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Pine Cliff Energy Ltd. Announces Third Quarter Results

Nov 28, 2008 - 12:59 PM ET

CALGARY, ALBERTA--(Marketwire - Nov. 28, 2008) - Pine Cliff Energy Ltd. (www.pinecliffenergy.com) (TSX-V:PNE) is pleased to announce its financial and operational results for the three months and nine months ended September 30, 2008.


  
    Highlights
  
    For the periods ended
  
                                Three Months Ended         Nine Months Ended
                                      September 30              September 30
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Financial ($)
    Revenue - oil and gas     129,537       95,160      411,068      470,265
    Funds Flow from
     Operations(1)           (326,163)    (287,764)    (628,598)    (706,085)
      Per Share Basic           (0.01)       (0.01)       (0.01)       (0.02)
      Per Share Diluted         (0.01)       (0.01)       (0.01)       (0.02)
    Loss                     (505,953)    (383,510)  (1,118,177)    (999,893)
      Per Share Basic           (0.01)       (0.01)       (0.02)       (0.03)
      Per Share Diluted         (0.01)       (0.01)       (0.02)       (0.03)
    Capital Expenditures    1,511,745      174,289    4,309,347    2,604,413
    Total Assets                                     11,621,915    4,173,333
    Working Capital
     (Deficiency)                                     3,440,165     (314,684)
    Shareholders' Equity                             11,400,311    3,371,089
    -------------------------------------------------------------------------
    OPERATIONS
    Oil and NGLs
      - Barrels Per Day             1            1            1            4
      - Average Price
         ($ per barrel)        119.90        75.83       110.45        62.07
    Natural Gas
      - MCF Per Day               146          163          152          204
      - Average Price
         ($ per MCF)             8.74         5.83         9.18         7.14
    Total Barrels of Oil
     Equivalent Per Day(2)         24           27           25           37
  
    (1) Funds flow from operations is not a recognized measure under GAAP.
        Management believes that in addition to cash flow from operations,
        funds flow from operations is a useful supplemental measure as it
        demonstrates the Company's ability to generate the funds 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 excluding foreign exchange loss and asset
        retirement expenditures.
  
    (2) BOEs 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.
  

Report to Shareholders

What a difference a few months can make. In the last three months the world has seen significant declines in many areas; including major reductions in oil and natural gas prices, recessions in most countries in the world, the failure of many banks and credit facilities and a substantial decrease in consumer spending.

Virtually all businesses have been impacted by these changes including Pine Cliff. As a result, the Board of Directors and management will be confronted with difficult decisions, both now and in the future, to ensure all expenditures are made with a great deal of analysis and caution.

The changing landscape is indeed challenging but also provides many opportunities. The Company will be aggressively pursuing such opportunities, especially from a domestic rather than a foreign perspective. This does not mean that Pine Cliff will no longer focus on completing its prospects in Argentina, but the environment in Canada has changed. The opportunities here may once again be more economic than in foreign jurisdictions. If oil and natural gas prices remain depressed, there may be numerous opportunities to acquire high quality producing and non-producing properties.

In regards to Argentina, the difficult operating and political conditions persist. However, the Company remains optimistic that it will be successful with its drill program that is presently being conducted. In addition, a shortage of most commodities still exists in Argentina and the Company is of the view that the Argentinean federal government will likely have to modify its energy policy to once again entice oil and natural gas companies to become more active.

During the latter part of 2008 and the first quarter of 2009, Pine Cliff expects to test the three wells that have been drilled in the Canadon Ramirez property and to drill an exploratory well in the Laguna de Piedra property. During the fourth quarter of 2008, Pine Cliff also participated in drilling a well (15 percent working interest) in the Sundance area of Alberta. This well has been completed as a natural gas well and it is anticipated that the well will be on production prior to the end of 2008.

Although circumstances are expected to continue to be challenging in 2009, the Company is optimistic about being able to take advantage of the many opportunities that will be available.

George F. Fink

President, CEO and Director

November 26, 2008

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.


  
    Production
    ----------
  
                                 Three months ended       Nine months ended
                           September      June September September September
                            30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Crude oil and NGLs
     (barrels per day)             1         -         1         1         4
    Natural gas (MCF per day)    146       142       163       152       204
    Total BOE per day(1)          24        24        27        25        37
    -------------------------------------------------------------------------
    (1) BOEs 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
  

Production volumes for natural gas decreased 25 percent in the first nine months of 2008 compared to the first nine months of 2007. During the third quarter of 2007, one of the Company's commingled gas wells with various production zones started to produce sand and production declined significantly. The operator of the well performed an unsuccessful workover in December of 2007 to attempt to optimize production from all zones. Production continued to decline and the well was eventually shut-in in June of 2008.


