Endev Energy Inc.
TSX : ENE

Endev Energy Inc.

November 08, 2007 19:14 ET

Endev Energy Inc. Announces 2007 Third Quarter Results

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

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 and nine months ending September 30, 2007.

Highlights of the third quarter include:

- Q3 production up four percent and year-to-date up 12 percent over prior year;

- Q3 oil production up 36 percent over prior year;

- Commenced building W5 land position - 5,760 net acres acquired;

- Waterflood study completed;

- First W5 deep gas well drilling.



HIGHLIGHTS Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Financial
($000s, except per
share amounts)
Gross revenue 15,673 13,972 12 51,773 43,981 18
Funds from operations 7,525 7,314 3 26,720 23,561 13
Basic per share 0.09 0.08 13 0.30 0.27 11
Diluted per share 0.09 0.08 13 0.30 0.26 15
Net income (loss) (9,991) (275) - (10,538) 3,313 -
Basic per share (0.11) - - (0.12) 0.04 -
Diluted per share (0.11) - - (0.12) 0.04 -
Capital
expenditures, net 6,791 15,296 (56) 19,355 44,524 (57)
Net debt (1) 47,144 48,932 (4) 47,144 48,932 (4)

Operations
Daily production
Natural gas (mcf) 17,202 17,803 (3) 18,579 17,493 6
Natural gas liquids
(bbl) 61 65 (6) 71 75 (5)
Crude oil (bbl) 969 714 36 909 648 40
Total production
(boe @ 6:1) 3,896 3,746 4 4,076 3,638 12
Average sales
price (2)
Natural gas ($/mcf) 6.08 5.49 11 6.86 6.52 5
Natural gas liquids
($/bbl) 56.27 62.04 (9) 59.63 57.20 4
Crude oil ($/bbl) 71.16 70.16 1 66.25 66.23 -
Netback per boe
(6:1) ($)
Petroleum and
natural gas
revenues 45.40 40.54 12 47.07 44.28 6
Royalties, net of
ARTC 7.77 5.67 37 8.14 7.26 12
Operating expenses 10.69 9.08 18 8.98 8.74 3
Transportation 1.14 0.90 26 1.12 0.94 19
Operating netback 25.80 24.89 4 28.83 27.34 5

(1) Excluding unrealized gains and losses on commodity contracts.
(2) Including realized gains and losses on commodity contracts.


PRESIDENT'S MESSAGE

Overview

For the first nine months of 2007 Endev grew production to 4,076 boe per day, an increase of 12 percent from the same period in 2006. For the third quarter, production averaged 3,896 boe per day, up four percent from the same quarter last year. Production was down 2.5 percent from the second quarter of this year as a result of natural field declines and production delays from non-operated wells.

Capital expenditures were $6.8 million during the third quarter, bringing total capital expenditures for the nine months to $19.4 million, or 49 percent of original planned expenditures for the full year due to the deferral of shallow gas drilling.

Revenues for the third quarter were $15.7 million, up 12 percent and funds from operations were $7.5 million or $0.09 per share, up three percent compared to the same period last year. These strong results were due to the combined impact of hedging gains on natural gas and increased production volumes partially offset by one time charges to operating costs and an adjustment to prior years ARTC. Revenues were 10 percent lower than the second quarter of 2007 and funds from operations were 18 percent lower as a result of lower natural gas prices and decreased natural gas production levels offset by higher oil prices. The one time items mentioned reduced our netback by approximately $4.00 per boe, resulting in a netback of $25.80 per boe, 16 percent lower than the previous quarter.

During the quarter, Endev was prompted to put in place a normal course issuer bid under which the Company is permitted to buy back shares in the marketplace under specified conditions. We believe that, from time to time, the market price of our common shares may not fully reflect the underlying value of the common shares and that at such times the purchase of common shares would be in the best interests of Endev.

Operations & Exploration

During the third quarter, Endev focused its drilling activities on Mannville targets in the Majorville and the Bantry areas, both in southern Alberta, where we drilled a total of eight wells yielding seven cased wells and one dry and abandoned well. Six of the cased wells were completed, resulting in two commercial and four non-commercial gas wells.

At Majorville, we tied-in three gas wells along with a fourth well drilled in the second quarter. Endev's working interest share of production from these wells is 1.2 mmcf per day. Currently, we do not have plans to tie-in the remaining three gas wells due to low test rates but this could change as infrastructure becomes more accessible.

The Company drilled and completed one gas well at Bantry, which tested at marginal rates. We are currently evaluating tie-in options. This well also has oil potential in a separate zone which we will complete and test pending the evaluation of the gas tie-in.

During the quarter in our field operations at Majorville, we undertook an optimization program for our shallow gas wells that improved production and contributed to cash flow. The work produced a temporary increase in unit operating costs. Endev expects fourth-quarter operating costs to return to average year-to-date costs.

A third party engineering firm also completed a waterflood feasibility study aimed at maximizing recovering of oil at Majorville. The study is now under review by the Company as well as its independent reserves evaluator. A successful waterflood would significantly increase the recoverable reserves at Majorville and in turn the value of the oil in this area. Similarly, a waterflood feasibility study was completed at Provost, Alberta and is also under review. The outcome of this study will determine further exploratory drilling as well as Endev's ability to increase production rates from existing wells.

Although no drilling was undertaken in the third quarter at Admiral, Saskatchewan, we evaluated options for the early tie-in of some exploration wells using existing third-party infrastructure. This planning work was completed and led to the start of production from eight wells early in the fourth quarter.

Industry Conditions

Commodity prices remained volatile during the third quarter and into the fourth quarter, with WTI crude oil prices exceeding US$90 per barrel. Meanwhile natural gas prices have started to increase as we enter the winter heating season, but still lag relative to oil prices. It is expected that natural gas prices will move into a more historically comparable relationship to oil prices but it is much less certain how quickly this will happen.

The recent surge in the value of the Canadian dollar, which has pushed it above par with the U.S. dollar, has netted reduced revenues for oil and natural gas sold to U.S. markets. This has partially offset the gains that would normally result from the surging price of crude oil. As a result of continued softness in the price of natural gas, the forecast for drilling activity for the industry in the upcoming winter drilling season is expected to be abnormally low.

Adding to the economic uncertainty in the Alberta oil and gas sector, is the decision of the Alberta government to increase royalties on existing and future oil and gas production. Companies are assessing the impact of the new royalties and reviewing future drilling plans. Our low productivity gas wells, which represent about half our production, should benefit from the new royalty program, while some of our higher productivity wells may pay more.

We have commenced building a land position in two new exploratory areas west of the Fifth Meridian (W5) in Alberta. Endev acquired a total of 5,760 net acres through land acquisitions at recent Crown sales. In the two exploratory areas we are focused on deeper gas exploration and some of these wells may qualify for deep gas incentives under the proposed new royalty program.

