Petrolifera Anticipates Successfully 2007

Petrolifera Petroleum

Petrolifera Petroleum Limited (PDP - TSX) says that the company anticipates continued significant growth in 2007, building on the very successful drilling program experienced in Argentina during the latter part of 2005 and throughout 2006. Based on what the company considers to be conservative assumptions, including reduced commodity price expectations next year, Petrolifera's average daily barrel of oil equivalent production (boe/d) is forecast to almost triple year over year. Anticipated 2007 revenue is forecast to more than double, while forecast after-tax cash flow from operations is anticipated to nearly triple. Capital expenditures are forecast to exceed $115 million for the next fiscal year with up to fifty wells to be drilled. Outlays in 2007 are anticipated to be entirely financed by internally generated funds and Petrolifera anticipates a healthy buildup in working capital during 2007, without incurring any indebtedness or issuing any additional equity from its treasury except upon the exercise of outstanding share purchase warrants. The company's forecasts do not provide for or assume any corporate or other acquisitions during the year. Petrolifera 2007 capital budgets are subject to final Board review and approval at a meeting scheduled for early November 2006.

For the balance of 2006, Petrolifera will continue its active drilling program on its Puesto Morales/Rinconada Concession in the Neuquén Basin onshore Argentina. Since the end of August, Petrolifera has drilled and completed the 1012, 1013 and 1015 wells and the 1014 well has been drilled, logged and cased and is presently testing. Results will be issued upon availability.

The drilling rig has now moved to the 1024 location, situated south and slightly east of the excellent 1013 well, instead of going to the 1019 location, as previously announced. The surface location for the 1019 well was not ready in time for the drilling rig to be properly positioned. Accordingly, 1024 will be drilled and, if warranted by drilling and logging results, cased before the drilling rig moves to the 1019 location approximately two miles east of the 1014 well. Once testing is completed at the 1014 location, the service or completion rig will move to the 1024 location in anticipation of testing that well. The exact location of other proposed well and the scheduling thereof will be announced once selections are finalized, and will undoubtedly be affected by the outcome of each planned well.

A second service rig under a one-year renewable contract to Petrolifera has now arrived in Argentina and is expected to be available to the company for its operations in the very near future. A second drilling rig is anticipated to leave the United States of America shortly and should also be available for utilization on or prior to mid-November 2006. This will enable Petrolifera to accelerate its pace of drilling, testing, completion and tie-in between now and the end of the year and throughout 2007. Consideration may be given to adding a third drilling rig or possibly to converting one of the two available completion or service rigs to a drilling rig for numerous shallow locations expected to be drilled over the next several years on the company's extensive Argentinean acreage.

Construction of permanent field facilities is well-advanced, albeit modestly behind schedule for a variety of minor reasons. The company's new 25 kilometer six-inch pipeline connecting the Puesto Morales field to the main transmission system in the region will provide Petrolifera with increased flexibility in transporting its crude oil to available markets. The company anticipates continuing to truck surplus volumes until further predictability on reliable volume growth is available to it to assist in determining the preferred expansion strategy to adopt. Petrolifera now anticipates the pipeline and new onsite treatment facilities will be operative by the end of November 2006.

It now appears that approximately seventeen wells will be drilled during the August - December period on the Puesto Morales Block in 2006. Wells are designed to both add reserves and productivity and to continue to assist the company in determining the aerial extent of the new field and the volume of recoverable crude oil and natural gas reserves associated therewith. Petrolifera's Reserves Committee has commissioned DeGolyer and MacNaughton Canada Limited ("D&M") to conduct an updated evaluation report incorporating new wells drilled prior to the September 30, 2006 cutoff date for the report. The company has also provided D&M with updated data and mapping to assist in the process. Results will be incorporated into the company's financial and operating reporting process for the interim period ended September 30, 2006.

As a consequence of planned drilling during the fourth quarter 2006, Petrolifera now anticipates and accordingly is forecasting a December 2006 exit rate for crude oil production and sales of approximately 14,000 bbl/d, with natural gas sales forecast to remain flat at around 1.2 mmcf/d or an additional 200 barrels of oil equivalent per day ("boe/d"). Readers are cautioned that the use of barrels of oil equivalent ("boe") and boe/d may be misleading and are referred to the disclaimer at the end of this press release. Full-year average daily production is now forecast at 6,400 boe/d and fourth quarter 2006 production is forecast at 11,550 boe/d, exiting in December 2006 at 14,200 boe/d.

