Endev Energy Inc.
TSX : ENE

Endev Energy Inc.

May 15, 2006 07:00 ET

Endev Energy Inc. Announces 2006 First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 15, 2006) -

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

(All amounts are in Canadian dollars unless stated otherwise)

Endev Energy Inc. (TSX:ENE) is pleased to announce financial and operating results for the three months ending March 31, 2006.

Highlights of the first quarter of 2006 include:

- Cretaceous - Mannville oil and gas drilling success at Majorville;

- Negotiated two significant farm-in agreements in Provost, Alberta and Admiral, Saskatchewan;

- 100 percent success rate on the drilling of 20 gross (12.1 net) wells.



HIGHLIGHTS Three months ended March 31
2006 2005 % change
------------------------------------------------------------------------
Financial
($000's, except per share amounts)
Gross revenue 16,219 16,647 (3)
Funds from operations 8,791 8,956 (2)
Basic per share 0.10 0.10 -
Diluted per share 0.10 0.10 -
Net income 1,114 723 54
Basic per share 0.01 0.01 -
Diluted per share 0.01 0.01 -
Capital expenditures, net 17,263 3,614 378
Net debt 36,496 26,780 36

Operations
Daily production
Crude oil (bbl) 541 642 (16)
Natural gas liquids (bbl) 99 148 (33)
Natural gas (mcf) 17,834 20,735 (14)
Total production (boe @ 6:1) 3,612 4,245 (15)
Average sales price
Crude oil ($/bbl) 59.18 51.05 16
Natural gas liquids ($/bbl) 49.49 37.47 32
Natural gas ($/mcf) 8.04 7.07 14
Netback per boe (6:1) ($)
Petroleum and natural gas revenues 49.89 43.57 15
Royalties, net of ARTC 10.09 9.07 11
Operating expenses 8.06 7.07 14
Transportation 1.02 0.91 12
Operating netback 30.72 26.52 16


Endev Energy had a very active first quarter, completing two farm-in transactions and a successful drilling program. Our work in the field was focused on tying in the wells drilled and completed in the fourth quarter of 2005 and the first quarter of this year. While we were unable to tie-in the full complement of wells drilled due to wet field conditions, this work is continuing and will be completed as the weather permits. As a result of these tie-in delays, combined with temporary field mechanical difficulties, Endev's production averaged 3,612 boe/d in the first quarter of 2006, below our target of 4,000 boe/d and compared with 3,651 boe/d in the fourth quarter of 2005 and 4,245 boe/d in the first quarter of 2005. In the first quarter of 2006 Endev conducted its first winter drilling program, participating in 20 gross (12.1 net) wells. At the end of the first quarter a total of 55 operated shallow gas wells remain to be tied-in, including eight shallow gas wells from the winter program. This work will begin immediately upon field conditions improving.

Cretaceous - Mannville Program Success

In its new ventures exploration program, which is focused primarily on Mannville oil and gas plays, the Company has been particularly pleased with its success to date. Endev recently announced a light oil find in the Mannville exploration program. Oil production from this new find will be a growing contributor to production from the Majorville area. Assuming no interruptions to shipping oil from the single well facilities, the four 100 percent interest wells are capable of adding 300 to 500 boe/d. Plans for construction of pipeline and related facilities are underway and when completed will permit uninterrupted production from these wells. Several follow up wells on this project are planned for later in the year.

Our Mannville gas exploration program was also highly successful. The Company drilled a total of four operated gas wells and recompleted an existing well in Q4/05 and Q1/06 which resulted in four Mannville gas wells and one shallow gas well. Although individual well rates vary, of the four gas wells, three have been tested with average rates of 800 mcf/d per well. None of these wells were producing in the first quarter. The first gas well went on production at the end of April and the remaining wells should be on production near the end of second quarter. Although Endev's economics for new ventures exploration use an expected average success rate of 50 percent in the Mannville drilling program, the actual success rate exceeds 70 percent.

Our opportunity inventory of Mannville drilling locations is growing and would support several years of drilling at current rates.

Farm-in Activity

One of the Company's strategies is to acquire several new exploration areas which have the potential to become new core operating areas. Endev is pleased to announce a new farm-in arrangement in the Admiral area of southwest Saskatchewan where the Company has made an initial 16 well commitment. With the initial commitment and optional follow up drilling, the Company can earn a 50 percent interest in up to 115 sections (75,000 acres) of land. Included in the transaction is access to up to 465 kilometers of 2D seismic coverage. Although the Admiral farm-in includes rights in all zones, Endev's initial focus is on exploring for an aerially extensive shallow gas play. The Company will reallocate existing budget funds to support this year's program at Admiral. The Admiral transaction is the second recent farm-in by Endev. The Company also announced a Provost area farm-in on 22 sections (13,000 net acres) of land which is prospective for oil in the Mannville zones. Endev is currently in the process of conducting a 3D seismic survey and well site selection in the Provost area.

