Orleans Energy Ltd.
TSX VENTURE : OEX

Orleans Energy Ltd.

May 30, 2006 18:15 ET

Orleans Energy Announces First Quarter Results and Updated 2006 Business Plan

CALGARY, ALBERTA--(CCNMatthews - May 30, 2006) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX VENTURE:OEX) is pleased to announce its financial and operating results for the interim period ended March 31, 2006.



------------------------------------------------------------------------
Financial Highlights Three Month Period Ended,
------------------------------------------------------------------------
(6:1 oil equivalent conversion) March 31, 2006 March 31, 2005 % Change
------------------------------------------------------------------------
(all amounts in Cdn. $ except
share data)
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Petroleum and natural gas revenue 5,719,679 2,595,920 120%
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Cash flow from operations (1) 3,177,093 1,303,584 144%
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Per share - basic 0.21 0.12 75%
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- diluted 0.20 0.11 82%
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Operating netback (2) ($/boe) 33.32 29.94 11%
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Corporate netback (2) ($/boe) 30.78 25.91 19%
------------------------------------------------------------------------
Net earnings 641,718 69,456 824%
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Per share - basic 0.04 0.01 300%
------------------------------------------------------------------------
- diluted 0.04 0.01 300%
------------------------------------------------------------------------
Net debt (3)- period end 9,085,857 (3,415,482) -
------------------------------------------------------------------------
Weighted average basic shares 15,099,047 11,335,241 33%
------------------------------------------------------------------------
Weighted average diluted shares 16,047,634 11,859,756 35%
------------------------------------------------------------------------
Issued and outstanding shares 15,099,047 15,054,047 -
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Operating Highlights
------------------------------------------------------------------------
Average daily production:
------------------------------------------------------------------------
Natural gas (mcf/d) 3,426 1,404 144%
------------------------------------------------------------------------
Liquids (Oil and NGLs) (bbls/d) 576 325 77%
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Oil equivalent (boe/d) 1,147 559 105%
------------------------------------------------------------------------
Average sales price:
------------------------------------------------------------------------
Natural gas ($/mcf) 8.29 7.73 7%
------------------------------------------------------------------------
Liquids (Oil & NGLs) ($/bbl) 61.06 55.40 10%
------------------------------------------------------------------------
Oil equivalent ($/boe) 55.41 51.62 7%
------------------------------------------------------------------------
Capital expenditures ($) 7,649,826 4,840,148 58%
------------------------------------------------------------------------
Notes:
(1) Cash flow from operations does not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP") and accordingly represents Funds from Operations before
any asset retirement obligation cash expenditures.
(2) Operating netback represents average sales price less royalties,
operating costs and transportation expenses. Corporate netback
represents operating netback less general and administrative costs
and interest expense. Both measures are not recognized measures
under Canadian GAAP.
(3) Net Debt refers to outstanding bank debt plus any working capital
deficit or minus any working capital surplus (excluding any current
income tax non-cash asset). Net debt is not a recognized measure
under Canadian GAAP.


Highlights of the first quarter and year-to-date activity for Orleans include the following:

- Production in the first quarter of 2006 averaged 1,147 boe/day, a 105% increase over the 559 boe/day recorded for the comparable quarter in 2005.

- Generated approximately $3.2 million in cash flow from operations, a 144% increase over the $1.3 million realized in the first quarter of 2005.

- Year-to-date, drilled and/or participated in the drilling of 10 gross (6.0 net) wells with 80% success (cased).

- Acquired 1,760 acres of land contiguous to Orleans' existing acreage at Pine Creek and Halkirk in the first quarter.

- Expanded the Company's bank lending facility to $22.5 million. Bank indebtedness at March 31, 2006 was $7.46 million.

- Executed its "acquire and exploit" strategy through the identification, negotiation and subsequent announcement of the proposed acquisition of two private oil and gas companies offering long-term growth opportunities.

- Announced a $38.07 million "bought-deal" equity financing in connection with the previously disclosed, proposed acquisition of two private oil and gas companies.

Operational Activities

During the first quarter of 2006, Orleans drilled 9 gross (5.0 net) wells with an overall success rate of 89%. Orleans incurred approximately $7.6 million in capital expenditures during this period. Capital activities were primarily reduced for well completions and related facilities due to lack of availability of general oil and gas services. Orleans did, however, increase capital spending on Crown land sales by approximately $2.4 million, adding to its interests at Halkirk and Pine Creek.

Orleans' production for the first quarter of 2006 averaged 1,147 boe/day (50% light crude oil and natural gas liquids and 50% natural gas), an increase of 105% from the first quarter of 2005. This average production was lower than the Company's fourth quarter 2005 levels primarily due to the following: delays in completion and tie-ins of first quarter non-operated drilled wells due to lack of available services, anticipated declines in associated gas production in the Company-operated Upper Mannville J Oil Pool as a result of reduced producing gas/oil ratios due to initiation of the pressure maintenance waterflood and depletion of the gas cap, the shut-in of one of Orleans' high productivity Upper Mannville J Oil Pool wells for two weeks in March to accommodate the drilling of the Company's ninth J Oil Pool well on the same well pad, and down-time experienced at the non-operated Nevis gas plant in March.

In the Halkirk area of central Alberta, Orleans drilled three 100% operated wells in the first quarter, resulting in one successful gas well, one successful horizontal oil well, and one dry hole. One well was brought on-stream in late March 2006 resulting in only a marginal impact to average first quarter production. Additionally, in January 2006, the Company participated in the drilling of 6 gross (2.0 net) non-operated Horseshoe Canyon coal bed methane ("CBM") gas wells. The Company had anticipated completion and tie-in of these wells prior to spring break-up, but delays in completions resulted in production tie-ins being deferred to late May 2006. To-date, 4 of these 6 non-operated wells are presently on-stream.

Orleans' Mannville CBM potential continues to evolve on its Crown acreage. Substantial industry activity in the Mannville CBM play has occurred in the past year with improvements in horizontal drilling technology and drilling fluid systems, improving the deliverability and recovery potential of this play. The Company continues to monitor the advancement of such technology and may drill the first test well in the latter half of 2006.

At the Orleans' operated Pine Creek property, the Company has processed several lines of proprietary 2D seismic shot in December 2005, resulting in a 4 well drilling program planned for the remainder of 2006. Orleans is targeting multi-zone, long-lived reserves in Cretaceous-aged horizons that are currently being drilled on spacing of up to 4 wells per section by several operators in the immediate area. Pending weather, Orleans will commence drilling the first well of a 3 well operated program in early June 2006. Orleans was successful in early 2006 in acquiring additional lands via Crown land sales and has expanded its interests in the property to 4,960 gross acres with an average working interest of 87%.

