Cyries Energy Inc.
TSX : CYS

Cyries Energy Inc.

November 08, 2007 09:30 ET

Cyries Energy Inc. Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2007) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Cyries Energy Inc. ("Cyries") (TSX:CYS) is pleased to announce its financial and operating results for the third quarter ended September 30, 2007.



Financial Highlights
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Three Three Nine Nine
months months months months
ended ended ended ended
(000s, except as September September % September September %
indicated) 30, 2007 30, 2006 Change 30, 2007 30, 2006 Change
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Petroleum and
natural gas sales 41,861 32,351 29 135,104 101,589 33

Net earnings (890) 1,230 (172) 692 9,370 (93)
Per share basic (0.02) 0.03 (167) 0.01 0.24 (96)
Per share diluted (0.02) 0.03 (167) 0.01 0.21 (95)

Funds generated from
operations 20,010 15,711 27 64,466 51,680 25
Per share basic 0.40 0.38 5 1.28 1.30 (2)
Per share diluted 0.37 0.35 6 1.19 1.18 1

Capital expenditures 22,379 33,336 (33) 63,855 107,402 (41)
Acquisitions (net) 4,407 3,609 22 23,154 8,438 174

Bank debt and
working capital
deficiency 120,918 114,765 5 120,918 114,765 5

Weighted average
shares outstanding
Basic 50,517 40,987 23 50,234 39,846 26
Diluted 54,163 44,942 21 54,053 43,848 23

Average Sales Price
Oil $/bbl 76.63 75.17 2 69.78 71.52 (2)
Natural gas $/mcf 5.55 6.06 (8) 7.07 6.84 3
NGL $/bbl 63.02 59.04 7 55.69 60.38 (8)
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Total $/boe 47.40 44.42 7 49.99 46.97 6

Average Daily
Production
Oil bbl 2,763 1,358 104 2,442 1,268 93
Natural gas mcf 37,831 36,378 4 41,085 37,336 10
NGL bbl 531 496 7 609 432 41
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Total boe/d 9,599 7,917 21 9,899 7,922 25

Production expenses
$/boe 9.21 8.27 11 9.73 7.97 22

Operating netback
$/boe 26.34 24.53 7 27.93 26.05 7

Undeveloped land
gross acres 641,685 341,030 88 641,685 341,030 88
net acres 419,477 236,654 77 419,477 236,654 77

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TO OUR SHAREHOLDERS

Cyries Energy Inc. is pleased to report to shareholders the financial and operating results for the three months ended September 30, 2007.

Production increased in the third quarter by 21 percent to 9,599 boe/d compared to 7,917 boe/d in the prior year. Cyries production was curtailed during the quarter by scheduled and unscheduled plant downtime. These factors resulted in about 800 boe/d of interrupted production during the quarter, all of which is now back producing.

Current production is about 11,000 boe/d including volumes from our recent acquisition. Tested production behind pipe is approximately 1,000 boe/d and is expected to be producing before year end.

Cyries was able to maintain a higher percentage of oil production compared to prior quarters - oil and ngl production during the quarter represented 34 percent of total volumes, resulting in an increased corporate netback.

Our drilling program since spring break-up has resulted in several notable successes. Five wells have been drilled or recompleted that are each capable of producing over 2mmcf/d.

Cyries drilled 12 gross (9.8 net) wells during the quarter with an 82 per cent success rate. Drilling was concentrated in the Deep Basin and Judy Creek areas. Subsequent to the end of the quarter Cyries has participated in the drilling of two additional wells in the Deep Basin, both of which were successful.

Subsequent to the end of the quarter Cyries acquired a private company for $35 million. The acquisition closed November 2, 2007 and added about 850 boe/d of production and 2.1 million boe of proved plus probable reserves.

Operating costs continued to decline compared to prior quarters to $9.21 per boe.

Cyries ended the quarter with total debt of $121 million (including working capital) on a credit facility that is expected to increase to $175 million, following the recent acquisition of the private company.

Operations Update

Currently Cyries has one rig operating in the Deep Basin with a second expected to begin shortly. Cyries is expecting to drill 4 to 6 wells in the Deep Basin/Peace River Arch area with these two rigs before year end. A third rig will commence a 7 well program at our Hotchkiss property in December. Cyries is also expecting to drill 1 to 3 wells on recently acquired lands in Central Alberta before year end. Drilling throughout the 2008 winter season will include an additional 4 to 6 multi-zone targets in the Deep Basin/Peace River Arch, 5 to 7 wells in Boundary lake, 5 wells in Rainbow Lake for Keg River oil and 2 wells in Northeastern B.C. to further delineate a previous Jean Marie discovery.

The undeveloped land base expanded by 11,000 net acres during the quarter. At September 30, 2007 Cyries owned approximately 420,000 net acres of undeveloped land.

Financial Performance

Cash flow from operations in the quarter was $20 million or $0.40 per basic share, $0.37 per diluted share. Cash flow in the quarter was reduced due to lower natural gas prices combined with lower production volumes, which were positively offset by reduced costs, higher oil prices and Cyries' increased weighting to light oil production. We expect to see higher cash flow in the fourth quarter due to an increase in production volumes and increased oil prices. At current production volumes and commodity prices of $7.50 per Gj for gas and $80 Cdn. per barrel of oil the company's monthly cash flow is in the range of $9 - $10 million or $110 - $120 million on an annualized basis.

Operating costs were reduced during the quarter due to increased operating efficiencies. We expect this trend to continue in 2008.

Capital expenditures during the quarter were $27 million, including acquisitions of $4.4 million. Excluding acquisitions we would expect fourth quarter capital expenditures to be in the range of $25 - $30 million resulting in total capital for the year of $155 million including acquisitions and about $100 million excluding acquisitions.

Total debt at the end of the quarter was $121 million including working capital. Cyries will absorb approximately $11 million in additional debt as a result of the recent acquisition and our authorized credit facility is expected to increase to $175 million also as a result of the acquisition.

Royalty Changes

The Alberta Government has proposed changes to the royalty framework in Alberta. These changes are expected to take effect in 2009 and are still subject to further clarification. Royalties represent Cyries largest single cost, and an increase in royalties will potentially affect the nature of our future capital investment decisions. As we approach 2009 we would expect to adjust our capital expenditure program as a result of the royalty changes, but any adjustment would also take into consideration then current drilling costs as well as commodity prices. We will continue to communicate with shareholders the expected impact of the royalty changes and their effect on cash flow and capital investment as we progress through 2008. We do not expect the royalty changes to materially affect our winter 2008 drilling program.

Outlook

With the success of recent drilling and acquisitions, we expect the production base of the company to continue to grow past 12,000 boe/d as we exit 2007.

We have maintained a high degree of discipline with respect to our capital expenditure program. As a result we have retained a strong balance sheet which enables Cyries to complete a robust drilling this winter at the same time as being able to take advantage of additional acquisition opportunities in the market. 2007 was a very challenging period for the Canadian conventional natural gas industry, we have focused on maintaining a strong balance sheet and growing through a combination of drilling and selective acquisitions, a strategy we would expect to continue into 2008.

