Current
assets
|
23,673
|
|||
Oil
and gas assets
|
3,235,319
|
|||
Payables
|
(21,167
|
)
|
||
Future
income tax
|
(859,798
|
)
|
||
Site
restoration liabilities
|
(26,419
|
)
|
||
Net
assets acquired
|
2,351,608
|
Current
assets
|
54,493
|
|||
Oil
and gas assets
|
2,850,301
|
|||
Payables
|
(71,785
|
)
|
||
Future
income tax
|
(656,683
|
)
|
||
Site
restoration liabilities
|
(26,114
|
)
|
||
Net
assets acquired
|
2,150,212
|
·
|
volatility
in market prices for oil and natural
gas;
|
·
|
reliance
on third party operators;
|
·
|
ability
to find or produce commercial quantities of oil and natural
gas;
|
·
|
liabilities
inherent in oil and natural gas
operations;
|
·
|
dilution
of interests in oil and natural gas
properties;
|
·
|
uncertainties
associated with estimating oil and natural gas
reserves;
|
· |
new
prospects and exploration activities may have inherent risks;
|
·
|
competition
for, among other things, financings, acquisitions of reserves,
undeveloped
lands and skilled personnel;
|
· |
weather
conditions..
|
· |
utilizing
competent, professional consultants as support teams to company
staff;
|
· |
Joint
venturing with respected industry
participants;
|
· |
performing
careful and thorough geophysical, geological and engineering analyses
of
prospects;
|
· |
maintaining
adequate levels of property liability and business interruption insurance;
|
· |
focusing
on a limited number of core properties;
and
|
· |
Engaging
professional third party engineers with proven expertise and respected
reputations to evaluate Company reserves.
|
Sensitivities
|
|
Estimated
2006 impact on:
|
|
||
Net
Earnings
|
Cash
Flow
|
||||
|
|
|
|
|
|
Natural
Gas - US$0.50/mcf change
|
$
|
44,020
|
$
|
44,020
|
|
|
|
|
|
||
Natural
Gas Liquids - $1.00/bbl change
|
$
|
3,862
|
$
|
3,862
|
|
|
|
|
|
|
|
Crude
oil - $1.00/bbl change
|
$
|
4,764
|
$
|
4,764
|
|
|
|
||||
Foreign
Exchange — 10% appreciation in the Canadian dollar
|
$
|
669,084
|
$
|
0
|
(1)
|
|
|
|
|
||
Foreign
Exchange — 10% depreciation in the Canadian dollar
|
$
|
(735,992)
|
$
|
0
|
(1)
|
|
|
||||
Interest
rate - 1% change
|
$
|
3,225
|
$
|
3,225
|
|
As
of and for the
Twelve
Month Period Ended June 30,
|
|||
2006(1)(2)
|
2005(1)(2)
|
2004(1)(2)
|
|
Financial
Information:
|
|||
Oil
and gas revenue
|
$
1,169,988
|
$
946,655
|
$
765,941
|
Less:
royalties
|
189,720
|
201,172
|
106,485
|
Net
revenue
|
980,268
|
745,483
|
659,456
|
Net
loss from operations before discontinued
operations
|
(3,008,745)
|
(2,197,746)
|
(3,845,606)
|
Income
and gain on disposition of discontinued operations (2)
|
-
|
2,034,997
|