Corporate Developments

On April 6, 2006 Orleans announced the acquisition of two Alberta-based private oil and gas companies for an aggregate purchase price of $109.7 million, providing an anticipated 1,400 boe/day of combined production at closing and an estimated 4.9 million boe of proved plus probable reserves. Additionally, Orleans concurrently announced a bought deal private placement financing of $38.07 million of gross proceeds to fund the acquisitions and future exploration capital expenditures (consisting of $33.04 million of subscription receipts proceeds to be converted into common equity and $5.03 million of flow-through equity proceeds). Orleans anticipates closing the acquisition of Mercury Energy Corporation ("Mercury") on or about June 2, 2006 and the acquisition of Morpheus Energy Corporation ("Morpheus") on or about June 5, 2006. The financing closed on April 27, 2006.

The corporate acquisitions substantially increase Orleans' undeveloped lands and exposure to a low-to-medium risk, diverse portfolio of drilling opportunities. Notwithstanding the recent softening of market commodity prices, primarily natural gas, Orleans intends to strategically expand its 2006 capital expenditures program in order to capture these growth opportunities offered by the acquired assets (see Outlook and Guidance section below). A summary of the key attributes of the combined two acquisitions are as follows:

- An increase in corporate base production with the addition of 1,400 boe/day, with an overall commodity weighting of 65% natural gas and 35% light gravity crude oil and NGLs.

- An increase of 235% in undeveloped land to an aggregate of 57,315 acres with an average working interest ownership of 74%.

- An increase of 130% in proved plus probable reserves to an estimated, corporate aggregate of 8.7 million boe, with approximately a 9 year reserves life index.

- Expansion of Orleans' core operated properties from 2 to 6 areas throughout central Alberta, west-central Alberta and the Peace River Arch, with a low-to-moderate risk, diverse portfolio of drilling prospects.

- Significantly expanded drilling inventory of an additional 60 identified locations, offering exposure to both light oil and natural gas prospects within a west-central Alberta geographic corridor, with additional significant down-spacing potential in several project areas.

- An increase in estimated tax pools to a corporate aggregate of $125 million.

Morpheus Energy Corporation Acquisition

The acquisition of Morpheus provides Orleans with 4 additional high working interest, operated core properties in central, west-central and the Peace River Arch in Alberta with an average working interest of 63% across 26,400 undeveloped acres of land. Anticipated production of Morpheus at closing is approximately 1,200 boe/day, weighted 67% natural gas, 33% light oil and NGLs. Proved plus probable reserves are internally estimated at approximately 4.0 million boe with a reserves life index of 9 years.

In the Gilby/Medicine River area of west-central Alberta, Morpheus is currently producing approximately 1,000 boe/day from moderate depth, multi-zone horizons in the Edmonton Sand, Horseshoe Canyon Coals, Glauconite and Ellerslie. Orleans has identified significant upside potential in downspacing the Edmonton Sand and Horseshoe Canyon as well as the Glauconite sands and has initial plans to drill 2 to 3 wells in 2006 to delineate the plays prior to down-spacing.

In the Kaybob area of west-central Alberta, Morpheus is currently producing approximately 160 boe/day from three high working interest, operated wells in the Montney formation. The recently discovered Montney pool will eventually be drilled on reduced spacing of up to 4 wells per section to maximize ultimate gas recovery. Upon closing of the corporate acquisition, Orleans will have 5,120 gross acres of land in the play with an average working interest of 70% and is programming to drill 3 wells in 2006, one well per section initially.

On the Peace River Arch in northwest Alberta, Morpheus has two properties in Gordondale and Grimshaw with high working interest, operated contiguous lands with a total of 22,880 undeveloped acres with an average working interest of 62%. Morpheus production from the Gordondale property is approximately 40 boe/day. Both Gordondale and Grimshaw are more exploration-oriented properties with upside from multi-zone, medium-depth Cretaceous and Triassic targets. Morpheus has 2D and 3D proprietary and trade seismic data over the majority of its lands and subsequent to the close of the acquisition, Orleans is planning to drill 5 to 6 wells in 2006 to test several prospects that could lead to substantially increased future drilling opportunities for the Company.

Mercury Energy Corporation Acquisition

The acquisition of Mercury is expected to provide Orleans with approximately 200 boe/day of light oil and sweet gas production at closing, acreage at Leo which is complementary to Orleans' Halkirk area and additional undeveloped lands in the Killam/Bruce area of central Alberta. Mercury has 15,715 undeveloped acres with an average working interest of 82% with all assets being company operated. Additionally, Mercury has an extensive seismic data base with which Orleans' technical personnel has already identified numerous drill locations and several interesting prospects.

Orleans intends to program a horizontal development drilling program of an approximately 100% working interest, operated oil pool in the Leo area, similar to the 2005 horizontal well development program Orleans operated in the 100% Upper Mannville J Oil Pool in Halkirk. Additionally, a reservoir and waterflood study will be undertaken to determine the feasibility of increasing productivity and reserves recovery, similar to the development plans for several nearby Mannville oil pools.

In the Killam area, immediately north of Halkirk, Orleans plans to drill 2 Cretaceous-aged gas wells in 2006. These locations were picked from proprietary 3D seismic shot in late 2005. Subject to the success of this program, Orleans expects to shoot additional 3D seismic programs to delineate additional drilling prospects.

Outlook and Guidance

Upon successful closing the Mercury and Morpheus acquisitions, anticipated in early June 2006, Orleans intends to increase its 2006 exploration and development capital expenditures from the original $24.5 million budget to approximately $35 million. This expanded capital program includes the drilling of 27 to 29 wells, with 10 wells drilled to-date. Orleans intends to finance this capital investment program through internally-generated cash flow, net proceeds from the aforementioned flow-through equity financing and unutilized bank credit. The Company's banker, upon review of both Morpheus' and Mercury's asset base, has provided an indicative term sheet outlining an increase to the Company's overall borrowing base associated with its revolving operating loan facility to $53 million. Such increase is conditional on the closing of both acquisitions and is subject to final approval by the bank's risk management committee.

Based on the investment activities anticipated within the revised 2006 capital expenditures program, average daily production for calendar 2006 is estimated between 2,200 to 2,300 boe/day. Orleans' year-end 2006 exit rate is anticipated to exceed 3,500 boe/day. Orleans has secured sufficient drilling rigs and services to facilitate the execution of its expanded capital program for the duration of 2006 and through the first quarter of 2007 and therefore does not anticipate the same delays experienced in the first quarter 2006.

MANAGEMENT'S DISCUSSION & ANALYSIS ("MD&A")

The following discussion is intended to assist the reader in understanding the business and results of operations and financial condition of Orleans Energy Ltd. (the "Company" or "Orleans"). This MD&A should be read in conjunction with the unaudited interim financial statements for the three month period ended March 31, 2006 and the audited financial statements for the nine month fiscal period ended December 31, 2005.

