Mr. Kevin Gibson reports

PALLISER OIL & GAS CORPORATION REPORTS FIRST QUARTER 2012 RESULTS

Palliser Oil & Gas Corp. is releasing the financial and operating results for the three months ended March 31, 2012. Certain selected financial and operational information are set out in this news release, and should be read in conjunction with Palliser's interim financial statements complete with the notes to the financial statements, and related management discussion and analysis (MD&A), available on SEDAR and the company's website.

                              OPERATING HIGHLIGHTS
                                                        
                                                 Three months ended March 31,
                                                               2012     2011
Wells drilled, re-entered or reactivated (gross and net)
Oil                                                               2        6
Saltwater disposal                                                1        -
Total                                                             3        6
Success (%)                                                      67%     100%
Undeveloped land, greater Lloydminster (net acres)           19,618   13,625
Undeveloped land, Medicine Hat (net acres)                   29,042   31,769
Total undeveloped land (net acres)                           48,660   45,394
Average daily production 
Crude oil (bbl/d)                                             1,743    1,147
Natural gas (mcf/d)                                             376      317
Barrels of oil equivalent (boe/d, 6:1)                        1,806    1,200
Crude oil production (%)                                         97%      96%
Average sales prices 
Crude oil ($/bbl)                                          $  70.93  $ 60.57
Natural gas ($/mcf)                                        $   2.15  $  3.31
Barrels of oil equivalent ($/boe, 6:1)                     $  68.94  $ 58.78
Operating netback ($/boe)  
Petroleum and natural gas revenue                          $  68.94  $ 58.78
Realized loss on financial derivatives                     $   2.31  $     -
Royalties                                                  $  16.18  $ 13.96
Production and operating expenses                          $  26.52  $ 30.72
Operating netback                                          $  23.93  $ 14.10

                        FINANCIAL HIGHLIGHTS
       (in thousands of dollars, except per-share amounts)
                                                        
                                            Three months ended March 31,
                                                     2012          2011

Oil and natural gas revenue                      $ 11,329      $  6,350
Funds flow from 
operating activities                                2,701           156
Per share, basic and diluted                     $   0.05             -
Gain (loss) and comprehensive gain (loss)             600        (1,245)
Per share, basic and diluted                     $   0.01      $  (0.03)
Capital expenditures                                9,106        18,536
Working capital (net debt)                        (27,269)       (8,600)
Shareholders' equity                               40,755        36,442

Report to shareholders

First quarter 2012 operational highlights:

• Achieved 12 consecutive quarters of production growth;
• Average production of 1,806 barrels of oil equivalent per day in the first quarter of 2012 was 51 per cent higher than the first quarter 2011 average production of 1,200 barrels of oil equivalent per day and 9 per cent higher than the fourth quarter 2011 average production of 1,657 barrels of oil equivalent per day;
• Grew funds flow from operating activities by 1,631 per cent to $2.7-million in the first quarter of 2012, from $200,000 in the first quarter of 2011;
• Recorded a profit of $600,000, as compared with a loss of $1.2-million for the first quarter of 2011;
• Executed a $9.1-million capital program, which included drilling and reactivating three wells, building one saltwater disposal facility, converting two non-producing wells to saltwater disposal wells and tying in nine wells to company-owned saltwater disposal infrastructure;
• Reduced operating costs in the first quarter of 2012, to $26.52 per barrel of oil equivalent, from $30.72 per barrel of oil equivalent in the first quarter of 2011, and $29.42 per barrel of oil equivalent in the fourth quarter of 2011;
• Increased operating netbacks 70 per cent year over year, from $14.10 per barrel of oil equivalent in the first quarter of 2011, to $23.93 per barrel of oil equivalent in the first quarter of 2012;
• Increased the company's prospect inventory to 151 drilling, re-entry and reactivation locations at the end of the first quarter;
• Acquired 17 wellbores with reactivation potential;
• Expanded the company's undeveloped heavy-oil land position to 19,618 net acres in the first quarter of 2012, an 8-per-cent increase from 18,239 net acres in the fourth quarter of 2011.

Operations

Palliser achieved record production of 1,806 barrels of oil equivalent per day during the first quarter of 2012, representing 12 consecutive quarters of production growth. Capital expenditures amounted to $9.1-million of the $30-million capital budget for 2012, with capital spending in the first quarter focused largely on saltwater disposal infrastructure. Operating costs continue to trend lower, with first quarter 2012 operating costs of $26.52 per barrel of oil equivalent, as compared with $29.42 in the fourth quarter 2011. The company converted two non-producing wells to saltwater disposal, built one saltwater disposal facility and tied in nine producing wells.

