Orleans Energy Ltd.
TSX VENTURE : OEX

Orleans Energy Ltd.

November 14, 2007 17:00 ET

Orleans Energy Announces Third Quarter 2007 Results

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2007) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX VENTURE:OEX) is pleased to announce its results for the three month period ended September 30, 2007. The Company achieved record production levels for the third quarter as a result of successful exploration and development drilling activities undertaken throughout 2007. The Company's third quarter 2007 highlights include the following:

- Strong Sequential Production Growth

Production in the third quarter averaged 3,002 barrels of oil equivalent ("boe") per day, an increase of 38% over the third quarter of 2006 (2,181 boe per day) and a 22% increase over the preceding second quarter of 2007 (2,460 boe per day). The Company is presently on-track to achieve its forecasted year-end 2007 exit rate market guidance of 3,500 boe per day.

- Drilling Success Fuelling Operational Momentum

During the third quarter, drilled eight (7.1 net) wells with 100% success, on an exploration and development capital expenditure program of $14.7 million. Year-to-date, Orleans has drilled 15 gross (12.8 net) wells with 100% success. In October, Orleans drilled its first (1.0 net) horizontal well in Kaybob, encountering over 500 meters of reservoir pay in the Montney formation. The well has been completed and tested, with very encouraging initial test rates.

- Strong Revenue Growth

Petroleum and natural gas sales of approximately $11.96 million in the third quarter of 2007, an increase of 22% over the corresponding quarter in 2006 ($9.78 million). Cash flow from operations amounted to $4.49 million ($0.12 per fully diluted share).

- Financial Flexibility

On July 12, 2007 closed a $20.22 million "bought-deal" equity financing, enabling the Company to selectively expand its capital expenditures in 2007 on strategic capital investment projects and further foster its financial flexibility. Net debt at September 30, 2007 was $44.54 million, as compared to a bank borrowing facility of $60.0 million. Based on a recently conducted, semi-annual review of the borrowing base and facility amount associated with Orleans' operating credit facility, the Company's banker has reaffirmed the $60 million operating line of credit. As a result of a smaller capital spending program anticipated in the fourth quarter, as compared to the expenditure levels incurred in the third quarter of 2007, Orleans' net debt at year-end 2007 is estimated to be between $46 to $47 million (approximately 78% of current available bank credit lines).



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Financial Highlights Three Months Ended Sept. 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2007 2006 Change
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Petroleum and natural gas revenue 11,963,621 9,776,954 22%
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Per share - basic 0.32 0.32 -
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- diluted 0.32 0.31 3%
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Cash flow from operations (1) 4,491,667 5,219,360 (14%)
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Per share - basic 0.12 0.17 (29%)
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- diluted 0.12 0.17 (29%)
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Operating netback (2) ($/boe) 20.29 29.81 (32%)
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Corporate netback (2) ($/boe) 16.27 26.02 (37%)
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Net earnings / (loss) (3,073,828) (127,759) 2306%
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Per share - basic (0.08) - -
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- diluted (0.08) - -
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Net debt (3) - period end 44,537,047 47,756,144 (7%)
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Weighted average basic shares 37,014,430 30,498,276 21%
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Weighted average diluted shares 37,526,046 31,293,929 20%
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Issued and outstanding shares (4) 37,546,372 30,518,659 23%
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 14,002 8,349 68%
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Liquids (Oil & NGLs) (bbls/d) 668 789 (15%)
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Oil equivalent (boe/d) 3,002 2,181 38%
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Average sales price (net hedging)(5):
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Natural gas ($/mcf) 6.11 6.04 1%
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Liquids (Oil & NGLs) ($/bbl) 65.76 70.81 (7%)
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Oil equivalent ($/boe) 43.11 48.73 (12%)
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Total capital expenditures ($) 15,146,269 16,782,550 (10%)
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Financial Highlights Nine Months Ended Sept. 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2007 2006 Change
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Petroleum and natural gas revenue 36,333,995 21,408,067 70%
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Per share - basic 1.05 0.98 7%
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- diluted 1.04 0.95 9%
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Cash flow from operations (1) 15,701,133 11,758,440 34%
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Per share - basic 0.46 0.54 (15%)
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- diluted 0.45 0.52 (13%)
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Operating netback (2) ($/boe) 26.23 31.49 (17%)
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Corporate netback (2) ($/boe) 21.44 28.01 (23%)
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Net earnings / (loss) (4,114,620) (831,647) 395%
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Per share - basic (0.12) (0.04) 200%
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- diluted (0.12) (0.04) 200%
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Net debt (3) - period end 44,537,047 47,756,144 (7%)
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Weighted average basic shares 34,471,799 21,825,061 58%
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Weighted average diluted shares 35,045,308 22,647,956 55%
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Issued and outstanding shares (4) 37,546,372 30,518,659 23%
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 11,792 5,388 119%
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Liquids (Oil & NGLs) (bbls/d) 718 640 12%
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Oil equivalent (boe/d) 2,683 1,538 74%
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Average sales price (net hedging)(5):
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Natural gas ($/mcf) 7.18 6.59 9%
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Liquids (Oil & NGLs) ($/bbl) 64.35 67.08 (4%)
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Oil equivalent ($/boe) 48.78 51.00 (4%)
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Total capital expenditures ($) 36,772,942 143,894,725 (74%)
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Notes:
(1) Cash flow from operations does not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP"). Please refer to the enclosed MD&A for definition of cash flow
from operations.
(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
net interest expense. Both measures are not recognized measures under
Canadian GAAP.
(3) Net debt refers to outstanding bank debt plus working capital deficit
(excluding the non-cash risk management current asset). Net debt is not
a recognized measure under Canadian GAAP.
(4) As of the date of this news release, Orleans' issued and outstanding
common shares are 37,571,372.
(5) Pricing is net of hedging results and excludes the positive revenue,
non-cash adjustment resulting from the prospective adoption of new
accounting standards effective January 1, 2007.


Operations Update

The third quarter of 2007 has proven to be one of the strongest production growth quarters for Orleans since launching active oil and gas operations in January 2005. The catalyst to the significant, sequential quarterly growth has been the "drill bit". During the third quarter of 2007, the Company successfully drilled eight (7.1 net) wells. This year, Orleans has drilled 15 gross (12.8 net) wells with 100% success. Orleans has drilled wells across the majority of its focus areas, including: eight gas wells (7.5 net) in Kaybob, three horizontal oil wells (3.0 net) in Leo, two gas wells (0.75 net) in Pine Creek, and two oil wells (1.5 net) in Gordondale.

Kaybob, West Central Alberta

Throughout 2007 Orleans' primary focus has been on its West Central Alberta Kaybob property, wherein the Company has expanded its land base from six sections (4.4 net) to 27.5 sections (25.0 net), via Crown land acquisitions and farm-ins, concentrating on exploration and development of an exciting "deep basin" resource-style natural gas prospect in the Triassic Montney formation. Since commencement of drilling operations at Kaybob in January 2007, Orleans has successfully drilled eight (7.5 net) gas wells.

Orleans has undertaken a number of operational initiatives, including the application of improved and larger fracture stimulation technology, horizontal drilling utilizing the "Packer Plus" multi-stage fracture assembly and common lease pad drilling as a means to improve productivity and reserves recovery and minimize lease construction, pipeline costs and surface disturbance. The Company recently completed its first (1.0 net) horizontal well on its West Kaybob lands, undertaking a five stage fracture stimulation, with a total of 150 tonnes of proppant being displaced along the horizontal wellbore. Preliminary flow test results are very encouraging with initial test "flush" rates of 3.7 mmcf per day at a very low surface drawdown pressure. Orleans has programmed to drill up to seven additional horizontal, Montney gas wells in 2008.

As a result of the rapid growth in production additions at Kaybob, Orleans has elected to construct a dedicated pipeline from a centralized location on Company lands to a nearby, large gas transmission system, enabling the Company to substantially increase and maximize its takeaway capacity from its western Kaybob land block. Surveying of the pipeline has commenced and construction is anticipated to be completed by mid-December 2007.

The Company has received approval from the Energy Utilities Board to drill on reduced spacing up to three wells per section across approximately 10 sections of its western Kaybob acreage and has applied for similar reduced spacing on the majority of its remaining lands. In 2007, Orleans' working interest productive capacity in Kaybob has grown from approximately 80 boe per day to 1,800 boe per day.

Leo, Central Alberta

Commencing in July 2007, Orleans drilled three (3.0 net) multi-leg horizontal wells in the light gravity crude (36 degree API) Upper Mannville D & E oil pools. The wells were all brought on-stream in August and have subsequently increased the pool production to approximately 240 boe per day. In 2008, the Company may drill up to three additional horizontal wells and anticipates initiating a waterflood program to enhance oil pool reserves recoveries.

Pine Creek, West Central Alberta

In September 2007, the Company commenced the drilling of two (0.75 net) wells in joint venture with area partners, targeting deep Cretaceous-aged, multi-zone sweet natural gas. One well (0.25 net) has been completed in four separate horizons and was brought on-stream in October 2007. The other well (0.50 net) is awaiting completion of up to three separate geologic horizons.

