Regal Energy Ltd.
TSX VENTURE : REG

Regal Energy Ltd.

January 25, 2008 09:00 ET

Regal Energy Announces Year End 2007 Results

CALGARY, ALBERTA--(Marketwire - Jan. 25, 2008) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OF AMERICA

Regal Energy Ltd. (TSX VENTURE:REG) ("Regal" or the "Corporation") announces its year-end September 30, 2007 Financial (audited) and Operating Results.



FISCAL 2007 FINANCIAL AND OPERATING RESULTS

For the twelve For the twelve
months ended months ended
September 30, September 30,
2007 2006

Financial (1)
Petroleum and natural gas sales $ 2,009,692 $ 1,166,262
Funds flow from operations
(non-GAAP) (2) $ (199,043) $ (638,863)
Cash flow from operations (2) $ (331,207) $ (1,452,029)
Earnings (loss) (3) $ (4,386,995) $ (5,627,150)
Capital expenditures (4) $ 6,551,110 $ 7,218,749
Working capital surplus
(deficiency) $ (2,385,030) $ (1,244,560)
Total assets $ 11,715,541 $ 9,484,850
Shareholders' equity $ 8,385,486 $ 7,277,130

Shares outstanding as of Jan. 25, 2008 48,137,590
Shares issuable upon exercise of
warrants as of Jan. 25, 2008 5,100,167
Stock options outstanding as of
Jan. 25, 2008 2,865,000

Operating (1)
Production:
Natural gas (Mcf) 235,050 76,958
Oil and NGLs (Bbl) 10,686 12,923
Total production (Boe) (5) 49,862 25,749

Natural gas (Mcf/d) 644 211
Oil and NGLs (Bbl/d) 29 35
Total production (Boe/d) (4) 137 71

Average selling price:
Natural gas ($/Mcf) 5.85 6.10
Oil and NGLs ($/Bbl) 59.47 53.93
Total production ($/Boe) (5) 40.31 45.29
Operating Netback ($/Boe) (5) 14.54 4.12

Reserves (1)(5)(6)
Proved plus probable:
Natural gas (MMcf) 3,853 1,906
Oil and NGLs (MBbl) 172 126
Total barrels of oil equivalent
(MBoe) (5) 814 443
Net present value of future net
revenues before tax ($M): (7)
@ 10% discount rate 7,697 5,578
@ 15% discount rate 6,579 4,823


Notes:
(1) Effective with the takeover of Regal Energy Corp. on December 31, 2005,
the Corporation began receiving a revenue stream from crude oil and
natural gas sales. No comparative sales for the first quarter of fiscal
2006 are available.
(2) Funds flow before net change in non-cash operating working capital
balances does not conform to Generally Accepted Accounting Principles
("GAAP"). Refer to the "Non-GAAP Financial Measurements" and "Net
Earnings Funds Flow and Cash Flow from Operations" sections of the
Management's Discussion and Analysis.
(3) Includes ceiling test write downs of $3.3 million September 30, 2007 and
$4.2 million September 30, 2006.
(4) Amounts reported do not include amounts charged to capital as a result
of the takeover of Regal Energy Corp. on December 31, 2005, non cash
capital recorded for asset retirement obligations and is net of
dispositions.
(5) Natural gas is converted to oil equivalent at 6 Mcf = 1 Bbl. A Boe
conversion ratio of 6 Mcf = 1 Bbl is based on an energy equivalency
conversion method and does not represent a value equivalency at the
wellhead; therefore Boe's may be misleading if used in isolation.
Operating netback does not conform to Generally Accepted Accounting
Principles ("GAAP). Refer to the "Non-GAAP Financial Measurements"
section of the Management Discussion and Analysis.
(6) As at September 30, 2007 as determined by GLJ Petroleum Consultants in
accordance with NI 51-101. Working interest share of reserves before
deduction of royalties. Forecast Prices and Costs.
(7) Proved plus probable reserves. Forecast Prices and Costs.


Regal conducted an active exploration and development program during its fiscal year ended September 30, 2007 that resulted in year-over-year increases in production, reserves and land holdings. Our September 2007 production rate of 194 Boe/d was 95% higher than the prior year's exit rate and the number of producing wells increased from 8 net wells to 14 net wells. Proved and Probable reserves, as determined by our independent engineers, totaled 814,000 Boe, an increase of 84% over 2006 and land holdings increased by 76% over 2006 to 12,781 net acres.

During 2007 Regal enjoyed a 96% success rate while drilling 11 wells (6 net) resulting in 9 natural gas wells (5.6 net), one oil well (0.1 net) and one dry and abandoned well (0.3 net). Of the 9 natural gas wells drilled, four wells (3.4 net) were tied in and producing as of September 30, 2007, three wells (1.4 net) were placed on production during the first quarter of fiscal 2008, one well (0.4 net) is scheduled to be tied in during the second quarter of fiscal 2008 and one well (0.4 net) is under review for completion in an alternate zone. The oil well (0.1 net) drilled during 2007 was placed on production during the month of July.

As a result of increasing production rates, the Corporation achieved positive funds flow during the month of September 2007 however, our overall results for the year showed negative funds flow from operations and a net loss, mainly due to a ceiling test writedown. The Corporation continued to experience downward pricing pressures on its primary commodity of natural gas during 2007. North American natural gas prices were lower due to high levels of natural gas storage, high rates of natural gas drilling activity in the United States and a strengthening Canadian dollar. Management is optimistic that natural gas prices will increase in the future as market conditions come into balance with reduced industry activity directed towards natural gas.

The Garrington property located in west central Alberta continued to be our main area of focus during the year. Approximately 70% of the total capital budget was spent at Garrington and as a result Regal now owns interests in 12,000 (8,235 net) acres of land, 13 (11.2 net) producing natural gas wells and one (0.1 net) producing oil well in the area.

In October 2006, Regal agreed to participate in a natural gas prospect located in northeast British Columbia by way of farm-in. Regal entered into an area of mutual interest ("AMI") covering 35 square miles of land at Eight Mile, located south of Fort St. John and agreed to drill and complete two wells in the initial program. The two commitment wells were drilled and cased prior to the end of 2006. On March 19, 2007 Regal announced a new natural gas discovery at Eight Mile. The 7-8-81-17 W6M (the "7-8 well") was completed for natural gas production from the Triassic Doig zone. After fracture stimulation, the final test rate was 3.5 MMcf/d of natural gas at a flowing pressure of 1,115 psi. Regal holds a 40 percent working interest in the well until payout and a 24 percent interest after payout.

Subsequent to the end of fiscal 2007, Regal drilled its first option location at Eight Mile to the south of the 7-8 well, with a view towards delineating the aerial extent of its new Doig gas pool discovery. The 14-5-81-17 W6M well (the "14-5 well") was drilled, cased and completed in the Doig zone during the month of December 2007. After fracture stimulation the final test rate was 250 Mcf/d gas, 38 Bbls/d condensate and 69 Bbls/d of formation water. The information gathered from the 14-5 well will be incorporated into any potential future development drilling locations. As a result of drilling the 14-5 well, Regal earned an interest in two additional sections of land and each subsequent option well drilled will earn an interest in two sections of land. Further work is anticipated to be conducted within the AMI in 2008, including the acquisition of 3D seismic and exploratory and development drilling. A pipeline is scheduled to be constructed in 2008 to tie-in the property to a recently constructed compression and dehydration facility at 9-28-81-17 W6M that will allow production to commence. Management is currently in discussions with the operator of the property regarding Regal's share of the capital cost to build the pipeline and wellsite facilities, and natural gas transportation and processing arrangements. We expect to be able to report our progress on this important project within the next month.

On October 25, 2007 the Government of Alberta released its New Royalty Framework ("NRF") for the province which is proposed to take effect on January 1, 2009. A recent analysis of the effect of the proposed NRF on Regal, prepared by Regal's independent engineers, determined operating cash flows and reserve values would increase by approximately 5% within the current pricing environment. Regal's proposed exploration and development activities in northeast British Columbia are unaffected by the proposed NRF.

Outlook

Regal's fiscal 2008 capital budget is currently forecast to be $3.0 million, including approximately $1.2 million spent during the first quarter ended December 31, 2007. This represents a 55% reduction from the $6.6 million spent during fiscal 2007. Our main exploration and development thrust for the balance of 2008 will be centered in northeast British Columbia, following up on our success at Eight Mile, and in several other potential properties presently under review. A total of $2.5 million of the capital budget is presently allocated to activities at Eight Mile, and includes $1.3 million to drill and complete two (0.8 net) wells, $0.6 million for equipment and pipelines and $0.6 million for seismic. Further drilling activity will be contingent on the producing performance of the existing wells and the review of 3D seismic over the property.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is management's discussion and analysis ("MD&A") of Regal Energy Ltd's. ("Regal" or "the Corporation") audited operating and financial results for the year ended September 30, 2007. This MD&A should be read in conjunction with Regal's audited financial statements for the year ended September 30, 2007. Additional information relating to Regal is available on SEDAR at www.sedar.com. The information provided in this MD&A is current as at January 25, 2008.

INTRODUCTION AND LIMITATIONS

BASIS OF PRESENTATION

The financial data presented herein has been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and in accordance with specific accounting policies as set out in Note 2 to the Corporation's audited financial statements for the year ended September 30, 2007. During the first quarter of 2006 (the quarter ended December 31, 2005), the Corporation was a private company and a quarterly report was not required nor was it prepared, therefore comparative results for the first quarter of fiscal 2006 have not been included. Annual comparative results have been presented where appropriate.

NON-GAAP FINANCIAL MEASUREMENTS

The Corporation has used certain measures of financial reporting that are commonly used benchmarks within the oil and natural gas industry in this MD&A that are considered to be non GAAP measures. The measures discussed are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and gas exploration and producing entities. The non GAAP measures used and referenced in this document include "operating netback" and "funds flow from operations". Operating netback is a benchmark used in the oil and gas industry to measure the contribution of crude oil and natural gas sales after deducting royalties and operating costs. Regal determines funds flow from operations to be the cash flow from operations before changes in non-cash working capital. Management believes that in addition to net earnings, funds flow from operations is a useful supplemental measure to assess the financial performance and ability of Regal to finance future spending. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These non-GAAP measures may not necessarily be comparable to similarly titled measures used by other entities and readers of this MD&A are cautioned in attempting to make such comparisons.

OTHER MEASUREMENTS

The reporting and measurement currency of this MD&A is the Canadian dollar. For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (Boe) using 6,000 cubic feet (6 Mcf) of natural gas equal to one barrel of oil (6:1), unless otherwise stated. The Boe conversion ratio of 6 Mcf to 1 Bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore Boe's may be misleading if used in isolation. (This conversion conforms to NI 51-101). References to natural gas liquids ("NGLs") in this MD&A include condensate, propane, butane and ethane and one barrel of NGLs is considered to be equivalent to one barrel of crude oil equivalent (Boe).

ADVISORY REGARDING FORWARD LOOKING STATEMENTS

Certain information set forth in this MD&A, that are not historical facts, including management's assessment of Regal's future plans and operations, contains "forward looking statements". All estimates and statements that describe the Corporation's objectives, goals, or future, including management's assessment of future plans and operations, production estimates and expected production rates, timing of tie-ins and the effect of delays in tieing-in wells and the effects of third party compressor issues and other infrastructure issues, levels of decline rates and the effects thereof, expected royalty rates, expected general and administrative expenses and other expenses, effects of the results of successful wells, expected levels of capital expenditures and the method of funding them, the ability to incur qualifying expenditures renounceable to purchasers of flow-through shares and the expected levels of activities and results of operations of Regal may constitute forward looking information under securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals, the impact of general economic conditions and industry conditions, the lack of availability of qualified personnel or management, stock market volatility and the ability to access sufficient capital from internal and external sources.
As a consequence Regal's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly no assurance can be given that any events anticipated by the forward looking statements will transpire or occur, or, if any of them do so, what benefits Regal will derive there from. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Regal's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) and Regal's website (www.regalenergy.ca). Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward looking statements. Furthermore, the forward looking statements contained in this MD&A are made as at the date of this MD&A and Regal does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

THE CORPORATION

The Corporation was incorporated pursuant to the Canada Business Corporations Act on August 7, 1998 as "3519309 Canada Incorporated". On September 28, 2002, 3519309 Canada Incorporated amalgamated to form SiberCore Technologies Incorporated. The Corporation at that time was a semiconductor company developing high value-added standard chips for intelligent hardware based switching and routing platforms.