At Edam, one new saltwater disposal well was tied into a recently commissioned saltwater disposal facility, resulting in a doubling of the disposal capacity of this Palliser-operated facility and allowing six producing wells to be tied in. At Lloyd, the company built a new saltwater disposal facility, added one saltwater disposal well and pipelined three wells into that facility. During the first quarter, the company reactivated one heavy oil well and drilled two step-out wells, which resulted in one heavy oil well. The other well was cased for saltwater disposal, in an area where there is an immediate requirement. In the greater Lloydminster area, the company acquired 17 mostly fully equipped, non-producing wellbores, with reactivation potential.

Outlook

The focus in the first quarter was on expansion of its saltwater disposal infrastructure. As of April, 2012, Palliser's high water rate wells are now all tied in directly to Palliser-operated saltwater facilities. Palliser has a total of six saltwater disposal facilities and eight saltwater disposal wells, with 30 heavy oil wells tied in to these facilities. This is a fundamental change from 2011, which puts the company in a very strong position from the perspective of both production and operating costs for 2012 and beyond. The company has entered into a new phase of development, with the deployment of the high-volume lift POD concept, whereby new wells will commence production via pipeline into a Palliser-owned facility, eliminating the cost associated with saltwater trucking and disposal. Because a significant amount of infrastructure was added through the first quarter, the full impact of these facilities will not be realized until the second quarter of 2012, at which point the company expects operating costs to be below $25 per barrel of oil equivalent. Palliser anticipates further reductions through 2012, resulting in average operating costs of approximately $23 per barrel of oil equivalent for the year.

As the company tied in existing producing wells to the saltwater disposal facilities during the first quarter, production from numerous wells was temporarily shut in while field modifications were performed. A strategic choice was made to focus on installing this infrastructure even though it meant the short-term curtailment of production. Some of the wells were shut in for longer than anticipated, resulting in more downtime that originally forecasted, however, the key infrastructure is now in place and heavy oil production from the affected wells has been increasing towards expected levels. The production gains achieved to date have confirmed the company's belief that expanded saltwater disposal capacity would allow it to pump wells at higher rates, resulting in greater oil production and higher recovery factors. Despite lower production volumes in early 2012, Palliser believes that it is on track to meet previously announced exit production guidance (December, 2012, average) of 2,600 to 2,800 barrels of oil equivalent per day (98-per-cent oil weighting), with the company's average daily production now targeting the lower end of the guidance range of 2,250 to 2,350 barrels of oil equivalent per day.

To reduce cash flow risk from commodity price volatility, the company has hedged approximately half of budgeted 2012 production volumes. In addition, it has entered into hedges for the first and second quarter of 2013, such that the overall hedging program now provides significant price protection to the company's cash flow stream for more than a year.

Over the past year, Palliser has spent significant capital on infrastructure to reduce operating costs and improve netbacks. Based on its current production and pricing assumptions (and hedges in place), the company anticipates a 60-per-cent increase in operating netbacks year over year to $30 per barrel of oil equivalent in 2012.

The company has increased the number of cold-flow heavy oil production (CHOPS) and high-volume lift opportunities in its prospect inventory to 151 locations for future growth. The company sees significant scope to continue to expand its heavy oil operations by taking advantage of the knowledge base it has been developing and apply it to numerous additional pools within the greater Lloydminster area.

At March 31, 2012, Palliser's net debt totalled $27.3-million under a current total credit facility of $38.0-million. The credit facility was reviewed and confirmed by the bank in May, 2012. Palliser's board of directors has approved a $30.0-million capital program for 2012, financed through existing credit facilities and funds flow from operating activities. Net debt at year-end 2012 is budgeted to be below 1.3 times forward annualized funds flow from operating activities.

As a testament to the company's efforts and the progress it is making in the development of high volume lift, Palliser's funds flow from operations grew 1,631 per cent, from $200,000 in the first quarter of 2011, to $2.7-million this year and the company recorded a first quarter profit of $600,000, as compared with a loss of $1.2-million in the same period last year.

The company looks forward to significant production growth and increased profitability in 2012, as it continues to focus on heavy oil and further developing the high-volume lift production methodology.

We seek Safe Harbor.