Hedging Update

Orleans maintains a commodity hedging program in order to mitigate commodity price risk and to ensure cash flow preservation for re-investment in capital projects. For its natural gas price exposures, for the remainder of 2007, Orleans has approximately four mmcf per day hedged at an average minimum price of $7.14 per mcf and for the winter of 2008 (January 1 to March 31) the Company has hedged approximately three mmcf per day at an average minimum price of $7.00 per mcf. As natural gas prices tend to strengthen through the forthcoming winter months, Orleans will look to implement additional gas hedges under a combination of fixed price swaps or costless collars. With respect to oil price exposures in 2008, the Company has hedged 200 barrels per day between January 1 and June 30, 2008 at a W.T.I. price of U.S.$ 81.56 per barrel.

Outlook

The third quarter of 2007 has been a pivotal quarter for Orleans in that it has clearly demonstrated the success of its internally-generated drilling program, as reflected with record production levels. The Company believes it is poised for steady, cost-effective growth for the long-term, combining a strong balance sheet, a large diverse inventory of low-to-medium risk, Company-operated conventional oil and gas prospects, and a stable production asset base. Throughout this volatile period, Orleans remains on track to exit 2007 at an estimated production yield of 3,500 boe per day and looks forward to an equally active and consistent growth profile throughout 2008.

For the duration of this year, Orleans intends to direct a majority of its remaining 2007 capital expenditures towards its Kaybob asset base, drilling two additional Montney locations on its eastern Kaybob acreage. With success, the Company anticipates "proving-up" a substantial incremental inventory of drilling locations. Orleans currently has more than 40 drilling locations in Kaybob and in excess of 200 drilling locations throughout its five core, operated properties in Alberta.

The oil and gas industry is presently experiencing a significant period of change within its operating and business environments, including the proposed future increases in Alberta royalties, depressed natural gas prices, rapidly increasing oil prices, a strengthening Canadian dollar vis-a-vis the U.S dollar and decreases in service costs. While these changes create significant challenges fostering both positive and negative benefits, Orleans is well positioned to capitalize on the associated opportunities due to the strength of its balance sheet, the diversity of its asset base and the broad array of low-to-moderate risk drilling locations facilitating optimal capital expenditure allocation. Orleans continues to remain confident in the return to a stronger and more stable natural gas price environment within the foreseeable future and as such, is well positioned to maintain its strong growth profile.

With respect to Orleans' planned 2008 capital investment activities, the Company is presently in the process of preparing its capital budget and corresponding market guidance. Orleans expects to provide detailed 2008 market guidance in mid-January 2008, subsequent to the approval of Orleans' 2008 Capital Budget by the Company's Board of Directors.

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 and nine month periods ended September 30, 2007 and the audited consolidated financial statements for the year ended December 31, 2006.

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".

Unaudited financial and operating information for the three-month interim period ended September 30, 2007 ("Q307") and the corresponding comparable quarterly period ended September 30, 2006 ("Q306"), is presented within this MD&A commentary. Additionally, unaudited financial and operating information for the nine-month period ended September 30, 2007 ("9M07") and the comparable prior year nine-month period ended September 30, 2006 ("9M06") is disclosed.

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. Please refer to the table, Reconciliation of Non-GAAP Measures, contained within this MD&A.

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 November 13, 2007.

Corporate Overview

Orleans 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. As of November 13, 2007, Orleans' market capitalization was approximately $98 million. Production is weighted approximately 80% natural gas and 20% light oil and NGLs. The Company's production base is generated from five core areas including: Central Alberta (Gilby/Medicine River and Halkirk/Leo), West Central Alberta (Pine Creek and Kaybob) and the Peace River Arch (Gordondale). Orleans' asset base provides for a solid growth platform, including: (i) an extensive, operated drilling inventory providing exposure to both light oil and natural gas prospects within a West Central Alberta geographic corridor, (ii) access to approximately 63,000 acres of high working interest (80%) undeveloped acreage offering geologic play diversity, (iii) a long-life, proved plus probable reserves base at year-end 2006 of approximately 11.4 million barrels of oil equivalent with a reserve life index exceeding 10 years and (iv) an operated production base allowing for year-round access across five producing areas exclusively within the province of Alberta.



Selected Period End and Quarterly Financial Information

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2007 Quarterly
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($000) Q307 Q207 Q107
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Petroleum & natural gas revenue 11,964 11,989 12,381
Cash flow from operations 4,492 5,143 6,066
Net earnings / (loss) (3,074) (128) (913)
Total assets (period-end) 201,795 194,076 191,627
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2006 Quarterly
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($000s) Q406 Q306 Q206 Q106
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Petroleum & natural gas revenue 11,038 9,777 5,912 5,720
Cash flow from operations 5,461 5,219 3,362 3,177
Net earnings / (loss) (17,006) (128) (1,346) 642
Total assets (period-end) 188,325 192,609 180,598 55,109
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2005 Quarterly
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($000s) Q405 Q305 Q205 Q105
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Petroleum & natural gas revenue 8,453 6,980 3,982 2,596
Cash flow from operations 4,973 4,442 2,342 1,304
Net earnings 16,203 2,406 856 69
Total assets (period-end) 50,684 32,196 28,795 24,216
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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 third quarter of 2007, Orleans' production on an oil equivalent basis increased significantly by 38% to 3,002 boe per day, as compared to the 2,181 boe per day in Q306. The Company's gas sales for Q307 averaged 14,002 mcf per day and crude oil and NGLs production averaged 668 bbls per day. Notwithstanding the curtailment of production at Gordondale throughout Q307, resulting in approximately 150 boe per day of estimated production offline, drilling success and corresponding production additions at both Kaybob and Leo has enabled the Company to generate strong sequential production growth (22%) over the second quarter 2007 production level of 2,460 boe per day. During Q307, the Company brought on-stream six (5.7 net) wells; three (2.7 net) wells at Kaybob and three (3.0 net) wells at Leo. The Company, with recent operational momentum resulting from prolific drilling activities at Kaybob, is presently on-track to achieve its forecasted year-end 2007 exit rate market guidance of 3,500 boe per day.

During the nine-month period ended September 30, 2007, Orleans' natural gas production averaged 11,792 mcf per day and crude oil and NGLs production averaged 718 bbls per day. On a combined barrel of oil equivalent basis, average daily production for this nine-month period was 2,683 boe per day.



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Average Daily Production Natural Gas Crude Oil & NGLs Oil Equivalent
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Quarterly Breakdown (mcf/d) (bbls/d) (boe/d)
Q105 1,404 325 559
Q205 2,385 435 832
Q305 3,231 662 1,200
Q405 4,160 685 1,378
Q106 3,426 576 1,147
Q206 4,334 552 1,274
Q306 8,349 789 2,181
Q406 9,428 809 2,380
Q107 10,665 805 2,583
Q207 10,673 682 2,460
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Q307 14,002 668 3,002
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The Company's geographic breakdown of its production profile for the
three-months ended September 30, 2007 is as follows:

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Area Natural Gas Crude Oil & NGLs Oil Equivalent
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(mcf/d) (bbls/d) (boe/d)
Halkirk/Leo 2,551 415 840
Gilby/Medicine River 3,320 150 704
Pine Creek 1,545 42 300
Kaybob 4,589 60 825
Pembina 1,736 1 290
Gordondale/Grimshaw 261 - 43
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Total Q307 14,002 668 3,002
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Petroleum and Natural Gas Revenue and Commodity Pricing

The Company's total petroleum and natural gas revenue for the three-month period ended September 30, 2007 amounted to $11.96 million (includes the positive revenue, non-cash adjustment of $59 thousand resulting from the prospective adoption of new accounting standards effective January 1, 2007 as outlined in the notes to the financial statements for the three and nine month periods ended September 30, 2007). The Company's revenue amount represents a 22% increase from the corresponding Q306 sales amount of $9.78 million. Orleans' petroleum and natural gas revenue for the nine-months ended September 30, 2007 amounted to $36.33 million (including the positive revenue, non-cash adjustment of $606 thousand resulting from the prospective adoption of new accounting standards effective January 1, 2007), representing a 70% increase from the corresponding 2006 nine-month period.



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Third Quarter Nine Months
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($000s) Q307 Q306 % Change 9M07 9M06 % Change
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Crude oil & NGLs 4,099 5,141 (20) 13,019 11,716 11
Natural gas 7,864 4,636 70 23,315 9,692 241
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Total Revenue 11,963 9,777 22 36,334 21,408 70
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The following highlights Orleans' corporate realized prices and benchmark
market prices:

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Third Quarter Nine Months
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Q307 Q306 % Change 9M07 9M06 % Change
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Orleans' prices (1):
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Natural gas ($/mcf) 6.11 6.04 1 7.18 6.59 9
Crude oil and NGLs
($/bbl) 65.76 70.81 (7) 64.35 67.08 (4)
Oil equivalent ($/boe) 43.11 48.73 (12) 48.78 51.00 (4)
Industry benchmark
prices:
WTI Cushing oil
(US$/bbl) 75.22 70.48 7 66.22 68.12 (3)
Edmonton Par oil ($/bbl) 80.67 79.69 1 73.65 76.02 (3)
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Nymex Henry Hub
(US$/mmbtu) 6.24 6.18 1 7.02 6.88 2
AECO gas ($/mcf) 5.07 5.58 (9) 6.42 6.26 3
FX Rate (US$/C$) 0.9562 0.8919 7 0.9069 0.8832 3
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(1) Orleans' reported prices are net of realized hedging results and before
new accounting standards adjustment for hedging.