The shareholders of the Corporation approved a change of business direction on December 17, 2004 that resulted in the distribution of cash and technology assets to shareholders as a return of capital, the consolidation of the common shares of the Corporation on the basis of 1 for 30,000, conversion of the preferred shares of the Corporation on the basis of 0.012 common shares for each preferred share, and a change in the name of the Corporation from SiberCore Technologies Incorporated to Azeri Capital Inc. ("Azeri").

On December 30, 2004 the Corporation entered into a seismic joint venture agreement (the "Seismic JV") with Divestco Seismic Limited Partnership ("Divestco") and Spectrum Seismic Processors Ltd. The seismic underlying the Seismic JV is the majority of the proprietary seismic data of a senior Canadian integrated oil and gas company which consists of over 32,000 km of 2D data covering several areas throughout Alberta and Saskatchewan that was acquired by Divestco. Pursuant to the Seismic JV, the Corporation agreed to fund the estimated cost of reprocessing the seismic data of $1,375,000, and in exchange, the Corporation acquired for its own use a fully reprocessed copy of this seismic data as well as certain other geological and geophysical software usage, and a residual royalty on sales of the entire reprocessed database and individual line by line data sales. On November 9, 2006, this residual royalty was sold for $675,000. On December 30, 2004, the Corporation completed a private placement of 226,464 shares issued on a "flow-through" basis for aggregate gross proceeds of $1.36 million.

On October 19, 2005, the Corporation entered into a farm-in agreement with Regal Energy Corp., a public company listed on the TSX Venture Exchange, to participate in the drilling of four wells. On October 31, 2005 the Corporation entered into an arrangement agreement with Regal Energy Corp. to combine their businesses to form a new oil and natural gas exploration and development company. During the period from entering into the farm-in agreement until the arrangement with Regal Energy Corp. was completed on December 31, 2005, approximately $856,800 was expended on this farm-in.

On December 31, 2005, the Corporation acquired, by way of a Plan of Arrangement, all of the issued and outstanding shares of Regal Energy Corp, and changed the Corporation's name to Regal Energy Ltd. Pursuant to the Arrangement, the Corporation reorganized its share capital whereby the issued and issuable shares were split on a 7.37 for one basis. Shareholders of Regal Energy Corp. received one share of the Corporation for each five shares of Regal Energy Corp. previously held.

The Corporation was continued under the Business Corporations Act. (Alberta) on December 31, 2005. As the acquisition occurred on December 31, 2005, results from Regal Energy Corp.'s operations are included in the Corporation's financial statements from January 1, 2006 forward.

The principal and head office of the Corporation is located at Suite 1520, Life Plaza 734 - 7th Avenue S.W., Calgary, Alberta T2P 3P8. The registered office of the Corporation is located at Suite 1600, Dome Tower, 333 - 7th Avenue S.W., Calgary, Alberta T2P 2Z1.

The Corporation has no subsidiaries.

Regal Energy Ltd.'s common shares are listed and posted for trading on the TSX Venture Exchange under the symbol REG.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The significant accounting policies used by Regal Energy Ltd. are disclosed in Note 2 to the Financial Statements. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in these judgments and estimates may have a material impact on the Corporation's financial results and condition. The following discusses such accounting policies and is included in this MD&A to aid the reader in assessing the critical accounting policies and practices of the Corporation and the likelihood of materially different results being reported. Regal's management reviews its estimates regularly. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

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

Oil and Gas Reserves

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

The implementation of NI 51-101 has resulted in a more rigorous and uniform standardization of Reserve evaluation. Proved plus Probable reserves as defined in NI 51-101 are viewed by many industry participants as being comparable to the "Established" reserves definition that was used historically. The oil and gas reserve estimates are made using all available geological and reservoir data as well as historical production data. Estimates are reviewed and revised as appropriate. Revisions occur as a result of changes in prices, costs, fiscal regimes, reservoir performance or a change in the Corporation's plans. The reserve estimates are also used in determining the Corporation's borrowing base for its credit facilities and may impact the same upon revisions or changes to the reserves estimates. The effect of changes in proved oil and gas reserves on the financial results and position of the Corporation is described as follows under the heading "Full Cost Accounting for Oil and Gas Activities".

Full Cost Accounting for Oil and Gas Activities

Depletion Expense

The Corporation follows the full cost method of accounting for oil and natural gas operations whereby all costs relating to the acquisition, exploration and development of oil and natural gas reserves, including asset retirement costs, are initially capitalized into a single Canadian cost centre. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells, related production equipment costs, asset retirement costs and overhead charges directly related to the acquisition, exploration and development activities. Proceeds from the sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such sale would result in a greater than 20% change in the depletion rate.

Depletion of petroleum and natural gas properties and depreciation of production equipment is provided for using the unit-of-production method based upon estimated proven petroleum and natural gas reserves as determined by independent engineers and updated internally on an intra-period basis. Petroleum and natural gas reserves and production are converted to equivalent barrels of oil using a ratio of six thousand cubic feet of natural gas to one barrel of oil.

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

Withheld Costs

Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion.

Full Cost Accounting Ceiling Test

The Corporation applies a two-stage ceiling test to capitalized costs to ensure that such costs do not exceed the undiscounted future net revenues from production of proved reserves. Undiscounted future net revenues are calculated based on an independent petroleum engineer's best estimate of forward indexed prices applied to estimated future production of proved reserves plus anticipated proceeds from the sale of undeveloped properties, less estimated future operating costs, royalties, future capital development costs and abandonment costs. When the carrying amount of a cost centre is not recoverable, the second stage of the process will determine the impairment amount, whereby the carrying value of the cost centre would be written down to its fair value. The second stage of the calculation requires a comparison between the carrying value and the discounted future net revenues from proved plus probable reserves using the Corporation's risk free interest rate plus the cost of undeveloped land, net of any impairment. The fair value is estimated using accepted present value techniques, which incorporate risks and other uncertainties when determining expected net revenues.

Asset Retirement Obligations

The Corporation recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred and when a reasonable estimate of the fair value can be made, and records a corresponding increase in the carrying value of the related long-lived asset. The fair value is determined through a review of engineering studies, industry guidelines, and management's estimate on a site by site basis. The liability is subsequently adjusted for the passage of time, which is recognized as an accretion expense in the statement of operations and deficit. The liability is also adjusted due to revisions in either the timing or the amount of the original estimated cash flows associated with the liability. Actual costs incurred upon settlement of the asset retirement obligations are charged against the asset retirement obligation to the extent of the liability recorded.

Income Tax Accounting

The Corporation follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities, and are measured using substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on future tax assets and liabilities of a change in tax rates is recognized in net income in the period in which the change is substantively enacted. A valuation allowance is recorded against a future income tax asset if it is considered to be more likely than not that the asset will not be realized.

Intangible Assets

Pursuant to the acquisition of Regal Energy Corp. on December 31, 2005, an intangible asset was recognized on the balance sheet of $500,000 that represents the value placed on the management team under contract and the public listing of Regal Energy Corp. The costs allocated to intangible assets are periodically tested for impairment and are excluded from the depletion calculation. Intangible assets are being amortized over a period of three years.

Legal, Environmental Remediation and Other Contingent Matters

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

CORPORATE DEVELOPMENTS

On December 15, 2005 the Corporation completed a private placement of 737,000 common shares at a price of $0.88 per share for gross proceeds of $650,000. In addition, on December 15, 2005, the Corporation completed a flow-through share financing on a private placement basis of 8,217,550 common shares at a price of $0.98 per share for gross proceeds of $8,028,000. In connection with these private placements, the Corporation issued 817,923 warrants that entitled the holder to acquire one common share of the Corporation for each warrant held at a price of $0.88 until June 30, 2007. These warrants expired unexercised on June 30, 2007.

On December 31, 2005, the Corporation acquired, by way of a Plan of Arrangement, all of the issued and outstanding shares of Regal Energy Corp., a public company listed on the TSX Venture Exchange, and changed the Corporation's name to Regal Energy Ltd. The Corporation was continued under the Business Corporations Act. (Alberta) on December 31, 2005. As the acquisition occurred on December 31, 2005, results from Regal Energy Corp.'s operations are included in the Corporation's financial statements from January 1, 2006 forward. In connection with the acquisition of Regal Energy Corp., the Corporation issued 905,643 warrants as a success fee that entitled the holder to acquire one common share of the Corporation for each warrant held at a price of $0.95 per share until December 31, 2007. These warrants expired unexercised on December 31, 2007.

On January 13, 2006, the Corporation executed a multi-well farm-in and option agreement with a public company encompassing over 30 sections in the Garrington area of west central Alberta. Under the terms of the agreement, the Corporation committed to drill and complete (or abandon) a minimum of six wells by August 1, 2006. This time frame was extended and the Corporation completed the six well program and fulfilled this commitment by the end of December 2006. Pursuant to the farm-in agreement, Regal paid 100% of the farmor's share of drilling and completion costs to earn 50% of the farmor's working interest. Following completion of the first six wells the farmor elected to convert its interest in these wells to a non-convertible gross overriding royalty of 15% on the farmor's pre-farmout working interest. The Corporation agreed to utilize the farmor's facility infrastructure to gather and process its gas on a custom process fee basis whenever possible and to utilize the farmor's field operators to contract operate the Corporation's wells.

On March 6, 2006 Regal executed a second farm-in agreement encompassing four sections of land at Garrington. This farm-in agreement included partial interests in four sections that were also included under the Corporation's initial farm-in and option agreement. The terms of this farm-in agreement allow for the farmor to receive an overriding royalty of 12% on production on a well by well basis until payout, at which time the farmor converts to a working interest equivalent to 50% of their pre-farmout working interest. The Corporation satisfied its commitment under this agreement through the drilling of four Edmonton zone gas wells during March and June 2006.

On March 10, 2006, the Corporation executed a third farm-in and option agreement in the Garrington area. Under the terms of the agreement, the Corporation committed to drill and complete (or abandon) one well. The terms of this farm-in agreement allow for the farmor to receive an overriding royalty of 12% on production from the well until payout, at which time the farmor converts to a working interest equivalent to 50% of their pre-farmout working interest. The Corporation satisfied its commitment under this agreement through the drilling of a gas well in November 2006.

On March 16, 2006 Regal announced a new gas well at Kaybob, Alberta in which the Corporation holds a 61.5 percent working interest. The well commenced natural gas and NGLs production in June 2006 through third party processing facilities.

Effective August 1, 2006 the Corporation sold its minor working interest in the Morinville, Alberta property for a price of $408,910. The Morinville property was producing approximately 8 Bbl/d of crude oil net to the Corporation.

On September 25, 2006 the Corporation agreed to participate at a 25% working interest in a Mannville zone natural gas test well at Garrington that was drilled and subsequently abandoned in October 2006.

On October 5, 2006, the Corporation purchased certain developed and undeveloped lands in the Garrington area for $541,130. The acquisition was effective September 1, 2006 and included a 100% interest in two producing gas wells and varying interests in 5.25 sections of land.

On October 12, 2006 the Corporation agreed to participate in a natural gas prospect located in northeast British Columbia by way of farm-in. The Corporation entered into an area of mutual interest ("AMI") covering 35 square miles of land, located south of Fort St. John, called the Eight Mile Prospect. The Corporation agreed to drill and complete two wells in the initial program. The two commitment wells were drilled and cased in November and December 2006.

