/NOT FOR DISTRIBUTION IN THE UNITED
STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES/
CALGARY, Aug. 26, 2014 /CNW/ - Palliser Oil &
Gas Corporation ("Palliser" or the "Company")
(TSX VENTURE:PXL) wishes to report financial and operating
results for the three and six months ended June 30, 2014. Certain selected financial and
operational information is set out below and should be read in
conjunction with Palliser's financial statements complete with the
notes to the financial statements and related MD&A which is
expected to be available at www.sedar.com and the Company's website
at www.palliserogc.com on Tuesday, August
26, 2014.
Operating & Financial Highlights - Three and six months
ended June 30, 2014 and 2013
(unaudited)
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Three months
ended
June 30
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Six months ended
June 30
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2014
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2013
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%
Change
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2014
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2013
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%
Change
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Operating
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Wells drilled,
re-entered or reactivated (net)
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Oil
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1.0
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2.0
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-50%
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3.6
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12.0
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-70%
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Salt water
disposal
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0.0
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0.0
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0%
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0.0
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1.0
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-100%
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Total
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1.0
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2.0
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-50%
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3.6
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13.0
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-72%
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Success
(%)
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100%
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100%
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0%
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100%
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100%
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0%
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Undeveloped land
Greater Lloydminster (net acres)
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34,116
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34,922
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-2%
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34,116
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34,922
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-2%
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Undeveloped land
Medicine Hat (net acres)
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10,363
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24,410
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-58%
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10,363
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24,410
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-58%
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Total undeveloped
land (net acres)
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44,479
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59,332
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-25%
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44,479
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59,332
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-25%
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Average daily
production
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Crude oil (bbl per
day)
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1,705
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2,730
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-38%
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1,777
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2,449
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-27%
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Natural gas (Mcf per
day)
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207
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257
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-19%
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176
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276
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-36%
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Barrels of oil
equivalent (boe per day, 6:1)
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1,739
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2,773
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-37%
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1,806
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2,495
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-28%
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Crude oil production
(%)
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98%
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98%
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0%
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98%
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98%
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0%
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Average sales
prices
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Crude oil ($ per
bbl)
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$
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84.00
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$
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69.30
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21%
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$
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80.11
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$
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61.59
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30%
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Natural gas ($ per
Mcf)
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$
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4.44
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$
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3.43
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29%
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$
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4.51
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$
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3.16
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43%
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Barrels of oil
equivalent ($ per boe, 6:1)
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$
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82.86
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$
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68.54
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21%
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$
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79.24
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$
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60.82
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30%
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Operating netback ($
per boe)
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Petroleum and natural
gas sales
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$
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82.86
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$
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68.54
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21%
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$
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79.24
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$
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60.82
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30%
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Realized gain (loss)
on financial derivatives
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$
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(15.45)
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$
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2.20
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-802%
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$
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(13.71)
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$
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3.93
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-449%
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Royalties
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$
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20.15
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$
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16.88
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19%
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$
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18.78
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$
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14.50
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30%
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Production, operating
& transportation expenses
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$
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31.38
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$
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22.95
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37%
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$
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36.78
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$
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26.02
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41%
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Operating netback
(1)
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$
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15.88
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$
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30.91
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-49%
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$
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9.97
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$
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24.23
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-59%
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Financial ($000's except per share
amounts)
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Three months
ended
June 30
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Six months ended
June 30
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2014
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2013
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% Change
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2014
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2013
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% Change
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Oil and natural gas
sales
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$
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13,112
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$
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17,294
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-24%
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$
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25,905
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$
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27,470
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-6%
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Funds flow
from
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operating activities
(2)
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$
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1,084
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$
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6,103
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-82%
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$
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382
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$
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7,785
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-95%
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Per share - basic and
diluted
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$
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0.02
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$
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0.10
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-82%
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$
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0.01
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$
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0.12
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-94%
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Loss and
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comprehensive
loss
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$
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(19,346)
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$
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(610)
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3071%
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$
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(24,913)
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$
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(5,097)
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389%
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Per share - basic and
diluted
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$
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(0.30)
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$
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(0.01)
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2900%
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$
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(0.39)
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$
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(0.08)
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388%
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Weighted
average
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shares
outstanding
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63,915,979
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63,915,979
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0%
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63,915,979
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63,059,625
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1%
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Shares
outstanding
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63,915,979
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63,915,979
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0%
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63,915,979
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63,915,979
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0%
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Capital
expenditures(3)
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$
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912
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$
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3,987
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-77%
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$
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2,397
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$
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12,711
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-81%
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Working capital (net
debt)(4)
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$
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(49,293)
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$
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(39,539)
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25%
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$
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(49,293)
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$
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(39,539)
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25%
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Shareholders'
equity
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$
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10,645
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$
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43,602
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-76%
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$
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10,645
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$
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43,602
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-76%
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(1)
Operating netback is a non-IFRS measure and is the net of petroleum
and natural gas sales, realized gain or loss on financial
derivatives, royalties and production, operating and transportation
expenses.
