Vault Energy Trust
TSX : VNG.UN

Vault Energy Trust

May 13, 2005 06:00 ET

Chamaelo Energy Inc.: First Quarter Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - May 13, 2005) - CHAMAELO ENERGY INC. (TSX:CLO) is pleased to announce its results for the period ended March 31, 2005.

HIGHLIGHTS

On April 6, 2005, Chamaelo announced that it has entered into an agreement to acquire certain oil and natural gas properties in West Central Alberta and North Eastern British Columbia for approximately $375 million, including transaction costs and net of estimated closing adjustments. The Company also announced a proposed Plan of Arrangement to convert Chamaelo from a public company focused on oil and natural gas exploration and production into two new entities (i) Chamaelo Exploration Ltd. ("ExploreCo"), a public company focused on the exploration and development of oil and natural gas reserves, and (ii) Vault Energy Trust (the "Trust"), a trust entity which is designed to distribute to its unitholders a substantial portion of cash from operations generated by Chamaelo's mature lower-risk producing assets. To finance the acquisition, Chamaelo completed a bought deal private placement financing consisting of 42,312,000 Series E subscription receipts priced at $6.50 and 55,000 Series D subscription receipts priced at $1,000 for aggregate gross proceeds of $330,028,000. Series E receipts will be converted into one trust unit and one ExploreCo common share and the Series D receipts will convert into convertible debentures of the Trust.

Completion of the proposed transactions under the Plan of Arrangement will result in shareholders of Chamaelo exchanging each of their Chamaelo common shares for one trust unit ("Trust Unit") or a share exchangeable into a Trust Unit ("Exchangeable Share"), and one common share of ExploreCo ("ExploreCo Share"), prior to a 2 for 1 consolidation of the Trust Units and a 5 for 1 consolidation of the ExploreCo Shares.

The Company intends to mail to each of its shareholders an Information Circular on or about May 20, 2005, which describes the above mentioned Plan of Arrangement in detail.



------------------------------------------------------------------------
Three Months Ended
FINANCIAL (1) March 31, 2005
------------------------------------------------------------------------
($, except where noted)
Oil and natural gas sales (2) 13,489,375

Cash flow from operations 6,901,622
per share - basic 0.25
per share - diluted 0.23

Net earnings 1,478,754
per share - basic 0.05
per share - diluted 0.05

Capital expenditures 7,709,065

Net bank debt and working capital 15,160,750


Common shares outstanding
weighted average - basic 28,101,951
- diluted 29,663,053

end of period - basic 28,142,126
- diluted 33,534,412


(1) There are no comparative numbers as the Company was incorporated on
April 5, 2004 and began active operations on June 1, 2004.
(2) Oil and natural gas sales are shown net of transportation costs.


------------------------------------------------------------------------
Three Months Ended
OPERATING (1) March 31, 2005
------------------------------------------------------------------------

Number of producing days 90

Daily production
Oil - (bbls/d) 1,383
Natural gas - (mcf/d) 10,322
------------------------------------------------------------------------
Oil equivalent - (boe/d @6:1) 3,103

Sales price (2)
Oil - ($/bbl) 55.66
Natural gas - ($/mcf) 7.06
------------------------------------------------------------------------
Oil equivalent - ($/boe @6:1) 48.30

Royalties
Oil - ($/bbl) 6.99
Natural gas - ($/mcf) 1.58
------------------------------------------------------------------------
Oil equivalent - ($/boe @6:1) 8.35

Production expenses
Oil - ($/bbl) 13.59
Natural gas - ($/mcf) 1.54
------------------------------------------------------------------------
Oil equivalent - ($/boe @6:1) 11.18

Operating netback (before hedges)
Oil - ($/bbl) 35.08
Natural gas - ($/mcf) 3.94
------------------------------------------------------------------------
Oil equivalent - ($/boe @6:1) 28.77

Hedges
Oil - ($/bbl) -
Natural gas - ($/mcf) -
------------------------------------------------------------------------
Oil equivalent - ($/boe @6:1) -

Operating netback (after hedges)
Oil - ($/bbl) 35.08
Natural gas - ($/mcf) 3.94
------------------------------------------------------------------------
Oil equivalent - ($/boe @6:1) 28.77


(1) There are no comparative numbers as the Company was incorporated on
April 5, 2004 and began active operations on June 1, 2004.
(2) Sales prices are shown net of transportation costs


Management's Discussion and Analysis

May 10, 2005

Chamaelo Energy Inc. ("Chamaelo" or the "Company") is an emerging oil and natural gas company, actively engaged in the acquisition, development, exploration for and production and marketing of oil and natural gas reserves in the Western Canadian Sedimentary Basin.