On November 3, 2006, the Corporation agreed to extend its main farm-in and option agreement at Garrington by committing to drill three additional Mannville test wells by the end of February 2007. Upon completion of the drilling of the three test wells, the Corporation would maintain the right to continue earning option lands by electing to drill additional option wells on a 90 day, well by well, rolling option basis. Concurrently with the signing of this agreement, a sub-participation and farm out agreement with a large oil and gas company ("ExploreCo") was secured to drill the three Mannville test wells on lands included in the farm-in agreement and on other lands acquired by Regal. ExploreCo drilled and completed the three test wells by the end of the second quarter of fiscal 2007 resulting in two natural gas wells and one oil well. As a result, Regal earned interests in five sections of Edmonton gas rights and a 12% interest in the oil well at no cost to the Corporation and fulfilled its second commitment obligation under the farm-in and option agreement. On September 13, 2007 ExploreCo elected not to drill any additional Mannville test wells and terminated its right to continue earning lands under the sub-participation and farm out agreement. In addition, on November 19, 2007 the option to drill further wells under the main farm-in and option agreement was terminated and as a result Regal has earned interests in 12 sections of land under the agreement.

On November 20, 2006 the Corporation announced that it had received conditional approval from the Securities Regulatory Authorities in each of the provinces of Ontario, Alberta and British Columbia to conduct the Rights Offering in these provinces and certain jurisdictions outside of Canada excluding the United States (the "Qualifying Jurisdictions"). Pursuant to the terms of the Rights Offering, shareholders of the Corporation residing in the Qualifying Jurisdictions as at November 28, 2006 were granted rights (the "Rights") evidenced by transferable Rights certificates to purchase up to 5,677,294 common shares in the capital of the Corporation. The Rights expired at 4:00 p.m. (Calgary time) on December 20, 2006.

On November 24, 2006 Regal entered into a farm-in agreement at Garrington covering one section of land. Regal committed to drill a well by the end of 2006 by paying 100% of the costs to earn 100% of the farmor's interest, subject to a 15% overriding royalty on production from the well before payout, and 50% of the farmor's pre-farmout working interest after payout. The Corporation satisfied its commitment under this agreement through the drilling and completion of a gas well in December 2006.

On November 30, 2006, the Corporation completed the sale of 4,583,333 flow-through shares at $0.24 per share and 5,000,000 common shares at $0.20 per share for gross proceeds of $2,100,000 under the private placement announced on October 19, 2006. In connection with the private placement, the Corporation issued 916,666 warrants that entitle the holder to acquire one common share of the Corporation for each warrant held at a price of $0.20 until May 30, 2008. Concurrent with this financing, the Corporation restructured its board of directors by adding Richard M. Wlodarczak to the board as Chairman. Mr. Douglas M. Stuve and Mr. Owen C. Pinnell resigned from the board effective that date. This transaction is considered to be a related party transaction as Mr. Richard M. Wlodarczak and Mr. Harry L. Knutson, directors of the Corporation are also directors, officers and shareholders of Nova Bancorp Securities Ltd, the agent for the private placement.

On December 1, 2006 the Corporation agreed to participate in the drilling of a well in the Hanna area of east central Alberta by way of farm-in. Regal committed to drill and complete (or abandon) one well by the end of 2006 by paying 50% of the costs to earn 42.5% of the farmor's interest, subject to a 10% overriding royalty before payout, and 25.5% of the farmor's interest after payout in two sections. The well was drilled and cased in December 2006, completed as a gas well in January 2007 and placed on production in July 2007. Subsequent to the end of fiscal 2007, the well was shut-in during the month of October 2007 pending evaluation for artificial lift. As a result of poorer than expected results of the well, the Corporation relinquished its rights to further options to drill wells and earn additional lands under this farm-in agreement

On December 7, 2006 the Corporation agreed to participate in the drilling of a well in the Pica area of northwest Alberta by way of farm-in. The Corporation entered into an area of mutual interest covering 7.25 sections of land. Regal committed to drill and complete (or abandon) one well by the end of 2006 by paying 37.5% of the costs to earn a 27.15% working interest subject to a 16% overriding royalty before payout, and a 23.43% working interest after payout in two sections. The well was drilled and cased in December 2006, completed as a gas well in January 2007 and placed on production in December 2007. The well averaged approximately 400 Mcf/d over a 17 day period in December and then experienced water production problems. The well is presently shut in and is being reviewed for potential remedial work.

On December 21, 2006 the Corporation completed the sale of 1,660,078 common shares at $0.20 per share under the Rights Offering for gross proceeds of $332,015.

On January 22, 2007 the Corporation entered into an agreement with its lender to increase its revolving operating demand facility from $2,000,000 to $2,750,000 and increase its non-revolving acquisition/development facility from $500,000 to $825,000. On May 24, 2007 the non-revolving acquisition/development facility was reduced from $825,000 to $500,000.

On February 1, 2007 the Corporation completed the sale of 3,335,000 common shares at $0.20 per share for gross proceeds of $667,000 under its private placement announced on October 19, 2006. Nova Bancorp Securities Ltd. acted as agent in connection with the private placement and exercised its over allotment option to sell up to an additional 3,339,922 common shares at a price of $0.20 per share, representing the difference between $1 million and the amount of gross proceeds raised through the Corporation's Rights Offering to shareholders. Nova Bancorp Securities Ltd. was paid a cash commission of $46,690 and was granted 333,500 warrants that entitle the holder to acquire one common share of the Corporation for each warrant held at a price of $0.20 per share until August 1, 2008. This transaction is considered to be a related party transaction as two directors of the Corporation are also directors, officers and shareholders of Nova Bancorp Securities Ltd, the agent for the private placement. Insiders of the Corporation subscribed for a total of 425,000 common shares for gross proceeds of $85,000.

On February 12, 2007 the Corporation announced it had granted under its Option Plan, a total of 1,675,000 stock options at an exercise price of $0.30 per common share with an expiry date of February 12, 2012 to directors, officers, employees and consultants of the Corporation.

On March 19, 2007 the Corporation announced a new natural gas discovery at Eight Mile, British Columbia. Regal participated in the completion of two exploration wells drilled and cased in November and December 2006. The second commitment well located at 7-8-81-17 W6M (the "7-8 well") was drilled as an exploration well targeting Triassic Age formations, including the Halfway and Doig, and reached a total depth of 1,988 metres. The 7-8 well was logged and cased and remained standing until March 2007 when it was completed for gas production from the Doig zone. The completed interval was flow tested over a 72 hour period from March 14 through 17, 2007. After fracture stimulation, the final test rate was 3.5 MMcf/d (1.4 MMcf/d net) at a flowing pressure of 1,115 psi. Regal holds a 40 percent working interest in the well until payout and a 24 percent interest after payout. The first commitment well at Eight Mile, drilled at 3-36-80-18 W6M (the "3-36 well"), was also completed in the Doig zone but tested formation water and is under review for completion in an alternate zone. The 3-36 well is located on a separate geologic feature from the 7-8 well. Regal earned interests in four sections of land as a result of the completion of the two wells.

During March and April 2007 the Corporation tied-in two (1.75 net) natural gas wells at Garrington. On April 5, 2007 the Corporation acquired 128 hectares of mineral P&NG rights at Garrington from the Crown for the sum of $258,423. These lands were subsequently pooled and developed with the completion of two successful gas wells in August 2007.

On June 4, 2007 the Corporation announced its intention to issue up to 7 million flow-through shares at $0.30 per flow-through share through a private placement for gross proceeds of up to $2.1 million. Acumen Capital Finance Partners Limited agreed to act as Agent and also agreed to the appointment of Nova Bancorp Securities Ltd. as a 25% co-agent for the Offering. The Corporation agreed to pay the Agent's a cash commission of 7% of the gross proceeds. In this regard, Harry Knutson and Richard Wlodarczak, directors of Regal are also directors and officers of Nova Bancorp Securities Ltd. and abstained from the approval process for the private placement.

On June 16, 2007 the Corporation announced its intention to complete an additional private placement of up to 3,850,000, units of Regal at a price of $0.26 per unit, for gross proceeds of $1,001,000. Each unit consists of one common share and one share purchase warrant to purchase one common share of the Corporation at a price of $0.35 per share for a period of two years. The Corporation agreed to pay a finder's fee of 6% in connection with this private placement.

On June 28, 2007 the Corporation closed a portion of its previously announced private placement of flow-through shares announced on June 4, 2007. A total of 3,234,200 common shares were issued at $0.30 per share for total gross proceeds of $970,260.

On July 16, 2007 the Corporation closed the remainder of its previously announced private placement of flow-through shares. An additional 3,765,800 common shares were issued at a price of $0.30 per share for gross proceeds of $1,129,740. Insiders of the Corporation subscribed for a total of 666,666 common shares for gross proceeds of $199,999.80. The Corporation also closed its previously announced additional private placement of 3,850,000 units of Regal at a price of $0.26 per unit for gross proceeds of $1,001,000. Each unit consisted of one common share and one share purchase warrant to purchase one common share of the Corporation at a price of $0.35 per share until July 16, 2009.

The Corporation was unable to conduct field operations from mid-April until late July 2007 at Garrington due to an extended spring breakup followed by wetter than usual weather. Operations recommenced with the tie-in of an oil well (0.1 net) in July 2007, the drilling of a natural gas well (0.1 net) and the completion of two natural gas wells (2 net) in August 2007 and the recompletion of a natural gas well (0.5 net) and tie-in of two natural gas wells (2 net) in September 2007. Subsequent to the end of fiscal 2007, Regal tied-in two natural gas wells (1.1 net) in December 2007. As of the date of this report, the Corporation owns interests at Garrington including 12,000 (8,235 net) acres of land, 13 (11.2 net) producing natural gas wells and 1 (0.1 net) producing oil well.

Subsequent to the end of fiscal 2007, Regal drilled its first option location at Eight Mile, BC to the south of the 7-8 well, with a view towards delineating the areal extent of its new Doig gas pool discovery. The 14-5-81-17 W6M well (the "14-5 well") was drilled, cased and completed in the Doig zone during the month of December 2007. After fracture stimulation the final test rate was 250 Mcf/d gas, 38 Bbls/d condensate and 69 Bbls/d of formation water. The information gathered from the 14-5 well will be incorporated into any potential future development drilling locations. As a result of drilling the 14-5 well, Regal earned an interest in two additional sections of land and each subsequent option well drilled will earn an interest in two sections of land. Further work is anticipated to be conducted within the AMI in 2008, including the acquisition of 3D seismic and exploratory and development drilling. A pipeline is scheduled to be constructed in 2008 to tie-in the property to a recently constructed compression and dehydration facility at 9-28-81-17 W6M that will allow production to commence. Management is currently in discussions with the operator of the property regarding Regal's share of the capital cost to build the pipeline and wellsite facilities, and natural gas transportation and processing arrangements. The Corporation expects to be able to report its progress on this important project within the next month.

RESULTS OF OPERATIONS

Oil and Gas Reserves

Regal's proved reserves totaled 469,000 barrels of oil equivalent as at September 30, 2007 (versus 261,000 Boe as at September 30, 2006). Proved plus probable reserves totaled 814,000 barrels of oil equivalent (versus 443,000 Boe in 2006). All of Regal's reserves as at September 30, 2007, were evaluated by GLJ Petroleum Consultants. The reserve estimates contained in the following table are working interest reserves before and after deduction of royalties.



Summary of Oil and Gas Reserves, Forecast Prices and Costs as at September
30, 2007

Reserves Light and Natural Gas Oil
Category Medium Oil Heavy Oil Natural Gas Liquids Equivalent
----------------------------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net Gross Net
MBbls MBbls MBbls MBbls MMcf MMcf MBbls MBbls MBoe MBoe
----------------------------------------------------------------------------
Proved
Developed
Producing 37 33 0 0 1,364 1,084 34 20 298 234
Developed
Non-producing 0 0 0 0 860 568 18 12 161 107
Undeveloped 0 0 10 10 0 0 0 0 10 10
-------------------------------------------------------------
Total Proved 37 33 10 10 2,224 1,652 51 32 469 350
----------------------------------------------------------------------------
Probable 23 21 4 4 1,629 1,164 46 29 345 248
----------------------------------------------------------------------------
Total Proved
plus Probable 60 54 14 14 3,853 2,816 98 61 814 598
----------------------------------------------------------------------------

Note: Columns may not add due to rounding. "Gross" refers to the
Corporation's working interest share before deduction of royalty
interests and "Net" refers to the Corporation's working interest share
after deduction of royalty interests.


