Rockyview Energy Inc.
TSX : RVE

Rockyview Energy Inc.

May 12, 2006 07:00 ET

Rockyview Energy Releases Operating and Financial Results for the First Quarter 2006

CALGARY, ALBERTA--(CCNMatthews - May 12, 2006) - Rockyview Energy Inc. (TSX:RVE) ("Rockyview" or the "Company") is pleased to present its report for the three month period ended March 31, 2006. The highlight of the quarter was closing the $67 million acquisition of Espoir Exploration Corp. ("Espoir"), a transaction that added approximately 935 boe per day of production in two core areas and an inventory of high quality exploration and development prospects. This complemented the solid base that Rockyview had established in the greater Wood River area of Central Alberta when it commenced operations in June 2005. Shortly after completing the Espoir transaction, the Company announced a 36,000 acre farm-in at Thunder/Neerlandia, an area adjacent to the newly acquired lands. The terms of the farm-in call for Rockyview to drill four earning wells by mid-summer 2006, which will provide the Company with a rolling option on future drilling. One well was drilled and completed by the end of the first quarter. The balance of the three wells will be drilled by mid-July. Capital expenditures (excluding the acquisition of Espoir) during the first quarter amounted to $9.17 million and comprised $4.77 million for facilities, $3.71 million on drilling and completions and $0.69 million on land and seismic. Our focus during the period was to complete the tie-ins and compression projects related to our 2005 drilling program, which saw the Company drill 55 (39 net) Belly River and Horseshoe Canyon CBM wells during the last one hundred days of the year, creating estimated net production additions of 5-6 mmcf per day that started to come on in increments in early March and will continue to do so until mid-summer, 2006. With most of that weighted to the second quarter, the impact on first quarter production was nominal. Results exceeded budget estimates, with the Horseshoe Canyon wells averaging in excess of 150 mcf per day over 30 - 60 day periods. Notwithstanding the current gas price environment, Rockyview remains very bullish on the long-term prospects for the commodity and is committed to drilling identified prospects. Rockyview believes that it is important to maintain the momentum it established at the end of 2005 and into 2006 throughout the remainder of the year. Funding for the capital program will come from cash flow and debt. In that regard, the Company's credit facility has been increased to $40 million. Under appropriate circumstances, equity may also be considered. The Company has now had an opportunity to examine the long-term drilling prospects it has in inventory. Among those that represent higher-impact well events is the potential resident in the Upper Mannville formation for CBM. The progress of this play type in Central and West-Central Alberta continues to expose Rockyview to a potentially large resource. With 55 net undeveloped sections of land prospective for CBM in the Upper Mannville, the Company is closely monitoring several horizontal drilling projects adjacent to its acreage. Although no capital has been allocated to drilling any Mannville CBM wells during 2006, Rockyview may revisit the issue later in the year. Not withstanding the drilling success, shortages of skilled labour, equipment and material have made the execution of the capital program more complex and expensive. While Rockyview remains confident that it will continue to drill successful wells, the reality of the current environment is that projects will take longer to complete.


Steve Cloutier
President & Chief Financial Officer


FINANCIAL REVIEW & OPERATING HIGHLIGHTS

                                       Three months     Three months
                                              ended            ended
                                        Mar-31 2006      Dec-31 2005
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FINANCIAL ($)
Revenue before royalties                  7,954,079        6,993,066
Net income (loss)                           (80,297)       1,383,782
 Per share - basic and diluted                (0.00)            0.11
Cash flow from operations                 3,856,439        4,016,113
 Per share - basic                             0.21             0.33
 Per share - diluted                           0.20             0.33
Total assets                            145,343,833       63,243,557
Working capital (deficiency)             (5,575,759)         949,643
Bank loan                                20,000,000                -
Capital asset acquisitions               67,279,786                -
Capital expenditures                      9,174,940       10,636,569

Market
Shares outstanding
 End of period                           19,492,478       12,049,077
 Weighted average - basic                18,581,144       12,037,058
 Weighted average - diluted              18,841,723       12,301,818


