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Palliser acquires heavy oil properties for $14-million

2011-01-26 20:04 ET - News Release
Shares issued 34,576,552
PXL Close 2011-01-26 C$ 1.58

Mr. Kevin Gibson reports

PALLISER OIL & GAS CORPORATION ANNOUNCES STRATEGIC PROPERTY ACQUISITION

Palliser Oil & Gas Corp. has acquired certain heavy oil properties which are currently producing approximately 310 barrels per day (net) of heavy oil. The acquired properties are located adjacent to Palliser's existing Manitou properties in the greater Lloydminster area. The total consideration for the acquisition is $14-million ($44,900 per barrel per day), comprising $9.5-million in cash and three million Palliser common shares at a deemed price of $1.50 per share. The acquisition, which closed on Jan. 26, 2011, with an effective date of Jan. 1, 2011, is consistent with Palliser's strategy of acquiring assets with large reserves of oil in place and historically low recovery factors. The acquired assets are 100-per-cent-working-interest operated properties and include a battery and salt water disposal facility.

Combined corporate production is currently 1,400 to 1,500 barrels of oil equivalent (boe) per day (heavy oil weighting of 96 per cent) after accounting for the acquisition.

Acquired properties

The attached table outlines the forecasted company interest reserves for the acquired properties, effective Jan. 1, 2011.

                                 Oil      10% NPV     Metrics                              (mbbl)   (millions)   (per bbl)Total proved                     513       $ 11.2     $ 21.87Total proved plus probable       786       $ 14.6     $ 17.811. Estimated net present values do not represent fair market     value.2. Company interest reserves are working interest reserves    prior to the deduction of royalties and include royalty    interests.

The acquired properties were evaluated based on Palliser's internal engineering report in accordance with NI 51-101, using GLJ Petroleum Consultants Ltd.'s price forecast effective Jan. 1, 2011.

The acquired properties provide Palliser with another opportunity to use the high-volume lift methodology which the company has been developing, with excellent results to date in the Edam, Sask., field. Palliser intends to increase production from the acquired properties through optimization of existing producing wells, conversion of an existing shut-in well to water disposal (for which regulatory approval has already been received) and reactivation of wells which are currently shut-in. The company expects that several drilling locations will be identified by using the existing 3-D seismic which was acquired as part of the acquisition.

Financing

The cash to close the acquisition, of approximately $9.5-million, was financed through bank debt. The company also issued three million common shares to the vendor. As at Jan. 26, 2011, the company has 37.6 million common shares outstanding and 40.2 million common shares on a fully diluted basis.

Concurrent with this property acquisition, the company's credit facility with its lender has been increased from $7-million to $16-million. The $16-million credit facility consists of a $12-million operating loan facility with interest payable at prime plus 2 per cent per annum and no set terms of repayment, and a $4-million operating loan facility with interest payable at prime plus 3.5 per cent per annum and payable in full on the earlier of demand or May 31, 2011. The next annual review is scheduled for March 31, 2011. If the first facility is increased subsequent to the next annual review, then the second facility will be decreased by the amount of that increase.

Outlook and revised 2011 guidance

Palliser anticipates that the heavy-oil-focused capital program in 2011 will be financed from the substantial free cash flow generated by the asset base and the company's credit facility. Palliser's revised guidance for 2011 is for a $39.1-million capital program (including the acquired properties cost of $14-million), average yearly production between 1,900 and 2,050 boe per day (crude oil weighting of 97 per cent), and 2011 exit production between 2,350 and 2,600 boe per day. The company's guidance includes maintaining a strong balance sheet, with quarterly debt to annualized cash flow of less than 1.0 throughout the year and continued top quartile capital efficiency.

The company's corporate presentation has been updated and is available on the company's website. A copy of this news release is available on SEDAR or the company's website.

We seek Safe Harbor.

January presentation
http://www.palliserogc.com/pdf/palliserPPT11.pdf