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Pine Cliff Energy Ltd. Announces Second Quarter Results

Aug 29, 2007 - 11:59 PM ET

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2007) - Pine Cliff Energy Ltd. (www.pinecliffenergy.com) (TSX-V:PNE) is pleased to announce its financial and operational results for the three months and six months ended June 30, 2007.

  
    Highlights
  
    For the periods ended
  
                                    Three Months Ended      Six Months Ended
                                           June 30               June 30
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    FINANCIAL ($)
    Revenue - oil and gas           176,590    108,413    375,105    400,483
    Funds Flow from Operations(1)  (252,435)  (337,020)  (418,321)  (259,320)
      Per Share - Basic               (0.01)     (0.01)     (0.01)     (0.01)
      Per Share - Diluted             (0.01)     (0.01)     (0.01)     (0.01)
    Loss                           (346,274)  (526,107)  (616,383)  (593,246)
      Per Share - Basic               (0.01)     (0.01)     (0.02)     (0.02)
      Per Share - Diluted             (0.01)     (0.01)     (0.02)     (0.02)
    Capital Expenditures
     and Acquisitions               233,648    124,236  2,430,124    256,162
    Total Assets                                        3,946,888  4,892,079
    Working Capital                                       182,319  3,175,577
    Shareholders' Equity                                3,749,025  4,589,015
    -------------------------------------------------------------------------
    OPERATIONS
    Oil and NGL's - Barrels Per
                     Day                  5          4          6          6
                  - Average Price
                     ($ per barrel)   63.29      77.45      60.73      65.00
    Natural Gas   - MCF Per Day         226        139        226        211
                  - Average Price
                     ($ per MCF)       7.22       6.37       7.63       8.54
    Total Barrels Per Day(2)             41         27         42         41
  
    (1) Funds flow from operations is not a recognized measure under GAAP.
    Management believes that in addition to net loss, funds flow from
    operations is a useful supplemental measure as it demonstrates the
    Company's ability to generate the cash necessary to fund future
    growth through capital investment.  Investors are cautioned, however,
    that this measure should not be construed as an indication of the
    Company's performance. The Company's method of calculating this
    measure may differ from other issuers and accordingly, it may not be
    comparable to that used by other issuers. For these purposes, the
    Company defines funds flow from operations as funds provided by
    operations before changes in non-cash operating working capital items
    including foreign exchange loss.
  
    (2) BOE's 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.
  
  

FORWARD-LOOKING INFORMATION

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.

General

-------

The Company has continued to search for investment opportunities in South America and Canada and to date has been successful in completing three farm-out arrangements whereby Pine Cliff will earn an interest in 1,164,800 gross (605,400 net) acres of prospective land. The total commitment to earn these interests is approximately $13,000,000 U.S. over the next three years. Financing by a rights offering to existing shareholders is presently being proceeded with. Pine Cliff shareholders will receive rights to subscribe for one common share for each four shares presently held and will have an additional subscription privilege to subscribe for any common shares not taken up on the exercise of rights. Pricing and material terms are to be finalized with the applicable regulators. The Company will not be proceeding with the private placement financing which was announced on July 4, 2007. The general downturn in the market has made this type of transaction difficult at acceptable pricing. For further details concerning the farm-out arrangements and financing of these arrangements, kindly refer to the applicable sections outlined below in this release.

South American Activities

-------------------------

In the second quarter, the Company completed its third farm-in agreement. Pine Cliff will earn an interest in 11 gross townships (252,048 acres) (net 3 townships (63,012 acres)) of land. The Company has now been successful in negotiating three separate farm-in agreements which has resulted in the acquisition of interests in 51 gross townships (1,164,800 acres) (net 27 townships (605,400 acres)) of land. These three transactions provide a large land base with the potential for a large number of drill locations. The Company is continuing with its pursuit of producing and non-producing properties internationally and domestically.

Production

----------

Production volumes increased in the first half of 2007 to 226 MCF per day from 211 MCF per day for the first half of 2006. During the second quarter of 2006 the operator of the gas plant, where approximately 80 percent of the Company's production is processed, performed an annual turnaround in May and June resulting in having to shut in wells which caused a reduction in production. Subsequent to the completion of the turnaround, capacity restrictions resulted in the continued shut-in of the Company's production. The Company's production for the second quarter of 2007 compared to the first quarter of 2007 was approximately the same as there was no change in the number of wells on production or their relative rate of production.

