News Releases

Pine Cliff Energy Ltd. Announces Fourth Quarter and Annual Results

Apr 7, 2009 - 11:59 PM ET

CALGARY, ALBERTA--(Marketwire - April 7, 2009) - Pine Cliff Energy Ltd. ("Pine Cliff" or "the Company") ( (TSX Venture: PNE) is pleased to announce its financial and operational results for the three months and fiscal year ended December 31, 2008.


Annual Financial and Operational Highlights

2008 2007 2006
Revenue - Oil and Gas $ 707,012 $ 582,950 $ 661,100
Cash Flow from Operations (725,525) (784,938) (168,809)
Per Share Basic and Diluted (0.02) (0.02) (0.01)
Net Loss (7,541,868) (1,381,454) (1,014,605)
Per Share Basic and Diluted (0.17) (0.04) (0.03)
Capital Expenditures and Acquisitions 5,377,190 2,797,763 271,926
Total Assets 5,570,015 12,445,994 4,494,010
Working Capital 2,316,982 8,378,110 2,963,513
Shareholders' Equity 5,044,701 12,205,066 4,239,638
Oil and Liquids (barrels per day) 1 4 5
Natural Gas (MCF per day) 228 198 195

Quarterly Financial and Operational Highlights

4th 3rd 2nd 1st

Revenue - Oil and Gas $ 295,944 $ 129,537 $ 138,415 $ 143,116
Cash Flow from Operations (68,211) (332,184) (122,517) (202,613)
Per Share Basic and
Diluted (0.00) (0.01) (0.00) (0.01)
Net Loss (6,423,691) (505,953) (295,111) (317,113)
Per Share Basic and
Diluted (0.14) (0.01) (0.01) (0.01)
Capital Expenditures and
Acquisitions 1,067,843 1,511,745 2,516,214 281,388
Total Assets 5,570,015 11,621,915 12,043,617 12,221,650
Working Capital 2,316,982 3,440,165 5,278,074 7,937,179
Shareholders' Equity 5,044,701 11,400,311 12,043,617 12,003,398
Oil and Liquids (barrels
per day) 2 1 - 4
Natural Gas (MCF per day) 453 146 142 168


Certain statements contained in this press release include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this press release includes, but is not limited to: expected cash provided by continuing operations; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and outlook; expansion and growth of our business and operations; and maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; credit risks; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, and may include, without limitation: the risks of foreign operations; foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived therefrom. Except as required by law, Pine Cliff disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

The forward-looking information contained herein is expressly qualified by this cautionary statement.

Three months ended Twelve months ended
December September December December December
31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Crude oil and NGLs
(barrels per day) 2 1 2 1 4
Natural gas (MCF per day) 453 146 182 228 198
Total BOE per day(1) 77 25 32 39 37
(1) Barrels of oil equivalent (BOE) are calculated using a conversion
ratio of 6 MCF to 1 barrel of oil. The conversion is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead
and as such may be misleading if used in isolation.

During the fourth quarter the Company completed and placed on production one gross (0.15 net) natural gas well. The well averaged approximately 320 MCF per day net to the Company during the fourth quarter. Anticipated production for 2009 from this well is estimated at between 150 and 200 MCF per day net to the Company. The Company has an expected decline rate of approximately 20 percent on its other production.

Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Oil and gas sales 295,944 129,537 112,685 707,012 582,950
Average Realized Prices
Crude oil and NGLs
(per barrel) 53.46 119.90 68.33 90.68 62.75
Natural gas (per MCF) 6.92 8.74 6.16 8.05 6.91

Revenue from petroleum and natural gas sales for 2008 increased by $124,062 from 2007 due to increased natural gas prices and production volumes due to completion of the above mentioned well. The Company did not have hedging agreements in either 2008 or 2007 and presently does not have any future hedging agreements.

Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Crown royalties 74,834 31,888 27,090 162,716 113,257
Gross overriding
royalties 10,204 5,568 4,570 28,559 23,755
Total royalty expense 85,038 37,456 31,660 191,275 137,012

Crown royalties are significantly higher in 2008 due to the successful completion of the natural gas well during the fourth quarter of 2008. Gross overriding royalties are also higher for the same reason.

New Alberta Crown Royalty Framework (NRF)

Crown royalty rates in the fourth quarter averaged approximately 25 percent; slightly higher than preceding quarters due to the commencement of production from the new well. The NRF rates vary by prices as well as productivity levels. With the current low commodity prices, the new royalty rates should result in a reduction in the amount the Company will pay to the Province of Alberta.

Interest Income
Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Interest income 13,580 21,025 54,443 128,935 76,273

The Company maintains both Canadian and U.S. investment accounts that pay interest at prime less various percentages as long as the Company maintains certain minimum account balances. The Company increased its cash balance with regard to proceeds received from the rights offering done in the fourth quarter of 2007. The Company was therefore earning interest at higher rates and on an increased cash balance throughout most of 2008. Interest income for Q4 2008 decreased by $7,445 from Q3 2008 due to the lower cash balance on hand as $1.1 million was spent on capital projects in Canada and Argentina in the fourth quarter of 2008.

Interest income for 2009 is anticipated to further decline as the Company continues with its capital program.

Production Costs
Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Production costs 49,159 27,187 35,090 115,868 134,453
$ per BOE(1) 7.27 12.17 12.53 8.11 10.48
(1) Barrels of oil equivalent (BOE) are calculated using a conversion
ratio of 6 MCF to 1 barrel of oil. The conversion is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead
and as such may be misleading if used in isolation.