On behalf of the Board of Directors,

Donald F. Archibald, Chairman and Chief Executive Officer

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements of Cyries Energy Inc. ("Cyries" or the "Company") for the three and nine month periods ended September 30, 2006 and the audited financial statements for the year ended December 31, 2006. This MD&A is dated as of November 7, 2007.

Cyries was incorporated under the Business Corporations Act (Alberta) on May 20, 2004 and commenced operations July 2, 2004. Cyries is a Calgary based oil and natural gas exploration and development company operating primarily in Alberta and northeastern British Columbia. The Company is traded on the Toronto Stock Exchange under the symbol CYS.

Units of measure - Per 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"). All values are presented in thousands, other than boe and per share amounts.

Non-GAAP Measurements - Cyries evaluates performance based on net income, operating netback and funds generated from operations. Operating netback is a benchmark used in the oil and gas industry to measure the contribution of oil and natural gas sales following the deduction of royalties, production expenses and transportation costs. A calculation of operating netback is included in the MD&A. Working capital deficiency is defined as current assets less current liabilities, excluding any debt presented as a current liability. Funds generated from operations is expressed before changes in non-cash operating working capital and asset retirement expenditures. The Company considers funds generated from operations a key measure as it is used to analyze operations, performance, leverage and liquidity.

The following table reconciles funds generated from operations to cash flow from operating activities, the most directly comparable GAAP measure:



Quarter Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
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Cash flow from
operating
activities 26,497 17,351 63,289 50,560
Net changes in
non-cash operating
working capital (6,487) (1,640) 956 976
Asset retirement
expenditures
- - 221 144
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Funds generated
from operations 20,010 15,711 64,466 51,680
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Funds generated from operations, operating netback and working capital deficiency do not have a standard meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to other companies.

Forward-looking statements - This MD&A contains forward-looking statements. Forward-looking statements are based on current expectations that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those reflected in the MD&A. Forward-looking statements are based on the estimates and opinions of Cyries' management at the time the statements were made. The reader should be aware that historical results are not necessarily indicative of future performance.



HIGHLIGHTS

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Three months ended Nine months ended
($000s, except September 30, September 30, September 30, September 30,
per share data) 2007 2006 2007 2006
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Net income (loss) (890) 1,230 692 9,370
Net income (loss) per
share - basic (0.02) 0.03 0.01 0.24
Net income (loss) per
share - diluted (0.02) 0.03 0.01 0.21

Funds generated from
operations 20,010 15,711 64,466 51,680
Funds generated per
share - basic 0.40 0.38 1.28 1.30
Funds generated per
share - diluted 0.37 0.35 1.19 1.18

Total assets 569,525 437,508 569,525 437,508

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The third quarter of 2007 was highlighted by a 21 percent increase in average production to 9,599 boe/d from 7,917 boe/d in the third quarter of 2006. For the nine month period ended September 30, 2007 average production increased by 25 percent to 9,899 boe/d.

Cyries' average sales price was affected by weak natural gas prices in the third quarter of 2007. Industry conditions were similar to 2006 as high levels of natural gas in storage suppressed the natural gas price. Despite natural gas prices, funds generated from operations increased 27 percent to $20,010 in the third quarter of 2007 compared to $15,711 in the prior year. In the nine month period ended September 30, 2007, funds generated from operations increased 25 percent to $64,466 compared to $51,680 in 2006. The increase in both periods was a result of higher sales volumes.

Net earnings (loss) for both the three and nine month periods ended September 30, 2007 decreased from prior year as higher revenue was offset by increases in depletion, depreciation and amortization, operating expenses and future income tax expense.

Capital expenditures were $26,786 in the three months ended September 30, 2007. The largest portion of capital expenditures in the quarter related to $15,038 in drilling 12 gross (9.8 net) wells, and $4,407 in property acquisitions.



DETAILED FINANCIAL ANALYSIS

Petroleum and natural gas production

Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
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Oil (bbls/d) 2,763 1,358 2,442 1,268
Natural gas
(mcf/d) 37,831 36,378 41,085 37,336
Natural gas
liquids (bbls/d) 531 496 609 432
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Total (boe/d) 9,599 7,917 9,899 7,922
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Production for the quarter ended September 30, 2007 increased 21 percent to 9,599 compared with the prior year. The production increase was driven by the ongoing drilling program, the acquisition of Dual Exploration in December 2006 and a number of smaller acquisitions in 2007. Cyries' production mix changed significantly from 2006. In the third quarter of 2007, 66 percent of the Company's production was natural gas compared to 77 percent in 2006. Oil and liquids production in the three months ended September 30, 2007 increased to 3,294 boe/d compared to 1,854 boe/d in the third quarter of 2006. The growth in oil and liquids production is a result of increased oil production from a discovery at Gold Creek and the acquisition of a Rainbow Lake oil property in March 2007. For the nine month period ended September 30, 2007, oil and liquids production averaged 3,051 boe/d compared to 1,700 boe/d in 2006. Natural gas production in the three and nine months ended September 30, 2007 increased to 37,831 mcf/d and 36,378 mcf/d, compared to 41,085 mcf/d and 37,336 mcf/d for the respective three and nine month periods ended September 30, 2006.



Revenue

Three months ended Nine months ended
September 30, September 30, September 30, September 30,
($000s) 2007 2006 2007 2006
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Revenue
Oil 19,478 9,389 46,521 24,747
Natural gas 19,307 20,268 79,320 69,725
Natural gas
liquids 3,076 2,694 9,263 7,117
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Total 41,861 32,351 135,104 101,589

Average sales
price
Oil ($/bbl) 76.63 75.17 69.78 71.52
Natural gas
liquids ($/bbl) 63.02 59.04 55.69 60.38
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Average liquids
price 74.44 70.85 66.97 69.69
Natural gas ($/mcf) 5.55 6.06 7.07 6.84
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Total per boe ($/boe) 47.40 44.42 49.99 46.97

Benchmark pricing
Edmonton par -
light oil ($/bbl) 80.70 79.72 73.72 76.06
AECO-C Spot ($/mcf) 5.21 5.73 6.56 6.41
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In the three months ended September 30, 2007, revenues increased 29 percent to $41,861 from $32,351 in the comparative period in 2006. The increase in revenue was a result of the 21 percent increase in production volumes and seven percent increase in the average sales price. In the nine month period ended September 30, 2007, revenues increased 33 percent to $135,104 from $101,589 in the comparative period in 2006. The increase in revenue was due to a 25 percent increase in production volumes and a six percent increase in the average sales price. The increase in the average sales price realized by Cyries is consistent with the change in benchmark crude oil and natural gas prices. In general, commodity prices were similar in 2006 and 2007. Natural gas prices remained low as inventory levels were consistently high and liquefied natural gas imports emerged in the summer of 2007. Crude oil prices remained high due to continued supply concerns.