1,627,664
|
Net
loss for the year
|
(3,008,745)
|
(162,749)
|
(2,217,942)
|
Net
loss from continuing operations per share
|
$(0.73)
|
$(0.54)
|
$(0.95)
|
Net
loss per share
|
$(0.73)
|
$(0.04)
|
$(0.55)
|
Total
assets
|
15,198,471
|
15,708,656
|
23,262,596
|
Total
financial liabilities
|
10,656,314
|
8,632,418
|
16,097,577
|
OPERATIONS:
|
|||
Average
Daily Production
|
|||
Natural
gas (mcf per day)
|
216
|
239
|
214
|
Natural
gas liquids (bbls per day)
|
9
|
10
|
7
|
Crude
oil (bbls per day)
|
12
|
11
|
5
|
Total
(boe per day)
|
57
|
60
|
48
|
Average
Commodity Prices
|
|||
Natural
gas ($/mcf)
|
$9.08
|
$
6.86
|
$
6.65
|
Natural
gas liquids ($/bbl)
|
$48.05
|
$
39.34
|
$
29.16
|
Crude
oil ($/bbl)
|
$67.01
|
$
55.46
|
$
37.61
|
Total
($/boe)
|
$55.99
|
$
43.37
|
$
38.16
|
Royalties
|
|||
Natural
gas ($/mcf)
|
$1.38
|
$
1.52
|
$
1.04
|
Natural
gas liquids ($/bbl)
|
$11.27
|
$
11.39
|
$
6.24
|
Crude
oil ($/bbl)
|
$9.68
|
$
7.68
|
$
4.61
|
Total
royalties ($/boe)
|
$9.08
|
$
9.22
|
$
6.09
|
Production
costs
|
|||
Natural
gas ($/mcf)
|
$3.28
|
$
2.94
|
$
2.93
|
Natural
gas liquids ($/bbl)
|
$8.22
|
$
6.84
|
$
15.24
|
Crude
oil ($/bbl)
|
$25.19
|
$
31.20
|
$
12.31
|
Total
production costs ($/boe)
|
$18.90
|
$
18.32
|
$
16.72
|
Netback
by Product
|
|||
Natural
gas ($/mcf)
|
$4.42
|
$
2.40
|
$
2.68
|
Natural
gas liquids ($/bbl)
|
$28.56
|
$
21.11
|
$
7.68
|
Crude
oil ($/bbl)
|
$32.14
|
$
16.58
|
$
20.69
|
Netback
($/boe)
|
$28.01
|
$
15.83
|
$
15.35
|
(1) |
Selected
Financial Data should be read in conjunction with the discussion
below and
“Critical Accounting Principles and Critical Accounting Estimates”
below.
|
|
Fiscal
2006-Unaudited
|
Fiscal
2005 - Unaudited
|
||||||
|
June
30/06
|
Mar.
31/06
|
Dec.
31/05
|
Sept.
30/05
|
June
30/05
|
Mar.
31/05
|
Dec.
31/04
|
Sept.
30/04
|
|
|
|
|
|
|
|
|
|
Financial
Information:
|
|
|
|
|
|
|
|
|
Net
oil and gas revenue
|
$
200,131
|
$
166,941
|
$
326,114
|
$
287,082
|
$
149,274
|
$
206,044
|
$
226,755
|
$
163,410
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
|
|
|
|
|
|
|
|
|
operations
|
$
(3,213,485)
|
$
368,323
|
$
(158,974)
|
$
(4,609)
|
$
(741,216)
|
$
(771,886)
|
$
(470,909)
|
$
(213,735)
|
Net
income (loss)
|
$
(3,213,485)
|
$
368,323
|
$
(158,974)
|
$
(4,609)
|
$
(891,216)
|
$
1,188,123
|
$
(548,854)
|
$
89,198
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
|
|
|
|
|
|
|
|
|
operations
per share
|
$
(0.76)
|
$
0.09
|
$
(0.04)
|
$
(0.001)
|
$
(0.18)
|
$
(0.19)
|
$
(0.12)
|
$
(0.05)
|
Net
income (loss) per share
|
$
(0.76)
|
$
0.09
|
$
(0.04)
|
$
(0.001)
|
$
(0.22)
|
$
0.29
|
$
(0.14)
|
$
0.02
|
Fully