Chamaelo was incorporated under the Business Corporations Act (Alberta) on April 5, 2004 and commenced operations on June 1, 2004. Chamaelo commenced trading on the Toronto Stock Exchange on June 8, 2004 under the symbol "CLO". As a result, the financial statements for the three months ended March 31, 2005 and the disclosure throughout the Management's Discussion and Analysis ("MD&A") reflect Chamaelo's business for the three months ended March 31, 2005 with no comparative disclosure available.

Management's Discussion and Analysis should be read in conjunction with the unaudited financial statements for the three months ended March 31, 2005 and the audited financial statements for the period ended December 31, 2004. Barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil ("6:1") unless otherwise stated. The financial statements and financial data contained in the MD&A have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") in Canadian currency (except where noted as being in another currency).

Additional information related to the company, may be found on the SEDAR website at http://www.sedar.com.

This MD&A may contain forward-looking information that involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and gas industry (e.g. - operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).

Management uses cash flow as a factor in evaluating performance. Cash flow as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies. The determination of cash flow from operations is detailed on the Statement of Cash Flows.



------------------------------------------------------------------------
Three Months ended
Summary of Financial Results (1) March 31, 2005
------------------------------------------------------------------------
($, except where noted)
Oil and natural gas sales (2) 13,489,375

Cash flow from operations 6,901,622
per share - basic 0.25
per share - diluted 0.23

Net earnings 1,478,754
per share - basic 0.05
per share - diluted 0.05

Total assets 156,745,676

Net bank debt and working capital 15,160,750

Total long-term liabilities 23,940,427

(1) There are no comparative numbers as the Company was incorporated
on April 5, 2004 and began active operations on June 1, 2004.

(2) Oil and natural gas sales are shown net of transportation costs


------------------------------------------------------------------------
------------------------------------------------------------------------
Production Three Months Ended
March 31, 2005
------------------------------------------------------------------------
Average Daily Production
Oil (bbls/d) 1,383
Natural gas (mcf/d) 10,322
------------------------------------------------------------------------
Total (boe/d) 3,103
------------------------------------------------------------------------
------------------------------------------------------------------------


Crude oil and natural gas liquids production averaged 1,383 bbls/d while natural gas production averaged 10,322 mcf/d for a total of 3,103 boe/d during the three months ended March 31, 2005. Production increases in Q1 2005 over Q4 2004 was the result of having a full quarter of operating results from the November 30, 2004 property acquisition. The Company has approximately 350 boe/d of production behind pipe which it expects to bring on stream in late Q2 2005 and early Q3 2005.



Revenue Three Months Ended
March 31, 2005
------------------------------------------------------------------------
$
Oil 6,926,502
Natural gas 6,562,873
------------------------------------------------------------------------
Total Revenue 13,489,375
------------------------------------------------------------------------
------------------------------------------------------------------------


Average Sales Price
------------------------------------------------------------------------
Oil ($/bbl) 55.66
Natural gas ($/mcf) 7.06
------------------------------------------------------------------------
Average sales price ($/boe) 48.30
------------------------------------------------------------------------
------------------------------------------------------------------------


Oil revenue (before royalties, and net of transportation costs of $189,420) totaled $6,926,502 for the three months ended March 31, 2005. Natural gas revenue (before royalties, and net of transportation costs of $205,281) totaled $6,562,873 for the three months ended March 31, 2005. Revenue increased in Q1 2005 over Q4 2004 due to the full effect of the November 30, 2004 property acquisition. During the quarter, the Company sold all its oil and a majority of its natural gas on the spot market. The Company acquired a natural gas sales contract in conjunction with the purchase of oil and natural gas properties on November 30, 2004. The natural gas sales contract represents approximately 14.3% percent of the Company's natural gas production (7.7% of total production). The fair value of the contract has been recorded as a liability and will be amortized over the life of the contract, which expires in October 2007. Future prices received from the sale of oil and natural gas may fluctuate as the result of market factors. The Company did not hedge any of its oil production for the three months ended March 31, 2005.