OPERATIONS
Average daily production
Light crude oil (bbl/d)                          58               46
NGLs (bbl/d)                                     63               25
Natural gas (mcf/d)                          10,022            5,682
Total (boe/d)                                 1,791            1,018

Average wellhead prices
Light crude oil ($/bbl)                       60.46            59.49
NGLs ($/bbl)                                  56.23            61.11
Natural gas ($/mcf)                            7.90            11.97
Average ($/boe)                               48.11            71.02

Operating netback ($/boe)                     27.98            48.90

Management's Discussion and Analysis This management, discussion and analysis ("MD&A") for Rockyview Energy Inc. ("Rockyview" or the "Company") was prepared as of May 10, 2006 and should be read in conjunction with the unaudited interim consolidated financial statements for the three months ended March 31, 2006, and the December 31, 2005 audited annual financial statements and related note disclosures. The December 31, 2005 audited financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). Basis of Presentation - The Company commenced operations in June 2005. Accordingly, there are no comparatives for this quarterly reporting period. The Company has, however, chosen to include the three month period ended December 31, 2005 for comparative purposes. Non-GAAP Measurements - The MD&A contains the term "cash flow from operations", which should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles, as an indicator of the Company's performance. Rockyview's determination of cash flow from operations may not be particularly comparable to that reported by other companies, especially those in other industries. The reconciliation between net income and cash flow from operations can be found in the statement of cash flow in the unaudited consolidated financial statements. The Company also presents cash flow from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. The Company will also use operating netback as an indicator of operating performance. Operating netback is calculated on a per boe basis taking the sales price and deducting royalties, operating and transportation expenses. BOE Presentation - The term "barrels of oil equivalent" ("BOE") may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in the report are derived by converting gas to oil in the ratio of 6 thousand cubic feet of gas to one barrel of oil. Forward-Looking Statements - Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to: the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks include, but are not limited to: operational risks in exploration, development and production, delays or changes in plans, risks associated with the uncertainty of reserves estimates, and estimates of production, costs and expenses. The risks outlined above should not be construed as exhaustive. The reader is cautioned not to place undue reliance on this forward-looking information. The Company undertakes no obligation to update or revise any forward-looking statements except as required by applicable securities laws.

PRODUCTION

Average daily                 Three months ended  Three months ended
 production volumes               March 31, 2006   December 31, 2005
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Light crude oil (bbl/d)                       58                  46
NGLs (bbl/d)                                  63                  25
Natural gas (mcf/d)                       10,022               5,682
---------------------------------------------------------------------
Total (boe/d)                              1,791               1,018
---------------------------------------------------------------------
---------------------------------------------------------------------

Production split
---------------------------------------------------------------------
Light oil and NGLs                             7%                  7%
Natural gas                                   93%                 93%
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---------------------------------------------------------------------

On January 11, 2006, the Company closed the acquisition of Espoir Exploration Corp. ("Espoir") and has included its operating results from that date. The Espoir acquisition added approximately 935 boe/d of production at closing. The Company's focus during the first quarter of 2006 was the pipelining and tie-in of wells drilled at Wood River during the last quarter of 2005. These wells are being tied into a new 1,000 hp compression facility specifically designed to accommodate this new production. The installation of new compression facilities necessitated shutting-in production at Wood River for five days while pipelines were re-routed to the appropriate compressors. Initial production rates from these Horseshoe Canyon CBM wells are averaging in excess of 150 mcf per day over a 30 to 60 day period which is higher than the Company's initial expectations. Production for the week ended April 30, 2006 averaged 2,150 boe per day. The Company's production continues to be weighted 7% light oil and NGLs and 93% natural gas.