diluted net income
|
|
|
|
|
|
|
|
|
(loss)
per share
|
$
(0.76)
|
$
0.08
|
$
(0.04)
|
$
(0.001)
|
$
(0.22)
|
$
0.26
|
$
(0.14)
|
$
0.02
|
|
|
|
|
|
|
|
|
|
Operating
Information:
|
|
|
|
|
|
|
|
|
Average
Daily Production
|
|
|
|
|
|
|
|
|
Natural
gas (mcf per day)
|
323
|
123
|
212
|
231
|
270
|
233
|
342
|
171
|
Natural
gas liquids (bbls per day)
|
3
|
4
|
16
|
13
|
10
|
14
|
8
|
5
|
Crude
oil (bbls per day)
|
10
|
15
|
11
|
11
|
13
|
14
|
16
|
1
|
Total
(boe per day)
|
66
|
39
|
62
|
62
|
69
|
66
|
81
|
34
|
|
|
|
|
|
|
|
|
|
Average
Commodity Prices
|
|
|
|
|
|
|
|
|
Natural
gas ($/mcf)
|
$
9.08
|
$
8.71
|
$
12.95
|
$
9.73
|
$
7.41
|
$
7.97
|
$
5.98
|
$
6.07
|
Natural
gas liquids ($/bbl)
|
$
48.05
|
$
48.17
|
$
45.52
|
$
47.01
|
$
41.81
|
$
32.67
|
$
32.14
|
$
37.95
|
Crude
oil ($/bbl)
|
$
67.01
|
$
66.51
|
$
67.28
|
$
68.30
|
$
65.76
|
$
52.71
|
$
42.19
|
$
55.91
|
Total
($/boe)
|
$
55.99
|
$
57.30
|
$
66.32
|
$
57.67
|
$
48.15
|
$
45.68
|
$
36.77
|
$
37.29
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
|
|
|
|
|
|
Natural
gas ($/mcf)
|
$
1.38
|
$
1.74
|
$
1.42
|
$
0.98
|
$
1.69
|
$
1.18
|
$
1.48
|
$
1.77
|
Natural
gas liquids ($/bbl)
|
$
11.27
|
$
12.88
|
$
11.39
|
$
10.84
|
$
9.48
|
$
10.03
|
$
11.23
|
$
19.83
|
Crude
oil ($/bbl)
|
$
9.68
|
$
9.33
|
$
8.61
|
$
4.95
|
$
8.55
|
$
9.07
|
$
6.07
|
$
4.92
|
Total
royalties ($/boe)
|
$
9.08
|
$
10.27
|
$
9.38
|
$
6.77
|
$
9.75
|
$
8.07
|
$
8.58
|
$
11.72
|
|
|
|
|
|
|
|
|
|
Production
costs
|
|
|
|
|
|
|
|
|
Natural
gas ($/mcf)
|
$
3.28
|
$
3.89
|
$
3.15
|
$
3.36
|
$
2.80
|
$
1.60
|
$
4.27
|
$
2.77
|
Natural
gas liquids ($/bbl)
|
$
8.22
|
$
16.69
|
$
7.34
|
$
5.71
|
$
7.28
|
$
5.86
|
$
5.71
|
$
10.94
|
Crude
oil ($/bbl)
|
$
25.19
|
$
26.35
|
$
26.49
|
$
24.07
|
$
37.00
|
$
21.12
|
$
34.03
|
$
35.82
|
Total
production costs ($/boe)
|
$
18.90
|
$
23.84
|
$
16.98
|
$
17.81
|
$
19.24
|
$
10.99
|
$
24.93
|
$
16.52
|
|
|
|
|
|
|
|
|
|
Netback
by Product
|
|
|
|
|
|
|
|
|
Natural
gas ($/mcf)
|
$
4.42
|
$
3.08
|
$
8.38
|
$
5.39
|
$
2.92
|
$
5.19
|
$
0.23
|
$
1.53
|
Natural
gas liquids ($/bbl)
|
$
28.56
|
$
18.60
|
$
26.79
|
$
30.46
|
$
25.05
|
$
16.78
|
$
15.20
|
$
7.18
|
Crude
oil ($/bbl)
|
$
32.14
|
$
30.83
|
$
32.18
|
$
39.28
|
$
20.21
|
$
22.52
|
$
2.09
|
$
15.17
|
Netback
($/boe)
|
$
28.01
|
$
23.19
|
$
39.96
|
$
33.09
|
$
19.16
|
$
26.62
|
$
3.26
|
$
9.05
|
Schedule
of Contractual Obligations (CDN $)
|
||||
June
30, 2006
|
||||
Less
than 1 year
|
1-3
years
|
3-5
years
|
more
than 5
years
|
|
|
||||
Operating
leases
|
$7,404
|
$8,100
|
$
-
|
$
-
|
Debt
interest and principal repayments
|