Capacity constraints at the gas plant where the majority of the Company's natural gas production is processed have been resolved resulting in a lower cost per unit for processing. This, combined with higher production per well (due to the new well commencing production in Q4), has resulted in significant reductions in both total costs and production costs per BOE.

Production costs for 2009 are anticipated to be in the $6 to $7 per BOE range.

General and Administrative
Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
G&A expense 339,344 358,105 335,593 1,338,621 1,294,929

General and administrative expenditures were similar between 2008 and 2007. The majority of the G&A expenses pertain to the Company's operations in Argentina. With the unsuccessful completion of the three well program on the Canadon Ramirez Concession, the Company's Board of Directors and management are reviewing the Company's involvement in Argentina. Any reduction in activity in Argentina should result in a future decline in G&A expenses.

Pine Cliff does not have any employees at the present time but has engaged Bonterra Energy Corp. (Bonterra Corp) a related party (see Related Party section), to provide management services and engage the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. (CanAmericas) has also engaged the consulting services of two individual professionals as senior management and officers of CanAmericas.

Foreign Exchange Loss (Gain)
Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Foreign exchange loss
(gain) (71,892) 26,816 (6,302) (149,010) 27,827

The Company maintains foreign denominated bank accounts to facilitate its foreign operations. The gain on foreign exchange in 2008 and the loss in 2007 relates to the depreciation (2007 appreciation) of the Canadian dollar with the U.S. dollar.

Late in Q3 and during Q4, the Company advanced sizable amounts of U.S. funds to the Company's Argentina operations to cover capital costs. Due to the rapid appreciation of the US dollar against the Canadian dollar, Pine Cliff experienced a significant gain in Q4. With the reduced cash balances and significantly less capital commitments (see Liquidity Section), it is anticipated that any 2009 gain or loss on foreign exchange will be modest.

Stock-Based Compensation


Stock-based compensation for 2008 was $381,503 (2007 - $178,826). The Company has a stock-based compensation plan. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees of the management company (see section "Related Party Transactions"), directors and service providers in respect of the Company. The Company issued 1,108,000 stock options in Pine Cliff during the fourth quarter of 2007 and only 65,000 in 2008, causing an increase in stock based compensation for 2008 over 2007. The Company estimated the 2008 stock options fair value at $33,761 ($0.52 per option) using the Black-Scholes option pricing model, assuming a weighted average risk free interest rate of 2.89 percent, weighted average expected volatility of 72.0 percent, weighted average expected life of 2.5 years and no annual dividend rate. As of December 31, 2008 approximately $146,000 of unamortized stock based compensation exists with the majority expected to be amortized in 2009.

Depletion, Depreciation and Amortization and Dry Hole Exploration Costs


The Company through its subsidiary CanAmericas spent $7,503,452 on exploration activities in Argentina to earn interests in specific properties. During 2008, the Company completed a three well exploration program on the Canadon Ramirez Concessions in Argentina. The program resulted in no significant reserves being discovered and as a result $6,171,140 of costs related to this Concession were expensed as dry hole costs, which included $34,130 for estimated future abandonment costs. The remaining $1,366,442 relates to the Laguna de Piedra Concession that if the development of this property is successful and proved reserves are obtained, this amount will be depleted on the unit of production basis, otherwise this amount will be charged to operations.

At December 31, 2008, the estimated total undiscounted amount required to settle the asset retirement obligations was $123,602 (2007 - $69,182). These obligations will be settled based on the useful lives of the underlying assets, which extend up to 13 years into the future. This amount has been discounted using a credit-adjusted risk-free interest rate of five percent. The discount rate is reviewed annually and adjusted if considered necessary. A change in the rate would not have a significant impact on the amount recorded for asset retirement obligations.

During 2008, the Company provided $330,465 (2007 - $296,724) for depletion, depreciation and accretion of its property and equipment. The increase is related to increased production volumes in 2008 due to the production from the Company's new well in Q4.

Income Taxes


The Company follows the liability method of accounting for income taxes under which the income tax provision is based on the temporary differences in the accounts calculated using income tax rates expected to apply in the year in which the temporary differences will reverse. The Company has sufficient tax pools so it is not liable for current income tax in 2008. However, the Government of Argentina charges a capital tax equal to one percent of capital employed in the country and as a result the Company has reported a current tax expense of $23,132.

Non-Controlling Interest


A private foreign company (Foreign Corp.) owns seven percent of CanAmericas Energy Ltd. (CanAmericas), a 93 percent owned subsidiary of Pine Cliff. The loss applicable to non-controlling interest for 2008 was $25,179 (2007 - $49,791). The expense of $25,179 has completely eliminated the investment amount by Foreign Corp.

Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Loss 6,423,691 505,953 381,561 7,541,868 1,381,454
Loss per share (0.14) (0.01) (0.01) (0.17) (0.04)

The increase in the 2008 loss over 2007 was predominantly due to the provision for dry hole costs of $6,171,140 relating to the unsuccessful exploration of the Canadon Ramirez Concession. The Company is currently planning to proceed with the drilling of the Laguna de Piedra Concession in 2009; however, Pine Cliff's management and Board of Directors are currently examining the Company's involvement in Argentina and may reduce its activities in that country which may result in reducing overall Company costs.