Orleans Energy Ltd. is a Calgary, Alberta-based crude oil and natural gas company. Orleans is incorporated under the laws of Alberta and its common shares are publicly listed and traded on the TSX Venture Exchange under the trading symbol "OEX". Effective, January 31, 2005, the Company's business was restructured to that of crude oil and natural gas exploration and production through a corporate plan of arrangement (the "Arrangement"). Through the completion of the Arrangement: (i) former shareholders of Orleans Resources Inc. became shareholders of Orleans, (ii) Orleans Resources Inc. became a wholly-owned subsidiary of Orleans, (iii) Orleans Resources Inc. ceased to be a reporting issuer; and, (iv) Orleans became a reporting issuer in each of the provinces of Alberta, British Columbia and Quebec.

Unaudited financial and operating information for the three month interim period ended March 31, 2006 ("Cal Q106"), in addition to the corresponding comparable quarterly period ended March 31, 2005 ("Cal Q105"), are presented within this MD&A commentary.

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

As an indicator of the Company's performance, the term cash flow from operations or operating cash flow contained within the MD&A should not be considered as an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This term does not have a standardized meaning under GAAP and may not be comparable to other companies. Orleans believes that cash flow from operations is a useful supplementary measure as investors may use this information to analyze operating performance, leverage and liquidity. Cash flow from operations, as disclosed within this MD&A, represents funds from operations before any asset retirement obligation cash expenditures and is expressed before changes in non-cash working capital. The Company presents cash flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share.

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

For additional information relating to Orleans, please refer to other filings as filed on SEDAR at www.sedar.com. All amounts are reported in Canadian dollars, unless otherwise stated. This MD&A includes information up to and including May 29, 2006.

Corporate Overview

The Company is actively engaged in the exploration for, development and production of natural gas, crude oil and natural gas liquids reserves within the province of Alberta. Orleans' presently has a market capitalization of approximately $91 million. Current production is weighted approximately 55 percent sweet natural gas and 45 percent light oil and natural gas liquids. The Company's production base is presently generated from two core producing areas within central Alberta. On April 6, 2006, the Company announced the proposed acquisition of two private oil and gas companies. Upon the anticipated closing of these acquisitions in the first week of June 2006, Orleans' asset base will be expanded to include six core operating areas with a significant corporate undeveloped land base of 57,315 net acres with an average working interest of approximately 74 percent. Further information with respect to the proposed acquisitions is outlined in the Subsequent Events note within the notes to the financial statements for the interim period ended March 31, 2006.



Selected Period End and Quarterly Financial Information

------------------------------------------------------------------------
2005 Quarterly Comparison
------------------------------------------------------------------------
($000s) Cal Cal Cal Cal Cal
Q405 Q305 Q205 Q105 Q106
------------------------------------------------------------------------

------------------------------------------------------------------------
Petroleum & natural gas revenue 8,452 6,981 3,982 2,595 5,720
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Cash flow from operations 4,973 4,442 2,342 1,304 3,177
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Net earnings 16,203 2,406 856 69 642
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Total assets - period end 50,684 32,196 28,795 24,216 55,109
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The following commentary will assist in providing the reader with factors that have caused variations over the aforementioned quarterly and period end results.

Petroleum and Natural Gas Production

During the first quarter of 2006, Orleans' daily marketable production on an oil equivalent basis increased 105 percent to 1,147 boe per day, as compared to the 559 boe per day in Cal Q105. The Company's natural gas sales for Cal Q106 averaged 3,426 mcf per day and crude oil and NGLs production averaged 576 bbls per day. The Company's production for Cal Q106, as compared to the preceding three months ended December 31, 2005, was lower due to the following factors: tie-in delays experienced with six non-operated Oberlin/Halkirk coal bed methane ("CBM") gas wells originally budgeted to be on-stream in Cal Q106, the shut-in of one of Orleans' high productivity Halkirk J Pool wells for two weeks in March to accommodate the drilling of the Company's ninth J Pool well on the same well location pad, natural declines associated with recently drilled Halkirk production, and down-time experienced at the non-op Nevis gas plant in March. In Cal Q106, the Company drilled and/or participated in the drilling of 9 (5.0 net) wells, with an 89 percent cased success rate. Only one of these wells was brought on-stream in Cal Q106.



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Average Daily Production
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Natural Crude Oil Oil
Gas & NGLs Equivalent
------------------------------------------------------------------------
(mcf/d) (bbls/d) (boe/d)
------------------------------------------------------------------------
Cal Q105 1,404 325 559
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Cal Q205 2,385 435 832
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Cal Q305 3,231 662 1,200
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Cal Q405 4,160 685 1,378
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Cal Q106 3,426 576 1,147
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Petroleum and Natural Gas Revenue and Commodity Pricing

Orleans' total petroleum and natural gas revenue (before royalties and transportation costs) for the three month period ended March 31, 2006 amounted to $5.72 million, representing a 120 percent increase from the corresponding Cal Q105 period. Of this $3.12 million increase over Cal Q105, 94 percent is due to increased production volumes in Cal Q106 whilst 6 percent of this positive variance is attributable to increased commodity prices vis-a-vis Cal Q105 commodity pricing.



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($000s) Cal Q106 Cal Q105 % Change
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------------------------------------------------------------------------
Crude oil & NGLs revenue 3,165 1,620 95
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Natural gas revenue 2,555 976 162
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Gross revenue 5,720 2,596 120
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Orleans may utilize derivative instruments to hedge future prices on a portion of its oil and gas production in order to achieve more predictable cash flows to fund capital expenditures and to reduce exposure to downward commodity price fluctuations. The Company currently does not have any such contracts outstanding nor were there any outstanding during the three month period ended March 31, 2006 nor the comparable period ended March 31, 2005.

The following table highlights Orleans' corporate realized commodity prices as well as benchmark market prices:



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Cal Q106 Cal Q105 % Change
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Orleans' prices:
------------------------------------------------------------------------
Natural gas ($/mcf) 8.29 7.73 7
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Crude oil and NGLs ($/bbl) 61.06 55.40 10
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Oil equivalent ($/boe) 55.41 51.60 7
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Industry benchmark prices:
------------------------------------------------------------------------
WTI Cushing oil (US$/bbl) 63.34 50.03 27
------------------------------------------------------------------------
Edmonton Par oil ($/bbl) 69.25 61.67 12
------------------------------------------------------------------------
Nymex gas (US$/mmbtu) 7.66 6.50 18
------------------------------------------------------------------------
AECO gas ($/mcf) 7.45 6.91 8
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Petroleum and Natural Gas Royalties

The Company's petroleum and natural gas royalties for the three month period ended March 31, 2006 amounted to $1.20 million, resulting in a corporate effective royalty rate of 21.1 percent. Approximately 55 percent of the Company's total royalties for this period relate to Alberta Crown royalties with the residual 45 percent pertaining to freehold and overriding royalty encumbrances. During Cal Q105, total royalties amounted to $548 thousand. The aggregate increase in Cal Q106 of $656 thousand is primarily attributable to higher production volumes realized in Cal Q106 as compared to Cal Q105. Orleans was not eligible to receive the Alberta Royalty Tax Credit ("ARTC") recovery on crown royalties incurred on a majority of its production from the Halkirk property as these assets were originally acquired from an "above-limit corporation" claiming the maximum ARTC entitlement. Additionally, the Company's Pine Creek gas wells continue to be exempt from Crown royalties due to their deep gas Crown royalty holiday status.



