Bear Ridge Resources Ltd.
TSX : BER

Bear Ridge Resources Ltd.

March 15, 2007 21:29 ET

Bear Ridge Announces 2006 Year End Financials and Close of Private Placement Financing

CALGARY, ALBERTA--(CCNMatthews - March 15, 2007) - Bear Ridge Resources Ltd. (TSX:BER) is pleased to present its financial and operating results for the fourth quarter and year end of 2006.



Financial Review and Operating Highlights
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Three Months Ended Twelve Months Ended
December 31 December 31
FINANCIAL
(in 000s,
except share
amounts) 2006 2005 Change 2006 2005 Change
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Petroleum and
natural gas
revenue 14,515 4,679 210% 56,816 14,631 288%
Cash flow from
operations 4,098 2,390 71% 23,046 8,464 172%
Per share -
basic ($) 0.08 0.08 -% 0.48 0.34 41%
Per share -
diluted ($) 0.08 0.08 -% 0.45 0.31 45%
Net income
(loss) (68,906) 629 n/a (70,572) 10,936 (745)%
Per share -
basic ($) (1.35) 0.02 n/a (1.46) 0.44 (432)%
Per share -
diluted ($) (1.35) 0.02 n/a (1.46) 0.40 (465)%
Capital
Expenditures (80) 14,602 (101)% 192,793 72,145 167%
Related to
acquisitions - - -% 109,594 34,810 215%
Related to
current
operations (80) 14,602 (101)% 83,199 37,335 123%
Working
capital
deficiency (24,262) (6,643) 265% (24,262) (6,643) 265%
Bank debt (51,711) (5,248) 885% (51,711) (5,248) 885%
Shares
outstanding
(000s)
At period end 55,130 29,482 87% 55,130 29,482 87%
Weighted
average,
basic 50,946 28,117 81% 48,272 25,070 93%
Weighted
average,
diluted 53,199 31,126 71% 50,748 27,538 84%
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OPERATING
Production
Natural gas
(mcf/d) 16,381 2,858 473% 15,643 2,355 564%
Oil and NGL's
(bbls/d) 597 223 168% 609 254 140%
Total oil and
equivalent
(boe/d) 3,327 700 375% 3,217 646 398%
Average
wellhead
prices
Natural gas
($/mcf) $ 7.59 $ 12.41 (39)% $ 7.35 $ 9.74 (25)%
Oil and NGL's
($/bbl) $ 56.04 $ 68.80 (19)% $ 66.69 $ 67.63 (1)%
Total oil and
equivalent
($/boe) $ 47.42 $ 72.70 (35)% $ 48.39 $ 62.04 (22)%

Operating
costs ($/boe) $ 14.20 $ 9.93 43% $ 10.80 $ 8.07 34%
G&A costs
($/boe) $ 3.60 $ 5.25 (31)% $ 2.84 $ 5.26 (46)%
Operating
netback
($/boe) $ 22.05 $ 43.75 (50)% $ 25.81 $ 41.73 (38)%

Wells drilled
Gross 12 6 68 26
Net 7.3 2.23 37.3 14.5
Net success
rate 75% 88% 85% 92%

Undeveloped
land (net
acres) 128,208 47,200 172% 128,208 47,200 172%
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Operational Update

Production for the month of January, 2007 averaged approximately 2,360 boe per day and the Company is forecasting first quarter production to average approximately 2,475 boe per day. Production for the quarter is impaired by higher than anticipated downtime at a number of third party facilities coupled with approximately 100 boe per day of reduced volumes from two wells that have been shut in due to production facility constraints and MRL issues and an additional 120 boe per day from two wells that prematurely reached economic limits. In addition, Bear Ridge is in the process of tieing in 4 (2.5 net) wells in West Central and Peace River Arch areas that is expected to add approximately 220 boe per day net in early April.

Completion operations have commenced on the Company's c-48-A Tupper well with fracture stimulation of the Basal and Upper Montney zones in this well scheduled later this week. Our fifth vertical Tupper well has been licenced at a-23-B and construction of the surface lease and access road is underway with drilling scheduled to commence on or about March 19, 2007. Surface rights acquisition for our 43 kilometer sales pipeline at Tupper is nearing completion and we anticipate being in a position to move to the application stage within the next few weeks.