The following table outlines the Company's realized wellhead prices and industry benchmarks:



Commodity Pricing Three Months Ended
(average unless otherwise stated) March 31, 2005
------------------------------------------------------------------------

$US $Cdn
Oil
Corporate Price $/bbl 55.66
West Texas Intermediate $/bbl 49.69
Edmonton Par $/bbl 62.04

Natural Gas
Corporate Price $/mcf 7.06
AECO Daily Spot Price $/mcf 7.09

Exchange Rates
U.S./Cdn Dollar Period-end Exchange Rate 0.8226
U.S./Cdn Dollar Average Exchange Rate 0.8149
------------------------------------------------------------------------
------------------------------------------------------------------------


Royalties Three Months Ended
March 31, 2005
------------------------------------------------------------------------
$
Oil 869,504
Natural gas 1,463,679
------------------------------------------------------------------------
Total Royalties 2,333,183
------------------------------------------------------------------------
------------------------------------------------------------------------


Average Royalty Rate (% of sales)
------------------------------------------------------------------------
Oil 12.6
Natural gas 22.3
------------------------------------------------------------------------
Average royalty rate 17.3
------------------------------------------------------------------------
------------------------------------------------------------------------


Oil and natural gas royalties totaled $2,333,183 during the three months ended March 31, 2005. The overall effective royalty rate was 17.3 percent of the Company's total revenue from the sale of oil and natural gas. The oil royalty rate decreased slightly from the prior quarter due to lower oil royalty rates associated with the properties acquired on November 30, 2004. The gas royalty rate increased over the prior quarter due to an increase in prices received for natural gas and also due to higher gas royalty rates associated with the properties acquired on November 30, 2004.



Production Expenses Three Months Ended
March 31, 2005
------------------------------------------------------------------------

Oil ($/bbl) 13.59
Natural gas ($/mcf) 1.54
------------------------------------------------------------------------
Total ($/boe) 11.18
------------------------------------------------------------------------
------------------------------------------------------------------------


Per unit production expenses decreased in Q1 2005 from Q4 2004, as expected, due to realizing the full effect of the acquired properties in the Company's operating results. The per unit production expenses associated with the properties acquired November 30, 2004 are significantly lower than the Company's original properties.

Chamaelo recognizes that controlling operating costs play an integral role in the effective exploitation of reserves typically found today in the Western Canadian Sedimentary Basin. Chamaelo is committed to focusing efforts on opportunities that will improve operational efficiencies and reduce per boe production expenses to enhance operating netbacks.



Operating Netback Three Months Ended
March 31, 2005
------------------------------------------------------------------------
Oil and Liquids ($/bbl)
Revenue 55.66
Royalties 6.99
Production expenses 13.59
------------------------------------------------------------------------
Operating Netback 35.08
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Natural gas ($/mcf)
Revenue 7.06
Royalties 1.58
Production expenses 1.54
------------------------------------------------------------------------
Operating Netback 3.94
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Combined $/Boe (6:1)
Revenue 48.30
Royalties 8.35
Production expenses 11.18
------------------------------------------------------------------------
Operating Netback 28.77
------------------------------------------------------------------------
------------------------------------------------------------------------


The operating netback is a key indicator of an exploration and production Company's ability to generate cash flow for reinvestment. During the three months ended March 31, 2005, Chamaelo generated an operating netback of $28.77 per boe.



General and Administrative Expenses ("G&A") Three Months Ended
March 31, 2005
------------------------------------------------------------------------
$
G&A expenses (gross) 761,729
G&A capitalized (50,509)
G&A recoveries (139,500)
------------------------------------------------------------------------
G&A expenses (net) 571,720
------------------------------------------------------------------------
G&A expenses ($/boe) 2.05
------------------------------------------------------------------------
------------------------------------------------------------------------


Net G&A costs totaled $572 thousand in the three months ended March 31, 2005, or $2.05 per boe. G&A costs per unit have declined quarter over quarter due to the significant increases in production volumes combined with the Company's focus on G&A cost control.



Depletion, Depreciation and Accretion ("DD&A") Three Months Ended
March 31, 2005
------------------------------------------------------------------------

DD&A ($) 4,773,314
DD&A ($/boe) 17.09
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three months ended March 31, 2005, DD&A expense totaled $4.8 million, or $17.09 per boe. The DD&A rate partially reflects the higher cost of corporate and property acquisitions together with the inclusion of asset retirement obligations in the Company's depletion base. During the three months ended March 31, 2005, the provision for DD&A includes $393 thousand ($1.42 per boe) for accretion of asset retirement obligations.

Interest Expense

Interest expense for the three months ended March 31, 2005 of $171 thousand results from drawing on the Company's revolving credit facility.

Taxes

Capital taxes for the three months ended March 31, 2005 were $50 thousand consisting of Large Corporations Tax ("LCT"). Future income taxes are recorded using the liability method. During the three months ended March 31, 2005, the Company recorded $1.7 million of future tax liability associated with the $5.0 million renunciation of flow-through shares that were issued in the fourth quarter of 2004. This future tax effect was recorded as a decrease to share capital not to net earnings.

Cash Flow and Net Earnings

Cash flow from operations for the three months ended March 31, 2005 was $6.9 million ($0.23 per diluted share). Net earnings totaled $1.5 million ($0.05 per diluted share) in the three months ended March 31, 2005.

