E4 Energy Inc.
TSX VENTURE : EFE

E4 Energy Inc.

May 30, 2006 07:00 ET

E4 Energy Announces First Quarter 2006 Results

CALGARY, ALBERTA--(CCNMatthews - May 30, 2006) - E4 Energy Inc. (TSX VENTURE:EFE) ("E4" or the "Company") is pleased to report its results of the first quarter of 2006. E4 has all the key elements needed for success as a growing junior exploration and production company.

President's Letter to Shareholders

Through the first quarter of 2006 E4 continued with its strategic business plan conforming to today's very active and competitive oil and gas business. Since the business combination of SouthPoint Resources Ltd. and P3 Energy Ltd. in August 2005, important changes have been executed by the Company providing significant future growth potential. Combining quality assets with the October 2005 $10.3 million financing, the new Company was financially restructured to have no debt and a large portfolio of exploration and development opportunities. Today the Company is poised to grow through the drill bit and yet be financially capable to compliment the business with strategic acquisitions. Over the past eight months, E4's undeveloped land base has more than doubled to over 80,000 net acres. Presently, E4 is well positioned for growth with high quality production, a large undeveloped land base, a strong inventory of drilling prospects and an excellent balance sheet.

Corporate Highlights for Q1

- First quarter production averaged 804 boe/d, a 10 percent increase over Q4 of 2005 and a 30 percent increase since the business combination of P3 Energy Ltd. and SouthPoint Resources Ltd.

- E4 drilled 3 wells (2.1 net) during the quarter for a 100 percent success rate leading to several follow up locations.

- E4 initiated its Chain CBM project with the successful recompletion of 3 wells.

- Acquired 2.5 sections (1,633 net acres) of land in N.E. British Columbia and 20.5 sections (13,135 net acres) of land in Alberta.

- E4 realized further decrease in operating costs to $10.59/boe (including transportation).

- In March a new compressor facility was installed at Airport to stabilize daily production and provide for additional production from the area.

- Two large 3-D seismic programs were shot in the greater Richdale area.

- At the end of the first quarter E4 had a debt to cash flow ratio of less than 1.0. In the second quarter, E4 expects an increase in the Company's credit facility from $10 million to approximately $16 million with its current banker.

- Continued the development of new exploration plays and drilling prospects on newly acquired land with the in-depth integration of geology, engineering and geophysics.



Some of E4's achievements for the first quarter of 2006 include:

Financial Highlights
Three Months Ended March 31,
(all amounts in Cdn $ ----------------------------
except common share data) 2006 2005
----------------------------
Petroleum and natural gas revenue 3,811,811 4,492,572
Per share - basic 0.098 0.199
- diluted 0.098 0.199
Funds flow from operations 1,838,127 2,311,139
Per share - basic 0.047 0.102
- diluted 0.047 0.102
Net earnings (loss) (771,771) 627,351
Per share - basic (0.020) 0.028
- diluted (0.020) 0.028
Capital expenditures 7,596,382 3,273,040
Net debt 6,336,363 13,364,961
Shareholders' equity 38,557,526 15,653,240
Total Assets 58,126,224 37,955,051
Common share data:
Weighted average basic 38,752,450 22,577,404
Weighted average diluted 38,752,450 22,605,635
Issued and outstanding 38,754,672 22,577,404

Operating Highlights Three Months Ended March 31,
----------------------------
(6:1 boe conversion) 2006 2005
----------------------------
Average daily production
Natural gas (mcf/d) 3,171 2,481
Liquids (Oil & NGLs) (bbls/d) 275 486
Oil equivalent (boe/d) 804 900
Production (boe/d) per million shares 21 40
Average sales price (after hedging):
Natural gas ($/mcf) 7.73 8.18
Liquids (Oil & NGLs) ($/bbl) 64.72 60.72
Oil equivalent ($/boe) 52.67 55.46
Wells drilled - gross (net):
Gas 2 (1.5) -
Oil 1 (0.6) -
Suspended - -
D & A - 1 (1.00)
Other - -
Total 3 (2.1) 1 (1.00)


Note:
(1) Funds flow from operations is a non-GAAP measure and represents net
earnings before the depletion, depreciation, stock-based
compensation, future income taxes, accretion expense and other
non-cash expenses.

(2) When comparing the corporate production from 2005 to 2006, it is
important to note that in Q1 2005, SouthPoint Resources Ltd. Had
significant new flush production from its two largest producing
areas.


First Quarter Operating Review and Second Quarter Update

Realizing the very active oil and gas business environment, E4 set out to "get ready" the majority of the Company's 2006 active drilling program. E4's 2006 Capex budget was set at $20 million which included the drilling of 28 (25 net) wells on both exploration and development. As of today, E4 has drilled 3 wells in Q1 for a 100% success rate, drilled 6 wells so far in Q2 and presently has three drilling rigs in operation. The Company has more than 18 drilling locations ready to go and an additional 4 more locations waiting on approvals.