  
    Revenue
    -------
  
                                 Three months ended       Nine months ended
                           September      June September September September
    (Cdn $)                 30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Revenue:
      Oil and gas sales      129,537   138,415    95,160   411,068   470,265
    Average Realized Prices
      Crude oil and NGLs
       (per barrel)           119.90         -     75.83    110.45     62.07
      Natural gas (per MCF)     8.74     10.84      5.83      9.18      7.14
    -------------------------------------------------------------------------
  
 


The decrease in revenue from oil and natural gas sales was due to a significant decline in production in the first nine months of 2008 compared to the first nine months of 2007, despite the higher commodity prices for natural gas in 2008. Revenue from the third quarter of 2008 compared to the second quarter of 2008 decreased slightly due to a decrease in commodity prices for natural gas.


  
    Royalties
    ---------
  
                                 Three months ended       Nine months ended
                           September      June September September September
    ($)                     30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Crown royalties           31,888    21,864    13,791    87,882    86,166
    Gross overriding
     royalties                 5,568    10,049     7,338    18,355    19,186
    -------------------------------------------------------------------------
    Total royalty expense     37,456    31,913    21,129   106,237   105,352
    -------------------------------------------------------------------------
  

Crown royalties were approximately the same in the first nine months of 2008 even with the decrease in oil and gas sales, as one of the wells in 2007 was on crown royalty holiday. Gross overriding royalties were slightly less for the same periods largely due to the increase in commodity prices for natural gas, which offset the decrease in production. The increase in Crown royalties quarter over quarter was mainly due to the increased production volumes on the wells subject to crown royalties and adjustments to prior quarter crown royalties paid in the third quarter. Gross overriding royalties decreased primarily as a result of the decrease in natural gas commodity prices.


  
    Interest Income
    ---------------
  
                                 Three months ended       Nine months ended
                           September      June September September September
    ($)                     30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Interest income           21,025    26,162         -   115,355    21,830
    -------------------------------------------------------------------------
  

The Company maintains both Canadian and US investment accounts that pay interest at prime less various percentages as long as the Company maintains certain minimum account balances. The Company has 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. Interest income for Q3 2008 decreased by $5,137 from Q2 2008 due to the lower cash balance on hand as $1.5 million was spent on capital projects in Argentina in the third quarter of 2008.


  
    Production Costs
    ----------------
  
                                 Three months ended       Nine months ended
                           September      June September September September
    ($)                     30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Production costs          27,187    13,273    32,057    66,709    99,363
    $ per BOE                  12.17      7.25     12.90      9.70      9.91
    -------------------------------------------------------------------------
  

Production costs for the nine months of 2008 decreased by $32,654 compared to the first nine months of 2007 due to a decrease in production which results in a reduction of variable costs. The increase in production costs quarter over quarter was mainly due to the payment of annual rents related to surface and mineral leases in Q3.


  
    General and Administrative (G&A) Expense
    ----------------------------------------
  
                                 Three months ended       Nine months ended
                           September      June September September September
    ($)                     30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    G&A expense              358,105   359,043   315,257   999,277   959,336
    -------------------------------------------------------------------------
  

General and administrative expenditures were similiar between the first nine months of 2008 and the first nine months of 2007 and between Q3 and Q2 of 2008.

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.


  
    Foreign Exchange Loss (Gain)
    ----------------------------
  
                                 Three months ended       Nine months ended
                           September      June September September September
    ($)                     30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Foreign exchange
     loss (gain)              26,816   101,624    14,481   (77,118)   34,129
    -------------------------------------------------------------------------
  

The Company maintains foreign denominated bank accounts to facilitate its foreign operations. The gain on foreign exchange in the first three quarters of 2008 and the loss in the first three quarters of 2007 relates to the depreciation of the Canadian dollar with the US dollar in 2008. The majority of the foreign exchange gain in the first nine months of the year was recorded in the second quarter of 2008 as the Canadian dollar depreciated more over that period.

