Pace Oil & Gas Ltd. Provides Update on Strategic Alternatives and Reports 2012 Reserves and Operating Results

CALGARY, ALBERTA–(Marketwire – March 5, 2013) – Pace Oil & Gas Ltd. (PCE.TO) (“Pace” or the “Company”) is pleased to provide an update on the status of its previously announced merger, selected information from Pace’s 2012 reserve evaluation and its fourth quarter and 2012 year end operating and financial results.

STRATEGIC PROCESS UPDATE

On December 20, 2012, Pace entered into an arrangement agreement (the “Arrangement Agreement”) with Charger Energy Corp. (“Charger”) and AvenEx Energy Corp. (“AvenEx”), pursuant to which Pace, Charger and AvenEx agreed to amalgamate by way of a plan of arrangement (the “Arrangement”) to form Spyglass Resources Corp. (“Spyglass”), an intermediate, dividend paying oil and gas producer. Meetings of the shareholders were scheduled for February 19, 2013 and later postponed until February 26, 2013.

On February 25, 2013, Pace, AvenEx and Charger amended the agreement to allow the parties to solicit and facilitate alternative transactions with other parties and to waive the termination fees in the event that one of the original parties enters into an alternate transaction (the “Amending Agreement”). Governance changes to Pace were announced on the same date, with Tom Buchanan resigning from the Board of Directors, Fred Woods stepping down as Chairman, President and CEO and Peter Harrison assuming the role of Chairman of the Board. The proposed Board of Directors of Spyglass upon completion of the Arrangement was also amended. On February 26, 2013, the meetings of the shareholders of each of Pace, Charger and AvenEx were adjourned to March 26, 2013. The Pace Board of Directors continue to recommend shareholders vote in favour of the Arrangement and Board members eligible to vote unanimously approved the Arrangement and the Amending Agreement.

With the Amending Agreement, Pace is actively soliciting alternate superior proposals. National Bank Financial Inc. (“NBF”) is acting as exclusive financial advisor to Pace with respect to its review of strategic alternatives available to maximize value to Pace shareholders. Interested parties may contact Tom MacInnis, Head of Global Energy Group and Managing Director, Investment Banking for NBF at (403) 290-5107.

Q1 2013 UPDATE

In Q1 2013, Pace has operated with a reduced capital program and expects Q1 2013 capital spending to be approximately $13 million. The Company estimates Q1 2013 production to be approximately 12,000 boe/d comprised of approximately 6,100 bbls/d of liquids and 35.5 mmcf/d of natural gas.

RESERVE SUMMARY

• Total proved developed producing (“PDP”) reserves of 32.7 mmboe (66% liquids); total proved (“TP”) reserves of 41.1 mmboe (59% liquids) and total proved plus probable (“2P”) reserves of 61.2 mmboe (55% liquids).
• The ratio of PDP to 2P reserves increased from 47% at Dec. 31, 2011 to 53% at Dec. 31, 2012.
• PDP oil and liquids reserves increased to 21.6 mmbbls at Dec. 31, 2012 from 19.0 mmbbls at Dec. 31, 2011.
• The Company reduced its proved plus probable (“2P”) natural gas reserves by 6.1 mmboe due to economic factors including removing 90 gross (51.9 net) probable gas locations.

Product Pricing

The McDaniel price forecast for natural gas decreased significantly from the forecast used for the year ended 2011, with the average 2013 AECO price decreasing from $4.20/MMBTU forecasted as of January 1, 2012 to $3.35/MMBTU as of January 1, 2013. The average 2013 price forecast for Edmonton light crude oil also decreased to $87.50/bbl Cdn, from $99.00bbl forecasted in the McDaniel price forecast on January 1, 2012. The decrease in forecasted natural gas prices impacted the Company’s natural gas reserve bookings for the year. The Company reduced its proved plus probable (“2P”) natural gas reserves by 6.1 mmboe due to economic factors and removed 90 gross (51.9 net) probable locations from this category. The locations remain technically viable but contingent on improved gas prices.

Reconciliation of Changes in Reserves

The following table sets forth a reconciliation of Pace’s gross reserves as at December 31, 2012, derived from the McDaniel Report using forecast prices and cost estimates, reconciled to the gross reserves of Pace as at December 31, 2011.

Net Present Value

Pace’s crude oil, natural gas and natural gas liquids reserves were evaluated using McDaniel’s price forecasts effective January 1, 2013 prior to provision for income taxes, interest, debt service charges and general and administrative expenses. It should not be assumed that the discounted future net production revenues estimated by McDaniel represent the fair market value of the reserves.

Net Asset Value

Pace’s estimated net asset value is based on the present value of reserves discounted at 10% before income taxes and includes estimates for undeveloped lands, seismic and other assets and deducts net debt. Using 2P reserves reserve values the estimated net asset value is $9.91/share and using total proved (“TP”) reserves the estimated net asset value is $6.82/share.