In Provost, Alberta a successful well was drilled in Q1 as part of a three well farm-in commitment. The well delineated a new oil pool discovery and provides E4 with several follow up locations on the eastern land block. A follow up horizontal drilling location is planned for the third quarter of this year. Continuing into Q2, 2 wells have recently been drilled and cased as part of an 8 well development drilling program on the western land block. A third well is presently being drilled.

In southeast Alberta, E4's first well (100%) was drilled successfully in Q1 on the company's new shallow gas play. This was followed up by 3 additional wells being recently drilled in Q2. More drilling will be necessary in this area before the wells can be tied in on a project basis. E4 has been successful in acquiring more land on this play trend.

In the Chain/Mikwan area, E4 re-entered three existing wells to complete and test the Horseshoe Canyon coal formation for CBM potential. The project was successful and 2 wells are presently producing at rates of approximately 125 mcf/d per well. For further development, the Company plans to drill 9 more CBM wells in Q3. With success in the area, the future production adds would be expected to be tied in by late summer.

In the Tony Creek area of Alberta a well drilled successfully in January at a 50 percent working interest is expected to be tied in by the end of July for approximately 40 boe/d net.

In the Airport area of N.E. British Columbia a well (100% W.I.) was drilled and cased as a potential gas well just before breakup. A second well has very recently been drilled and cased for multizone potential. Both wells are expected to be completed and tested shortly.

Business Outlook

In just nine months of operations under the new business combination the Company has made significant strides. All of the corporate growth has come from internally generated plays, drill bit activity and land acquisitions.

In a very active oil and gas business environment, E4 has been able to assemble a large, balanced portfolio of lower risk/development growth projects with a suite of higher risk/higher reward drillable exploration prospects. The Company plans to drill up to 15 gross wells in the second quarter and continuing through Q3 and Q4.

E4 will continue to grow the company not only in production but the future opportunity base with the continual addition of internally generated prospects. Over the last 8 months, the net owned undeveloped land position has increased from approximately 39,000 acres in September 2005 to over 80,000 acres by May 2006.

At this time, the industry has seen natural gas prices decline by approximately 50 percent from their mid-December highs. From this, industry activity levels may be significantly impacted by the weaker prices. Presently, E4 is continuing with the execution of its $20 million capital investment plan.



On behalf of the Board of Directors,

Paul Starnino
President and Chief Executive Officer
May 29, 2006


This document contains forward looking statements, including statements relating to management's approach to the number of wells, amount and timing of capital projects, interest rates, worldwide and industry production, prices of oil and natural gas, Company production, cash flow and debt levels. These forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The reader is cautioned that assumptions used in preparation of such information, although considered reasonable by E4 Energy Inc. at the time of preparation, may prove to be incorrect.

Management's Discussion and Analysis ("MD&A")

The following discussion is intended to assist the reader in understanding E4's business and the results of operations and financial condition. The Company's interim MD&A should be read in conjunction with E4's audited consolidated financial statements for the year ended December 31, 2005 and E4's financial statements for the interim period ended March 31, 2006.

Description of Company - E4 Energy Inc., formerly known as SouthPoint Resources Ltd., is an independent, emerging crude oil and natural gas company actively engaged in the exploration for, development and production of natural gas and crude oil reserves in the provinces of Alberta and British Columbia, Canada. The Company is subject to the provisions of the Canada Business Corporations Act and its common shares are publicly listed and traded on the TSX Venture Exchange under the symbol "EFE".

Non-GAAP Measures - The MD&A contains the term "funds generated from operations" and "netbacks" which are non-GAAP terms. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds generated from operations to analyze operating performance and leverage and considers funds generated from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds generated from operations should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Therefore references to funds generated from operations or funds generated from operations per share (basic and diluted) may not be comparable with the calculation of similar measures for other entities. The reconciliation between earnings and funds generated from operations can be found in the statements of cash flows in the annual and interim financial statements. Funds generated from operations per share are calculated using the basic and diluted weighted average number of shares for the period.

Boe presentation - Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet ("mcf") of natural gas to one barrel ("bbl") of crude oil. All amounts are reported in Canadian dollars, unless otherwise stated.

Forward-Looking Information - Certain sections of the MD&A include information regarding E4 that may constitute forward-looking statements within the meaning of applicable securities laws. These forward-looking statements typically contain words such as "anticipates", "believes", "estimates", "expects", "targets" or similar words indicating that future outcomes are uncertain. Although E4 believes these forward-looking statements are reasonable, it can give no assurance that they will prove to have been correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

This MD&A includes information up to and including May 25, 2006.