Stock Based Compensation

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

Stock based compensation for the first nine months of 2008 was $313,422 (2007 - $88,043). 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 the first nine months of 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 72.1 percent, weighted average expected life of 2.5 years and no annual dividend rate. As of September 30, 2008 approximately $215,000 of unamortized stock based compensation exists and will be amortized over two years, approximately $95,000 in 2008 and $120,000 in 2009.

Depletion, Depreciation and Accretion

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

During the nine months of 2008 the Company provided $201,336 (2007 - $223,260) for depletion, depreciation and accretion of its property and equipment. The decrease is related to lower production volumes in 2008. Depletion, depreciation and accretion increased modestly from the second quarter of 2008 due to higher 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   $  387,967
    Foreign exploration expenditures                         10    5,242,229
    Share issue costs                                        20       96,713
    Canadian exploration expenditures                       100      392,110
    Canadian development expenditures                        30      383,290
    Canadian oil and gas expenditures                        10      606,369
    Non-capital loss carry forward(*)                       100    2,854,950
    -------------------------------------------------------------------------
                                                                  $9,963,628
    -------------------------------------------------------------------------
    (*) $750,298 expires 2026, $1,523,672 expires 2027 and $580,980 expires
        in 2028
  

Non-Controlling Interest

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

A private foreign company (Foreign Corp.) owns seven percent of CanAmericas. The loss applicable to non-controlling interest for the 2008 nine month period was $25,179 (2007 - $28,495). In Q3, 2008 there were no gains or losses recorded with regard to non-controlling interest as the cumulative losses recorded for previous periods equated to investments made by the non-controlling interests. Until CanAmericas is producing a cumulative net income above its original investment or there are additional investments by the non-controlling interests there will be no further gains or losses allocated to the non-controlling interest.


  
    Loss
    ----
  
                                 Three months ended       Nine months ended
                           September      June September September September
    ($)                     30, 2008  30, 2008  30, 2007  30, 2008  30, 2007
    -------------------------------------------------------------------------
    Loss                     505,953   295,111   383,510 1,118,177   999,893
    Loss per share             (0.01)    (0.01)    (0.01)    (0.02)    (0.03)
    -------------------------------------------------------------------------
  

The loss incurred in the first nine months of 2008 remained at similar levels to the loss incurred in the first nine months of 2007 as the decrease in oil and gas revenue was offset by lower production costs, increased interest income and a foreign exchange gain as the Canadian dollar depreciated against the US dollar. The increase in loss from Q3 2008 over Q2 2008 is primarily due to a foreign exchange loss in Q3 compared to a foreign exchange gain in Q2.

Funds Flow from Operations

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

Funds flow from operations decreased to negative $628,598 in the first nine months of 2008 from negative $706,085 in the first nine months of 2007. The decrease from 2007 was due to the foreign exchange gain, increased interest income and decreased production costs, which was offset by lower oil and gas revenue. The third quarter 2008 negative funds flow of ($326,163) increased from the second quarter of 2008 of ($142,894) due to lower oil and gas sales, increased production costs and a foreign exchange loss in Q3 compared to a foreign exchange gain in Q2.

The following reconciliation compares funds flow for the first nine months of 2008 and the corresponding 2007 period to the Company's cash flow from operating activities as calculated according to Canadian generally accepted accounting principles:


  
                                                           2008         2007
    -------------------------------------------------------------------------
    Cash flow from operating activities               ($734,432)   ($550,285)
    Items not affecting funds flow
      Accounts receivable                                26,351     (111,059)
      Prepaid expenses                                    6,929       20,444
      Accounts payable and accrued liabilities           (4,564)     (31,056)
      Foreign exchange gain (loss)                       77,118      (34,129)
    -------------------------------------------------------------------------
    Funds flow for the period                         ($628,598)   ($706,085)
    -------------------------------------------------------------------------
  

Related Party Transactions

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

Pine Cliff has a management agreement with Bonterra Energy Corp. (Bonterra Corp.), a wholly owned subsidiary of Bonterra Energy Income Trust which is a wholly owned trust of Bonterra Oil & Gas Ltd. 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 $19,800, 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 nine months ended September 30, 2008 were $178,200 (2007 - $162,000) plus minimal out of pocket costs. This agreement can be cancelled by either party by giving 90 days notice.

Commitments

-----------

The Company has two farm-in agreements and one pending farm-in agreement in South America which require future expenditure commitments as outlined in Note 9 to the financial statements.