Orleans' commodity prices continue to be driven by the prevailing worldwide price for crude oil, Canadian spot prices applicable to its gas production and many other factors beyond the Company's control. Historically, these prices have been volatile and unpredictable. Near the latter part of June 2007, current and forward market prices for natural gas began to erode significantly, primarily due to higher North American gas storage levels, as compared to levels of prior years, and a much stronger Canadian dollar vis-a-vis the U.S. dollar. This gas price erosion continued throughout Q307 as the Canadian AECO-C spot market benchmark price decreased approximately 27%, as compared to the preceding second quarter. In contradiction, average West Texas Intermediate ("WTI") crude oil pricing rose approximately 16% to US$ 75.22 per barrel over the preceding second quarter. However, the high WTI oil price levels continue to be substantially tempered in Canadian dollars due to the stronger Canadian currency. On average, the Canadian dollar appreciated by approximately 5% against the U.S. dollar, in comparison to the second quarter of 2007. The unprecedently strong Canadian currency continues to reduce commodity price realizations for Canadian oil and gas producers, such as Orleans.

As a means to partially mitigate the inherent commodity price volatility that is prevalent within the industry, and to facilitate the generation of more predictable cash flows to fund its capital expenditures, the Company utilizes a commodity hedging program. As such, from time-to-time, Orleans may employ financial instruments to manage fluctuations in oil and gas market prices, which are generally put in-place with investment grade counter-parties, which the Company believes present minimal credit risks.

The following table outlines the commodity price risk management contracts that were outstanding during the quarter ended September 30, 2007. The total fair value of these outstanding contracts as at September 30, 2007 is a gain of $163 thousand (September 30, 2006: nil) and is included on the Company's balance sheet as Risk Management Asset.



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Hedging Summary - Outstanding During Q307

Daily Collar - Collar -
Commodity Volume Fixed Swap Floor Ceiling Term
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Aug '06 -
Oil - WTI 125 bbls US$ 77.25/bbl Jul '07
Apr '07 -
Oil - WTI 150 bbls US$ 59.30/bbl US$ 70.00/bbl Dec '07
Aug '07 -
Oil - WTI 125 bbls US$ 67.85/bbl Dec '07
Gas - Feb '07 -
AECO-C 1,000 GJs C$ 6.50/GJ C$ 9.08/GJ Dec '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 6.50/GJ C$ 8.52/GJ Oct '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.00/GJ C$ 9.00/GJ Dec '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.00/GJ C$ 9.08/GJ Dec '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.70 /GJ Oct '07
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As of the date of this MD&A, the Company has the following hedge contracts
outstanding.

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Hedging Summary - As at November 14, 2007
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Daily Collar - Collar -
Commodity Volume Fixed Swap Floor Ceiling Term
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Apr '07 -
Oil - WTI 150 bbls US$ 59.30/bbl US$ 70.00/bbl Dec '07
Aug '07 -
Oil - WTI 125 bbls US$ 67.85/bbl Dec '07
Jan '08 -
Oil - WTI 200 bbls US$ 81.56/bbl Jun '08
Gas - Feb '07 -
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 6.50/GJ C$ 8.52/GJ Oct '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.00/GJ C$ 9.00/GJ Dec '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.00/GJ C$ 9.08/GJ Dec '07
Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.70 /GJ Oct '07
Gas - Nov '07 -
AECO-C 1,000 GJs C$ 6.545 /GJ Mar '08
Gas - Jan '08 -
AECO-C 1,000 GJs C$ 6.71 /GJ Mar '08
Gas - Jan '08 -
AECO-C 1,000 GJs C$ 6.67 /GJ Mar '08
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Orleans' realized petroleum and natural gas sales are impacted by the settlement of these hedge transactions by way of an "opportunity" gain or loss depending on the hedged commodity price in comparison to the period market prices. The various hedge contracts in-place throughout Q307 resulted in a realized hedging opportunity net gain or revenue boost of $805 thousand (Q206: nil), comprised of a $933 thousand increase in natural gas revenue ($0.72 per mcf) and a $127 thousand decrease in crude oil and NGLs sales ($2.07 per bbl). The hedge contracts in-place throughout the first nine-months of 2007 resulted in a realized opportunity hedging gain of $1.45 million (9M06: nil), comprised of a $1.17 million increase in natural gas revenues ($0.36 per mcf) and a $277 thousand increase in crude oil and NGLs sales ($1.41 per bbl).

On January 1, 2007 the Company adopted the new accounting standards regarding the accounting for financial instruments. In addition to the adoption of the new standards, Orleans has elected not to use hedge accounting and consequently records the fair value of its commodity hedge contracts at each reporting period with the change in the fair value being classified as unrealized gains and losses in the Statement of Operations and Comprehensive Income and Retained Earnings. The accounting for hedging relationships for prior fiscal periods are not retroactively changed, therefore, there was no restatement of the financial position or results of operation as at and for the nine-months ended September 30, 2006.

On adoption, the Company recognized a current asset of $606 thousand for the fair value of its commodity hedge contracts outstanding as at January 1, 2007, with a corresponding increase to accumulated other comprehensive income of $425 thousand (net of tax of $181 thousand). The $425 thousand in accumulated other comprehensive income will be amortized through other comprehensive income and petroleum and natural gas revenue over the term of the hedge contracts. For Q307, $41 thousand was amortized through other comprehensive income, with a corresponding pre-tax revenue recognition of $59 thousand and a charge to future income tax expense of $18 thousand. As a result, the Company's recognized accumulated other comprehensive income has been fully amortized through to September 30, 2007.

Petroleum and Natural Gas Royalties

The Company's petroleum and natural gas royalties for the three-month period ended September 30, 2007 amounted to $2.5 million, resulting in a corporate effective royalty rate of 20.9%. In terms of royalty composition, approximately 68% of Orleans' total royalties for this period relate to Alberta Crown charges with the remaining 32% pertaining to freehold and overriding royalties. During Q306, the Company's total royalties amounted to $1.69 million. The absolute increase in Q307 of $811 thousand is attributable to both higher production volumes realized in Q307 and a higher corporate effective royalty rate vis-a-vis Q306. This absolute increase in royalties in Q307 was moderately tempered through the continued Crown royalty exemption on the Company's Pine Creek gas wells due to their deep gas Crown royalty holiday status eligibility, which results in a lower corporate effective royalty rate.

Orleans' petroleum and natural gas royalties for the nine-month period ended September 30, 2007 amounted to $6.76 million with a corporate effective royalty rate of 18.6%. In the corresponding nine-month period ended September 30, 2006, the Company's total royalties amounted to $3.88 million. An increase in production volumes and a slightly higher corporate effective royalty rate as compared to that in 9M06, has resulted in the aggregate $2.89 million increase in royalties in 9M07 as compared to 9M06.



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Third Quarter Nine Months
------------------------ -------------------------
($000s) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------

Crown 1,703 815 109 4,574 2,104 117
Freehold and overrides 795 873 (10) 2,186 1,771 23
------------------------ -------------------------
Total Royalties 2,498 1,688 48 6,760 3,875 74
------------------------ -------------------------
------------------------ -------------------------
Corporate royalty rate (%) 21 17 19 18
----------------------------------------------------------------------------


Operating Expenses

Orleans' field operating expenditures for the three-month period ended September 30, 2007 amounted to $3.53 million. Orleans' field operating expenses continue to be generally impacted by the level of well-bore maintenance activity, geographic location of the Company's properties, and whether oil and gas is produced.

In Q307, Orleans' field production costs on an oil-equivalent basis were $12.79 per boe, a 30% increase over the per-unit cost realized in the comparable quarterly period in 2006. The off-line production at Gordondale for the entire third quarter negatively impacted the Company's per-unit operating costs. Orleans incurred fixed operating costs at Gordondale throughout Q307 despite the complete curtailment of production from this field due to the main sales gas pipeline being off-line. Shut-in production during Q307 at Gordondale contributed to the Company's higher per-unit operating costs of approximately $0.84 per boe, thus placing upward pressure on Q307 operating costs. Orleans' operating costs for the nine-month period ended September 30, 2007 amounted to $8.96 million, or $12.23 per boe.

On a go-forward basis, based on the projected core area breakdown of the Company's year-end 2007 exit rate production profile, Orleans anticipates realizing per-unit operating cost improvements in 2008, resulting in an estimated per-unit field production cost range of $9.50 to $10.50 per boe.



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------
Total ($000s) 3,531 1,970 79 8,955 3,965 126
----------------------------------------------------------------------------
Per unit ($/boe) 12.79 9.82 30 12.23 9.45 29
----------------------------------------------------------------------------


Transportation Expenses

In Q307, Orleans' cost of transporting and distributing its crude oil and natural gas production to market delivery points amounted to $274 thousand, as compared to Q306 transportation expenses of $138 thousand.

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, as compared to Q306. On a unit-of-production basis, transportation costs in Q307 were $0.99 per boe as compared to the $0.69 per boe realized in Q306. For the nine-month period ended September 30, 2007, the Company's transportation expenses amounted to $798 thousand, as compared to 9M06 transportation expenses of $348 thousand. On a unit-of-production basis, transportation costs in 9M07 were $1.09 per boe as compared to the $0.83 per boe realized in 9M06.



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------
Total ($000s) 274 138 99 798 348 129
----------------------------------------------------------------------------
Per unit ($/boe) 0.99 0.69 43 1.09 0.83 31
----------------------------------------------------------------------------


General & Administrative Expenses

The Company's general and administrative ("G&A") expenses incurred at its Calgary-based, head office amounted to $484 thousand during the three-month period ended September 30, 2007, or $1.75 on an oil-equivalent per-unit basis. Orleans' expensed G&A costs in Q307 increased $155 thousand or 47% as compared to Q306. The higher G&A expenses in Q307 are related to costs associated with additional head office staff employed to manage a significantly larger asset base and increased office rent associated with the new, larger office space occupied by the Company on April 1, 2007.