Regal's net present value of future net revenue of its proved reserves totaled $5.0 million before tax, discounted at 10% per year as at September 30, 2007 (versus $3.9 million as at September 30, 2006). Regal's net present value of future net revenue of its proved plus probable reserves totaled $7.7 million before tax, discounted at 10% per year as at September 30, 2007 (versus $5.6 million as at September 30, 2006).



Net Present Values of Future Net Revenue, Forecast Prices and Costs as at
September 30, 2007

Before Income Taxes
Reserves Category Discounted at (% per year)
----------------------------------------------------------------------------
($M) 0 5 10 15 20
----------------------------------------------------------------------------
Proved
- Developed Producing 4,702 4,250 3,876 3,564 3,302
- Developed Non-producing 1,698 1,354 1,097 898 739
- Undeveloped 23 19 16 14 11
------------------------------------------
Total Proved 6,423 5,623 4,989 4,475 4,053
----------------------------------------------------------------------------
Probable 5,136 3,630 2,709 2,103 1,685
----------------------------------------------------------------------------
Total Proved plus Probable 11,559 9,252 7,697 6,579 5,738
----------------------------------------------------------------------------

Note: Columns may not add due to rounding.

Additional reserve disclosure tables, as required under NI 51-101, are
contained in the Statement of Reserves Data and Other Oil and Gas
Information FORM 51-101F1 filed on SEDAR.

Working Interest Sales

Three Months Ended Total
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
Sales $ 2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Natural Gas $323,071 $347,495 $398,524 $305,056 $1,374,146
Crude Oil & NGLs 133,719 130,310 143,719 227,798 635,546
----------------------------------------------------------------------------
Total $456,790 $477,805 $542,243 $532,854 $2,009,692
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three Months Ended Total
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
Sales $ 2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Natural Gas $ - $133,072 $101,179 $235,059 $ 469,310
Crude Oil & NGLs - 241,888 219,842 235,222 696,952
----------------------------------------------------------------------------
Total $ - $374,960 $321,021 $470,281 $1,166,262
----------------------------------------------------------------------------

Three Months Ended Total
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
Sales Volumes 2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Natural Gas (Mcf) 52,969 52,397 64,857 64,827 235,050
Crude Oil & NGLs (Bbls) 2,554 2,439 2,362 3,331 10,686
Total Oil Equivalent (Boe) 11,382 11,172 13,172 14,136 49,862
----------------------------------------------------------------------------
Total (Boe/d) 124 124 145 154 137
----------------------------------------------------------------------------

Three Months Ended Total
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
Sales Volumes 2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Natural Gas (Mcf) - 17,756 15,932 43,270 76,958
Crude Oil & NGLs (Bbls) - 6,023 3,449 3,451 12,923
Total Oil Equivalent (Boe) - 8,982 6,104 10,663 25,749
----------------------------------------------------------------------------
Total (Boe/d) - 100 67 116 71
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three Months Ended Total
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
Sales Price Per Unit 2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Natural Gas ($/Mcf) 6.10 6.63 6.14 4.71 5.85
Crude Oil & NGLs ($/Bbl) 52.36 53.43 60.85 68.39 59.47
----------------------------------------------------------------------------
Total Blended ($/Boe) 40.13 42.77 41.17 37.69 40.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three Months Ended Total
----------------------------------------------------------------------------
Sales Price Per Unit Dec. 31, Mar. 31, Jun. 30, Sept. 30,
2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Natural Gas ($/Mcf) - 7.49 6.35 5.43 6.10
Crude Oil & NGLs ($/Bbl) - 40.16 63.74 68.16 53.93
----------------------------------------------------------------------------
Total Blended ($/Boe) - 41.74 52.58 44.11 45.29
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Regal's sales volumes during 2007 totaled 10,686 Bbls of crude oil and NGLs (versus 12,923 Bbls of crude oil and NGL's during 2006) and 235,050 Mcf of natural gas (versus 76,958 Mcf of natural gas during 2006) for a total of 49,862 Boe (average of 137 Boe/d) (versus 25,749 Boe (average of 71 Boe/d) during 2006).



Producing properties of the Corporation during 2007 include:

2007 Average Production Rate

Area Working Interest Gas Oil & NGLs Boe
(%) (Mcf/d) (Bbl/d) (Boe/d)
----------------------------------------------------------------------------
Garrington 85-100 428 7 78
Kaybob 62 77 4 17
Veteran 30-50 0 16 16
Viking Kinsella 20 66 0 11
Atlee Buffalo 50-100 55 0 9
Hanna (1) 5-10 17 1 4
Judy Creek 5 1 2 2
----------------------------------------------------------------------------
Total 644 30 137
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note: (1) On stream July 2007, currently shut in


This compares to the producing properties of the Corporation during 2006:

2006 Average Production Rate

Area Working Interest Gas Oil & NGLs Boe
(%) (Mcf/d) (Bbl/d) (Boe/d)
----------------------------------------------------------------------------
Atlee Buffalo 50-100 62 12 23
Garrington 85-100 67 1 12
Veteran 30-50 0 12 12
Viking Kinsella 20 57 0 10
Kaybob 62 25 1 5
Morinville (1) 5-10 0 5 5
Sounding Lake (2) 100 0 3 3
Judy Creek 5 0 1 1
----------------------------------------------------------------------------
Total 211 35 71
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes: (1) Property sold effective August 1, 2006
(2) Well abandoned September 2006


COMMODITY PRICES

The average prices received for Regal's oil and NGLs, and natural gas sales during 2007 were $59.47/Bbl and $5.85/Mcf respectively (versus $53.93/Bbl and $6.10/ Mcf respectively in 2006). Average crude oil and NGLs prices received during the year increased on a quarter over quarter basis throughout the year, while natural gas prices increased to a quarterly high of $6.63 for the second quarter ended March 31, 2007 and declined to $4.71/Mcf during the quarter ended September 30, 2007 (and $4.55/Mcf for the month of September 2007). Higher oil and liquids prices reflect a dramatic upward movement in the price of crude oil and natural gas liquids, offset somewhat by an increase in the Canadian to US dollar exchange rate. Lower natural gas prices reflect lower prevailing North American natural gas prices combined with an increase in the Canadian to US dollar exchange rate. The Corporation historically has not hedged any of its sales of commodities. The Corporation essentially takes all of its production in-kind and sells that production through various third party marketing arrangements. Prices received for crude oil, natural gas liquids and natural gas are at the prevailing market prices adjusted for quality and applicable tariffs.

ROYALTIES

Royalties, which include crown, freehold and overriding royalties paid on oil, natural gas liquids and gas production and net of Alberta Royalty Tax Credits (ARTC), amounted to $382,691 versus $189,942 during fiscal 2006. Average royalties amounted to $7.67 per Boe or 19.0% of sales in 2007 (versus $7.38 per Boe or 16.3% of sales in 2006). The province of Alberta's ARTC program ended effective January 1, 2007. During fiscal 2007 the ARTC recorded in our accounts amounted to $4,618 or 1.2% of before ARTC royalty amounts (versus $34,400 or 15.3% of before ARTC royalty amounts in 2006). The elimination of the ARTC combined with a larger portion of our production being subject to overriding royalties as a result of the activity on numerous farm-in agreements entered into during the year will increase the Corporation's effective royalty rate in the future.

On October 25, 2007 the Government of Alberta released its New Royalty Framework ("NRF") for the province which is proposed to take effect on January 1, 2009. The proposed NRF changes the royalty structure in Alberta to provide for significantly increased royalties on higher productivity wells with a rapid escalation in royalties as commodity prices increase. This new royalty proposal has been a topic of intense discussion in the industry because the proposed increase in the government's take comes at a time of significantly reduced drilling activity in the province (as a result of low natural gas prices and an escalating cost structure). Rather than promoting increased activity the new royalty structure may delay a recovery in drilling while putting significant pressure on the industry to further reduce costs.

A recent analysis of the effect of the proposed NRF on Regal, prepared by Regal's independent engineers, determined operating cash flows and reserve values would increase by approximately 5% within the current pricing environment. However, although Regal is not as adversely affected by the proposed NRF as some industry participants, the proposed NRF renders certain prospects under standard farm-in arrangements virtually uneconomic even after consideration of projected increases in natural gas prices in the future. Regal's proposed exploration and development activities in northeast British Columbia are unaffected by the proposed NRF.



OPERATING EXPENSES
Three Months Ended Total
----------------------------------------------------------------------------
Operating Expense Dec. 31, Mar. 31, Jun. 30, Sept. 30,
2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Crude Oil & Natural
Gas $ 218,262 216,611 233,128 234,747 902,748
----------------------------------------------------------------------------
Per Boe $ 19.18 19.39 17.70 16.61 18.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Three Months Ended Total
----------------------------------------------------------------------------
Operating Expense Dec. 31, Mar. 31, Jun. 30, Sept. 30,
2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Crude Oil & Natural
Gas $ - 249,913 398,170 221,896 869,979
----------------------------------------------------------------------------
Per Boe $ - 27.82 65.23 20.81 33.79
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Total operating costs for fiscal 2007 amounted to $902,748 or $18.10 per Boe (versus $869,979 or $33.79 per Boe during 2006). Per unit operating costs in general have declined quarter-over-quarter and on a go-forward basis management expects that operating expenses on a per Boe basis will continue to trend downwards and be more in line with industry acceptable norms.

OPERATING NETBACK

Operating netback is a non GAAP financial measure that is widely accepted measure of performance and value within the industry and is used by investors and analysts to compare and evaluate oil and gas exploration and producing entities. This non GAAP measure may not be comparable to a similarly titled measure used by other entities and readers are cautioned in attempting to make such comparisons.

Effective with the takeover of Regal Energy Corp. on December 31, 2005, the Corporation began receiving a revenue stream from crude oil and natural gas sales. The Corporation had no oil and gas production during the first quarter of fiscal 2006, thus comparative results are available for three quarters of fiscal 2006.



Three Months Ended Total
----------------------------------------------------------------------------
Operating Netback Dec. 31, Mar. 31, Jun. 30, Sept. 30,
per Boe 2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Revenue $ 40.13 $ 42.77 $ 41.17 $ 37.69 $ 40.31
Royalties (7.20) (10.67) (5.71) (7.52) (7.67)
Operating Costs (19.18) (19.39) (17.70) (16.61) (18.10)
----------------------------------------------------------------------------
Operating Netback $ 13.75 $ 12.71 $ 17.76 $ 13.56 $ 14.54
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three Months Ended Total
----------------------------------------------------------------------------
Operating Netback Dec. 31, Mar. 31, Jun. 30, Sept. 30,
per Boe 2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Revenue $ - $ 41.75 $ 52.59 $ 44.10 $ 45.29
Royalties - (7.07) (5.99) (8.43) (7.38)
Operating Costs - (27.82) (65.23) (20.81) (33.79)
----------------------------------------------------------------------------
Operating Netback $ - $ 6.86 $(18.63) $ 14.86 $ 4.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Factors that have caused variations in operating netback over the quarters:

- Global strength in crude oil prices combined with an overall trend of weakness in natural gas prices have had a negative impact on the Corporation's gross revenue per Boe since the quarter ended June 30, 2006. Coincidentally, during that quarter as well, the Corporation decided to eliminate any further maintenance capital at its heavy oil property at Atlee Buffalo in favor of what was considered to be more economic and lower operating cost projects in a new natural gas core area at Garrington, Alberta. These two factors have combined to cause an overall decline in our gross revenue per Boe since the quarter ended June 30, 2006 and reach a new quarterly low of $37.69 per Boe for the quarter ended September 30, 2007.

- Royalty expense has remained relatively constant on a year-to-year basis, though on an individual quarter basis there has been some swing in expenses primarily due to adjusting Alberta Royalty Tax Credit claims or adjustments received from the Alberta government.

- Operating costs were generally high in 2006, reaching a peak of $65.23 per Boe in the quarter ended June 30, 2006. During this quarter, a well drilled early in that year at Atlee Buffalo sanded off in April, 2006 and a workover conducted in May, 2006 was unsuccessful in restoring production from the well. Due to these extraordinary and continuing workover costs on this heavy oil property, management deferred further maintenance work in favor of projects where operating costs would be lower and more predictable. During 2007, per unit operating costs have generally trended downward with the exception of a small increase during the second quarter.