Outlook

We are revising our annual production target to approximately 4,100 boe per day from our earlier estimate of an average 4,200 to 4,400 boe per day in 2007, as a result of lower than expected third quarter volumes and expected production growth in the fourth quarter.

With the exception of potential acquisitions before year end, Endev expects its capital expenditures will be $10 million lower than originally budgeted, after deferring the drilling of shallow gas wells at Majorville and Admiral. However, we do expect to drill six gas wells in the fourth quarter. One of these wells is located in Central Alberta and targeted multiple prospective deep zones. Early in the fourth quarter we finished drilling operations on this well and are encouraged by the results. Over the next few weeks the Company will complete and test the well.

The current uncertainties and risks in the oil and gas sector underscore the importance of having a balanced portfolio of investment opportunities. Endev is a technically driven and operationally focused oil and gas explorer and producer. Among Endev's strengths is its high working interest and control of the Company's core operations. Endev has been successfully broadening its portfolio in the past two years. The Company has a solid base of cash flow from its core production area in southern Alberta and a strong capital structure to support it moving forward. Our strengths are brought to bear on a focused number of properties where we have built a significant presence. Endev's experienced management and staff also brings a determined approach to finding oil and gas and meeting the challenges and opportunities that lie ahead.

On behalf of the Board of Directors,

Cameron MacGillivray, November 8, 2007

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 and nine month periods ended September 30, 2007 compared to the corresponding period in the prior year is based on currently available information. This commentary should be read in conjunction with the 2006 annual report, the 2006 MD&A and the audited consolidated financial statements for the years ended December 31, 2006 and 2005 contained therein and the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2007 and 2006. This commentary is based on information available to November 8, 2007.

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. Endev calculates funds from operations as follows:



Three months ended Nine months ended
Sept 30 Sept 30
($000s) 2007 2006 2007 2006
----------------------------------------------------------------------------
Cash flow from operating activities 7,389 5,274 29,100 21,602
Changes in non-cash working capital 136 2,040 (2,380) 1,959
----------------------------------------------------------------------------
Funds from operations 7,525 7,314 26,720 23,561
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

The Company has a Corporate Communication and Disclosure Policy which has been distributed to all staff detailing the controls, policies and procedures with respect to disclosure to third parties of information concerning the Company's operations and results. The Chief Executive Officer and Chief Financial Officer, who comprise Endev's Disclosure Committee, evaluated the effectiveness of the Company's disclosure controls and procedures as at the period ended September 30, 2007. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as at September 30, 2007 to provide reasonable assurance that material information relating to the Company, including its consolidated subsidiaries, would be made known to them by others within those entities.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP except as stated below. It should be recognized however, that no system of internal control over financial reporting can provide more than reasonable assurance as to the effectiveness of such controls over financial reporting.

Management is aware that due to the Company's relatively small scale of operations there is a lack of segregation of duties due to a limited number of employees dealing with accounting and financial matters. However, management has concluded that considering the employees involved and the control procedures in place, including management and Audit Committee oversight, risks associated with such lack of segregation are not significant enough to justify the expense associated with adding employees to clearly segregate duties. Management is aware that in-house expertise to deal with complex taxation, accounting and reporting issues may not be sufficient. The Company utilizes outside assistance and advice on new accounting pronouncements and complex accounting and reporting issues, which is common with companies of a similar size.

The Chief Executive Officer and the Chief Financial Officer have reviewed whether there were changes to the internal controls over financial reporting and have concluded that there have been no significant changes to the Company's internal control over financial reporting that occurred during the most recent period that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

RESULTS OF OPERATIONS

Production

Endev achieved the following daily production rates:



Three months ended Sept 30 Nine months ended Sept 30
Daily production 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Natural gas (mcf/d) 17,202 17,803 (3) 18,579 17,493 6
Natural gas liquids
(bbl/d) 61 65 (6) 71 75 (5)
Crude oil (bbl/d) 969 714 36 909 648 40
Total production
(boe/d) 3,896 3,746 4 4,076 3,638 12
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Third quarter 2007 production increased four percent from the third quarter of 2006 and declined three percent from the second quarter of 2007 to average 3,896 boe per day. Natural gas accounted for 74 percent of the Company's production in the third quarter of 2007 compared to 79 percent in 2006. Natural gas production in the third quarter of 2007 decreased marginally compared to the same period in 2006 to 17,202 mcf per day. Crude oil production for the third quarter increased 36 percent to 969 barrels per day, compared to 714 barrels per day for the same period in 2006.

Production increased 12 percent to 4,076 boe per day for the nine months ended September 30, 2007 compared to 3,638 boe per day for the same period in 2006. Crude oil production for the nine months ended September 30, 2006 increased 40 percent to 909 barrels per day, compared to 648 barrels per day for the same period in 2006. The increase was due to the Majorville Mannville oil discoveries during the period. Natural gas production increased six percent to 18,579 mcf per day compared to 17,493 mcf per day for the same period in 2006. The increase in gas production over 2006 is the result of increases in production at the Majorville Mannville area due to wells being tied-in during late 2006 and early 2007.

Production by Area




Daily production Three months ended Sept 30 Nine months ended Sept 30
(boe/d) 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Majorville Shallow
Gas 2,160 2,274 (5) 2,152 2,246 (4)
Majorville Mannville 647 338 91 766 243 215
Drumheller 239 276 (13) 287 277 4
Other 850 858 (1) 871 872 -
----------------------------------------------------------------------------
Total 3,896 3,746 4 4,076 3,638 12
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The table above illustrates the average production from each of the Company's principal areas of operations. Majorville Mannville production has increased over the prior year as the Company has concentrated drilling activities in this area over the second half of 2006 and into 2007. Mannville production is expected to continue to increase as the Company commits additional capital to it in the future.

Commodity Markets



Three months ended Sept 30 Nine months ended Sept 30
Average prices 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Natural gas AECO
($/mcf) 5.59 5.64 (1) 6.69 6.40 5
Natural gas NYMEX
(US$/mmbtu) 6.13 6.53 (6) 6.88 7.48 (8)
Crude oil Edmonton
light ($/bbl) 79.95 79.08 1 72.99 75.53 (3)
Crude oil WTI
(US$/bbl) 75.38 70.48 7 66.23 68.22 (3)


Natural Gas

The AECO spot daily gas index was down $0.05 per mcf year-over-year or about one percent to average $5.59 per mcf in the third quarter of 2007. At the same time NYMEX natural gas prices averaged US$6.13 per mmbtu, down US$0.40 per mmbtu or six percent. Alberta spot prices at AECO declined less than NYMEX prices on the year-over-year basis due to tighter basis differentials. In the third quarter of 2007, AECO prices declined by $1.48 per mcf, or 21 percent, over the second quarter of 2007. North American gas markets were weak despite strengthening crude markets.