PETROLEUM AND NATURAL GAS SALES

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Light crude oil                      $   315,467         $   253,481
NGLs                                     319,361             140,671
Natural gas                            7,121,137           6,259,545
Royalty and other income                 198,114             339,369
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Gross oil and gas revenue              7,954,079           6,993,066
Per boe                              $     49.34         $     74.64
---------------------------------------------------------------------
---------------------------------------------------------------------

The Company sells all of its gas into the spot market based on the Alberta AECO reference price. AECO spot averaged $7.48 per mcf in the first quarter of 2006, down 35% from the average of $11.60 per mcf received in the fourth quarter of 2005. Crude oil prices are derived from the West Texas Intermediate ("WTI") average price and the U.S. exchange rate. For the three months ended March 31, 2006, the WTI oil price averaged U.S.$63.81 and the $U.S./$Cdn. exchange rate averaged 1.1545 (Cdn. $0.866). The average prices realized during the first quarter by the Company were $60.46 per bbl for light crude oil, $56.23 per bbl for NGLs and $7.90 per mcf for natural gas. The first quarter of 2006 saw natural gas prices decline from year-end 2005 levels. Natural gas storage is currently 1.90 Tcf, approximately 60% higher than the 5 year average. With the crude oil to natural gas price ratio over 10, natural gas is inexpensive versus other energy products. While we do not expect to see an appreciable increase in natural gas prices during the next two quarters due to the higher volumes in storage, we do believe that the long term fundamentals for natural gas prices remain strong. The Company has no hedging contracts in place, nor does it currently intend to hedge in 2006.

ROYALTIES

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Crown royalties                     $  1,490,391         $   949,221
Freehold royalties                       101,056             212,208
Overriding royalties                     274,268             202,454
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Total royalties                        1,865,715           1,363,883
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% of oil and gas revenue                    23.5%               19.5%
Per boe                             $      11.57         $     14.56
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---------------------------------------------------------------------

Royalties for the first quarter of 2006 averaged 23.5% of oil and gas revenue, up from 19.5% in the fourth quarter of 2005, and reflects expected higher royalty rates on higher productivity wells acquired from Espoir. Lower royalty rates applicable to lower productivity CBM wells will result in a reduction to the overall royalty rate for the balance of the year.

OPERATING EXPENSES

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Operating expense                   $  1,370,252         $   894,128
Per boe                             $       8.50         $      9.54
---------------------------------------------------------------------
---------------------------------------------------------------------

Operating expenses totalled $1,370,252 for the first quarter of 2006, or $8.50 per boe. The Company continued with its well workover and compressor maintenance program at Wood River and conducted a full compressor overhaul while production was shut-in for 5 days to accommodate the installation of new compression facilities. Both the 1,000 hp compressor added during the first quarter and a 1,200 hp compressor scheduled to be added during the third quarter of 2006, will reduce the volume of gas going through the existing compressor facilities, lessening the workload on that compressor and thereby reducing maintenance costs. The Company has successfully integrated the Espoir properties into its operations.


TRANSPORTATION COSTS

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Transportation expense               $   208,591         $   153,767
Per boe                              $      1.29         $      1.64
---------------------------------------------------------------------
---------------------------------------------------------------------

Transportation costs for the quarter ended March 31, 2006 were $208,590, or $1.29 per boe and reflect lower pipeline tariffs on the Espoir properties.


OPERATING NETBACK

                              Three months ended  Three months ended
($ per boe)                       March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Revenues                               $   49.34           $   74.64
Royalties                                 (11.57)             (14.56)
Operating expense                          (8.50)              (9.54)
Transportation                             (1.29)              (1.64)
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Operating netback                      $   27.98           $   48.90
---------------------------------------------------------------------
---------------------------------------------------------------------

The operating netback for the first quarter of 2006 was $27.98, 42.8% lower than the previous quarter and reflects the significant decrease in natural gas prices combined with expected higher royalty rates on the Espoir properties during the period.

