Thunder Energy Trust
TSX : THY.UN

Thunder Energy Trust

May 12, 2005 15:36 ET

Thunder Energy Inc. Updates Merger and Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 12, 2005) -

Not for distribution to U.S. newswire services or for dissemination in the
United States. Any failure to comply with this restriction may constitute a
violation of U.S. securities law.

Thunder Energy Inc. (TSX:THY) today updated its planned merger and released first quarter 2005 results.

On May 3, 2005, Thunder Energy Inc. ("Thunder"), Mustang Resources Inc. ("Mustang") and Forte Resources Inc. ("Forte") jointly announced that their respective Boards of Directors had unanimously approved a proposal to combine the three entities and create a new oil & gas trust ("Thunder Trust" or the "Trust"), two exploration focused-producers ("Thunder Explorco") and ("Forte Explorco") and a resource-based coal bed methane ("CBM") company ("Thunder CBMco"), pursuant to a Plan of Arrangement ("Arrangement").

As a result of the proposed combination, shareholders of Thunder will receive one trust unit or exchangeable share of Thunder Trust, one share of Thunder Explorco and one share of Thunder CBMco for each Thunder share held. Mustang shareholders will receive 1.1 trust units or exchangeable shares of Thunder Trust, 1.1 shares of Thunder Explorco and 0.25 shares of Thunder CBMco for each Mustang share held. Forte shareholders will receive 0.35 trust units or exchangeable shares of Thunder Trust and one share of Forte Explorco for each Forte share held. It is contemplated that the units of the Trust will be consolidated on a 1:2 basis, the shares of Thunder Explorco on a 1:3 basis and the shares of Thunder CBMco on a 1:3 basis after the above mentioned share exchange occurs. A maximum of 15% exchangeable shares will be issued pursuant to the proposed combination.

During the first quarter of 2005 Thunder operated as an exploration and development company and the results reflect a strong bias to exploration pre-investment. That pre-investment effort together with a large inventory of existing exploration assets will be the foundation of the new Thunder Exploreco. Adjustments will be made to the risk profile of the investments made in the Thunder Trust asset base as well as adjustments to the level of exploration exposure taken on by the Thunder Explorco. Those adjustments are being made in the second quarter and will be in effect at the time of closing. The Trust is targeting a stable production level of approximately 13,000 boe/d for the second half of 2005. Thunder Exploreco production is estimated at 850 boe/d and Thunder CBMco production is estimated at 350 boe/d.

An information circular detailing the Arrangement is anticipated to be mailed to security holders in late May 2005. The information circular will include updated engineering reports to March 31, 2005. Shareholder meetings of Thunder, Mustang and Forte to consider the reorganization will occur on or about June 30, 2005. The Plan of Arrangement will require the approval of 66 2/3 percent of the votes cast by each class of shareholders, option holders and warrant holders at each of the shareholder meetings, the approval of the majority of the shareholders excluding management and the approval of the Court of Queen's Bench of Alberta and certain regulatory agencies.

The following is a discussion of Thunder's first quarter results:

Production for the quarter averaged 7,508 boe/d, a six percent decline from first quarter 2004. Natural gas volumes averaged 38.2 mmcf/d compared with 39.9 mmcf/d for the same period one year ago. Quarter over quarter, oil and NGLs production declined 17 percent to average 1,145 bbls/d, which is indicative of Thunder's continued emphasis on natural gas drilling. Production averaged 7,900 boe/d for the month of April 2005 as a result of tie-in activities in Thunder's winter-only access areas at Laprise in northeast B.C. Current behind pipe production is estimated at 1,300 boe/d including Whiskey Creek volumes discussed below.

The Company expects production operations to resume at its Whiskey Creek property during the third quarter as a result of facility expansions in the area. Current productive capacity is 500 boe/d from two tied-in wells. A third well will be tied-in adding another 150 boe/d with the potential to increase to 400 boe/d with further stimulation work. The Company is in the process of securing long-term processing arrangements that will allow full development of this property including additional development drilling The Whiskey Creek property represented almost half of the $140 million spent to acquire Impact Energy Inc. in May 2004. The property has been shut in since the date of acquisition and has materially affected operating and financial results in the ensuing year. Once production resumes the Whiskey Creek property will be a source of long-term gas production for the Thunder Trust.