Shallow Gas Development

In the second quarter at Majorville in the shallow gas play, Endev will be focused bringing on production from the shallow gas wells awaiting tie-in. Due to recent seasonal access restrictions by a surface land holder, the Company will defer the drilling of approximately 37 shallow gas wells. Despite these changes, the Company expects to have an active shallow gas drilling program at Majorville in Q2. Endev also plans to test the CBM potential of the coals at Majorville with two recompletions in the quarter.

Industry Conditions

Endev continues to monitor the increasing cost of field services and mineral rights. Also of significance is the desire by some surface land holders to restrict access to land which can cause significant delays in drilling and field operations. Since late 2005 we have seen a significant weakening in Alberta gas prices from over $12.00 per mcf to current levels of approximately $6.00 per mcf, which has negatively impacted revenue and cash flow. The operational factors together with commodity price risk will be considered as the Company reviews its plans and targets for the balance of the year to ensure effective use of capital and other Company resources.

Changes to Plans

With the success of the Mannville program, the farm-in opportunities at Provost and Admiral and the challenges in drilling and tie-in access in Majorville, the Company is reallocating and changing the timing of its capital program for the year as the Company's prospect inventory grows. This will result in lower production rates than previously announced in the near term. However, with the recent drilling success we have experienced, we continue to anticipate strong year over year growth and value creation.

Outlook

Endev has an inventory of both shallow gas and Mannville drilling opportunities sufficient to sustain our drilling activity for several years, combined with a growing but focused exploration land base. The Company's Mannville exploration program has been very successful and we expect the new opportunities in the Provost area will enhance the Mannville play and reinforce the significance of this play in Endev's future growth. We are excited about capturing the value of these opportunities and are determined to stay focused on ensuring profitable growth while conquering the challenges of a changing business environment.


On behalf of the Board of Directors,



Cameron MacGillivray
President and CEO
May 15, 2006


MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis (MD&A), as provided by the management of Endev Energy Inc. (Endev or the Company), of Endev's operating and financial results for the three months ended March 31, 2006 compared with the corresponding period in the prior year is based on currently available information. This commentary should be read in conjunction with the 2005 annual report, the 2005 MD&A and the audited consolidated financial statements for the years ended December 31, 2005 and 2004 contained therein and the unaudited interim consolidated financial statements for the three months ended March 31, 2006. This commentary is based on information available to May 12, 2006.

The Company's audited consolidated financial statements, current annual information form and other documents are filed on SEDAR at www.sedar.com and on the Company's website at www.endevenergy.com.

NON-GAAP MEASUREMENTS

The financial data presented has been prepared in accordance with Canadian generally accepted accounting principles (GAAP) except for the terms funds from operations and netback. Funds from operations has been presented for information purposes only and should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in accordance with GAAP. The determination of Endev's funds from operations may not be comparable to the same reported by other companies. The reconciliation of net income and funds from operations can be found in the statements of cash flows in the financial statements. The Company calculates funds from operations as funds from operations prior to the change in non-cash working capital related to operating activities. Funds from operations per share was calculated using the same weighted average shares outstanding used in calculating net income per share. Netback equals total revenue less royalties, operating expenses and transportation expenses.

BASIS OF BARREL OF OIL EQUIVALENT

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President and Chief Executive Officer and the Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure.

As at March 31, 2006, Endev's management, including the President and Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of Endev's disclosure controls and procedures as defined under Multilateral Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings. Based on that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2006.



RESULTS OF OPERATIONS

Production

Endev achieved the following daily production rates:

Three months ended March 31
Daily production 2006 2005 % change
------------------------------------------------------------------------
Crude oil (bbl/d) 541 642 (16)
Natural gas liquids (bbl/d) 99 148 (33)
Natural gas (mcf/d) 17,834 20,735 (14)
------------------------------------------------------------------------
Total production (boe/d) 3,612 4,245 (15)
------------------------------------------------------------------------
------------------------------------------------------------------------


First quarter production in 2006 declined 15 percent from the first quarter in 2005 and by one percent from the fourth quarter of 2005. Natural gas accounted for 82 percent of the Company's production in the first quarter of 2006 compared to 81 percent in 2005. Crude oil and natural gas liquids (NGLs) production for the first quarter decreased 19 percent to 640 bbl/d, compared to 790 bbl/d for the same period in 2005. Natural gas production decreased 14 percent to 17,834 mcf/d compared to 20,735 mcf/d for the same period in 2005 due to the natural decline from existing wells partially offset by new wells being drilled and placed on production. At March 31, 2006, 55 shallow gas wells were awaiting tie-in.

Commodity Markets

Natural Gas

Natural gas prices dropped sharply over the prior quarter as first quarter 2006 NYMEX prices averaged $9.08/mcf, down 29%. Year-over-year NYMEX gas prices were up 44%. The AECO spot daily gas index decreased 34% from the fourth quarter of 2005 to $7.55/mcf in the first quarter of 2006. Year-over-year AECO increased 10%. Alberta spot prices at AECO underperformed US based prices due to the continued appreciation of the Canadian dollar and the extremely warm weather conditions experienced in Western Canada.