(i) Undeveloped land value based on internal estimate of $100/acre.

Land Holdings

The following table sets out Pace’s land holdings as at December 31, 2012.

Independent Reserve Evaluation

The reserve data is based on an independent reserves evaluation conducted by McDaniel & Associates Consultants Ltd. effective December 31, 2012 (“McDaniel Report”) and prepared in accordance with the definitions set out under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). 100% of Pace’s assets are evaluated by McDaniel. Pace has a Reserves Committee comprised of a majority of independent Board members who review the qualifications and appointment of the independent reserve evaluators. The committee also reviews the process for providing information to the evaluators and meets with the independent evaluators to discuss the procedures used in the independent report, to review the Company’s major properties, and to identify and discuss any areas of risk. The McDaniel Report was reviewed by the Reserves Committee of Pace and the Board of Directors. Pace’s annual information form for the year ended December 31, 2012 (the “AIF”) contains Pace’s reserves data and other oil and gas information as mandated by NI 51-101. Pace’s AIF is available under Pace’s profile on SEDAR at www.sedar.com.

Reserves Advisory

• Reserves included are stated on a working interest basis
• The recovery and reserves estimates of oil, NGL and natural gas provided herein are estimates only. Actual reserves may be greater than or less than the estimates provided herein. The estimated future net revenue from the production of Pace’s natural gas and petroleum reserves does not represent the fair market value of Pace’s reserves.
• Natural gas is converted to barrels of oil equivalent (“BOE”) at a ratio of six thousand cubic feet to one barrel of oil. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio for natural gas of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio of oil to natural gas based on currently prevailing prices is significantly different than the energy equivalency conversion ratio of 6 Mcf to 1 BOE, utilizing a conversion ratio of 6 Mcf to 1 BOE may be misleading as an indication of value.
• Certain terms and abbreviations used herein, but not defined or described, are defined in NI 51-101 or the Canadian Oil and Gas Evaluation (“COGE”) Handbook and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101 or the COGE Handbook
• Tables may not add due to rounding

OPERATIONS UPDATE:

Southern Alberta

• Average 2012 oil and liquids production increased by 369 bbls/d or 20% to 2,251 bbls/day from 1,882 bbls/d in 2011. The Q4 2012 oil and liquid rate was 2,229 bbls/d. Gas production has decreased from 15.8 MMcfd in 2011 to 14.8 MMcfd in 2012 with no gas capital spending.
• Pace drilled 3 gross (3 net) wells in Q4 2012 including 1 successful Matziwin well. Outside the Matziwin play, Pace drilled 2 uneconomic Cessford wells. In 2012 a total of 11 (10.4 net) wells were drilled in Southern Alberta. -Within the year, 4 gross (4 net) wells came on production in Matziwin with average initial 30 day production rates of approximately 120 bbls/day and 6 gross (5.4 net) oil wells came on in Retlaw with average initial 30 day production rates of 98 bbls/d.
• The Retlaw Glauc #1 Unitization was completed in 2012 (62.2%WI). Pace converted 10 wells to water injection in Q2 2012. Water injection rates reached 3000 bwpd with production increasing from 125 (78 net) bbl/d to 400 (250 net) bbl/d at year end and climbing. Additional drilling opportunities are identified in this pool.
• Waterflood management, optimization opportunities, and exploitation drilling continue to be a focus in all Southern Alberta Pace pools.

Dixonville

• In 2012, Pace completed the conversions of 17 Phase 4 and 4 Phase 5 producers to water injectors with all wells on injection by October, 2012. Phase 4 has seen an exit oil rate increase of 130% to 350 bbl/d from pre-injection rates. Although production averaged 2,697 bbls/d in Q4, the oil rate in 2013 has again exceeded 3,000 bbl/d.
• In August, multiple Flexpipe and Fiberspar lines installed in 2007 were identified as needing repairs. Systematic sequential replacements took place in September and Q4 resulting in approximately 250 bbls/d of shut-in oil production for the period.

North West Alberta

• In Northwest Alberta, oil and liquids production averaged 697 bbls/d up from 629 bbls/d in 2011 through recompletions and reactivations. Unfortunately, 2 separate third party compressor failures and pipeline disruptions reduced production by approximately 320 boe/d annualized and 340 boe/d (80% oil) in Q4. In December 2012 one of the compressor outages was returned to service.
• Extreme cold temperatures with soft access conditions in Q4 reduced gas production by approximately 450 boe/d during the period. This gas operation has since been returned to service in 2013.