Capital Expenditures

Net capital expenditures totaled $7.7 million in the three months ended March 31, 2005 as follows:



Three Months Ended
March 31, 2005
------------------------------------------------------------------------
$
Land 402,130
Drilling, completions and workovers 5,878,938
Equipment 498,665
Geological and Geophysical 814,342
Other 114,990
------------------------------------------------------------------------
7,709,065
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three months ended March 31, 2005, Chamaelo drilled 12 (7.59 net) wells, resulting in 3 (1.31 net) oil wells, 4 (2.80 net) natural gas wells and 5 (3.48 net) dry holes. In addition, Chamaelo completed numerous workovers and re-completions to wells acquired in Q4 2004 to improve production from the new properties and continued to enhance its future prospects by adding acreage to its land base.

Liquidity and Capital Resources

Net bank debt adjusted for working capital was $15.2 million at March 31, 2005.

On April 6, 2005, Chamaelo announced that it has entered into an agreement to acquire certain oil and natural gas properties in West Central Alberta and North Eastern British Columbia for approximately $374 million, including transaction costs and net of estimated closing adjustments. The Company also announced a proposed Plan of Arrangement to convert Chamaelo from a public company focused on oil and natural gas exploration and production into two new entities (i) Chamaelo Exploration Ltd. ("ExploreCo"), a public company focused on the exploration and development of oil and natural gas reserves, and (ii) Vault Energy Trust (the "Trust"), a trust entity which is designed to distribute to its unitholders a substantial portion of cash from operations generated by Chamaelo's mature lower-risk producing assets.

Completion of the proposed transactions under the Plan of Arrangement will result in shareholders of Chamaelo exchanging each of their Chamaelo common shares for one trust unit ("Trust Unit") or a share exchangeable into a Trust Unit ("Exchangeable Share"), and one common share of ExploreCo ("ExploreCo Share"), prior to a 2 for 1 consolidation of the Trust Units and a 5 for 1 consolidation of the ExploreCo Shares. The maximum number of Exchangeable Shares available pursuant to the Plan of Arrangement is 5.0 million.

On April 13, 2004, Chamaelo entered into physical hedge contracts on behalf of the Trust as follows:



Floor Upside
Product Volume price Participation Term
------------------------------------------------------------------------

Natural gas 11,000 GJ/d $7.00/GJ 60% above $7.00/GJ Jul 1, 2005 -
Oct 31, 2006

Oil 1,000 bbls/d $61.50/bbl 50% above $61.50/bbl Jul 1, 2005 -
Dec 31, 2006
------------------------------------------------------------------------


On April 27, 2004, Chamaelo completed a bought deal private placement financing for an aggregate of 42,312,000 Series E subscription receipts in the capital of the Trust at a price of $6.50 per Series E subscription receipt and 55,000 Series D subscription receipts in the capital of the Trust at a price of $1,000 per Series D subscription receipt for aggregate gross proceeds of $330,028,000.

Pursuant to the Plan of Arrangement, each Series E subscription receipt will be converted into one Trust Unit and one ExploreCo Share, prior to a 2 for 1 consolidation of the Trust Units and a 5 for 1 consolidation of the ExploreCo Shares.

Pursuant to the Plan of Arrangement, each Series D subscription receipt will be converted into one convertible debenture of the Trust ("Convertible Debentures"). The Convertible Debentures will have a face value of $1,000 per debenture and a maturity date of June 30, 2010. The Convertible Debentures will pay interest semi-annually on June 30 and December 31 of each year at 8% per annum and will be convertible into Trust Units at a conversion price of $11.50 per Trust Unit. Holders of the Convertible Debentures have the option of redeeming the Convertible Debentures at a price of $1,050 per Convertible Debenture after June 30, 2008 and on or before June 30, 2009 and thereafter until the maturity date at a price of $1,025 per Convertible Debenture. The Trust may repay the Convertible Debentures in cash or through the issue of additional Trust Units at 95% of the market price.