Crude Oil

During the third quarter of 2007, world oil prices as reflected by West Texas Intermediate (WTI) strengthened markedly, averaging US$75.38 per barrel, up US$4.90 per barrel, or seven percent, from the third quarter 2006. The third quarter price represents a US$10.35 per barrel increase in WTI, or 16 percent, from the second quarter of 2007. Edmonton par prices (in Canadian dollar terms) averaged $79.95 per barrel in the third quarter, up one percent year-over-year and up 11 percent over the second quarter of 2007. Canadian oil markets were strong during the quarter but the rapid appreciation of the Canadian dollar prevented Canadian refiner postings from keeping up with the increases in WTI.

The Canadian dollar strengthened against the US dollar from an average of $0.909 in the second quarter of 2007 to an average of $0.961 in the third quarter of this year. Year-over-year the Canadian dollar appreciated from $0.892 or nearly eight percent.

Financial Instruments

The Company entered into a series of costless collar financial contracts to hedge the risk of lower natural gas prices in the summer of 2007 and lower oil prices this fall and winter. In total, the gas contracts are for the sale of 6,000 GJ per day of natural gas at an average floor price of $6.46 per GJ and an average ceiling price of $7.55 per GJ for the period April 2007 through October 2007. This represents an estimated 30 percent of the Company's forecast natural gas production for the period. The oil contracts are for 250 barrels per day and represents 25 percent of estimated oil production. These contracts are marked to market with the corresponding valuation recorded on the balance sheet. The contracts are detailed in note 8 to the consolidated financial statements.

Average Prices Received

Endev realized the following commodity prices including the effect of realized gains and losses on commodity contracts:



Average sales Three months ended Sept 30 Nine months ended Sept 30
prices realized 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Natural gas ($/mcf) 6.08 5.49 11 6.86 6.52 5
Natural gas liquids
($/bbl) 56.27 62.04 (9) 59.63 57.20 4
Crude oil ($/bbl) 71.16 70.16 1 66.25 66.23 -
Weighted Average
($/boe) (6:1) 45.40 40.54 12 47.07 44.28 6
----------------------------------------------------------------------------


The sales prices realized by the Company for natural gas are consistent with AECO pricing. The Company's realized price for oil is increasing relative to Edmonton par as the increased Mannville oil production attracts a higher price due to its higher quality relative to the other oil production of the Company.

During the third quarter of 2007 the Company realized $632,000 or $0.40 per mcf on natural gas commodity contracts and on a year-to-date basis realized $629,000 or $0.12 per mcf. The oil contract realized a loss of $31,000 or $0.35 per barrel in the third quarter and $0.13 per barrel on a year-to-date basis. In 2006, there were no realized gains or losses on commodity price risk contracts.

Operating Netbacks

Endev realized the following operating netbacks from oil and gas operations including the effect of realized gains and losses on commodity contracts:




Netback per boe Three months ended Sept 30 Nine months ended Sept 30
(6:1) ($) 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Petroleum and natural
gas revenues 45.40 40.54 12 47.07 44.28 6
Royalties, net of ARTC 7.77 5.67 37 8.14 7.26 12
Operating expenses 10.69 9.08 18 8.98 8.74 3
Transportation 1.14 0.90 26 1.12 0.94 19
----------------------------------------------------------------------------
Operating netback 25.80 24.89 4 28.83 27.34 5
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Production Revenue

Endev realized the following gross revenues:

Three months ended Nine months ended
September 30 September 30
($000s) 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Natural gas 8,987 8,994 - 34,156 31,102 10
Natural gas liquids 313 368 (15) 1,153 1,166 (1)
Crude oil 6,373 4,610 38 16,464 11,713 41
----------------------------------------------------------------------------
Total 15,673 13,972 12 51,773 43,981 18
----------------------------------------------------------------------------
----------------------------------------------------------------------------


For the third quarter, gross revenues increased 12 percent to $15.7 million from $14.0 million for the same period in 2006 due to a four percent increase in production and a three percent increase in natural gas prices received. Crude oil revenue increased 38 percent in the third quarter of 2007 over the same period in 2006 due to a 36 percent increase in crude production. Crude oil represents 41 percent of the Company's revenues in the third quarter of 2007 and 33 percent in 2006.

For the first nine months, gross revenues increased 18 percent to $51.8 million from $44.0 million for the same period in 2006 due to a 12 percent increase in production volume and marginally higher average prices per boe. Natural gas production revenues increased 10 percent to $34.1 million while oil production revenue increased by 41 percent to $16.5 million in the first nine months of 2007.

Royalties



Three months ended Nine months ended
September 30 September 30
2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Royalties ($000s) 2,784 1,955 42 9,061 7,208 26
Average royalty
rate (%) 18 14 29 18 16 13
$/boe 7.77 5.67 37 8.14 7.26 12
----------------------------------------------------------------------------


In the third quarter of 2007 the Company recorded a negative one time adjustment for ARTC in the amount of $700,000 relating to the taxation years 2004 and 2005. Royalties were $2.8 million in the third quarter of 2007 including the ARTC adjustment. Excluding the ARTC adjustment the average royalty rate for the third quarter would have been in line with the 14 percent of revenue for the same period in 2006. On a per unit basis, excluding the ARTC adjustment, royalties were $5.81 per producing boe in the third quarter of 2007 compared to $5.67 in 2006.

Royalties were $9.1 million in the first nine months of 2007 and $7.2 million in 2006, and excluding the ARTC adjustment would have averaged 16 percent of revenue in both years. On a per unit basis, excluding the ARTC adjustment, royalties were $7.51 per producing boe in the first nine months of 2007 compared to $7.26 in 2006.

Approximately 55 percent of the royalties Endev pays are Crown royalties primarily in the province of Alberta. The Government of Alberta's announcement on October 25, 2007 will affect the rate of these Alberta Crown royalties beginning January 1, 2009. The effect of this change cannot be determined at this time.

Expenses



Three months ended Nine months ended
September 30 September 30
($000s) 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Operating 3,832 3,130 22 9,988 8,680 15
Transportation 408 311 31 1,251 933 34
General and
administrative 1,127 1,053 7 3,395 3,321 2
Interest 717 552 30 2,320 1,406 65


Three months ended Nine months ended
September 30 September 30
Expenses per boe $ 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Operating 10.69 9.08 18 8.98 8.74 3
Transportation 1.14 0.90 26 1.12 0.94 19
General and
administrative 3.14 3.06 3 3.05 3.34 (9)
Interest 2.00 1.60 25 2.09 1.42 47


Operating

On a per unit basis, operating costs increased 18 percent to $10.69 per producing boe during the third quarter of 2007 compared to $9.08 per producing boe in the same period in 2006. The increase in the third quarter of 2007 is the result of a significant amount of well servicing to optimize production, well repairs and unanticipated billings on non-operated properties for prior periods. These items accounted for approximately $2.20 per producing boe in the third quarter, the majority of which we would not anticipate reoccurring in future periods.