SELECTED QUARTERLY INFORMATION

The financial data presented below has been presented in accordance
with GAAP.

------------------------------------------------------------------------
2006 2005 2004
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2

Operational Results

Production
- Natural
gas
(mcf/d) 3,171 2,848 2,248 2,280 2,481 1,694 1,343 1,290
- Crude
oil and
NGLs
(bbls/d) 275 248 249 296 486 376 179 125

- Total
production
(boe/d) 804 723 624 676 900 658 403 340

Pricing
- Natural
gas
($/mcf) 7.73 12.28 9.79 7.47 8.18 7.09 6.68 7.36
- Crude
oil
($/bbl) 64.72 67.63 71.78 63.01 60.72 55.76 54.10 47.68

- Total
production
($/boe) 52.67 71.61 63.95 53.18 55.46 50.26 47.30 40.44

Selected Financial Results ($ thousands)

Petroleum
and
natural
gas
revenue 3,812 4,768 3,670 3,271 4,493 3,049 1,754 1,251

Royalties 840 880 592 550 728 270 60 143

Operating
expenses
and
transpor-
tation 766 774 676 890 1,016 612 381 385

General
and
administrative
expenses 752 775 968 523 419 436 380 346

Funds
generated
from
operations 1,838 2,752 1,500 1,144 2,312 1,484 839 339

Depletion,
depreciation
and
accretion
expense 2,287 2,254 1,563 1,506 2,040 1,336 1,620 1,159

Net
earnings
(loss) (771) 409 (310) (422) 627 818 (1,347) (768)

- Basic
per
share (0.02) 0.01 (0.01) (0.02) 0.03 0.04 (0.06) (0.04)
- Diluted
per
share (0.02) 0.01 (0.01) (0.02) 0.03 0.04 (0.06) (0.04)

Capital
spending 7,596 4,458 2,310 871 3,273 4,837 4,390 1,106

Total debt
and working
capital
deficiency
(surplus) 6,337 796 9,289 12,992 13,365 12,281 10,369 7,830

Shareholder's
Equity 38,557 40,446 29,067 15,304 15,653 15,396 12,949 14,181

Common
shares
outstanding
(000's) 38,755 38,671 33,624 22,577 22,577 22,577 21,684 21,684


Petroleum and Natural Gas Production

During the first quarter of 2006 ("Q1 2006"), E4's daily marketable production decreased 11 percent from the same quarterly period in 2005 ("Q1 2005"). On a per boe basis, Q1 2006 production was 804 boe per day, as compared to the 900 boe per day reported in Q1 2005.

On a percentage basis, Q1 2006 natural gas production increased 28 percent from Q1 2005. Marketable natural gas production for Q1 2006 averaged 3,171 mcf per day, compared to 2,481 mcf per day for Q1 2005. This increase is attributable to the Company's successful natural gas drilling in the second half of 2005 in the Richdale area of Alberta, which was not part of E4's production portfolio in Q1 2005.

Liquids production, including crude oil and natural gas liquids ("NGLs"), averaged 275 bbls per day in Q1 2006 and 486 bbls per day in Q1 2005. This decrease of 43 percent is due in large part to volumes that are now shut-in in the Laprise area of British Columbia, due to the British Columbia Oil and Gas Commission's ongoing review of Good Engineering Practice ("GEP"). These shut-in volumes continue to be reviewed by the British Columbia Oil and Gas Commission.



The following table highlights E4's production profile:

Average Daily Production
----------------------------------------
Crude Oil Combined Oil
Natural Gas & NGLs Equivalent
----------------------------------------
(mcf/d) (bbls/d) (boe/d)

Q1 2005 2,481 486 900
Q2 2005 2,280 296 676
Q3 2005 2,248 249 624
Q4 2005 2,848 248 723

Q1 2006 3,171 275 804


Revenue and Commodity Pricing

E4's petroleum and natural gas revenue for Q1 2006 totalled $3.8 million, comprised of $2.2 million of natural gas sales and $1.6 million of crude oil and NGL sales. In Q1 2005, E4 reported natural gas sales of $1.8 million and crude oil and NGL sales of $2.7 million, for total sales of $4.5 million.

The lower total sales in Q1 2006 as compared to Q1 2005 was due partially to lower production levels and partially to lower natural gas prices. Natural gas prices for Q1 2006 averaged $7.73 per mcf compared to $8.18 per mcf in Q1 2005. Liquids prices for Q1 2006 were $64.72 per bbl, slightly higher than Q1 2005, when liquids prices averaged $60.72 per bbl. On a combined oil equivalent basis, Q1 2006 prices were $52.67 per boe, versus $55.46 per boe for the same period in 2005.