All the Company's production is sold on the spot market. Therefore, both the historical prices received and future prices are expected fluctuate with the prevailing market prices of crude oil and natural gas. The average sales price for natural gas is at a premium to the AECO-C spot price due to the high energy content of the company's natural gas production.

The table below summarizes the impact of both production volumes and natural gas and oil prices on revenue for the three and nine month periods ended September 30, 2007:



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Three months ended Nine months ended
($000s) September 30, 2007 September 30, 2007
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Natural Gas Sales Variance
Volume increase 810 7,002
Price decrease/ increase (1,771) 2,593
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Net gas sales change (961) 9,595
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Crude Oil and NGLs Sales Variance
Volume increase 9,384 25,351
Price increase/ decrease 1,087 (1,431)
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Net crude oil and NGLs sales change 10,471 23,920
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Combined sales change 9,510 33,515
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Royalty Expense

Oil and natural gas royalties totaled $9,432 and $29,941 for the third quarter and first nine months of 2007, respectively, compared to $7,384 and $24,739 for the comparative periods in 2006. The increase in royalties corresponds to the increase in petroleum and natural gas sales. Third quarter royalties remained consistent with the prior year at 23 percent of revenue. Royalties as a percentage of revenue decreased to 22 percent in the nine months ended September 30, 2007 from 24 percent in the prior year. The decrease in royalties as a percentage of revenue in 2007 compared to 2006 is due to a decrease in the overriding royalty.

The Alberta Government has proposed changes to the royalty framework in Alberta. These changes are expected to take effect in 2009 and are still subject to further clarification. Royalties represent Cyries largest single cost, and an increase in royalties will potentially affect the nature of our future capital investment decisions. As we approach 2009 we would expect to adjust our capital expenditure program as a result of the royalty changes, but any adjustment would also take into consideration then current drilling costs as well as commodity prices. We will continue to communicate with shareholders the expected impact of the royalty changes and their effect on cash flow and capital investment as we progress through 2008. We do not expect the royalty changes to materially affect our winter 2008 drilling program.



Operating Netback and Production Expense
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Three months ended
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September 30, September 30,
($000s) 2007 $/boe 2006 $/boe
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Revenue 41,861 47.40 32,351 44.42
Royalty income 52 0.06 27 0.04
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41,913 47.46 32,378 44.46
Royalties (9,432) (10.68) (7,384) (10.14)
Production expense
(net) (8,130) (9.21) (6,024) (8.27)
Transportation expense (1,084) (1.23) (1,107) (1.52)
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Operating netback 23,267 26.34 17,863 24.53
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Nine months ended
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September 30, September 30,
($000s) 2007 $/boe 2006 $/boe
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Revenue 135,104 49.99 101,589 46.97
Royalty income 116 0.04 91 0.04
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135,220 50.03 101,680 47.01
Royalties (29,941) (11.08) (24,739) (11.44)
Production expense
(net) (26,288) (9.73) (17,231) (7.97)
Transportation
expense (3,477) (1.29) (3,347) (1.55)
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Operating netback 75,514 27.93 56,363 26.05
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Three months ended Nine months ended
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September 30, September 30, September 30, September 30,
($000s) 2007 2006 2007 2006
----------------------------------------------------------------------------
Production expense
gross 8,922 6,696 28,690 19,081
Overhead recoveries (488) (406) (1,507) (1,212)
Processing income (304) (266) (895) (638)
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Production expense
(net) 8,130 6,024 26,288 17,231
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Production expense
per boe (net) 9.21 8.27 9.73 7.97
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In comparison to the prior year, operating netback in the third quarter increased seven percent to $26.34 per boe and increased seven percent to $27.93 for the nine months ended September 30, 2007. The increase in both periods is primarily a result of increased sales prices.

Net production expenses increased 35 percent in the three month period ended September 30, 2007 to $8,130 compared to $6,024 in 2006. Net production expenses for the nine months ended September 30, 2007 increased 53 percent to $26,288 from $17,231 in 2006. The increase in production expense is due to an increase in both production and production costs per boe. Production costs per boe have increased by 22 percent from the prior year primarily as a result of inflationary costs within the oil and gas industry and Alberta.

Transportation costs were $1,084 for the three months ended September 30, 2007 compared $1,107 in 2006. Transportation for the first nine months of 2007 increased to $3,477 from $3,347 for the first nine months of 2006. On per boe basis, transportation decreased 19 percent to $1.23 and 17 percent to $1.29 for the respective three and nine months ended September 30, 2007 when compared to the equivalent periods in 2006. As transportation expense relates primarily to natural gas transportation, the decrease in the weighting of natural gas in Cyries' production mix from 79 percent in 2006 to 69 percent in 2007 has contributed to an overall decrease in transportation per boe.



General and Administrative Expenses

Three months ended Nine months ended
September 30, September 30, September 30, September 30,
($000s) 2007 2006 2007 2006
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General and
administrative
expense (gross) 1,897 1,316 6,156 4,083
Overhead
recoveries (290) (407) (959) (1,391)
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General and
administrative
expense (net) 1,607 909 5,197 2,692
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General and
administrative
($/boe) 1.82 1.25 1.92 1.24
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General and administrative costs ("G&A") include costs incurred by the Company which are not directly associated with the exploration of oil and natural gas. G&A per boe increased 46 percent to $1.82 in the third quarter of 2007 compared to $1.25 in the third quarter of 2006. G&A expense per boe increased 55 percent to $1.92 in the nine months ended September 30, 2007 compared to $1.24 in 2006. G&A per boe increased in both periods due to higher costs for employees, rent, regulatory compliance and lower overhead recoveries as a result of reduced capital spending.

General and administrative costs per boe are expected to average approximately $1.75 per boe for the remainder of 2007.

Depreciation, Depletion and Accretion

Depletion, depreciation and accretion ("DD&A") was $20,224 in the third quarter of 2007 compared to $12,981 in 2006. DD&A expense per boe for the three months ended September 30, 2007 increased to $22.90 from $17.82 for the comparative period. For the nine month period ended September 30, 2007, DD&A per boe increased to $21.91 from $17.74 in the prior year. The increase in both periods reflects the cost of adding proved reserves through drilling and acquisitions over the past twelve months. In determining the Company's depletion and depreciation, $21,057 (2006 - $20,020) of costs related to unproven properties and $20,043 (2006 - $14,474) of estimated salvage value was excluded from the costs subject to depletion. Future development costs required to complete wells for which proved reserves have been assigned of $9,739 (2006 - $4,711) were added to the Company's net book value in the depletion calculation.

Stock Based Compensation

During the third quarter of 2007, stock-based compensation expense related to the outstanding stock options and Class B performance shares was $1,167 compared to $1,147 in the quarter ended September 30, 2006. Stock-based compensation expense for the first nine months of 2007 was $3,275 compared to $3,716 for the comparative period in 2006. The decrease in stock compensation expense for the nine months ended September 30, 2007 is due to a reduction in options issued during the period. Twenty percent of the issued options to vest immediately resulting in the expense of 20 percent of the Black-Scholes option in the quarter it is issued. At September 30, 2007 there were 4,427 stock options outstanding compared to 3,423 at September 30, 2006.