Private Placement Financing

The Company is pleased to announce they have closed the previously announced private placement with some amendments as a result of regulatory requirements. A private placement issue of 6,275,000 Canadian Development Expense ("CDE") flow-through common shares at a price of $1.80 per share for gross proceeds of $11,295,000, was closed on March 15, 2007. In addition the Company will issue 7,530,000 CDE flow-through warrants exercisable at $2.00 per share with a 2 year term, for potential gross proceeds of $15,060,000.

In conjunction with the above private placement occurring, the Company will exchange the 5 million flow-through warrants issued on December 19, 2006. The 2 million Canadian Exploration Expense ("CEE") warrants originally priced at $5.50 and the 3 million CDE warrants originally priced at $4.50 will be converted to new CDE warrants, with a new exercise price of $2.00 per warrant. None of the amended warrants were held by insiders.

Management's Discussion and Analysis

Management's discussion and analysis ("MD&A") has been prepared as of March 13, 2007 by Bear Ridge Resources Ltd. ("Bear Ridge" or "the Company") to explain to its shareholders the 2006 operating results, current financial condition and future prospects. The MD&A should be read in conjunction with the Company's audited consolidated financial statements for the years ended December 31, 2006 and 2005 which have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). This information, together with additional information relating to Bear Ridge, including a detailed analysis of the Company's reserves and our Annual Information Form, can be found on Sedar at: www.sedar.com.

Given the objectives of the MD&A, certain information presented is of a forward-looking nature. Such forward-looking financial and operational information involves known and unknown risks and uncertainties, some of which are beyond the Company's control. These include but are not limited to; the impact of general economic conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, government regulations, stock market volatility, and competition from other producers. Although assumptions used in the preparation of forward looking information are considered reasonable by management at the time, actual results could differ materially from those contained in such forward-looking information.

The presentation of the MD&A uses the following terms which, although universally applied in analyzing performance within our industry, are required to be disclosed under GAAP.

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 GAAP as an indicator of the Company's performance. Bear Ridge's determination of cash flow from operations may not be comparable to that reported by other companies, especially those in other industries. The reconciliation between net earnings and cash flow from operations can be found in the consolidated statement of cash flows. The Company also presents cash flows 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 also uses 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 equivalents (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio for gas of 6 mcf:1 boe 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 six thousand cubic feet of gas to one barrel of oil.

PETROLEUM AND NATURAL GAS SALES

Production for the year ended December 31, 2006 averaged 3,217 boe per day compared to 646 boe per day for the year ended December 31, 2005, an increase of 398%. These increases were the direct result of increased production volumes from drilling activities and volumes acquired through the Veteran acquisition in the first quarter of 2006.

Natural Gas

Natural gas revenues for the three months and year ended December 31, 2006 totaled $11.4 and $42.0 million, respectively, representing increases of 251% and 402% when compared with the same periods from 2005. These increases were the direct result of increased production volumes from drilling activities and volumes acquired through the Veteran acquisition in the first quarter of 2006, net of a 25% decrease in realized gas prices year over year. When compared to natural gas revenues of $9.5 million from the third quarter of 2006, natural gas revenues in the fourth quarter are up 20% as a result of improved pricing in the fourth quarter and an increase in production volume.

Natural gas production for the three months and year ended December 31, 2006 totaled 16.4 mmcf per day and 15.6 mmcf per day, respectively representing increases of 472% and 564% from natural gas production for the same periods of 2005. These increases were the direct result of increased production volumes from drilling activities and volumes acquired through the Veteran acquisition in the first quarter of 2006.

When compared to the third quarter, natural gas production increased 4.3% to 16.4 mmcf per day from 15.7 mmcf per day. The return of the 15-6 well in Mica to production in the third quarter combined with new tie-ins and greatly reduced downtime offset declines and the loss of approximately 3.1 mmcf per day of gas production sold during the quarter. The sale of approximately 798 boe per day of oil and gas production was effective December 1, 2006.