Revenue

-------

Revenue from petroleum and natural gas sales was $375,105 during the first half of 2007 compared to $400,483 for the first half of 2006. The decline was due to an approximate 11% decline in commodity prices in the first six months of 2007 compared to the first half of 2006. Revenue from the second quarter of 2007 compared to the first quarter of 2007 decreased by $21,925 due to lower commodity prices for natural gas.

Royalties

---------

Royalties consist of Crown royalties of $72,375 (2006 - $9,794) paid to the Province of Alberta and gross overriding royalties of $11,848 (2006 - $19,136). Crown royalties are significantly higher in the first quarter of 2007 due to the expiry of the Crown royalty holiday. Gross overriding royalties are lower mainly because of the decline in commodity prices for natural gas. Royalties for Q2 2007 consist of Crown royalties of $41,585 (Q1 2007 - $30,790) and gross overriding royalties of $5,296 (Q1 2007 - $6,552). The increase in Crown royalties is due to the Company having a full quarter of no Crown royalty holiday. Gross overriding royalties decreased mainly due to the decrease in natural gas commodity prices.

Interest Income

---------------

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 has reduced its cash balance with the development of its South American operations and is currently earning interest at lower rates and on a reduced cash position. As fund balances are increased the rate will again increase.

Production Costs

----------------

Production costs for the six months ended June 30, 2007 were $67,306 or $8.93 per BOE (2006 - $67,930 or $9.05 per BOE). BOE's 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. The reduction in Q2 production costs ($26,350) from Q1 production costs ($40,956) was due to lower gas compression and transportation charges.

General and Administrative

--------------------------

General and administrative expense for the first six months of 2007 was $644,079 ($349,160 in the second quarter) compared to $569,198 for the first six months of 2006 and $294,919 for the first quarter of 2007. The primary reason for the increase in expenses in the first half of 2007 over the first half of 2006 was due to the Company incurring additional professional fees related to its activities in South America and for continuous disclosure obligations. The increase in expenses of $54,241 in the second quarter over the first quarter of 2007 was primarily due to increased professional fees for continuous disclosure obligations.

Pine Cliff does not have any employees at the present time but engages the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. ("CanAmericas") has also engaged the services of two individual professionals as senior management and officers of CanAmericas. One of these officers is a geologist and geophysicist and the other is a geologist and engineer.

Foreign Exchange Loss

---------------------

In February 2006, the Company incorporated a subsidiary company, 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 corporation ("Foreign Corp."). CanAmericas was initially financed with $1,400,000 U.S. for 5,600,000 common shares from the Company and $100,000 U.S. for 400,000 common shares from Foreign Corp. The loss on foreign exchange of $19,648 for the first half of 2007 relates to the appreciation of the Canadian dollar from December 31, 2006 to June 30, 2007, which is less than the foreign exchange loss of $54,905 in the first half of 2006 as the Company had less US funds on hand during 2007.

Stock Based Compensation

------------------------

Stock based compensation for Q2 2007 was $58,520 (2006 - $112,099). The Company has a stock-based compensation plan for Pine Cliff. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees, directors and consultants in respect of the Company. The Company issued 62,000 stock options in Pine Cliff during the first half of 2007. The Company estimated the stock options fair value at $18,789 ($0.30 per option) using the Black-Scholes option pricing model, assuming a weighted average risk free interest rate of 4.16 percent, weighted average expected average volatility of 60.4 percent, weighted average expected average life of 2.9 years and no annual dividend rate. The fair value of the options issued that were amortized in the first half of 2007 amounted to $4,529.

Depletion, Depreciation, and Accretion

--------------------------------------

During the first half of 2007 the Company provided $160,773 (2006 - $129,008) for depletion, depreciation and accretion of its property and equipment. The increase is related to additional production volumes in 2007. Depletion, depreciation and accretion was relatively the same from the second quarter of 2007 compared to the first quarter of 2007 as there was no significant changes in production volumes.

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 that it is not liable for current income tax.