Income Taxes

For the quarter ended September 30, 2007 the Company recorded a future income tax recovery of $491 (2006 -$553 expense) and current income tax recovery of $45 (2006 -$5). The effective tax rate for the quarter ended September 30, 2007 was 38 percent.

In the nine month period ended September 30, 2007, the future income tax expense was $1,299 (2006 -$426) and the current income tax expense was $823 (2006 -$848 recovery). The effective tax rate for the nine months ended September 30, 2007 was 75 percent primarily due to an additional current tax expense of $632 for taxes owing as a result of prior period assessments of a subsidiary and companies acquired by Cyries in 2005 and 2006. By comparison, in the nine month period ended September 2006, the company recognized recoveries for future income tax of $3,050 and current income tax of $89 as a result of reductions in the Alberta and Federal corporate income tax rates for the current and future years. In addition, a reduction to current income tax expense of $958 was recorded nine month period ended September 30, 2006 as an amount previously accrued for an income tax assessment was reduced upon completion of the audit.

On March 14, 2007, the Company issued 443 CEE flow-through shares and 524 CDE flow-through shares through a private placement. The CEE flow-through shares were issued at a price of $13.55 per share and the CDE flow-through shares were issued at $11.45 per share, for total proceeds of $12,000. The purchasers of CEE flow-through shares will be entitled to renunciations of Canadian exploration expenses in an amount equal to the subscription amount from the Company, while purchasers of the CDE flow-through shares will be entitled to renunciations of Canadian development expenses in an amount equal to the subscription amount from Cyries. A director of Cyries acquired 116 of the CDE flow-through shares for total proceeds of $1,328.

At September 30, 2007 the Company had no outstanding CEE or CDE flow-through share commitments. The Company's estimated tax pools as at September 30, 2007 are included in the table below.



($ million)
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Canadian oil and gas property expense 91,003
Canadian development expense 74,017
Canadian exploration expense 2,719
Foreign exploration and development expense 717
Undepreciated capital costs 84,231
Share issue costs 6,483
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Total 259,170
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Capital Expenditures

Three months ended Nine months ended
----------------------------------------------------------------------------
($000s) September 30, September 30, September 30, September 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Land acquisitions 1,934 3,994 8,053 8,815
Property
acquisitions
(net) 4,407 3,609 23,154 8,438
Geological and
geophysical 2,388 967 4,307 3,795
Drilling and
completions 15,038 19,970 34,777 64,041
Equipment and
facilities 2,759 8,371 16,071 30,637
Other 260 34 647 114
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Total capital
expenditures 26,786 36,945 87,009 115,840
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Overall, capital expenditures for the nine months ended September 30, 2007 decreased to $87,009 from $115,840 in 2006. Drilling activity was down significantly in the nine months ended September 30, 2007 as the Company drilled 27.0 gross wells (18.5 net) compared to 46.0 wells (36.6 net) in 2006. Drilling was reduced in 2007 in response high industry costs and uncertainty in short term natural gas prices. Property acquisitions increased to $23,154 from $8,438 in 2006 primarily due to the acquisition of Rainbow Lake assets in the first quarter of 2007.

Third quarter drilling activity was consistent with the prior year. Cyries drilled 12.0 wells (9.8 net) in the third quarter of 2007 compared with 13.0 gross wells (10.7 net) in 2006.

Including corporate and property acquisitions, Cyries expects to spend approximately $155,000 in 2007. In the fourth quarter, the company expects to spend $65,000 to $70,000, including a corporate acquisition for $35,000 and $30,000 to $35,000 drilling an approximately 15 gross wells. Fluctuations in crude oil and natural gas prices will have a large impact on the Company's capital program. The Company will monitor the capital program with the current price outlook and adjust it accordingly.



Three months ended Nine months ended
----------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net
wells wells wells wells wells wells wells wells
----------------------------------------------------------------------------
Gas 7.0 5.0 4.0 4.0 15.0 9.0 32.0 26.3
Oil 3.0 3.0 7.0 5.3 6.0 5.5 9.0 7.3
Dry 2.0 1.8 2.0 1.4 6.0 4.0 5.0 3.0
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Total 12.0 9.8 13.0 10.7 27.0 18.5 46.0 36.6
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Success (%) 82% 87% 78% 92%
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Share Capital

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(000s)
----------------------------------------------------------------------------
Weighted average common shares outstanding for the nine months ended
September 30, 2007
Basic 50,234
Diluted 54,053

Outstanding Securities at November 7, 2007
Common shares 54,203
Warrants 3,347
Performance shares 528
Stock options 4,147
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Total outstanding securities at November 7, 2007 62,225
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During the nine month period ended September 30, 2007, the company issued 788 stock options to employees. The options vest over four years and are exercisable into common shares at an average price of $9.84. At September 30, 2007 the Company had 4,427 options outstanding with an average exercise price of $11.68.

Liquidity and Capital Resources

At September 30, 2007 the Company had bank debt of $103,378 and working capital deficit of $17,540. In the second quarter, the Company's bank lines were increased to $160,000 from $145,000 following the completion of the bank's semi-annual review. The Company's bank line is subject to semi-annual review with the next review occurring in the spring of 2008.

The 2007 capital program is anticipated to be $155,000 to $160,000 and will be funded through a combination of funds generated from operations, the issuance of common shares and bank debt. Fluctuations in crude oil and natural gas prices will have a large impact on the Company's capital program and working capital position. The Company will monitor the capital program with the current price outlook and adjust it accordingly.

Commodity prices and production volumes have the largest impact on the ability for Cyries to generate adequate cash flow to meet all of its obligations. A prolonged decrease in commodity prices would negatively affect funds generated from operations and would also likely result in a reduction in the amount of bank loan available. If the capital expenditure program does not result in sufficient additional reserves and/or production it would likely have a negative impact on the Company's ability to carry out its planned capital program.

Subsequent Event

On November 2, 2007, the Company purchased the issued and outstanding shares of a Private Company in exchange for 0.6449 of a common share of Cyries and $0.21 in cash for each Private Company common share. Cyries issued an aggregate of 3.1 million Cyries common shares, $1 million in cash and assumed approximately $11.1 million in the Private Company's debt and transaction costs to complete the acquisition. The acquisition is expected to increase Cyries' current production by approximately 850 boe/d and add 2.1 million boe of proved plus probable reserves.