Summary of Quarterly Results Q2/04 Q3/04 Q4/04 Q1/05
------------------------------------------------------------------------
$ $ $ $

Oil and natural gas sales (1) 445,594 1,613,708 7,057,121 13,489,375

Cash flow from operations (6,606) 508,143 3,494,405 6,901,622
per share - basic - 0.03 0.15 0.25
per share - diluted - 0.03 0.14 0.23

Net earnings (loss) (112,768) 15,996 441,035 1,478,754
per share - basic (0.03) - 0.02 0.05
per share - diluted (0.03) - 0.02 0.05
------------------------------------------------------------------------

(1) Oil and natural gas sales are shown net of transportation costs


Outstanding Share Data

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares. No preferred shares have been issued. The common shares of the Company are traded on the Toronto Stock Exchange under the symbol "CLO". The following table summarizes the common shares outstanding and the number of shares exercisable into common shares from options and warrants:



December 31, 2004 May 10, 2005
------------------------------------------------------------------------

Common Shares 28,079,786 28,149,126
Options 1,437,000 1,487,000
Warrants 3,917,626 3,848,286
------------------------------------------------------------------------
Total 33,434,412 33,484,412
------------------------------------------------------------------------
------------------------------------------------------------------------


Commitments

The Company is committed to payments under an operating lease for office space and a capital lease for a vehicle.
The following table summarizes the Company's commitments at March 31, 2005:



2005 2006 2007 2008 2009 Total
------------------------------------------------------------------------
$ $ $ $ $ $

Capital lease
obligation 11,543 14,720 17,208 - - 43,471
Operating lease
obligation 225,923 313,261 313,261 313,261 243,968 1,409,674
------------------------------------------------------------------------
237,466 327,981 330,469 313,261 243,968 1,453,145
------------------------------------------------------------------------
------------------------------------------------------------------------


Critical Accounting Policies

Management is required to make judgments, assumptions, and estimates in the application of generally accepted accounting principles that have a significant impact on the financial results of the Company. The following summarizes the accounting policies that are critical to determining the company's financial results.

Full Cost Accounting - The Company follows the full cost method of accounting whereby all costs related to the acquisition of, exploring for and developing oil and natural gas reserves are capitalized and charged against earnings.
These costs, together with the estimated future costs to be incurred in developing proved reserves, are depleted or depreciated using the unit-of-production method based on the proved reserves before royalties as estimated by independent petroleum engineers. The costs of undeveloped properties are excluded from the costs subject to depletion and depreciation until it is determined whether proved reserves are attributable to the properties or impairment occurs. Oil and natural gas properties are evaluated each reporting period through an impairment test to determine the recoverability of capitalized costs. The carrying amount is assessed as recoverable when the sum of the undiscounted cash flows expected from proved reserves plus the cost of unproved interests, net of impairments, exceeds the carrying amount. When the carrying amount is assessed not to be recoverable, an impairment loss is recognized to the extent that the carrying amount exceeds the sum of the discounted cash flows from proved and probable reserves plus the cost of unproved interests, net of impairments. The cash flows are estimated using expected future prices and costs and are discounted using a credit adjusted risk-free interest rate. Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would result in a change in the depletion rate of 20% or more.

Oil and Natural Gas Reserves - The Company's oil and natural gas reserves are evaluated and reported on by independent petroleum engineers. The estimates of reserves is a very subjective process as forecasts are based on engineering data, projected future rates of production, estimated future commodity prices and the timing of future expenditures, which are all subject to uncertainty and interpretation. Reserve estimates can have a significant impact on earnings, as they are a key component in the calculation of depletion. A downward revision to the reserve estimate could result in higher depletion and thus lower net earnings. In addition, estimated reserves are also used in the calculation of the impairment (ceiling) test.

Goodwill - Goodwill, which represents the excess of purchase price over the fair value of net assets received in an acquisition, is tested for impairment on an annual basis in the fourth quarter. A goodwill impairment loss would be recognized when the carrying amount of goodwill exceeds its fair value. Should the test result in an impairment, it will be charged to income in the period of the impairment.

The following interim financial statements of the Company have not been reviewed by the Company's auditors.



Chamaelo Energy Inc.
Balance Sheets

As at As at
March 31 December 31
2005 2004
------------------------------------------------------------------------
$ $
------------------------------------------------------------------------
Assets
Current assets:
Accounts receivable 6,745,534 6,489,451
Prepaid expenses and deposits 193,585 234,993
------------------------------------------------------------------------
6,939,119 6,724,444
------------------------------------------------------------------------

Oil and natural gas properties
and equipment 145,627,364 142,124,354

Goodwill 4,179,193 4,179,193
------------------------------------------------------------------------
156,745,676 153,027,991
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility (note 3) 10,693,381 12,965,269
Accounts payable and accrued liabilities 11,212,000 8,007,248
Capital and current income taxes payable 194,488 391,062
------------------------------------------------------------------------
22,099,869 21,363,579

Capital lease obligation 26,182 29,328
Natural gas sales contract 2,507,466 2,846,002
Asset retirement obligations 16,129,768 15,562,509
Future income taxes 5,277,011 2,773,746