------------------------------------------------------------------------
($000s) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Crown 660 367 80
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Freehold and overrides 544 181 201
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Total 1,204 548 120
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Corporate royalty rate (%) 21.1% 21.3%
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Operating Expenses

The Company's total field operating expenditures for the three month period ended March 31, 2006 amounted to $970 thousand. In the aggregate, this was considerably higher than the $501 thousand reported in the same period last year with this increase primarily due to Orleans' expanded field operations resulting from a greater number of producing wells and increased production over the corresponding period last year. Additionally, inflationary cost pressures associated with oil and gas services also contributed to higher aggregate operating costs in Cal Q106. On a per unit basis, Orleans' reported operating costs were $9.39 per boe in Cal Q106, compared to $9.95 per boe in Cal Q105.



------------------------------------------------------------------------
Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

Total ($000s) 970 501 94
------------------------------------------------------------------------
Per unit ($/boe) 9.39 9.95 (6)
------------------------------------------------------------------------


Transportation Expenses

The Company's cost of transporting and distributing its crude oil and natural gas production to market destination points during Cal Q106 amounted to $106 thousand, as compared to Cal Q105 transportation expenses of $41 thousand. On a unit-of-production basis, transportation costs of $1.03 per boe in Cal Q106 represented an per unit increase of 26 percent for CalQ105. Increased production volumes, supplemented with increased clean oil trucking rates and Nova gas pipeline fuel surcharges resulted in transportation cost increases, both on an aggregate and per-unit basis.



------------------------------------------------------------------------
Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

Total ($000s) 106 41 159
------------------------------------------------------------------------
Per unit ($/boe) 1.03 0.82 26
------------------------------------------------------------------------


General & Administrative Expenses

Orleans' head office general and administrative ("G&A") expenses during the three month period ended March 31, 2006, excluding the non-cash stock-based compensation provision, amounted to $212 thousand or $2.06 on an oil-equivalent per unit basis. In comparison, the Company's G&A expenses for Cal Q105 totalled $162 thousand or $3.21 per boe of production. The Company's G&A costs in Cal Q106 increased 31 percent in absolute dollars and decreased 36 percent on an oil-equivalent per unit basis. The primary factor contributing to the higher aggregate G&A costs in Cal Q106 is the expanded operations and asset base resulting in an increase to Orleans' head office personnel.

Orleans presently employs ten head office personnel, including six geological and engineering technical personnel, and engages the services of three consultants on a part-time basis. As a result of the previously disclosed proposed acquisition of two private oil and gas companies, upon closing of the corporate acquisitions, the Company anticipates expanding its head office personnel by three employees and engaging the services of two additional part-time consultants.

The Company applies the full cost method of accounting for its oil and gas operations. Accordingly, it capitalized employee compensation and associated direct overhead costs of its technical personnel in the amount of $140 thousand during the three month period ended March 31, 2006. In Cal Q105, capitalized G&A amounted to $103 thousand.



------------------------------------------------------------------------
($000s) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Gross, net operator recoveries 352 265 33
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Capitalized (140) (103) 36
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Expensed 212 162 31
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Per unit ($/boe) 2.06 3.21 (36)
------------------------------------------------------------------------
------------------------------------------------------------------------
% Capitalized 39.8% 38.9%
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Stock-Based Compensation

Orleans utilizes the fair value method for quantifying stock option expenses. During the three month periods ended March 31, 2006 and March 31, 2005, the Company recorded non-cash stock-based compensation charges of $129 thousand and $247 thousand, respectively. The provision for Cal Q106 was recognized in connection with the amortization of stock options granted in prior periods as no stock options were granted during this three month reporting period ended March 31, 2006.



------------------------------------------------------------------------
($000s) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Stock-based compensation 129 247 (48)
------------------------------------------------------------------------


Interest Charges

Orleans incurred interest expenses of $50 thousand in Cal Q106, entirely attributable to bank borrowing interest charges on its outstanding bank debt. As at March 31, 2006, the Company had $7.46 million drawn against its bank facility, as compared to nil drawn at March 31, 2005 and $719 thousand drawn at December 31, 2005.



------------------------------------------------------------------------
($000s) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Interest charges 50 40 25
------------------------------------------------------------------------


Depletion, Depreciation and Accretion

Orleans' depletion and depreciation expense for the three month period ended March 31, 2006 amounted to $1.86 million. Cal Q106 depletion and depreciation in absolute dollars was $926 thousand greater than Cal Q105, exclusively the result of increased production volumes vis-a-vis Cal Q105. On a unit-of-production rate basis, the depletion and depreciation provision for Cal Q106 was $18.05 per boe (excluding asset retirement obligation accretion), as compared to $18.73 per boe for the comparable Cal Q105 period. The Company's accretion expense relating to its asset retirement obligations ("ARO") amounted to $58 thousand for the three month period ended March 31, 2006, as compared to $50 thousand for the comparable Cal Q105.



------------------------------------------------------------------------
($000s) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Depletion & depreciation 1,863 937 99
------------------------------------------------------------------------
ARO accretion 58 50 16
------------------------------------------------------------------------
Total 1,921 987 95
------------------------------------------------------------------------
------------------------------------------------------------------------
Per unit ($/boe) 18.61 19.61 (5)
------------------------------------------------------------------------


Income and Capital Taxes

The Company follows the liability method of accounting for income taxes whereby future income taxes are calculated based on temporary differences arising from the variance between the tax basis of an asset or liability and its property, plant and equipment carrying value. The Company recognized a future tax expense provision in Cal Q106 in the amount of $486 thousand, reducing the previously recorded future income tax asset.

During the three month period ended March 31, 2006, Orleans did not pay any corporate income tax. Due to the Company's significant tax pool balances, which aggregate to approximately $75 million, Orleans' does not expect to be subject to corporate cash income tax in the foreseeable future. Additionally, during the period Orleans was not liable for the payment of the large corporation capital tax since its stated book capitalization was less than $50 million. The following table outlines the Company's projected tax pools available for deduction against future taxable income (net of anticipated pool usage necessary to offset estimated Cal Q106 taxable income).



------------------------------------------------------------------------
Access Rate Balance
------------------------------------------------------------------------
($ millions)
------------------------------------------------------------------------
Canadian exploration expense (CEE) 100% $ 5.32
------------------------------------------------------------------------
Canadian development expense (CDE) 30% 14.05
------------------------------------------------------------------------
Canadian oil and gas property expense (COGPE) 10% 15.43
------------------------------------------------------------------------
Undepreciated capital cost (UCC) 25% 7.76
------------------------------------------------------------------------
Non-capital losses (NCL) 100% 31.34
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Share issue costs 20% 0.74
------------------------------------------------------------------------
Total $ 74.64
------------------------------------------------------------------------


Operating Cash Flow and Net Earnings

In the three month period ended March 31, 2006, Orleans recorded $3.18 million in cash flow from operations ($0.21 per basic share) and $642 thousand in net earnings ($0.04 per basic share). For the corresponding period in Cal Q105, the Company generated $1.30 million in cash flow from operations ($0.12 per basic share) and $69 thousand in net earnings ($0.01 per basic share).



