Aquest Energy Ltd.
TSX : AEX

Aquest Energy Ltd.

August 15, 2005 09:35 ET

Aquest Announces Q2 Financial Results & Operational Update

CALGARY, ALBERTA--(CCNMatthews - Aug. 15, 2005) - Aquest Energy Ltd. ("Aquest" or the "Company") is pleased to announce their 2005 financial and operating results for the six and three month periods ending June 30, 2005. Continued drilling success in the Company's core properties was offset during the quarter by wet weather conditions that hampered tie-ins and raised operating costs. Completion of these tie-ins during July increased Aquest's production levels to approximately 1,900 boepd by the end of July. By far the most significant corporate event during the quarter was the offer, by Anderson Energy Ltd. ("Anderson") a private company, to acquire all the shares of Aquest through a plan of arrangement. The combination is subject to regulatory, shareholder and final court approval. Aquest Highlights for Q2 Included:

- Average oil and gas production for the six month and three month periods were 1,944 boepd and 1,777 boepd respectively, representing an 11.8% increase and an 8.9% decrease over the respective periods in 2004,

- Continued strong netbacks helped support a 35.8% and 11.8% increase in oil and gas revenues for the six and three month periods as compared to the respective 2004 periods,

- Cash flow for the six and three month periods was $8,610,546 and $3,616,944 respectively, representing a 52.7% and 7.2% increase over the comparative periods in 2004.

- Drilling success continued in the Cardiff and Sylvan Lake properties as Aquest achieved a 100% success with five gas wells drilled in the second quarter, and

- On June 27, 2005 Aquest entered into an agreement with Anderson, a private company, whereby Anderson would acquire all the outstanding shares of Aquest pursuant to a plan of arrangement involving the exchange of 0.31 shares of Anderson for each share of Aquest.



The financial and operating highlights are summarized below:

Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------
2005 2004 2005 2004
FINANCIAL

Revenue ($)
(after royalties) 6,549,928 5,911,021 14,111,210 10,390,718
Cash flow from
operations ($) 3,616,944 3,374,130 8,610,546 5,662,180
Per share basic ($) 0.12 0.12 0.28 0.21
Per share diluted ($) 0.12 0.12 0.28 0.21

Net income (loss) ($) (600,361) 179,713 (144,177) 304,975
Per share basic ($) (0.02) 0.01 0.00 0.01
Per share diluted ($) (0.02) 0.01 0.00 0.01

Capital expenditures ($) 4,937,805 3,395,224 9,293,337 8,909,094
Working capital
deficiency ($) 1,108,637 3,437,340 1,108,637 3,437,340
Bank indebtedness ($) 18,140,933 9,032,098 18,140,933 7,032,098
Shares outstanding
At period end 30,898,824 30,813,824 30,898,824 30,813,824
Weighted average
- basic 30,897,794 28,969,455 30,895,198 27,146,442
Weighted average
- diluted 30,997,296 29,194,464 30,994,700 27,344,252


Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------
2005 2004 2005 2004
OPERATIONS

Reported Production
Natural gas (mcf/d) 6,742 8,480 7,850 7,589
Oil and natural gas
liquids (bbls/d) 653 537 636 473
Oil equivalent
(boe/d) (6:1) 1,777 1,950 1,944 1,738

Drilling Activity
(gross/net )
Gas wells 5/1.920 1/0.075 15/5.073 3/0.356
Oil Wells 0/0.000 2/2.000 0/0.000 2/2.000
P&A'd Wells 0/0.000 2/2.000 1/0.075 5/3.075
Other 1/0.045 0/0.000 3/1.488 0/0.000
---------------------------------------------
Total 6/1.965 5/4.075 19/6.636 10/5.431


Operational Review:

Aquest continued to experience strong drilling performance in the second quarter with the drilling of 5 (1.92 net) gas wells, 2 of which were located in the general Sylvan Lake area and 1 in our Cardiff property. On a year to date basis Aquest has achieved an over 90% drilling success rate. Of the 19 (6.636 net) wells drilled, 15 (5.073 net) wells have been cased as potential gas wells, 1 (0.075 net) well was plugged and abandoned, while 3 (1.488 net) wells were drilled as water disposal wells or suspended pending further development. The net average working interest (35%) was low due to the drilling of 6 (0.667 net) non operated wells in the Wimborne area for shallow gas.