The following table highlights the composition of E4's revenue stream by
reporting period:

First Quarter Comparison
----------------------------------
($000s) Q1 2006 Q1 2005 % Change
----------------------------------

Natural Gas 2,210 1,827 21
Crude oil and NGLs 1,602 2,666 (40)
----------------------------------
Total 3,812 4,493 (15)
----------------------------------
----------------------------------

The following table highlights E4's corporate realized wellhead prices
and industry benchmark prices:

First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
E4 prices:
Natural gas ($/mcf) 7.73 8.18 (6)
Crude oil and NGLs ($/bbl) 64.72 60.72 7
Oil equivalent ($/boe) 52.67 55.46 (5)

WTI Cushing oil (US$/bbl) 63.48 49.90 27
Edmonton Par light oil ($/bbl) 69.11 61.58 12
Bow River medium oil ($/bbl) 51.29 38.51 33
WTI - Lloyd. blend differential
(US$/bbl) 10.26 19.53 (47)

Nymex Henry Hub gas (US$/mmbtu) 5.71 6.32 (10)
AECO natural gas - monthly index
($/mcf) 9.27 6.64 40
Currency Exchange rate (US$:C$) 0.866 0.815 6


Royalties

E4's petroleum and natural gas royalties for Q1 2006 amounted to $0.8 million, compared to $0.7 million in Q1 2005. This increase in Q1 2006 compared to Q1 2005 was due to the Company receiving no British Columbia summer drilling credits, prior period adjustments and higher royalty rates relating to production in the Provost area of Alberta in relation to E4's other producing properties. As a percentage of sales, the Q1 2006 royalty rate was 22.0 percent versus 16.2 percent for the same quarter of 2005. On a go forward basis, E4 expects an effective royalty rate of lower than 20 percent.



The following table highlights the composition of E4's royalty type by
reporting period:

($000s) First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Crown, net of ARTC 670 586 14
Freehold and overrides 170 142 20
---------------------
Total 840 728 15

Per unit ($/boe) 11.61 8.99 29
Effective royalty rate (%) 22.0% 16.2% 36


Operating Expenses

E4 had total field operating costs of $0.6 million in Q1 2006. In the aggregate, this was lower than the $0.7 million reported in the same period last year. This decrease is primarily due to E4's implementation of several programs initiated to lower operating expenses. On a per unit basis, E4 reported operating costs of $8.76 per boe in Q1 2006, compared to $8.62 for Q1 2005.



The following table highlights E4's operating expenses by reporting
period:

First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Total ($000s) 633 698 (9)

Per unit ($/boe) 8.76 8.62 2


Transportation Expenses

E4 reported transportation costs of $1.83 per boe for Q1 2006. This compares with transportation costs of $3.93 per boe for Q1 2005. This decrease is due to a new contract being in place for the trucking of E4's crude oil in Q1 2006 at much more favourable rates than the contract in place during Q1 2005.



The following table highlights E4's transportation expenses by reporting
period:

First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Total ($000s) 133 318 (58)

Per unit ($/boe) 1.83 3.93 (53)


General & Administrative Expenses ("G&A")

E4's G&A expenses for Q1 2006 amounted to $0.8 million or $10.40 per boe of production. In comparison, the Company's G&A expenses for Q1 2005 totalled $0.4 million or $5.17 per boe of production. The Company's G&A costs increased 79 percent in absolute dollars and increased 101 percent on a per unit-of-production basis. The primary driver to the higher G&A costs in Q1 2006 was non-cash stock based compensation expense. In Q1 2006, non-cash stock based compensation expense amounted to $0.4 million, which compares to $0.1 million in Q1 2005.

E4 uses the full cost method of accounting for its oil and gas operations. Accordingly, the Company capitalized employee and associated direct overhead costs of its technical personnel in the amount of $0.5 million during Q1 2006 and $0.1 million Q1 2005. E4 currently employs 11 office personnel, including six technical staff and engages the services of two consultants on a part-time basis.



The following table highlights E4's G&A expenses by reporting period:


($000s) First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Cash costs 526 363 45
Capitalized cash costs (193) (52) 271
Stock based compensation
(net of capitalization) 419 108 288
---------------------
Total 752 419 79

Per unit G&A ($/boe)
Cash costs 7.26 4.48 62
Capitalized cash costs (2.66) (0.64) 316
Stock based compensation
(net of capitalization) 5.80 1.33 336
---------------------
Total 10.40 5.17 101


Financing Charges

E4 incurred interest expenses of $0.04 million in Q1 2006. This was comprised of $0.007 million relating to bank borrowing interest charges on its outstanding debt during the period and $0.03 million associated with the federal government's levied interest charges associated with E4's 2005 flow-through share financings, specifically the unspent portion of previously renounced resource expenditure deductions. For Q1 2005, E4 had interest expense of $0.1 million and $0.05 million of financing charges on subordinated notes outstanding. On a per boe basis, Q1 2006 financing charges were $0.49 per boe, compared with $2.12 per boe in Q1 2005.