GENERAL AND ADMINISTRATIVE EXPENSES

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
General and administrative
 - gross                             $   923,999         $   898,713
Capital and operating recoveries        (323,655)           (379,741)
Capitalized                             (163,452)           (139,531)
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General and administrative - net     $   436,892         $   379,441
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Per boe                              $      2.71         $      4.05
---------------------------------------------------------------------
---------------------------------------------------------------------

General and administrative expenses for the three months ended March 31, 2006 totalled $436,892, or $2.71 per boe. The Company capitalized $163,452 of general and administrative costs associated with its exploration and development program during the first quarter. The Company's general and administrative expenses have increased on an overall basis as a result of the acquisition of Espoir, but decreased 33.1% on a per boe basis as a result of adding the Espoir production.

INTEREST EXPENSE

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Interest expense                     $   216,190            $      -
Per boe                              $      1.34            $      -
---------------------------------------------------------------------
---------------------------------------------------------------------

Prior to the acquisition of Espoir, the Company had not drawn on its bank line. The acquisition of Espoir was partially financed with $8.32 million in cash and the assumption of debt and working capital deficiency of $12.73 million. The balance of the bank loan at March 31, 2006 was $20.00 million. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the fair value method for stock options. Under the fair value method, the Black-Scholes option pricing model was used to calculate the quarterly expense and is recorded in the income statement over the vesting period of the options.


                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Compensation expense                 $   212,480         $   109,854
Per boe                              $      1.32         $      1.17
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For the quarter ended March 31, 2006, the Company had stock-based compensation of $212,480, or $1.32 per boe, reflecting the granting of 730,333 stock options during the period. The amount remaining for future recognition over the vesting period of the options is $2,242,820.


DEPLETION, DEPRECIATION AND ACCRETION

                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Depletion and depreciation          $  3,606,663        $  1,675,787
Accretion                                 36,074              16,676
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                                    $  3,642,737        $  1,692,463
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---------------------------------------------------------------------

Depletion and depreciation for the quarter amounted to $3,606,663 ($22.37 per boe), compared to $17.89 per boe in the fourth quarter of 2005. The increase in depletion and depreciation expense, on both an overall and on a per boe basis, is due to the cost associated with the Espoir acquisition. The accretion of the asset retirement obligation for the quarter totalled $36,074 ($0.24 per boe) and also reflects the accretion of the asset retirement obligation assumed on the Espoir acquisition. INCOME TAXES For the first quarter of 2006, the Company recorded an income tax provision of $81,519. The Company recorded a future income tax liability of $13.89 million on the acquisition of Espoir. CASH FLOW AND NET INCOME Cash flow for the quarter ended March 31, 2006 was $3,856,439 or $0.21 per share basic ($0.20 diluted). This cash flow reflects the 35% decrease in the average AECO spot gas price during the period. Net loss for the first quarter of 2006 was $80,297 or $0.00 per share basic and diluted. SUMMARY OF QUARTERLY RESULTS The following table highlights the Company's performance since inception on a quarterly basis:


                            2006                     2005
                     ------------------------------------------------
                              Q1          Q4          Q3          Q2
---------------------------------------------------------------------
Revenue                7,954,079   6,993,066   5,711,873     490,215
Net income/(loss)
 Per share
  - basic and diluted       0.00        0.11        0.06       (0.02)
Cash flow from
 operations
 Per share - basic          0.21        0.33        0.27        0.16
 Per share - diluted        0.20        0.33        0.27        0.13
Total assets         145,343,833  63,243,557  55,550,814  50,720,768
Bank loan             20,000,000           -           -           -
---------------------------------------------------------------------
---------------------------------------------------------------------

Total revenues increased commensurate with production volumes and a strong commodity price environment, until the decline in natural gas prices in the first quarter of 2006. The increase in revenues in the first quarter of 2006 is due to the production volumes added from the Espoir acquisition. Cash flow from operations steadily increased until the decline in natural gas prices in 2006. CAPITAL EXPENDITURES In the first quarter of 2006, the Company drilled 7 (4.1 net) wells, 3 (3.0 net) at Kneller and Bittern, 3 (0.5 net) in the Wood River area and 1 (0.6 net) at Thunder in western Alberta. These wells will be tested for production rates in the second quarter of 2006. In addition, the Company pre-set surface casing on 8 (6.8 net) wells of the first round of 2006 drilling at Wood River prior to the end of the quarter. These wells will be drilled out immediately following spring break-up. Rockyview's first quarter drilling program at Thunder was curtailed due to lack of rig availability and early break-up. The Company's main focus during the first quarter concentrated on the compression, pipelining and tie-in of gas wells drilled at Wood River during the fourth quarter of 2005. By the end of the first quarter, 12 gross wells had been tied-in and placed on production, with another 12 gross wells on production by April 30, 2006.