Quarterly Financial and Operational Information

Q3 Q2 Q1
2007 2007 2007
----------------------------------------------------------------------------
Average gas price
($/mcf) 5.55 7.58 7.97
Average liquids
price ($/boe) 74.44 65.55 58.43
Average sales price
($/boe) 47.40 51.91 50.55
Average production
(boe/d) 9,599 10,570 9,519

Petroleum and
natural gas sales 41,861 49,933 43,309
Royalties 9,432 10,404 10,105
Operating expenses 8,130 9,569 8,589
G&A expenses 1,607 1,985 1,604

Funds generated
from operations 20,010 24,920 19,537
Per share basic 0.40 0.49 0.39
Per share diluted 0.37 0.46 0.36

Net earnings/ (loss) (890) 2,161 (579)
Per share basic (0.02) 0.04 (0.01)
Per share diluted (0.02) 0.04 (0.01)

Total assets 569,525 567,437 575,539

Bank debt and
working capital
deficiency 120,918 114,203 128,718
----------------------------------------------------------------------------


Q4 Q3 Q2 Q1 Q4
2006 2006 2006 2006 2005
----------------------------------------------------------------------------

Average gas price
($/mcf) 7.41 6.06 6.49 8.02 12.14
Average liquids
price ($/boe) 56.64 70.85 71.90 62.41 63.61
Average sales price
($/boe) 47.42 44.42 45.76 50.98 70.69
Average production
(boe/d) 8,613 7,917 8,172 7,675 6,522

Petroleum and
natural gas sales 37,571 32,351 34,027 35,212 42,419
Royalties 7,933 7,384 7,943 9,411 11,394
Operating expenses 7,130 6,024 5,644 5,564 4,804
G&A expenses 1,080 909 1,079 704 1,115

Funds generated
from operations 18,046 15,711 18,337 17,632 20,861
Per share basic 0.41 0.38 0.47 0.45 0.53
Per share diluted 0.37 0.35 0.42 0.41 0.48

Net earnings/ (loss) (14) 1,230 5,891 2,249 5,682
Per share basic - 0.03 0.15 0.06 0.14
Per share diluted - 0.03 0.14 0.05 0.13

Total assets 542,053 437,508 413,143 411,463 364,230
Bank debt and
working capital
deficiency 111,934 114,765 116,074 114,338 73,220

----------------------------------------------------------------------------


Production

Third quarter oil and natural gas production decreased nine percent to 9,599 boe/d compared to 10,570 boe/d in the second quarter. The decrease in production is due to third party plant downtime.

Petroleum and Natural Gas Sales

Oil and natural gas revenues decreased 16 percent in the third quarter of 2007 as the average oil and natural gas price decreased by nine percent and production volumes decreased by nine percent. The decrease in the average sales price was primarily a result of a 27 percent decrease in natural gas prices in the quarter.

Royalties

Royalties, net of ARTC, decreased to $9,432 from $10,404 in the second quarter of 2007 as a result of decreased revenue. As a percentage of sales, royalty rates increased to 23 percent in the third quarter of 2007 compared to 21 percent in the second quarter of 2007 primarily due to a decrease in gas cost allowance.

Operating Expenses

Operating expenses decreased 15 percent from the second quarter due to decreased production volumes and a decrease in non-routine facility and well maintenance costs. On a per boe basis, operating expenses were $9.21 compared to $9.95 per boe in the previous quarter.

General and Administrative Expenses

Net G&A expense decreased 19 percent to $1,607 from $1,985 in the second quarter of 2007. The decrease in net G&A in the third quarter is due primarily to an increase in overhead recoveries caused by an increase in capital expenditures in addition to a decrease in overall G&A expenditures. G&A per boe was $1.82 in the third quarter of 2007 compared to $2.06 per boe in the second quarter.

Net Earnings and Funds Generated from Operations

Funds generated from operations decreased 20 percent in the third quarter to $20,010 from $24,920 in the second quarter of 2007. Net earnings decreased to ($890) compared to $2,161 in the second quarter of 2007. The decrease in both earnings and funds generated from operations was a result of lower gas prices and decreased production.

Total Assets

Total assets increased slightly to $569,525 due to an increase capital expenditures in the third quarter. Capital expenditures included $1,934 in land acquisitions, $4,407 of net property acquisitions, $2,388 of geological and geophysical activities, $15,038 in drilling and completions $2,759 in equipment and facilities and $260 in corporate capital.

Working Capital Deficiency

The bank and working capital deficiency increased by $6,715 in the third quarter to $120,918 as capital expenditures of $26,786 exceeded funds generated from operations of $20,010. Current bank lines are $160,000 and the Company estimates that the 2007 capital program will be funded through a combination of funds generated from operations, proceeds of the March flow-through share offering and additional bank borrowings.

Accounting Standards Changes

Financial Instruments

The Company adopted the following new Handbook Sections effective January 1, 2007:

1) Section 1506, Accounting Changes;

2) Section 1530, Comprehensive Income;

3) Section 3251, Equity

4) Section 3855, Financial Instruments - Recognition and Measurement; and

5) Section 3861, Financial Instruments - Disclosure and Presentation

These new accounting standards provide requirements for the recognition and measurement of financial instruments. These standards have been adopted prospectively with no restatement of the comparative interim consolidated financial statements.

Disclosure Controls and Internal Control Over Financial Reporting

The Chief Executive Officer and Chief Financial Officer evaluated the design and implementation of the Company's internal control over financial reporting and have concluded that the design of internal control over financial reporting is sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. It should be recognized that while the Chief Executive Officer and Chief Financial Officer believe the Company's internal controls over financial reporting provide reasonable level of assurance, they do not expect that these controls will prevent all errors and fraud. A control system can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

The preparation of disclosure documents is supported by a set of disclosure controls and procedures under management's responsibility. This control structure was reviewed and the effectiveness of its design and operation was evaluated. The evaluation confirmed the effectiveness of the design and operations of disclosure controls and procedures. The evaluation was conducted in accordance with the requirements of Multilateral Instrument 52-109 of the Canadian Securities Administrators.

Risks

The business of Cyries is subject to certain risks. Prior to making any investment decision regarding Cyries investors should carefully consider, among other things, the risks described under the heading "Risks and Uncertainties" set forth in Cyries Management's Discussion and Analysis (the "Annual MD&A") for the year ended December 31, 2006 and under the heading "Risk Factors" in the Annual Information Form of Cyries (the "AIF") for the year ended December 31, 2006. These risk factors are incorporated by reference herein.

Cyries' Annual MD&A and AIF can be located at www.sedar.com or www.cyries.com. To the extent investors do not have access to the internet, copies of the Annual MD&A can be obtained on request without charge by contacting Cyries at (403) 262-9609 at 3200, 500 - 4th Avenue S.W., Calgary, Alberta T2P 2V6.