The Company has the following tax pools which can be used to reduce future taxable income:


  
                                                       Rate of
                                                   Utilization
                                                             %        Amount
    -------------------------------------------------------------------------
    Undepreciated capital costs                             25   $   318,186
    Foreign exploration expenditures                        10     2,357,837
    Share issue costs                                       20        83,824
    Non-capital loss carry forward(*)                      100     1,309,379
    Canadian exploration expenditures                      100       392,110
    Canadian development expenditures                       30       424,911
    Canadian oil and gas expenditures                       10       704,463
    -------------------------------------------------------------------------
                                                                 $ 5,590,710
    -------------------------------------------------------------------------
    (*) $757,797 expires 2026 and $551,582 expires 2027
  
  

Non-Controlling Interest

------------------------

As described above, Foreign Corp. owns seven percent of CanAmericas. The first half loss applicable to non-controlling interest for 2007 of $23,457 (2006 - $25,746) and the Q2 2007 loss applicable to non-controlling interest of $10,798 (Q1 2007 - $12,659) relates to its share of revenues and costs associated with CanAmericas' South American activities.

Loss

----

The loss in the first six months of 2007 was $616,383 ($346,274 in the second quarter) compared to $593,246 in the corresponding 2006 period and $270,109 in the first quarter of 2007. The loss incurred in the first half of 2007 increased from the first half of 2006 due primarily to higher general and administrative costs in respect of the Company's South American operations as well as less revenue from lower commodity prices and higher royalties due to the expiry of Crown royalty holidays early in Q1 2007. These increases in expenditures and reduction of revenues were offset by a significant future tax adjustment in 2006. The increase in loss from Q2 2007 over Q1 2007 is due to higher general and administrative costs for the Company's South American operations as well as lower commodity prices for natural gas.

Funds Flow from Operations

--------------------------

Funds flow from operations decreased to negative $418,321 in the first six months of 2007 from negative $259,320 in the first half of 2006. The decreases from 2006 were due to the increased activity in South America. The second quarter 2007 funds flow of ($252,435) from the first quarter of 2007 of ($165,886) was significantly higher due to further South American activities and decreased revenue from lower commodity prices for natural gas.

The following reconciliation compares funds flow for the first six months of 2007 and the corresponding 2006 period to the Company's cash flow from operating activities as calculated according to Canadian generally accepted accounting principles:


  
    For the six month periods ending June 30,             2007          2006
    -------------------------------------------------------------------------
    Cash flow from operating activities              ($378,004)      $86,914
    Items not affecting funds flow
      Accounts receivable                              (87,854)     (287,057)
      Prepaid expenses                                   2,535           603
      Accounts payable and accrued liabilities          64,650        (4,875)
      Foreign exchange loss                            (19,648)      (54,905)
    -------------------------------------------------------------------------
    Funds flow for the period                        ($418,321)    ($259,320)
    -------------------------------------------------------------------------
  
  

Related Party Transactions

--------------------------

Pine Cliff has a management agreement with Bonterra Energy Corp. ("Bonterra Corp."), a wholly owned subsidiary of Bonterra Energy Income Trust and a company with common directors and management, to have Bonterra Corp. provide executive services (President and CEO, CFO and COO), accounting services, oil and gas administration and office administration. The management fee consists of a monthly fee of $18,000, three percent of net earnings before income taxes, $250 per month per operated producing well and $150 per month per water injector well plus out of pocket costs. Total fees for the six months ended June 30, 2007 were $108,000 (2006 - $108,000) plus minimal out of pocket costs. This agreement can be cancelled by either party by giving 90 day's notice.

Liquidity and Capital Resources

-------------------------------

As of June 30, 2007, Pine Cliff had positive working capital of $182,319 (December 31, 2006 - $2,963,513).

Subsequent to June 30, 2007 the Company has commenced a rights offering. The Company shareholders will be granted the right to purchase one common share for every four common shares held with pricing and other material terms still to be finalized in negotiations with the applicable regulators. The additional funding will be used to complete commitments for the Argentina farm-ins (as discussed below) and for further activities in Canada. The previous private placement financing which was announced on July 4, 2007, will not be completed. The general downturn in the market has made this type of financing difficult at acceptable prices.