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(2)
Funds flow from operating activities is a non-IFRS measure that
represents cash flow from operations less decommissioning
expenditures and changes in non-cash working capital related to
operating activities. Funds flow per share amounts are calculated
using weighted average shares outstanding consistent with the
calculation of net income per share. Funds flow from operating
activities is a key measure as it demonstrates the Company's
ability to generate the funds necessary to achieve future growth
through capital investment.
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(3)
Capital expenditures exclude decommissioning liability costs and
capitalized share-based compensation.
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(4)
Working capital (net debt) is a non-IFRS measure representing the
total bank loan, accounts payable and accrued liabilities, less
accounts receivable, deposits and prepaid expenses.
Management believes these are useful supplemental measures of,
firstly, the total net position of current assets and current
liabilities of the Company and secondly, the profitability relative
to commodity prices. Other entities may calculate these
figures differently than Palliser.
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Q2 2014 Highlights
- Decrease in average quarterly production. Second
quarter 2014 production averaged 1,739 boe/d, a decrease of 37%
from the second quarter of 2013, and a decrease of 7% from 1,874
boe/d in the first quarter of 2014;
- Increased operating costs. Production, operating,
and transportation expenses averaged $31.38/boe in the second quarter of 2014, 37%
higher than $22.95/boe in the second
quarter of 2013. Production, operating, and transportation
expenses decreased by 25% from $41.85
in the first quarter of 2014;
- Decreased operating netbacks. Operating netbacks
averaged $15.88/boe, 49% lower than
the prior year comparative quarter. Operating netbacks
improved by 259% compared to $4.42/boe in the first quarter of 2014;
- Decreased funds flow from operating activities.
Funds flow from operating activities was $1.1 million ($0.02/share), compared to funds flow from
operating activities of $6.1 million
($0.10/share) in the prior year
comparative quarter. Funds flow from operating activities in
the second quarter is an improvement from negative funds flow from
operating activities of $0.7 million
in the first quarter of 2014;
- Executed a $0.9 million
capital program. The second quarter capital program
included 1.0 reactivation and capital workovers;
- Maintained a significant undeveloped heavy oil land
position. The Company's undeveloped heavy oil land
position at the end of the second quarter was 34,116 net acres;
and
- Maintained a significant prospect inventory. The
Company's heavy oil prospect inventory stands at 169 locations, 83
of which are included in the 2013 independent reserves report; and
86 locations that are not included in the reserves report.
Operations
Operationally, the second quarter of 2014 was another very quiet
period for Palliser, with capital expenditures constrained, due to
the Company's limited financial flexibility. Production averaged
1,739 boe/d, a seven per cent decline from the first quarter 2014
production average of 1,874 boe/d. Palliser recorded
positive funds flow from operating activities of $1.1 million in the quarter. The second
quarter saw stronger heavy oil pricing, with Palliser realizing an
average crude oil price of $84.00/bbl
for its heavy oil sales. However, the Company incurred
hedging losses in the amount of $2.4
million that negatively impacted funds flow from operating
activities. Both production, operating, and transportation
expenses and general and administrative ("G&A") expenses were
reduced in the second quarter compared to the first quarter.