Natural gas pricing for the year ended December 31, 2006 averaged $7.35 per mcf compared to $9.74 per mcf from the prior year. This decrease of 25% is the result of decreases in the AECO gas daily spot price over this period due to higher natural gas storage levels carried throughout most of 2006 compared to 2005. On a quarterly basis, Bear Ridge, averaged $7.59 per mcf for the fourth quarter of 2006 compared to $12.41 per mcf from the same quarter in 2005. The fourth quarter of 2005 was the highest quarterly average for all of 2005 as a result of low natural gas storage levels at the end of 2005 which recovered due to a mild winter and small storage withdrawals in the first quarter of 2006. Bear Ridge benefited from hedging arrangements in place during 2006, which contributed approximately $3.4 million in realized hedging gains from both physical and financial hedging arrangements to revenues for the year and $1.0 million for the fourth quarter. No hedging arrangements were in place during 2005. Without these arrangements, the Company's natural gas price would have averaged $6.91 per mcf and $6.75 per mcf for the three months and year ended December 31, 2006 respectively.

Oil and NGL's

Oil and NGL revenue for the three and twelve month periods ended December 31, 2006 totaled $3.1 million and $14.8 million, respectively, representing increases of 117% and 137% when compared with the same periods of 2005. These increases were the direct result of increased production volumes from drilling activities and the Veteran acquisition in the first quarter of 2006. When compared to oil and NGL revenues of $4.4 million from the third quarter of 2006, revenues for the fourth quarter were down by 31.8%. Production of 597 bbl/d in the fourth quarter was down 10.2% from 665 bbl/d in the third quarter due as a result of the sale of approximately 260 bbl per day of oil production in the Company's Cecil area effective December 1, 2006.

Lower revenues were also the result of a 21.2% decrease in oil price received during the quarter which is consistent with a 18.5% drop in the Edmonton par reference price during the same period. NGL prices received by Bear Ridge totaled $55.59 per bbl during the quarter compared to $70.53 in the third quarter, representing a decrease of 21.2%.



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Three months ended Dec 31, Year ended December 31,

Results of % %
Operations 2006 2005 Change 2006 2005 Change
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Revenues
(000's)

Natural gas $ 11,436 $ 3,262 251% $ 41,981 $ 8,371 402%
Oil and NGL's 3,079 1,417 117% 14,835 6,259 137%
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Total revenues
per financial
statements $ 14,515(1) $ 4,679 210% $ 56,816(1) $ 14,630 288%
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Average Daily
Production
Volumes
Natural gas
(mcf/d) 16,381 2,862 472% 15,643 2,355 564%
Oil & NGL's
(bbl/d) 597 223 168% 609 254 140%
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Total
production
(boe/d) 3,327 700 375% 3,217 646 398%

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(1) Total revenue for the three months ended and year ended December 31,
2006 includes the realized gain on financial contracts of $236,796 and
$315,517 respectively.


PRICES AND MARKETING

Canadian oil prices are based upon the WTI average price adjusted for the U.S. dollar exchange rate and quality differentials. Bear Ridge generally sells its natural gas into the daily spot market based on the Alberta AECO reference price except for where we have hedged volumes which are usually sold on the monthly index price. The Company currently produces gas with a high heating value and as such the values expressed on a $ per mcf basis are generally higher than the AECO $ per GJ average. A comparison of Bear Ridge's natural gas and crude oil pricing with AECO and WTI benchmark pricing is as follows:



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Three months ended Year ended

Dec 31, Dec 31, Dec 31, Dec 31,
2006 2005 2006 2005
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Bear Ridge's Average Selling Price
Natural gas - $/mcf including hedging $ 7.59 $ 12.41 $ 7.35 $ 9.74
Natural gas - $/mcf excluding hedging $ 6.91 $ 12.41 $ 6.75 $ 9.74
Crude oil - $/bbl $ 56.23 $ 68.80 $ 67.47 $ 67.63
NGL's - $/bbl $ 55.59 $ 69.93 $ 64.76 $ 67.67
Total average selling price - $/boe $ 47.42 $ 72.70 $ 48.39 $ 62.04

Benchmark Pricing
AECO gas daily spot - $/GJ $ 6.98 $ 11.43 $ 6.54 $ 8.76
WTI oil - US $/bbl $ 60.21 $ 60.07 $ 66.22 $ 56.57
Edmonton par - CDN $/bbl $ 64.49 $ 69.84 $ 72.77 $ 68.28
US/CDN average exchange rate 0.88 0.85 0.88 0.82
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Bear Ridge is exposed to fluctuations in natural gas and oil prices and occasionally enters into future price contracts specifying either a fixed future settlement price or a range of prices. The primary reason for doing so is to protect cash flows to ensure the Company has the necessary resources to complete its capital program. Bear Ridge currently has the following costless collar commodity contracts and fixed price sales in place.