Cash Flow from Operations
Three months ended Twelve months ended
December September December December December
($) 31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
Cash flow from
operations (68,211) (332,184) (67,733) (725,525) (784,938)
Cash flow from
operations per share (0.00) (0.01) (0.00) (0.02) (0.02)

Cash flow deficiency decreased in 2008 over 2007 as the Company realized a foreign exchange gain and had an increase in revenue due to a the new well that came on production in Q4 2008, which was partially offset by a reduction in non-cash working capital adjustments. The decrease in cash flow deficiency from Q4 2008 from Q3 2008 was primarily due to the realized foreign exchange gain and increased oil and gas sales from the new well.

Liquidity and Capital Resources


As of December 31, 2008, Pine Cliff had positive working capital of $2,316,982 (December 31, 2007 - $8,378,110). These funds will be used to cover the Company's budgeted 2009 capital expenditures of $750,000 in relation to the drilling of its Laguna de Piedra Concession as well as miscellaneous capital costs in respect of its Canadian oil and gas operations. The Company is currently focusing on reducing general and administrative expenses related to its Argentina operations with a goal to bring operating cash flow into balance.

The following consolidated financial statements and notes to the consolidated financial statements have been provided for further details.

Pine Cliff Energy Ltd.
Consolidated Balance Sheets

As at December 31

2008 2007
Cash $ 2,624,556 $ 5,769,448
Restricted term investment (Note 3) - 2,689,601
Accounts receivable 107,200 71,904
Prepaid expenditures 29,602 28,468
2,761,358 8,559,421

Property and Equipment (Note 7)
Property and equipment 3,878,550 4,638,837
Accumulated depletion and depreciation (1,069,893) (752,264)
2,808,657 3,886,573
$ 5,570,015 $12,445,994
Accounts payable and accrued liabilities $ 444,376 $ 181,311

Asset Retirement Obligations (Note 8) 80,938 34,438
525,314 215,749
Non-controlling Interests (Note 5) - 25,179
Commitments (Note 10)
Shareholders' Equity (Note 9)
Share capital 14,588,722 14,588,722
Contributed surplus 722,968 341,465
Deficit (10,266,989) (2,725,121)
Accumulated other comprehensive income - -
5,044,701 12,205,066
$ 5,570,015 $12,445,994

Pine Cliff Energy Ltd.
Consolidated Statements of Loss, Comprehensive Loss and Deficit

For the years ended December 31

2008 2007
Oil and gas sales $ 707,012 $ 582,950
Royalties (191,275) (137,012)
Interest income 128,935 76,273
644,672 522,211
Production costs 115,868 134,453
General and administrative 1,338,621 1,294,929
Foreign exchange loss (gain) (149,010) 27,827
Stock-based compensation 381,503 178,826
Dry hole exploration costs (Note 7) 6,171,140 -
Depletion, depreciation and accretion 330,465 296,724
8,188,587 1,932,759
Loss Before Taxes and Non-controlling Interests (7,543,915) (1,410,548)
Taxes (Note 6)
Current 23,132 -
Future - 20,697
23,132 20,697
Loss before Non-Controlling Interests (7,567,047) (1,431,245)
Loss applicable to non-controlling interests
(Note 5) 25,179 49,791
Loss and Comprehensive Loss for the Year (7,541,868) (1,381,454)
Deficit, beginning of year (2,725,121) (1,343,667)
Deficit, end of year $(10,266,989) $ (2,725,121)
Loss Per Share - Basic and Diluted (Note 9) $ (0.17) $ (0.04)

Pine Cliff Energy Ltd.
Consolidated Statements of Cash Flow

For the years ended December 31

2008 2007
Operating Activities
Loss for the year $(7,541,868) $(1,381,454)
Items not affecting cash
Stock-based compensation 381,503 178,826
Dry hole exploration costs 6,171,140 -
Depletion, depreciation and accretion 330,465 296,724
Unrealized foreign exchange loss (gain) - 27,827
Future income taxes - 20,697
Loss applicable to non-controlling interests (25,179) (49,791)
(683,939) (907,171)
Change in non-cash working capital
Accounts receivable (35,296) 113,097
Prepaid expenditures (1,134) (25,814)
Accounts payable and accrued liabilities (5,156) 34,950
(41,586) 122,233
Cash Used in Operating Activities (725,525) (784,938)
Financing Activities
Issue of shares under employee stock option plan - 74,750
Issue of shares pursuant to rights offering - 9,143,919
Issue costs - (71,309)
Cash Provided by Financing Activities - 9,147,360
Investing Activities
Property and equipment expenditures (5,377,190) (2,797,763)
Restricted term investment 2,689,601 (2,689,601)
Change in non-cash working capital
Accounts payable and accrued liabilities 268,222 7,197
Cash Used In Investing Activities (2,419,367) (5,480,167)
Unrealized foreign Exchange Gain (Loss) on
Cash Held in Foreign Currency - (27,827)
Net Cash Inflow (Outflow) (3,144,892) 2,854,428
Cash, Beginning of Year 5,769,448 2,915,020
Cash, End of Year $2,624,556 $5,769,448
Cash Interest Paid $ - $ -
Cash Taxes Paid $ 34,126 $ -

Notes to the Financial Statements

For the Years Ended December 31, 2008 and 2007


Basis of Presentation

The consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted
accounting principles as described below.


These consolidated financial statements include the accounts of
the Company and its 93 percent owned subsidiaries CanAmericas
Energy Ltd. (CanAmericas) and CanAmericas (Argentina) Energy Ltd.
(CanAmericas Argentina) (see note 5). Inter-company transactions
and balances are eliminated upon consolidation.