The following table highlights E4's financing charges by reporting
period:

($000s) First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Interest expense,
including Part XII.6 tax 35 127 (72)
Subordinated note accretion - 45 (100)
---------------------
Total 35 172 (80)

Per unit ($/boe) 0.49 2.12 (77)


Depletion, Depreciation and Accretion on Asset Retirement Obligation

E4's depletion and depreciation expense amounted to $2.3 million in Q1 2006, compared to $2.0 million in Q1 2005. On a unit-of-production rate basis, the depletion and depreciation provision for Q1 2006 and Q1 2005 was $31.29 per boe and $25.00 per boe, respectively. The high per unit-of-production depletion and depreciation rate for Q1 2006 is a result of an aggressive capital program. As reserves are added from this capital program, the depletion and depreciation rate should decrease considerably.

E4 reported accretion on asset retirement obligations of $0.02 million in Q1 2006 and identical figures in Q1 2005. On a per unit of production basis, accretion expense in Q1 2006 and Q1 2005, were $0.32 per boe and $0.19 per boe, respectively.



($000s) First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Depletion and depreciation $ 2,264 $ 2,025 12
Accretion on asset
retirement obligation 23 15 53
---------------------
Total 2,287 2,040 12

Per unit ($/boe) $ 31.61 $ 25.19 25


Income and Capital Taxes

E4 is presently not subject to any current income tax exposures. The Company currently has approximately $25 million in tax pools available for deduction against future taxable income (net of any projected pool usage necessary to offset Q1 2006 taxable income).

In February 2006, E4 renounced $5.2 million of qualifying expenditures in relation to its October 20, 2005 flow-through common share financing. This caused the future income tax liability to increase by $1.8 million over the balance at December 31, 2005. In addition, in Q1 2006, E4 recorded a future income tax recovery of $0.1 million to reflect the temporary differences between the net book value of the assets and the related tax pools.

Funds Generated from Operations and Net Earnings

In Q1 2006, E4 realized funds flow from operations of $1.8 million, or $0.05 per basic and diluted share. For the same period of 2005, the Company reported funds flow from operations of $2.3 million, or $0.10 per basic and diluted share. The decrease in aggregate funds flow and per share funds flow is attributable to lower production figures and lower commodity prices in 2006. On a per share basis, the decrease is due to a much different share structure in Q1 2006 compared to Q1 2005.

The Company recorded a net loss of $0.8 million in Q1 2006, or a loss of $0.02 per basic and diluted share. In Q1 2005, E4 reported net earnings of $0.6 million, or earnings of $0.03 per basic and diluted share. This decrease from Q1 2006 to Q1 2005 was due to a higher depletion and depreciation rate, higher non-cash stock based compensation, a lower recovery of future income taxes and lower commodity prices.



($000s) First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Funds flow from operations
($000s) (1) 1,838 2,311 (20)
Per share - basic ($) 0.05 0.10 (50)
Per share - diluted ($) 0.05 0.10 (50)

Net earnings (loss) ($000s) (771) 627 (223)
Per share - basic ($) (0.02) 0.03 (167)
Per share - diluted ($) (0.02) 0.03 (167)

(1) Funds flow from operations is a non-GAAP measure and represents
net earnings before depletion, depreciation, accretion on asset
retirement obligations, stock-based compensation, future income
taxes and other non-cash expenses.


Capital Expenditures

E4 invested $7.6 million in capital expenditures in Q1 2006, an increase of 130 percent from $3.3 million spent during Q1 2005. This expenditure increase was due to an expanded and accelerated drilling program, whereby E4 drilled 3 (2.1 net) wells in Q1 2006. Also, E4 acquired several parcels of land for proceeds of $1.8 million in Q1 2006. These land purchases brought E4's net undeveloped acreage to over 63,000 acres. The composition of E4's Q1 2006 capital program is outlined below:



($000s) First Quarter Comparison
----------------------------------
Q1 2006 Q1 2005 % Change
----------------------------------
Land 1,771 46 3,750
Seismic 1,012 -- n/a
Drilling & completions 3,538 2,112 68
Field facilities & equipment 805 1,063 (24)
Other (1) 193 52 271
---------------------
Total cash capital expenditures 7,319 3,273 124
Non-cash capitalized stock based
compensation 277 - n/a
---------------------
Total capital expenditures 7,596 3,273 132
---------------------
---------------------

(1) Includes office equipment, computer hardware and direct G&A.