                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Corporate acquisition              $  67,279,786      $            -
Land and lease                           563,866             983,899
Geological and geophysical               126,388             119,916
Drilling and completions               3,534,898           7,140,633
Equipment and facilities               4,769,983           2,229,412
Capitalized administrative               163,452             139,531
Office                                    16,353              23,178
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Net capital expenditures           $  76,454,726      $   10,636,569
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---------------------------------------------------------------------

The Company records the fair value of future obligations associated with the retirement of long-lived tangible assets, such as well sites and facilities. Accounting for the recognition of this obligation results in an increase to the carrying value of these assets. This amount has been shown as the Company's asset retirement obligation. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2006, the Company had drawn $20.0 million on its $30.0 million credit facility. Following the annual review of its independent reserves report, the Company's banker increased the credit line to $40.0 million. At May 10, 2006, the amount drawn on the bank line had increased to $26.5 million. Rockyview will typically utilize three sources of funding to finance its capital expenditure program: internally generated cash flow from operations, debt where deemed appropriate and new equity issues if available on favourable terms. When financing corporate acquisitions, the Company may also assume certain future liabilities. In addition, the Company may adjust its capital expenditure program depending on the commodity price outlook and further opportunities that may be identified. OUTSTANDING SHARE DATA On May 10, 2006, there were 19,492,478 common shares outstanding, 894,172 outstanding warrants and 1,702,835 unvested stock options with an average exercise price of $5.40 per share. CONTRACTUAL OBLIGATIONS AND COMMITMENTS The Company has contractual obligations in the normal course of operations including the purchase of assets and services, operating agreements, transportation commitments and sales commitments. These obligations are of a recurring and consistent nature and impact cash flow in an ongoing manner. Rockyview leases office space through an arrangement deemed to be an operating lease for accounting purposes. As such, the Company is not required to record its lease obligation as a liability, nor does it record lease obligations as an asset. GUARANTEES AND OFF-BALANCE SHEET ARRANGEMENTS The Company has not entered into any off-balance sheet arrangements or guarantees. BUSINESS RISKS No changes have been made to the Business Risks as stated in Rockyview's annual report. CRITICAL ESTIMATES The Company's financial statements have been prepared in accordance with Canadian generally accepted accounting policies ("GAAP"). Certain accounting policies require management to make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Rockyview's management review their estimates frequently; however, the emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates. Rockyview attempts to mitigate this risk by employing individuals with the appropriate skill set and knowledge to make reasonable estimates; developing internal control systems; and comparing past estimates to actual results. The Company's financial and operating results include estimates on the following: - Depletion, depreciation and accretion based on estimates of oil and gas reserves; - Estimated revenues, operating expenses and royalties for which actual revenues and costs have not been received; - Estimated capital expenditures on projects in progress; - Estimated fair value of Espoir acquisition, including petroleum and natural gas properties; - Estimated fair value of asset retirement obligation including estimates of future costs and the timing of costs. OUTLOOK The Company's capital budget for 2006 is set at $40.0 million, with plans to drill 84 (58 net) wells, of which 57 (39 net) wells are to target coalbed methane gas in the Horseshoe Canyon coals. The decline in natural gas prices will result in lower than projected cash flow for 2006, resulting in a larger component of the 2006 capital program being financed by debt. Under appropriate circumstances, equity may be considered to pay down debt. ADDITIONAL INFORMATION Additional information regarding the Company including Rockyview's annual information form is available on SEDAR at www.sedar.com or on Rockyview's website www.rockyviewenergy.com.