($000s except share data) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Cash flow from operations (1) 3,177 1,304 144
------------------------------------------------------------------------
Per share - basic 0.21 0.12 75
------------------------------------------------------------------------
Per share - diluted 0.20 0.11 82
------------------------------------------------------------------------

------------------------------------------------------------------------
Net earnings 642 69 830
------------------------------------------------------------------------
Per share - basic 0.04 0.01 300
------------------------------------------------------------------------
Per share - diluted 0.04 0.01 300
------------------------------------------------------------------------
(1) Cash flow from operations does not have any standardized meaning
prescribed by Canadian GAAP and accordingly represents Funds from
Operations before any asset retirement obligation cash expenditures.
As an indicator of the Company's performance, the term cash flow
from operations or operating cash flow contained within should not
be considered as an alternative to, or more meaningful than, cash
flow from operating activities as determined in accordance with
Canadian GAAP.


Capital Expenditures

During the three month period ended March 31, 2006, Orleans invested $7.65 million in oil and gas capital expenditures. The Company drilled and/or participated in drilling a total of 9 (5.0 net) wells with an 89 percent cased success rate. Orleans also expanded its undeveloped acreage position at both Halkirk (480 net acres) and at Pine Creek (1,280 net acres) through successful Crown land sale participation in March 2006 and through a minor working interest consolidation purchase at the end of February 2006.

The breakdown of Orleans' capital expenditures programs are outlined below:



------------------------------------------------------------------------
($000s) Cal Q106 Cal Q105 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Land 2,467 527 368
------------------------------------------------------------------------
Seismic 188 34 453
------------------------------------------------------------------------
Drilling & completions 2,978 2,480 20
------------------------------------------------------------------------
Facilities & well equipment 680 494 38
------------------------------------------------------------------------
Exploration & development 6,313 3,535 79
------------------------------------------------------------------------
Other (capitalized G&A and fixed
office equipment) 149 174 (14)
------------------------------------------------------------------------
Property purchases 1,188 559 113
------------------------------------------------------------------------
Corporate acquisitions - 572 -
------------------------------------------------------------------------
Total capital expenditures 7,650 4,840 58
------------------------------------------------------------------------


Liquidity and Capital Resources

At March 31, 2006, Orleans was capitalized with a working capital deficit of $9.09 million (including bank debt of $7.46 million and excluding a current income tax asset of $6.15 million), and 15.1 million common shares outstanding with a book capitalization of $19.94 million and a market capitalization of $95.88 million. At March 31, 2005, the Company was capitalized with a working capital surplus of $3.42 million with bank debt of $nil, and 15.05 million common shares outstanding with a book capitalization of $19.88 million and a market capitalization of $54.20 million.



------------------------------------------------------------------------
March 31, Dec. 31,
($000) 2006 2005 % Change
------------------------------------------------------------------------

------------------------------------------------------------------------
Bank debt 7,460 719 938
------------------------------------------------------------------------
Working capital deficit(1) 1,626 3,894 (58)
------------------------------------------------------------------------
Net debt 9,086 4,613 97
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Book capitalization (2) 19,938 19,938 -
------------------------------------------------------------------------
Market capitalization (3) 95,879 93,161 3
------------------------------------------------------------------------
Note 1: Reflects current assets (excluding any current income tax asset)
less current liabilities (excluding any outstanding bank debt).
Note 2: Reflects the book value of share capital, as reported on the
Company's respective balance sheets.
Note 3: Based on the market closing price of Orleans stock and the
outstanding number of common shares at period end.


The increase in the net debt position of the Company at March 31, 2006, as compared to December 31, 2005, is directly attributable to capital investments incurred in Cal Q106 exceeding the cash generated through operating activities within that period.

At March 31, 2006, Orleans had borrowings of $7.46 million under its bank facility with a Canadian commercial bank and was in compliance with all covenant terms of the bank facility agreement. As a result of the Company's expanded oil and gas reserves base at year-end 2005, the bank facility borrowing base was increased to $22.5 million at the end of March 2006, as compared to the previous $8.0 million bank facility in effect at December 31, 2005

Orleans' main sources of liquidity are internally-generated cash flow from its oil and gas operations, undrawn bank credit facilities and access to equity capital markets. Because of the liquidity and capital resource alternatives available to the Company, including internally-generated cash flow, Orleans believes its liquidity is sufficient to fund operating, general and administrative and interest expenses, including planned spending on exploration and development projects and undeveloped acreage. The Company anticipates that public capital markets will serve as the principal source of capital to finance any future substantial corporate acquisitions and/or significant property purchases.



Common Share Information

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

------------------------------------------------------------------------
2005 Quarterly Comparison
------------------------------------------------------------------------
Cal Q405 Cal Q305 Cal Q205 Cal Q105 Cal Q106
------------------------------------------------------------------------
Share
Price: High $ 6.35 $ 6.25 $ 3.90 $ 4.20 $ 6.99
------------------------------------------------------------------------
Low $ 5.60 $ 3.68 $ 3.21 $ 3.00 $ 5.05
------------------------------------------------------------------------
Close $ 6.17 $ 5.80 $ 3.74 $ 3.65 $ 6.35
------------------------------------------------------------------------
Avg. daily
trading
volume (1) 25,624 95,242 33,320 85,336 25,560
------------------------------------------------------------------------
Shares
outstanding -
period end (2) 15,099,047 15,079,047 15,054,047 15,054,047 15,099,047
------------------------------------------------------------------------
Weighted average
basic 15,084,264 15,057,036 15,054,047 11,335,241 15,099,047
------------------------------------------------------------------------
Weighted average
diluted 15,979,723 15,861,948 15,749,603 11,859,756 16,047,634
------------------------------------------------------------------------
Note 1: The common shares of Orleans commenced trading on the TSX
Venture Exchange on January 31, 2005.

Note 2: At the Company's June 15, 2005 Shareholders Meeting, the
Company's articles were amended to reorganize its authorized
share capital. Specifically, a resolution was approved to change
the outstanding 3,950,610 non-voting common shares into voting
common shares on a 1 for 1 basis and to reduce the maximum
number of non-voting common shares that the Company is
authorized to issue to zero.

Note 3: As of the date of this MD&A, total common shares issued and
outstanding are 15,769,047.

Note 4: On April 27, 2006, Orleans closed a bought deal private
placement financing of 5,600,000 subscription receipts at a
price of $5.90 per subscription receipt and 670,000 flow-through
common shares at a price $7.50 per share for aggregate gross
proceeds of $38,065,000 (the "Equity Financing"). Both the
subscription receipts and the flow-through common shares are
subject to a four-month hold period which expires on August 28,
2006. Refer to Note 9 iii) to the unaudited financial statements
for the three month period ended March 31, 2006 for additional
details.