Liquidity and Capital Resources

E4's primary sources of liquidity to meet operating expenses and fund its exploration and development capital program are derived from the Company's internally generated funds flow from operations and E4's revolving operating bank credit facility. E4 utilizes this facility to fund daily operating activities and acquisitions as needed. Because of the liquidity and capital resource alternatives available to the Company, including internally generated funds flow, E4 believes that its liquidity is sufficient to fund operating, interest and general and administrative expenses, including planned spending on exploration and development projects and undeveloped acreage necessary for long-term, profitable growth. The Company anticipates that public capital markets will serve as the principal source of capital to finance any future corporate acquisitions and/or significant property purchases. E4 has issued equity in the past, and expects that these sources of capital will continue to be available to the Company in the future for potential acquisitions.

At March 31, 2006, E4 was capitalized with cash of $1.0 million, $4.6 million of bank debt, a working capital deficiency (excluding cash) of $2.8 million and 38.8 million common shares with a book capitalization of $41.1 million and a market capitalization of $55.0 million. In comparison, at March 31, 2005, the Company was capitalized with no cash, bank debt of $6.5 million, a subordinated note payable of $1.8 million, a working capital deficiency of $5.1 million, 22.6 million common shares with a book capitalization of $18.6 million and a market capitalization of $36.1 million. The rolling four quarter debt to cash flow ratio for Q1 2006 was a very healthy 0.9 times. For the same period in 2005, the rolling four quarter debt to cash flow was 1.5 times.



($000s) Quarter-End Comparison (March 31)
---------------------------------
2006 2005 % Change
---------------------------------
Total assets 58,126 37,955 53
Working capital (surplus)/
deficiency (includes cash) 1,773 5,106 (65)
Bank debt and subordinated notes 4,564 8,259 (45)
Shareholders' equity 38,557 15,653 146


Business Risks and Uncertainties

The Company's exploration and development activities are focused in the Western Canada Sedimentary Basin within the province of Alberta, which is characterized as being highly competitive with competitors varying in size from small junior producers to significantly larger, fully-integrated energy companies possessing greater financial and personnel resources. The Company recognizes certain risks inherent in the crude oil and natural gas industry, such as finding and developing oil and natural gas reserves at economic costs, drilling risks, producing oil and natural gas in commercial quantities, environmental and safety risks, and commodity price and political risks and uncertainties. E4 has engaged professional management and technical personnel with many years of experience in the oil and gas business to address and prudently manage and mitigate these risks.

Off-Balance Sheet Arrangements and Related Party Transactions

The Company has not entered into any off-balance sheet transactions or into any related party transactions.

A director of the Company is a partner at a law firm that provides legal services to the Company. During the period ended March 31, 2006, the Company paid and accrued a total of $6,000 to this firm for legal fees and disbursements.

The Company files an Annual Information Form and certain related documentation applicable Canadian securities regulators, which provides additional information relating to the Company. This information can be retrieved electronically from the SEDAR system by accessing E4's public filings under "Search for Public Company Documents" at www.sedar.com.

Notice of Annual Meeting

E4 will hold its annual general meeting of shareholders on Thursday, June 15, 2006 at 9:00 a.m. in the Great Room 3 of the Sandman Hotel, 888 - 7th Avenue S.W., Calgary, Alberta.

The Company's interim financial statements and notes are enclosed at the end of this news release.

For further information, please refer to www.sedar.com.

Certain information regarding the Company contained herein may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other similar statements that are not statements of fact. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

In this new release, reserves and production data are commonly stated in barrels of oil equivalent ("boe") using a six to one conversion ratio when converting thousands of cubic feet of natural gas ("mcf") to barrels of oil ("bbl") and a one to one conversion ratio for natural gas liquids ("NGLs" or "ngls"). Such conversion may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.



E4 Energy Inc.
Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)

March 31, December 31,
2006 2005
----------- ------------
ASSETS

Current
Cash $ 1,026 $ 809
Accounts receivable 3,194 3,617
Prepaid expenses and deposits 165 207
----------- ------------
4,385 4,633

Property, plant and equipment 45,232 39,599
Goodwill 8,509 8,509
----------- ------------

$ 58,126 $ 52,741
----------- ------------
----------- ------------

LIABILITIES

Current
Bank facility $ 4,564 $ -
Accounts payable and accrued liabilities 6,158 5,394
Current portion of capital lease obligation - 35
----------- ------------
10,722 5,429

Asset retirement obligations 1,261 1,079
Future income tax liability 7,586 5,787
----------- ------------

19,569 12,295
----------- ------------

SHAREHOLDERS' EQUITY

Share capital (Note 3) $ 41,080 $ 42,692
Contributed surplus (Note 3) 1,861 1,532
Deficit (4,384) (3,778)
----------- ------------
38,557 40,446
----------- ------------

$ 58,126 $ 52,741
----------- ------------
----------- ------------



See accompanying notes to the interim consolidated financial statements.