Consolidated Balance Sheet
(unaudited)
                                            March 31,    December 31,
                                                2006            2005
---------------------------------------------------------------------
ASSETS
Current assets
Cash                                         206,789       5,948,526
Accounts receivable                        7,202,192       4,990,016
Other current assets                       1,351,820       530,490
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                                           8,760,801      11,469,032

Goodwill (note 3)                         11,193,868               -
Future income taxes                                -       2,961,870
Property, plant and equipment (note 4)   125,389,164      48,812,655
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                                       $ 145,343,833    $ 63,243,557
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LIABILITIES
Current liabilities
Accounts payable and accrued
 liabilities                           $  14,336,561    $ 10,519,389

Long-term debt (note 7)                   20,000,000               -
Future income taxes                       11,005,470               -
Asset retirement obligations (note 4)      2,069,882         997,315
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                                          47,411,913      11,516,704
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SHAREHOLDERS' EQUITY
Share capital (note 6)                    94,871,514      48,797,413
Warrants (note 6)                            572,270         573,487
Contributed surplus (note 6)                 473,574         261,094
Retained earnings                          2,014,562       2,094,859
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                                          97,931,920      51,726,853
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                                       $ 145,343,833    $ 63,243,557
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see accompanying notes to financial statements


Approved by the Board of Directors


"signed"                     "signed"
John Howard                  Steve Cloutier
Director                     Director


Consolidated Statement of Operations and Retained Earnings
(unaudited)
                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
REVENUE
Petroleum and natural gas           $  7,954,079        $  6,993,066
Royalties expense                     (1,865,715)         (1,363,883)
---------------------------------------------------------------------
                                       6,088,364           5,629,183
EXPENSES
Operating                              1,370,252             894,128
Transportation                           208,591             153,767
General and administrative               436,892             379,441
Stock-based compensation                 212,480             109,854
Interest                                 216,190                   -
Depletion, depreciation and accretion  3,642,737           1,692,463
---------------------------------------------------------------------
                                       6,087,142           3,229,653
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Net income before income taxes             1,222           2,399,530
Current income tax expense                     -             185,734
Future income tax expense                 81,519             830,014
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Net income (loss)                        (80,297)          1,383,782
Retained earnings,
  beginning of period                  2,094,859                   -
---------------------------------------------------------------------
Retained earnings, end of period    $  2,014,562        $  1,383,782
---------------------------------------------------------------------
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Net income (loss) per share
 - basic and diluted (note 6)       $        .00        $       0.11


see accompanying notes to financial statements


Consolidated Statement of Cash Flows
(unaudited)
                              Three months ended  Three months ended
                                  March 31, 2006   December 31, 2005
---------------------------------------------------------------------
Cash flows from operating
 activities
Net income (loss)                        (80,297)       $  1,383,782
Items not affecting cash
 Depletion, depreciation and
  accretion                            3,642,737           1,692,463
 Stock-based compensation expense        212,480             109,854
 Future income taxes                      81,519             830,014
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Cash flow from operations              3,856,439           4,016,113
Net change in non-cash working
 capital items                           264,180              65,257
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Net cash provided by
 operating activities                  4,120,619           4,081,370
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Cash flow from financing activities
Issue of shares for cash upon
 exercise of warrants                     10,005                   -
Increase in bank loan                 11,000,000                   -
Purchase shares for cancellation               -            (229,797)
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Net cash used in financing activities 11,010,005            (229,797)
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Cash flow from investing activities
Acquisition of Espoir Exploration
 Corp.                                (8,487,278)                  -
Additions to property,
 plant and equipment                  (9,174,940)        (10,636,569)
Changes in non-cash working capital
 - investing items                    (3,210,143)          4,476,960
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Net cash used in investing
 activities                          (20,872,361)         (6,159,609)
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Change in cash during the period      (5,741,737)         (2,308,036)
Cash - beginning of period             5,948,526           8,256,562
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Cash - end of period                 $   206,789        $  5,948,526
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Supplemental information:
Interest paid                        $   217,317        $          -


see accompanying notes to financial statements


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (unaudited)