Measurement Uncertainty

The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as at the date of the balance
sheets as well as the reported amounts of revenues, expenses, and
cash flows during the periods presented. Such estimates relate
primarily to unsettled transactions and events as of the date of
the financial statements. Actual results could differ materially
from estimated amounts.

Amounts recorded for depletion, depreciation and accretion costs
and amounts used for ceiling test calculations are based on
estimates of crude oil and natural gas reserves and future costs
required to develop those reserves. Stock-based compensation is
based upon expected volatility and option life estimates. Asset
retirement obligations are based on estimates of abandonment
costs, timing of abandonment, inflation and interest rates. The
provision for income taxes is based on judgements in applying
income tax law and estimates on the timing, likelihood and
reversal of temporary differences between the accounting and tax
bases of assets and liabilities. These estimates are subject to
measurement uncertainty and changes in these estimates could
materially impact the financial statements of future periods.

Revenue Recognition

Revenues associated with sales of petroleum and natural gas are
recorded when title passes to the customer.

Joint Interest Operations

Significant portions of the Company's oil and gas operations are
conducted jointly with other parties and accordingly the financial
statements reflect only the Company's proportionate interest in
such activities.

Petroleum and Natural Gas Properties and Related Equipment
The Company follows the successful efforts method of accounting
for petroleum and natural gas properties and related equipment.
Costs of exploratory wells are initially capitalized pending
determination of proved reserves. Costs of wells which are
assigned proved reserves remain capitalized, while costs of
unsuccessful wells are charged to earnings. All other exploration
costs including geological and geophysical costs are charged to
earnings as incurred. Development costs, including the cost of all
wells, are capitalized.

Producing properties are assessed annually or more frequently as
economic events dictate, for potential impairment. Impairment is
assessed by comparing the estimated net undiscounted future cash
flows to the carrying value of the asset. If required, the
impairment recorded is the amount by which the carrying value of
the asset exceeds its fair value.

Costs related to undeveloped properties are excluded from the
depletion base until it is determined whether or not proved
reserves exist or if impairment of such costs has occurred. These
properties are assessed at least annually to determine whether
impairment has occurred.

Depreciation and depletion of capitalized costs of oil and gas
producing properties are calculated using the unit of production
method. Development and exploration drilling and equipment costs
are depleted over the remaining proved developed reserves.
Depreciation of other plant and equipment is provided on the
straight line method. Straight line depreciation is based on the
estimated service lives of the related assets which is estimated
to be ten years.

Furniture, Equipment and Other

These assets are recorded at cost and are depreciated on a
straight line basis over five to ten years.

Income Taxes

The Company accounts for income taxes using the liability method.
Under this method, the Company records a future income tax asset
or liability to reflect any difference between the accounting and
tax bases of assets and liabilities, using substantively enacted
income tax rates. The effect on future tax assets and liabilities
of a change in tax rates is recognized in net earnings in the
period in which the change occurs. Future income tax assets are
only recognized to the extent it is more likely than not that
sufficient future taxable income will be available to allow the
future income tax asset to be realized.

Asset Retirement Obligations

The Company recognizes an Asset Retirement Obligation (ARO) in the
period in which it is incurred when a reasonable estimate of the
fair value can be made. On a periodic basis, management will
review these estimates and changes, if any, will be applied
prospectively. The fair value of the estimated ARO is recorded as
a long-term liability, with a corresponding increase in the
carrying amount of the related asset. The capitalized amount is
depleted on a unit-of-production basis over the life of the
reserves. The liability amount is increased each reporting period
due to the passage of time and the amount of accretion is charged
to earnings in the period. Revisions to the estimated timing of
cash flows or to the original estimated undiscounted cost would
also result in an increase or decrease to the ARO. Actual costs
incurred upon settlement of the obligations are charged against
the ARO to the extent of the liability recorded.

Stock-based Compensation

The Company accounts for stock-based compensation using the fair-
value method of accounting for stock options granted to directors,
officers, employees and other service providers using the Black-
Scholes option pricing model. Stock-based compensation expense is
recorded over the vesting period with a corresponding amount
reflected in contributed surplus. Stock-based compensation expense
is calculated as the estimated fair value of the options at the
time of grant, amortized over their vesting period. When stock
options are exercised, the associated amounts previously recorded
as contributed surplus are reclassified to common share capital.
The Company has not incorporated an estimated forfeiture rate for
stock options that will not vest, rather, the Company accounts for
actual forfeitures as they occur.

Financial Instruments

Financial instruments are measured at fair value on initial
recognition of the instrument, into one of the following five
categories: held-for trading, loans and receivables, held-to-
maturity investments, available-for-sale financial assets or other
financial liabilities.

Subsequent measurement of financial instruments is based on their
initial classification. Held-for-trading financial assets are
measured at fair value and changes in fair value are recognized in
net earnings. Available-for-sale financial instruments are
measured at fair value with changes in fair value recorded in
other comprehensive income until the instrument is derecognized or
impaired. The remaining categories of financial instruments are
recognized at amortized cost using the effective interest rate

Cash and restricted cash are classified as held-for-trading and
are measured at fair value which equals the carrying value and any
gains or losses are recognized in earnings in the period they
occur. Accounts receivable are classified as loans and receivables
which are measured at amortized costs. Accounts payable and
accrued liabilities are classified as other financial liabilities,
which are measured at amortized cost.