OTHER INCOME

During the year, Regal had $430 of other income compared to $75,160 in fiscal 2006. In the current year the Corporation's source of other income was minimal compared with 2006 where other income included interest income of $70,864 and rental of owned equipment to third party projects in the amount of $4,296.

GENERAL AND ADMINISTRATIVE

During 2007, general and administrative costs totaled $736,090 or $14.76/Boe (versus $576,194 or $22.38/Boe in 2006) as follows:



Three Months Ended
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30, Total
2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Salaries & Benefits
(1) $ 82,580 $ 91,954 $ 89,183 $ 96,410 $ 360,127
Office Costs &
Miscellaneous 40,107 41,992 43,761 42,778 168,638
Legal, Audit, &
Engineering Fees 65,825 26,603 32,931 7,741 133,100
Other Consulting 30,479 48,039 37,418 24,419 140,355
Shareholder Services 5,897 18,926 8,709 6,102 39,634
Capital/Operating
Recoveries (45,321) (18,155) (12,444) (29,844) (105,764)
----------------------------------------------------------------------------
$179,567 $209,359 $199,558 $147,606 $ 736,090
----------------------------------------------------------------------------
Total Per Boe $ 15.78 $ 18.74 $ 15.15 $ 10.44 $ 14.76
----------------------------------------------------------------------------

Three Months Ended
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30, Total
2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Salaries & Benefits
(1) $ - $113,240 $113,318 $ 86,438 $ 312,996
Office Costs &
Miscellaneous 55 39,304 41,901 38,510 119,770
Legal, Audit, &
Engineering Fees 47,876 39,811 32,052 42,258 161,997
Other Consulting - 22,495 19,705 25,510 67,710
Shareholder Services 3,963 24,162 5,218 3,771 37,114
Capital/Operating
Recoveries - (59,859) (43,437) (20,097) (123,393)
----------------------------------------------------------------------------
$ 51,894 $179,153 $168,757 $176,390 $ 576,194
----------------------------------------------------------------------------
Total Per Boe N/A $ 19.95 $ 27.64 $ 16.54 $ 22.38
----------------------------------------------------------------------------
Note: (1) After $nil in 2007 and $49,800 in 2006 of salary expenses
capitalized.


Total salary expense for 2007 amounted to $360,127 as compared to $312,996 for 2006 ($nil salary expense capitalized in 2007, ($49,800 in 2006). The Corporation has not capitalized any salary expense effective June 30, 2006 with the departure of the Corporation's Vice President, Exploration & Land and the Corporation's Vice President, Engineering & Operations. At the date of this report, these individuals, have not been replaced. Consulting staff have been retained on an as required basis to assume the resigned individuals job functions. At the date of this report, the Corporation has three full-time employees, and retains consultants in engineering, operations, geology, accounting and land on an as required basis.

Total office and miscellaneous costs amounted to $168,638 (2006 - $119,770). The major components of office and miscellaneous costs include rent, stationary and supplies, postage and courier, insurance and software subscriptions.

Total legal, audit and engineering fees amounted to $133,100 (2006 - $161,997). These costs are primarily required to fulfill the statutory reporting obligations of a publicly traded entity. It is expected this level of cost is the minimum to be expected in this category on a go-forward basis.

Other consulting during 2007 amounted to $140,355 (2006 - $67,710). This increase is due to no other consulting expenditures being incurred during the first quarter of 2006, that quarter being prior to the acquisition of Regal Energy Corp. In addition, during 2007 a fee payable to the chairman of the Corporation in the amount of $30,000 was accrued and other consulting fees of $17,860 was paid to a third party to assist the Corporation in complying with its corporate governance requirements.

Total shareholder services in fiscal 2007 amounted to $39,634 (2006 - $37,114). These costs are, again, primarily required to fulfill the statutory reporting obligations of a publicly traded corporation. These costs are expected to remain constant on a go-forward basis.

Total recoveries of overhead on capital and operating expenses amounted to $105,764 during the year (2006 - $123,393). As operator of capital projects, a Corporation is allowed to charge overhead (usually as a percentage of project cost) in order to recover costs that are not directly chargeable to projects. During 2007 the Corporation recovered $77,510 in capital overhead (2006 - $101,836). In similar fashion on producing properties operated by the Corporation, it is allowed to charge overhead (usually on a per well basis or fixed percentage of facility operating costs) that are not directly chargeable to operations. During fiscal 2007 the Corporation recovered $28,254 of operating overhead (2006 - $21,557).

Factors that have caused variations in general and administrative expense over the quarters:

- General and Administrative costs were minimal during the first fiscal quarter of 2006 as the Corporation was private at that time and had no employees. The takeover of Regal Energy Corp. occurred on December 31, 2005 and the Corporation became a reporting issuer on the TSX-V exchange. Regal Energy Corp. had five employees that continued employment with Regal Energy Ltd.

- On June 30, 2006, the Vice President, Operations and Engineering and the Vice President, Exploration and Land resigned with a resulting reduction of salary and benefit expense.

- During 2007, during the quarters ended March 31 and June 30, other consulting costs increased due the hiring of consulting staff to assist the Corporation in a review of internal controls. In addition during this period, $30,000 of fees were accrued as compensation for the Chairman of the organization. No further accrual of fees has been made since that time.

- The other factor that has caused variability in quarter-to-quarter general and administrative costs is the amount of capital and operating recoveries. The amount of capital recoveries is dependent upon the total capital expended on joint venture projects. Significant capital was expended in the last three quarters of 2006 and the first fiscal quarter of 2007 in order to fulfill our flow-through share obligation at December 31, 2006. During the remaining quarters of 2007, we have had reduced recoveries due to lower capital expenditures.

INTEREST AND BANK CHARGES

Total interest and bank charges for 2007 were $146,017 (versus $223,318 in 2006). Of this total, $23,409 (2006 - $212,397) has been accrued to recognize interest payable to the Canada Revenue Agency on amounts unexpended on the Corporation's flow-through share commitments. The remaining $122,608 (2006 - $10,921) represents interest payable on the Corporation's outstanding bank line.

STOCK BASED COMPENSATION

The Corporation accounts for its stock-based compensation program using the fair-value method. Under this method, compensation expense related to this program is recorded in the statement of operations over the vesting terms of the options. During fiscal 2007, $204,669 (2006 - $645,257) of stock-based compensation expense was recorded. The decrease in stock-based compensation expense on a year over year basis is due to the immediate vesting of outstanding options upon the completion of the takeover by the Corporation of Regal Energy Corp. that occurred on December 31, 2005 and the resultant expense that was recognized in the first quarter of fiscal 2006.

During 2007, there were 1,675,000 options granted to directors, officers, employees and consultants. Of these options, 575,000 were granted to directors of the Corporation which vest immediately and 1,100,000 were granted to officers, employees and consultants and these options vest 1/2 on the date of grant and 1/2 on the first anniversary of the date of grant.

On September 30, 2006 a total of 460,000 options previously issued to the Corporation's former Vice President, Exploration & Land and the Corporation's former Vice President, Engineering & Operations expired reducing the total outstanding options on that date to 1,626,000.

Subsequent to year-end on December 31, 2007, a total of 86,000 options that were granted to previous directors of the Corporation expired.



DEPLETION, DEPRECIATION AMORTIZATION AND ACCRETION

Three Months Ended
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30, Total
2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Depletion $ 224,542 $ 227,860 $ 343,616 $ 386,006 $1,182,024
Depletion per Boe 19.73 20.40 26.09 27.31 23.71
Depreciation 4,562 4,990 5,611 5,629 20,792
Ceiling Test Write down - - - 3,300,000 3,300,000
----------------------------------------------------------------------------
Total Depletion and
Depreciation $ 229,104 $ 232,850 $ 349,227 $3,691,635 $4,502,816
----------------------------------------------------------------------------
Amortization of
Intangible Asset 24,993 16,663 33,324 24,993 99,973
Accretion 7,038 14,586 8,902 9,087 39,613
----------------------------------------------------------------------------
Total Depletion,
Depreciation
Amortization and
Accretion $ 261,135 $ 264,099 $ 391,453 $3,725,715 $4,642,402
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three Months Ended
----------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30, Total
2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Depletion $ - $ 265,573 $ 172,921 $ 419,048 $ 857,542
Depletion per Boe - 29.57 28.33 39.30 33.30
Depreciation - 3,367 4,178 4,465 12,010
Ceiling Test Write down - - - 4,200,000 4,200,000
----------------------------------------------------------------------------
Total Depletion and
Depreciation - $ 268,940 $ 177,099 $4,623,513 $5,069,552
----------------------------------------------------------------------------
Amortization of
Intangible Asset - 41,700 41,700 191,660 275,060
Accretion - 5,526 6,945 6,799 19,270
----------------------------------------------------------------------------
Total Depletion,
Depreciation
Amortization and
Accretion $ - $ 316,166 $ 225,744 $4,821,972 $5,363,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Depletion of petroleum and natural gas properties and depreciation of production equipment is provided for using the unit-of-production method based upon the Corporation's net share of estimated proven petroleum and natural gas reserves before royalties as determined by independent engineers and updated internally for interim reporting periods. Petroleum and natural gas reserves and production are converted to equivalent barrels of oil using a ration of six thousand cubic feet of natural gas to one barrel of oil. Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. Other miscellaneous tangible assets are depreciated over their estimated useful life. Total depletion expense for the year amounted to $1,182,024 or $23.71 per Boe (2006 - $857,542 or $33.30 per Boe). The reduction in the depletion rate of $9.59 per Boe from 2006 is due to the ceiling test write down recorded in the fourth quarter of 2006, as well as lower finding and development costs on new reserves found during 2007. Total depreciation expense for 2007 was $20,792 (2006 - $12,010).

The Corporation applies a two-stage ceiling test to capitalized costs to ensure that such costs do not exceed the undiscounted future net revenues from production of proved reserves. Undiscounted future net revenues are calculated based on an independent petroleum engineer's best estimate of forward indexed prices applied to estimated future production of proved reserves plus anticipated proceeds from the sale of undeveloped properties, less estimated future operating costs, royalties, future capital development costs and abandonment costs. When the carrying amount of a cost centre is not recoverable, the second stage of the process will determine the impairment amount, whereby the carrying value of the cost centre would be written down to its fair value. The second stage of the calculation requires a comparison between the carrying value and the discounted future net revenues from proved plus probable reserves using the Corporation's risk free interest rate plus the cost of undeveloped land, net of any impairment. The fair value is estimated using accepted present value techniques, which incorporate risks and other uncertainties when determining expected net revenues. In applying the ceiling test at September 30, 2007 it was determined that a ceiling test write down of $3,300,000 (2006 - $4,200,000) was required. During 2007 the prices the Corporation received for natural gas declined throughout the year and reached a low of $4.71 per Mcf during the fourth quarter. The ceiling test writedown recorded in September 2007 is based on our independent engineers price deck forecast of $6.60 per Mcf for 2008 and $6.80 per Mcf for 2009. Approximately 79% of the Corporation's proved plus probable reserves on a Boe basis relate to natural gas and thus the Corporation is extremely sensitive to natural gas prices.

Pursuant to the acquisition of Regal Energy Corp. on December 31, 2005, an intangible asset was recognized on the balance sheet of $500,000 that represented the value placed on the management team under contract and the public listing of Regal Energy Corp. The costs of intangible assets are excluded from the depletion calculation and are being amortized over a period of three years. At September 30, 2006 an impairment in the amount of $149,960 of this intangible asset was recognized due to the resignation of two senior officers of the Corporation. At September 30, 2007 the unamortized portion of the intangible asset was $124,967 and the Corporation will continue to amortize the remaining balance of the intangible asset over the remaining useful life not to exceed three years (until December 31, 2008).

Accretion expense is the increase in the present value of the asset retirement obligation for the current period and the amount of this expense will increase commensurate with the asset retirement obligation as new wells are drilled or acquired through acquisitions. During the year, the Corporation recorded $39,613 (2006 - $19,270) of accretion expense.



INCOME TAXES

The Corporation has approximately $65,198,500 of tax pools available as
detailed in the following table.