In view of recent declines for crude oil prices in world markets, Petrolifera has reduced its assumed selling price for the fourth quarter 2006 to $45.00 per barrel from recent sales levels exceeding $50.00 per barrel. It should be noted that due to the existence of an export tax for crude oil and its attendant impact on domestic pricing for crude oil in Argentina, producers do not bear the full impact of declining crude oil prices in the same manner they do not fully participate in rising prices, and accordingly benefit from a buffer when crude oil prices weaken in world markets.

Based on these operating and pricing assumptions, Petrolifera now anticipates 2006 revenue will approximate $105-110 million in its first full year as a public company. This compares to 2005 revenue of $2.8 million.

After-tax cash flow is anticipated to range between $50-60 million, with cash taxes estimated at approximately $20-25 million for the year. When combined with anticipated royalty payments for 2006 of approximately $16 million, Petrolifera's success will have directly contributed over $35 million to Argentina's Federal and Provincial treasuries, exclusive of the taxes paid by employees, service providers and others who are impacted by the multiplier effect of the company's $31 million capital budget in Argentina during the 2006. Readers are also cautioned that cash flow from operations before working capital changes do not have standardized meanings prescribed by Canadian generally accepted accounting principles ("GAAP"). Refer to the disclaimer at the end of this press release with respect to forward looking statements and cross references to the company's Annual Information Form ("AIF") as posted on Sedar, including references to risk.

Petrolifera forecasts it will conduct an overall capital budget in Argentina and Peru of $35.5 million in 2006. This will be entirely funded from available cash flow. As a result of the exercise of outstanding share purchase warrants and options during the year, year end 2006 working capital should exceed $40 million with no debt. Petrolifera anticipates it will have approximately 43 million shares outstanding at year end 2006 (approximately 38 million on a weighted average basis for the full year).

Forecasting 2007 results is somewhat more problematic due to the fact many more wells are anticipated to be drilled by the company, including those targeting the prolific Sierras Blancas and Punta Rosada Formations on both the Puesto Morales and the Rinconada Blocks and possibly also on the Salinas Grande I Block, upon formal award. Also, the company anticipates drilling numerous Quintuco wells, including about ten which are designed to deliver increased volumes of non-associated natural gas to supplement the initiation of the sale of associated natural gas volumes from existing or new Sierras Blancas/Punta Rosada wells.

The wells anticipated for the Rinconada and possibly the Salinas Grande I blocks will be much shallower than those presently being drilled and, if they are productive at all, are not anticipated to produce at the same prolific rates achieved at Puesto Morales. Also the company does not yet have sufficient production history to be able to rely on predictable decline rates for the overall field. Accordingly, while there is nothing to suggest that production from Puesto Morales will experience sharp or near-term production declines of any significant magnitude, the company chooses to forecast in a conservative manner. Petrolifera wished to underscore that the Sierras Blancas/Punta Rosada wells drilled to date are excellent flowing oil wells with significant recorded production rates on test and with theoretical deliverability well in excess of assumed production levels for 2007 in the company's planning, budgetary and guidance process.

Petrolifera's Preliminary Operating Plan for 2007 contemplates a self-financed capital budget of $118 million, with $67.5 million anticipated for Argentina, $47.9 million for Peru (including the drilling of one well on Ucayali Block 107) and approximately $3 million for new ventures, likely in Colombia if current negotiations are productive in securing new concession areas for Petrolifera. The primary focus of Argentinean activity will be the anticipated drilling up to fifty new wells, the installation of a high pressure natural gas pipeline and then a liquids extraction plant later in 2007 and continued pursuit of new blocks and expansion opportunities in Argentina. A study to determine the merits, nature and timing of a pressure maintenance scheme at Puesto Morales will also be undertaken. In Peru, extensive 2D seismic programs are envisaged for both Blocks 106 and 107, followed by fourth quarter drilling on Block 107. Third country expenditures will depend upon the company's success in achieving new concession in Colombia, which are presently under negotiation, or elsewhere in selected countries in South America.

Petrolifera is approaching its 2007 forecast in a conservative manner and accordingly has assumed and incorporated a fairly aggressive decline rates for its Puesto Morales production base in its Preliminary Plan and Budget, even though the wells which have been drilled in 2005 and 2006 continue to flow at attractive rates without pressure maintenance or artificial lift and without any evidence of meaningful amounts of water at this time.