Crude Oil

West Texas Intermediate (WTI) increased by 6% from the prior quarter to $63.48 US/bbl. Year-over-year there was an increase of 27% from the first quarter of 2005. Edmonton par prices (in Canadian terms) did not reflect the increase in WTI as Canadian crude differentials widened significantly from the prior quarter and year-over-year. Edmonton par averaged $68.96/bbl in the quarter, down $2.21/bbl from the prior quarter and up only 8% from a year ago. North American refiners reduced consumption during the quarter to conduct maintenance work. Since the end of the quarter, these refineries have come back on-line, demand has been restored and Western Canadian differentials have returned to more normalized levels.

The appreciation of the Canadian dollar also continued to hold down Canadian crude prices as the Canadian dollar rose from an average of $.81 in the first quarter of 2005 to an average of $.87 in the first quarter of this year.



Average Prices Received

Endev realized the following commodity prices:

Three months ended March 31
Average sales prices realized 2006 2005 % change
------------------------------------------------------------------------
Crude oil ($/bbl) 59.18 51.05 16
Natural gas liquids ($/bbl) 49.49 37.47 32
Natural gas ($/mcf) 8.04 7.07 14
Weighted Average ($/boe) (6:1) 49.89 43.57 15


The Company currently does not have any commodity price risk contracts
in place.

Operating Netbacks

Endev realized the following operating netbacks from oil and
gas operations:

Three months ended March 31
Netback per boe (6:1)($) 2006 2005 % change
------------------------------------------------------------------------
Petroleum and natural gas revenues 49.89 43.57 15
Royalties, net of ARTC 10.09 9.07 11
Operating expenses 8.06 7.07 14
Transportation 1.02 0.91 12
------------------------------------------------------------------------
Operating netback 30.72 26.52 16
------------------------------------------------------------------------
------------------------------------------------------------------------


Production Revenue

Endev realized the following gross revenues:

Three months ended March 31
($000s) 2006 2005 % change
------------------------------------------------------------------------
Crude oil 2,880 2,948 (2)
Natural gas liquids 440 497 (11)
Natural gas 12,898 13,202 (2)
Sulphur 1 0 -
------------------------------------------------------------------------
Total 16,219 16,647 (3)
------------------------------------------------------------------------
------------------------------------------------------------------------


For the first quarter, gross revenues decreased three percent to $16.2 million from $16.6 million for the same period in 2005 due to a decline in production which was partly offset by increases in commodity prices received. Production revenue in the first quarter of 2006 declined 25 percent from $21.5 million in the fourth quarter of 2005 due to a 27 percent decrease in the price of natural gas. The average price received for natural gas increased 14 percent to $8.04 per mcf in the first quarter of 2006 compared to $7.07 per mcf in 2005. Crude oil and NGL production for the first quarter decreased 19 percent compared to the same period in 2005. The average price received for crude oil was $59.18 per bbl in the first quarter of 2006 compared to $51.05 in 2005.



Royalties
Three months ended March 31
2006 2005 % change
------------------------------------------------------------------------
Royalties ($000s) 3,280 3,463 (5)
Average royalty rate (%) 20 21 (3)
$/boe 10.09 9.07 11
------------------------------------------------------------------------


Royalties, net of the Alberta Royalty Tax Credit (ARTC), were $3.3 million in the first quarter of 2006 and $3.5 million in the first quarter of 2005, and averaged $10.09 per boe or 20 percent of revenue compared to $9.07 per boe or 21 percent of revenue for the same period in 2005.



Expenses

Three months ended March 31
($000s) 2006 2005 % change
------------------------------------------------------------------------
Operating 2,619 2,700 (3)
Transportation 331 349 (5)
General and administrative 688 785 (12)
Interest 357 347 3


Three months ended March 31
Expenses per boe $ 2006 2005 % change
------------------------------------------------------------------------
Operating 8.06 7.07 14
Transportation 1.02 0.91 12
General and administrative 2.12 2.06 3
Interest 1.10 0.91 21


Operating

During the first quarter of 2006, operating expenses decreased three percent to $2.6 million compared to $2.7 million in the same period for 2005. On a per unit basis, operating costs increased to $8.06 per producing boe during the quarter compared to $7.07 per producing boe in the same period for 2005. The increase in operating costs on a per unit basis over the first quarter 2005 is the result of producing less gas in 2006, as the fixed operating costs are not dependent on the reduced volumes.

Transportation

Transportation costs averaged $1.02 per boe in the first quarter of 2006 compared to $0.91 per boe in the first quarter of 2005.

General and Administrative

General and administrative costs decreased to $0.7 million in the first quarter of 2006 compared to $0.8 million for the same period in 2005. On a barrel of oil equivalent basis, general and administrative costs increased to $2.12 per boe from $2.06 per boe. The Company capitalizes the salaries and associated direct costs of professional staff directly associated with the Company's exploration and development activities. The Company capitalized $0.3 million of general and administrative costs in the first quarter of 2006 and $0.2 million in the first quarter of 2005.

Interest and Financing Charges

Interest and financing charges for the first quarter of 2006 were $0.4 million or $1.10 per producing boe compared to $0.3 million or $0.91 per producing boe for the comparable period in 2005. The interest and financing charges reflect the marginally higher debt levels and interest rate in 2006 over 2005.