During the first nine months of 2007, per unit operating costs increased three percent to $8.98 per producing boe compared to $8.74 per producing boe in the same period in 2006. Operating expenses increased 15 percent to $10.0 million compared to $8.7 million in the same period in 2006. The Company has realized some operating efficiencies as additional gas is processed through Company owned facilities at Majorville and has seen marginal reductions in some field service costs. We will continue to work with service providers and look at ways to increase operational effectiveness to manage operating costs in the future.

Transportation

Transportation costs averaged $1.14 per boe in the third quarter of 2007 compared to $0.90 per boe in the third quarter of 2006 and $1.12 per boe in the first nine months of 2007 compared to $0.94 per boe in the first nine months of 2006. Transportation costs have increased over 2006 due the larger proportion of oil being produced where oil transportation costs are higher than gas.

General and Administrative (G&A)



Three months ended Nine months ended
September 30 September 30
($000s) 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Gross G&A costs 1,670 1,440 16 4,938 4,096 21
Capital and operating
recoveries (513) (482) 6 (1,588) (1,305) 22
Capitalized overhead (267) (253) 6 (789) (787) -
----------------------------------------------------------------------------
Net G&A costs 890 705 26 2,561 2,004 28
Stock-based
compensation 237 348 (32) 834 1,317 (37)
----------------------------------------------------------------------------
Total G&A costs 1,127 1,053 7 3,395 3,321 2
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three months ended Nine months ended
September 30 September 30
$ per boe 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Gross G&A costs 4.66 4.18 12 4.44 4.12 8
Capital and operating
recoveries (1.43) (1.40) 2 (1.43) (1.31) 9
Capitalized overhead (0.74) (0.73) 1 (0.71) (0.79) (11)
----------------------------------------------------------------------------
Net G&A costs 2.49 2.05 22 2.30 2.02 14
Stock-based
compensation 0.66 1.01 (35) 0.75 1.33 (43)
----------------------------------------------------------------------------
Total G&A costs 3.15 3.06 3 3.05 3.34 (9)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Net G&A costs, after capital and operating recoveries and capitalized overhead, increased to $0.9 million in the third quarter of 2007 compared to $0.7 million in the same period in 2006. The increase in net G&A costs in the third quarter of 2007 over the same period in 2006 is due primarily to an increase in staffing costs. On a barrel of oil equivalent basis, net G&A costs increased to $2.49 per boe from $2.05 per boe.

Net G&A costs increased to $2.6 million in the first nine months of 2007 compared to $2.0 million for the same period in 2006. On a barrel of oil equivalent basis, net G&A costs increased to $2.30 per boe from $2.02 per boe. The Company capitalizes the salaries and associated direct costs of professional staff directly associated with the Company's exploration and development activities.

Stock-based compensation costs were $0.2 million in the third quarter of 2007 and $0.3 million in 2006. On a year-to-date basis, stock-based compensation costs were $0.8 million in 2007 and $1.3 million in 2006, as more options were issued in 2006. As at September 30, 2007, the Company has $0.7 million of unamortized stock-based compensation costs that will be charged to income over the remaining vesting period of the options outstanding.

Interest and Financing Charges

Interest and financing charges for the third quarter of 2007 were $0.7 million or $2.00 per producing boe compared to $0.5 million or $1.60 per producing boe for the comparable period in 2006. Interest and financing charges for the first nine months of 2007 were $2.3 million or $2.09 per producing boe compared to $1.4 million or $1.42 per producing boe for the comparable period in 2006. The increase in interest and financing charges reflect higher average debt levels and increased interest rates in 2007 as compared to 2006.

Income and Capital Taxes

The Company has no provision for current income taxes in the first nine months of 2007 and does not expect to have a current income tax liability for 2007, as the Company has sufficient tax pools to offset income in the year. At September 30, 2007 the Company has approximately $110 million in tax pools and non-capital loss carry forwards available for future use as deductions from taxable income.

Future income tax liabilities arise due to the difference between the tax basis of assets and their respective accounting carrying cost. During the second quarter of 2007, the Canadian Federal Government enacted reductions to its corporate income tax rates, resulting in a reduction of future income tax liabilities of approximately $0.3 million. During the second quarter of 2006, a larger reduction in rates was enacted resulting in a reduction of future income tax liabilities of approximately $2.8 million. For the three months ended September 30, 2007, the provision for future taxes was a reduction of $0.4 million and an expense of $59 thousand in 2006. On a year to date basis there is a future income tax reduction of $0.8 million in 2007 and a reduction of $1.4 million in 2006.

Depletion and Depreciation

Depletion is calculated using the unit-of-production method based on total estimated proved reserves. Depletion and depreciation expense for the third quarter was $9.4 million or $26.28 per boe, compared to $7.0 million or $20.40 per boe for the same period in 2006. Depletion expense for the first nine months of 2007 was $29.1 million or $26.19 per boe compared to $20.0 million or $20.19 per boe in 2006. Depletion expense per boe in the third quarter of 2007 is consistent with the second quarter of 2007 and has increased year over year due to additional costs subject to depletion and a reduction in reserves. The reduction in reserves was due to technical revisions to prior years' reserves estimates.

Asset Retirement Obligation Accretion

The provision for accretion of asset retirement costs for the third quarter was $0.2 million in 2007 and 2006 and $0.3 million year to date in both years.

Goodwill

Endev records goodwill on corporate acquisitions when the total purchase price exceeds the fair value of the net identifiable assets and liabilities of the acquired company. The goodwill balance is assessed for impairment at each reporting period and any impairment is recognized based on the fair value of the Company compared to its book value. At September 30, 2007 the Company's assessment of its goodwill determined that the fair value of the entity had been reduced due to the decline in the Company's market capitalization. This test resulted in a write-down of goodwill of $7.8 million. There has been no impairment to the value of the Company's petroleum and natural gas assets.