Production for the six month period was 1,944 boepd made up of 636 bopd and 7,850 mcfpd. This represented an 11.8% increase over the first six months of 2004. Second quarter production was down however to 1,777 boepd made up of 653 bopd and 6,742 mcfpd. This production was lower due to well operational issues compounded by wet weather conditions that restricted Aquest's ability to tie in new wells. Current production for Aquest is approximately 1,900 boepd as various work-over and tie in operations were completed in July.

Financial Review

Gross revenues this year were up 35.7% to $17,923,594 and 14.9% to $8,513,664 for the six month and three month periods as compared to the same intervals in 2004. This reflected continued strong pricing for the six months ($49.56/boe) and three month ($51.26/boe) periods. On a year to date basis Aquest's forward sale contracts for oil and natural gas have positively impacted this pricing by $319,000. Both operating and royalty costs were up in the second quarter negatively impacting Aquest's year to date cash flow. Royalty rates were impacted by accounting prior period adjustments while operating costs were impacted by approximately $1.25/boe due to unusually high work-over costs and a $0.94/boe adjustment relating to 2003. As a result cash flow for the six months totaled $8,610,546 ($0.28/share) which was a 52.7% increase over the first six months of 2004. Net loss for the six months totaled $600,361 ($0.02/share) as compared to 2004 net income of $304,975 ($0.01/share).

Subsequent to the end of the quarter, Aquest negotiated an additional credit facility with a Canadian Chartered bank for proceeds of $2.8 million. These proceeds were used to retire the Company's outstanding debenture on July 21, 2005, including accrued and unpaid interest. On the same day, 250,000 warrants attached to the debenture were exercised for cash proceeds of $300,000.

Plan of Arrangement

On June 28, 2005 Aquest and Anderson jointly announced that Anderson, a private oil and gas company, and Aquest had entered into an Arrangement Agreement whereby Anderson would acquire Aquest through a Plan of Arrangement. Upon completion of the Arrangement, shareholders of Aquest will receive 0.31 shares of Anderson for each Aquest share. The acquisition is subject to approval of the security holders of both Anderson and Aquest and is also subject to regulatory and final court approval. It is a condition of closing that the Anderson shares be listed on the Toronto Stock Exchange. The Anderson executive team, lead by J.C. Anderson, Chairman and Brian Dau, President and CEO will assume control of the Company, and Aquest's Chairman, Glenn Hockley, will join Anderson's board of directors upon closing. Both company's shareholder meetings are scheduled for August 31, 2005 with closing anticipated to take place on the same day.

The Arrangement provides for the recapitalization of Aquest and strengthens the resultant company through increased cash flow, improved shareholder liquidity, reduced general and administrative costs per boe, improved access to the capital markets and an expanded growth base associated with the Anderson oil and gas assets. Also on June 28, 2005 Anderson announced that pursuant to a private placement they had agreed to issue and sell 3,100,000 Anderson Subscription Receipts at an issue price of $6.50 per Subscription Receipt and 1,250,000 Anderson Flow-Through shares at an issue price of $8.00 per Flow-Through Share for aggregate proceeds of $30,150,000. Upon the Arrangement with Aquest becoming effective, the Anderson Subscription Receipts and Flow-Through Shares will be exchanged for Anderson New Shares on a one for one basis.

Aquest is a Calgary, Alberta based company engaged in the exploration, development and production of oil and natural gas. The Corporation's common shares are listed on the TSX Exchange under the trading symbol "AEX".

Forward-Looking Statements

This press release may include forward-looking statements including opinions, assumptions, estimates and expectations of future production, cash flow and earnings. When used in this document, the words "anticipate," "believe," "estimate," "expect," "intent," "may," "project," "plan", "should" and similar expressions are intended to be among the statements that identify forward-looking statements. Forward-looking statements are subject to a wide range of risks and uncertainties, and although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. Any number of important factors could cause actual results to differ materially from those in the forward-looking statements including, but not limited to, the volatility of oil and gas prices, the ability to implement corporate strategies, the state of domestic capital markets, the ability to obtain financing, changes in oil and gas acquisition and drilling programs, operating risks, production rates, reserve estimates, changes in general economic conditions and other factors more fully described from time to time in the reports and filings made by Aquest with securities regulatory authorities.

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this Press Release.

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