Shareholders' equity:
Share capital (note 4) 108,361,781 109,764,820
Contributed surplus 520,582 343,744
Retained earnings 1,823,017 344,263
------------------------------------------------------------------------
110,705,380 110,452,827

Subsequent events (note 6)
------------------------------------------------------------------------
156,745,676 153,027,991
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to the financial statements

Approved by the Board of Directors

Director, "signed" Rob Zakresky Director, "signed" Rob Jepson


Chamaelo Energy Inc.
Statement of Operations and Retained Earnings

Three Months Ended
March 31, 2005
------------------------------------------------------------------------
$
------------------------------------------------------------------------
Revenue:
Oil and natural gas 13,884,076
Transportation expense (394,701)
Royalties (2,333,183)
------------------------------------------------------------------------
11,156,192

Expenses:
Production 3,123,323
General and administrative 571,720
Interest expense 170,987
Stock-based compensation 176,838
Depletion, depreciation and accretion 4,773,314
------------------------------------------------------------------------
8,816,182

------------------------------------------------------------------------
Earnings before taxes 2,340,010

Taxes:
Capital taxes 50,004
Future income taxes 811,252
------------------------------------------------------------------------
861,256

Net earnings 1,478,754
Retained earnings, beginning of period 344,263
------------------------------------------------------------------------
Retained earnings, end of period 1,823,017
------------------------------------------------------------------------
------------------------------------------------------------------------

Net earnings per share:
Basic 0.05
Diluted 0.05
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to the financial statements


Chamaelo Energy Inc.
Statement of Cash Flows


Three Months Ended
March 31, 2005
------------------------------------------------------------------------
$
------------------------------------------------------------------------
Cash provided by (used in):

Operating:
Net earnings 1,478,754
Items not affecting cash:
Depletion, depreciation and accretion 4,773,314
Amortization of natural gas sales contract (338,536)
Stock-based compensation 176,838
Future income taxes 811,252
------------------------------------------------------------------------
Cash flow from operations 6,901,622
Net change in non-cash operating working capital 773,965
------------------------------------------------------------------------
7,675,587
------------------------------------------------------------------------
------------------------------------------------------------------------

Financing:
Decrease in revolving credit facility (2,271,888)
Decrease in capital lease obligation (3,146)
Increase in share capital 296,115
Share issue costs (7,141)
------------------------------------------------------------------------
(1,986,060)
------------------------------------------------------------------------
------------------------------------------------------------------------

Investing:
Purchase and development of oil and natural gas
properties and equipment (7,709,065)
Net change in non-cash investing working capital 2,019,538
------------------------------------------------------------------------
(5,689,527)
------------------------------------------------------------------------

Change in cash -
Cash, beginning of period -
------------------------------------------------------------------------
Cash, end of period -
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to the financial statements


Chamaelo Energy Inc.
Notes to the Financial Statements
Three months ended March 31, 2005


Chamaelo Energy Inc. ("Chamaelo" or the "Company") was incorporated under the Business Corporations Act (Alberta) on April 5, 2004 and commenced operations on June 1, 2004 when certain oil and natural gas assets were acquired by Chamaelo under a plan of arrangement dated April 27, 2004. The Company commenced trading on the Toronto Stock Exchange on June 8, 2004 under the symbol "CLO". The Company is engaged in the acquisition, development and exploration for and production and marketing, of oil and natural gas reserves in the Western Canadian Sedimentary Basin.

1. SIGNIFICANT ACCOUNTING POLICIES

The interim financial statements of Chamaelo have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim financial statements have been prepared following the same accounting policies and methods of computation as the audited financial statements for the period ended December 31, 2004. The disclosures provided below are incremental to those included with the audited annual financial statements. The interim financial statements should be read in conjunction with the audited financial statements and the notes thereto in the Company's annual report for the period ended December 31, 2004.

2. OIL AND NATURAL GAS PROPERTIES AND EQUIPMENT

The Company performed an impairment (ceiling) test calculation at March 31, 2005 to assess the recoverable value of the oil and natural gas properties. The oil and natural gas future prices are based on April 1, 2005 commodity price forecasts of the Company's independent reserve evaluators. These prices have been adjusted for commodity price differentials specific to the Company. The following table summarizes the benchmark prices used in the ceiling test calculation. Based on these assumptions, there was no impairment at March 31, 2005.