Contractual Obligations

Orleans is committed to various contractual obligations and commitments
in the normal course of operations and financing activities. These are
outlined as follows:

------------------------------------------------------------------------
Less than 1 - 3 4 - 5 Beyond 5
($000s) 1 Year Years Years Years Total
------------------------------------------------------------------------

------------------------------------------------------------------------
Bank debt (1) 7,460 - - - 7,460
------------------------------------------------------------------------
Operating lease obligations (2) 93 82 - - 175
------------------------------------------------------------------------
Asset retirement obligations (3) 147 481 676 4,819 6,123
------------------------------------------------------------------------
Total obligations 7,700 563 676 4,819 13,758
------------------------------------------------------------------------
Note 1: Revolving credit facility with a commercial bank. Refer to Note
4 to the unaudited financial statements for the three month
period ended March 31, 2006.

Note 2: Operating lease obligations pertain to the Company's Calgary,
Alberta head office lease.

Note 3: As at March 31, 2006, total undiscounted future asset retirement
obligation costs to be accrued over the life of the remaining
total proved are estimated at $6.12 million (adjusted for
inflation). This estimate is subject to change based on
amendments to environmental laws and as new information with
respect to the Company's operations become available. Refer to
Note 5 to the unaudited financial statements for the three month
period ended March 31, 2006.


Off-Balance Sheet Arrangements

The Company did not enter into any off-balance sheet transactions during the three month period ended March 31, 2006.

Related Party Transactions

A director and the corporate secretary of the Company are partners at a law firm that provide legal services to the Company. During the three month period ended March 31, 2006, the Company paid $nil to this firm for legal fees and disbursements.

Disclosure Controls and Procedures

Orleans' disclosure controls and procedures, as defined in Multilateral Instrument 52-109 "Certification of Disclosure in Issuers' Annual and Interim Filings", were reviewed by the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based on this review and given the size and nature of the Company's operations, the Company's CEO and CFO believe the Company's disclosure controls and procedures to be effective as of March 31, 2006. All control systems by their nature have inherent limitations and therefore Orleans' disclosure controls and procedures are believed to provide reasonable, but not absolute assurance, that: i) the Company's communications with the public are timely, factual and accurate and broadly disseminated in accordance with all applicable legal and regulatory requirements, ii) non-publicly disclosed information remains confidential, and iii) trading of the Company's common shares by Orleans' directors, officers and employees remain in compliance with applicable securities laws.

Business Outlook

Upon successful closing of the previously disclosed proposed acquisition of two private oil and gas companies, anticipated in early June 2006, Orleans intends to increase its 2006 exploration and development capital expenditures from the original $24.5 million budget to approximately $35 million. This expanded capital program includes the drilling of 27 to 29 wells, with 10 wells drilled to-date. Orleans intends to finance this capital investment program through internally-generated cash flow, net proceeds from the aforementioned flow-through equity financing and unutilized bank credit. The Company's banker, upon review of both Morpheus' and Mercury's asset base, has provided an indicative term sheet outlining an increase to the Company's overall borrowing base associated with its revolving operating loan facility to $53 million. Such increase is conditional on the closing of both acquisitions and is subject to final approval by the bank's risk management committee.

The unaudited financial statements for the interim period ended March 31, 2006 are enclosed at the end of this news release.

Orleans Energy Ltd. is a Calgary, Alberta-based emerging crude oil and natural gas company, with common shares trading on the TSX Venture Exchange under the symbol "OEX". Orleans is a team of dedicated, experienced professionals focused on the creation of shareholder value via acquisition and development of crude oil and natural gas assets in Alberta.

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

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



------------------------------------------------------------------------
ORLEANS ENERGY LTD.
Balance Sheets
------------------------------------------------------------------------
March 31, December 31,
2006 2005
---------------- ---------------
ASSETS (unaudited)

Current Assets

Cash and cash equivalents $ 1,230 $ -
Accounts receivable 2,348,160 3,397,255
Prepaid expenses and deposits 373,423 305,762
Current income tax asset 6,148,040 6,633,855
---------------- ---------------
8,870,853 10,336,872

Property, plant and equipment (Note 3) 39,236,611 33,346,079

Future income tax asset 7,001,232 7,001,232
---------------- ---------------

$ 55,108,696 $ 50,684,183
---------------- ---------------
---------------- ---------------
LIABILITIES

Current Liabilities

Accounts payable and accrued liabilities $ 4,348,774 $ 7,597,341
Bank loan (Note 4) 7,459,896 718,800
---------------- ---------------
11,808,670 8,316,141

Asset retirement obligations (Note 5) 2,645,709 2,484,234
---------------- ---------------

$ 14,454,379 $ 10,800,375
---------------- ---------------
---------------- ---------------
SHAREHOLDERS' EQUITY

Share capital (Note 6) 19,937,717 19,937,717
Contributed surplus (Note 7c) 694,150 565,359
Retained earnings 20,022,450 19,380,732
---------------- ---------------

40,654,317 39,883,808
---------------- ---------------

$ 55,108,696 $ 50,684,183
---------------- ---------------
---------------- ---------------

Nature of Operations and Organization and Basis of Presentation (Notes
1 & 2)
Subsequent Events (Note 9)

On behalf of the Board of Directors:

(signed) "Barry Olson" (signed) "James Saunders"
------------------------- -------------------------
Barry Olson James Saunders
Director Director

See accompanying notes to the interim financial statements.


------------------------------------------------------------------------
ORLEANS ENERGY LTD.
Statements of Operations and Retained Earnings
(unaudited)
------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 2006 March 31, 2005
---------------- ---------------

Revenue
Petroleum and natural gas sales $ 5,719,679 $ 2,595,920
Royalties (1,204,182) (547,761)
---------------- ---------------

4,515,497 2,048,159
---------------- ---------------
Expenses
Operating 969,506 500,759
Transportation 106,488 41,301
General and administrative 212,438 162,009
Interest 49,972 40,506
Stock-based compensation 128,791 247,382
Depletion, depreciation and accretion 1,920,769 986,746
---------------- ---------------
$ 3,387,964 $ 1,978,703
---------------- ---------------

Earnings before taxes 1,127,533 69,456

Income taxes 485,815 -
---------------- ---------------

Net earnings $ 641,718 $ 69,456

Retained earnings, beginning of period 19,380,732 8,158

Capital transaction costs - (162,348)
---------------- ---------------

Retained earnings (deficit),
end of period $ 20,022,450 $ (84,734)
---------------- ---------------
---------------- ---------------

Net earnings per share (Note 8)
Basic $ 0.04 $ 0.01
---------------- ---------------
---------------- ---------------

Diluted $ 0.04 $ 0.01
---------------- ---------------
---------------- ---------------

See accompanying notes to the interim financial statements.