Foreign Currency Translation

The Company translates foreign currency denominated monetary
assets and liabilities of its integrated foreign subsidiaries at
the exchange rate in effect at the balance sheet date and non-
monetary assets and liabilities are translated at historical
exchange rates. Revenues and expenses are translated at estimated
transaction date exchange rates except depletion and depreciation
expense, which is translated at the same historical exchange rates
as the related assets. Exchange gains or losses are included in
the determination of net income as foreign exchange gain or loss.

Basic and Diluted per Share Calculations

Basic earnings per share are computed by dividing earnings by the
weighted average number of shares outstanding during the year.
Diluted per share amounts reflect the potential dilution that
could occur if options to purchase shares were exercised. The
treasury stock method is used to determine the dilutive effect of
common share options, whereby proceeds from the exercise of common
share options or other dilutive instruments are assumed to be used
to purchase common shares at the average market price during the


Capital Disclosures

Effective January 1, 2008, the Company prospectively adopted the
Canadian Institute of Chartered Accountants (CICA) Section 1535,
"Capital Disclosures" which establishes standards for disclosing
information about the Company's capital and how it is managed. It
requires disclosures of the Company's objectives, policies and
processes for managing capital, the quantitative data about what
the Company regards as capital, whether the Company has complied
with any capital requirements and if it has not complied, the
consequences of such non-compliance. The only effect of adopting
this standard is disclosures about the Company's capital and how
it is managed (see Note 11).

Financial Instruments Disclosures and Presentation

Effective January 1, 2008, the Company prospectively adopted
Section 3862, "Financial Instruments - Disclosures" and Section
3863, "Financial Instruments - Presentation." These new accounting
standards replaced Section 3861, "Financial Instruments -
Disclosure and Presentation." Section 3862 requires additional
information regarding the significance of financial instruments
for the entity's financial position and performance, and the
nature, extent and management of risks arising from financial
instruments to which the entity is exposed. The additional
disclosures required under these standards are included in
Note 11.

Recent Accounting Pronouncements

In February 2008, the CICA issued Section 3064, "Goodwill and
Intangible Assets", replacing Section 3062, "Goodwill and Other
Intangible Assets" and Section 3450, "Research and Development
Costs". Various changes have been made to other sections of the
CICA Handbook for consistency purposes. The new section will be
applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. The Company adopted these
standards for its fiscal year beginning January 1, 2009 with no
impact on its consolidated financial statements.

In January 2009, the CICA issued Section 1582, "Business
Combinations", which replaces former guidance on business
combinations. Section 1582 establishes principles and requirements
of the acquisition method for business combinations and related
disclosures. This statement applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after January 2011 with earlier adoption permitted. The Company
plans to adopt this standard prospectively effective January 1,
2009 and does not expect the adoption of this statement to have a
material impact on the Company's results of operations or
financial position.

In January 2009, the CICA issued Sections 1601, "Consolidated
Financial Statements", and 1602, "Non-controlling Interests",
which replaces existing guidance. Section 1601 establishes
standards for the preparation of consolidated financial
statements. Section 1602 provides guidance on accounting for a
non-controlling interest in a subsidiary in consolidated financial
statements subsequent to a business combination. These standards
are effective on or after the beginning of the first annual
reporting period beginning on or after January 2011 with earlier
application permitted. The Company plans to adopt these standards
effective January 1, 2009 and does not expect the adoption will
have a material impact on the results of operations or financial

The Accounting Standards Board has confirmed the convergence of
Canadian GAAP with International Financial Reporting Standards
(IFRS) will be effective January 1, 2011. The Company has
performed an initial scoping process in order to ensure successful
implementation within the required timeframe. The impact on the
Company's consolidated financial statements is not reasonably
determinable at this time. Key information will be disclosed as it
becomes available during the transition period.


The Company has a line of credit through its subsidiary
CanAmericas to the lower of its available amount of cash or U.S.
$3,690,000, which can be drawn by means of letters of guarantee
and letters of credit. The line of credit may be cancelled without
notice. No letters of guarantee or credit are currently

The Company had a letter of guarantee (supported by a restricted
term investment) to cover its commitment to spend U.S. $2,142,446
for drilling three wells on the Canadon Ramirez Concession. The
guarantee expired January 31, 2008.

The Company had a performance security agreement whereby a
guarantee to spend U.S. $1,120,000 on the Laguna de Piedra
concession had been reassigned to Export Development Canada for a
fee. The guarantee expired June 30, 2008.


Bonterra Oil & Gas Ltd. (Bonterra O&G), a corporation with common
directors and management and the former parent of the Company,
through its wholly owned subsidiary Bonterra Energy Corp.
(Bonterra Corp) has provided management services to the Company.
Fees paid for management services totalled $237,600 (2007 -
$216,000) for the year. The management services agreement may be
cancelled by the Company with 90 days notice.

As of December 31, 2008, the Company owed $592 (2007 - $3,976) to
Bonterra Corp for operating expenditures paid on its behalf.
These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.


The Company incorporated subsidiary companies, CanAmericas, to
explore and develop oil and gas properties primarily in South
America. CanAmericas is owned 93 percent by the Company and seven
percent by a foreign private Company (Foreign Corp.). CanAmericas
was initially financed by investments of U.S. $1,400,000 for
5,600,000 common shares from the Company and U.S. $100,000 for
400,000 common shares from Foreign Corp.