$38,182
|
$86,515
|
$104,053
|
$
-
|
$45,586
|
$94,615
|
$104,053
|
$
-
|
Sensitivity
Analysis of Oakwell Claim
|
Valuation
|
Affect
on Net Income - increase (decrease)
|
Effect
on Future Cash Flow - future payment
|
Base
case - Full payment of balance sheet estimate
|
$
7,686,971
|
$
-
|
$(7,686,971)
|
10%
appreciation in Canadian currency
|
7,017,887
|
669,084
|
(7,017,887)
|
10%
depreciation in Canadian currency
|
8,422,963
|
(735,992)
|
(8,422,963)
|
Settlement
for 50% of value with Oakwell
|
3,843,485
|
3,843,485
|
(3,843,485)
|
Oakwell
Claim found unenforceable
|
$
-
|
$
7,686,971
|
$
-
|
1)
|
The
holder has the option to reset the market range on a one time basis
by
reducing the minimum price per common share to no lesser than $0.75
if the
market price remains below $1.50 for 90
days.
|
2)
|
The
Company has the option to reset the market range on a one time
basis by
increasing the maximum price per common share to no more than $3.25
if the
market price remains above $2.60 for 90
days.
|
Sensitivity
Analysis of potential issuance of common shares on conversion of
debenture
|
Common
Shares Issued
|
Warrants
Issuable
|
Conversion
Price
per Share
|
Strike
Price per Warrant
|
Conversion
of debt to units
|
||||
Base
case - Full payment of balance sheet estimate at the May 31, 2006
closing
date
|
138,176
|
138,176
|
$
1.45
|
$
1.66
|
100%
Increase in share value up to the maximum per the
agreement
|
102,564
|
102,564
|
$
1.95
|
$
2.24
|
50%
Decrease in share value up to the maximum per the
agreement
|
177,778
|
177,778
|
$
1.13
|
$
1.29
|
100%
Increase in share value and price reset
To
the maximum
|
82,051
|
82,051
|
$
2.44
|
$
2.80
|
50%
Decrease in share value and price reset
to
the minimum
|
277,778
|
277,778
|
$
0.72
|
$
0.83
|
#
|
Consideration
|
|
Balance, as
at June 30, 2005
|
4,059,009
|
$43,339,132
|
Exercise
of common share purchase options
|
15,000
|
16,896
|
Issued
pursuant to acquisition of Sawn Lake
|
103,212
|
225,000
|
Issued
pursuant to acquisition of Great Northern Oil
|
94,788
|
200,002
|
Balance,
as at June 30, 2006 and September 26, 2006
|
4,272,009
|
$43,781,030
|
Value
|
|
Balance, as
at June 30, 2005
|
149,109
|
Grant
of options
|
3,736
|
Options
exercised
|
(3,727)
|
Equity
portion of convertible debenture issued pursuant to acquisition
of Great
Northern Oil
|
32,757
|
Balance,
as at June 30, 2006
|
$181,875
|
Exercise
|
Expiry
|
2006
|
2005
|
Price
|
Date
|
#
|
#
|
US$0.75
|
February
28, 2010
|
585,000
|
600,000
|
US$1.77
|
July
15, 2008
|
15,000
|
-
|
Balance,
as at June 30, 2006 and September 26, 2006
|
600,000
|
600,000
|