------------------------------------------------------------------------
ORLEANS ENERGY LTD.
Statements of Cash Flow
(unaudited)
------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 2006 March 31, 2005
---------------- ---------------
Cash provided from (used in):

Operating activities
Net earnings $ 641,718 $ 69,456
Items not affecting cash:
Depletion, depreciation and accretion 1,920,769 986,746
Stock-based compensation 128,791 247,382
Income taxes 485,815 -
---------------- ---------------

Funds from operations 3,177,093 1,303,584
Change in non-cash working capital (34,656) (1,216,321)
---------------- ---------------
3,142,437 87,263
---------------- ---------------

Financing activities
Increase in bank loan 6,741,096 -
Repayment of bank loan and promissory
notes - (6,750,124)
Exercise of stock options - 50,817
Proceeds from share issues,
net of issue costs - 13,032,990
---------------- ---------------
6,741,096 6,333,683
---------------- ---------------
Investing activities
Property, plant and equipment additions (7,649,826) (4,209,592)
Cash acquired through Arrangement - 258,087
Change in non-cash working capital (2,232,477) 883,148
---------------- ---------------
(9,882,303) (3,068,357)
---------------- ---------------

Increase in cash and cash equivalents 1,230 3,352,589

Cash and cash equivalents,
beginning of period - -
---------------- ---------------

Cash and cash equivalents, end of period $ 1,230 $ 3,352,589
---------------- ---------------
---------------- ---------------

See accompanying notes to the interim financial statements.


ORLEANS ENERGY LTD.

Notes to the Unaudited Interim Financial Statements

For the three month period ended March 31, 2006

1. Nature of Operations and Organization

Orleans Energy Ltd. (the "Company" or "Orleans") is actively engaged in the exploration for, and development and production of natural gas, natural gas liquids and crude oil in the Western Canadian Sedimentary Basin. Orleans is incorporated under the laws of Alberta and its common shares are traded on the TSX Venture Exchange under the trading symbol "OEX".

2. Basis of Presentation

The interim financial statements included herein have been prepared by the Company without audit and include all adjustments (of a normal and recurring nature), which are, in the opinion of management, necessary for the fair presentation of the Company's interim results. These financial statements have been prepared following the same accounting policies and methods of computation as the Company's audited financial statements for the period ended December 31, 2005, and are in accordance with Canadian generally accepted accounting principles ("GAAP"). The unaudited interim financial statements contain disclosures which are incremental to the Company's financial statements for the period ended December 31, 2005. Certain disclosures, which are normally required to be included in the notes to annual financial statements, have been condensed or omitted. The interim financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the period ended December 31, 2005.



3. Property, Plant and Equipment

------------------------------------------------------------------------
March 31, December 31,
2006 2005
---------------------------
Petroleum and natural gas properties $ 47,492,158 $ 39,743,164
Accumulated depletion (8,307,989) (6,447,902)
---------------------------
39,184,169 33,295,262
---------------------------

Office equipment and other 74,927 70,583
Accumulated depreciation (22,485) (19,766)
---------------------------
52,442 50,817
---------------------------

Net property, plant and equipment $ 39,236,611 $ 33,346,079
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three month period ended March 31, 2006, the Company capitalized, as part of property, plant and equipment, certain overhead expenses of $140 thousand directly related to exploration and development activities ($103 thousand for the three months ended March 31, 2005).

At March 31, 2006, property, plant and equipment included $5.15 million relating to unproved properties (December 31, 2005: $2.72 million), which have been excluded from the depletion calculation. Future development costs related to proved non-producing developed reserves of $3.4 million have been included in the depletion calculation (December 31, 2005: $5.01 million).

4. Bank Facility

As at March 31, 2006, the Company had a demand revolving credit facility of $22.5 million with a Canadian commercial bank. Amounts drawn on the bank facility bear interest at the lender's prime rate per annum. At March 31, 2006, the Company had $7.46 million of bank debt outstanding (December 31, 2005: $719 thousand). The bank facility is secured through a floating charge over all of the Company's assets and the lender reserves the right to require fixed charge security at its discretion. Under the terms of the banking arrangement, the Company is required to meet certain financial and engineering reporting requirements.

5. Asset Retirement Obligations

Orleans' asset retirement obligations are based on the Company's net ownership in wells and facilities and management's estimate of the timing and expected future costs associated with site reclamation, facilities dismantlement, and the plugging and abandonment of wells.

At March 31, 2006, the estimated present value of the total amount required to settle the asset retirement obligations was $2.65 million (December 31, 2005: $2.48 million), based on a total undiscounted future liability amount of $6.12 million (inflation adjusted) (December 31, 2005: $5.85 million). These obligations are to be settled based on the economic lives of the underlying assets, which is currently projected to be from zero to 29 years. The Company used a credit-adjusted risk free rate of 10 percent and an inflation rate of 1.5 percent to calculate the present value of the asset retirement obligations.



------------------------------------------------------------------------
March 31, December 31,
2006 2005
---------------------------
Asset retirement obligations, opening $ 2,484,234 $ 2,057,064
Liabilities incurred 103,514 295,013
Liabilities acquired - 10,776
Liabilities settled - (38,086)
Accretion of discount 57,961 159,467
------------------------------------------------------------------------
Asset retirement obligations, ending $ 2,645,709 $ 2,484,234
------------------------------------------------------------------------
------------------------------------------------------------------------


6. Share Capital

a) Authorized

Unlimited number of voting common shares.

At the Company's June 15, 2005 Shareholders Meeting, the Company's articles were amended to reorganize its authorized share capital. Specifically, a resolution was approved to change the outstanding 3,950,610 non-voting common shares into voting common shares on a 1 for 1 basis and to reduce the maximum number of non-voting common shares that the Company is authorized to issue to zero.



b) Issued and outstanding

------------------------------------------------------------------------
Number Number of Total
of Voting Non-Voting Number
Common Common of Common
Shares Shares Shares Amount
------------------------------------------------------------------------
Balance, March 31, 2005 11,103,437 3,950,610 15,054,047 $19,881,743
Share capital
reorganization
(Note 6a) 3,950,610 (3,950,610) - -
Share issue costs - - - (1,232)
Exercise of stock options 45,000 - 45,000 57,206
------------------------------------------------------------------------
Balance, December 31,
2005 15,099,047 - 15,099,047 $19,937,717
------------------------------------------------------------------------
Balance, March 31, 2006 15,099,047 - 15,099,047 $19,937,917
------------------------------------------------------------------------
------------------------------------------------------------------------


c) Shares in escrow

Of the total common shares issued through to March 31, 2006, 467,549 shares are currently held in escrow and may not be released from escrow and traded without the written consent of the appropriate regulatory authorities.

7. Stock-Based Compensation

a) Outstanding stock options

The Company has a stock option plan for the benefit of its directors, officers, employees and certain consultants. The Company has granted options to purchase common shares, whereby each option permits the holder to purchase one share of the Company at the stated exercise price. The options vest over a two-to-three year term and are exercisable on a cumulative basis over five years. At March 31, 2006, 1,509,905 options with a weighted average exercise price of $1.77 were outstanding and exercisable at various dates through to December 20, 2010.