Cash flow from operations increased eight percent over first quarter 2004 to $16.2 million ($0.31 per share, basic and diluted) driven by an eight percent increase in Thunder's average natural gas price to $6.74 per mcf, and a 41 percent rise in the average price for oil and NGLs to $48.67 per bbl.

Net income for the quarter declined 47 percent to $3.0 million ($0.06 per share, basic and diluted) compared with last year's first quarter. The decline was primarily due to increased depletion, depreciation and accretion ("DD&A"), future income tax expense and stock-based compensation expense.

Capital expenditures for the quarter were up 79 percent over first quarter 2004 to $32.2 million. Conventional drilling, equipping and tie-in of 22 wells (16.8 net) accounted for $25.2 million. Thunder's drilling success rate was 95% for the drilling of 17 gas wells (12.8 net), four oil wells (3.0 net) and one dry hole (1.0 net). Capital expenditures allocated to the proposed restructured assets would be as follows: $17.9 million to the Trust assets, $13.0 million to the Thunder Exploreco assets and $1.3 million to the Thunder CBMco assets.

Expenditures on the Trust assets included the drilling of 14 wells (10.3 net), 3 (1.1 net) of which were at our Laprise property in northeast B.C. This winter's drilling targets included a combination of development and step-out wells. Drilling in the future will be limited primarily to infill horizontal wells, which will be supported by a new 3-D seismic data. Facility costs of $1.5 million are included in the Trust capital.

Expenditures on Thunder Explorco assets included the drilling of 14 wells (6.5 net), 5 (2.5 net) of which were drilled at Trutch B.C., 3 (1.0 net) were drilled at Laprise/Bubbles B.C. and 6 (3.5 net) were drilled in central Alberta. In addition, a total of $3.4 million was spent on 3-D and 2-D seismic to further enhance the exploration and development inventory of the emerging Explorco.

Thunder spent $1.3 million in Q1 on the completion and tie-in of 9 Horseshoe Canyon CBM wells at Fenn-Big Valley that were a continuation of the 2004 development program. Thunder now has 45 wells on-stream from this play with a current rate of 2 mmcf/d net. Optimization of the production continues as we strive to reduce operating pressures. Capital was also allocated to expenditures associated with the 2 Mannville CBM pilots at Rosalind and the Mannville pilot at Manola. As a result of the reorganization, the Thunder CBMco will continue development of CBM resources in both the Mannville and Horseshoe Canyon plays in 2005.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuation and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Additional information on these and other factors that could affect the Company's operations or financial results are included in the Company's reports on file with Canadian securities regulatory authorities.

Thunder Energy Inc. is a Calgary-based oil and gas exploration company. Thunder's shares trade on the Toronto Stock Exchange under the trading symbol "THY".



HIGHLIGHTS

Financial Three Months Ended March 31 %
($000s, except per share data) 2005 2004 Change
------------------------------------------------------------------------

Petroleum and natural gas sales 29,350 28,232 4
Funds from operations 16,194 15,006 8
per share - basic 0.31 0.47 (34)
- diluted 0.31 0.45 (31)
Net income 2,999 5,698 (47)
per share - basic 0.06 0.18 (67)
- diluted 0.06 0.17 (65)
Capital expenditures 32,174 17,970 79
Debt including working capital
deficiency and capital lease
obligations 123,255 85,516 44
Average shares outstanding
- basic 51,688 31,645 63
Average shares outstanding
- diluted 53,007 33,099 60
------------------------------------------------------------------------


Operations Three Months Ended March 31 %
2005 2004 Change
------------------------------------------------------------------------