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Hedged
Term volumes Floor Ceiling
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($ CDN @ AECO/GJ)

Natural Gas
November 1, 2006 to March 31, 2007(1) 2,000 GJ/d $ 8.76 -
November 1, 2006 to March 31, 2007 2,000 GJ/d $ 8.00 $ 11.50
November 1, 2006 to March 31, 2007 3,000 GJ/d $ 8.00 $ 11.55
November 1, 2006 to March 31, 2007 2,000 GJ/d $ 8.00 $ 10.85
April 1, 2007 to October 31, 2007 3,000 GJ/d $ 5.50 $ 8.05
April 1, 2007 to October 31, 2007 3,000 GJ/d $ 6.24 $ 8.00
April 1, 2007 to October 31, 2007(1) 2,000 GJ/d $ 7.26 -
November 1, 2007 to March 31, 2008 3,000 GJ/d $ 7.75 $ 10.00

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(1) Fixed price sale


ROYALTIES

For the three months and year ended December 31, 2006 royalties, net of the Alberta Royalty Tax Credit ("ARTC"), totaled $3.0 and $12.1 million or 20.3% and 21.4% of total revenues respectively. When compared to the same periods in 2005, these rates as a percentage of revenue represent a decrease of 4.1% for the fourth quarter and an increase of 3.1% for the year. During the first half of 2005, Bear Ridge received a royalty holiday on an oil well which accounted for a significant portion of the Company's production during that period. As a result royalties as a percentage of revenue were very low in the first half of 2005 but returned to normal levels in the second half of the year once the royalty holiday expired.

When compared to the third quarter of 2006, royalties as a percentage of revenue, for the fourth quarter of 2006 decreased modestly from 21.4% in the third quarter to 20.3% in the fourth quarter.

It is important to note that royalties as a percentage of revenue are influenced by the fact that revenues in 2006 include hedging gains which are not subject to royalties and in effect result in a lower effective royalty rate on a percentage of revenue basis. Excluding hedging gains royalties as a percentage of revenue for the three months and year ended December 31, 2006 would be 21.9% and 22.7% respectively.

ARTC recoveries totaled $125,000 for the fourth quarter and $461,272 year to date after minor adjustments from previous year claims. The ARTC program has been discontinued effective January 1, 2007.



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Three months ended December 31, Year ended December 31,

Royalties % %
(000's) 2006 2005 Change 2006 2005 Change
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Crown $ 2,665 $ 1,001 166% $ 10,938 $ 2,639 314%
Freehold and
GORR 413 270 53% 1,658 545 204%
ARTC (125) (125) -% (461) (500) (8)%
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Total Royalty
Expense $ 2,953 $ 1,146 158% $ 12,135 $ 2,684 352%
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Royalties per
boe $ 9.65 $ 17.82 (46)% $ 10.34 $ 11.39 (9)%
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Three months ended Year Ended
December 31, December 31,
Average royalty rates
(% of sales) 2006 2005 2006 2005
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Royalty Category
Crown 18.4% 21.4% 19.3% 18.0%
Freehold and GORR 2.8% 5.7% 2.9% 3.7%
ARTC (0.9)% (2.7)% (0.8)% (3.4)%
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Total Royalty 20.3% 24.4% 21.4% 18.3%
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OPERATING EXPENSES

When compared with the previous year Bear Ridge's operating costs per boe for the three and twelve month periods ended December 31, 2006 have increased by 43% and 34% respectively. The increase in costs is a result of increasing processing and water handling costs along with workovers on the increased production base. During 2005, a substantial portion of the Company's production came from the 11-16 well in Sakwatamau. As production has declined throughout 2006 operating costs have continued to rise on a boe basis. Work-overs and maintenance costs in the area have been significant for the year and have added to an increase in company wide operating costs. With the acquisition of Veteran, Bear Ridge acquired another significant producing Belloy well in Earring capable of rates near 1,000 boe per day early in the year. As production has declined consistent with expectations, water handling costs associated with certain wells has increased overall operating costs per boe on a Company wide basis.