Initiatives to reduce operating costs, which were undertaken in the
first half of 2014, are starting to be reflected in lower overall
operating costs, and G&A expenses are being reduced.
The Company is applying all available funds to reducing its
indebtedness.
Capital expenditures totaled $0.9
million in Q2, a 77% reduction as compared to the
comparative period in 2013. Capital expenditures included
capital workovers, capitalized G&A expenses, and one (1.0 net)
heavy oil well reactivation that is forecast to be brought on
production in the third quarter.
Financial and Outlook
At June 30, 2014 the Company had a
working capital deficiency (net debt) totaling $49.3 million (excluding financial derivatives).
The Company is not in compliance with a covenant under its bank
loan. The Company is required to maintain a current ratio (current
assets adjusted to include the undrawn credit facility balance) of
not less than 1.0:1.0. As at June 30,
2014 and at today's date the Company was not in compliance
with the current lending ratio banking covenant. On July 29, 2014, Palliser and its lender entered
into a Loan Amending and Extension Forbearance Agreement, wherein
the lender, subject to certain conditions, extended the Company's
credit facilities to October 31, 2014
to allow the proposed transaction with Maha Energy Inc. ("Maha") to
proceed (discussed below). The Company does not anticipate
generating sufficient funds flow from operating activities in the
upcoming year to fund its working capital deficiency.
In the second quarter management identified impairment triggers
relating to both its Greater
Lloydminster and Medicine
Hat cash generating units ("CGUs"). The
impairment triggers identified included significant and prolonged
production declines, increases in operating costs, decreases in
operating netbacks and market transactions including the agreements
entered into by the Company with Maha subsequent to June 30, 2014. As a result, management conducted
impairment tests for its Greater
Lloydminster and Medicine Hat CGUs and recognized an
impairment totaling $19.0 million in
the second quarter based on management's estimate of the fair value
less costs to sell of the respective CGUs. Fair value less
costs to sell was based on overall recent market activity including
the transactions entered into by the Company with Maha subsequent
to June 30, 2014.
On July 30, 2014, Palliser closed
the sale of a 50% working interest in part of its Manitou, Saskatchewan assets to Maha for $2.15 million (approximately $1.9 million after interim adjustments) ("Manitou
Sale"). The production associated with the Manitou Sale was
then approximately 125 bbl/d.
In addition, Palliser has signed two farmout agreements with
Maha for a capital program that will be undertaken at no cost to
Palliser, with the exception that surface equipment for all of the
wells will be supplied from Palliser's inventory of surplus
equipment. At Manitou, one (0.3 net before payout & 0.5
net after payout) well has been drilled and cased and is expected
to be completed for heavy oil production in early September.
At Marwayne, Alberta, four (2.8
net) wells are forecast to be reactivated in August and
September.
In a farmout with a third party at Neilburg, Saskatchewan, two (1.15 net) wells
are expected to be drilled by the end of September, with the wells
expected to be on production early in the fourth quarter. Palliser
will remain operator of the wells subject to the Manitou Sale and
all of the wells to be drilled and re-activated in the Maha and
third party capital program.
With limited capital spending to date in 2014, production from
the second quarter is expected to continue to decline in to the
third quarter. Production growth from a seven well (4.25 net)
capital program in the third quarter is expected to reverse that
trend with a net production increase in to the fourth
quarter.
Proposed Amalgamation – Update to the July 30, 2014, News Release
On July 30, 2014, Palliser
and Maha, a private company incorporated in Alberta, announced that they had entered into
amalgamation agreement (the "Amalgamation Agreement"),
pursuant to which Maha and Palliser will carry out the Amalgamation
to form an oil and gas company focused on exploitation and
development to be called "Maha Energy Inc.".