Net Income and Funds from Operations



($000s, except per Three months ended Sept 30 Nine months ended Sept 30
share amounts) 2007 2006 % change 2007 2006 % change
----------------------------------------------------------------------------
Net income (loss) (9,991) (275) - (10,538) 3,313 -
Basic per share (0.11) - - (0.12) 0.04 -
Diluted per share (0.11) - - (0.12) 0.04 -

Funds from operations 7,525 7,314 3 26,720 23,561 13
Basic per share 0.09 0.08 13 0.30 0.27 11
Diluted per share 0.09 0.08 13 0.30 0.26 15


The Company had a net loss of $10.0 million for the third quarter, or $0.11 per share compared to a net loss of $0.3 million for the same period in 2006. The decrease in net income was due primarily to the write-down of goodwill, an increase in depletion, operating costs and interest partially offset by an increase in petroleum and natural gas revenue and the gain on commodity contracts. Funds from operations in the third quarter increased to $7.5 million in 2007 from $7.3 million for the same period in 2006 due to an increase in petroleum and natural gas revenue and realized gain on commodity contracts partially offset by increases in general and administrative costs and interest. On a per share basis, funds from operations was $0.09 per basic share in 2007 and $0.08 in 2006. Funds from operations decreased 18 percent in the third quarter of 2007 from the second quarter of 2007, primarily due to the increase in operating costs and the reduction in prior year ARTC.

In the first nine months of 2007, the Company realized a loss of $10.5 million, with a loss of $0.12 per share on a basic and diluted basis compared to net income of $3.3 million for the same period in 2006, with $0.04 earnings per share on a basic and diluted basis. The decrease in net income was due to an increase in depletion, interest and operating costs and the write-down of goodwill partially offset by an increase in petroleum and natural gas revenue. The future income tax reduction in the second quarter of both years increased net income. Funds from operations in the first nine months increased to $26.7 million in 2007 from $23.6 million for the same period in 2006 due to an increase in petroleum and natural gas revenue partially offset by increases in operating, general and administrative costs and interest. On a per share basis, funds from operations in the first nine months was $0.30 per basic share in 2007 and $0.27 in 2006.

SUMMARY OF QUARTERLY FINANCIAL INFORMATION



Sept. 30 June 30 March 31 Dec. 31
($000s, except per share amounts) 2007 2007 2007 2006
----------------------------------------------------------------------------

Gross revenue 15,673 17,438 18,659 17,148
Funds from operations 7,525 9,165 10,030 9,134
Basic per share 0.09 0.10 0.11 0.10
Diluted per share 0.09 0.10 0.11 0.10
Net income (loss) (9,991) 364 (911) (634)
Basic per share (0.11) - (0.01) (0.01)
Diluted per share (0.11) - (0.01) (0.01)
Capital expenditures, net 6,791 5,123 7,441 14,948
Net debt (1) 47,144 47,878 52,157 54,746
Total daily production (boe/d) 3,896 4,000 4,337 4,138

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

Gross revenue 13,972 13,790 16,219 21,523
Funds from operations 7,314 7,456 8,791 13,634
Basic per share 0.08 0.08 0.10 0.15
Diluted per share 0.08 0.08 0.10 0.15
Net income (loss) (275) 2,474 1,114 5,131
Basic per share - 0.03 0.01 0.06
Diluted per share - 0.03 0.01 0.06
Capital expenditures, net 15,296 11,965 17,263 17,993
Net debt (1) 48,932 40,851 36,496 28,190
Total daily production (boe/d) 3,746 3,555 3,612 3,651

(1) Excluding unrealized gains (losses) on commodity contracts.


SELECTED ANNUAL INFORMATION

($000s, except per share amounts) 2006 2005 2004
----------------------------------------------------------------------------

Gross revenue 61,129 71,538 52,349
Net income 2,679 12,044 926
Basic per share 0.03 0.14 0.01
Diluted per share 0.03 0.14 0.01
Total assets 188,940 158,693 140,893
Total liabilities 94,030 68,581 64,285
Total daily production (boe/d) 3,764 3,778 3,500


CAPITAL EXPENDITURES

The following table outlines Endev's capital expenditures:

Three months ended Nine months ended
September 30 September 30
($000s) 2007 2006 2007 2006
----------------------------------------------------------------------------
Land and seismic 1,838 758 3,026 3,412
Drilling and completions 3,283 12,328 12,206 30,073
Tie-ins and facilities 1,660 2,170 4,077 10,829
Other 10 40 46 210
----------------------------------------------------------------------------
Total capital expenditures 6,791 15,296 19,355 44,524
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three months ended September 30, 2007, the Company incurred capital expenditures of $6.8 million. The Company drilled eight gross (eight net) wells and spent $1.8 million on land and seismic.



THIRD QUARTER 2007 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
----------------------------------------------------------------------------
Admiral 0 0 0 0 0.0 0.0 0.0 0.0
Bantry 1 0 0 1 1.0 0.0 0.0 1.0
Majorville 6 0 1 7 6.0 0.0 0.8 6.8
Provost 0 0 0 0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------
Total 7 0 1 8 7.0 0.0 0.8 7.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------


YEAR-TO-DATE 2007 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
----------------------------------------------------------------------------
Admiral 5 0 0 5 5.0 0.0 0.0 5.0
Bantry 1 0 0 1 1.0 0.0 0.0 1.0
Majorville 7 7 2 16 6.4 7.0 1.8 15.2
Provost 0 2 2 4 0.0 2.0 2.0 4.0
----------------------------------------------------------------------------
Total 13 9 4 26 12.4 9.0 3.8 25.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In the third quarter of 2007, Endev drilled eight gross wells with a success rate of 88 percent. This year, drilling in the Majorville area has focused on Mannville targets.



LAND SUMMARY

As at September 30, 2007 Developed Undeveloped Total
(acres) Gross Net Gross Net Gross Net
----------------------------------------------------------------------------
Alberta 181,012 115,246 120,043 74,786 301,055 190,032
British Columbia 316 43 316 43 632 86
Manitoba 439 170 0 0 439 170
Saskatchewan 8,947 4,536 31,492 16,051 40,439 20,587
----------------------------------------------------------------------------
Total 190,714 119,995 151,851 90,880 342,565 210,875
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the third quarter of 2007 Endev acquired 6,320 gross (6,320 net) acres of land at Crown land sales.

LIQUIDITY AND CAPITAL RESOURCES

Endev has a revolving credit facility with the National Bank of Canada for $60 million which is reviewed periodically by the bank, with the next review scheduled for April 2008. At September 30, 2007, the Company had approximately $43.4 million outstanding on its revolving credit facility and a working capital deficit, excluding unrealized gains on commodity contracts, of $3.7 million for total net debt of approximately $47.1 million, resulting in a debt to annualized third quarter cash flow ratio of 1.6.

Total net capital expenditures of $6.8 million for the three months ended September 30, 2007 were funded from operations. It is anticipated that future capital expenditures and operations will be funded with cash flow from operations and additional debt as required. In 2007 the Company's capital expenditures are expected to approximate cash flow. In the first nine months of 2007, cash flow from operations has exceeded capital expenditures and the Company has reduced bank indebtedness by $8.6 million.