During the current quarter, operating costs increased to $14.20 per boe, an increase of 12.8% when compared to operating costs of $12.59 from the third quarter of 2006. The increase on a boe basis is due to a processing fee adjustment from a third party plant relating to prior quarters, increased repairs and maintenance costs in the Cecil, Sakwatamau and Earring areas and short term water processing and handling charges in the Earring area, combined with the continuing inflationary pressure driving up industry's overall operating cost structure. Going forward these high water cut wells will be shut-in as the increasing costs makes production uneconomic.



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Three months ended Dec 31, Year ended December 31,

% %
2006 2005 Change 2006 2005 Change
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Operating
costs (000's) $ 4,348 $ 639 580% $ 12,680 $ 1,903 566%
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Operating
costs per boe $ 14.20 $ 9.93 43% $ 10.80 $ 8.07 34%
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TRANSPORTATION EXPENSES

Transportation expenses for the fourth quarter of 2006 totaled $465,892 or $1.52 per boe which represents an increase of 24% from transportation costs of $1.23 per boe from the same period of the previous year. Year to date, transportation costs have totaled $1.7 million or $1.45 per boe compared to $0.85 per boe for the year ended December 31, 2005. When compared to 2005, increased transportation fees on a boe basis are the result of higher transportation costs per unit on natural gas combined with the Company producing more gas compared to oil.

OPERATING NETBACK

Operating netbacks for the three and twelve months ended December 31, 2006 totaled $22.05 and $25.81 respectively. These netbacks represent significant decreases, mostly due to natural gas pricing declines, when compared to the same periods of 2005. During the fourth quarter of 2006 the overall price received decreased 35% from record pricing of $72.70 per boe averaged in the fourth quarter of 2005, while royalties, operating and transportation expenses, on a combined basis, declined by 12.5% over the same period. When looking at yearly netbacks, the overall price received in 2006, decreased 22% from $62.04 per boe to $48.39 per boe while total costs over this period increased by 11% providing a decrease in netbacks received on a year over year basis of 38.2%.

When compared with the third quarter 2006 netbacks of $22.38, the Company's fourth quarter netback remained virtually unchanged with improvements in pricing and royalty costs being offset by higher operating costs.



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Three months ended Year Ended
December 31, December 31,
Operating Netback ($/boe) 2006 2005 2006 2005
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Sales price $ 47.42 $ 72.70 $ 48.39 $ 62.04
Royalties (9.65) (17.82) (10.34) (11.39)
Operating expense (14.20) (9.93) (10.80) (8.07)
Transportation expense (1.52) (1.23) (1.45) (0.85)
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Operating netback $ 22.05 $ 43.72 $ 25.81 $ 41.73
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GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")

G&A expenses for the fourth quarter of quarter of 2006 totaled $1.1 million or $3.60 per boe compared to $0.3 million or $5.25 per boe for the same quarter of 2005. Year to date G&A expense totaled $3.3 million or $2.84 per boe, which although higher due to increased staffing levels, on an overall dollar basis compared to the same period of 2005, represents a significant reduction on a boe basis from $5.26 per boe.

Capitalized G&A amounted to $0.6 million, or 35.2% of total gross G&A costs incurred during the fourth quarter of 2006 and $2.3 million or 36.5% of total gross G&A costs incurred year to date. The Company maintains the policy of capitalizing only those costs directly attributable to exploration activities and does not include an allocation of administrative overhead.



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Three months ended December 31, Year ended December 31,

G & A Expense % %
(000's) 2006 2005 Change 2006 2005 Change
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G&A expense
(gross) $ 1,861 $ 558 233% $ 6,236 $ 1,883 231%
G&A
capitalized (639) (165) 287% (2,275) (570) 299%
Overhead
recoveries (120) (55) 118% (623) (72) 765%
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G&A expense
(net) $ 1,102 $ 338 226% $ 3,338 $ 1,241 169%
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G&A expense
$ per boe $ 3.60 $ 5.25 (30)% $ 2.84 $ 5.26 (47)%
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STOCK BASED COMPENSATION

Stock based compensation measures the implicit cost of compensating key personnel through the issuance of stock options and special performance units as further described in the audited financial statements.