The Company has entered into commitments in relation to its farm-ins on three parcels of land in Argentina. A summary of the commitments is provided below:

Canadon Ramirez Concession

CanAmericas has committed to pay 100% of costs totaling $5,500,000 US, including 21% Value Added Tax ("V.A.T."), for work to be conducted on the concession within two years to earn a 49% participating interest. Work in the first year includes conducting and interpreting a 75 square mile 3D seismic program and drilling three wells. In the second year of the commitment CanAmericas is committed to spend the remainder of the $5,500,000 US on drilling. The gross acreage for this concession is 47,940 acres (net 23,490 acres).

As of June 30, 2007, the Company has expended $2,391,223 CDN ($2,052,393 US) including V.A.T. of $403,995 CDN ($346,722 US) on seismic costs in respect of the Canadon Ramirez Concession. The V.A.T. amount is recoverable against V.A.T. liabilities generated on sale of petroleum production in Argentina.


  
    Commitment by Year ($000's US)
  
    Year                  Amount
    -----------------------------
    2007                   4,630
    2008                     870
                           ------
                           5,500
                           ------
                           ------
  
  

San Jorge Basin Permit

CanAmericas is committed to pay 100% of costs totaling approximately $4,620,000 US including V.A.T. to conduct an aero-magnetic and aero-gravity survey over the entire permit area, a 3D seismic survey over 39 square miles in the permit area and drill four wells to earn a 60% participating interest in the entire permit. The surveys are to be completed within one year of the effective date, the first two wells are to be drilled within two years of the effective date, and the remaining two wells are to be drilled within three years of the effective date. The costs for this project are recoverable from 100 percent of cash flow obtained from the wells drilled in this work program. As of June 30, 2007, no amounts have been expended on this permit.

The administration of the Colhue Huapi concession has recently been transferred from the Federal government to the Province of Chubut. Therefore, award of title and all future concession oversight will be conducted by the Chubut Province. Since this is a new situation for the Province there is no prior standard by which to make a prediction of the length of time that the award will take. The Province is extremely busy with the transfer of responsibility for hydrocarbons from the Federal Government. Discussions with the Chubut Provincial authorities have been very positive and encouraging and indications have been given that they are likely to assign the concession to CanAmericas within the next several months. The gross acreage for this concession is 864,870 acres (net 518,920 acres).


  
    Commitment by Year ($000's US)
  
    Year                  Amount
    -----------------------------
    2007                     300
    2008                   2,595
    2009                   1,725
                           ------
                           4,620
                           ------
                           ------
  
  

Laguna de Piedra Concession

CanAmericas has committed to pay 40% of costs totaling $1,120,000 US including V.A.T. to earn a 25% participating interest in the entire permit. As of June 30, 2007, no amounts have been expended on this permit. The gross acreage for this concession is 252,048 acres (net 63,012 acres).


  
    Commitment by Year ($000's US)
  
    Year                  Amount
    ----                  -------
    2007                     310
    2008                     810
                           ------
                           1,120
                           ------
                           ------
  
  

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.


  
    PINE CLIFF ENERGY LTD.
    CONSOLIDATED BALANCE SHEETS
    -------------------------------------------------------------------------
    As at June 30, 2007 (unaudited) and December 31,
    2006
  
                                                       2007          2006
    -------------------------------------------------------------------------
    Assets
    Current
      Cash                                         $   182,861   $ 2,915,020
      Accounts receivable                               97,147       185,001
      Prepaid expenditures                               5,189         2,654
    -------------------------------------------------------------------------
                                                       285,197     3,102,675
    -------------------------------------------------------------------------
    Property and Equipment (Note 4)
      Property and equipment                         4,279,010     1,848,887
      Accumulated depletion and depreciation          (617,319)     (457,552)
    -------------------------------------------------------------------------
    Net Property and Equipment                       3,661,691     1,391,335
    -------------------------------------------------------------------------
                                                   $ 3,946,888   $ 4,494,010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities     $   102,878   $   139,162
  
    Asset Retirement Obligations                        41,246        40,240
    Non-controlling Interests (Note 3)                  51,513        74,970
    -------------------------------------------------------------------------
                                                       195,637       254,372
    -------------------------------------------------------------------------
    Shareholders' Equity
      Share capital (Note 5)                         5,483,321     5,377,343
      Contributed surplus                              225,754       205,962
      Deficit                                       (1,960,050)   (1,343,667)
      Accumulated other comprehensive income
       (Note 1)                                              -             -
    -------------------------------------------------------------------------
                                                     3,749,025     4,239,638
    -------------------------------------------------------------------------
                                                   $ 3,946,888   $ 4,494,010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
  