The following table summarizes the Company's outstanding stock options:

------------------------------------------------------------------------
Weighted Avg.
Number Exercise Price
--------------------------
Outstanding, March 31, 2005 1,435,317 $ 1.52
Granted 119,588 4.36
Exercised (45,000) 0.80
------------------------------------------------------------------------
Outstanding, December 31, 2005 1,509,905 $ 1.77
------------------------------------------------------------------------
Outstanding, March 31, 2006 1,509,905 $ 1.77
------------------------------------------------------------------------
------------------------------------------------------------------------

b) Exercise price range for options outstanding as at March 31, 2006:

------------------------------------------------------------------------
Outstanding Options Exercisable Options
------------------------------------------------------------------------
Weighted Weighted Weighted
Avg. Avg. Avg.
Price Range Number Price Remaining Life Number Price
------------------------------------------------------------------------
$ 0.80 - 1.00 923,817 $ 0.80 3.82 years 600,878 $ 0.80
$ 3.00 - 3.75 536,588 $ 3.10 3.89 years 155,500 $ 3.03
$ 5.25 - 6.00 49,500 $ 5.53 4.64 years - $ -
------------------------------------------------------------------------
Total 1,509,905 $ 1.77 3.88 years 756,378 $ 1.26
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company did not grant any stock options during the three month period ended March 31, 2006. For the comparable three month period ended March 31, 2005, 1,498,838 stock options were granted and the Company determined the fair value of such options granted using the modified Black-Scholes evaluation stock option pricing model under the following assumptions:



------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
---------------------------------------
Weighted-average fair value
($/option) - 0.88
Risk-free interest rate (%) - 3.68
Estimated hold period prior to
exercise (years) - 5
Volatility in the price of
Orleans shares (%) - 67.03
Dividend yield (%) - -
------------------------------------------------------------------------

c) Contributed surplus

The following table reconciles contributed surplus as at March 31, 2006:

March 31, December 31,
2006 2005
---------------------------
Contributed surplus, opening $ 565,359 $ 217,447
Stock-based compensation recognition 128,791 369,119
Exercise of stock options - (21,207)
------------------------------------------------------------------------
Contributed surplus, ending $ 694,150 $ 565,359
------------------------------------------------------------------------
------------------------------------------------------------------------


8. Per Share Amounts

In the calculation of diluted per share amounts, options under the Company's stock option plan are assumed to have been converted or exercised on the later of the beginning of the year and the date granted. The treasury stock method is used to determine the dilutive effect of stock options. The treasury stock method assumes that proceeds received from the exercise of in-the-money stock options in addition to the unrecognised stock-based compensation expense are used to repurchase common shares at the average market price.



------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
---------------------------------------
Weighted average shares
outstanding:
Basic 15,099,047 11,335,241
Diluted 16,047,634 11,859,756
------------------------------------------------------------------------
------------------------------------------------------------------------


9. Subsequent Events

i) On April 6, 2006 the Company announced it had entered into an agreement whereby Orleans will, subject to certain conditions, offer to purchase by way of a take-over bid all of the issued and outstanding shares of Morpheus Energy Corporation, a private, Alberta-based oil and gas company ("Morpheus") for total consideration of $88.6 million including the assumption of approximately $15.0 million of estimated current net debt (including transaction costs and net of exercise proceeds from options and warrants). The aggregate purchase price for the common shares of Morpheus is approximately $73.6 million, payable in a combination of cash and common shares of Orleans ("Orleans Common Shares"). Shareholders of Morpheus can elect to receive, for each Morpheus share, either $2.75 in cash or 0.466 of an Orleans Common Share, or any combination of the foregoing, subject to $29,401,264 in cash being paid and 7,474,898 Orleans Common Shares being issued. This assumes that all outstanding options and warrants will be exercised. Orleans intends to finance the cash component of this acquisition with the proceeds of the bought deal equity financing discussed below in Note 9 (iii). The acquisition is expected to close during the first week of June 2006.

ii) Additionally, on April 6, 2006 Orleans announced it has also entered into an arrangement agreement whereby, subject to satisfaction of certain conditions, Orleans will acquire all of the issued and outstanding shares of Mercury Energy Corporation, a private, Alberta-based oil and gas company ("Mercury") pursuant to a plan of arrangement (the "Arrangement") for a total consideration of approximately $21.1 million including the assumption of approximately $2.3 million of estimated current net debt. The aggregate purchase price for the common shares of Mercury is approximately $18.8 million, payable in a combination of cash and common shares of Orleans Common Shares. Shareholders of Mercury can elect to receive, for each Mercury share, either $0.48 in cash or 0.0836 of an Orleans Common Share, or any combination of the foregoing, subject to a maximum of $10.0 million and a minimum of $5.0 million cash being paid. Orleans intends to finance the cash component of this acquisition with its recently disclosed, expanded bank credit facility of $22.5 million. The acquisition is expected to close during the first week of June 2006. Prior to the Arrangement becoming effective with Orleans, Mercury will complete a corporate reorganization, whereby Mercury will transfer out unproved oil and gas properties pursuant to a conveyance agreement and also transfer out its portfolio common share investment in WestPac Terminals Inc. (a LNG project in British Columbia, Canada).

iii) On April 27, 2006, Orleans closed a bought deal private placement financing of 5,600,000 subscription receipts at a price of $5.90 per subscription receipt and 670,000 flow-through common shares at a price $7.50 per share for aggregate gross proceeds of $38,065,000 (the "Equity Financing"). Both the subscription receipts and the flow-through common shares are subject to a four-month hold period which expires on August 28, 2006. The underwriting syndicate for the Equity Financing was led by Peters & Co. Limited and included GMP Securities Ltd., Tristone Capital Inc., Dundee Securities Corporation and National Bank Financial Inc.

Each subscription receipt represents the right to receive one Orleans Common Share on the closing of the aforementioned Morpheus acquisition. The proceeds of the subscription receipt component of the Equity Financing have been deposited in escrow pending the closing of the acquisition of the majority of Morpheus' shares. Upon closing, the net proceeds of the offering of the subscription receipts will be released to Orleans and used by Orleans to fund the cash component of the purchase price of the Morpheus acquisition. If the closing of the Morpheus acquisition does not take place by 5:00 p.m. (Calgary time) on June 30, 2006 or the Morpheus acquisition is terminated at an earlier time, holders of the subscription receipts will be entitled to a return of their full subscription price and their pro rata entitlement to the interest earned on the escrowed funds and the subscription receipts will be cancelled. The Morpheus acquisition is anticipated to close during the first week of June 2006.

The net cash proceeds of the flow-through common share component of the Equity Financing will be used by Orleans to incur Canadian exploration expenses prior to December 31, 2007 in the aggregate amount of $5,025,000, representing the gross proceeds from the flow-through issue. Orleans will renounce the expenditures for the fiscal year ended December 31, 2006 to the subscribers of the flow through common shares.

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

Contact Information