E4 Energy Inc.
Consolidated Statements of Operations and Deficit
For the three month period ended March 31,
(in thousands of Canadian dollars, except per share amounts) (unaudited)

2006 2005
----------- -----------

Revenue
Petroleum and natural gas $ 3,812 $ 4,493
Royalties (840) (728)
----------- -----------

2,972 3,765

Expenses
Operating 633 698
Transportation 133 318
General and administrative (Note 3 (e)) 752 419
Financing charges 35 172
Depletion, depreciation and accretion 2,287 2,040
----------- -----------
3,840 3,647


Earnings (loss) before taxes (868) 118

Future income tax expense (reduction) (97) (509)
----------- -----------

Net earnings (loss) (771) 627

Stock options settled for cash (Note 3) 165 -

Deficit, beginning of period (3,778) (4,082)
----------- -----------

Deficit, end of period $ (4,384) $ (3,455)

Earnings (loss) per share
Basic $ (0.02) $ 0.03
----------- -----------
----------- -----------

Diluted $ (0.02) 0.03
----------- -----------
----------- -----------

See accompanying notes to the interim consolidated financial statements.



E4 Energy Inc.
Consolidated Statements of Cash Flows
For the three month period ended March 31,
(in thousands of Canadian dollars) (unaudited)

2006 2005
----------- -----------

Cash provided from (used in):

Operating activities
Net earnings (loss) $ (771) $ 627
Items not affecting cash:
Stock-based compensation 419 108
Finance charges - 45
Depletion, depreciation and accretion 2,287 2,040
Future income tax expense (reduction) (97) (509)
----------- -----------

Funds flow from operations 1,838 2,311

Change in non-cash working capital 875 257
----------- -----------
2,713 2,568
----------- -----------

Financing activities
Proceeds from stock options exercised 108 -
Settlement of stock options (168) -
Issuance of bank facility 4,564 1,392
Repayment of capital lease obligation (35) (74)
----------- -----------

4,469 1,318
----------- -----------
Investing activities
Property, plant and equipment additions (7,319) (3,273)
Change in non-cash working capital 354 (613)
----------- -----------

(6,965) (3,886)
----------- -----------

Increase in cash 217 -

Cash, beginning of period 809 -
----------- -----------

Cash, end of period $ 1,026 $ -
----------- -----------
----------- -----------

Supplemental cash flow information (Note 4)

See accompanying notes to the interim consolidated financial statements.


E4 Energy Inc.
Notes to the Interim Consolidated Financial Statements
For the 3 month period ended March 31, 2006
(Unaudited)


1. Incorporation and Nature of Operations

On February 6, 2002, E4 Energy Inc. ("E4" or "the Company") refocused its efforts to the exploration and development of petroleum and natural gas in Western Canada. On August 23, 2005, the Company changed its name from SouthPoint Resources Ltd. to E4.

2. Accounting Policies

The interim consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting policies and methods of computation as the annual consolidated financial statements of the Company as at and for the year ended December 31, 2005. The interim consolidated financial statements contain disclosures, which are supplemental to the Company's annual consolidated financial statements. Certain disclosures, which are normally required to be included in the notes to the annual financial statements, have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 2005.



3. Share Capital

a) Authorized

Unlimited number of common shares.

Unlimited number of cumulative redeemable convertible non-voting Class
A preferred shares.

Unlimited number of non-cumulative redeemable convertible non-voting
Class B preferred shares.

Unlimited number of preferred shares issued in series.

b) Issued and outstanding

Common Shares and Warrants Continuity:
--------------------------------------
($ thousands) # of shares Amount
Common shares at December 31, 2005 38,671,338 $ 42,420
Exercise of stock options 83,334 142
Tax effect on flow-through shares renounced (1,754)
--------------------------
Common shares at March 31, 2006 38,754,672 40,808

Warrants at December 31, 2005 and
March 31, 2006 666,667 272
----------
Share Capital - Total 41,080
------------------------------------------------------------------------


c) Contributed surplus

Contributed Surplus Continuity:
-------------------------------
($ thousands) Amount
Balance at December 31, 2005 1,532
Stock based compensation expense 697
Cash settlement of stock options (334)
Stock options exercised (34)
----------
Contributed surplus as at March 31, 2006 1,861
------------------------------------------------------------------------


d) Flow-through shares

On October 20, 2005, the Company issued 2,129,000 flow-through common shares at a price of $2.45 per share for gross proceeds of $5.2 million. Under the terms of the flow-through share agreement, the Company is committed to spend the gross proceeds on qualifying exploration expenditures prior to December 31, 2006. These expenditures were renounced in February 2006.