Liquidity and Capital Resources

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

As of September 30, 2008, Pine Cliff had positive working capital of $3,440,165 (December 31, 2007 - $8,378,110). These funds will be used to fund future exploration and development of Canadian and international properties and for general corporate expenditures. As of September 30, 2008, the Company estimated a capital budget over the next twelve months of $1,450,000. Of this capital budget, $400,000 has been incurred to the date of this report.

The TSX Venture Exchange does not accept responsibility for the adequacy

or the accuracy of this release.


  

    PINE CLIFF ENERGY LTD.
    CONSOLIDATED BALANCE SHEETS
    -------------------------------------------------------------------------
    As at September 30, 2008 (unaudited) and December 31, 2007
  
                                                           2008         2007
    -------------------------------------------------------------------------
    Assets
    Current
      Cash                                           $3,492,388   $5,769,448
      Restricted term investment (Note 2)                     -    2,689,601
      Accounts receivable                                98,255       71,904
      Prepaid expenditures                               35,397       28,468
    -------------------------------------------------------------------------
                                                      3,626,040    8,559,421
    -------------------------------------------------------------------------
    Property and Equipment (Note 5)
      Property and equipment                          8,948,184    4,638,837
      Accumulated depletion and depreciation           (952,309)    (752,264)
    -------------------------------------------------------------------------
    Net Property and Equipment                        7,995,875    3,886,573
    -------------------------------------------------------------------------
                                                    $11,621,915  $12,445,994
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities
       (Note 3)                                        $185,875     $181,311
  
    Asset Retirement Obligations                         35,729       34,438
    Non-controlling Interests (Note 4)                        -       25,179
    -------------------------------------------------------------------------
                                                        221,604      240,928
    -------------------------------------------------------------------------
    Commitments (Note 9)
    Shareholders' Equity
      Share capital (Note 7)                         14,588,722   14,588,722
      Contributed surplus                               654,887      341,465
      Deficit                                        (3,843,298)  (2,725,121)
      Accumulated other comprehensive income                  -            -
    -------------------------------------------------------------------------
                                                     11,400,311   12,205,066
    -------------------------------------------------------------------------
                                                    $11,621,915  $12,445,994
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
  

    PINE CLIFF ENERGY LTD.
    CONSOLIDATED STATEMENTS OF LOSS, COMPREHENSIVE LOSS AND DEFICIT
  
    -------------------------------------------------------------------------
    For the periods ended September 30
    (unaudited)
                                  Three Months              Nine Months
                               2008         2007         2008         2007
    -------------------------------------------------------------------------
    Revenue
      Oil and gas sales      $129,537      $95,160     $411,068     $470,265
      Royalties               (37,456)     (21,129)    (106,237)    (105,352)
      Interest income          21,025            -      115,355       21,830
    -------------------------------------------------------------------------
                              113,106       74,031      420,186      386,743
    -------------------------------------------------------------------------
    Expenses
      Production costs         27,187       32,057       66,709       99,363
      General and
       administrative         358,105      315,257      999,277      959,336
      Foreign exchange
       loss (gain)             26,816       14,481      (77,118)      34,129
      Stock based
       compensation           106,998       29,523      313,422       88,043
      Depletion, depreciation
       and accretion           72,792       62,487      201,336      223,260
    -------------------------------------------------------------------------
                              591,898      453,805    1,503,626    1,404,131
    -------------------------------------------------------------------------
    Loss before Taxes and
     Non-Controlling
     Interests               (478,792)    (379,774)  (1,083,440)  (1,017,388)
    -------------------------------------------------------------------------
    Taxes (Note 6)
      Current                  27,161            -       59,916            -
      Future                        -       11,000            -       11,000
    -------------------------------------------------------------------------
                               27,161       11,000       59,916       11,000
    -------------------------------------------------------------------------
    Loss before Non-
     Controlling Interests   (505,953)    (390,774)  (1,143,356)  (1,028,388)
    Loss applicable to
     non-controlling
     interests (Note 4)             -        7,264       25,179       28,495
    -------------------------------------------------------------------------
    Loss and Comprehensive
     loss for the Period     (505,953)    (383,510)  (1,118,177)    (999,893)
    Deficit, Beginning
     of Period             (3,337,345)  (1,960,050)  (2,725,121)  (1,343,667)
    -------------------------------------------------------------------------
    Deficit, End of
     Period               ($3,843,298) ($2,343,560) ($3,843,298) ($2,343,560)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss Per Share -
     Basic and Diluted         ($0.01)      ($0.01)      ($0.02)      ($0.03)
    -------------------------------------------------------------------------
  