Since July 30, 2014, the TSXV has
determined to treat the proposed Amalgamation, which is an "Arm's
Length Transaction", as a "Reverse Takeover" (as such terms are
defined in the TSXV Corporate Finance Manual). As a result,
Palliser is required to disseminate additional information on the
Amalgamation in accordance with section 3.4 of TSXV Corporate
Finance Manual Policy 5.2.
Based on audited management prepared financial statements for
the year ended December 31, 2013,
prepared on June 18, 2014, Maha had
revenue of US$Nil, expenses of US$1,108,641, and a net loss of US$1,108,641 for the 2013 fiscal year. In
addition, as at December 31, 2013,
Maha had working capital of $978,379,
assets of US$4,552,950 and
liabilities of US$656,736.
Based on unaudited management prepared financial statements for
the six month period ended June 30,
2014, prepared on August 15, 2014, Maha had revenue of
US$Nil, operating expenses of US$Nil, and a net loss of
US$599,212. In addition, as at
June 30, 2014, Maha had working
capital of US$8,121,340, assets of
US$18,393,566 and liabilities of
US$451,601.
As announced in the July 30, 2014
news release, completion of the Amalgamation is subject to the
condition that Maha must complete bond and/or equity financings for
combined aggregate gross proceeds equalling not less than
US$70 million (the
"Financings"), prior to October 31,
2014. Stockholm Corporate Finance AB, a Sweden-based investment banking organization,
has agreed to assist Maha in a proposed equity financing equalling
US$15 million (the "Equity
Financing"), which will form the equity component of the
Financings. Stockholm Corporate Finance will be paid a cash
commission equal to 5.75% of the gross proceeds raised under the
Equity Financing, as well as a monthly advisory fee payable in
cash. The particulars of the bond financing have not been
established to date, however, the bond financing is expected to be
completed in the Nordic market. Maha has also engaged Hartco
Financial Inc. ("Hartco") to provide financial advisory and
other services to Maha in connection with the Amalgamation and
related transactions. Pursuant to the terms of the engagement
agreement entered into between Maha and Hartco, Hartco will receive
an aggregate of US$48,000 in cash and
552,000 Maha Shares (as defined below) to be issued upon of the
successful completion of the Amalgamation.
Pursuant to the Amalgamation, shareholders of Palliser will
receive 0.1393 of a common share of New Maha (a "New Maha
Share") for each common share of Palliser (a "Palliser
Share"). The deemed value of the Amalgamation to Palliser
Shareholders is equal to approximately $0.19 per Palliser Share, based upon the arm's
length pricing of recent equity issuances by Maha at US$1.25 per Maha Share, the July 30, 2014 Bank of Canada noon US$/C$ exchange rate of 1.0909 and
the corresponding 0.1393 exchange ratio. Shareholders of Maha will
receive one New Maha Share for each common share of Maha (a
"Maha Share"), the aggregate deemed consideration for the
Maha Shares will be US$45,439,130.
Based on the 63,915,979 Palliser Shares issued and outstanding
as of the date hereof and the 598,612 Palliser Shares issuable
pursuant to outstanding Palliser share unit awards that will vest
upon the completing of the Amalgamation, the holders of Palliser
Shares will receive 8,986,883 New Maha Shares. Based on the
35,799,304 Maha Shares issued and outstanding as of the date hereof
and the 552,000 Maha Shares issuable to Hartco for financial
advisory and other services provided in connection with the
Amalgamation and related transactions, Maha Shareholders will
receive 36,351,304 New Maha Shares.
Assuming Maha completes the Equity Financing of 10,000,000 Maha
Shares at an issue price of US$1.50
per Maha Share, an aggregate of 55,338,187 New Maha Shares will be
issued and outstanding with the Maha Shareholders and Palliser
Shareholders anticipated to own, on a non-diluted basis,
approximately 46,351,304 (84%) and 8,986,883 (16%) of the
outstanding New Maha Shares, respectively.
Annual & Special Shareholders Meeting
The Palliser annual and special shareholders' meeting is
scheduled to take place on October 7,
2014.