1. BASIS OF PRESENTATION Rockyview Energy Inc. ("Rockyview" or the "Company") was incorporated on April 12, 2005 and commenced operations on June 21, 2005. Accordingly, there are no comparative financial statements for the three month period ended March 31, 2005. The Company has, however, chosen to include the three month period ended December 31, 2005 for comparative purposes. 2. SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates. The financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the fiscal period ended December 31, 2005, other than the consolidation of the Company's wholly owned subsidiary, Rockyview Oil & Gas Ltd. The disclosures provided below are incremental to those included with the annual financial statements. The interim consolidated financial statements should be read in conjunction with the annual financial statements and notes thereto in the Company's annual report for the period ended December 31, 2005. Goodwill Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the fair value of the identifiable assets and liabilities of the acquired business. Net identifiable liabilities acquired include an estimate of future income taxes. In accordance with CICA Handbook Section 3062 ("HB 3062"), "Goodwill and Other Intangibles", goodwill is tested at least annually for impairment. Impairment is charged to income during the period in which it is deemed to have occurred. The test for impairment is the comparison of the book value of net assets to the fair value of the Company. If the fair value of the Company is less than its book value, the impairment loss is measured by allocating the fair value of the Company to the identifiable assets and liabilities at their value. The excess of the Company's fair value over the identifiable net assets is the implied fair value of goodwill. If this amount is less than the book value of goodwill, the difference is the impairment amount and would be charged to income during the period. 3. ACQUISITION OF ESPOIR EXPLORATION CORP. On January 11, 2006, Rockyview acquired the issued and outstanding shares of Espoir Exploration Corp. ("Espoir") and immediately changed its name to Rockyview Oil & Gas Ltd. The acquisition was accounted for using the purchase method of accounting and the purchase price allocation and consideration paid is as follows:



                                                       March 31,2006
---------------------------------------------------------------------
Net assets acquired at assigned values
 Working capital deficiency                               (3,729,629)
 Property, plant and equipment                            62,855,000
 Undeveloped land and seismic                              8,096,837
 Goodwill                                                 11,193,868
 Bank loan                                                (9,000,000)
 Asset retirement obligation                                (980,098)
 Future income taxes                                     (13,885,821)
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Net assets acquired                                       54,550,157
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Consideration given
 Common shares issued (7,441,499 shares)                  46,062,879
 Cash                                                      8,324,883
 Acquisition costs                                           162,395
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                                                          54,550,157
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4. PROPERTY, PLANT AND EQUIPMENT

                                         Accumulated
                                       Depletion and
                                  Cost  Depreciation  Net Book Value
---------------------------------------------------------------------
Petroleum and natural
 gas properties          $ 132,813,509   $ 7,633,687   $ 125,179,822
Furniture and office
 equipment                     255,135        45,793         209,342
---------------------------------------------------------------------
                           133,068,644     7,679,480     125,389,164
---------------------------------------------------------------------
---------------------------------------------------------------------

During the period the Company capitalized $163,452 of general and administrative expenses related to development activities. As at March 31, 2006, the depletion calculation excluded unproved properties of $13.1 million. 5. ASSET RETIREMENT OBLIGATIONS The following table presents the reconciliation of the beginning and ending asset retirement obligation associated with the retirement of oil and gas properties:


                                            March 31     December 31
                                                2006            2005
---------------------------------------------------------------------
Balance, beginning of period               $ 997,315       $       -
Liabilities acquired                         980,098         808,732
Liabilities incurred                          56,395         153,951
Liabilities settled                                -               -
Accretion expense                             36,074          34,632
---------------------------------------------------------------------
Balance, end of period                     2,069,882         997,315
---------------------------------------------------------------------
---------------------------------------------------------------------

The total undiscounted amount of future cash flows required to settle the obligation at March 31, 2006 is $9,622,000.