Changes to non-controlling interest were as follows:

2008 2007
Non-controlling interest, January 1 $ 25,179 $ 74,970
Loss applicable to non-controlling
interest (25,179) (49,791)
Non-controlling interest, December 31 $ - $ 25,179

Foreign Corp. has been granted options to acquire an additional
1,000,000 common shares of CanAmericas at U.S. $0.25 per common
share. The options vested 50 percent on each of January 13, 2007
and January 13, 2008 and expire on January 13, 2011.


The Company has recorded a full valuation allowance for its future
income tax assets as their recoverability is determined not to be
more likely than not.

2008 2007
Amount Amount
Future income tax assets:
Capital assets $ 1,807,256 $ 182,907
Asset retirement obligation 20,235 8,610
Share issue costs 20,929 33,627
Loss carry-forward 898,328 421,880
Valuation allowance (2,746,748) (647,024)
$ - $ -

Income tax expense differs from the amounts that would be computed
by applying Canadian federal and provincial income tax rates as

2008 2007
Loss before income taxes and
non-controlling interests $(7,543,915) $(1,410,548)
Combined federal and provincial income
tax rates 29.5% 32.1%
Income tax provision calculated using
statutory tax rates (2,225,455) (452,786)
Increase (decrease) in income taxes
resulting from:
Stock-based compensation 112,543 57,403
Argentina capital tax 23,132 -
Loss applicable to non-controlling
interests 7,428 15,983
Change in valuation allowance 2,099,724 264,453
Change in tax rates 18,135 126,875
Other (12,375) 8,769
Income tax provision $ 23,132 $ 20,697

The Company has the following tax pools, which may be used to
reduce taxable income in future years, limited to the applicable
rates of utilization:
Rate of
% Amount
Undepreciated capital costs 25 $ 406,824
Foreign exploration expenditures 10 5,496,995
Canadian oil and gas property
expenditures 10 589,981
Canadian development expenditures 30 586,943
Canadian exploration expenditures 100 392,110
Share issue costs 20 83,715
Non-capital loss carryforward(1) 100 3,593,315
(1) $707,698 expires 2026, $929,726 expires 2027, $1,955,891
expires 2028


2008 2007
Accumulated Accumulated
Depletion and Depletion and
Cost Depreciation Cost Depreciation
and natural
and related
equipment $ 3,825,037 $ 1,041,902 $ 4,585,325 $ 734,384
and other 53,513 27,991 53,512 17,880
$ 3,878,550 $ 1,069,893 $ 4,638,837 $ 752,264

As of December 31, 2008, the Company spent $7,503,452 (2007 -
$2,575,676) for exploration activities for the Canadon Ramirez
Concession and Laguna de Piedra Concession as discussed in
Note 10. In 2008, the exploration costs related to the Canadon
Ramirez Concession of $6,171,140 (which included $34,130 of asset
retirement obligations) were written-off to dry hole costs as the
three well program was unsuccessful. Exploration costs of
$1,366,442 included in petroleum and natural gas properties and
related equipment presently have been excluded from costs subject
to depletion and depreciation.


At December 31, 2008, the estimated total undiscounted amount
required to settle the asset retirement obligations was $123,602
(December 31, 2007 - $69,182). Costs for asset retirement have
been calculated assuming a two percent inflation rate for 2009 and
thereafter. These obligations will be settled based on the useful
lives of the underlying assets, which extend up to 13 years into
the future. This amount has been discounted using a credit-
adjusted risk-free interest rate of five percent.

Changes to asset retirement obligations were as follows:

2008 2007
Asset retirement obligations, January 1 $ 34,438 $ 40,240
Adjustment to asset retirement
obligation 44,778 (7,814)
Liabilities settled during the year - -
Accretion 1,722 2,012
Asset retirement obligations,
December 31 $ 80,938 $ 34,438



Unlimited number of Common Shares without nominal or par value.

Unlimited number of Class B Preferred Shares without nominal or

par value which may be issued in one or more series.

2008 2007
Issued Number Amount Number Amount
of year 45,275,695 $14,588,722 36,523,041 $ 5,377,343
to rights
offering - - 8,312,654 9,143,919
Share issue
costs - (71,309)
Issued on
of stock
options - - 440,000 74,750
surplus to
capital - 43,322
Future tax
benefit of
issue costs - 20,697
Balance, end
of year 45,275,695 $14,588,722 45,275,695 $14,588,722

The number of common shares used to calculate diluted loss per
share for the year ended December 31, 2008 is 45,275,695 (2007 -
38,291,597). The exercise of outstanding stock options would have
no dilutive effect on per share amounts.

On October 25, 2007, the Company completed a rights offering
whereby the Company shareholders were granted the right to
purchase one common share for every four common shares held with
an exercise price of $1.10 per share. The Company issued 8,312,654
common shares for proceeds of $9,072,610 net of $71,309 of share
issue costs.

A summary of the changes of the Company's contributed surplus is
presented below:

Contributed surplus
($) 2008 2007
Balance, beginning of year 341,465 205,961
Stock-based compensation expensed
(non-cash) 381,503 178,826
Stock-based options exercised (non-cash) - (43,322)
Balance, end of year 722,968 341,465

The deficit balance is composed of accumulated losses.
The Company may grant options for up to 4,527,569 (2007 -
3,605,583) common shares. The exercise price of each option
granted equals the market price of the common share on the date of
grant and the options' maximum term is five years.