    PINE CLIFF ENERGY LTD.
    CONSOLIDATED STATEMENTS OF CASH FLOW
    -------------------------------------------------------------------------
    For the periods ended September 30
    (unaudited)
                                  Three Months              Nine Months
                               2008         2007         2008         2007
    -------------------------------------------------------------------------
    Operating Activities
      Loss for the period   ($505,953)   ($383,510) ($1,118,177)   ($999,893)
      Items not affecting
       cash
        Stock based
         compensation         106,998       29,523      313,422       88,043
        Depletion,
         depreciation and
         accretion             72,792       62,487      201,336      223,260
        Foreign exchange
         loss (gain)           26,816       14,481      (77,118)      34,129
        Future income taxes         -       11,000            -       11,000
        Loss applicable to
         non-controlling
         interests                  -       (7,264)     (25,179)     (28,495)
    -------------------------------------------------------------------------
                             (299,347)    (273,283)    (705,716)    (671,956)
    -------------------------------------------------------------------------
      Change in non-cash
       working capital
        Accounts receivable    14,533       23,205      (26,351)     111,059
        Prepaid expenditures    2,624      (17,909)      (6,929)     (20,444)
        Accounts payable and
         accrued liabilities  (23,178)      95,706        4,564       31,056
    -------------------------------------------------------------------------
                               (6,021)     101,002      (28,716)     121,671
    -------------------------------------------------------------------------
    Cash Used in Operating
     Activities              (305,368)    (172,281)    (734,432)    (550,285)
    -------------------------------------------------------------------------
    Financing Activities
      Issue of shares under
       stock option plan            -        3,000            -       70,250
      Share issue costs             -      (37,950)           -      (37,950)
      Change in non-cash
       working capital
        Accounts payable and
         accrued liabilities        -       32,500            -       32,500
      Proceeds received
       from related party           -      503,337            -      503,337
    -------------------------------------------------------------------------
    Cash Provided by
     Financing Activities           -      500,887            -      568,137
    -------------------------------------------------------------------------
    Investing Activities
      Property and equipment
       expenditures        (1,511,745)    (174,289)  (4,309,347)  (2,604,413)
      Proceeds on disposal
       of restricted term
       investments                  -            -    2,689,601            -
      Change in non-cash
       working capital
        Accounts payable
         and accrued
         liabilities                -      (20,400)           -        7,967
    -------------------------------------------------------------------------
    Cash Used in Investing
     Activities            (1,511,745)    (194,689)  (1,619,746)  (2,596,446)
    -------------------------------------------------------------------------
    Foreign exchange gain
     (loss) on cash held
     in foreign currency      (26,816)     (14,481)      77,118      (34,129)
    -------------------------------------------------------------------------
    Net Cash Inflow
     (Outflow)             (1,843,929)     119,436   (2,277,060)  (2,612,723)
    Cash, Beginning
     of Period              5,336,317      182,861    5,769,448    2,915,020
    -------------------------------------------------------------------------
    Cash, End of Period    $3,492,388     $302,297   $3,492,388     $302,297
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Interest Paid             $-           $-           $-           $-
    Cash Taxes Paid            $5,902           $-      $27,327           $-
  

Notes to the Consolidated Financial Statements

Periods ended September 30, 2008 and 2007 (unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and methods of application followed in the
preparation of the interim financial statements other than those
described below are the same as those followed in the preparation of
Pine Cliff Energy Ltd.'s (the Company or Pine Cliff) 2007 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 2007 annual financial statements.

The Company adopted Section 1535, "Capital Disclosures", Section
3862, "Financial Instruments - Disclosures" and Section 3863,
"Financial Instruments - Presentation." All the above Sections were
required to be adopted for fiscal years beginning on or after
October 1, 2007. As a result the Company has added Note 10 providing
the required disclosures regarding the Company's objectives, policies
and processes for managing capital and 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.

Accounting Changes

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. Accordingly, the Company will adopt the new
standards for its fiscal year beginning January 1, 2009. This
standard establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented enterprises.
Standards concerning goodwill are unchanged from the standards
included in the previous Section 3062. The Company does not expect
that the adoption of this new Section will have a material impact on
its consolidated financial statements.