Also, a stable pricing regime relative to anticipated fourth quarter 2006 levels is assumed for next year. New gas volumes are expected to receive a selling price of approximately $2.20 per mcf once onstream and being delivered to prospective industrial buyers through the high pressure natural gas pipelines in the region.

Petrolifera is forecasting and budgeting based on 2007 average crude oil production estimates of 16,000 bbl/d and average natural gas sales of 16.3 mmcf/d, resulting in a full year forecast of a daily average of 18,700 boe/d, which is approximately triple 2006 levels. Fourth quarter exit rates are estimated at 21,100 boe/d, with December 2007 production targeted at 21,400 boe/d. Natural gas volumes are expected to exceed 21 mmcf/d by April 2007 and to average 16 mmcf/d for the full fiscal year.

Using the aforementioned price decks, Petrolifera forecasts its 2007 revenue should approach $275 million, with forecast after-tax cash flow forecast to approximate a range of $140-$150 million for the full year. This amount of available internally-generated funds is anticipated to facilitate the aforementioned self-financed capital budget of $118 million, without incurring any indebtedness, unless a major expansion by way of acquisition is identified and completed. Nor provision is made for such an event in the company's plan.

Petrolifera should also continue to be highly profitable in 2007 and in the absence of any unusual events, is positioned to complete fiscal and calendar 2007 with a further significant expansion of its healthy working capital position, again absent any new corporate development or policy requiring deployment of these funds. As with 2006, Petrolifera expects it will receive further cash injections to its treasury from the exercise of outstanding share purchase warrants, including a large publicly-listed series which expires during May 2007 and are significantly in the money. As a consequence, the company forecasts it will have approximately 49 million shares outstanding by year end 2007 based on its current circumstances, compared to approximately 43 million common shares outstanding at year-end 2006.

Petrolifera is continuing its discussions with various prospective lenders who have approached the company offering a reserve-based credit facility for its general corporate purposes. These discussions will continue and, if suitable terms can be negotiated, a facility will be established on the best possible terms for Petrolifera to provide desirable financial flexibility should new growth opportunities be identified for pursuit.

Petrolifera's management remains highly enthusiastic about the company's prospects and growth potential in Argentina and Peru. The excellent quality of the reservoir encountered at Puesto Morales in Argentina lays the foundation for this optimism and future growth.

Early pressure maintenance at Puesto Morales is already under consideration and the encountered reservoirs, with their thicknesses, porosities and permeabilities, are considered highly suitable for pressure maintenance projects such as a water flood. A successful pressure maintenance scheme would sustain high and quite possibly improving levels of productivity once introduced. Also, the company has an extensive hydrocarbon column to evaluate beyond that presently contributing to the current production base. As such, there appear to be many years of productive work ahead of Petrolifera in Argentina to fully establish and then develop and exploit the identified reserve and resource base.

Petrolifera's management also remains very enthusiastic about the potential to expand in Argentina. The company is an active participant in bidding on new blocks being awarded by various provincial authorities. Also, once new 3D seismic and related interpretations are available over the unevaluated balance of the Puesto Morales and Rinconada blocks, other new prospects and opportunities may be identified. Also, once the Salina Grande I block is formally awarded, Petrolifera can commence its evaluation of this very large 1.1 million acre concession.

Petrolifera's management also remains most enthusiastic about the company's Peruvian acreage and prospects. This is evidenced by budgeted plans to invest approximately $48 million in Peru during 2007 on new seismic during the year. Also, first drilling is also planned for Petrolifera in Peru in 2007, initially on Block 107 in the Ucayali Basin. Drilling on Maranon Block 106 will likely occur in early 2008.

Both these blocks have significant identified prospectivity and the company believes the reserve potential to be consequential.

Elsewhere, Petrolifera is engaged in discussions with authorities in Colombia regarding three new blocks which have been identified as prospective by the company. Further announcements will be made with respect to these opportunities once they are further advanced.

Petrolifera has strengthened its staff during 2006 and now has a full complement of professionals and support staff for its scope of operations in both Argentina and in Peru. All individuals who have been hired in both countries are nationals, reinforcing Petrolifera's commitment to capitalize on indigenous expertise in the countries in which it is operating and thereby simultaneously create new employment opportunities in host jurisdictions. Field operations in Argentina continue to be handled by a local contract operator under the direction of Petrolifera.