For the three month period ended December 31, 2006, the Company incurred stock based compensation expense of $598,000 or $1.95 per boe compared to $291,066 or $4.52 per boe for the same period of 2005. Year to date the Company has incurred stock based compensation expenses of $2.3 million or $1.95 per boe compared to $1.0 million or $4.22 per boe for the prior year. Increased stock based compensation expense on a total dollar basis is a result of an increased number of stock options issued for the balance of 2006 compared to 2005.

INTEREST EXPENSE

Interest expense for the year ended December 31, 2006 totaled $3.9 million. Draws on the Company's credit facilities to fund the cash component of the Veteran acquisition and to execute Bear Ridge's capital program resulted in higher interest charges when compared to the same period of 2005 when Bear Ridge was a much smaller Company and carried minimal debt prior to the fourth quarter of 2005.

Interest for the three months ended December 31, 2006 totaled $1,527,097 representing an increase of 44% from interest charges of $1,059,262 from the previous quarter of 2006. The increase was a result of the Company carrying a larger debt level throughout the fourth quarter compared to the third and interest charges on the Company's non-revolving loan facility for the entire fourth quarter while this facility was initiated at the end of the third quarter.

DEPLETION, DEPRECIATION AND ACCRETION

For the three months and year ended December 31, 2006 depletion and depreciation totaled $11.0 million or $36.07 per boe and $34.4 million or $29.30 per boe, respectively. Fourth quarter depletion and depreciation increased $2.5 million compared to the third quarter in 2006. This increase stems from a change in the composition of the assets as a result of disposing of certain assets that were included to the amount of proved reserves while additions during the quarter were more heavily weighted towards the unproved reserves classification which are not used in the calculation.

The depletion rate is impacted by the costs to acquire, explore and develop reserves of crude oil and natural gas, known as finding, development and acquisition costs. In the early stages of exploration, capital costs may be recognized before proven reserves are fully booked leading to higher initial depletion rates. In addition higher depletion rates also result as new production often receives lower reserves assignments under NI 51-101 due to the naturally unpredictable nature of newer production.

Accretion expense increased in the fourth quarter of 2006 to $66,400 compared to $55,000 in the previous quarter. Year to date accretion in 2006 totaled $224,300. Accretion expense in 2006 is higher than 2005 due to an increasing asset base. The Company expects its accretion expense to continue to increase on a quarterly basis as more wells are drilled and the asset retirement obligation continues to grow.



Three months Year Ended
ended December 31, December 31,
2006 2005 2006 2005
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Total costs (000's)
Depletion and depreciation 11,040 $ 1,871 34,400 $ 5,963
Accretion 66 11 224 28
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Combined 11,106 $ 1,883 34,624 $ 5,991
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Cost per boe
Depletion and depreciation $ 36.07 $ 29.09 $ 29.30 $ 25.28
Accretion $ 0.22 $ 0.18 $ 0.19 $ 0.12
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CEILING TEST

The Company performed a ceiling test calculation as at December 31, 2006 which compares the carrying value of petroleum and natural gas properties, less the cost of undeveloped properties not subject to depletion against the undiscounted value of future cash flow from proved reserves. If the adjusted carrying value is greater, then it is compared to the discounted future cash flows from the Company's proved plus probable reserves. Future cash flows are discounted at a credit adjusted, risk free interest rate using forecasted prices and costs. As a result of performing this test, a ceiling test impairment of $42.0 million was recorded as a write-down of petroleum and natural gas properties. The write-down is a result of the reduction in commodity prices anticipated for future years, higher finding and development costs, and the upward trend of operating costs in the oil and gas industry.

The Company calculated the future cash flows for the ceiling test using oil and natural gas prices derived from the GLJ reserve report dated December 31, 2006.

GOODWILL IMPAIRMENT

Goodwill represents the excess of total consideration paid plus the future income tax liability less the fair value of net identifiable assets acquired in a transaction. The goodwill balance prior to impairment of $31.7 million was derived from the acquisition of Veteran Resources in January 2006.