2. RESTRICTED TERM INVESTMENT AND BANKING AGREEMENT

The Company has a line of credit through its subsidiary CanAmericas
to the lower of its available amount of cash or US $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 outstanding.

The Company had a letter of guarantee to cover its commitment to
spend US $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 US $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.

3. RELATED PARTY TRANSACTIONS

Bonterra Energy Income Trust (Bonterra), 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. Total fees for the nine month period were $178,200 (2007 -
$162,000) plus minimal out of pocket costs. As of September 30, 2008,
Pine Cliff owed Bonterra Corp. $267 (December 31, 2007 - $3,976).
Pine Cliff acquired its Canadian oil and gas properties from Novitas
Energy Ltd. (Novitas). As of September 30, 2008, Pine Cliff owed
Novitas $14,198 (December 31, 2007 - $Nil) for invoiced expenditures
by the operator of those oil and gas properties. Novitas is a wholly
owned subsidiary of Bonterra.

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.

4. 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 93 percent owned by the
Company and seven percent by a foreign private corporation (Foreign
Corp.). CanAmericas was initially financed by investments of US
$1,400,000 for 5,600,000 common shares from the Company and US
$100,000 for 400,000 common shares from Foreign Corp.


  
        Changes to non-controlling interest were as follows:
  
                                                      September     December
                                                       30, 2008     31, 2007
        ---------------------------------------------------------------------
        Non-controlling interest, January 1             $25,179      $74,970
        Loss applicable to non-controlling interest     (25,179)     (49,791)
        ---------------------------------------------------------------------
        Non-controlling interest, end of period             $ -      $25,179
        ---------------------------------------------------------------------
  

Foreign Corp. has been granted an option to acquire an additional
1,000,000 common shares of CanAmericas at US $0.25 per common share.
Fifty percent of the options vested on January 13, 2007 and the
remaining 50 percent vested on January 13, 2008. All the options will
expire on January 13, 2011.


  
    5.  PROPERTY AND EQUIPMENT
  
                                September 30, 2008       December 31, 2007
        ---------------------------------------------------------------------
                                        Accumulated              Accumulated
                                       Depletion and            Depletion and
                              Cost      Depreciation    Cost     Depreciation
        ---------------------------------------------------------------------
        Petroleum and
         natural gas
         properties and
         related
         equipment         $8,894,672   $  927,400   $4,585,325   $  734,384
        Furniture,
         equipment and
         other                 53,512       24,909       53,512       17,880
        ---------------------------------------------------------------------
                           $8,948,184   $  952,309   $4,638,837   $  752,264
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
  

As of September 30, 2008, the Company spent $6,833,364 for
exploration activities for the Canadon Ramirez Concession and Laguna
de Piedra Concession as discussed in Note 9. These costs presently
have been excluded from costs subject to depletion and depreciation.

6. TAXES

A one percent Argentinean capital tax is payable in respect of the
exploration costs for the Canadon Ramirez and the Laguna de Piedra
Concessions.

The Company continues to record a full valuation allowance for its
future income tax assets as the recoverability is uncertain.

7. 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, 2008 and
         September 30, 2008                          45,275,695  $14,588,722
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
  
        The number of shares used to calculate diluted net earnings per share
        for the periods ended September 30:
  
                                    Three Months              Nine Months
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------
        Basic shares
         outstanding       45,275,695   36,914,345   45,275,695   36,655,137
        Dilutive effect of
         share options      1,101,180    1,487,209    1,098,237    1,697,697
        Diluted shares
         outstanding       46,376,875   38,401,554   46,373,932   38,352,834
        ---------------------------------------------------------------------
  

A summary of the status of the Company's stock option plan as of
September 30, 2008 and December 31, 2007, and changes during the nine
month and twelve month periods ending on those dates is presented
below:


  
                              September 30, 2008        December 31, 2007
        ---------------------------------------------------------------------
                                         Weighted-                 Weighted-
                                           Average                   Average
                                          Exercise                  Exercise
                              Options        Price     Options         Price
        ---------------------------------------------------------------------
        Outstanding at
         beginning of
         period             3,053,000        $0.62    2,420,000        $0.29
        Options granted        65,000         1.15    1,108,000         1.16
        Options exercised           -            -     (440,000)        0.17
        Options cancelled           -            -      (35,000)        0.40
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Outstanding at end
         of period          3,118,000        $0.63    3,053,000        $0.62
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Options exercisable
          at end of period  1,923,500        $0.33    1,162,500        $0.18
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
  