The Company presently employs 17 office personnel, including eight geological and engineering technical personnel, and engages the services of three consultants on a part-time basis. 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 $180 thousand during the three-month period ended September 30, 2007. In Q306, capitalized G&A amounted to $135 thousand.



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
($000s) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------
Gross, net recoveries 664 464 43 2,164 1,316 64
Capitalized (180) (135) 33 (625) (447) 40
----------------------------------------------------------------------------
Expensed 484 329 47 1,539 869 77
----------------------------------------------------------------------------
Per unit ($/boe) 1.75 1.64 7 2.10 2.07 1
------------------------ -------------------------
------------------------ -------------------------
% Capitalized 27 29 29 34
----------------------------------------------------------------------------


Stock-Based Compensation

Orleans utilizes the fair value method for measuring stock-based compensation expenses. The Company's stock-based compensation is entirely related to the granting of stock options. During the three-month period ended September 30, 2007, the Company recorded non-cash stock-based compensation expense of $193 thousand, as compared to $364 thousand recognized in the corresponding 2006 quarter. In Q307, the Company capitalized $173 thousand of its stock-based compensation charges, as compared to Q306 wherein no stock-based compensation was capitalized.



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
($000s) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------

Stock-based compensation 193 364 (47) 543 695 22
----------------------------------------------------------------------------


Interest Charges

In Q307, Orleans incurred $613 thousand in interest expenses relating to the debt servicing of its outstanding bank indebtedness. As at September 30, 2007, the Company had $34.79 million of outstanding bank debt, as compared to $38.78 million of bank indebtedness at December 31, 2006 and $40.38 million at September 30, 2006. Notwithstanding capital investments incurred in the first nine-months of 2007 exceeding the cash generated through operating activities within that period, the $20.22 million "bought-deal" equity financing which closed on July 12, 2007 has resulted in a $3.99 million decrease in the bank debt position of the Company at September 30, 2007, as compared to December 31, 2006.

In addition to bank debt interest incurred in Q307, the Company accrued for the federal government's levied interest charges related to Orleans' November 2006 flow-through share financing, specifically the unspent portion of previously renounced exploration expenditure deductions. In Q307, this interest charge was accrued in the amount of $13 thousand and $162 thousand for 9M07 and will be disbursed by the end of February 2008.



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
($000s) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------
Interest charges, net 626 433 45 1,974 593 233
----------------------------------------------------------------------------


Depletion, Depreciation and Accretion

Orleans' depletion and depreciation expense for the three-month period ended September 30, 2007 amounted to $7.75 million. This provision for the depletion and depreciation of the Company's petroleum and natural gas asset base, in absolute dollars, was $2.93 million higher than Q306 due to increased production volumes and a higher depletion rate. On a unit-of-production rate basis, the depletion and depreciation provision for Q307 was $28.08 per boe (excluding the accretion on the Company's asset retirement obligation), as compared to $24.13 per boe for the comparable Q306 period. Significant, anticipated proved reserve additions at Kaybob through the Company's successful drilling activities, has been the driver to a reduced depletion and depreciation per-unit rate in Q307, as compared to the preceding second quarter 2007 rate of $29.49 per boe. The Company's depletion and depreciation expense for the nine-month period ended September 30, 2007 amounted to $21.02 million or $28.70 per boe, as compared to $10.26 million or $24.44 per boe in 9M06.

The Company's accretion expense relating to its asset retirement obligations ("ARO") amounted to $120 thousand for the three-month period ended September 30, 2007, as compared to $105 thousand for the comparable Q306.



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
($000s) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------

Depletion & depreciation 7,753 4,841 60 21,022 10,258 105
Accretion on ARO 120 105 14 353 235 50
------------------------ -------------------------
Total 7,873 4,946 59 21,375 10,493 104
------------------------ -------------------------
------------------------ -------------------------

Per unit ($/boe) 28.51 24.65 16 29.18 25.00 17
----------------------------------------------------------------------------


Income and Capital Taxes

Orleans 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 corresponding property, plant and equipment carrying value. For the three-month period ended September 30, 2007, the Company recorded a future income tax reduction of $924 thousand, as compared to a $38 thousand future tax expense provision in Q306. During the quarter ended September 30, 2007, Orleans was not subject to any corporate income tax due to the Company's sizeable tax pool balances, which aggregate to approximately $169 million. As a result of Orleans' significant tax pool position, the Company does not expect to be subject to corporate cash income tax in the foreseeable future. The following table outlines the Company's projected tax pools available for deduction against future taxable income (net of anticipated pool usage necessary to eliminate estimated 9M07 taxable income).



----------------------------------------------------------------------------
Tax Pool Categories Access Rate Balance
----------------------------------------------------------------------------
($ millions)
Canadian exploration expense (CEE) 100% $ 15.27
Canadian development expense (CDE) 30% 65.77
Canadian oil and gas property expense (COGPE) 10% 36.46
Undepreciated capital cost (UCC) 25% 42.38
Non-capital losses (NCL) 100% 5.68
Share issue costs 20% 3.44
----------------------------------------------------------------------------
Total $ 169.00
----------------------------------------------------------------------------


Reconciliation of Non-GAAP Measures

----------------------------------------------------------------------------
Third Quarter
-----------------------
($000s except share data) Q307 Q306
-----------------------

Net earnings (loss) (3,074) (128)
Non-cash items:
Depletion & Depreciation 7,753 4,841
ARO accretion 120 105
Stock-based compensation 193 364
Reclassification to net earnings on gains from
cash flow hedges (59) -
Unrealized (gain) / loss on commodity contracts 481 -
Future income taxes (reduction) (923) 38
Change in non-cash working capital 3,341 2,231
Cash flow from operating activities (per GAAP) 7,832 7,450
Change in non-cash working capital (3,341) (2,231)
----------------------------------------------------------------------------
Cash flow from operations 4,492 5,219
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Nine Months
----------------------------------------------------------------------------
($000s except share data) 9M07 9M06
----------------------------------------------------------------------------
Net earnings (loss) (4,115) (832)
Non-cash items:
Depletion & Depreciation 21,022 10,258
ARO accretion 353 235
Stock-based compensation 543 695
Reclassification to net earnings on gains from
cash flow hedges (606) -
Unrealized (gain) / loss on commodity contracts 443 -
Future income taxes (reduction) (1,939) 1,402
Change in non-cash working capital 3,094 5,201
----------------------------------------------------------------------------
Cash flow from operating activities (per GAAP) 18,795 16,959
----------------------------------------------------------------------------
Change in non-cash working capital (3,094) (5,201)
----------------------------------------------------------------------------
Cash flow from operations 15,701 11,758
----------------------------------------------------------------------------


Operating Cash Flow and Net Earnings

Orleans' profitability and cash flow generation is primarily a function of commodity prices, the cost to add reserves through drilling and acquisitions and the cost to produce the Company's reserves. In the three-month period ended September 30, 2007, Orleans recorded $4.49 million in cash flow from operations ($0.12 per basic share) and posted a net loss of $3.07 million ($0.08 per basic share). For the corresponding period in Q306, the Company generated $5.22 million in cash flow from operations ($0.17 per basic share) and a $128 thousand loss ($nil per basic share). Higher depletion and depreciation non-cash charges in the period negatively impacted the Company's earnings recognition.

During the nine-month period ended September 30, 2007, Orleans realized $15.70 million in cash flow from operations ($0.46 per basic share) and a net loss of $4.11 million ($0.12 per basic share). For the comparable period in 9M06, the Company generated $11.76 million in cash flow from operations ($0.54 per basic share) and a $832 thousand loss ($0.04 per basic share).



----------------------------------------------------------------------------
Third Quarter Nine Months
($000s except per ------------------------ -------------------------
share data) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------

Cash flow from
operations (1) 4,492 5,219 (14) 15,701 11,758 34
Per share - basic ($) 0.12 0.17 (29) 0.46 0.54 (15)
Per share - diluted ($) 0.12 0.17 (29) 0.45 0.52 (14)
Net Loss (3,074) (128) - (4,115) (832) -
Per share - basic ($) (0.08) - - (0.12) (0.04) -
Per share - diluted ($) (0.08) - - (0.12) (0.04) -
----------------------------------------------------------------------------

(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

The Company's capital investments encompass exploration, development and acquisition activities, which generally include the following:

- Drilling and completing new natural gas and oil wells;

- Constructing and installing new field production infrastructure;

- Acquiring and maintaining the Company's lease acreage position and its seismic resources;

- Enhancing existing natural gas and oil wells through well-bore re-completions;

- Acquiring additional natural gas and oil reserves and producing properties; and,

- General and administrative costs directly associated with exploration and development activities, including payroll and other overhead expenses attributable solely to the Company's technical employees.