Accounting standards require that the goodwill balance be assessed for impairment at least annually or more frequently if events or changes in circumstances indicate that the balance might be impaired.

As a result of a drop in the Company's share price and thus market capital valuation subsequent to year end the Company has determined the goodwill value being carried had been impaired. In moving to the second test of comparing fair value to the carrying value including goodwill it was determined that the full carrying value of $31.7 million was impaired and has been taken out of the carrying values at year end.

TAXES

As at December 31, 2006, Bear Ridge had available approximately $185 million in tax pools to shelter future taxable earnings. During 2005, Bear Ridge recognized a future income tax asset of approximately $9.5 million and had additional unrecognized assets related to additional tax pools of approximately $11.5 million. Upon acquisition of Veteran, Bear Ridge reviewed its unrecognized future income tax asset and with the increased revenues from the acquired properties Bear Ridge recognized the full value of previously unrecognized tax pools against the tax liability acquired as part of the Veteran acquisition. The future tax liability acquired from Veteran, totaling $12 million, when combined with Bear Ridge's recognized tax asset from 2005 and the tax effect of flow-through share renouncements made during the first quarter of 2006 resulted in a future tax liability on Bear Ridge's balance sheet at the end of the first quarter of 2006.

During the fourth quarter of 2006, Bear Ridge recorded a reduction of $12.8 million in its overall future income tax liability as a result of a reduction of the net book value of assets as at December 31, 2006 due to an asset write-down.

For 2007, Bear Ridge does not expect to incur cash income tax expense on cash flows generated from operations and with recent federal budget proposals does not expect to incur capital taxes.

As the result of various flow-through share offerings completed by Bear Ridge during 2005, the Company renounced to subscribers $17.3 million in qualifying expenditures related to flow through arrangements during February 2006. As at March 31, 2006, Bear Ridge had incurred all eligible expenditures under the flow through agreements. On May 12, 2006, the Company closed a private placement of 3,150,000 flow-through common shares for proceeds of $23,152,500. Pursuant to this private placement, the Company had incurred 100% of the eligible expenditures prior to December 31, 2006. On December 19, 2006, the Company closed a private placement of 5,000,000 private placement flow-through common shares for proceeds of $24.0 million. Under the terms of the private placement, the Company is committed to incur these expenditures over a 24 month period and effectively has until December of 2008 to meet the flow through expenditure requirements.

CASH FLOW AND NET INCOME

Cash flow from operations for the year ended December 31, 2006 totaled $23.0 million or $0.48 basic cash flow per share compared to cash flow of $8.5 million or $0.34 basic cash flow per share from the previous year. Cash flow increased due to higher production levels in 2006 compared to 2005 due in part to the acquisition of Veteran as well as new production from drilling activities during the year.

Cash flow from operations for the fourth quarter of 2006 totaled $4.1 million or $0.08 per basic share. This represents a decrease of 20% from cash flow and cash flow per share from the third quarter of 2006 of $5.0 million and $0.10 per basic common share. While revenues were up 4.3% in the fourth quarter, cash flow was reduced as the result of higher production costs, general and administrative expenses and interest charges on debt.

For the year ended December 31, 2006 the Company realized a net loss of $70.6 million compared to income of $10.9 million in the prior year. Income during 2005 was largely due to a $9.0 million future income tax recovery. The change in results between the two years is primarily due to an impairment write-down of assets of $42.0 million a $31.7 million goodwill impairment and a 33.7% year over year decrease in operating netbacks largely driven by lower commodity pricing. Other contributing factors were higher debt carrying charges, a large increase in depletion per boe and higher stock based compensation charges.

The Company recorded a net loss of $68.9 million for the three months ended December 31, 2006 compared to net loss of $1.1 million for the previous quarter.



Three months Year Ended
ended December 31, December 31,
2006 2005 2006 2005
----------------------------------------------------------------------------
Cash flow from operations
per share
Basic $ 0.08 $ 0.08 $ 0.48 $ 0.34
Diluted $ 0.08 $ 0.08 $ 0.45 $ 0.31
Net income (loss) - per share
Basic $ (1.35) $ 0.02 $ (1.46) $ 0.44
Diluted $ (1.35) $ 0.02 $ (1.46) $ 0.40
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CAPITAL EXPENDITURES

Bear Ridge executes a growth strategy primarily through exploration and development activities complemented with strategic corporate and property acquisitions. Net capital expenditures in the fourth quarter totaled $(0.08) million net of $34 million in dispositions, compared to $14.6 million in the same period of the prior year. Net capital expenditures for 2006 totaled $83.2 million compared to $72.1 million for 2005.