Cyries Energy Inc.
Consolidated Balance Sheets
---------------------------------------------------------------------------
(unaudited, $000) As at September 30, As at December 31,
2007 2006
---------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 25,949 27,856
Deposits, prepaid expenses and other 3,597 3,100
---------------------------------------------------------------------------
29,546 30,956

Property and equipment, net (note 4) 450,927 420,704

Goodwill 89,052 90,393
---------------------------------------------------------------------------

569,525 542,053
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities 47,086 62,127
Income taxes payable - 896
Revolving demand loan (note 5) 103,378 79,867
---------------------------------------------------------------------------
150,464 142,890

Future income tax liability (note 6) 47,493 37,710
Asset retirement obligations (note 10) 20,591 18,178
---------------------------------------------------------------------------
Total liabilities 218,548 198,778
---------------------------------------------------------------------------

Shareholders' Equity
Share capital (note 7) 314,035 310,186
Contributed surplus (note 8) 10,511 7,350
Retained earnings 26,431 25,739
---------------------------------------------------------------------------
350,977 343,275
---------------------------------------------------------------------------

569,525 542,053
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes



Cyries Energy Inc.
Consolidated Statements of Earnings (Loss), Comprehensive Income and
Retained Earnings
---------------------------------------------------------------------------
Three months ended Nine months ended
(unaudited, $000, September September September September
except per share amounts) 30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------

Revenue
Petroleum and natural
gas sales 41,861 32,351 135,104 101,589
Royalties (net of Alberta
Royalty Tax Credit) (9,432) (7,384) (29,941) (24,739)
---------------------------------------------------------------------------
32,429 24,967 105,163 76,850
Other income 86 241 194 317
---------------------------------------------------------------------------
32,515 25,208 105,357 77,167
---------------------------------------------------------------------------

Expenses
Production 8,130 6,024 26,288 17,231
Transportation 1,084 1,107 3,477 3,347
General and administrative 1,607 909 5,197 2,692
Interest 1,729 1,262 5,106 2,865
Stock compensation 1,167 1,147 3,275 3,716
Depletion, depreciation
and accretion 20,224 12,981 59,200 38,368
---------------------------------------------------------------------------
33,941 23,430 102,543 68,219
---------------------------------------------------------------------------

Earnings (loss) before taxes (1,426) 1,778 2,814 8,948

Taxes
Current income tax
expense (recovery) (45) (5) 823 (848)
Future income tax
expense (recovery) (491) 553 1,299 426
---------------------------------------------------------------------------
(536) 548 2,122 (422)

Net earnings (loss) (890) 1,230 692 9,370
Other comprehensive
income (note 2) - - - -
---------------------------------------------------------------------------
Comprehensive income (890) 1,230 692 9,370

Retained earnings, beginning
of period 27,321 24,523 25,739 16,383
Retained earnings, end
of period 26,431 25,753 26,431 25,753
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings per share (note 9)
Basic (0.02) 0.03 0.01 0.24
Diluted (0.02) 0.03 0.01 0.21
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted average common shares
outstanding (note 9)
Basic 50,517 40,987 50,234 39,846
Diluted 54,163 44,942 54,053 43,848
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes



Cyries Energy Inc.
Consolidated Statements of Cash Flows
---------------------------------------------------------------------------
Three months ended Nine months ended
(unaudited, $000) September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------

Operating Activities
Net earnings (loss) (890) 1,230 692 9,370
Items not affecting cash
Depletion, depreciation
and accretion 20,224 12,981 59,200 38,368
Future income tax
expense (recovery) (491) 553 1,299 426
Gain on investment - (200) - (200)
Stock compensation 1,167 1,147 3,275 3,716
---------------------------------------------------------------------------
20,010 15,711 64,466 51,680
Asset retirement expenditures - - (221) (144)
Net changes in non-cash
operating working
capital (note 11) 6,487 1,640 (956) (976)
---------------------------------------------------------------------------
26,497 17,351 63,289 50,560
---------------------------------------------------------------------------

Financing Activities
Issue of common shares - 23,036 12,000 23,036
Issue of common shares on
exercise of options - 107 223 172
Issue of common shares on
exercise of warrants 60 - 60 6
Share issue costs - (800) (65) (800)
(Decrease) increase in
bank debt (12,873) (14,444) 23,511 43,101
---------------------------------------------------------------------------
(12,813) 7,899 35,729 65,515
---------------------------------------------------------------------------

Investing Activities
Additions to property
and equipment (26,786) (37,661) (88,728) (116,563)
Disposition of property
and equipment - 716 1,940 867
Net changes in non-cash
investing working
capital (note 11) 13,102 11,695 (12,230) (379)
---------------------------------------------------------------------------
(13,684) (25,250) (99,018) (116,075)
---------------------------------------------------------------------------

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

Cash, end of period - - - -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended September 30, 2007
(All numbers in thousands except per share amounts, unaudited)


1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Cyries was incorporated under the Business Corporations Act (Alberta) on May 20, 2004 and commenced operations July 2, 2004. Cyries is engaged in the exploration, development and production of crude oil and natural gas in the province of Alberta. The Company is traded on the Toronto Stock Exchange under the symbol CYS.

These interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), using the same accounting policies as those set out in note 2 to the consolidated financial statements for the year ended December 31, 2006 except for the changes discussed in note 2 below. The disclosures in these interim consolidated financial statements are incremental to those included in the annual consolidated financial statements and certain disclosures which are required to be included in the notes to the annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006.

2. CHANGES IN ACCOUNTING POLICIES

The Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3855, Financial Instruments - Recognition and Measurement; Section 1530, Comprehensive Income, Section 3861 Financial Instruments - Disclosure and Presentation and Section 3251, Equity on January 1, 2007.

Under the new standards, financial assets and financial liabilities are initially recognized at fair value and are subsequently accounted for based on their classification. The classification depends on the purpose for which the financial instruments are acquired and their characteristics and is not changed subsequent to the initial recognition. The financial instruments must be classified into one of the following categories: held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities as defined by the standard.

The Company's financial instruments recognized in the balance sheet consists of accounts receivable, accounts payable and accrued liabilities, income taxes payable, revolving demand loan and asset retirement obligation. Accounts receivable is designated as loans and receivables. Accounts payable and accrued liabilities, income taxes payable, revolving demand loan and asset retirement obligation are designated as other liabilities. The fair value of these instruments approximate their carrying amounts due to their short terms to maturity or the indexed rate of interest on the bank debt. All financial instruments on the balance sheet are measured at amortized cost.

The Company does not have any derivative instruments as defined under Section 3855. The Company also conducted a review of contractual agreements for embedded derivatives of which the Company has none.

The Company also adopted Section 1506, Accounting Changes which is to provide disclosure of a new source of GAAP that has been issued but is not yet effective. This is the case with Section 3862, Financial Instrument Disclosures, Section 3863, Financial Instruments Presentations and Section 1535, Capital Disclosures which are required to be adopted on fiscal years beginning on or after October 1, 2007. The Company will adopt these standards on January 1, 2008. With the adoption of Section 3862 and Section 3863, the only effect will be incremental disclosures regarding the significance of financial instruments for the entity's financial position and performance; and the nature, extent and management of risks arising from financial instruments to which the entity is exposed. Section 1535 requires entities to disclose their objectives, policies and processes for managing capital as well as disclosing externally imposed capital requirements.

The financial statements have been revised to include the newly required addition of comprehensive income.

3. CORPORATE ACQUISITIONS

Dual Exploration Inc.