During the three-month period ended September 30, 2007, Orleans invested $14.91 million in oil and gas exploration and development capital expenditures. In Q307, the Company drilled eight (7.1 net) wells with 100% success. This year, through to November 14, 2007, Orleans has drilled 15 gross (12.8 net) wells with 100% success. Orleans has drilled wells across the majority of its core areas, including: eight gas wells (7.5 net) in Kaybob, three horizontal oil wells (3.0 net) in Leo, two gas wells (0.75 net) in Pine Creek, and two oil wells (1.5 net) in Gordondale. Throughout 2007 Orleans' primary focus has been on its West Central Alberta Kaybob property, wherein the Company has expanded its land base from six sections (4.4 net) to 27.5 sections (25.0 net), via Crown land acquisitions and farm-ins, concentrating on exploration and development of an exciting "deep basin" resource-style natural gas prospect in the Triassic Montney formation. In Q307, the Company acquired an additional three sections of land at Kaybob via Crown land sales for approximately $386 thousand. The composition of Orleans' capital expenditures program is outlined below:



----------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -------------------------
($000s) Q307 Q306 % Change 9M07 9M06 % Change
------------------------ -------------------------

Land 430 243 77 6,159 5,722 8
Seismic - 400 - 227 601 (62)
Drilling & completions 11,215 11,599 (3) 21,723 19,146 13
Facilities & well
equipment 3,038 4,207 (28) 8,400 5,995 40
----------------------------------------------------------------------------
Exploration &
development 14,683 16,449 (11) 36,509 31,464 16
----------------------------------------------------------------------------
Other 463 183 153 1,403 542 159
Property purchases - 6 - (1,139) 1,163 -
Corporate acquisitions(1) - 144 - - 110,725 -
----------------------------------------------------------------------------
Total capital
expenditures 15,146 16,782 (10) 36,773 143,894 74
----------------------------------------------------------------------------

(1) Includes total consideration paid (cash, shares issued and transactions
costs) for acquisitions and working capital and assumption of debt.


Liquidity and Capital Resources

At September 30, 2007, Orleans was capitalized with a working capital deficit of $44.54 million (including bank debt of $34.79 million and excluding the non-cash risk management current asset of $163 thousand), and 37.55 million common shares outstanding with a book capitalization of $137.74 million and a market capitalization of $102.88 million. In comparison, at September 30, 2006, the Company was capitalized with a working capital deficit of $47.76 million (including bank debt of $40.38 million), and 30.52 million common shares outstanding with a book capitalization of $109.80 million and a market capitalization of $123.60 million.



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

September 30, December 31, %
($000) 2007 2006 Change
-------------------------------------
Bank debt 34,794 38,781 (10)
Working capital (surplus) deficit(1) 9,743 4,445 119
-------------------------------------
Net debt 44,537 43,226 3
-------------------------------------
-------------------------------------

Book capitalization (2) 137,736 122,736 12
Market capitalization (3) 102,877 114,363 10
----------------------------------------------------------------------------

Note 1: Reflects current assets (excluding non-cash risk management asset)
less current liabilities (excluding 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.


At September 30, 2007, the Company had borrowings of $34.79 million (December 31, 2006: $38.78 million) under its bank facility with a Canadian chartered bank and was in compliance with all covenant terms of the credit agreement. Notwithstanding capital investments incurred in the first nine months of 2007 exceeding the cash generated through operating activities within that period, the $20.22 million "bought-deal" equity financing which closed on July 12, 2007 has resulted in a decrease in the bank debt position of the Company at September 30, 2007, as compared to December 31, 2006. As at November 13, 2007, the Company had $42.1 million of bank debt outstanding.

On April 10, 2007, the Company entered into a new credit agreement with a major Canadian chartered bank. The new credit agreement increased the borrowing base of the revolving demand facility to $60 million. The borrowing base, which is re-determined semi-annually, represents the amount that can be borrowed from a credit standpoint based on, among other things, the Company's current reserve report, results of operations, current and forecasted commodity prices and the current economic environment, as confirmed by the bank. Based on a recently conducted, semi-annual review of the borrowing base and facility amount associated with Orleans' operating credit facility, the Company's banker has reaffirmed the $60 million revolving demand facility.

In 2007 and 2008, the Company expects its cash flow from operations and the recently closed equity financing to be its primary source of liquidity to meet operating, general and administrative and interest expenses, and fund planned spending on exploration and development capital projects and undeveloped acreage. The aforementioned $60 million revolving bank credit facility will provide another source of liquidity. The Company anticipates that public capital markets will serve as the principal source of funds to finance any future substantial corporate acquisitions and/or significant property purchases. Orleans has sold equity securities in the past, and the Company expects that this source of capital will be available in the future for acquisition purposes and/or any contemplated increase in its capital expenditures budget.

On July 12, 2007, the Company closed a "bought-deal" equity financing (the "Financing"). Pursuant to the Financing, Orleans issued 1.5 million flow-through common shares at a price of $5.45 per share and 2.8 million common shares at a price of $4.30 per share, for total gross proceeds of $20,215,000. Proceeds from the flow-through share component of the Financing, in the amount of $8,175,000, will be used to incur Canadian exploration expenditures prior to December 31, 2008, with such expenditures to be renounced to the subscribers of the flow-through common shares in the fiscal year ended December 31, 2007.

With respect to the asset-backed commercial paper ("ABCP") market liquidity issues, which occurred during Q307 in the global credit markets as a result of the deterioration of the U.S. sub-prime mortgage market and resulted in numerous companies, including those within the oil and gas sector, not being able to access their funds when the ABCP became ordinarily due, the Company has never held funds in ABCP and is not directly impacted by the current market liquidity crunch.



Common Share Information

----------------------------------------------------------------------------
2007 Quarterly
------------------------------
Q307 Q207 Q107
------------------------------
Share Price: High $4.00 $ 4.55 $ 4.05
Low $2.54 $ 3.53 $ 2.75
Close $2.74 $ 3.98 $ 3.70
Avg. daily trading volume 49,887 89,663 64,247
Shares outstanding - period end (1) 37,546,372 33,225,889 33,148,659
Weighted average basic 37,014,430 33,209,828 33,148,659
Weighted average diluted 37,526,046 33,833,429 33,743,616
----------------------------------------------------------------------------


----------------------------------------------------------------------------
2006 Quarterly
----------------------------------------------------------------------------
Q406 Q306 Q206 Q106
--------------------------------------------
Share Price: High $ 4.52 $ 6.60 $ 6.50 $ 6.99
Low $ 3.37 $ 3.45 $ 5.11 $ 5.05
Close $ 3.45 $ 4.05 $ 5.85 $ 6.35
Avg. daily trading volume 48,200 51,083 25,109 25,560
----------------------------------------------------------------------------
Shares outstanding -
period end (1) 33,148,659 30,518,659 30,459,493 15,099,047
Weighted average basic 31,890,833 30,498,276 19,708,637 15,099,047
Weighted average diluted 32,533,845 31,293,929 20,759,015 16,047,634
----------------------------------------------------------------------------

Note 1: As of the date of this MD&A, total common shares issued and
outstanding are 37,571,372.


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:



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

Bank debt (1) 34,794 - - - 34,794
Operating lease
obligations (2) 156 1,403 1,308 1,144 4,011
Asset retirement
obligations (3) 172 1,204 1,232 10,224 12,832
----------------------------------------------------------------------------
Total obligations 35,122 2,607 2,540 11,368 51,637
----------------------------------------------------------------------------

Note 1: Revolving credit facility with a Canadian chartered bank. Refer to
Note 5 to the unaudited financial statements for the nine-month
period ended September 30, 2007.

Note 2: Operating lease obligations pertain to the Company's Calgary,
Alberta-based office lease entered into on February 16, 2007.

Note 3: As at September 30, 2007, total undiscounted future asset
retirement obligation costs to be accrued over the life of the
remaining total proved are estimated at $12.83 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 6 to the
unaudited financial statements for the nine-month period ended
September 30, 2007.


In 1996, a lawsuit was filed against the Company's predecessor, Orleans Resources Inc. and the "procureur general du Quebec". Since the Company is of the opinion that this lawsuit against Orleans Resources Inc. is unwarranted and will have no material adverse effect on the Company's financial position or on the results of operations, no provision has been recorded in this respect. If the Company has to pay any amount in this affair, this amount will be paid by issuing reserved common shares, at a price of $6.00 per share. The maximum number of common shares that would have to be issued would be 666,118 shares, representing the full lawsuit value amount of $3.996 million.

On November 14, 2006, the Company issued 2,630,000 flow-through common shares on a private placement basis at a price of $5.75 per share for gross proceeds of $15.123 million. Under the terms of the flow-through share agreement, the Company is committed to spend 100% of the gross proceeds on qualifying exploration expenditures prior to December 31, 2007. As at September 30, 2007, the Company had incurred approximately $14.44 million of qualifying expenditures.

On July 12, 2007, the Company issued 1,500,000 flow-through common shares on a "bought-deal" basis at a price of $5.45 per share for gross proceeds of $8.175 million. Under the terms of the flow-through share agreement, the Company is committed to spend 100% of the gross proceeds on qualifying exploration expenditures prior to December 31, 2008. As at September 30, 2007, the Company had incurred nil $ of qualifying expenditures associated with this equity issue.

Off-Balance Sheet Arrangements

The Company does not presently utilize any off-balance sheet arrangements to enhance its liquidity and capital resource positions, or for any other purpose. During the three-month and nine-month periods ended September 30, 2007 Orleans did not enter into any off-balance sheet transactions.

Related Party Transactions

Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion of related party transactions. During the three-month period ended September 30, 2007, the Company incurred $3 thousand of related party transactions (Q306: $250 thousand).