        The following table summarizes information about stock options
        outstanding at September 30, 2008:
  
                         Options Outstanding            Options Exercisable
                ------------------------------------- -----------------------
                                Weighted-
                                  Average   Weighted-              Weighted-
    Range of          Number    Remaining    Average       Number    Average
    Exercise     Outstanding  Contractual   Exercise  Exercisable   Exercise
    Prices        At 9/30/08         Life      Price   At 9/30/08      Price
    -------------------------------------------------------------------------
    $0.15          1,090,000    1.2 years      $0.15    1,090,000      $0.15
     0.50 - 0.60     825,000    1.2 years       0.51      742,500       0.51
     0.70 - 0.80      80,000    1.2 years       0.72       65,000       0.72
     1.10 - 1.20   1,083,000    2.2 years       1.18        6,000       1.15
     1.40 - 1.50      40,000    2.2 years       1.49       20,000       1.49
    -------------------------------------------------------------------------
    $0.15-$1.50    3,118,000    1.6 years      $0.63    1,923,500      $0.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
  

The Company records a compensation expense over the vesting period
based on the fair value of options granted to employees of the
management team (See Note 3), directors and service providers. The
Company issued 65,000 (December 31, 2007 - 1,108,000) stock options
with an estimated fair value of $33,761 (December 31, 2007 -
$547,080) ($0.52 per option (December 31, 2007 - $0.49 per option))
using the Black-Scholes option pricing model with the following key
assumptions:


  
                                                   September 30, December 31,
                                                           2008         2007
        ---------------------------------------------------------------------
        Weighted-average risk free interest rate (%)       2.89         4.13
        Dividend yield (%)                                 0.00         0.00
        Expected life (years)                               2.5          2.5
        Weighted-average volatility (%)                    72.1         64.8
        ---------------------------------------------------------------------
  

8. SEGMENTED INFORMATION

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:


  
                                                           South
        ($)                                   Canada     America       Total
        Three Months Ended September 30, 2008
        Revenue, gross                       150,276         286     150,562
        Loss before non-controlling
         interest                            201,176     304,777     505,953
        Capital expenditures                  66,283   1,445,462   1,511,745
  
        Nine Months Ended September 30, 2008
        Revenue, gross                       505,383      21,040     526,423
        Loss before non-controlling
         interest                            505,053     638,303   1,143,356
        Capital expenditures                  76,505   4,232,842   4,309,347
        Property and equipment             1,005,765   6,990,110   7,995,875
        Total assets                       4,410,838   7,211,077  11,621,915
  
        Three Months Ended September 30, 2007
        Revenue, gross                        95,160           -      95,160
        Loss before non-controlling
         interest                            171,413     219,361     390,774
        Capital expenditures                     462     173,827     174,289
  
        Nine Months Ended September 30, 2007
        Revenue, gross                       478,215      13,880     492,095
        Loss before non-controlling
         interest                            384,690     643,698   1,028,388
        Capital expenditures                  38,168   2,565,245   2,604,413
  
        December 31, 2007
        Property and equipment             1,111,830   2,774,743   3,886,573
        Total assets                       6,428,371   6,017,623  12,445,994
  

9. COMMITMENTS

The Company has two farm-in agreements and one pending farm-in
agreement in South America which require future expenditure
commitments as outlined below:

Canadon Ramirez Concession

Pine Cliff, has committed to pay 100 percent of costs totaling
US $5,500,000, including a 21 percent Value Added Tax (V.A.T.), for
work to be conducted on the concession within two years to earn a
49 percent participating interest.

As of September 30, 2008, the Company has expended Cdn $5,700,940
(US $5,293,623) including V.A.T of Cdn $963,605 (US $894,612) on the
Canadon Ramirez Concession. 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.


  
        Commitment by Year (US $000's)
  
        Year                 Amount
        ----                 ------
        2008                    206
  

San Jorge Basin Permit

Pine Cliff has agreed to farm-in terms whereby it has committed to
pay 100 percent of costs totaling US $4,620,000 including V.A.T. to
earn a 60 percent participating interest in the entire permit. As of
September 30, 2008, no amounts have been expended on this permit. The
V.A.T amount is recoverable against V.A.T liabilities generated on
the sale of petroleum production in Argentina. CanAmericas'
commitment and earn-in in this property is subject to final granting
of the concession by the provincial government to the Farmor. Some
issues have developed whereby the provincial government has informed
the Farmor that it is withdrawing the concession and will be looking
for larger work commitments for the concession. Pine Cliff has
recently been advised by the Farmor that negotiations are continuing.
Further details will be provided when additional information is
received from the Farmor.