Foreign Edmonton Light
WTI Oil Exchange Crude Oil AECO Gas
Year ($US/bbl) Rate ($Cdn/bbl) ($Cdn/mmbtu)
------------------------------------------------------------------------

2005 53.00 0.820 64.25 7.50
2006 50.00 0.820 60.00 7.20
2007 47.50 0.820 57.25 6.95
2008 45.00 0.820 54.25 6.75
2009 42.00 0.820 50.50 6.50
2010 40.00 0.820 48.00 6.50
2011 40.00 0.820 48.00 6.50
2012 40.00 0.820 48.00 6.50
2013 40.50 0.820 48.75 6.65
2014 41.25 0.820 49.50 6.75
2015 41.75 0.820 50.25 6.85
Escalate
Thereafter 2.0% per year 2.0% per year 2.0% per year
------------------------------------------------------------------------
------------------------------------------------------------------------


3. REVOLVING CREDIT FACILITY

The Company has total credit facilities of $52.5 million with a Canadian bank. This is comprised of a revolving operating demand loan of $40.0 million bearing interest at prime plus a premium ranging between 0% and 1.25% based on the Company's debt to cash flow ratio, a $7.5 million non-revolving development demand loan bearing interest at prime plus 0.75%, and a treasury risk line of $5.0 million. The credit facilities are secured by a $150 million fixed and floating charge debenture on the assets of the Company. The average effective interest rate for the three months ended March 31, 2005 was 4.25%.



4. SHARE CAPITAL

a) Authorized:

Unlimited number of common shares
Unlimited number of preferred shares

b) Issued and outstanding:

Number of
Share Capital Shares Amount ($)
------------------------------------------------------------------------

Common Shares:
Balance at January 1, 2005 28,079,786 107,744,820
Exercise of warrants 62,340 352,140
Share issue costs (net of future taxes
of $2,487) - (4,654)
Future tax effect of $5.0 million
flow-through share renunciation - (1,694,500)
------------------------------------------------------------------------
Balance at March 31, 2005 28,142,126 106,397,806
------------------------------------------------------------------------

Warrants (note 4(c)) - 1,963,975
------------------------------------------------------------------------
Total Share Capital 28,142,126 108,361,781
------------------------------------------------------------------------
------------------------------------------------------------------------

No preferred shares have been issued

c) Warrants

The Company had the following warrants outstanding at March 31, 2005:

Weighted
Number of Average
Warrants Price ($) Amount ($)
------------------------------------------------------------------------
Balance at January 1, 2005 3,917,626 4.34 2,020,000
Exercised for shares (62,340) 4.75 (56,025)
------------------------------------------------------------------------
Balance at March 31, 2005 3,855,286 4.33 1,963,975
------------------------------------------------------------------------
------------------------------------------------------------------------

d) Stock options

The Company had the following stock options outstanding at
March 31, 2005:

Weighted Weighted
Number of Average Average
Options Price ($) Years to Expiry
------------------------------------------------------------------------
Balance at January 1, 2005 1,437,000 4.56 4.27
Options granted 100,000 5.94 4.91
------------------------------------------------------------------------
Balance at March 31, 2005 1,537,000 4.65 4.31
------------------------------------------------------------------------
------------------------------------------------------------------------

Exercisable at March 31, 2005 - - -
------------------------------------------------------------------------
------------------------------------------------------------------------


e) Stock-based compensation

The compensation cost that has been charged against income for the stock option plan during the three months ended March 31, 2005 was $176,838.

The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for the three months ended March 31, 2005:



------------------------------------------------------------------------
Fair value per option $1.90
Risk-free rate 3.6%
Expected life 4 years
Expected volatility 34.0%
Dividend yield -
------------------------------------------------------------------------

f) Per share information

The weighted average number of shares outstanding for the determination
of basic and diluted per share amounts are as follows:

------------------------------------------------------------------------
Basic 28,101,951
Diluted 29,633,053
------------------------------------------------------------------------


5. SUPPLEMENTAL CASH FLOW INFORMATION

$
------------------------------------------------------------------------

Cash interest paid 170,987

Cash taxes paid 246,578
------------------------------------------------------------------------


6. SUBSEQUENT EVENTS

a) On April 6, 2005, Chamaelo announced that it has entered into an agreement to acquire certain oil and natural gas properties in West Central Alberta and North Eastern British Columbia for approximately $375 million, including transaction costs and net of estimated closing adjustments. The Company also announced a proposed Plan of Arrangement to convert Chamaelo from a public company focused on oil and natural gas exploration and production into two new entities (i) Chamaelo Exploration Ltd. ("ExploreCo"), a public company focused on the exploration and development of oil and natural gas reserves, and (ii) Vault Energy Trust (the "Trust"), a trust entity which is designed to distribute to its unitholders a substantial portion of cash from operations generated by Chamaelo's mature lower-risk producing assets.