Stock-Based Compensation

Stock-based compensation costs were $0.7 million in the first quarter of 2006 compared to $0.4 million for the same period of 2005, reflecting the options issued in the first quarter of 2006. As at March 31, 2006, the Company has $1.6 million of unamortized stock-based compensation costs that will be charged to income over the remaining vesting period of the options outstanding.

Income and Capital Taxes

Current taxes consists of Federal Large Corporations Tax (LCT), which is calculated based on the debt and equity balances of each legal entity comprising Endev Energy Inc. as the consolidated entity, and the Saskatchewan Capital Tax and Resource Surcharge, which is based on Saskatchewan oil and gas revenues and Manitoba Capital Tax. The Company has no current income tax provision in the first quarter of 2006 and does not expect to have a current income tax liability for the remainder of 2006, as the Company has sufficient tax pools to offset income in the year.

Current taxes were $55 thousand for the first quarter of 2006 compared to $40 thousand in 2005.

Future income tax liabilities arise due to the difference between the tax basis of assets and their respective accounting carrying cost. For the three months ended March 31, the provision for future taxes was $0.3 million in 2006 and $0.2 million in 2005.

Depletion and Depreciation

Depletion is calculated using the unit-of-production method based on total estimated proved reserves. Depletion and depreciation expense for the first quarter was $6.6 million or $20.31 per boe, compared to $7.6 million or $19.80 per boe for the same period in 2005.

Asset Retirement Obligation Accretion

The provision for accretion of asset retirement costs for the first quarter was $0.2 million in 2006 and 2005.



Net Income and Funds from Operations

Three months ended March 31
($thousands, except per share amounts) 2006 2005 % change
------------------------------------------------------------------------
Net income 1,114 723 54
Basic per share 0.01 0.01 -
Diluted per share 0.01 0.01 -

Funds from operations 8,791 8,956 (2)
Basic per share 0.10 0.10 -
Diluted per share 0.10 0.10 -


The Company realized net income of $1.1million for the first quarter, with earnings of $0.01 per share on a basic and diluted basis compared to $0.7 million for the same period in 2005, with $0.01 earnings per share on a basic and diluted basis. The increase in net income was due to the reduction in depletion, operating costs and general administrative costs partially offset by an increase in stock-based compensation expense. Funds from operations in the first quarter, before adjusting for the change in non-cash working capital, decreased to $8.8 million in 2006 from $9.0 million for the same period in 2005 due to a reduction in petroleum and natural gas revenue partially offset by reductions in general and administrative costs and operating costs. On a per share basis funds from operations was $0.10 per basic share in 2006 and 2005.

Net income declined 78 percent in the first quarter of 2006 from the fourth quarter of 2005 while funds from operations declined 36 percent in the same period, both primarily due to the 27 percent decline in natural gas prices.



SUMMARY OF QUARTERLY FINANCIAL INFORMATION

March 31 Dec. 31 Sept. 30 June 30
($000s, except per share amounts) 2006 2005 2005 2005
------------------------------------------------------------------------

Total daily production (boe/d) 3,612 3,651 3,376 3,850
Gross revenue 16,219 21,523 17,644 15,724
Funds from operations 8,791 13,634 11,231 10,426
Basic per share 0.10 0.15 0.13 0.12
Diluted per share 0.10 0.15 0.12 0.12
Net income 1,114 5,131 3,693 2,497
Basic per share 0.01 0.06 0.04 0.03
Diluted per share 0.01 0.06 0.04 0.03
Capital expenditures, net 17,263 17,993 10,398 8,420
Net debt 36,496 28,190 23,831 24,665
------------------------------------------------------------------------


March 31 Dec. 31 Sept. 30 June 30
($000s, except per share amounts) 2005 2004 2004 2004
------------------------------------------------------------------------

Total daily production (boe/d) 4,245 4,518 3,018 3,029
Gross revenue 16,647 17,616 11,224 11,794
Funds from operations 8,956 10,210 5,697 5,520
Basic per share 0.10 0.12 0.07 0.06
Diluted per share 0.10 0.12 0.06 0.06
Net income (loss) 723 305 (140) 488
Basic per share 0.01 - - 0.01
Diluted per share 0.01 - - 0.01
Capital expenditures, net 3,614 7,677 15,285 7,962
Net debt 26,780 32,234 35,218 25,649
------------------------------------------------------------------------


SELECTED ANNUAL INFORMATION

($000s, except per share amounts) 2005 2004 2003
------------------------------------------------------------------------

Gross revenue 71,538 52,349 39,837
Net income 12,044 926 6,090
Basic per share 0.14 0.01 0.08
Diluted per share 0.14 0.01 0.08
Total assets 158,693 140,893 131,834
Total long term liabilities 68,581 64,285 57,448
------------------------------------------------------------------------


CAPITAL EXPENDITURES

The following table outlines Endev's capital expenditures:

Three months ended March 31
($000s) 2006 2005
------------------------------------------------------------------------
Acquisitions - 1,419
Dispositions - -
------------------------------------------------------------------------
- 1,419
------------------------------------------------------------------------
Land and seismic 1,277 141
Drilling and completions 10,985 1,723
Tie-ins and facilities 4,879 297
Other 122 34
------------------------------------------------------------------------
Net property 17,263 2,195
------------------------------------------------------------------------
Total net capital expenditures 17,263 3,614
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three months ended March 31, 2006, the Company incurred capital expenditures of $17.3 million. During the period, the Company spent $11.0 million on drilling and completions while drilling 20 gross (12.1 net) wells and completing wells that were drilled in 2005. Of the 20 wells drilled during the quarter, six wells were drilled in the Mannville program. The Company also spent $4.9 million for tie-ins and facilities.



FIRST QUARTER 2006 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
------------------------------------------------------------------------
Majorville 12 2 - 14 9.1 2.0 - 11.2
Harper 5 - - 5 0.8 - - 0.8
Drumheller 1 - - 1 0.2 - - 0.2
------------------------------------------------------------------------
Total 18 2 - 20 10.1 2.0 - 12.1
------------------------------------------------------------------------
------------------------------------------------------------------------

Endev enjoyed a 100 percent success rate in drilling 20 gross (12.1 net)
wells in the first quarter of 2006.


LAND SUMMARY

As at March 31, 2006 Developed Undeveloped Total
(acres) Gross Net Gross Net Gross Net
Alberta 179,282 113,468 132,743 80,554 312,025 194,022
British Columbia 316 43 316 43 632 86
Manitoba 439 170 - - 439 170
Saskatchewan 3,427 1,907 824 281 4,251 2,188
------------------------------------------------------------------------
Total 183,464 115,588 133,883 80,878 317,347 196,466
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first quarter of 2006 Endev acquired 29,440 gross acres (28,349 net) of land at Alberta Crown land sales.

LIQUIDITY AND CAPITAL RESOURCES

Endev has a revolving credit facility with the National Bank of Canada for $38 million and an acquisition/development facility of $10 million. With the Company's current reserve base, production and cash flow, the revolving credit facility could be expanded if the Company thought it may be required. At March 31, 2006, the Company had approximately $29.8 million outstanding on its revolving credit facility and a working capital deficiency of $6.7 million for total net debt of approximately $36.5 million.

Total net capital expenditures of $17.3 million for the three months ended March 31, 2006 were funded from operations and an increase in debt. It is anticipated that future capital expenditures and operations will be funded with cash flow from operations and additional debt as required.

SHARE INFORMATION

The Company had 88,380,057 shares and 6,130,000 options to purchase shares outstanding as at March 31, 2006 and at May 12, 2006.

The Company issued a total of 320,834 shares pursuant to the exercise of stock options during the three months ended March 31, 2006.



Three months ended March 31
(000s) 2006 2005
------------------------------------------------------------------------
Shares outstanding
- Basic 88,380 87,944
- Diluted 94,510 91,991
Weighted average shares outstanding
- Basic 88,360 87,853
- Diluted 89,944 88,892


BUSINESS RISKS

The oil and gas exploration and development sector has inherent risks that begin with the exploration process, which is capital intensive and may or may not encounter economic reserves of crude oil or natural gas, in addition to unforeseen production declines and as a consequence reduced reserves. Increasingly, readily available technology helps to mitigate the risk. Endev employs the most appropriate technology in all areas of its business. The intrinsic business and financial risks within the industry include volatility of commodity prices, fluctuation in supplier costs, inflation, changes in exchange rates, the cost of capital and other macro economic factors. The recent volatility in commodity prices and the rise in service costs may require Endev to re-evaluate its capital spending and activity plans in the future. Endev focuses on managing costs within its control and pursuing geographic areas and geologic targets that result in manageable capital risk. By focusing on core areas, Endev reduces risk by utilizing its experience in the area and reducing the administrative and logistical costs of its field activity. In order to minimize the risks to the community and to its field staff and suppliers, Endev demands the highest standards of safety on its leases. A more detailed discussion of the business risks the Company is subject to is found in our current annual information form filed on SEDAR at www.sedar.com.

CONTRACTUAL OBLIGATIONS

The Company entered into a lease for office premises commencing January 1, 2004 and terminating on March 29, 2007. The estimated obligation at March 31, 2006, including operating costs at current levels, is $180,900 in 2006 and $60,300 in 2007 for approximately 13,600 square feet of office space.

CHANGES IN ACCOUNTING POLICIES

The Company did not adopt any new accounting policies during the period.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Significant accounting policies used by Endev Energy Inc. are disclosed in note 2 to the December 31, 2005 audited consolidated financial statements. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in these judgments and estimates may have a material impact on the Company's financial results and condition. The following discusses such accounting policies and is included in Management's Discussion and Analysis to aid the reader in assessing the critical accounting policies and practices of the Company and the likelihood of materially different results being reported. Endev's management reviews its estimates regularly. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts, that differ materially from current estimates.

