected in 6 to 9 months. Phase 4 of the waterflood will commence in 2011 where the northeast portion of the field will be under flood. Pace believes successful waterflood results will allow continued growth of our total proved and total proved plus probable reserves. The Company is continually analyzing and monitoring this pool to ensure maximum recovery.

Northwest Alberta

Pace's Northwest Alberta properties primarily include its long-life, low decline Bluesky gas property at Rainbow and its Haro Pekisko oil development. Pace's Haro play in the Pekisko formation commenced field operations in Q4 2010. This area has seasonal access restrictions therefore careful planning was required for maximum operating efficiencies to ensure the Company completed its operations before break-up. In Q4 2010, Pace prepared access roads and cleared surface leases for its five (net 5.0) horizontal Pekisko wells drilled in the first 2 months of 2011. In addition, the Company constructed pipelines and upgraded facilities to dispose water and reduce trucking charges. Pace is optimistic about the potential based on its results thus far and will be able to lay out its further development strategy for next winter after reviewing the production performance from this winter's program.

Red Earth

Pace's Red Earth property produces light sweet oil from the Keg River and Granite Wash and in addition significant potential exists from the Slave Point formation. During the winter, Pace will have drilled a total of six (4.3 net) wells in this area including one (0.5 net) Slave Point horizontal well. One (net 0.5) Slave Point vertical well drilled in Q4 2010 is currently being tied in. Pace has drilled four (3.3 net) Keg River/Granite Wash wells that will be tied in and onstream before the end of the quarter. The horizontal Slave Point has commenced drilling and should be completed and on production before spring break-up. Red Earth continues to be an area of focus for Pace with some rationalization of facilities and operations and net production growing to over 625 boe/d for December 2010 compared to 450 boe/d for January 2010.

Southern Alberta

Pace's Southern Alberta assets are concentrated in the following key operating areas: Retlaw, Enchant and Long Coulee. Prior to year end Pace was successful in adding a strategic oil property in the Enchant and Retlaw areas that allows us to pursue a number of identified waterflood projects. Pace continues to use its unique 3D processing and interpretation techniques to identify and unlock the horizontal drilling potential of the Glauconite Lithic Channels. Pace has a competitive advantage in this area through its existing facilities and operations plus its significant 3D seismic database and large undeveloped land base on which to explore for these channels, using horizontal drilling and multi-staged fracture stimulations.

Deep Basin

Pace's gas operations in the Deep Basin have been curtailed dramatically due to the depressed natural gas prices with capital being directed to its oil opportunities. During Q4 2010 Pace drilled two (0.9 net) horizontal wells and placed one of these wells on stream. Pace will also be tying in production in Chinook Ridge from a well that was completed in Q4 2010 (0.50 net). Whereas Pace's activities in the Deep Basin are being restricted, Pace is able to quickly resume aggressive development should natural gas prices improve.

2011 OUTLOOK

Looking forward, the key elements of Pace's success will be the strength of our technical teams and the breadth and depth of our large scale exploitation and development projects from our very attractive oil and gas resource play portfolio. Over the past year and going forward, Pace has built and expanded its strong technical teams in areas of operations, exploitation, reservoir engineering, production optimization and geological and geophysical to capture and deliver long term value to our shareholders. We have a large, multi-year inventory of repeatable, low risk exploitation and development projects with significant potential reserve additions on assets we own and control. This inventory includes significant near term prospects and medium to long term opportunities across our high quality asset base.

We have accumulated a large opportunity base and have built in the flexibility to target either oil or gas growth opportunities to maximize returns in the context of the prevailing commodity environment.

Capital Expenditures

Production and Operating Guidance

"We are opportunity and resource rich with a large portfolio of both oil and gas projects that makes us confident about the long term strength and potential of Pace," said Fred Woods. "We look forward to continued success and positive results from our program."

AUDITED CONSOLIDATED FINANCIAL STATEMENTS, MD&A AND AIF

Pace's audited consolidated financial statements for the year ended December 31, 2010 together with the notes thereto, Management Discussion and Analysis for the year ended December 31, 2010 and Pace's Annual Information Form for the year ended December 31, 2010 will be filed on SEDAR today and can be accessed at www.sedar.com or by visiting Pace's website at www.paceoil.ca. Also, please see our Press Release dated March 1, 2010 for a detailed review of our reserves.

Pace has all of the elements of a top-tier intermediate producer. Pace has a solid oil production base in Dixonville and a significant oil resource play inventory in Northwest Alberta to combine with its light oil property in Red Earth. In addition, Pace has a prolific natural gas resource base. Pace is excited about the opportunities it has identified and looks forward to applying its expertise to increase shareholder value. Pace's common shares trade on the TSX under the symbol "PCE". We also trade over the counter in the United States with the symbol "MDOEF".

NOTE REGARDING RESERVES INFORMATION

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:

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:

other factors which are included in reports on file with 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.

 
Fred Woods
Pace Oil & Gas Ltd.
President & CEO
(403) 303-8505
fwoods@paceoil.ca

Judy Stripling
Pace Oil & Gas Ltd.
Executive Vice-President & CFO
(403) 303-8502
jstripling@paceoil.ca
www.paceoil.ca