New Accounting Standards

Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") handbook section 1530 "Comprehensive Income", section 3251 "Equity", section 3855 "Financial Instruments - Recognition and Measurement", section 3861 "Financial Instruments - Disclosure and Presentation", and section 3865 "Hedges". These standards result in changes in the accounting for financial instruments and hedges as well as introduce comprehensive income as a separate component of shareholders' equity. The Company has adopted these standards prospectively. See Note 3 to the unaudited interim consolidated financial statements for the three-month period ended March 31, 2007 and Note 3 to the unaudited interim financial statements for the three-month period ended September 30, 2007. The adoption of these standards had no material impact on the Company's net earnings or cash flows.

Effective January 1, 2008, the Company will be required to adopt CICA Handbook section 1535, "Capital Disclosures", which requires entities to disclose their objectives, policies and processes for managing capital, and in addition, whether the entity has complied with any externally imposed capital requirements. The Company is assessing the impact of this new standard on its consolidated financial statements and anticipates that the main impact will be in terms of additional disclosures required.

Disclosure Controls and Procedures and Internal Controls Over Financial Reporting

Orleans' President and Chief Executive Officer ("CEO") and Vice President, Finance and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in Multilateral Instrument 52-109. The Company's CEO and CFO have designed disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that information to be disclosed by Orleans is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. The CEO and CFO have also designed internal controls over financial reporting, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion of the Company's internal control weaknesses. During the quarter-ended September 30, 2007, there have been no changes to Orleans' internal controls over financial reporting that have materially, or are reasonably likely to, materially affect the internal controls over financial reporting. Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, error or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute assurance, that the objectives of the control system are met.

Business Risks and Uncertainties

Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion of risks and uncertainties the Company is exposed to.

New Greenhouse Gas and Air Emissions Legislation

The Alberta Government has introduced legislation that will enable the Province of Alberta 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% starting July 1, 2007 or pay a fee based on emissions in excess of the targeted reductions. 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. The Company is in the process of fully evaluating the impact of these regulations, but Orleans believes that the cost and impact on its operations will be minor.

New Alberta Royalty Regime

On October 25, 2007, the Alberta government released The New Royalty Framework report ("NRF"), which summarizes the government's decisions on Alberta's new royalty regime. The NRF was the Alberta government's response to a report issued September 18, 2007 by the Alberta Royalty Review Panel ("ARRP"), which was commissioned by the Government of Alberta to perform a review of the province's royalty system. The NRF, in its entirety, is available at www.energy.gov.ab.ca.

As a result of the Alberta government's changes to their royalty structure on all Crown mineral rights owned by the Province of Alberta and leased by oil and gas producers such as Orleans, scheduled to take effect on January 1, 2009 upon legislation enactment, the Company would like to make the following observations:

- The Company's geographic, geologic and individual well production diversity of its asset base within Alberta, in conjunction with the production revenue derived from its freehold leases which are not impacted by the proposed new Crown royalties, is anticipated to temper the overall impact to Orleans of the announced changes to Crown royalties;

- The Company is in the process of conducting a review of its assets, using the NRF information currently available, in order to assess the impact of the royalty changes on the net present value of its oil and gas reserves;

- Royalties determined under the NRF will be determined based on commodity prices, well productivity and depth of wells. A significant portion of the Company's wells are lower productivity wells that on a relative basis are less significantly impacted by the NRF than higher productivity wells;

- The NRF will have a more significant impact on the economics of medium-depth drilling prospects at the Company's Kaybob core area in West Central Alberta; and,

- At current gas prices, the Company does not expect the NRF to have a significant impact on its strategy and business plan.

It should be noted that the actual effect of the Alberta Crown royalty rate changes on Orleans will be determined subsequent to January 1, 2009, based on, among other things, the actual legislation to be enacted, well production rates and drilling depths, prevailing commodity prices, foreign exchange rates, and the Company's commodity composition of its production profile.

Application of Critical Accounting Policies and Estimates

Management is required to make judgments and use estimates in the application of generally accepted accounting principals that have a significant impact on the financial results of the Company. Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion outlining these accounting policies and practices, which are critical in determining Orleans' financial results.

The Company's unaudited interim financial statements for the three and nine month periods ended September 30, 2007 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, intentions, opinions, forecasts, projections, guidance or other similar statements that are not statements of fact. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

In this 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.

References in this news release to initial test production rates and "flush" production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.



----------------------------------------------------------------------------
ORLEANS ENERGY LTD.
Balance Sheets
----------------------------------------------------------------------------
September 30, December 31,
2007 2006
--------------- ---------------
ASSETS (unaudited)

Current Assets
Cash and cash equivalents $ 404,717 $ 273,165
Accounts receivable 8,649,289 11,072,319
Prepaid expenses and deposits 668,287 749,873
Risk management asset (Note 11b) 162,635 -
--------------- ---------------
9,884,928 12,095,357

Property, plant and equipment (Note 4) 191,909,583 176,229,557
--------------- ---------------

$ 201,794,511 $ 188,324,914
--------------- ---------------
--------------- ---------------

LIABILITIES

Current Liabilities
Accounts payable and accrued liabilities $ 19,465,517 $ 16,539,909
Bank loan (Note 5) 34,793,823 38,781,291
--------------- ---------------
54,259,340 55,321,200

Asset retirement obligations (Note 6) 5,305,610 5,023,743

Future income tax liability 4,595,909 2,197,469
--------------- ---------------

$ 64,160,859 $ 62,542,412
--------------- ---------------
--------------- ---------------
SHAREHOLDERS' EQUITY

Share capital (Note 7) 137,735,785 122,736,373
Contributed surplus (Note 8c) 2,469,321 1,502,963
Accumulated other comprehensive income
(Note 7d) - -
Retained earnings (deficit) (2,571,454) 1,543,166
--------------- ---------------

137,633,652 125,782,502
--------------- ---------------

$ 201,794,511 $ 188,324,914
--------------- ---------------
--------------- ---------------

Description of Business and Basis of Presentation (Notes 1 & 2)


See accompanying notes to the financial statements.



----------------------------------------------------------------------------
Orleans Energy Ltd.
Statements of Operations and Comprehensive Income and Retained Earnings
(unaudited)
----------------------------------------------------------------------------

Three Months Ended, Nine Months Ended,
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2007 2006 2007 2006
------------- ------------- ------------- -------------
Revenue
Petroleum and
natural gas sales $ 11,963,621 $ 9,776,954 $ 36,333,995 $ 21,408,067
Royalties (2,498,595) (1,687,520) (6,760,319) (3,875,116)
-------------------------------------------------------
9,465,026 8,089,434 29,573,676 17,532,951
Unrealized (loss)
on commodity
contracts (Note 3) (481,146) - (443,268) -
-------------------------------------------------------
8,983,880 8,089,434 29,130,408 17,532,951
-------------------------------------------------------
Expenses
Operating 3,530,767 1,970,268 8,955,236 3,964,950
Transportation 273,829 138,127 798,233 347,513
General and
administrative 483,985 328,916 1,539,292 868,623
Interest 625,861 432,763 1,973,880 593,425
Stock-based
compensation
(Note 8) 193,310 363,665 542,570 694,687
Depletion,
depreciation and
accretion 7,873,323 4,945,807 21,374,783 10,492,878
-------------------------------------------------------
$ 12,981,075 $ 8,179,546 $ 35,183,994 $ 16,962,076
-------------------------------------------------------

Earnings (loss)
before taxes (3,997,195) (90,112) (6,053,586) 570,875

Future income taxes
(reduction) (923,367) 37,647 (1,938,966) 1,402,522
-------------------------------------------------------

Net loss $ (3,073,828) $ (127,759) $ (4,114,620) $ (831,647)

Changes in
comprehensive
income, net of tax
(Notes 3, 7d) (41,366) - (425,405) -
-------------------------------------------------------

Comprehensive income
(loss) $ (3,115,194) $ (127,759) $ (4,540,025) $ (831,647)
-------------------------------------------------------
-------------------------------------------------------

Retained earnings,
beginning of period 502,374 18,676,844 1,543,166 19,380,732

-------------------------------------------------------
Retained earnings
(deficit), end of
period $ (2,571,454) $ 18,549,085 $ (2,571,454) $ 18,549,085
-------------------------------------------------------
-------------------------------------------------------

Net earnings (loss)
per share (Note 9)
Basic $ (0.08) $ - $ (0.12) $ (0.04)
-------------------------------------------------------
-------------------------------------------------------

Diluted $ (0.08) $ - $ (0.12) $ (0.04)
-------------------------------------------------------
-------------------------------------------------------

See accompanying notes to the unaudited financial statements.