The following assessment of significant accounting policies is not meant to be exhaustive. The Company might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

Oil and Gas Reserves

Under NI 51-101, "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable (it is likely that the actual remaining quantities recovered will exceed the estimated Proved reserves). In accordance with this definition, the level of certainty targeted by the reporting company should result in at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated reserves. In the case of "Probable" reserves, which are less certain to be recovered than Proved reserves, NI 51-101 states that it must be equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable reserves. With respect to the consideration of certainty, in order to report reserves as Proved plus Probable, the reporting company must believe that there is at least a 50 percent probability that quantities actually recovered will equal or exceed the sum of the estimated Proved plus Probable reserves.

Oil and gas reserves estimates are made using all available geological and reservoir data as well as historical production data. Estimates are reviewed and revised as appropriate. Revisions occur as a result of changes in prices, costs, fiscal regimes, reservoir performance or a change in the Company's plans. The reserve estimates are also used in determining the Company's borrowing base for its credit facilities and may impact the same upon revisions or changes to the reserves estimates. The effect of changes in reserves on the financial results and position of the Company is described under the heading "Full Cost Accounting for Oil and Gas Activities".

Full Cost Accounting for Oil and Gas Activities

Depletion Expense

The Company uses the full cost method of accounting for exploration and development activities. In accordance with this method of accounting, all costs associated with exploration and development are capitalized whether successful or not. The aggregate of net capitalized costs and estimated future development costs less estimated salvage values is amortized using the unit-of-production method based on estimated proved oil and gas reserves.

An increase in estimated proved oil and gas reserves would result in a corresponding reduction in depletion expense. A decrease in estimated future development costs would result in a corresponding reduction in depletion expense.

Withheld Costs

Certain costs related to unproved properties may be excluded from costs subject to depletion until proved reserves have been determined or their value is impaired. These properties are reviewed quarterly and any impairment is transferred to the costs being depleted or, if the properties are located in a cost centre where there is no reserve base, the impairment is charged directly to income.

Ceiling Test

The Company is required to review the carrying value of all property, plant and equipment, including the carrying value of oil and gas assets, for potential impairment. Impairment is indicated if the carrying value of the long-lived asset or oil and gas cost centre is not recoverable from the future undiscounted cash flows from proved reserves. If impairment is indicated, the amount by which the carrying value exceeds the estimated fair value of the long-lived asset, based on proved plus probable reserves discounted at the Company's risk free rate, is charged to earnings.

The ceiling test is based on estimates of reserves, production rate, petroleum and natural gas prices, future prices and costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material.

Asset Retirement Obligations

The Company is required to provide for future removal and site restoration costs. The Company must estimate these costs, using an estimate of future timing, discount and inflation rates, in accordance with existing laws, contracts or other policies. These estimated costs are charged to income and the appropriate liability account over the expected service life of the asset. When future removal and site restoration costs cannot be reasonably determined, a contingent liability may exist. Contingent liabilities are charged to earnings when management is able to determine the amount and the likelihood of the future obligation.

Income Tax Accounting

The determination of the Company's income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by management.

Goodwill

The process of accounting for the purchase of a company results in recognizing the fair value of the acquired company's assets on the balance sheet of the acquiring company. Any excess of the purchase price over fair value is recorded as goodwill. Since goodwill results from the culmination of a process that is inherently imprecise the determination of goodwill is also imprecise. In accordance with the issuance of CICA section 3062, "Goodwill and Other Intangible Assets" goodwill is not amortized but assessed periodically for impairment. The process of assessing goodwill for impairment necessarily requires Endev to determine the fair value of its assets and liabilities. Such a process involves considerable judgment.

Legal, Environmental Remediation and Other Contingent Matters

The Company is required to both determine whether a loss is probable based on judgment and interpretation of laws and regulations and determine that the loss can reasonably be estimated. When the loss is determined it is charged to earnings. The Company's management must continually monitor known and potential contingent matters and make appropriate provisions by charges to earnings when warranted by circumstance.

FORWARD-LOOKING STATEMENTS

Certain information regarding Endev Energy Inc. set forth in this entire document, including management's assessment of the Company's future plans and operations contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Company's and management's control including, but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of foreign exchange rates, imperfection of reserve estimates, environmental risks, industry competition, availability of qualified personnel and management, stock market volatility, and timely and cost-effective access to sufficient capital from internal and external sources. Endev's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated to occur or transpire from the forward-looking statements will provide what, if any, benefits to Endev Energy Inc.



ENDEV ENERGY INC.
Consolidated Balance Sheets
($000s) March 31, December 31,
2006 2005
------------------------------------------------------------------------
(Unaudited)
ASSETS
Current
Accounts receivable $ 9,180 $ 11,292
Prepaid expenses and deposits 303 145
------------------------------------------------------------------------
9,483 11,437
Property, plant and equipment (note 2) 149,931 139,456
Goodwill 7,800 7,800
------------------------------------------------------------------------
$ 167,214 $ 158,693
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 4) $ 29,825 $ 26,965
Accounts payable and accrued liabilities 16,154 12,662
------------------------------------------------------------------------
45,979 39,627
Asset retirement obligations (note 3) 7,732 7,866
Future income taxes 21,431 21,088
------------------------------------------------------------------------
75,142 68,581
------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (note 5) 67,900 67,727
Contributed surplus (note 5) 2,458 1,785
Retained earnings 21,714 20,600
------------------------------------------------------------------------
92,072 90,112
------------------------------------------------------------------------
$ 167,214 $ 158,693
------------------------------------------------------------------------
------------------------------------------------------------------------
Commitments (note 7)

The accompanying notes are integral to these consolidated financial
statements.