Non Refundable Non Capital Other Tax
Expiry date SR&ED ITC's Losses Pools Total
----------------------------------------------------------------------------
2008 - - 10,295,000 - 10,295,000
2009 - 231,000 9,766,000 - 9,997,000
2010 - 340,000 5,720,000 - 6,060,000
2011 - 1,032,000 - - 1,032,000
2012 - 876,000 - - 876,000
2013 - 196,000 - - 196,000
2014 - 45,000 4,672,000 - 4,717,000
2015 - - 1,898,000 - 1,898,000
2026 - - 1,289,000 - 1,289,000
No expiry date 18,899,500 - - 6,551,110 25,450,610
----------------------------------------------------------------------------
$18,899,500 $2,720,000 $33,640,000 $6,551,110 $61,810,610
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The future tax benefit of the non-capital losses being carried forward has not been recognized in these financial statements as the criteria for recognition has not been met. The research and development cost pool will be reduced by the amount of any investment tax credits utilized. The future tax benefit of $598,500 of the research and development pools has been recognized in these financial statements as the criteria for recognition has been met.

Canada Revenue Agency has conducted an audit of transfer pricing on international transactions between SiberCore Technologies Incorporated and its United States subsidiary, SiberCore America Inc. for the years 2000, 2001 and 2002. SiberCore Technologies Incorporated was the predecessor company of Azeri and ultimately Regal Energy Ltd. The Corporation has received a proposed settlement letter from CRA that would result in a reduction of tax pools in the amount of $1,501,453. CRA has also proposed to charge a cash penalty of 10% of the adjustments. The Corporation has responded to the proposed settlement letter and provided further information supporting management's view that CRA's position has no merit and intends to object to any notice of assessment that may be received. The outcome of this audit is uncertain at this time and as such no provisions have been made in the financial statements of the Corporation.



NET EARNINGS, FUNDS FLOW AND CASH FLOW FROM OPERATIONS

Three Months Ended
----------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Total
2006 2007 2007 2007 2007
----------------------------------------------------------------------------
Weighted Average
Shares
Outstanding 26,118,789 36,138,868 37,394,212 46,813,103 36,598,730
----------------------------------------------------------------------------
Net Income (Loss) $(356,635) $(474,420) $(429,510)$(3,126,430) $(4,386,995)
----------------------------------------------------------------------------
Per Share Basic
and Diluted $ (0.01) $ (0.01) $ (0.01)$ (0.07) $ (0.12)
----------------------------------------------------------------------------
Funds Flow From
Operations (1) $ (68,461) $ (97,481) $ (29,834)$ (3,267) $ (199,043)
----------------------------------------------------------------------------
Per Share Basic
and Diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.01)
----------------------------------------------------------------------------
Cash Flow From
Operations $(182,530) $(143,082) $ 165,025 $ (170,620) $ (331,207)
----------------------------------------------------------------------------
Per Share Basic
and Diluted $ (0.01) $ 0.00 $ 0.00 $ 0.00 $ (0.01)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three Months Ended
----------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Total
2005 2006 2006 2006 2006
----------------------------------------------------------------------------
Weighted Average
Shares
Outstanding 9,023,881 22,709,179 22,709,179 22,709,179 19,259,734
----------------------------------------------------------------------------
Net Income (Loss) $(44,460) $ (20,112) $(611,937)$(4,950,641) $(5,627,150)
----------------------------------------------------------------------------
Per Share Basic
and Diluted $ (0.00) $ (0.00) $ (0.03)$ (0.22) $ (0.29)
----------------------------------------------------------------------------
Funds Flow From
Operations (1) $(44,460) $(151,075) $(340,001)$ (103,327) $ (638,863)
----------------------------------------------------------------------------
Per Share Basic
and Diluted $ 0.00 $ 0.00 $ (0.01)$ 0.00 $ (0.03)
----------------------------------------------------------------------------
Cash Flow From
Operations (434,416) $(209,049) $(1,183,742)$ 375,178 $(1,452,029)
----------------------------------------------------------------------------
Per Share Basic
and Diluted $ (0.05) $ (0.03) $ (0.05)$ 0.02 $ (0.08)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note:
(1) Funds flow from operations has been presented for information purposes
only and should not be considered an alternative to, or more meaningful
than, cash flow from operating activities as determined in accordance
with GAAP. The Corporation considers funds flow from operations to be a
key measure as it demonstrates the Corporation's ability to generate the
cash necessary to repay debt and to fund future growth through capital
investment. The determination of Regal's funds flow from operations may
not be comparable to the same reported by other companies. The
reconciliation of net earnings and funds flow from operations can be
found in the statements of cash flow in the financial statements. Funds
flow from operations per share was calculated using the same weighted
average shares outstanding used in calculating net earnings per share.


The net loss for 2007 amounted to $4,386,995 or $0.12 per share as compared to a net loss of $5,627,150 for 2006 or $0.29 per share. The weighted average number of shares outstanding during the year was 36,598,730 compared to 19,259,734 outstanding for fiscal 2006. The majority of the net loss is attributable to non-cash items - namely a ceiling test write down in the amount of $3,300,000 (2006 - $4,200,000), amortization of intangible assets in the amount of $99,973 (2006 - $275,060 including impairment) and stock compensation expense during the year in the amount of $$204,669 (2006 - $645,257). During fiscal 2007, royalty expense increased by $0.29 per Boe from 2006 while operating costs decreased by $15.69 per Boe. Total general and administrative expense decreased by $7.62 per Boe and amounts to $14.76 per Boe for the year. Unfortunately, these positive gains were somewhat offset by a decline in gross sales dollars on a per Boe basis of $4.98 in 2007 as compared to 2006.

Funds flow from operations (non-GAAP measure) for 2007 amounted to $((199,043) or $(0.01) per share (2006 - $(638,863) or $(0.03) per share).

TOTAL ASSETS AND CAPITAL EXPENDITURES

At September 30, 2007 the Corporation had total assets of $11,715,541 compared to $9,484,850 in 2006 and $1,690,141 in 2005.

During 2007, Regal recorded $6,551,110 of capital expenditures compared to $7,218,749 in fiscal 2006. Details of the capital expenditures by major category follow. Amounts reported in the following table do not include non-cash capital recorded for asset retirement obligation in the amount of $112,114 (2006 - $66,902).



2007 2006
----------------------------------------------------------------------------
Geological, Geophysical and Seismic $ 283,793 $ 253,654
Seismic (Disposition) (675,000) -
Drilling and Completions 4,574,673 6,213,967
Equipping and tie-ins 1,613,580 986,616
Property Acquisition / (Disposition) 515,665 (408,910)
Land Acquisition / Retention 269,765 -
Furniture and Fixtures 13,919 16,604
Capitalized Salaries - 49,800
Miscellaneous Oilfield Equipment (45,285) 107,018
----------------------------------------------------------------------------
$6,551,110 $7,218,749
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following table summarizes the Corporation's drilling activity for the
year ended September 30, 2007 with comparative results for the year ended
September 30, 2006.

2007 2006
-----------------------------------------------------------
Gross Wells Net Wells Gross Wells Net Wells
----------------------------------------------------------------------------
Oil 1 0.12 2 1.60
Natural Gas 9 5.60 6 5.22
Dry & Abandoned 1 0.25 1 0.60
----------------------------------------------------------------------------
Total 11 5.97 9 7.42
----------------------------------------------------------------------------
----------------------------------------------------------------------------

2007 2006
-----------------------------------------------------------
Gross Wells Net Wells Gross Wells Net Wells
----------------------------------------------------------------------------
Exploration 9 5.8 7 6.2
Development 2 0.2 2 1.2
----------------------------------------------------------------------------
Total 11 6.0 9 7.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During fiscal 2007 Regal participated in the drilling of a total of 11 wells (5.97 net) (versus 9 gross and 7.42 net wells during fiscal 2006) resulting in 9 natural gas wells (5.6 net), 1 oil well (0.12 net) and 1 D&A well (0.25 net) for an overall 91% (96% net) success rate. Of the 9 natural gas wells drilled during fiscal 2007, four (3.43 net) were tied in and producing as of September 30, 2007, three wells (1.41 net) were tied in during the first quarter of fiscal 2008, one well (0.4 net) is scheduled to be tied-in and one well (0.4 net) is under review for completion in an alternate zone. The oil well (0.12 net) drilled during 2007 was placed on production during July 2007.

Subsequent to the end of fiscal 2007, during the first quarter of fiscal 2008, the Corporation participated in the drilling of 1 well (0.4 net) resulting in 1 natural gas and oil well (0.4 net).

The following table summarizes the Corporation's land holdings as at September 30, 2007.



Gross Acres Net Acres
----------------------------------------------------------------------------
Garrington 12,000 8,235
Atlee Buffalo 2,560 1,488
Kaybob 960 714
Pica 1,920 444
Hanna 640 272
Viking Kinsella 1,280 256
Veteran 644 193
Sounding Lake 160 80
Medicine Lodge 3,200 256
Judy Creek 160 8
Eight Mile, BC 2,560 819
Other 320 16
----------------------------------------------------------------------------
Total 26,404 12,781
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Corporation held an average working interest of 48% in a total of 26,404 acres of developed and undeveloped lands as at September 30, 2007 (versus 46% working interest in a total of 15,873 acres of developed and undeveloped lands in 2006). Of the total 12,781net acres of land, 9,378 acres (73% of the total) were developed acres. Most of the properties were located in the province of Alberta except for the Eight Mile property located in the province of British Columbia.

Subsequent to the end of fiscal 2007, the Corporation added developed and undeveloped lands totaling approximately 1,280 gross acres and 410 net acres as a result of its drilling and completion of a gas well at Eight Mile, BC.

LENDING FACILITY

The Corporation has established a revolving operating demand facility of $2,750,000 that bears interest at the bank prime rate plus 1/2%. Repayments of the facility are not required provided the amounts borrowed do not exceed $2,750,000 or an amount to be determined from time to time. At September 30, 2007 there was $578,357 drawn on the operating demand facility. In addition at September 30, 2007 the Corporation had a non-revolving acquisition/development facility in the amount of $500,000 which bears interest at the bank prime rate plus 1.0%. At September 30, 2007 there was $500,000 drawn on this facility. Subsequent to year end on November 26, 2007, the Corporation executed an amending credit facility with its lender whereby its revolving operating demand facility in the amount of $2,750,000 and its non-revolving acquisition/development facility in the amount of $500,000 were combined into a revolving operating demand facility in the amount of $3,250,000. The amended combined operating demand facility bears interest at the bank prime rate plus 1/2%. The lending facilities are subject to an annual review by the bank, scheduled to occur by January 31, 2008.