FINANCIAL SUMMARY:

Financial Overview

• Q4 2012 liquids production averaged 5,942 bbls/d; natural gas production averaged 35.8 mmcf/d and total production averaged 11,909 boe/d.
• Significant 3^rd party operational disruptions continued into Q4. Extreme cold temperatures in Northwest Alberta coupled with soft access conditions had 5 mmcf/d of gas shut-in for 52 days in the quarter, while line replacements and repairs in Dixonville reduced oil production by approximately 250 bbls/d in the quarter.
• Production for 2012 averaged 13,223 boe/d. Oil and liquids production increased 2% to 6,374 bbls/d. Approximately 450 boe/d of annualized production was shut-in from unforeseen extended major third party outages and pipeline replacements projects.
• Operating expenses for Q4 2012 were $18.36/boe and averaged $16.15/boe for 2012. Operating costs were higher than expected in the winter of 2012 due to adverse weather in Northwest Alberta resulting in higher road maintenance, power costs and increased well maintenance and chemical costs. During the second half of the year, pipeline repairs and remediations in Dixonville for historic Fiberspar and Flexpipe deficiencies resulted in shut-in production of approximately 250 boe/d and $0.9 million of extra expense. The production outages throughout the year compounded the increase to the operating costs per boe as incremental repair costs are incurred without production and fixed costs are applied to lower production volumes.
• For 2012, funds from operations totalled $58.8 million or $1.25 per basic and diluted share compared to $97.9 million and $2.06 per basic and diluted share in 2011. Funds from operations decreased from 2011 primarily as a result of a decrease in production volume and commodity prices. Q4 2012 funds from operations decreased from $26.2 million in Q4 2011 to $13.6 million and from $0.55 per basic and diluted share to $0.29 per basic and diluted share with lower production and lower commodity prices.
• For 2012, the Company had a net loss of $153.0 million. The per basic and diluted share loss was $3.25. During the year the Company recorded impairments on its property plant and equipment due to the decline in forecasted natural gas prices and reduced the carrying value of its exploration and evaluation assets related to its Haro South project.
• 2012 capital expenditures totalled $83.2 million with $54.0 million spent on drilling and completion activities and $18.8 million on facilities, pipelines, equipping and tie-ins. In 2012 Pace focused on its oil opportunities and drilled 15 gross (14.4 net) oil wells, completed 16 gross (13.2 net) oil wells, completed the waterflood implementation at Dixonville and commenced water injector conversions in Southern Alberta. Pace also spent $2.7 on land primarily in Southern Alberta and Red Earth. The Company capitalized $6.4 million of G&A, $1.0 million of purchased seismic and $0.3 million of office related capital.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS, MD&A AND AIF

Pace’s audited consolidated financial statements for the year ended December 31, 2012 together with the notes thereto, Management Discussion and Analysis for the year ended December 31, 2012 and Pace’s Annual Information Form for the year ended December 31, 2012 will be filed on SEDAR today and can be accessed at www.sedar.com or by visiting Pace’s website at www.paceoil.ca.

Pace’s common shares trade under the symbol PCE on the TSX and PACEF on the OTC.

FORWARD-LOOKING STATEMENTS

Certain statements contained within this press release constitute forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward looking statements. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, statements relating to “reserves” or “resources” are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. In addition, this press release contains forward-looking statements with respect to: (i) production volumes; (ii) Pace’s drilling plans and the results therefrom; (iii) future development and exploration activities. With respect to the forward looking statements contained in this press release, Pace has made assumptions regarding:

• prevailing commodity prices and exchange rates;
• availability of labour and drilling equipment and the success of future drilling and development activities;
• future operating expenses including processing and gathering fees;
• timing and amount of capital expenditures;
• government regulation in the areas of taxation, royalty rates and environmental protection;
• production of new and existing wells and the timing of new wells coming on-stream;
• the viability of waterflood projects;
• the performance characteristics of oil and natural gas properties;
• the size of oil and natural gas reserves;

Although Pace believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Pace can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. These statements speak only as of the date of this Press Release or as of the date specified in the documents incorporated by reference into this Press Release, as the case may be. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to:

• volatility in market prices for oil and natural gas, and in exchange rates;
• liabilities inherent in oil and natural gas operations and limitations on insurance;
• changes or fluctuations in production levels;
• stock market volatility and market valuation of our stock;
• uncertainties associated with estimating oil and natural gas reserves;
• competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;
• incorrect assessments of the value of acquisitions and exploration and development programs;
• geological, technical, drilling, production and processing problems;
• changes in legislation, including changes in tax laws, royalty rates, incentive programs and environmental laws relating to the oil and natural gas industry;

other factors which are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The forward-looking statements contained in this document speak only as of the date of this document and Pace does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

Pace Oil & Gas Ltd.
Todd Brown
VP & COO
(403) 930-3539
tbrown@paceoil.ca

Pace Oil & Gas Ltd.
Chad Kalmakoff
VP, Finance & CFO
(403) 303-8504
ckalmakoff@paceoil.ca
www.paceoil.ca