  
    PINE CLIFF ENERGY LTD.
    CONSOLIDATED STATEMENTS OF
    LOSS AND DEFICIT
    -------------------------------------------------------------------------
    For the periods ended June 30 (unaudited)
  
                                 Three Months               Six Months
                               2007         2006         2007         2006
    -------------------------------------------------------------------------
    Revenue
      Oil and gas sales       176,590      108,413      375,105      400,483
      Royalties               (46,881)      (5,385)     (84,223)     (26,482)
      Interest income           4,594       37,375       21,830       58,712
    -------------------------------------------------------------------------
                              134,303      140,403      312,712      432,713
    -------------------------------------------------------------------------
    Expenses
      Production costs         26,350       25,979       67,306       67,930
      General and
       administrative         349,160      375,669      644,079      569,198
      Foreign exchange
       loss                    11,228       75,775       19,648       54,905
      Stock based
       compensation            21,244       59,818       58,520      112,099
      Dry hole costs                -        5,550            -        5,550
      Depletion,
       depreciation and
       accretion               81,167       44,416      160,773      129,008
    -------------------------------------------------------------------------
                              489,149      587,207      950,326      938,690
    -------------------------------------------------------------------------
    Loss before Taxes and
     Non-Controlling
     Interests               (354,846)    (446,804)    (637,614)    (505,977)
    -------------------------------------------------------------------------
    Income Taxes
     (Recovery)
      Current                       -            -            -            -
      Future                        -      102,068            -      113,015
    -------------------------------------------------------------------------
                                    -      102,068            -      113,015
    -------------------------------------------------------------------------
    Loss before
     Non-controlling
     interests               (354,846)    (548,872)    (637,614)    (618,992)
    Loss applicable to
     non-controlling
     interests (Note 3)         8,572       22,765       21,231       25,746
    -------------------------------------------------------------------------
    Loss and
     Comprehensive income
     for the Period          (346,274)    (526,107)    (616,383)    (593,246)
    Deficit, Beginning
     of Period             (1,613,776)    (396,201)  (1,343,667)    (329,062)
    -------------------------------------------------------------------------
    Deficit, End of
     Period                (1,960,050)    (922,308)  (1,960,050)    (922,308)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss Per Share
     - Basic and Diluted
        (Note 5)               ($0.01)      ($0.01)      ($0.02)      ($0.02)
    -------------------------------------------------------------------------
  

  
    PINE CLIFF ENERGY LTD.
    CONSOLIDATED STATEMENTS OF
    CASH FLOW
    -------------------------------------------------------------------------
    For the periods ended June 30 (unaudited)
  
                                 Three Months               Six Months
                               2007         2006         2007         2006
    -------------------------------------------------------------------------
    Operating Activities
      Loss for the period   ($346,274)   ($526,107)   ($616,383)   ($593,246)
      Items not affecting
       cash
        Stock based
         compensation          21,244       59,818       58,520      112,099
        Dry hole costs              -        5,550            -        5,550
        Depletion,
         depreciation and
         accretion             81,167       44,416      160,773      129,008
        Future income
         taxes                      -      102,068            -      113,015
        Foreign exchange
         loss                  11,228       75,775       19,648       54,905
        Loss applicable
         to non-
         controlling
         interests             (8,572)     (22,765)     (21,231)     (25,746)
    -------------------------------------------------------------------------
                             (241,207)    (261,245)    (398,673)    (204,415)
    -------------------------------------------------------------------------
      Change in non-cash
       working capital
        Accounts
         receivable             1,996      100,706       87,854      287,057
        Prepaid
         expenditures           2,291        3,222       (2,535)        (603)
        Accounts payable
         and accrued
         liabilities          (26,114)      85,286      (64,650)       4,875
    -------------------------------------------------------------------------
                              (20,937)     189,214       20,669      291,329
    -------------------------------------------------------------------------
    Cash Provided by
     (Used in) Operating
     Activities              (262,144)     (72,031)    (378,004)      86,914
    -------------------------------------------------------------------------
    Financing Activities
      Issue of shares
       under stock
       option plan             65,750       11,700       67,250       11,700
      Issue of shares
       by subsidiary                -            -            -      113,670
    -------------------------------------------------------------------------
    Cash Provided by
     Financing Activities      65,750       11,700       67,250      125,370
    -------------------------------------------------------------------------
    Investing Activities
      Property and
       equipment
       expenditures          (233,648)    (124,236)  (2,430,124)    (256,162)
      Change in non-cash
       working capital
        Accounts payable
         and accrued
         liabilities           28,367      (89,370)      28,367            -
    -------------------------------------------------------------------------
    Cash Used in
     Investing Activities    (205,281)    (213,606)  (2,401,757)    (256,162)
    -------------------------------------------------------------------------
    Foreign exchange loss
     on cash held in
     foreign currency         (11,228)     (75,775)     (19,648)     (54,905)
    -------------------------------------------------------------------------
    Net Cash Outflow         (412,903)    (349,712)  (2,732,159)     (98,783)
    Cash, Beginning of
     Period                   595,764    3,585,890    2,915,020    3,334,961
    -------------------------------------------------------------------------
    Cash, End of Period   $   182,861  $ 3,236,178  $   182,861  $ 3,236,178
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Interest Paid    $         -  $         -  $         -  $         -
    Cash Taxes Paid       $         -  $         -  $         -  $         -
  