EQUITY CAPITAL

Common share continuity 2007
Shares Amount
----------------------------------------------------------------------------
Balance, September 30, 2006 22,709,179 $ 70,172,113
Private placement issued for cash(3) 5,000,000 972,816
Private placement issued for cash on a
flow-through basis(3) 4,583,333 1,077,345
Rights offering 1,660,078 332,016
Private placement issued for cash(4) 3,335,000 626,740
Private placement issued for cash on a
flow-through basis 3,234,200 970,260
Private placement issued for cash on a
flow-through basis 3,765,800 1,129,740
Private placement issued for cash(5) 3,850,000 813,133
Tax impact of flow through share issue - (319,000)
Share issuance costs - (590,332)
----------------------------------------------------------------------------
Balance, September 30, 2007 48,137,590 $ 75,184,831
----------------------------------------------------------------------------

Common share continuity 2006:

Shares Amount
----------------------------------------------------------------------------
Balance, September 30, 2005 7,466,576 $ 59,640,080
December 2005 private placements issued for
cash(1) 737,000 650,000
December 2005 private placements issued for
cash on a flow-through basis(1) 8,217,506 8,028,000
Tax impact of flow through share issue - (2,700,000)
Share issuance costs - (804,912)
Shares issued on acquisition of Regal Energy
Corp. 6,147,469 5,225,349
Share issued as success fee on transaction 140,628 133,596
----------------------------------------------------------------------------
Shares outstanding September 30, 2006 22,709,179 $ 70,172,113
----------------------------------------------------------------------------

Warrants:

Number of Number
Warrants of Shares Amount
----------------------------------------------------------------------------
Balance, September 30, 2006 1,723,566 1,723,566 $ 406,300
November 30, 2006 private
placement(3) 916,667 916,667 49,838
February 1, 2007 private placement(4) 333,500 333,500 40,260
June 30, 2007 expiry of warrants(1) (817,923) (817,923) (188,000)
July 16, 2007 private placement(5) 3,850,000 3,850,000 187,867
----------------------------------------------------------------------------
Balance, September 30, 2007 6,005,810 6,005,810 $ 496,265
----------------------------------------------------------------------------

Number of Number of
Warrants Shares Amount
----------------------------------------------------------------------------
Balance September 30, 2005 - - -
December 15, 2005 private
placement(1) 817,923 817,923 $ 188,000
Warrants issued as success fee on
acquisition of Regal Energy
Corp.(2) 905,643 905,643 218,300
----------------------------------------------------------------------------
Warrants outstanding September 30,
2006 1,723,566 1,723,566 $ 406,300
----------------------------------------------------------------------------
Total common shares and warrants
("Equity Instruments")
outstanding September 30, 2007 $ 75,681,096
----------------------------------------------------------------------------
Note:
(1) In connection with the private placement of common and flow-through
common shares on December 15, 2005, the Corporation issued 817,923
warrants that entitle the holder to purchase one common share of the
Corporation for each warrant held at a price of $0.88 until June 30,
2007. The fair value of the warrants was determined using the
Black-Scholes option pricing model and assumes an expected volatility of
50%, a risk free rate of return of 3.5% and a weighted average life of
1.5 years.
(2) In connection with the acquisition of Regal Energy Corp. the Corporation
issued 905,643 warrants as a success fee that entitle the holder to
purchase one common share of the Corporation for each warrant held at a
price of $0.95 per share until December 31, 2007. The fair value of the
warrants was determined using the Black-Scholes option pricing model and
assumes an expected volatility of 50%, a risk free rate of return of
3.5% and a weighted average life of 2.0 years.
(3) In connection with the private placement of common and flow-through
common shares on November 30, 2006, the Corporation issued 916,667
warrants that entitle the holder to purchase one common share of the
Corporation for each warrant held at a price of $0.20 until May 30,
2007. The fair value of the warrants was determined using the
Black-Scholes option pricing model and assumes an expected volatility of
58%, a risk free rate of return of 5.0% and a weighted average life of
1.5 years.
(4) In connection with the private placement of common shares on February 1,
2007, the Corporation issued 333,500 warrants that entitle the holder to
purchase one common share of the Corporation for each warrant held at a
price of $0.20 until August 1, 2008. The fair value of the warrants was
determined using the Black-Scholes option pricing model and assumes an
expected volatility of 57%, a risk free rate of return of 5.0% and a
weighted average life of 1.5 years.
(5) In connection with the private placement of common shares on July 16,
2007, the Corporation issued 3,850,000 warrants that entitle the holder
to purchase one common share of the Corporation for each warrant held at
a price of $0.35 until July 16, 2009. The fair value of the warrants was
determined using the Black-Scholes option pricing model and assumes an
expected volatility of 31%, a risk free rate of return of 5.0% and a
weighted average life of 2.0 years.


Options:

The Corporation has a stock option plan under which directors, employees and consultants are eligible to receive grants. Options granted under the plan to outside independent directors vest immediately. Options granted to employees and consultants of the Corporation prior to December 31, 2006 vest one-third on the date of grant, and one third each on the first and second anniversaries of the date of grant. Options granted to employees and consultants subsequent to December 31, 2006 vest one half on the date of grant and one half on the first anniversary of the date of grant. The replacement employee options issued as a result of the December 31, 2005 transaction with Regal Energy Corp. vested 100% as the change of control provision of the option plan was triggered. The following table summarizes the status of the Corporation's stock option plan and the activity from September 30, 2005 to date. On January 1, 2006, 1,671,000 options were granted at a price of $0.95 exercisable until January 1, 2011 to directors, officers and employees of the Corporation. On September 30, 2006 a total of 460,000 options previously issued to the Corporation's former Vice President, Exploration & Land and the Corporation's former Vice President, Engineering & Operations expired reducing the total outstanding options on that date to 1,626,000 at that date. On February 12, 2007, 1,675,000 options were granted at an exercise price of $0.30 exercisable until February 12, 2012 to directors, officers, employees and consultants of the Corporation. On February 28, 2007, options that were granted to previous directors of the Corporation were cancelled.



Number of
Options Exercise Price Expiry Date
----------------------------------------------------------------------------
Balance September 30, 2006(1) 1,626,000 $0.96 -
Options granted February 12,
2007 1,675,000 0.30 February 12, 2012
Options cancelled(3) (350,000) 0.95
----------------------------------------------------------------------------
Balance September 30, 2007 2,951,000
----------------------------------------------------------------------------
Exercisable at September 30,
2007 2,241,000
----------------------------------------------------------------------------

Number of
Options Exercise Price Expiry Date
----------------------------------------------------------------------------
Balance September 30, 2005(1) - - -
Replacement employee options
issued Dec. 31, 2005(4) 86,000 $1.00 Dec. 31, 2007
Replacement employee options
issued Dec. 31, 2005 196,000 1.00 Jan. 30, 2009
Replacement employee options
issued Dec. 31, 2005 50,000 0.90 Aug. 17,2009
Replacement employee options
issued Dec. 31, 2005 83,000 1.00 Apr. 13, 2010
Issued to directors January 1,
2006 851,000 0.95 Jan. 1, 2011
Issued to officers and
employees January 1, 2006 820,000 0.95 Jan. 1, 2011
Options forfeited(2) (100,000) 1.00 Jan 30, 2009
Options forfeited(2) (20,000) 1.00 Apr. 13, 2010
Options forfeited(2) (340,000) 0.95 Jan. 1, 2011
----------------------------------------------------------------------------
Balance September 30, 2006 1,626,000
----------------------------------------------------------------------------
Exercisable at September 30,
2006 1,306,000
----------------------------------------------------------------------------

Note:
(1) With the change in business direction that occurred on December 17,
2004, all outstanding stock options to existing employees were cancelled
(2) Options previously issued to former officers of the Corporation.
(3) Options previously issued to former directors of the Corporation
(4) Subsequent to year end on December 31, 2007 86,000 options that were
granted to previous directors of the Corporation were cancelled.

As of the date of this MD&A, the Corporation has the following outstanding
equity instruments:

Shares outstanding 48,137,590
Shares issuable upon exercise of warrants 5,100,167
Stock options outstanding 2,865,000
----------
Total equity instruments outstanding 56,102,757


LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS

At September 30, 2007 the Corporation had a working capital deficiency of $2,385,030 (versus a working capital deficiency of $1,244,560 in 2006). On January 22, 2007 the Corporation entered into an agreement with its lender to increase its revolving operating demand facility from $2,000,000 to $2,750,000 and increase its non-revolving acquisition/development facility from $500,000 to $825,000. The Corporation utilized $500,000 of its non-revolving acquisition/development facility during the year in order to conduct four separate operations in the Garrington area of Alberta. On May 24, 2007 the Corporation's lender advised that availability on the non-revolving acquisition/development facility had been reduced to $500,000. Subsequent to year end, on November 24, 2007, the Corporation executed an amending credit facility agreement with its lender whereby its revolving operating demand facility in the amount of $2,750,000 and its non-revolving acquisition/development facility in the amount of $500,000 were combined into a revolving operating demand facility in the amount of $3,250,000. The Corporation's loan facility is subject to an annual review by the Corporation's lender scheduled to occur by January 31, 2008.

During fiscal 2007, the Corporation conducted five fundraisings in order to continue development in the Garrington area of Alberta and the Eight Mile area of North east British Columbia. Fundraisings completed include;



Date Type of Fundraising Amount
----------------------------------------------------------------------------
November 30, 2006 Private Placement - Common Shares $1,000,000
November 30, 2006 Private Placement - Flow-through Common Shares 1,100,000
December 21, 2006 Rights Offering 332,016
February 1, 2007 Rights Offering - top up 667,000
June 28 & July
16, 2007 Private Placement - Flow through Common Shares 2,100,000
July 16, 2007 Private Placement - Common Shares 1,001,000
----------------------------------------------------------------------------
Total $6,200,016
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Corporation typically uses three sources of funding to finance its capital expenditure program being internally generated cash flow from operations, bank debt and new equity issues.

At September 30, 2007 the Corporation had the following obligations to fulfill:

- Pursuant to a flow-through financing completed on June 28, 2007 and July 16, 2007, the Corporation is committed to spend $2,100,000 on qualified exploration and development expenditures by December 31, 2008. As at September 30, 2007, the Corporation has expended approximately $548,200 relating to these commitments.

- At September 30, 2007, the Corporation had commitments for minimum lease payments for office space expiring in January, 2008 totaling $6,828 for 2007 and $2,276 for 2008.

- At September 30, 2007, the Corporation had commitments for a rental compressor totaling $10,950 in 2007 and $29,200 in 2008.

- At September 30, 2007, the Corporation had capital commitments under a farm-in agreement in the amount of $700,000.

As at the date of this report, the Corporation currently has the following obligations to fulfill:

- Pursuant to a flow-through financing completed on June 28, 2007 and July 16, 2007, the Corporation is committed to spend $2,100,000 on qualified exploration and development expenditures by December 31, 2008. It is estimated that $1,276,500 of this commitment has been fulfilled as of the date of this report; and

- Compressor rental commitments remaining in the amount of $25,550.

The Corporation believes that with its current banking facilities, funds flow from operations and the issuance of additional equity it will have the financial resources necessary to complete its proposed $3 million fiscal 2008 capital program. In the event that commodity prices, interest or exchange rates, or other factors, negatively impact funds flow from operations, or the Corporation is unable to raise the additional equity funds, the proposed fiscal 2008 capital program will be reduced so that the Corporation's debt remains within its existing banking facilities.

Projections for fiscal 2008 are based on average wellhead prices of $62.48/Bbl for oil and NGLs, and $6.06/Mcf for natural gas. In addition, the following projections make assumptions regarding the timing of tie-ins of wells and deliverabilities of wells that management considers appropriate. In the event that any of the assumptions are proven to be inaccurate, the capital program will be adjusted accordingly.

The following table shows a projection of fiscal 2008 results outlining the Corporation's expected working capital position at September 30, 2008.



Working capital surplus (deficiency) September 30, 2006 $ (2,385,030)
Exercises of warrants (projected to occur May & August 2008) 250,033
Issuance of further equity (net of costs) 1,873,000
Expected funds flow October 1, 2007 - September 30, 2008 894,420
Projected capital expenditures October 1, 2007 - September
30, 2008 (3,022,500)
----------------------------------------------------------------------------
Expected working capital (deficiency) September 30, 2008 (1) $ (2,390,047)
----------------------------------------------------------------------------
Note:
(1) Total available banking facilities as at the date of this report -
$3,250,000


RELATED PARTY TRANSACTIONS

During 2007, the Corporation had the following related party transactions;

a) During the year ended September 30, 2007, the Corporation incurred legal and associated fees (including GST) of $ nil (2006 - $177,045) from a legal firm in which a partner is also a director of the Corporation.

b) Rhone 2005 Oil & Gas Strategic Limited Partnership ("Rhone 2005 LP") subscribed for $2,520,000 of flow-through common shares in the December 2005 private placement at the same prices as offered to the other participants in the filing. Rhone 2005 LP is controlled through Nova Bancorp Investments Ltd. Mr. Knutson and Mr. Wlodarczak, directors of the Company, are also directors and shareholders of Nova Bancorp Investments Ltd, and are both directors of the General Partner of Rhone 2005 LP.

c) On November 30, 2006, the Company completed a financing of 5,000,000 common shares at a price of $0.20 per common share and 4,583,333 flow-through common shares at a price of $0.24 per common share. Of the total of 5,000,000 common shares sold, 2,500,000 common shares were acquired directly by Nova Bancorp Investments Ltd. and 2,500,000 common shares were acquired by Rhone 2005 LP. Mr. Knutson and Mr. Wlodarczak, directors of the Company, are also directors and shareholders of Nova Bancorp Investments Ltd, and are both directors of the General Partner of Rhone 2005 LP. Nova Bancorp Securities Ltd. acted as agent in the financing. Nova Bancorp Securities Ltd. is a related party to the Company as Mr. Knutson and Mr. Wlodarczak, directors of the Company, are also directors, officers and shareholders of Nova Bancorp Securities Ltd. In connection with the financing the agent received 916,667 warrants that entitle the holder to purchase one common share of the Company for each warrant held at a price of $0.20 until May 30, 2008. In connection with this financing the Nova Bancorp Securities Ltd. was paid a commission of $46,690.

d) On February 1, 2007, Nova Bancorp Securities Ltd., acted as agent in a financing of 3,335,000 common shares at a price of $0.20 per share for gross proceeds of $667,000. The agent exercised its over allotment option to sell up to an additional 3,339,922 common shares at a price of $0.20 per share. Nova Bancorp Securities Ltd. is a related party to the Company as Mr. Knutson and Mr. Wlodarczak, directors of the Company, are also directors, officers and shareholders of Nova Bancorp Securities Ltd. and were paid a commission of $46,690 and were granted 333,500 warrants that entitle the holder to purchase one common share of the Company for each warrant held at a price of $0.20 per share until August 1, 2008.

e) On June 28 and July 16, 2007, Nova Bancorp Securities Ltd. acted as co-agent in a financing of 7,000,000 flow-through common shares at a price of $0.30 per share. Nova Bancorp Securities Ltd. is a related party to the Corporation as Mr. Knutson and Mr. Wlodarczak, directors of the Company, are also directors, officers and shareholders of Nova Bancorp Securities Ltd. and were paid a commission of $77,000.