OUTLOOK

The Company plans to drill six gas wells in the fourth quarter of 2007 as well as adding to our undeveloped land base and acquiring more seismic. Capital expenditures will approximate cash flow in the fourth quarter, resulting in year end debt levels of about $47 million, similar to the end of the third quarter. We are in the process of evaluating the opportunities available to us in 2008 to ensure that capital is deployed in an economic manner given the recent royalty announcements and the fluctuating commodity markets.

SHARE INFORMATION

The Company had 89,377,557 shares and 6,488,600 options to purchase shares outstanding as at September 30, 2007 and at November 8, 2007.

The Company issued 475,000 shares pursuant to the exercise of stock options during the nine months ended September 30, 2007.



Three months ended Nine months ended
September 30 September 30
(000s) 2007 2006 2007 2006
----------------------------------------------------------------------------
Shares outstanding
- Basic 89,378 88,903 89,378 88,903
- Diluted 95,866 94,213 95,866 94,213
Weighted average shares outstanding
- Basic 89,378 88,845 89,189 88,559
- Diluted 89,378 88,845 89,189 89,716


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.

NEW GREENHOUSE GAS AND AIR EMISSIONS LEGISLATION

The Alberta Government has introduced legislation that will enable the province to regulate emissions of Greenhouse Gases. The regulations require facilities that emit over 100,000 tonnes of greenhouse gases a year to reduce their emissions intensity by 12 percent starting July 1, 2007 or pay a fee based on emissions in excess of the targeted reductions. Endev does not have an ownership interest in any facilities that are over the current threshold.

The Federal Government has also released its regulatory framework to reduce emissions of both Greenhouse Gases and four smog-forming pollutants with targets coming into force in 2010 and 2015, respectively. Clarification surrounding the regulations is expected in the next year with the regulations to be finalized by 2010.

There are multiple compliance mechanisms under both the Alberta and Federal plans including making contributions to technology funds, emissions trading and offset credits.

Endev is in the process of fully evaluating the impact of these regulations, but we believe that the cost and impact on our operations will be minor.

NEW ALBERTA ROYALTY REGIME

On October 25, 2007 the Government of Alberta announced that it would be altering the royalty regime in the province effective January 1, 2009. While the government states that the royalty on some wells will go down, it also projects that overall the royalty collected will go up significantly. Based on a preliminary review of the available details, we anticipate the royalty on our lower productivity shallow gas wells may go down marginally while the royalty on higher productivity gas wells and oil wells will increase. We are unable to quantify the magnitude of the changes at this time. As more information becomes available, Endev will analyze the royalty changes and their likely impact on future cash flows, capital investment alternatives, reserves and the access to capital markets.

CONTRACTUAL OBLIGATIONS

In the normal course of business the Company enters into various forms of contractual obligations including; royalty agreements, operating agreements, processing agreements, purchase of services and lease obligations for office space and office equipment. All contractual obligations reflect market conditions and do not involve related parties.

The only significant obligation of the Company with a fixed term is a lease for office premises terminating on March 31, 2012. The estimated obligation for the term of the lease at September 30, 2007, including operating costs is $2.6 million for approximately 13,600 square feet of office space.

CHANGES IN ACCOUNTING POLICIES

On January 1, 2007, the Company adopted the new Canadian accounting standards for financial instruments - recognition and measurement, financial instruments - presentations and disclosures, hedging and comprehensive income. These accounting policies are detailed in note 2 to the financial statements. Prior periods have not been restated. The adoption of these standards did not impact the financial statements of the Company and did not result in any adjustments for the recognition or measurement of financial instruments as compared to the financial statements for periods prior to the adoption of these standards.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Significant accounting policies used by Endev Energy Inc. are disclosed in note 2 to the December 31, 2006 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 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 properties, 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.

Financial Instruments

The Company recognizes the fair value for the unrealized portion of derivative contracts at each reporting date on the financial statements. The fair value is based on an estimate of the amounts that would have been paid to or received from counterparties to settle these instruments given future market prices and other relevant factors. As the fair value is based on a number of subjective estimates such as future prices and volatility in commodity markets, estimates could differ from actual results realized.

Stock-Based Compensation

Endev uses the fair value method for valuing stock options. Under this method, as new options are granted, the fair value of these options will be expensed on a straight-line basis over the applicable vesting period, with an offsetting entry to contributed surplus. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions including expected stock price volatility.

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) September 30, December 31,
(Unaudited) 2007 2006
----------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents $ - $ 10
Accounts receivable 7,336 11,034
Prepaid expenses and deposits 362 308
Unrealized gain on commodity contracts (note 8) 128 312
----------------------------------------------------------------------------
7,826 11,664
Property, plant and equipment (note 3) 159,995 169,476
Goodwill (note 4) - 7,800
----------------------------------------------------------------------------

$ 167,821 $ 188,940
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 6) $ 43,351 $ 51,958
Accounts payable and accrued liabilities 11,491 14,140
----------------------------------------------------------------------------
54,842 66,098
Asset retirement obligations (note 5) 8,943 8,587
Future income taxes 18,593 19,345
----------------------------------------------------------------------------

82,378 94,030
----------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (note 7) 68,414 68,177
Contributed surplus (note 7) 4,355 3,521
Retained earnings 12,674 23,212
----------------------------------------------------------------------------

85,443 94,910
----------------------------------------------------------------------------

$ 167,821 $ 188,940
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments (note 10)

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
($000s, except per share amounts) (Unaudited)

Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2007 2006 2007 2006
----------------------------------------------------------------------------

REVENUES
Petroleum and natural gas $ 15,673 $ 13,972 $ 51,773 $ 43,981
Royalties (net of Alberta Royalty
Tax Credit) (2,784) (1,955) (9,061) (7,208)
Realized and unrealized gain on
commodity contracts (note 8) 235 - 414 -
----------------------------------------------------------------------------
13,124 12,017 43,126 36,773
----------------------------------------------------------------------------

EXPENSES
Operating 3,832 3,130 9,988 8,680
Transportation 408 311 1,251 933
General and administrative 1,127 1,053 3,395 3,321
Interest 717 552 2,320 1,406
Depletion and depreciation 9,419 7,028 29,139 20,056
Accretion of asset retirement
obligations 176 159 523 464
Write-down of goodwill (note 4) 7,800 - 7,800 -
----------------------------------------------------------------------------
23,479 12,233 54,416 34,860
----------------------------------------------------------------------------
Income (loss) before taxes (10,355) (216) (11,290) 1,913
Future income tax expense
(reduction) (364) 59 (752) (1,400)
----------------------------------------------------------------------------
NET INCOME (LOSS) (9,991) (275) (10,538) 3,313

Retained earnings , beginning of
period 22,665 24,188 23,212 20,600
Settlement of stock options - (67) - (67)
----------------------------------------------------------------------------

Retained earnings, end of period $ 12,674 $ 23,846 $ 12,674 $ 23,846
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NET INCOME (LOSS) PER SHARE (note 7)
Basic $ (0.11) $ - $ (0.12) $ 0.04
Diluted $ (0.11) $ - $ (0.12) $ 0.04
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.