Daily production
Natural gas (mcf/d) 38,174 39,857 (4)
Oil and NGLs (bbls/d) 1,145 1,374 (17)
Barrels of oil equivalent (boe/d) 7,508 8,017 (6)
Average sale prices
Natural gas ($/mcf) 6.74 6.26 8
Oil and NGLs ($/bbl) 48.67 34.61 41
Wells drilled - gross (net)
Gas 17 (12.8) 6 (5.8)
Oil 4 (3.0) 1 (1.0)
CBM 0 (0.0) 15 (14.0)
Dry 1 (1.0) 3 (3.0)
-----------------------------------
Total 22 (16.8) 25 (23.8)
------------------------------------------------------------------------
------------------------------------------------------------------------
Barrels of oil equivalent are reported with a 6:1 conversion with six
mcf = one barrel


MANAGEMENT'S DISCUSSION AND ANALYSIS

Statements made throughout this quarterly report may contain forward-looking statements including expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; health, safety and environmental risks); and commodity price and exchange rate fluctuations. Additional information on these and other factors that could affect Thunder Energy Inc.'s ("Thunder" or the "Company") operations or financial results are included in Thunder's reports on file with Canadian securities regulatory authorities.

The following discussion and analysis as provided by the management of Thunder should be read in conjunction with the audited consolidated financial statements and management's discussion and analysis ("MD&A") for the year ended December 31, 2004.

Basis of presentation - The financial data presented below has been prepared in accordance with Canadian generally accepted accounting principles. The reporting and the measurement currency is the Canadian dollar.

Non-GAAP Measurements - This management's discussion and analysis contains the term funds from operations, which should not be considered an alternative to, or more meaningful than, cash flow from operating activities or net income as determined in accordance with Canadian generally accepted accounting principles as an indicator of the Company's performance. Thunder's determination of funds from operations may not be particularly comparable to that reported by other companies especially those in other industries. The reconciliation between net earnings and funds from operations can be found in the consolidated statements of cash flows in the audited consolidated financial statements. The Company also presents funds from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share.

BOE presentation - The term barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. The BOE conversion ratio used by the Company 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 this report are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.

Oil and gas revenues increased 4% to $29.4 million for the three-months ended March 31, 2005 compared with the same period in 2004 due to stronger gas and oil and NGL prices which rose 8% and 41% respectively. These stronger prices were offset by a 4% decline in gas production and a 17% decrease in oil and NGL production. During the month of January, production was adversely affected by weather averaging 7,255 boe/d. Production since has increased averaging 7,900 boe/d in April.

The financial statements for the three months ended March 31, 2004 have been restated to segregate costs associated with the transportation and selling of natural gas, crude oil and NGLs. Previously, Thunder followed the industry practice of presenting revenues net of these costs. The table below calculates revenue net of transportation costs.



Oil and Gas Revenue ($000s)

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Gross revenues 29,350 28,232
Transportation expenses (1,127) (1,132)
---------------------------
Net revenues 28,223 27,100
---------------------------
---------------------------


Oil and Gas Revenue ($000s, net of transportation expenses)

Natural Crude Oil
Gas and NGLs Total
------------------------------------------------------------------------
Three months ended March 31, 2004 22,772 4,328 27,100
Effect of change in product prices 1,384 1,399 2,783
Effect of change in sales volumes (948) (712) (1,660)
------------------------------------
Three months ended March 31, 2005 23,208 5,015 28,223
------------------------------------
------------------------------------


Production

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Crude oil (bbls/d) 997 1,250
NGLs (bbls/d) 148 124
------------------------------------------------------------------------
Total crude oil and NGLs (bbls/d) 1,145 1,374
Natural gas (mcf/d) 38,174 39,857
--------------------------
Total (boe/d) 7,508 8,017
--------------------------
--------------------------