Closing of the Amalgamation is expected to occur shortly
thereafter, but in any event on or before October 31, 2014. The Notice of Annual and
Special Meeting and a Joint Information Circular for the Annual and
Special Meeting of the Shareholders of Palliser, with respect to
the annual business of Palliser and the proposed Amalgamation of
Palliser and Maha are expected to be mailed to shareholders in
mid-September.
About Palliser
Palliser is a Calgary-based
junior oil and gas company focused on high netback heavy oil
production in the greater Lloydminster area of Alberta and Saskatchewan.
Disclaimer
Completion of the transaction is subject to a number of
conditions, including TSXV acceptance and shareholder approval. The
Amalgamation transaction cannot close until the required
shareholder approval is obtained. There can be no assurance that
the transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the
management Joint Information Circular to be prepared in connection
with the transaction, any information released or received with
respect to the Reverse Takeover may not be accurate or complete and
should not be relied upon. Trading in the securities of Palliser
should be considered highly speculative.
The TSXV has in no way passed upon the merits of the proposed
Amalgamation transaction and has neither approved nor disapproved
the contents of this press release.
Forward-Looking Statements
Statements in this document may contain forward-looking
information including matters related to the strategic review. The
reader is cautioned that assumptions used in the preparation of
such information may prove to be incorrect. Events or circumstances
may cause actual results to differ materially from those predicted,
as a result of numerous known and unknown risks, uncertainties, and
other factors, many of which are beyond the control of the Company.
These risks include, but are not limited to: the risks associated
with the oil and gas industry; commodity prices, and; exchange rate
changes. Industry related risks could include, but are not limited
to: operational risks in exploration; proposed dispositions not
being completed or if completed, not providing the benefits
expected; development and production; delays or changes in plans;
risks associated to the uncertainty of reserve estimates; health
and safety risks, and; the uncertainty of estimates and projections
of production, costs and expenses. In addition, forward-looking
statements or information are based on a number of factors and
assumptions which have been used to develop such statements and
information but which may prove to be incorrect. Although the
Company believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements because
the Company can give no assurance that such expectations will prove
to be correct. In addition to other factors and assumptions which
may be identified herein, assumptions have been made regarding,
among other things: the ability of the Company to obtain financing
on acceptable terms; the impact of increasing competition; the
general stability of the economic and political environment in
which the Company operates; the timely receipt of any required
regulatory approvals; the ability of the Company to obtain
qualified staff, equipment and services in a timely and cost
efficient manner; drilling results; the ability of the operator of
the projects which the Company has an interest in to operate the
field in a safe, efficient and effective manner; field production
rates and decline rates; the ability to replace and expand reserves
through acquisition, development and exploration; the timing and
costs of pipeline, storage and facility construction and expansion
and the ability of the Company to secure adequate product
transportation; future commodity prices; currency, exchange and
interest rates; the regulatory framework regarding royalties, taxes
and environmental matters in the jurisdictions in which the Company
operates; and the ability of the Company to successfully market its
oil and natural gas products. Readers are cautioned that the
foregoing lists of factors and assumptions are not exhaustive.
Additional information on these and other factors that could affect
the Company's operations and financial results are included in
reports on file with Canadian securities regulatory authorities and
may be accessed through the SEDAR website
(www.sedar.com), at the Company's website
(www.palliserogc.com). Furthermore, the
forward-looking statements contained in this news release are made
as at the date of this news release and the Company does not
undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required
by applicable securities laws.
Conversion
The Company has adopted the industry standard of 6:1 Mcf to
Bbl when converting natural gas to barrels of oil equivalent.
Disclosure provided herein in respect of Boes may be misleading,
particularly if used in isolation. A Boe conversion ratio of
6 Mcf:1 Bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. Given that the value ratio
based on the current price of crude oil as compared to natural gas
is significantly different from the energy equivalency of 6 Mcf:1
Bbl, utilizing a conversion ratio of 6:1 may be misleading as an
indication of value.
Neither the TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for the adequacy or
accuracy of this Press release.
SOURCE Palliser Oil & Gas Corporation