Pursuant to a take-over bid, Cyries acquired Dual Exploration Inc. ("Dual") whereby Dual shareholders received 0.167 of a Cyries share for each Dual share outstanding for an aggregate of 5,767 Cyries shares. As of November 30, 2006, 89 percent of the outstanding shares of Dual had been tendered to the bid and the bid was extended to December 11, 2006. An additional 4 percent of the Dual shares were tendered to the bid as of December 11, 2006 and the bid was allowed to expire in accordance with its terms. As more than 90 percent of the Dual shares were tendered to the bid Cyries acquired the remaining Dual shares pursuant to the compulsory acquisition procedures under the Business Corporations Act (Alberta) on December 12, 2006.

The acquisition was funded by the issuance of common shares. The trading price ascribed to the common shares of $10.72 per share is based on the trading prices of Cyries common shares on the five day period surrounding the announcement of the acquisition.

The acquisition was accounted for using the purchase method. The purchase equation is based on management's best estimate of the fair values of the assets and liabilities of Dual as at November 30, 2006 and is subject to adjustment.



---------------------------------------------------------------------------
Amount
---------------------------------------------------------------------------
Consideration:
Common shares $ 61,826
Transaction costs 590
---------------------------------------------------------------------------
62,416
Allocated to:
Current assets 10,467
Current liabilities (8,584)
Bank debt (9,073)
---------------------------------------------------------------------------
(7,190)

Property, plant and equipment 55,448
Goodwill 20,618
Asset retirement obligations (2,869)
Future income taxes (3,591)
---------------------------------------------------------------------------
$ 62,416
---------------------------------------------------------------------------
---------------------------------------------------------------------------



4. PROPERTY, PLANT AND EQUIPMENT

---------------------------------------------------------------------------
September 30, 2007 December 31, 2006
---------------------------------------------------------------------------
Petroleum and natural gas
property and equipment $ 593,931 $ 506,193
Other 888 241
---------------------------------------------------------------------------
594,819 506,434
Accumulated depletion and depreciation (143,892) (85,730)
---------------------------------------------------------------------------
Net book value $ 450,927 $ 420,704
---------------------------------------------------------------------------
---------------------------------------------------------------------------


In determining the Company's depletion and depreciation, $21,057 of costs related to unproved properties (2006 - $20,020) and $20,043 of estimated salvage value (2006 - $14,474) was excluded from the costs subject to depletion. Future development costs required to complete wells for which proved reserves have been assigned of $9,739 (2006 - $4,711) were added to the Company's net book value for purposes of the depletion calculation.

5. REVOLVING DEMAND LOAN

The Company has a demand revolving operating credit facility provided by a syndicate of Canadian banks. The credit facility is limited to $160 million and provides that advances may be made by way of direct advances or bankers' acceptances. Direct advances bear interest at the bank's prime lending rate plus a variable rate and bankers' acceptances bear interest at the applicable bankers' acceptances rate plus a variable rate stamping fee. The variable rate charged by the bank is dependent upon the Company's debt to trailing cash flow ratio. In the third quarter of 2007, the average interest rate on outstanding borrowings, including stamping fees, was 6.00 percent (September 2006 - 5.49 percent). The credit facility is subject to periodic review and is secured by a $250 million demand fixed and floating charge debenture over all of the Company's assets.

6. FUTURE INCOME TAXES

In February 2007 the Company renounced $21,048 relating to CEE flow-through shares issued in 2006 and $6,988 relating to CDE flow-through shares issued in 2006. The related future income tax liability of $8,503 was recognized in the nine months ended September 30, 2007.

7. SHARE CAPITAL

Authorized

At September 30, 2007, the Company had authorized an unlimited number of common shares, an unlimited number of preferred shares, 3,988 warrants and 605 Class B performance shares.

Issued

The Company had the following shares outstanding at September 30, 2007:



---------------------------------------------------------------------------
Number of
Common Shares Shares Amount
---------------------------------------------------------------------------
Common shares December 31, 2006 49,497 $ 308,761
Exercise of stock options 33 321
Exercise of performance shares 20 16
Exercise of warrants 37 74
Flow-through share issue 967 12,000
Share issue costs - (65)
Tax effect of share issue costs - 20
Tax effect of flow-through share issuance - (8,503)
---------------------------------------------------------------------------
Common shares September 30, 2007 50,554 $ 312,624
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Number of
Warrants Warrants Amount
---------------------------------------------------------------------------
Balance - December 31, 2006 3,944 $ 1,419
Exercise of warrants (37) (14)
---------------------------------------------------------------------------
Balance - September 30, 2007 3,907 1,405
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Number of
Performance
Performance Shares Shares Amount
---------------------------------------------------------------------------
Balance - December 31, 2006 552 $ 6
Exercise of performance shares (24) -
---------------------------------------------------------------------------
Balance - September 30, 2007 528 6
---------------------------------------------------------------------------
---------------------------------------------------------------------------


On March 14, 2007, the Company issued 443 CEE flow-through shares and 524 CDE flow-through shares through a private placement. The CEE flow-through shares were issued at a price of $13.55 per share and the CDE flow-through shares were issued at $11.45 per share, for total proceeds of $12,000. The purchasers of CEE flow-through shares will be entitled to renunciations of Canadian exploration expenses in an amount equal to the subscription amount from the Company, while purchasers of the CDE flow-through shares will be entitled to renunciations of Canadian development expenses in an amount equal to the subscription amount from Cyries.

At September 30, 2007 the Company had no outstanding CEE or CDE flow-through share commitments.

Share capital includes common shares of $312,624, warrants of $1,405 and performance shares of $6 for a total of $314,035.

8. STOCK BASED COMPENSATION

The Company accounts for its stock based compensation plan (the "Plan") using the fair value method. Under this method, a compensation cost is charged over the vesting period for stock options and Class B performance shares with a corresponding increase to contributed surplus.

Stock option activity related to the Plan was as follows:



---------------------------------------------------------------------------
September 30, 2007 September 30, 2006
---------------------------------------------------------------------------
Weighted Weighted
Number of Average Number of Average
Options Price ($) Options Price ($)
---------------------------------------------------------------------------
Opening balance 3,799 $ 12.06 1,672 10.25
Granted 788 9.84 1,785 13.24
Exercised (33) 6.80 (24) 7.30
Cancelled (127) 12.91 (10) 13.42
---------------------------------------------------------------------------
Closing balance 4,427 11.68 3,423 11.82
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Plan is for the benefit of employees, officers and directors. Stock options granted under the Plan vest over a four year period with 20 percent of the options vesting immediately upon grant and a further 20 percent vesting upon each anniversary date. The options expire, if unexercised, five years from the date of the initial grant.

The following table provides additional information on the stock options outstanding as at September 30, 2007:



---------------------------------------------------------------------------
Range of Weighted Weighted
Exercise Average Average
Prices Number of Exercise Contractual Options
($/ share) Options Price Life Exercisable
---------------------------------------------------------------------------
5.21 - 9.24 748 $ 6.66 3.4 355
10.40 - 13.76 3,316 12.47 3.6 1,235
14.51 - 16.60 363 14.72 3.3 136
---------------------------------------------------------------------------
5.21 - 16.60 4,427 $ 11.68 3.6 1,726
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The fair value of each stock option granted for the nine months ended September 30, 2007 was estimated on the date of grant using the Black-Scholes model. The weighted average fair value of the stock options granted in the period was $3.71 per share, using an average risk-free interest rate of 3.3 percent, average volatility of 40 percent and an expected life of 4.5 years. The Company has not re-priced any stock options.