Average Commodity Prices

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Natural gas ($/mcf)
NYMEX ($US/mcf) 6.50 5.73
AECO 6.89 6.41
------------------------
------------------------
Thunder price before transportation 6.98 6.48
Transportation (0.24) (0.22)
------------------------
Thunder price at the wellhead 6.74 6.26
------------------------
------------------------
Crude oil ($/bbl)
WTI ($US/bbl) 49.84 35.14
Edmonton posted 61.45 45.60
------------------------
Thunder price before transportation 51.58 37.18
Transportation (2.91) (2.57)
------------------------
Thunder price at the wellhead 48.67 34.61
------------------------
------------------------
Cdn/US $ average exchange rate 1.227 1.318
------------------------
------------------------


Transportation expenses remained steady at $1.1 million in 2005 compared to the same period in 2004. Transportation per mcf increased 9% in 2005 from 2004 due to higher transportation costs related to B.C. production. Oil and NGLs transportation expense increased 13% per bbl. These amounts relate to the cost of transporting natural gas on the main natural gas pipelines and for oil trucking charges.

Royalties decreased in the first quarter compared to the prior year due to increasing gas cost allowance claims and a prior period reimbursement of $0.3 million.



Royalties ($000s)

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Crown 4,018 5,247
Freehold and other 856 915
------------------------
Gross royalties 4,874 6,162
ARTC (125) (124)
------------------------
Net royalties 4,749 6,038
------------------------
------------------------


Royalty Rates (as a % of revenue, net of transportation expenses)

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Crown 14.2 19.4
Freehold and other 3.0 3.4
------------------------
Gross royalties 17.2 22.8
ARTC (0.4) (0.4)
------------------------
Net royalties 16.8 22.4
------------------------
------------------------


Operating costs increased 18% to $5.3 million during the first quarter 2005 compared to 2004. The increase over the prior year is primarily due to the acquisition of Impact in the second quarter of 2004, which has higher operating costs. Operating costs in northeast B.C. are generally higher compared to Alberta, due to the nature of the assets and higher costs for goods and services. Due to high commodity prices, low-rate wells, which would have otherwise been unprofitable, continue to contribute to the overall production base.



Operating Costs

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Operating costs ($000s) 5,337 4,531
Per boe ($) 7.90 6.21
------------------------
------------------------


Gross general and administrative expenses (G&A) increased 30% in 2005 compared to 2004. Gross cash G&A increased as salaries and benefits, due to staff additions and normal wage increases, rose and the cost of additional office space mainly due to the purchase of Impact. Thunder does not capitalize indirect overhead.



G&A Expenses

Three-months ended
March 31
G&A Expenses ($000s) 2005 2004
------------------------------------------------------------------------
Gross G&A expenses 1,917 1,475
Overhead recoveries
Capital (675) (567)
Overhead (253) (308)
------------------------
Total overhead recoveries (928) (875)
------------------------
Net G&A expenses 989 600
------------------------
------------------------

G&A Expenses per Boe ($)
Gross G&A expenses 2.81 2.02
Overhead recoveries
Capital (0.99) (0.78)
Overhead (0.37) (0.42)
------------------------
Total overhead recoveries (1.36) (1.20)
------------------------
Net G&A expenses 1.45 0.82
------------------------
------------------------


Interest expense decreased 4% compared to the same period in 2004 due to a lower interest rate on our line of credit offset by the impact of a higher average balance of bank debt outstanding.



Interest Expense

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Interest expense ($000s) 776 805
Average revolving demand bank debt
outstanding ($000s) 95,010 74,432
Effective annualized interest rate
for the period (%) 3.3 4.3
------------------------
------------------------


Depletion, depreciation and accretion (DD&A) expenses increased $4.67 per boe over the same period in 2004 and $0.70 per boe over the fourth quarter of 2004. The increase in DD&A expense is a result of a rising trend in general industry costs, the reduction experienced in proven reserves, and the inclusion of accretion and DD&A expense related to the asset retirement obligation.



DD&A

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
DD&A ($000s) 10,843 8,304
Per boe ($) 16.05 11.38
------------------------
------------------------


Stock-based compensation expense was $0.9 million in the first quarter of 2005 up from $0.2 million in the corresponding quarter of 2004. The increased compensation is due to additional options issued coincident with the Impact merger in the second quarter of 2004.