A summary of the status of the Company's stock option plan as of
December 31, 2008 and December 31, 2007, and changes during the
years ended on those dates are presented below:

December 31, 2008 December 31, 2007
Options Weighted- Options Weighted-
Average Average
Exercise Exercise
Price Price
of year 3,053,000 $ 0.62 2,420,000 $ 0.29
granted 65,000 1.15 1,108,000 1.16
exercised - - (440,000) 0.17
cancelled - - (35,000) 0.40
at end of
year 3,118,000 $ 0.63 3,053,000 $ 0.62
at end of
year 2,003,500 $ 0.33 1,162,500 $ 0.18

Options Outstanding Options Exercisable
----------------------------------- ----------------------
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 12/31/08 Life Price At 12/31/08 Price
$0.15 1,090,000 1.1 years $0.15 1,090,000 $0.15
0.50 - 0.60 825,000 1.1 years 0.51 800,000 0.51
0.70 - 0.75 80,000 1.1 years 0.72 80,000 0.72
1.10 - 1.20 1,083,000 1.5 years 1.17 13,500 1.17
1.40 - 1.50 40,000 2.1 years 1.49 20,000 1.49
$0.15 - 1.50 3,118,000 1.3 years $0.63 2,003,500 $0.33

The Company records compensation expense over the vesting period
based on the fair value of options granted to employees, directors
and consultants. Unvested options as of December 31, 2008 vest
1,057,000 in 2009 and 57,500 in 2010.

The Company issued 65,000 in 2008 (2007 - 1,108,000) stock options
with an estimated fair value of $33,761 (2007 - $547,080) ($0.52
per option (2007 - $0.49 per option)) using the Black-Scholes
option pricing model with the following key assumptions:

2008 2007
---- ----
Weighted-average risk free interest
rate (%) 2.89 4.14
Dividend yield (%) - -
Expected life (years) 2.5 2.5
Weighted-average volatility (%) 72.0 64.8


The Company had two farm-in agreements in South America which
require future expenditure commitments as outlined below:

Canadon Ramirez Concession

Pine Cliff, through its subsidiaries, has paid 100 percent of
costs totaling U.S. $5,500,000, including a 21 percent Value Added
Tax (V.A.T.), for work to be conducted on the concession to earn a
49 percent participating interest, which included a three well
drilling program. As of December 31, 2008, all costs relating to
this concession, including V.A.T. of $1,052,944 (U.S. $967,961),
have been expensed to dry hole costs as described in Note 7. There
are no further material farm-in commitments on this property, but
the Company may decide to do additional exploratory programs in
the future.

Laguna de Piedra Concession

Pine Cliff, through its subsidiaries, has paid 40 percent of costs
totaling US $1,120,000 including V.A.T. to earn a 25 percent
participating interest in the entire permit. The Company has plans
to participate in a one well project which is expected to be
drilled in 2009.

The V.A.T amount is recoverable against V.A.T liabilities
generated on the sale of petroleum production in Argentina. The
V.A.T amount has been capitalized to exploration costs, as its
recoverability can not be determined until a successful producing
property is established.

The success of the South American operations and recoverability of
the capitalized costs related thereto are dependent upon the
development of successful producing properties. This may require
additional financing to continue the on-going development of the
South American operations and to meet the related obligations as
they become due.


Financial Risk Factors

The Company undertakes transactions in a range of financial
instruments including:

- Cash deposits;
- Receivables;
- Payables;

The Company's activities result in exposure to a number of
financial risks including market risk (commodity price risk,
interest rate risk, foreign exchange risk, credit risk, and
liquidity risk). Financial risk management is carried out by
senior management under the direction of the Board of Directors.
The Company does not enter into risk management contracts. The
Company sells its oil and gas commodities at market prices at the
date of sale in accordance with the Board directive.

Capital Risk Management


The Company's objectives when managing capital are to safeguard
the Company's ability to continue as a going concern, to continue
providing returns to its Shareholders and benefits for other
stakeholders, and to maintain an optimal capital structure to
reduce the cost of capital. In order to maintain or adjust the
capital structure, the Company may issue debt or new shares.
The Company monitors capital on the basis of the ratio of budgeted
exploration capital requirements to current working capital. This
ratio is calculated using the projected cash requirements for a
year in advance and maintaining a working capital balance of at
least six months to satisfy this requirement on a continuous

The Company believes that maintaining approximately a six month
current working capital balance to the exploration capital budget
requirement is an appropriate basis to allow it to continue its
future development of the Company's assets.

The following section (a) of this note provides a summary of the
Company's underlying economic positions as represented by the
carrying values, fair values and contractual face values of our
financial assets and financial liabilities. The Company's working
capital to capital expenditure requirement ratio is also provided.
The following section (b) addresses in more detail the key
financial risk factors that arise from the Company's activities
including its policies for managing these risks.

a) Financial assets, financial liabilities

The carrying amounts, fair value and face values of the Company's
financial assets and liabilities other than cash are shown in
Table 1.

Table 1

As at December 31, 2008
Carrying Fair Face
($000) Value Value Value
Financial assets
Accounts receivable 107 107 142
Financial liabilities
Accounts payable and accrued
liabilities 444 444 444

The budgeted capital expenditure to working capital base figures
for December 31, 2008 is presented below:

December 31,
($000) 2008
Budgeted capital expenditure(1) 750
Current assets 2,761
Current liabilities (444)
Working capital 2,317
Working capital to budgeted capital expenditure (in months) 37.1
(1) Budgeted capital expenditure represents the Company's
estimated future twelve month capital expenditures.

b) Risks and mitigations

Market risk is the risk that the fair value or future cash flow of
the Company's financial instruments will fluctuate because of
changes in market prices. Components of market risk to which Pine
Cliff is exposed are discussed below.