For the period ended September 30, 2007, $3,206 of expense related to the stock options, net of reversals due to cancellations, and $69 of expense related to the performance shares is included in stock compensation expense.

The following table reconciles the Company's contributed surplus:



---------------------------------------------------------------------------
Three months ended Nine months ended
---------------------------------------------------------------------------
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
Contributed surplus,
beginning of period $ 9,360 $ 5,053 $ 7,350 $ 2,512
Stock based compensation
expense 1,222 1,147 3,563 3,726
Exercise of stock options - (47) (98) (75)
Exercise of performance shares (16) - (16) -
Cancellation of stock options (55) - (288) (10)
---------------------------------------------------------------------------
Carrying amount, end of period $ 10,511 $ 6,153 $ 10,511 $ 6,153
---------------------------------------------------------------------------
---------------------------------------------------------------------------



9. PER SHARE AMOUNTS

The following table details the components of diluted common shares
outstanding:

---------------------------------------------------------------------------
Three months ended Nine months ended
Weighted average September September September September
common shares 30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
Basic 50,517 40,987 50,234 39,846
Warrants 3,211 3,436 3,353 3,468
Performance shares 435 519 466 524
---------------------------------------------------------------------------
Diluted 54,163 44,942 54,053 43,838
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The calculation of diluted common shares excludes 4,427 (2006 - 3,423) of stock options that are anti-dilutive.

10. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligations were estimated by management based on the Company's net ownership interest in all wells and facilities, estimated costs to reclaim and abandon the wells and facilities and the estimated timing of the costs to be incurred in future periods. The Company has estimated the net present value of its asset retirement obligations to be $20,591 as at September 30, 2007 (2006 - $14,767) based on a total future liability of $47,970 (2006 - $36,526). Asset retirement expenditures are expected to be made over the next 25 years with the majority of costs to be incurred by 2020. The Company used a credit adjusted risk free rate of seven percent (2006 - seven percent) and an inflation rate of two percent (2006 - two percent) to calculate the present value of the asset retirement obligations. The following table reconciles the Company's total asset retirement obligations.



---------------------------------------------------------------------------
Nine months ended Year ended
September September December
30, 2007 30, 2006 31, 2006
---------------------------------------------------------------------------
Balance, beginning of period $ 18,178 $ 12,440 $ 12,440
Increase in liabilities 571 1,521 1,922
Liabilities settled (221) (144) (197)
Acquisitions 2,281 85 (178)
Dispositions (1,351) - 2,954
Revisions 96 146 239
Accretion 1,037 719 998
---------------------------------------------------------------------------
Carrying amount, end of period $ 20,591 $ 14,767 18,178
---------------------------------------------------------------------------
---------------------------------------------------------------------------



11. SUPPLEMENTAL CASH FLOW INFORMATION

Three months ended Nine months ended
Changes in non-cash September September September September
working capital 30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
Accounts receivable $ 5,809 $ 836 $ 3,249 $ 7,518
Prepaid expenses and deposits (413) 72 (497) (795)
Accounts payable and
accrued liabilities 14,193 12,427 (15,938) (8,078)
---------------------------------------------------------------------------
Net change in non-cash
working capital $ 19,589 $ 13,335 $(13,186) $ (1,355)
Investing activities 13,102 11,695 (12,230) (379)
---------------------------------------------------------------------------
Operating activities $ 6,487 $ 1,640 $ (956) $ (976)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Company made the following cash outlays in respect of interest expense and current income taxes:



Three months ended Nine months ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
Interest $ 1,915 $ 1,267 $ 5,150 $ 2,996
Income taxes $ 64 $ 961 $ 1,851 $ 2,243
---------------------------------------------------------------------------
---------------------------------------------------------------------------


12. RELATED PARTY TRANSACTIONS

The Company was involved with the following related party transactions for the period ended September 30, 2007:

a) On March 14, 2007, the Company completed a flow-through share issuance whereby a director purchased 116 CDE flow-through shares at a price of $11.45 for total proceeds of $1,328.

b) The Company incurred $324 in legal costs to a law firm whereby the Corporate Secretary of the Company is a partner. Of the legal costs incurred throughout the period, $28 is included in accounts payable and accrued liabilities at September 30, 2007.

All related party transactions are in the normal course of operations and have been measured at the agreed exchange amounts, which is the amount of the consideration established and agreed to by the related parties and which is similar to those negotiated with third parties.

13. SUBSEQUENT EVENT

On November 2, 2007 the Company purchased the issued and outstanding shares of a Private Company in exchange for 0.6449 of a common share of Cyries and $0.21 in cash for each Private Company common share. The Company issued an aggregate of 3.1 million Cyries common shares to pay $1 million in cash and to assume a total of approximately $11.1 million in the Private Company's debt and transaction costs to complete the acquisition.

CONFERENCE CALL

A conference call is scheduled to review the third quarter 2007 results of Cyries Energy on Thursday, November 8, 2007 at 9:00 a.m. (MT) / 11:00 a.m. (ET).

The conference call can be accessed by dialing in 15 minutes prior to the scheduled start to:

1 - 866 - 542 - 4238 or 1 - 416 - 641 - 6127

(A playback recording of the conference call will be available for seven days and can be access by calling 1-800-408-3053 or 1-416-695-5800 (password 3239277).)

A live webcast will be provided on www.cyries.com.

Cyries Energy is a publicly traded Canadian energy company involved in the exploration, development and production of natural gas and crude oil in western Canada. Its common shares trade on the TSX under the "CYS".

This news release shall not constitute an offer to sell or the solicitation of any offer to buy securities in any jurisdiction. The Cyries common shares have not been nor will be registered under the United States Securities Act of 1933, and they may not be offered or sold in the United States absent registration or an exemption from registration.

This news release contains forward-looking statements. Forward-looking statements are based on current expectations that involve a number of risks and uncertainties which could cause actual events or results to differ materially from those reflected in this news release. These risks and uncertainties include, among other things, changes in general economic, market and business conditions; changes or fluctuations in production levels, commodity prices, currency exchange rates, capital expenditures, reserves or reserves estimates and debt service requirements; changes in legislation; Cyries' ability to comply with current and future environmental or other laws; Cyries' success at the acquisition, exploitation and development of reserves; actions by governmental or regulatory authorities including increasing taxes or other regulations; and the occurrence of unexpected events involved in the operation and development of oil and gas properties. Forward-looking statements are based on the estimates and opinions of Cyries' management at the time the statements were made. Unless required by applicable law, Cyries assumes no obligation to update forward-looking statements should circumstances or management's estimates change.

The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Cyries Energy Inc.
    Donald F. Archibald
    Chairman & C.E.O.
    (403) 262-9609
    (403) 262-0055 (FAX)
    Website: www.cyries.com