The provision for income taxes increased over the first quarter of the prior year due to an increase in non-deductible stock-based compensation and a decrease in the effect of tax rate adjustments which more than offset the decrease in net income before taxes.

Funds from operations increased 8% in 2005 compared to the first quarter of 2004. The increase reflects higher commodity prices for gas, oil and NGLs.



Funds from Operations

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Funds from operations ($000s) 16,194 15,006
Per share - basic ($) 0.31 0.47
- diluted ($) 0.31 0.45
------------------------
------------------------


Net income decreased 47% in the first quarter 2005 compared to the same period in 2004. The decline was primarily due to increased operating expenses, DD&A, future income tax expense and stock-based compensation expense.



Net Income

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Net income ($000s) 2,999 5,698
Per share - basic ($) 0.06 0.18
- diluted ($) 0.06 0.17
------------------------
------------------------


Capital expenditures for the first quarter totalled $32.2 million. Land acquisitions and rentals totalled $0.8 million as the Company acquired 4,000 net acres of undeveloped land. Thunder incurred $3.4 million for the shooting of 160 kilometres of 2D and 88 square kilometres of 3D seismic, plus the purchase of 52 kilometres of 2D seismic data. Conventional drilling, completion and equipping costs totalled $25.2 million for 17 gas wells (12.8 net), four oil wells (3.0 net) and one dry hole (1.0 net). The Company's drilling success ratio was 95%. Facilities and gas gathering costs totalled $1.5 million. Coal bed methane capital expenditures of $1.3 million related to pilot projects and projects continuing into the second quarter. With reference to the subsequent event detailed later in this MD&A, capital expenditures in the quarter would be distributed amongst the three entities of the Trust, $17.9 million; Thunder Explorco, $13.0 million; and Thunder CBMco, $1.3 million. The following table breaks out the capital expenditures by category:



Capital Expenditures Summary ($000s)

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Land and rentals 828 722
Seismic 3,388 2,381
Conventional drilling and completions 20,238 5,508
Well equipping and tie-in 4,992 3,788
Facilities and gas gathering 1,500 189
Acquisitions, net of dispositions (108) -
Other 84 33
------------------------
Total conventional capital expenditures 30,922 12,621
CBM drilling, completions and facilities 1,252 5,349
------------------------
Total capital expenditures 32,174 17,970
------------------------
------------------------
Wells drilled gross (net) 22 (16.8) 25 (23.8)
------------------------
------------------------


Asset Retirement Obligations
Thunder adopted Section 3110 of the CICA Handbook on January 1, 2004. The new standard requires the Company to accrue its asset retirement obligations which result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. A reconciliation of the asset retirement obligations is provided below:



Asset retirement obligations ($000s)

Three-months ended
March 31
2005 2004
------------------------------------------------------------------------
Balance, beginning of period 13,417 10,352
Liabilities incurred in the period 271 204
Liabilities settled in the period - -
Accretion expense 284 215
------------------------
Balance, end of period 13,972 10,771
------------------------
------------------------


Liquidity

For the first three months of 2005, cash flow of $16.2 million, an increase in net debt including working capital of $15.8 million and proceeds of $0.2 million from the issue of common shares resulting form the exercise of stock options funded $32.2 million in capital expenditures. Thunder's revolving bank debt was $112.9 million at March 31, 2005. Although this loan is demand in nature and accordingly is presented as a current liability, the bank has confirmed that it is not its intention to call for repayment before March 31, 2006, provided there is no adverse change in the financial position of the Company. Thunder's bank line is $130 million at March 31, 2005.

Subsequent Event

On May 3, 2005, Thunder entered into an arrangement agreement with Mustang Resources Inc. and Forte Resources Inc. to combine the entities to create a new oil and gas trust, two exploration-focused producers and a resource-based coal bed methane company pursuant to a plan of arrangement.