ENDEV ENERGY INC.
Consolidated Statements of Cash Flows
($000s) (Unaudited)
Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2007 2006 2007 2006
----------------------------------------------------------------------------

Cash provided by (used in)

OPERATIONS
Net income (loss) $ (9,991) $ (275) $(10,538) $ 3,313
Depletion and depreciation 9,419 7,028 29,139 20,056
Accretion of asset retirement
obligations 176 159 523 464
Future income taxes (reduction) (364) 59 (752) (1,400)
Actual abandonment costs (118) (5) (470) (189)
Stock-based compensation 237 348 834 1,317
Unrealized gain on commodity
contracts 366 - 184 -
Write-down of goodwill 7,800 - 7,800 -
----------------------------------------------------------------------------
7,525 7,314 26,720 23,561
Changes in non-cash working capital
(note 9) (136) (2,040) 2,380 (1,959)
----------------------------------------------------------------------------
7,389 5,274 29,100 21,602
----------------------------------------------------------------------------
FINANCING
Issue of common shares, net of issue
costs - 115 237 435
Settlement of stock options - (214) - (214)
Bank indebtedness (1,366) 7,827 (8,607) 15,605
----------------------------------------------------------------------------
(1,366) 7,728 (8,370) 15,826
----------------------------------------------------------------------------
INVESTING
Property, plant and equipment
additions (6,791) (15,296) (19,355) (44,524)
Changes in non-cash working capital
(note 9) 762 2,398 (1,385) 7,200
----------------------------------------------------------------------------
(6,029) (12,898) (20,740) (37,324)
----------------------------------------------------------------------------
Change in cash (6) 104 (10) 104
Cash, beginning of period 6 - 10 -
----------------------------------------------------------------------------
Cash, end of period $ - $ 104 $ - $ 104
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Interest paid $ 717 $ 552 $ 2,320 $ 1,406
Taxes paid $ - $ 25 $ - $ 87
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(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, 2006 except as discussed below. These 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, 2006.

2. CHANGES IN ACCOUNTING POLICIES

On January 1, 2007, the Company adopted the new Canadian accounting standards for financial instruments - recognition and measurement, financial instruments - presentations and disclosures, hedging and comprehensive income. Prior periods have not been restated.

(a) Financial Instruments - Recognition and Measurement

This new standard requires all financial instruments within its scope, including all derivatives, to be recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired. There were no changes to the measurement of existing financial assets and liabilities at the date of adoption.

(b) Derivatives

The Company uses various types of derivative financial instruments to manage risks associated with crude oil and natural gas price fluctuations. These instruments are not used for trading or speculative purposes. Proceeds and costs realized from holding the related contracts are recognized in petroleum and natural gas revenues at the time that each transaction under a contract is settled. For the unrealized portion of such contracts, the Company utilizes the fair value method of accounting. The fair value is based on an estimate of the amounts that would have been paid to or received from counterparts to settle these instruments given future market prices and other relevant factors. The method requires the fair value of the derivative financial instruments to be recorded at each balance sheet date with unrealized gains or losses on these contracts recorded through net earnings.

The Company has elected to account for its commodity sales and other non-financial contracts, which were entered into and continue to be held for the purpose of receipt or delivery of non-financial items in accordance with its expected purchase, sale or usage requirements as executory contracts on an accrual basis rather than as non-financial derivatives. Prior to adoption of the new standards, physical receipt and delivery contracts did not fall within the scope of the definition of a financial instrument and were also accounted for as executory contracts.

(c) Other Comprehensive Income

The new standards establish a new statement of comprehensive income, which is comprised of net earnings and other comprehensive income. As the Company currently has no other comprehensive income items requiring disclosure this statement of comprehensive income is not required.

There are also two new Canadian accounting standards that have been issued which will require additional disclosure in the Company's financial statements commencing January 1, 2008 about the Company's financial instruments as well as its capital and how it is managed.



3. PROPERTY, PLANT AND EQUIPMENT

September 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Oil and gas properties $ 288,406 $ 268,794
Other assets 614 568
----------------------------------------------------------------------------
289,020 269,362
Accumulated depletion and
depreciation (129,025) (99,886)
----------------------------------------------------------------------------

Net book value $ 159,995 $ 169,476
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the period ended September 30, 2007, the Company capitalized $0.8 million (2006 - $0.8 million), of general and administrative expenses related to exploration and development activities. As at September 30, 2007, the depletion calculation excluded unproved properties of $6.4 million (2006 - $6.4 million) and included future development costs of proved reserves of $9.8 million (2006 - $5.7 million).

4. GOODWILL

The Company reviewed the valuation of goodwill as of September 30, 2007 and determined that the fair value of the Company had declined due to the decline in the Company's market capitalization. Based upon this review, an impairment of goodwill of $7.8 million has been recorded as a non-cash charge to income as of September 30, 2007. There has been no impairment to the value of the Company's petroleum and natural gas assets.

5. 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 September 30, 2007, the Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $28.9 million which will be incurred from 2007 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:

September 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Balance, beginning of period $ 8,587 $ 7,866
Accretion expense 523 632
Revisions to estimates - (351)
Obligations incurred 303 748
Actual abandonment cost (470) (308)
----------------------------------------------------------------------------
Balance, end of period $ 8,943 $ 8,587
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. BANK INDEBTEDNESS

As at September 30, 2007, the Company has a revolving demand credit facility with a maximum availability of $60.0 million. The interest rate at September 30, 2007 was prime plus 0.25 percent (6.5 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. The credit facility is reviewed periodically by the bank, with the next review scheduled for April 2008.



7. 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, 2005 88,059,223 $ 67,727
Options exercised 843,334 435
Contributed surplus associated with
options exercised - 15
----------------------------------------------------------------------------
Balance, December 31, 2006 88,902,557 68,177
Options exercised 475,000 237
----------------------------------------------------------------------------
Balance, September 30, 2007 89,377,557 $ 68,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The weighted average number of shares outstanding is as follows:

Three months ended Sept 30 Nine months ended Sept 30
2007 2006 2007 2006
----------------------------------------------------------------------------
Basic 89,377,557 88,845,274 89,189,463 88,559,367
Diluted 89,377,557 88,845,274 89,189,463 89,715,673
----------------------------------------------------------------------------


For the period ended September 30, 2007, 6,488,600 (2006 - 3,267,500) options were not included in the diluted earnings per share calculation because they were antidilutive.