  

Notes to the Consolidated Financial Statements

Periods ended June 30, 2007 and 2006 unaudited

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and methods of application followed in the preparation of the interim financial statements other than described below are the same as those followed in the preparation of the Company's 2006 annual financial statements. These interim financial statements do not include all disclosures required for annual financial statements. The interim financial statements as presented should be read in conjunction with the 2006 annual financial statements.

Financial instruments - recognition and measurement

On January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of Chartered Accountants' ("CICA") Handbook, "Financial Instruments - Recognition and Measurement" and Section 3861 Financial Instruments - Presentation and Disclosure. It sets out the standards for recognizing and measuring financial instruments in the balance sheet and the standards for reporting gains and losses in the financial statements. Financial assets available for sale, assets and liabilities held for trading and derivative financial instruments, part of a hedging relationship or not, have to be measured as fair value.

The Company has made the following classifications:

- Accounts receivable are classified as loans and receivables and are recorded at amortized cost using the effective interest method. Gains and losses are recognized in net earnings when the asset is derecognized.

- Accounts payable and accrued liabilities are classified as other financial liabilities and are recorded at amortized cost using the effective interest method. Gains and losses are recognized in net earnings when the liability is derecognized.

The adoption of this Section is done retroactively without restatement of the consolidated financial statements of prior periods. Further, because the Company does not currently utilize hedges or other derivative financial instruments, the adoption of these sections has had no material impact on the Company's consolidated loss, cash flows or retained earnings as of January 1, 2007 and June 30, 2007.

The Company has reviewed its contracts for embedded derivatives. An embedded derivative is a component of a financial instrument or another contract of which the characteristics are similar to a derivative. This had no impact on the consolidated financial statements.

Comprehensive income

On January 1, 2007, the Company adopted Section 1530 of the CICA Handbook, "Comprehensive Income". It describes reporting and disclosure recommendations with respect to comprehensive income and its components. Comprehensive income is the change in shareholders' equity, which results from transactions and events from sources other than the Company's shareholders. These transactions and events include unrealized gains and losses from changes in fair value of certain financial instruments.

The adoption of this Section had no impact on the Company's presentation. However, should the Company have transactions resulting in an impact to comprehensive income the Company will present a consolidated statement of comprehensive income as a part of the consolidated financial statements.

Equity

On January 1, 2007, the Company adopted Section 3251 of the CICA Handbook "Equity" replacing Section 3250 "Surplus". This describes standards for the presentation of equity and changes in equity for reporting the period as a result of the application of Section 1530 "Comprehensive Income".

Accounting changes

The Company also adopted Section 1506, "Accounting Changes," the only impact of which is to provide disclosure of when an entity has not applied a new source of GAAP that has been issued but is not yet effective. This is the case with Section 3862, "Financial Instruments Disclosures" and Section 3863, "Financial Instruments Presentations" which are required to be adopted for fiscal years beginning on or after October 1, 2007. The Company will adopt these standards on January 1, 2008 and it is expected the only effect on the Company will be incremental disclosures 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.