Signed on behalf of the Board:


John F. Driscoll, Director William D. Robertson, F.C.A., Director


ENDEV ENERGY INC.
Consolidated Statements of Operations and Retained Earnings
For the three months ended March 31
($000s, except per share amounts) 2006 2005
------------------------------------------------------------------------
(Unaudited) (Unaudited)
REVENUES
Petroleum and natural gas $ 16,219 $ 16,647
Royalties (net of Alberta Royalty Tax Credit) (3,280) (3,463)
------------------------------------------------------------------------
12,939 13,184
------------------------------------------------------------------------

EXPENSES
Operating 2,619 2,700
Transportation 331 349
General and administrative 688 785
Stock-based compensation 680 372
Interest 357 347
Depletion and depreciation 6,602 7,565
Accretion of asset retirement obligations 150 150
------------------------------------------------------------------------
11,427 12,268
------------------------------------------------------------------------
Income before taxes 1,512 916
------------------------------------------------------------------------
TAXES
Current 55 40
Future income 343 153
------------------------------------------------------------------------
398 193
------------------------------------------------------------------------
NET INCOME 1,114 723
Retained earnings, beginning of period 20,600 8,556
------------------------------------------------------------------------
Retained earnings, end of period $ 21,714 $ 9,279
------------------------------------------------------------------------
------------------------------------------------------------------------


NET INCOME PER SHARE (note 5)
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.


ENDEV ENERGY INC.
Consolidated Statements Of Cash Flows
For the three months ended March 31
($000s) 2006 2005
------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by (used in)
OPERATIONS
Net income $ 1,114 $ 723
Depletion and depreciation 6,602 7,565
Accretion of asset retirement obligations 150 150
Future income taxes 343 153
Actual abandonment costs (98) (7)
Stock-based compensation 680 372
------------------------------------------------------------------------
Funds from operations 8,791 8,956
Changes in non-cash working capital (note 6) (180) 932
------------------------------------------------------------------------
8,611 9,888
------------------------------------------------------------------------
FINANCING
Issue of common shares, net of issue costs 166 112
Bank indebtedness 2,860 (3,053)
------------------------------------------------------------------------
3,026 (2,941)
------------------------------------------------------------------------
INVESTING
Property, plant and equipment additions (17,263) (2,195)
Acquisitions - (1,419)
Changes in non-cash working capital (note 6) 5,626 (3,333)
------------------------------------------------------------------------
(11,637) (6,947)
------------------------------------------------------------------------
Change in cash - -
Cash, beginning of period - -
------------------------------------------------------------------------
Cash, end of period $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

Interest paid $ 357 $ 347
------------------------------------------------------------------------
Taxes paid $ 34 $ 68
------------------------------------------------------------------------
------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
(all tabular amounts in $000s, except share and per share amounts)


1. BASIS OF PRESENTATION

Endev Energy Inc. (the "Company") is a Calgary-based company involved in the exploration, development and production of petroleum and natural gas in Alberta, Saskatchewan and Manitoba. These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the year ended December 31, 2005. The financial statements should be read in conjunction with the financial statements and notes thereto in the Company's annual report for the year ended December 31, 2005.



2. PROPERTY, PLANT AND EQUIPMENT

March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Oil and gas properties $ 226,096 $ 209,141
Other assets 474 352
------------------------------------------------------------------------
226,570 209,493
Accumulated depletion and depreciation (76,639) (70,037)
------------------------------------------------------------------------
Net book value $ 149,931 $ 139,456
------------------------------------------------------------------------
------------------------------------------------------------------------


During the period ended March 31, 2006, the Company capitalized $0.3 million (2005 - $0.2 million), of general and administrative expenses related to exploration and development activities. As at March 31, 2006, the depletion calculation excluded unproved properties of $6.1 million (2005 - $8.7 million) and included future development costs of proved reserves of $19.3 million (2005 - $1.9 million).

3. ASSET RETIREMENT OBLIGATIONS

The Company's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. As at March 31, 2006, the Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $25.7 million which will be incurred from 2006 to 2030. The majority of the costs will be incurred between 2012 and 2030. A credit-adjusted risk-free rate of eight percent was used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Balance, beginning of period $ 7,866 $ 7,517
Accretion expense 150 612
Revisions to estimates (351) -
Obligations incurred 165 436
Actual abandonment cost (98) (699)
------------------------------------------------------------------------
Balance, end of period $ 7,732 $ 7,866
------------------------------------------------------------------------
------------------------------------------------------------------------


4. BANK INDEBTEDNESS

As at March 31, 2006, the Company has a revolving demand credit facility with a maximum availability of $38.0 million and an acquisition/development facility for $10.0 million. The interest rate at March 31, 2006 was prime (5.5 percent) and subject to quarterly adjustment from time to time based on certain debt to cash flow ratios. The limit of the credit facility is subject to adjustments from time to time to reflect changes in Endev's asset base. There are no principal repayments required on the loan. The credit facility is secured by a $75.0 million fixed and floating charge over all the assets of the Company.