6. SHARE CAPITAL

(a) Issued

Common shares:                                Number          Amount
---------------------------------------------------------------------
Balance - beginning of period             12,049,077    $ 48,797,413
Acquisition of Espoir                      7,441,499      46,062,879
Issued on exercise of warrants                 1,902          11,222
---------------------------------------------------------------------
Balance - end of period                   19,492,478    $ 94,871,514
---------------------------------------------------------------------
---------------------------------------------------------------------

Warrants:                                     Number          Amount
---------------------------------------------------------------------
Balance - beginning of period                896,074    $    573,487
Exercised                                     (1,902)         (1,217)
---------------------------------------------------------------------
Balance - end of period                      894,172    $    572,270
---------------------------------------------------------------------
---------------------------------------------------------------------

Each whole Rockyview Warrant entitles the holder to acquire one Rockyview Share at an exercise price of $5.26. (b) Stock Options The following table sets forth a reconciliation of stock option plan activity during the period:



                                                            Weighted
                                                             Average
Stock options:                                Number           Price
---------------------------------------------------------------------
Balance - beginning of period                907,502          $ 4.86
Granted                                      730,333            5.98
---------------------------------------------------------------------
Balance - end of period                    1,637,835          $ 5.36
---------------------------------------------------------------------
Exercisable - end of period                        -          $    -
---------------------------------------------------------------------
---------------------------------------------------------------------

(c) Stock-Based Compensation The fair value of options granted was estimated based on the following assumptions:


          Number of                Risk-Free   Expected   Fair Value
Date of     Options     Expected    Interest       Life   of Options
Grant       Granted   Volatility        Rate     (Years)     Granted
---------------------------------------------------------------------
11-Jan-06   730,333           29%       3.86%         3  $ 1,073,590

Unrecognized compensation at January 1, 2006               1,381,710
---------------------------------------------------------------------
                                                           2,455,300
Stock-based compensation recognized in period               (212,480)
---------------------------------------------------------------------
Amount for future recognition                            $ 2,242,820
---------------------------------------------------------------------
---------------------------------------------------------------------

(d) Earnings per share The following table summarizes the common shares used in calculating net income per share:


                                                            Weighted
                                                             Average
                                                              Shares
---------------------------------------------------------------------
Basic                                                     18,581,144
Warrants                                                     260,579
---------------------------------------------------------------------
Diluted                                                   18,841,723
---------------------------------------------------------------------
---------------------------------------------------------------------

7. BANK LOAN At March 31, 2006, the Company had a $30.0 million revolving extendible credit facility with a Canadian chartered bank. The facility may be drawn down or repaid at any time but there are no scheduled repayment terms. The borrowing base is subject to a semi-annual review by the bank. On May 10, 2006, the credit facility was increased to $40.0 million. Reader Advisory - Statements in this news release contain forward-looking information including expectations of future production. Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to; the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks include, but are not limited to; operational risks in exploration, development and production, delays or changes in plans, risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. The risks outlined above should not be construed as exhaustive. The reader is cautioned not to place undue reliance on this forward-looking information. The Company undertakes no obligation to update or revise any forward-looking statements except as required by applicable securities laws. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion factor is an industry accepted norm and is not based on either energy content or current prices. Investors are also cautioned that this news release contains the term reserve life index, which is not a recognized measure under Canadian generally accepted accounting principles ("GAAP"). Management believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation. Investors are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Rockyview's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies. The Toronto Stock Exchange has neither approved nor disapproved of the contents of this news release.

Contact Information

  • Rockyview Energy Inc.
    Steve Cloutier
    President & C.E.O.
    (403) 538-5000
    (403) 538-5050 (FAX)
    or
    Rockyview Energy Inc.
    Alan MacDonald
    Vice President, Finance & C.F.O.
    (403) 538-5000
    (403) 538-5050 (FAX)
    Website: www.rockyviewenergy.com