Completion of the proposed transactions under the Plan of Arrangement will result in shareholders of Chamaelo exchanging each of their Chamaelo common shares for one trust unit ("Trust Unit") or a share exchangeable into a Trust Unit ("Exchangeable Share"), and one common share of ExploreCo ("ExploreCo Share"), prior to a 2 for 1 consolidation of the Trust Units and a 5 for 1 consolidation of the ExploreCo Shares.

As the former Chamaelo shareholders will own ExploreCo and the Trust, the acquisition of assets by ExploreCo will be accounted for as a continuity of interest under which the assets and liabilities will be accounted for at book value of approximately $45.9 million.

b) On April 13, 2004, Chamaelo entered into physical hedge contracts on behalf of the Trust as follows:



Upside
Product Volume Floor price Participation Term
------------------------------------------------------------------------

Natural gas 11,000 GJ/d $7.00/GJ 60% above Jul 1, 2005 -
$7.00/GJ Oct 31, 2006

Oil 1,000 bbls/d $61.50/bbl 50% above Jul 1, 2005 -
$61.50/bbl Dec 31, 2006
------------------------------------------------------------------------


c) On April 27, 2004, Chamaelo completed a bought deal private placement financing for an aggregate of 42,312,000 Series E subscription receipts in the capital of the Trust at a price of $6.50 per Series E subscription receipt and 55,000 Series D subscription receipts in the capital of the Trust at a price of $1,000 per Series D subscription receipt for aggregate gross proceeds of $330,028,000.

Pursuant to the Plan of Arrangement, each Series E subscription receipt will be converted into one Trust Unit and one ExploreCo Share, prior to a 2 for 1 consolidation of the Trust Units and a 5 for 1 consolidation of the ExploreCo Shares.

Pursuant to the Plan of Arrangement, each Series D subscription receipt will be converted into one convertible debenture of the Trust ("Convertible Debentures"). The Convertible Debentures will have a face value of $1,000 per debenture and a maturity date of June 30, 2010. The Convertible Debentures will pay interest semi-annually on June 30 and December 31 of each year at 8% per annum and will be convertible into Trust Units at a conversion price of $11.50 per Trust Unit. Holders of the Convertible Debentures have the option of redeeming the Convertible Debentures at a price of $1,050 per Convertible Debenture after June 30, 2008 and on or before June 30, 2009 and thereafter until the maturity date at a price of $1,025 per Convertible Debenture. The Trust may repay the Convertible Debentures in cash or through the issue of additional Trust Units at 95% of the market price.



CORPORATE INFORMATION

OFFICERS AND DIRECTORS BANK
National Bank of Canada
Robert J. Zakresky, CA 2700, 530 - 8th Avenue S.W.
President, CEO and Director Calgary, Alberta T2P 3S8

Robert T. Jepson, BBA, PLM TRANSFER AGENT
Executive VP and Director Valiant Trust Company
310, 606 - 4th Street S.W.
R. P. (Rick) Marshall, RET Calgary, Alberta T2P 1T1
VP Operations, COO and Director
LEGAL COUNSEL
Greg Fisher, B.Mgt. Gowling Lafleur Henderson LLP
VP Finance, CFO & Corporate Secretary 1800, 350 - 7th Avenue S.W.
Calgary, Alberta T2P 3N9
R.D. (Rick) Sereda, M.Sc., P.Geol.
VP Exploration AUDITORS
KPMG LLP
Jeff Peterson, M.Sc., P.Geol. 1200, 205 - 5th Avenue S.W.
VP Geology Calgary, Alberta T2P 4B9

Weldon Dueck, BSc., P.Eng. INDEPENDENT ENGINEERS
VP Exploitation Gilbert Laustsen Jung
4100, 400 - 3rd Avenue S.W.
Sean M. Monaghan, CA, CBV Calgary, Alberta T2P 4H2
Chairman of the Board

T.S. (Ted) Rozsa
Director

R. Shawn Kirkpatrick, MBA
Director

A. B. (Sandy) McArthur
Director


FORWARD LOOKING STATEMENTS

This Press Release may contain forward-looking information that involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and gas industry (e.g. - operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).

Contact Information

  • Chamaelo Energy Inc.
    Robert J. Zakresky
    President & CEO
    (403) 232-8575 ext. 226
    or
    Chamaelo Energy Inc.
    Robert T. Jepson
    Executive Vice President
    (403) 232-8575 ext. 225
    or
    Chamaelo Energy Inc.
    Greg Fisher
    VP Finance & CFO
    (403) 232-8575 ext. 229
    or
    Chamaelo Energy Inc.
    Suite 700, 639 - 5th Avenue S.W.
    Calgary, Alberta T2P 0M9
    (403) 232-8575
    (403) 232-0061 (FAX)
    Website: http://www.chamaelo.ca