As a result of the proposed combination, shareholders of Thunder will receive one trust unit or exchangeable share of Thunder Trust, one share of Thunder Explorco and one share of Thunder CBMco for each Thunder share held. Mustang shareholders will receive 1.1 trust units or exchangeable shares of Thunder Trust, 1.1 shares of Thunder Explorco and 0.25 shares of Thunder CBMco for each Mustang share held. Mustang class B shares will be converted to Mustang class A shares based on the weighted average closing price of the Mustang class A shares for the ten trading days commencing May 3, 2005. Forte shareholders will receive 0.35 trust units or exchangeable shares of Thunder Trust and one share of Forte Explorco for each Forte share held. It is contemplated that the units of the Trust will be consolidated on a 1:2 basis, the shares of Thunder Explorco on a 1:3 basis, the shares of Thunder CBMco on a 1:3 basis and the shares of Forte Explorco on a 1:3 basis after the above mentioned share exchange occurs. A maximum of 15% exchangeable shares will be issued pursuant to the proposed combination.

The assets of the Trust are expected to produce an average of 13,000 boe/d in the second half of 2005. Thunder Explorco will own certain growth assets and undeveloped lands of Thunder and Mustang and will have initial production of approximately 850 boe/d. Thunder CBMco will own all of Thunder's coal bed methane assets, including current production of approximately 350 boe/d.

The Trust is anticipating an initial monthly distribution of $0.15/unit after giving effect to a 1:2 consolidation of the Trust units which would result in approximately 47 million trust units issued and outstanding.

Thunder Explorco will issue a private placement of common shares to raise proceeds of $8.5 million. There will be approximately 30 million common shares issued and outstanding after the initial private placement and after giving effect to a 1:3 consolidation of Thunder Explorco shares.

Thunder CBMco will issue a private placement to raise proceeds of $6 million. There will be approximately 24 million common shares issued and outstanding after the initial private placement and after giving effect to a 1:3 consolidation of Thunder CBMco shares.



Quarterly Information ($000s, except per share data)
--------------------------------------
2003 2004
Q2 Q3 Q4 Q1
--------------------------------------
--------------------------------------

Petroleum and natural gas sales 22,836 25,065 25,207 28,232
Funds from operations 12,195 13,657 13,537 15,006
Per share ($)
Basic 0.39 0.43 0.43 0.47
Diluted 0.38 0.42 0.41 0.45
Net income 8,798 5,314 2,065 5,698
Per share ($)
Basic 0.28 0.17 0.07 0.18
Diluted 0.27 0.16 0.06 0.17
--------------------------------------
--------------------------------------


2004 2005
Q2 Q3 Q4 Q1
--------------------------------------
--------------------------------------

Petroleum and natural gas sales 30,883 28,245 29,049 29,350
Funds from operations 18,436 15,460 15,076 16,194
Per share ($)
Basic 0.42 0.31 0.30 0.31
Diluted 0.41 0.30 0.29 0.31
Net income 5,698 3,325 1,207 2,999
Per share ($)
Basic 0.13 0.07 0.02 0.06
Diluted 0.13 0.06 0.02 0.06
--------------------------------------
--------------------------------------


CONSOLIDATED BALANCE SHEETS

($000s) March 31, 2005 December 31, 2004
-----------------------------------
(unaudited)

Assets

Current
Cash $ 3,246 $ 21
Accounts receivable 17,598 23,728
Prepaid expenses 623 953
-----------------------------------
21,467 24,702
Property and equipment 427,956 406,082
Goodwill (Note 2) 45,448 45,448
-----------------------------------
$ 494,871 $ 476,232
-----------------------------------
-----------------------------------

Liabilities and Shareholders' Equity

Current
Bank indebtedness $ 13,355 $ 1,568
Accounts payable and accrued liabilities 18,501 47,581
Revolving demand loan 112,866 82,896
-----------------------------------
144,722 132,045

Capital lease obligations - 94
Asset retirement obligations (Note 1) 13,972 13,417
Future income taxes (Note 4) 71,776 66,934
-----------------------------------
230,470 212,490