All related party transactions are in the normal course of operations and have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties and which is similar to those that would be negotiated with third parties.

RISK MANAGEMENT AND UNCERTAINTY

There are a number of risks facing participants in the Canadian oil and gas industry. Some of the risks are common to all businesses while others are specific to the sector and our Corporation in particular.

Exploration, Development and Production

Oil and natural gas operations involve many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Regal's long-term commercial success depends on its ability to find, acquire, develop and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, any existing reserves it may have at any particular time and the production there from will decline over time as such existing reserves are exploited. A future increase in Regal's reserves will depend not only on its ability to select and acquire suitable producing properties or prospects. No assurance can be given that the Corporation will be able to continue to locate satisfactory properties for acquisition or participation. Moreover, if such acquisitions or participations are identified, Regal may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions make such acquisitions or participations uneconomic. There is no assurance that further commercial quantities of oil and natural gas will be discovered or acquired by Regal.

Future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment of recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include: delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions. While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas release and spills, each of which would result in substantial damage to oil and natural gas wells, production facilities, other property and the environment or in personal injury. In accordance with industry practice, the Corporation may not be fully insured against all of these risks, nor are all such risks insurable. Although Regal maintains liability insurance, when available, in an amount that it considers consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits, in which event the Corporation could incur significant costs that could have a material adverse effect upon its financial condition. Oil and natural gas production operations are also subject to all the risk typically associated with such operations, including encountering unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any of these risks could have a material adverse effect on future results of operations, liquidity and financial condition.

Finding

Oil and gas exploration requires manpower and capital to generate and test exploration concepts. The eventual testing of a concept will not necessarily result in the discovery of economical reserves. Regal attempts to minimize finding risk by ensuring that:

- Activity is focused in core regions where the Corporation has access to the expertise and experience is the greatest.

- Working interests are targeted at over 50% in new prospects

- Geophysics are utilized where appropriate to minimize exploration risk.

Reserve Estimates

Economically recoverable oil and natural gas reserves (including natural gas liquids), estimated by the Corporation's independent engineering firm, GLJ Petroleum Consultants , and the future net cash flows there from are based upon a number of variable factors and assumptions, such as commodity prices, projected production from the properties, the assumed effects of regulation by government agencies and future operating costs. All of these estimates may vary from actual results. Estimates of the recoverable oil and natural gas reserves attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net revenues expected there from may vary. The Corporation's actual production, revenues, taxes, development and operating expenditures with respect to its reserves may vary from such estimates, and such variances could be material.

Competitive Industry Conditions

The western Canadian oil and natural gas industry has become a very competitive industry for oil and gas properties, undeveloped land, drillable prospects and oil and natural gas industry professionals. The Corporation may not have equivalent resources to compete with other industry competitors at any given time. The Corporation attempts to mitigate this risk by developing strong long term relationships with farm-in partners, suppliers and contractors.

Prices, Markets and Marketing

The marketability and price of oil and natural gas that may be acquired or discovered by the Corporation will be affected by numerous factors beyond its control. Regal's ability to market its natural gas may depend upon our ability to acquire space on pipelines that deliver natural gas to markets at transportation rates that are acceptable to the Corporation. The Corporation may also be affected by deliverability uncertainties related to the proximity of our reserves to pipelines and processing facilities. In addition, the Corporation is subject to extensive government regulation relating to prices, taxes, royalties, land tenure, allowable production, and availability of markets.

Both oil and natural gas prices are unstable and are subject to fluctuation. Any material decline in prices could result in a reduction of our net production revenue. The economics of producing from some wells may change as a result of lower prices, which could result in a reduction of the Corporations volume of reserves. Regal may elect not to produce from certain wells at lower prices. All of these factors could result in a material decrease in the Corporation's net production revenue causing a reduction in its oil and gas acquisition, development and exploration activities. In addition, bank borrowings available to use are in part determined by our borrowing base, a sustained material decline in prices from historical average prices could reduce our borrowing base, therefore reducing the bank credit available to us which could require that a portion, or all, of our bank debt to be repaid.

Technology

The Corporation relies on information technology systems owned or managed by third parties to manage its day to day operations and perform reporting obligations including the preparation of financial statements, reporting to joint venture partners and various governments in relation to payment of royalties and taxes. In addition the Corporation has significant databases of financial and operating information contained on the Corporations head office server. The Corporation minimizes the risk of loss of critical data by insuring this information is backed up and stored at an offsite location on a frequent basis.

Environmental and Safety

All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial and local laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions or various substances produced in association with oil and natural gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require the Corporation to incur costs to remedy such discharge.

The Corporation currently has an Environmental and Safety Policy that provides a clear roadmap to follow in the event of a safety or environmental incident occurring. Having the policy in place minimizes the Corporation's exposure and risk.

Financial and Liquidity

The funds generated from operations from the Corporation's reserves may not be sufficient to fund its ongoing activities at all times. From time to time, Regal may require additional financing in order to carry out its oil and gas acquisition, exploration and development activities. Regal relies on various sources of funding to support its capital expenditure program, including:

- Internally generated cash flows

- Available bank lines

- New equity, if available on terms that are successful to the Corporation

Failure to obtain such financing on a timely basis could cause the Corporation to forfeit its interest in certain properties, miss certain acquisition opportunities and reduce or terminate operations. If the revenues from the Corporation's reserves decrease as a result of lower oil and natural gas prices or otherwise, it will affect its ability to expend the necessary capital to replace its reserves or to maintain its production. If funds generated from operations are not sufficient to satisfy capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available to meet these requirements on terms acceptable. The level of indebtedness from time to time could impair the Corporation's ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities that may arise. In addition, cash flow is influenced by factor beyond the Corporation's control, such as commodity prices, interest rates and changes to existing government regulations and tax policies. Should circumstances affect cash flow in a detrimental way, Regal would respond by increasing debt, raising additional equity or reducing capital expenditures.

Interest and Credit

The Corporation is exposed to concentration of credit risk as substantially all the Corporation's accounts receivable are with customers and joint venture partners in the oil and gas industry and are subject to normal industry credit risks. The Corporation mitigates these risks by entering into transactions with reputable partners. The Corporation has a policy to issue cash calls to industry partners on operated joint ventures on all capital projects.

The Corporation is exposed to interest rate risk on its revolving demand loan facility.



SUMMARY OF SHARE TRADING DURING 2007 and 2006

Price
Range
High Low Close Volume Value
Period of Fiscal 2007 ($) ($) ($) Traded ($)
----------------------------------------------------------------------------
First Quarter 0.24 0.165 0.18 3,145,159 580,356
Second Quarter 0.39 0.18 0.26 2,448,675 593,969
Third Quarter 0.30 0.215 0.30 2,232,367 578,557
Fourth Quarter 0.36 0.26 0.28 2,484,691 713,043
----------------------------------------------------------------------------
Total First Three Quarters 0.39 0.165 0.30 10,310,892 2,465,925
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Price
Range
High Low Close Volume Value
Period of Fiscal 2006 ($) ($) ($) Traded ($)
----------------------------------------------------------------------------
First Quarter ----------------Not Publicly Traded---------------
Second Quarter (1) 1.40 0.60 0.60 969,217 795,667
Third Quarter 0.74 0.38 0.495 718,439 431,444
Fourth Quarter 0.42 0.17 0.19 1,197,762 355,748
----------------------------------------------------------------------------
Total Year 1.40 0.17 0.19 2,885,418 1,582,859
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note:
(1) On January 19, 2006 Regal's shares commenced trading on the TSX Venture
Exchange under the symbol "REG".


DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Corporation is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. The Corporation's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of September 30, 2007, that the Corporation's disclosure controls and procedures are effective to provide reasonable assurance that material information related to Regal, is made known to them by employees or third party consultants working for the Corporation. It should be noted that while the Corporation's Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures will provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met.

INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer of Regal are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. With the assistance of an independent third party, we assessed the design of our internal control over financial reporting as of September 30, 2007. During this process, management identified certain material weaknesses in internal controls over financial reporting which are as follows:

a) Due to the limited number of staff of Regal, it is not possible to achieve a segregation of duties; and

b) Due to the limited number of staff, Regal does not have technical accounting expertise and knowledge to address all complex and non-routine accounting transactions that may arise.

These weaknesses in Regal's internal controls over financial reporting result in a more than remote likelihood that a material misstatement would not be prevented or detected. Management and the board of directors work to mitigate the risk of a material misstatement in financial reporting by segregating duties as much as possible under the current circumstances. In addition, when complex accounting and technical issues arise during preparation of monthly and quarterly financial statements outside consulting expertise is engaged. In spite of management's best efforts, there can be no assurance that this risk can be reduced to less than a remote likelihood of a material misstatement.

ADDITIONAL INFORMATION REGARDING REGAL ENERGY LTD.

Additional information regarding Regal Energy Ltd. is available on the internet at www.sedar.com.

ADVISORY REGARDING OIL EQUIVALENT CONVERSIONS

Natural gas has been converted to a barrel of oil equivalent (Boe) using 6,000 cubic feet (6 Mcf) of natural gas equal to one barrel of oil (6:1), unless otherwise stated. The Boe conversion ratio of 6 Mcf to 1 Bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore Boe's may be misleading if used in isolation. (This conversion conforms to NI 51-101). References to natural gas liquids ("NGLs") in this news release include condensate, propane, butane and ethane and one barrel of NGLs is considered to be equivalent to one barrel of crude oil equivalent (Boe).

ADVISORY REGARDING FORWARD LOOKING STATEMENTS

Certain information regarding Regal set forth in this news release, including management's assessment of the Company's future plans, operations and operational results may constitute forward-looking statements under applicable securities law and necessarily involve risks associated with oil and gas exploration, production, marketing, and transportation such as loss of market, volatility of prices, currency fluctuations, imprecision of reserves estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.

Issued and Outstanding Common Shares: 48,137,590

The TSX Venture has not reviewed and does not accept any responsibility for the adequacy or accuracy of this release.

Contact Information

  • Regal Energy Ltd.
    Douglas O. McNichol
    President and Chief Executive Officer
    (403) 509-2581
    Email: dmcnichol@regalenergy.ca
    or
    Regal Energy Ltd.
    Wayne R. Wilson
    Vice President Finance and Chief Financial Officer
    (403) 509-2584
    Email: wwilson@regalenergy.ca
    or
    Regal Energy Ltd.
    Suite 1520, Life Plaza
    734 - 7th Avenue S.W.
    Calgary, Alberta T2P 3P8