5. SHARE CAPITAL

The authorized share capital of the Company consists of an unlimited
number of common shares without nominal or par value.

Issued and outstanding Common shares Amount
------------------------------------------------------------------------
Balance, December 31, 2004 87,802,554 $ 67,425
Options exercised 256,669 221
Contributed surplus associated
with options exercised - 81
------------------------------------------------------------------------
Balance, December 31, 2005 88,059,223 $ 67,727
Options exercised 320,834 166
Contributed surplus associated
with options exercised - 7
------------------------------------------------------------------------
Balance, March 31, 2006 88,380,057 $ 67,900
------------------------------------------------------------------------
------------------------------------------------------------------------


The weighted average number of shares outstanding is as follows:

March 31, 2006 March 31, 2005
------------------------------------------------------------------------
Basic 88,359,573 87,852,832
Diluted 89,943,885 88,891,714
------------------------------------------------------------------------


The Company has a stock option plan where the Company may grant options to its directors, officers, employees and consultants, for up to 10 percent of the issued common stock. The exercise price of each stock option equals the average market price of the Company's stock for the five trading days prior to the date of the grant. The following table summarizes information about the stock option transactions for the period.



March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
------------------------------------------------------------------------
Stock options outstanding,
beginning of period 4,991,500 $1.08 3,771,500 $0.89
Granted 1,466,000 1.77 1,870,000 1.50
Exercised (320,834) 0.52 (256,669) 0.86
Cancelled or expired (6,666) 0.90 (393,331) 1.45
------------------------------------------
Stock options outstanding,
end of period 6,130,000 $1.25 4,991,500 $1.08
------------------------------------------

------------------------------------------
Exercisable, end of period 3,382,670 $1.07 3,001,503 $0.90
------------------------------------------
------------------------------------------


Options Outstanding Options Exercisable
------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Remaining Average
Exercise Number Exercise Contractual Number Exercise
Prices Outstanding Price Life (years) Exercisable Price
------------------------------------------------------------------------
$0.50 - $0.90 1,419,000 $0.59 1.8 1,324,002 $0.57
$1.05 - $1.32 2,155,000 1.16 6.2 1,096,668 1.14
$1.51 - $2.10 2,556,000 1.75 4.4 962,000 1.74
------------------------------------------------------------------------
6,130,000 $1.25 4.4 3,382,670 $1.07
------------------------------------------------------------------------
------------------------------------------------------------------------


All options granted vest as to one third upon date of grant and one third on each of the first two anniversaries and expire five years after the grant date, except for 1,000,000 options granted on December 17, 2004 which expire ten years after the grant, 500,000 of which vest on the stock reaching certain target prices.

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



Assumptions March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Risk free interest rate (%) 5.46 4.10
Expected life (years) 5 5
Expected volatility (%) 43 57
Weighted average fair value of
each option granted ($) 0.81 0.79
Dividend yield (%) - -


CONTRIBUTED SURPLUS
March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Balance, beginning of period $ 1,785 $ 627
Stock-based compensation expense 680 1,239
Options exercised (7) (81)
------------------------------------------------------------------------
Balance, end of period $ 2,458 $ 1,785
------------------------------------------------------------------------
------------------------------------------------------------------------


6. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital
March 31, 2006 March 31, 2005
------------------------------------------------------------------------
Accounts receivable 2,112 $ (2,212)
Prepaid expenses and deposits (158) 36
Accounts payable and accrued
liabilities 3,492 (225)
------------------------------------------------------------------------
Change in non-cash working capital 5,446 $ (2,401)
------------------------------------------------------------------------
Relating to:
Operating activities (180) 932
Investing activities 5,626 (3,333)
------------------------------------------------------------------------
------------------------------------------------------------------------


7. COMMITMENTS

The Company entered into a lease agreement for office premises commencing January 1, 2004 to March 29, 2007. The minimum rentals payable including estimated operating costs are summarized in the following table:



2006 $ 181
2007 60
------------------------------------------------------------------------
Total $ 241
------------------------------------------------------------------------
------------------------------------------------------------------------


Endev Energy Inc. is a Canadian oil and gas exploration and production company based in Calgary, Alberta. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol ENE.

The Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.

Contact Information

  • Endev Energy Inc.
    Cameron MacGillivray
    President and CEO
    (403) 750-2600 or Toll Free: 1-888-750-2677
    or
    Endev Energy Inc.
    Scott Bonli, C.A.
    Vice President, Finance and CFO
    (403) 750-2600 or Toll Free: 1-888-750-2677
    Email: info@endevenergy.com