2. RELATED PARTY TRANSACTIONS

Bonterra Energy Income Trust, an organization with common directors and management and former parent of the Company, through its wholly owned subsidiary Bonterra Energy Corp. ("Bonterra Corp.") provides management services and office administration to the Company (see Note 7). Total fees for the three month period were $108,000 (2006 - $108,000) plus minimal out of pocket costs.

3. NON-CONTROLLING INTERESTS

The Company has incorporated a subsidiary company, CanAmericas Energy Ltd. ("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 corporation ("Foreign Corp."). CanAmericas was initially financed by investments of $1,400,000 U.S. for 5,600,000 common shares from the Company and $100,000 U.S. for 400,000 common shares from Foreign Corp. Foreign Corp. has been granted an option to acquire an additional 1,000,000 common shares of CanAmericas at $0.25 U.S. per common share. Fifty percent of the options vested on January 13, 2007, and the remaining 50% will vest on January 13, 2008, and all the options will expire on January 13, 2011.


  
    4.  PROPERTY AND EQUIPMENT
  
                                June 30, 2007           December 31, 2006
                                        Accumulated               Accumulated
                                      Depletion and             Depletion and
                              Cost     Depreciation     Cost     Depreciation
        ---------------------------------------------------------------------
        Petroleum and
         natural gas
         properties and
         related
         equipment        $ 1,841,830      605,824  $ 1,803,124      450,365
        Seismic             2,391,223            -            -            -
        Furniture,
         equipment and
         other                 45,957       11,495       45,763        7,187
        ---------------------------------------------------------------------
                          $ 4,279,010  $   617,319  $ 1,848,887  $   457,552
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
  
  

As of June 30, 2007, the Company spent $2,391,223 for Seismic activities for the Canadon Ramirez Concession as discussed in Note 7. These costs presently have been excluded from costs subject to depletion and depreciation.

5. SHARE CAPITAL

Authorized

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.


  
        Issued                                          Number        Amount
        ---------------------------------------------------------------------
        Common Shares
        Balance, January 1, 2007                    36,523,041   $ 5,377,343
        Shares issued pursuant to Company
         option plan                                   390,000        67,250
        Transfer of contributed surplus to
         share capital                                       -        38,728
        ---------------------------------------------------------------------
        Balance, June 30, 2007                      36,913,041   $ 5,483,321
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
  
  

The number of common shares used to calculate diluted loss per share for the period ended June 30, 2007 of 38,038,607 (2006 - 37,760,773) included the basic weighted average number of shares outstanding of 36,783,109 (2006 - 36,473,441) plus 1,255,498 (2006 - 1,287,332) shares related to the dilutive effect of share options.
A summary of the status of the Company's stock option plan as of June 30, 2007 and December 31, 2006, and changes during the six month and twelve month periods ending on those dates is presented below:


  

                                June 30, 2007           December 31, 2006
        ---------------------------------------------------------------------
                             Options     Weighted-     Options     Weighted-
                                          Average                   Average
                                          Exercise                  Exercise
                                           Price                     Price
        Outstanding at
         beginning of
         period             2,420,000  $      0.29    1,686,000  $      0.16
        Options granted        62,000         0.71      895,000         0.52
        Options exercised    (390,000)        0.15     (103,000)        0.15
        Options cancelled     (35,000)        0.40      (58,000)        0.21
        ---------------------------------------------------------------------
        Outstanding at
         end of period      2,057,000  $      0.33    2,420,000  $      0.29
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Options
         exercisable at
         end of period      1,177,500  $      0.16      740,000  $      0.16
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
  
        The following table summarizes information about stock options
        outstanding at June 30, 2007:
  
                          Options Outstanding           Options Exercisable
                 ------------------------------------ -----------------------
                                 Weighted-
                                  Average   Weighted-               Weighted-
    Range of          Number    Remaining    Average       Number    Average
    Exercise     Outstanding  Contractual   Exercise  Exercisable   Exercise
    Prices        At 6/30/07         Life      Price   At 6/30/07      Price
    -------------------------------------------------------------------------
    $0.15          1,115,000    2.5 years      $0.15    1,140,000      $0.15
     0.50 - 0.60     850,000    2.5 years       0.51       22,500       0.54
     0.70 - 0.80      80,000    2.5 years       0.72       15,000       0.70
     1.15             12,000    2.5 years       1.15            -          -
    -------------------------------------------------------------------------
    $0.15-$1.15    2,057,000    2.5 years      $0.33    1,177,500      $0.16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
  
  

The Company records a compensation expense over the vesting period based on the fair value of options granted to employees, directors and consultants. Unvested options as of June 30, 2007 vest 35,000 in 2007, 813,500 in 2008 and 31,000 in 2009.