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 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 Company issued a letter of guarantee to spend US $1,120,000 for
work to be conducted on this Concession. The guarantee expired
July 1, 2008.

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.

10. FINANCIAL AND CAPITAL RISK MANAGEMENT

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 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
six months to a year in advance and maintaining a working capital
balance of approximately six months to satisfy this requirement on a
continuous basis.

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 largest assets; the "Canadon
Ramirez Concession" and "Laguna de Piedra Concession."

The following section (a) of this note provides a summary of our
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 September 30, 2008    As at December 31, 2007
        ---------------------------------------------------------------------
                        Carrying    Fair     Face  Carrying    Fair     Face
        ($000)            Value    Value    Value    Value    Value    Value
        ---------------------------------------------------------------------
        Financial assets
        Restricted term
         investments          -        -        -    2,689    2,689    2,689
        Accounts
         receivable          98       98      132       72       72       81
  
        Financial
         liabilities
        Accounts payable
         and accrued
         liabilities        186      186      186      181      181      181
        ---------------------------------------------------------------------
  
        The budgeted capital expenditure to working capital base figures for
        September 30, 2008 and December 31, 2007 are presented below:
  
                                                   September 30, December 31,
        ($000)                                             2008         2007
        ---------------------------------------------------------------------
        Budgeted capital expenditure(1)                   1,432        6,425
        ---------------------------------------------------------------------
        Number of months budgeted                            12           12
        ---------------------------------------------------------------------
        Current assets                                    3,626        8,559
        Current liabilities                                (185)        (181)
        ---------------------------------------------------------------------
        Working capital                                   3,441        8,378
        ---------------------------------------------------------------------
        Working capital to budgeted capital
         expenditure (in months)                           28.9         15.7
        ---------------------------------------------------------------------
        (1) September 30, 2008 - for last three months of 2008 and first
            nine months of 2009; December 31, 2007 - fiscal year ended
  

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 of US $1.00 per barrel in the price of crude oil,
$0.10 per MCF in the price of natural gas and $0.01 change in the
Cdn/US exchange rate 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, US 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 approximately six months.

Sensitivity Analysis

Based on historic movements and volatilities in the interest rate
markets and management's current assessment of the financial markets,
the Company believes that a one percent variation in the Canadian
prime interest rate is reasonably possible over a 12 month period. No
income tax effect has been calculated as the Company has more than
sufficient tax pools.

The following illustrates the annual impact of a one percent
fluctuation in the Canadian prime interest rate:


  
                          As at                           As at
                    September 30, 2008              December 31, 2007
    -------------------------------------------------------------------------
                 Plus 1%         Minus 1%        Plus 1%         Minus 1%
    ($000)   Earnings Equity Earnings Equity Earnings Equity Earnings Equity
    -------------------------------------------------------------------------
    Financial
     assets
    ---------
    Cash
     deposits      35     35      (35)   (35)      58     58      (58)   (58)
    Restricted
     term
     investments    -      -        -      -       27     27      (27)   (27)
    Accounts
     receivable     -      -        -      -        -      -        -      -
    Financial
     liabilities
    Accounts
     payable and
     accrued
     liabilities    -      -        -      -        -      -        -      -
    -------------------------------------------------------------------------
    Total increase
     (decrease)    35     35      (35)   (35)      85     85      (85)   (85)
    -------------------------------------------------------------------------
  

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 US cash and
Argentina Pesos cash balance and earns an insignificant amount of
interest on its US 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 payment for foreign currency denominated payables come
due. As such, Pine Cliff does not mitigate CAD/USD/ARG 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.

Of the accounts receivable balance at September 30, 2008 ($79,000)
and December 31, 2007 ($72,000), all relate to product sales with
Canadian oil and gas companies and interest income from major
Canadian chartered banks all of which have always paid within 30 to
60 days.

The Company assesses quarterly if there has been any impairment of
the financial assets of the Company. During the nine month period
ended September 30, 2008, there was no impairment provision required
on any of the financial assets of the Company due to historical
success of collecting receivables. 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. 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 risks, the Company:

- Has a general capital policy of maintaining approximately 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.


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