Commodity price risk

The Company's principal operation is the exploration and possible
development of its oil and gas properties in Argentina. The
Company also engages in the exploration and development of oil and
natural gas properties in Canada. Fluctuations in prices of these
commodities may directly impact the Company's performance and
ability to continue with its operations.

The Company's management currently does not use risk management
contracts to set price parameters for its production.

Sensitivity Analysis

The Company is still in the exploration stage of development of
its exploration properties and as such generates nominal cash flow
or earnings from these properties. In addition, the Company's
petroleum and natural gas operations provide only moderate cash
flow and as such changes in commodity would have no material
impact on the Company.

Interest rate risk

Interest rate risk refers to the risk that the value of a
financial instrument or cash flows associated with the instrument
will fluctuate due to changes in market interest rates. Interest
rate risk arises from interest bearing financial assets and
liabilities that Pine Cliff uses. The principal exposure to the
Company is on its cash balances which have a variable interest
rate which gives rise to a cash flow interest rate risk.
Pine Cliff's cash consists of Canadian dollar, U.S. dollar and
Argentinean Pesos investment chequing accounts. Since these funds
need to be accessible for the development of the Company's capital
projects, management does not reduce its exposure to interest rate
risk through entering into term contracts of various lengths. As
discussed above, the Company generally manages its capital such
that its budgeted capital requirements to current working capital
ratio are at least six months.

Foreign exchange risk

The Company has foreign operations, but no revenue from production
from the foreign properties and currently sells all of its
Canadian product sales in Canadian currency. The Company has a
U.S. cash and Argentina Pesos cash balance and earns an
insignificant amount of interest on its U.S. and Argentinean Pesos
bank accounts. Funds held in foreign denominated accounts are
generally held for short periods of time, as the Company transfers
and converts Canadian funds to foreign currency as payments for
foreign currency denominated payables come due. As such, Pine
Cliff does not mitigate exchange rate risk by using risk
management contracts.

Credit risk

Credit risk is the risk that a contracting party will not complete
its obligations under a financial instrument and cause the Company
to incur a financial loss. Pine Cliff is exposed to credit risk on
all financial assets included on the balance sheet. To help
mitigate this risk, the Company maintains the majority of its cash
balances with a major Canadian chartered bank and invests in
secure financial instruments.

Substantially all of the accounts receivable balance at
December 31, 2008 ($107,000) and December 31, 2007 ($72,000)
relates to product sales with Canadian oil and gas companies and
interest income from major Canadian chartered banks, all of which
have consistently been received within 30 to 60 days. The Company,
through its subsidiary CanAmericas, has also a receivable of
$35,000 for Argentina V.A.T. on non-capital expenditures. The
Company has taken a full allowance on the V.A.T., as the Company
has no Argentina income subject to V.A.T. against which to claim
the receivable.

The Company assesses quarterly if there has been any impairment of
the financial assets of the Company. The Company does not have any
significant credit risk exposure to any single counterparty or any
group of counterparties having similar characteristics.

The carrying value of accounts receivable approximates their fair
value due to the relatively short periods to maturity on this
instrument. Currently no accounts receivable is greater than 90
days. The maximum exposure to credit risk is represented by the
carrying amount on the balance sheet. There are no material
financial assets that the Company considers past due.

Liquidity risk

Liquidity risk includes the risk that, as a result of Pine Cliff's
operational liquidity requirements:

- The Company will not have sufficient funds to settle a
transaction on the due date,

- Pine Cliff will not have sufficient funds to continue with its
financing of its major exploration projects,

- The Company will be forced to sell assets at a value which is
less than what they are worth, or

- Pine Cliff may be unable to settle or recover a financial asset
at all.

To help reduce these liquidity risks, the Company:

- Has a general capital policy of maintaining at least six months
of budgeted capital requirements as its working capital base.

- Maintains a continuous evaluation approach as to the
requirements for its largest exploration programs; the Canadon
Ramirez Concession and Laguna de Piedra Concession.


The Company has operations in Canada and in South America. All
operating activities are related to exploration, development and
production of petroleum and natural gas:

($) Canada America Total
Year Ended December 31, 2008
Revenue, gross 814,901 21,046 835,947
Loss before non-controlling
interest 621,501 6,945,546 7,567,047
Capital expenditures 607,941 4,769,249 5,377,190
Property and equipment 1,416,693 1,391,964 2,808,657
Total assets 3,884,908 1,685,107 5,570,015

Year Ended December 31, 2007
Revenue, gross 631,963 27,260 659,223
Loss before non-controlling
interest 560,826 870,419 1,431,245
Capital expenditures 50,234 2,747,529 2,797,763
Property and equipment 1,111,830 2,774,743 3,886,573
Total assets 6,428,371 6,017,623 12,445,994


Pine Cliff Energy Ltd.
George F. Fink
President and CEO
(403) 269-2289
Fax: (403) 265-7488


Pine Cliff Energy Ltd.
Randy M. Jarock
(403) 269-2289
Fax: (403) 265-7488


Pine Cliff Energy Ltd.
Kirsten Kulyk
Manager, Investor Relations
(403) 269-2289
Fax: (403) 265-7488