The Company issued 62,000 stock options with an estimated fair value of $18,789 ($0.30 per option) using the Black-Scholes option pricing model with the following key assumptions in 2007:


  
        Weighted-average risk free interest rate (%)                    4.16
        Dividend yield (%)                                              0.00
        Expected life (years)                                            2.9
        Weighted-average volatility (%)                                 60.4
  
  

6. SEGMENTED INFORMATION

The Company, with the incorporation of CanAmericas in February, 2006, has operations in Canada and South America; all operating activities are related to exploration, development and production of petroleum and natural gas as follows:


  
                                                          South
        ($)                                 Canada      America        Total
        Three Months Ended June 30, 2007
        Revenue, gross                     178,704        2,480      181,184
        Loss before non-controlling
         interest                          120,396      234,450      354,846
        Capital expenditures                   630      233,018      233,648
  
        Six Months Ended June 30, 2007
        Revenue, gross                     383,055       13,880      396,935
        Loss before non-controlling
         interest                          213,277      424,337      637,614
        Capital expenditures                38,901    2,391,223    2,430,124
        Property and equipment           1,236,006    2,425,685    3,661,691
        Total assets                     1,497,998    2,448,890    3,946,888
  
        Three Months Ended June 30, 2006
        Revenue, gross                     144,385        1,403      145,788
        Loss before non-controlling
         interest                          207,408      341,464      548,872
        Capital expenditures                99,124       25,112      124,236
  
        Six Months Ended June 30, 2006
        Revenue, gross                     435,636       23,559      459,195
        Loss before non-controlling
         interest                          232,807      386,185      618,992
        Capital expenditures               230,050       25,112      256,162
  
        December 31, 2006
        Property and equipment           1,352,759       38,576    1,391,335
        Total assets                     3,254,440    1,239,570    4,494,010
  
  

7. COMMITMENTS

The Company entered into three farm-in agreements in South America which require future expenditure commitments as outlined below:
Canadon Ramirez Concession

Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has committed to pay 100% of costs totaling $5,500,000 US, including the 21% Value Added Tax ("V.A.T."), for work to be conducted on the concession within two years to earn a 49% participating interest. As of June 30, 2007, the Company has expended $2,391,223 CDN ($2,052,393 US) including V.A.T. of $403,995 CDN ($346,722 US) on seismic costs in respect of the Canadon Ramirez Concession. The V.A.T. amount is recoverable against V.A.T liabilities generated on sale of petroleum production in Argentina.


  
        Commitment by Year ($000's US)
  
        Year              Amount
        ----              -------
        2007               4,630
        2008                 870
                           -----
                           5,500
                           -----
                           -----
  
  

San Jorge Basin Permit

Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has committed to pay 100% of costs totaling $4,620,000 US including V.A.T. to earn a 60% participating interest in the entire permit. As of June 30, 2007, no amounts have been expended on this permit.


        Commitment by Year ($000's US)
  
        Year              Amount
        ----              -------
        2007                 300
        2008               2,595
        2009               1,725
                           -----
                           4,620
                           -----
                           -----
  
  

Laguna de Piedra Concession

Pine Cliff through its 93 percent owned subsidiary, CanAmericas, has committed to pay 40% of costs totaling $1,120,000 US including V.A.T. to earn a 25% participating interest in the entire permit. As of June 30, 2007, no amounts have been expended on this permit.


  
        Commitment by Year ($000's US)
  
        Year              Amount
        ----              -------
        2007                 310
        2008                 810
                           -----
                           1,120
                           -----
                           -----
  
  

8. SUBSEQUENT EVENT - SHARE ISSUANCE

Subsequent to June 30, 2007 the Company has commenced a rights offering. The Company shareholders will be granted the right to purchase one common share for every four common shares held with pricing and other material terms still to be finalized in negotiations with the applicable regulators.


FOR FURTHER INFORMATION PLEASE CONTACT:

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

OR

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

OR

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