Shareholders' equity
Share capital (Note 3) 186,354 189,573
Contributed surplus 3,715 2,836
Retained earnings 74,332 71,333
-----------------------------------
264,401 263,742
-----------------------------------
$ 494,871 $ 476,232
-----------------------------------
-----------------------------------
See accompanying notes


CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(unaudited)

Three Months Ended
March 31
($000s, except per share data) 2005 2004
-----------------------------------

Revenue
Petroleum and natural gas sales $ 29,350 $ 28,232
Royalties, net of ARTC (4,749) (6,038)
Transportation expenses (1,127) (1,132)
-----------------------------------
Petroleum and natural gas sales,
after royalties and transportation 23,474 21,062
-----------------------------------

Expenses
Operating 5,337 4,531
General and administrative 989 600
Stock-based compensation (Note 3) 885 204
Interest 776 805
Depletion, depreciation and accretion 10,843 8,304
-----------------------------------
18,830 14,444
-----------------------------------

Income before taxes 4,644 6,618
Provision for income taxes (Note 4) 1,645 920
-----------------------------------
Net income for the period 2,999 5,698
Retained earnings
Beginning of period 71,333 55,405
-----------------------------------
End of period $ 74,332 $ 61,103
-----------------------------------
-----------------------------------

Shares outstanding (weighted average)
Basic 51,688 31,645
Diluted 53,007 33,099
Net income per share
Basic $ 0.06 $ 0.18
Diluted $ 0.06 $ 0.17
-----------------------------------
-----------------------------------
See accompanying notes


CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31
($000s) 2005 2004
-----------------------------------

Operating Activities
Net income for the period $ 2,999 $ 5,698
Add items not requiring cash:
Stock-based compensation 885 204
Depletion, depreciation and
accretion 10,843 8,304
Future income taxes (Note 4) 1,467 800
-----------------------------------
Funds from operations 16,194 15,006
Changes in non-cash working capital
related to operating activities
(Note 5) (38,517) 3,593
-----------------------------------
Cash provided by (used in) operating
activities (22,323) 18,599
-----------------------------------

Financing Activities
Issue of common shares for cash,
net of costs 150 393
Increase in revolving demand loan 29,970 2,248
Increase (decrease) in bank
indebtedness 11,787 (950)
-----------------------------------
Cash provided by financing activities 41,907 1,691
-----------------------------------

Investing Activities
Expenditures on property and
equipment (32,174) (17,970)
Changes in non-cash working capital
related to investing activities
(Note 5) 15,815 (2,320)
-----------------------------------
Cash used in investing activities (16,359) (20,290)
-----------------------------------
Net change in cash position 3,225 -
-----------------------------------
Cash position - beginning of period 21 -
-----------------------------------
- end of period $ 3,246 -
-----------------------------------
-----------------------------------
See accompanying notes


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP), using the same accounting policies as those set out in Note 2 of the consolidated financial statements for the year ended December 31, 2004. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2004.

1. Asset Retirement Obligations

The Company's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations to be approximately $31 million which will be incurred between 2005 and 2034. The majority of the costs will be incurred between 2010 and 2034. A credit-adjusted risk-free rate of 8.5 percent and an inflation rate of 1.5 percent were used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

Three-months Three-months
ended March 31, ended March 31,
Asset retirement obligations ($000s) 2005 2004
------------------------------------------------------------------------
Balance, beginning of period 13,417 10,352
Liabilities incurred in the period 271 204
Liabilities settled in the period - -
Accretion expense 284 215
--------------------------------
Balance, end of period 13,972 10,771
--------------------------------
--------------------------------


2. Business Combination

On April 30, 2004, the Company acquired all of the issued and outstanding common shares of Impact Energy Inc. ("Impact") on the basis of 0.22222 common shares of Thunder for each common share of Impact. The value per common share issued was calculated as the average Thunder closing share price five days before and five days after the announcement of the acquisition. Thunder issued 18,100,317 common shares as consideration and incurred $1.1 million in transaction costs. This transaction was accounted for by the purchase method, based on fair values as follows:



Net assets acquired ($000s)
------------------------------------------------------------------------
Current assets, including cash of $14 $ 2,692
Property and equipment 120,727
Goodwill 45,448
Current liabilities (8,912)
Asset retirement obligations (778)
Future income tax liability (22,226)
------------
$ 136,951
------------
------------

Value of common shares of Thunder issued $ 135,835
Transaction costs 1,116
------------
Total consideration $ 136,951
------------
------------


3. Share Capital

Number of
Common shares shares $ Thousands
------------------------------------------------------------------------
Balance December 31, 2004 51,662,981 189,573
Issued for cash on exercise of stock
options 51,201 156
Tax effect of flow-through shares (3,375)
------------------------------
Balance March 31, 2005 51,714,182 186,354
------------------------------
------------------------------


In December 2004, the Company issued 1,000,000 flow-through shares at $10 per share. The tax credits associated with expenditures to be funded by this offering were renounced under the look-back rule in the first quarter; therefore, the future tax liability has been booked as at March 31, 2005.

An amount of $6,000 related to stock-based compensation expensed in prior years was reclassified from contributed surplus to share capital as well as all of the options to which the expense related exercised in this quarter.

As at May 6, 2005, there were 51,918,348 common shares and stock options to acquire an aggregate of 3,965,863 common shares outstanding.



Stock-based Compensation

Weighted-average
Stock options Options exercise price
------------------------------------------------------------------------
Balance December 31, 2004 4,353,730 $ 6.11
Granted 10,000 8.43
Cancelled (142,500) 7.90
Exercised (51,201) 3.31
-----------------------------
Balance March 31, 2005 4,170,029 $ 6.09
-----------------------------
-----------------------------


4. Income Taxes

Income taxes recorded in the consolidated statements of income and retained earnings differ from the tax calculated by applying the combined Canadian corporate federal and provincial income tax rate to income before taxes as follows:



Three-months ended Three-months ended
Income taxes ($000s) March 31, 2005 March 31, 2004
------------------------------------------------------------------------
Statutory tax rate 37.75% 38.87%
Computed income tax expense
at statutory rate $ 1,753 $ 2,572
Add (deduct) income tax effect of:
Non-deductible Crown charges, net of ARTC 670 1,466
Resource allowance (848) (1,718)
Tax rate adjustments (461) (1,576)
Stock-based compensation 334 79
Other 19 (23)
-----------------------------
Future income tax 1,467 800
Large corporations tax 178 120
-----------------------------
Provision for income taxes $ 1,645 $ 920
-----------------------------
-----------------------------


5. Supplemental Cash Flow Information

Three-months Three-months
Supplemental cash ended March 31, ended March 31,
flow information ($000s) 2005 2004
------------------------------------------------------------------------
Changes in non-cash working capital:
Accounts receivable 6,130 959
Prepaid expenses 330 (653)
Accounts payable and accrued liabilities (29,174) 967
Capital lease payment included in
expenditures on property and equipment 12 -
-----------------------------
(22,702) 1,273
-----------------------------
-----------------------------
Changes in non-cash working
capital related to:
Operating activities (38,517) 3,593
Investing activities 15,815 (2,320)
-----------------------------
(22,702) 1,273
-----------------------------
-----------------------------


6. Comparative Amounts

Certain comparative amounts have been reclassified to conform to the presentation adopted for the current year.

7. Measurement Uncertainty

The amounts recorded for depletion and depreciation of property and equipment, the asset retirement obligations and the ceiling test calculation are based on estimates of proven reserves, production rates, oil and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes in such estimates in future periods could be significant.

8.Subsequent Event

On May 3, 2005, Thunder entered into an arrangement agreement with Mustang Resources Inc. and Forte Resources Inc. to combine the entities to create a new oil and gas trust, two exploration-focused producers and a resource-based coal bed methane company pursuant to a plan of arrangement. As a result of the proposed combination, shareholders of Thunder will receive one trust unit or exchangeable share of Thunder Trust, one share of Thunder Explorco and one share of Thunder CBMco for each Thunder share held.

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