Prior to the acquisition of P3 on August 23, 2005, P3 issued flow-through shares for gross proceeds of $3.6 million. As a result of the business acquisition, the Company had assumed the obligation to spend the gross proceeds on qualifying exploration and development expenditures prior to December 31, 2006.

As at March 31, 2006, the Company had incurred $5.5 million of qualifying expenditures for the combined obligations described above.

e) Stock options

Under the Company's stock option plan, the Company may grant options to its directors, officers and/or employees to purchase common shares from the Company at a fixed price not less than the fair market value of the stock on the day preceding the grant date. The options vest at a rate of one-third on the six-month anniversary of the date of grant and a further one-third on each of the one-year and two-year anniversaries from the date of grant. The option's maximum term is five years.



The following table summarizes the information about the Company's stock
options:


------------------------------
Weighted Average
Options Exercise Price
$
------------------------------
Balance, December 31, 2005 2,748,335 1.48
Granted 1,125,000 1.75
Settled (550,001) 1.44
Exercised (83,334) 1.30
------------------------------
Balance, March 31, 2006 3,240,000 1.58
------------------------------
Number of options currently exercisable 701,667 1.48
------------------------------


The following table summarizes stock options outstanding and
exercisable under the plan at March 31, 2006.

------------------------------------------------------------------------
Options outstanding Options exercisable
------------------------------------------------------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise at period contractual exercise at period exercise
price end life (years) price ($) end price ($)
------------------------------------------------------------------------
$1.00 to
$1.49 928,000 3.86 1.10 309,334 1.10
------------------------------------------------------------------------
$1.50 to
$1.82 2,312,000 4.57 1.78 392,333 1.78
------------------------------------------------------------------------
3,240,000 4.37 1.58 701,667 1.48
------------------------------------------------------------------------


The fair-value of options granted during the period was estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions and resulting values for grants as follows:



------------------------------------------------------------------------
Three months ended Three months ended
Assumptions March 31, 2006 March 31, 2005
------------------------------------------------------------------------
Risk free interest rate (%) 3.80 4.00
------------------------------------------------------------------------
Expected life (years) 5.0 3.0
------------------------------------------------------------------------
Expected volatility (%) 75 70
------------------------------------------------------------------------
Weighted average fair value of
options granted $1.01 $0.76
------------------------------------------------------------------------


The Company recognized in the first quarter of 2006, $0.4 million of stock based compensation expense (2005 - $0.1 million). In addition, the Company capitalized $0.3 million of stock based compensation expense in the first quarter of 2006 (2005 - $nil). The expensed portion of stock based compensation is reflected on the Company's consolidated statement of operations.

In January of 2006, the Company settled and cancelled an aggregate of 550,001 outstanding vested stock options with a weighted average strike price of $1.44, with its former employees. Total proceeds of $168,167 were paid to the former employees with respect to this settlement. The excess of the grant date fair value over the cash settlement has been recorded as a decrease to the deficit.

f) Earnings (loss) per share

The weighted average number of common shares outstanding during the three-month period ended March 31, 2006 used in computing basic and diluted loss per share was 38,752,450. The weighted average number of common shares outstanding during the three-month period ended March 31, 2005 used in computing basic and diluted earnings per share were 22,577,404 and 22,605,635, respectively.



4) Supplemental Cash Flow Information

a) Increase (decrease) in non-cash working capital items

Three Months Ended
($ thousands) March 31, 2006
------------------------------------------------------------------------
Change in non-cash working capital:
Accounts receivable and other current assets 465
Accounts payable and accrued liabilities 764
--------------------
1,229
--------------------
--------------------
Changes in non-cash working capital related to:
Operating activities 875
Investing activities 354
--------------------
1,229
--------------------
--------------------


b) Other cash flow information Three Months Ended
($ thousands) March 31, 2006
------------------------------------------------------------------------
Interest paid 7



The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this news release.

Contact Information

  • E4 Energy Inc.
    Paul Starnino
    President and Chief Executive Officer
    (403) 266-6747
    Email: pstarnino@e4energy.ca
    or
    E4 Energy Inc.
    Franco Civitarese
    Vice President, Finance and Chief Financial Officer
    (403) 266-6740
    Email: fcivitarese@e4energy.ca
    or
    E4 Energy Inc.
    540, 840 - 6th Avenue S.W.
    Calgary, Alberta, T2P 3E5
    (403) 266-6740
    (403) 266-6747 (FAX)
    Website: www.e4energyinc.ca