----------------------------------------------------------------------------
Orleans Energy Ltd.
Statements of Cash Flow
(unaudited)
----------------------------------------------------------------------------

Three Months Ended, Nine Months Ended,
---------------------- ----------------------
Cash provided from Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(used in): 2007 2006 2007 2006
------------- ------------- ------------- -------------
Operating activities
Net earnings (loss) $ (3,073,828) $ (127,759) $ (4,114,620) $ (831,647)
Items not affecting
cash:
Depletion,
depreciation and
accretion 7,873,323 4,945,807 21,374,783 10,492,878
Stock-based
compensation 193,310 363,665 542,570 694,687
Reclassification
to earnings on
gains from cash
flow hedges (58,917) - (605,903) -
Unrealized (gain)
/loss on
commodity
contracts 481,146 443,268
Future income
taxes (reduction) (923,367) 37,647 (1,938,966) 1,402,522
-------------------------------------------------------

4,491,667 5,219,360 15,701,132 11,758,440

Change in non-cash
working capital
(Note 10) 3,341,085 2,231,429 3,093,804 5,200,664

-------------------------------------------------------
7,832,752 7,450,789 18,794,936 16,959,104
-------------------------------------------------------

Financing activities
Increase /
(decrease) in bank
loan (18,486,800) 6,165,643 (3,987,468) 16,009,679
Exercise of stock
options 16,386 65,832 78,170 202,432
Share issue
proceeds, net
issue costs 19,016,651 (39,999) 19,016,149 35,835,705
-------------------------------------------------------
546,237 6,191,476 15,106,851 52,047,816
-------------------------------------------------------

Investing activities
Corporate
acquisitions - (143,861) - (39,496,841)
Property, plant and
equipment additions (14,880,480) (16,638,689) (36,106,653) (33,169,565)
Change in non-cash
working capital
(Note 10) 6,012,467 3,376,663 2,336,418 3,896,380
-------------------------------------------------------
(8,868,013) (13,405,887) (33,770,235) (68,770,026)
-------------------------------------------------------

Increase (decrease)
in cash and cash
equivalents (489,024) 236,378 131,552 236,894

Cash and cash
equivalents,
beginning of period 893,741 516 273,165 -
-------------------------------------------------------

Cash and cash
equivalents, end of
period $ 404,717 $ 236,894 $ 404,717 $ 236,894
-------------------------------------------------------
-------------------------------------------------------

Supplemental Cash Flow Information (Note 10)


See accompanying notes to the unaudited financial statements.


Orleans Energy Ltd.
Notes to the Interim Financial Statements (unaudited)
For the nine month period ended September 30, 2007



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, which are, in the opinion of management, necessary for the fair presentation of the Company's interim results. With the exception of changes discussed in Note 3 hereafter, the interim financial statements have been prepared following the same accounting policies and methods of computation as the Company's audited consolidated financial statements for the year ended December 31, 2006, 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 audited consolidated financial statements for the year ended December 31, 2006. 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 consolidated financial statements and notes thereto for the year ended December 31, 2006.

On April 1, 2007, the Company completed an amalgamation with its wholly-owned subsidiaries, Morpheus Energy Corporation, Orleans Oil and Gas Ltd. and Orleans Petroleum Ltd. Effective April 1, 2007, these subsidiary entities ceased to exist as separate legal entities and the Company as the amalgamated entity, assumed all operational and contractual obligations of the subsidiary companies from April 1, 2007 onwards.

3. Changes in Accounting Policies

On January 1, 2007 the Company adopted the new accounting standards regarding the recognition, measurement, disclosure and presentation of financial instruments. These standards result in changes in the accounting for financial instruments and hedges as well as introduce comprehensive income as a separate component of shareholders' equity. In conjunction with the adoption of these new standards, the Company elected not to use hedge accounting for its commodity price risk management contracts. The fair value of the commodity contracts is recognized at each reporting period with the change in the fair value being classified as an unrealized gain or loss on the statement of operations and comprehensive income. In accordance with the transitional provisions of the standards, the accounting for hedging relationships for prior periods is not retroactively adjusted, therefore, there has been no restatement of prior periods. At January 1, 2007, the following adjustments were made to the balance sheet to adopt the new standards:



----------------------------------------------------------------------------
At January 1, 2007
--------------------
Risk management asset $ 605,903
Future income taxes (180,498)
Accumulated other comprehensive income (425,405)
----------------------------------------------------------------------------


The $425 thousand of net derivative gains in accumulated other comprehensive income at January 1, 2007 will be reclassified to earnings in future periods as the original hedged transactions affect net earnings (see note 7d). From that date forward, the changes in fair value of such derivatives will be recognized in net earnings when incurred. Discontinuing hedge accounting will not affect the Company's reported financial position or cash flows.



4. Property, Plant and Equipment

----------------------------------------------------------------------------
September 30, 2007 December 31, 2006
---------------------------------------
Petroleum and natural gas properties $ 235,815,820 $ 199,171,180
Accumulated depletion (44,059,263) (23,060,662)
---------------------------------------
191,756,557 176,110,518
---------------------------------------

Office equipment and other 216,129 158,769
Accumulated depreciation (63,103) (39,730)
---------------------------------------
153,026 119,039
---------------------------------------

Net property, plant and equipment $ 191,909,583 $ 176,229,557
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the nine-month period ended September 30, 2007, certain general and administrative overhead expenses of $625 thousand (September 30, 2006: $447 thousand) directly related to exploration and development activities were capitalized. Included in this amount is capitalized stock-based compensation of $667 thousand (September 30, 2006: nil), with such amount including the future income tax liability associated with the capitalized stock-based compensation of $197 thousand (September 30, 2006: nil).

At September 30, 2007, property, plant and equipment included $14.14 million (December 31, 2006: $13.23 million) relating to unproved properties, which have been excluded from the depletion calculation. Future development costs related to proved non-producing developed reserves of $15.18 million (December 31, 2006: $22.28 million) have been included in the depletion calculation.

5. Bank Facility

As at September 30, 2007, the Company had a demand revolving credit facility of $60 million with a Canadian chartered bank (the "Credit Facility"). The Credit Facility provides that advances may be made by way of direct advances, banker's acceptances, or standby letters of credit/guarantees. Direct advances bear interest at the bank's prime lending rate plus an applicable margin for Canadian dollar advances and at the bank's U.S. base rate plus an applicable margin for U.S. dollar advances. The applicable margin charged by the bank is dependent on the Company's debt-to-trailing cash flow ratio. The banker's acceptances bear interest at the applicable banker's acceptance rate plus a stamping fee, based on the Company's debt-to-trailing cash flow ratio. The Credit Facility is secured by a fixed and floating charge debenture on the assets of the Company. The borrowing base is subject to semi-annual review by the bank. At September 30, 2007, the Company had $34.79 million of bank debt outstanding (December 31, 2006: $38.78 million).

6. 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 September 30, 2007, the estimated present value of the total amount required to settle the asset retirement obligations was $5.31 million (December 31, 2006: $5.02 million), based on a total undiscounted future liability amount of $12.83 million (inflation adjusted) (December 31, 2006: $12.48 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 48 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.



----------------------------------------------------------------------------
September 30, 2007 December 31, 2006
-------------------- ------------------
Asset retirement obligations
- opening $ 5,023,743 $ 2,484,234
Liabilities incurred 115,089 385,186
Liabilities acquired / (disposed) (186,031) 1,801,295
Liabilities settled - -
Accretion of discount 352,809 353,028
Asset retirement obligations - ending $ 5,305,610 $ 5,023,743
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. Share Capital

a) Authorized

- Unlimited number of voting common shares.

b) Issued and outstanding

----------------------------------------------------------------------------
Total Number
of Common Shares Amount
----------------------------------------------------------------------------
Balance, December 31, 2005 15,099,047 $ 19,937,717
Issued on flow-though private
placements 3,300,000 20,147,500
Issued on equity private placement 5,600,000 33,040,000
Combined issue costs, net tax effect
of 1,036,737 - (2,137,253)
Issue on acquisition of Mercury (Note 3) 1,623,719 9,579,942
Issued on acquisition of Morpheus (Note 3) 7,351,727 43,375,189
Exercise of stock options 174,166 321,381
Flow through shares tax adjustment - (1,528,103)
----------------------------------------------------------------------------
Balance, December 31, 2006 33,148,659 $ 122,736,373
Issued on equity private placement 2,800,000 12,040,000
Issued on flow-though private placements 1,500,000 8,175,000
Combined issue costs, net tax effect
of $364,037 - (834,815)
Exercise of stock options 97,713 124,220
Flow through shares tax adjustment - (4,504,993)
----------------------------------------------------------------------------
Balance, September 30, 2007 37,546,372 $ 137,735,785
----------------------------------------------------------------------------
----------------------------------------------------------------------------


c) Flow-Though shares

On November 14, 2006, the Company issued 2,630,000 flow-through common shares on a private placement basis at a price of $5.75 per share for gross proceeds of $15.123 million. Under the terms of the flow-through share agreement, the Company is committed to spend 100% of the gross proceeds on qualifying exploration expenditures prior to December 31, 2007. As at September 30, 2007, the Company had incurred approximately $14.44 million of qualifying expenditures. The future income tax effect and reduction to share capital was recorded in the first quarter of 2007, the period in which the Company filed the renouncement documents with the tax authorities.