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.



September 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Weighted Weighted
Number of Average Number of Average
Options Exercise Price Options Exercise Price
----------------------------------------------------------------------------
Stock options
outstanding,
beginning of period 6,729,100 $1.32 4,991,500 $1.08
Granted 261,500 1.13 3,419,600 1.47
Exercised (475,000) 0.50 (843,334) 0.52
Settled and cancelled - - (400,000) 0.98
Forfeited or expired (27,000) 1.18 (438,666) 1.65
-----------------------------------------------------
Stock options
outstanding,
end of period 6,488,600 $1.37 6,729,100 $1.32
-----------------------------------------------------
-----------------------------------------------------

-----------------------------------------------------
Exercisable, end of
period 4,525,200 $1.38 3,799,032 $1.23
-----------------------------------------------------
-----------------------------------------------------


Options Outstanding Options Exercisable
----------------------------------------------------------------------------


Weighted
Weighted Remaining Weighted
Range of Average Contractual Average
Exercise Number Exercise Life Number Exercise
Prices Outstanding Price (years) Exercisable Price
----------------------------------------------------------------------------
$0.50 - $0.90 348,500 $0.88 1.9 340,500 $0.88
$1.05 - $1.30 3,371,100 1.16 4.8 2,053,700 1.15
$1.32 - $1.74 2,184,000 1.63 3.3 1,641,000 1.62
$1.77 - $2.10 585,000 1.90 3.0 490,000 1.87
------------------------------------------------------------
6,488,600 $1.37 4.0 4,525,200 $1.38
------------------------------------------------------------
------------------------------------------------------------


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 Sept 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Risk free interest rate (%) 5.20 5.71
Expected life (years) 5 5
Expected volatility (%) 52 47
Weighted average fair value of each
option granted ($) 0.58 0.71
Dividend yield (%) - -

CONTRIBUTED SURPLUS

Sept 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Balance, beginning of period $ 3,521 $ 1,785
Stock-based compensation expense 834 1,898
Cash settlement of stock options - (147)
Options exercised - (15)
----------------------------------------------------------------------------
Balance, end of period $ 4,355 $ 3,521
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In July 2006 the Company settled and cancelled an aggregate of 400,000 outstanding vested stock options with a weighted average exercise price of $0.975 with a former employee. The former employee was paid $214,000 with respect to this settlement. The excess of the cash settlement over the grant date fair value of the options has been charged to retained earnings.

8. FINANCIAL INSTRUMENTS

(i) Fair value of financial instruments

The Company's financial instruments consist of accounts receivable, accounts payable and accrued liabilities. As at September 30, 2007 the carrying value of these financial instruments approximated their fair value due to their short-term nature. The Company's bank indebtedness bears interest at a floating market rate and accordingly the fair market value approximates the carrying value. The fair value of commodity price contracts is shown below.

(ii) Foreign currency exchange risk

The Company is exposed to foreign currency fluctuations as crude oil and natural gas prices are referenced in U.S. dollar denominated prices.

(iii) Credit risk

Virtually all of the Company's accounts receivable are with customers involved in the oil and gas industry and are subject to normal industry credit risks. The carrying value of accounts receivable reflects management's best estimate of the credit risk associated with the Company's counterparties.

(iv) Interest rate risk

The Company is exposed to interest rate risk to the extent that bank debt is at a floating rate of interest.

(v) Commodity price contracts

As at September 30, 2007 the Company has the following commodity contracts:



Unrealized
Gain
Remaining (Loss) on
Product Volume Period Contract Price Contract
----------------------------------------------------------------------------
Natural gas 2,000 GJ October 2007 Costless Floor $6.67/GJ
per day Collar Ceiling $7.54/GJ $ 104
----------------------------------------------------------------
Natural gas 1,000 GJ October 2007 Costless Floor $6.67/GJ
per day Collar Ceiling $8.15/GJ 52
----------------------------------------------------------------
Natural gas 1,000 GJ October 2007 Costless Floor $6.00/GJ
per day Collar Ceiling $7.00/GJ 31
----------------------------------------------------------------
Natural gas 1,000 GJ October 2007 Costless Floor $6.25/GJ
per day Collar Ceiling $7.33/GJ 39
----------------------------------------------------------------
Natural gas 1,000 GJ October 2007 Costless Floor $6.50/GJ
per day Collar Ceiling $7.72/GJ 46
----------------------------------------------------------------------------
Natural gas 6,000 GJ
Total per day 272
----------------------------------------------------------------------------
Crude oil 250 bbl September - Costless Floor US$65.00/bbl
WTI per day December 2007 Collar Ceiling US$75.50/bbl (128)
----------------------------------------------------------------
Crude oil 250 bbl January - Costless Floor US$65.00/bbl
WTI per day March 2008 Collar Ceiling US$86.50/bbl (16)
----------------------------------------------------------------------------
Crude Oil
Total (144)
----------------------------------------------------------------------------
Total unrealized gain $ 128
----------------------------------------------------------------------------
----------------------------------------------------------------------------


At December 31, 2006 the Company had an unrealized gain on commodity contracts of $0.3 million.

During the period ended September 30, 2007 the financial price risk management program of the Company resulted in the following realized and unrealized gains and losses:



Three months ended Nine months ended
Sept 30 Sept 30
2007 2006 2007 2006
----------------------------------------------------------------------------
Realized gain on commodity contracts $ 601 $ - $ 598 $ -
Unrealized loss on commodity
contracts (366) - (184) -
----------------------------------------------------------------------------
$ 235 $ - $ 414 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

9. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital

Three months ended Nine months ended
Sept 30 Sept 30
2007 2006 2007 2006
----------------------------------------------------------------------------
Accounts receivable $ 745 $ 335 $ 3,698 $ 3,135
Prepaid expenses and deposits (133) 16 (54) (442)
Accounts payable and accrued
liabilities 14 7 (2,649) 2,548
----------------------------------------------------------------------------
Change in non-cash working capital $ 626 $ 358 $ 995 $ 5,241
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Relating to:
Operating activities $ (136) $ (2,040) $ 2,380 $ (1,959)
Investing activities $ 762 $ 2,398 $ (1,385) $ 7,200
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. COMMITMENTS

The Company is committed to a lease agreement for office premises until March 31, 2012. The future rentals payable including estimated operating costs are summarized in the following table:



2007 $ 140
2008 567
2009 573
2010 580
2011 587
2012 149
----------------------------------------------------------------------------
Total $ 2,596
----------------------------------------------------------------------------
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11. COMPARATIVE FINANCIAL STATEMENTS

Certain prior year's comparative figures have been restated to conform to the current year's presentation.

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 at info@endevenergy.com
    Website: www.endevenergy.com