On July 12, 2007, the Company issued 1,500,000 flow-through common shares on a "bought-deal" basis at a price of $5.45 per share for gross proceeds of $8.175 million. Under the terms of the flow-through share agreement, the Company is committed to spend 100% of the gross proceeds on qualifying exploration expenditures prior to December 31, 2008. As at September 30, 2007, the Company had incurred nil $ of qualifying expenditures associated with this equity issue.



d) Accumulated Other Comprehensive Income

----------------------------------------------------------------------------
September 30, 2007
--------------------
Accumulated other comprehensive income - beginning $ -
Transition adjustment for discontinuance of hedge
accounting, net of tax of $180,498 425,405
Reclassification to net earnings during the period,
net of tax of $180,498 (425,405)
----------------------------------------------------------------------------
Accumulated other comprehensive income - ending $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


8. 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 September 30, 2007, 3,065,693 options with a weighted average exercise price of $3.33 were outstanding and exercisable at various dates through to July 30, 2012. The following table summarizes outstanding stock options:



----------------------------------------------------------------------------
Weighted Avg.
Number Exercise Price
----------------------------------------------------------------------------
Outstanding - December 31, 2006 2,698,739 $ 3.40
Granted 775,000 3.47
Exercised (97,713) 0.80
Forfeited (310,333) 5.00
----------------------------------------------------------------------------
Outstanding - September 30, 2007 3,065,693 $ 3.33
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Exercise price range for options outstanding as at September 30, 2007:

----------------------------------------------------------------------------
Outstanding Options Exercisable Options
----------------------------------------------------------------------------
Weighted Avg.
Weighted Remaining Weighted
Price Range Number Avg. Price Life Number Avg. Price
----------------------------------------------------------------------------
$ 0.80 - 1.00 680,271 $ 0.80 2.32 years 680,271 $ 0.80
$ 3.00 - 3.74 1,456,255 $ 3.31 3.70 years 325,892 $ 3.10
$ 3.90 - 5.87 929,167 $ 5.23 3.74 years 314,167 $ 5.31
----------------------------------------------------------------------------
Total 3,065,693 $ 3.33 3.41 years 1,320,330 $ 2.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Company determined the fair value of stock options granted in the nine month period ended September 30, 2007 using the modified Black-Scholes evaluation stock option pricing model under the following assumptions:



----------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2007 September 30, 2006
------------------ -------------------
Weighted-average fair value ($/option) 1.70 2.59
Risk-free interest rate (%) 4.18 4.25
Estimated hold period prior to exercise (years) 5 5
Volatility in the price of Orleans shares (%) 50.0 50.9
Dividend yield (%) Nil Nil
----------------------------------------------------------------------------


c) Contributed surplus

The following table reconciles contributed surplus as at September 30, 2007:

----------------------------------------------------------------------------
Contributed surplus - December 31, 2006 $ 1,502,963
Stock-based compensation, net capitalization 1,012,407
Exercise of stock options (46,049)
----------------------------------------------------------------------------
Contributed surplus - September 30, 2007 $ 2,469,321
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. 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, Nine Months Ended,
----------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Weighted average shares:
Basic 37,014,430 30,498,276 34,471,799 21,825,061
Diluted 37,526,046 31,293,929 35,045,308 22,647,956
----------------------------------------------------------------------------


10. Supplemental Cash Flow Information

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

----------------------------------------------------------------------------
Three Months Ended, Nine Months Ended,
----------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Change in non-cash
working capital:
Accounts receivable and
other current assets $ (1,227,504) $ 222,517 $ 2,504,614 $ 2,773,057
Accounts payable and
accrued liabilities 10,581,056 5,385,575 2,925,608 6,323,987
$ 9,353,552 $ 5,608,092 $ 5,430,222 $ 9,097,044
----------------------------------------------------
----------------------------------------------------
Changes in non-cash
working capital
related to:
Operating activities $ 3,341,085 $ 2,231,429 $ 3,093,804 $ 5,200,664
Investing activities 6,012,467 3,376,663 2,336,418 3,896,380
$ 9,353,552 $ 5,608,092 $ 5,430,222 $ 9,097,044
----------------------------------------------------
----------------------------------------------------


b) Other cash flow information

----------------------------------------------------------------------------
Three Months Ended, Nine Months Ended,
----------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Cash paid on:
Interest (net of
interest income) $ 612,754 $ 432,763 $ 1,812,173 $ 593,425
Income and other taxes - - - -
----------------------------------------------------------------------------


11. Financial Instrument Activities

a) Balance sheet financial instruments:

The Company's exposure under its financial instruments is limited to financial assets and liabilities, all of which are included in the interim financial statements. The Company's financial instruments recognized in the consolidated balance sheet consist of cash and cash equivalents, accounts receivable, derivative contracts and current liabilities. Unless otherwise noted, carrying values reflect the current fair value of the Company's financial instruments. The estimated fair values of recognized financial instruments have been determined based on the Company's assessment of available market information and appropriate methodologies, or through comparisons to similar instruments.

b) Commodity price risk management contracts:

The prices the Company receives for its crude oil and natural gas production may have a significant impact on its revenues and cash provided from operating activities. Any significant price decline in commodity prices would adversely affect the amount of funds available for capital reinvestment purposes. As such, the Company utilizes a risk management hedging program to partially mitigate that risk and to ensure adequate funds are available for planned capital activities and other commitments. From time-to-time, the Company may employ financial instruments to manage fluctuations in oil and gas market prices. The Company does not utilize derivative financial statements for speculative purposes. The Company has elected to not designate its commodity price risk management contracts as accounting hedges under Canadian GAAP, and accordingly will measure these financial instruments at fair value. Any fluctuations in the fair value measurements are recorded directly into earnings.

The following table outlines the commodity price risk management contracts that were outstanding during the nine-month period ended September 30, 2007.



Daily
Contract notional
Commodity Date Type Term Volume Index Price
----------------------------------------------------------------------------


Crude Oil Jul. 6, Swap Aug '06 125 bbls W.T.I. US$ 77.25/bbl
2006 -Jul '07
----------------------------------------------------------------------------
NatGas Oct. 17, Collar Nov '06 2,000 GJs AECO-C C$ 6.50-8.50 /GJ
2006 -Mar '07
----------------------------------------------------------------------------
NatGas Nov. 9, Collar Dec '06 2,000 GJs AECO-C C$ 7.00-8.75 /GJ
2006 -Mar '07
----------------------------------------------------------------------------
NatGas Jan. 23, Collar Feb '07 1,000 GJs AECO-C C$ 6.50-9.08 /GJ
2007 -Dec '07
----------------------------------------------------------------------------
NatGas Jan. 23, Collar Apr '07 1,000 GJs AECO-C C$ 6.50-8.52 /GJ
2007 -Oct '07
----------------------------------------------------------------------------
NatGas Jan. 31, Collar Apr '07 1,000 GJs AECO-C C$ 7.00-9.00 /GJ
2007 -Dec '07
----------------------------------------------------------------------------
NatGas Feb. 5, Collar Apr '07 1,000 GJs AECO-C C$ 7.00-9.08 /GJ
2007 -Dec '07
----------------------------------------------------------------------------
NatGas Feb. 22, Swap Apr '07 1,000 GJs AECO-C C$ 7.70 /GJ
2007 -Oct '07
----------------------------------------------------------------------------
Crude Oil Mar. 26, Collar Apr '07 150 bbls W.T.I. US$ 59.30-
2007 -Dec '07 70.00/bbl
----------------------------------------------------------------------------
Crude Oil Apr. 23, Swap Aug'07 125 bbls W.T.I. US$ 67.85/bbl
2007 -Dec '07
----------------------------------------------------------------------------


As at September 30, 2007, the total fair value of these aforementioned contracts is a gain of $163 thousand and is included on the Company's balance sheet as Risk Management Asset.

Subsequent to September 30, 2007, the Company had the following hedge contracts outstanding:



Daily
Contract notional
Commodity Date Type Term Volume Index Price
----------------------------------------------------------------------------
Crude Oil Mar. 26, Collar Apr '07 150 bbls W.T.I. US$ 59.30-70.00/bbl
2007 -Dec '07
----------------------------------------------------------------------------
Crude Oil Apr. 23, Swap Aug'07 125 bbls W.T.I. US$ 67.85/bbl
2007 -Dec '07
----------------------------------------------------------------------------
Crude Oil Oct. 15, Swap Jan '08 200 bbls W.T.I. US$ 81.56/bbl
2007 -Jun '08
----------------------------------------------------------------------------
NatGas Jan. 23, Collar Feb '07 1,000 GJs AECO-C C$ 6.50-9.08 /GJ
2007 -Dec '07
----------------------------------------------------------------------------
NatGas Jan. 23, Collar Apr '07 1,000 GJs AECO-C C$ 6.50-8.52 /GJ
2007 -Oct '07
----------------------------------------------------------------------------
NatGas Jan. 31, Collar Apr '07 1,000 GJs AECO-C C$ 7.00-9.00 /GJ
2007 -Dec '07
----------------------------------------------------------------------------
NatGas Feb. 5, Collar Apr '07 1,000 GJs AECO-C C$ 7.00-9.08 /GJ
2007 -Dec '07
----------------------------------------------------------------------------
NatGas Feb. 22, Swap Apr '07 1,000 GJs AECO-C C$ 7.70 /GJ
2007 -Oct '07
----------------------------------------------------------------------------
NatGas Oct. 18, Swap Nov '07 1,000 GJs AECO-C C$ 6.545 /GJ
2007 -Mar '08
----------------------------------------------------------------------------
NatGas Oct. 18, Swap Jan '08 1,000 GJs AECO-C C$ 6.71 /GJ
2007 -Mar '08
----------------------------------------------------------------------------
NatGas Oct. 31, Swap Jan '08 1,000 GJs AECO-C C$ 6.67 /GJ
2007 -Mar '08
----------------------------------------------------------------------------


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

Contact Information

  • Orleans Energy Ltd.
    Barry Olson
    President & CEO
    (403) 215-2941
    (403) 261-8850 (FAX)
    Email: bolson@orleansenergy.com
    or
    Orleans Energy Ltd.
    Dean Bernhard
    Vice President, Finance & CFO
    (403) 215-2945
    (403) 261-8850 (FAX)
    Email: dbernhard@orleansenergy.com
    or
    Orleans Energy Ltd.
    Head office:
    Suite 1200, 500-4th Avenue S.W.
    Calgary, Alberta, T2P 2V6
    Website: www.orleansenergy.com