The fourth quarter of 2006 continued to be an active quarter for Bear Ridge with the drilling of 12 (7.3 net) wells resulting in 8 (5.8 net) gas wells and 1.0 (0.6 net) oil wells and 3 (0.9 net) abandoned wells, for a 75 percent success rate.

Capital expenditures of $34 million before dispositions during the fourth quarter were focused on drilling, completion, equipping and facilities costs. Of the total, $11.2 million was spent in the Tupper area where the Company drilled and completed 2 wells, and prepared future leases, while the balance of the funds were focused in the Peace River Arch areas including Cecil, Josephine, Eaglesham, Earring and Sinclair. Costs for services continued to be high, and the scope on some projects was expanded to complete additional zones. Results outside of the Tupper area did not meet the Company's objectives. Future expenditures will be focused in the Tupper area for 2007.

For the year, a total of $23.1 million was spent in the Tupper area including $9.2 million on land acquisitions. The balance of the expenditures which were focused on drilling operations, equipping and tie-ins were allocated over our many Peace River Arch areas and to a lesser degree our West Central properties.

During the fourth quarter Bear Ridge disposed of certain non core properties for total proceeds of $34.1 million.

Capital expenditures for the three months and years ended December 31, 2006 and 2005 are outlined as follows:



Three months Year Ended
ended December 31, December 31,
Capital Expenditures (000's) 2006 2005 2006 2005
----------------------------------------------------------------------------
Land 740 1,344 15,725 4,232
Geological & geophysical 572 3,345 5,256 4,048
Drilling & completions 26,880 6,159 77,772 22,646
Equipment & facilities 5,605 3,481 26,930 5,503
Office & furniture 83 200 274 250
Asset retirement obligation 127 73 622 656
----------------------------------------------------------------------------
Capital before acquisitions/(dispositions) 34,007 14,602 126,579 37,335
Property acquisition/(disposition) (34,087) - (43,380) 26,466
Corporate/Partnership acquisition - - 109,594 8,344
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Expenditures (80) 14,602 192,793 72,145
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Company records the fair value of future obligations associated with the retirement of long-lived tangible assets, such as oil and gas wells, well sites and facilities. Accounting for the recognition of this obligation results in a corresponding increase to the carrying values of these assets. This amount has been classified above as the Company's Asset Retirement obligation.

EQUITY

During the first quarter of 2006, Bear Ridge issued 413,638 shares as the result of the exercise of stock options and special performance units and another 62,100 shares as part of a flow through share private placement. Proceeds generated from these issuances totaled $517,717.

On May 12, 2006 the Company closed a bought deal financing whereby the Company issued 3,150,000 common shares, on a flow through basis, at a price of $7.35 per share for total proceeds of $23,152,500.

On December 19, 2006, the Company closed a private placement of 3,000,000 Canadian Development Expense ("CDE") flow-through common shares at a price of $4.40 per share and 2,000,000 Canadian Exploration Expense ("CEE") flow through common shares at a price of $5.40 per share of for total proceeds of $23.9 million.

In conjunction with the December 17, 2006 private placement, the Company also issued 3,000,000 CDE flow-through warrants with an exercise price of $4.50 per share and 2,000,000 CEE flow-through warrants with an exercise price of $5.50 per share.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2006 Bear Ridge had drawn $51.7 million on its credit facilities and had a working capital deficiency of $24.2 million for total net debt of $76.0 million. Available bank lines currently sit at $95.0 million, $15.0 million lower than the previous quarter as the result of non-core property dispositions which closed early in December.

On an ongoing basis, the Company 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 favorable 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 are identified.

CONTRACTUAL OBLIGATIONS

Bear Ridge enters into many contractual obligations as part of conducting day to day business. The following represent the Company's contractual obligations as at December 31, 2006.

Pursuant to flow-through share offerings during the year ended December 31, 2006, Bear Ridge is committed to incur a total of $24 million in qualifying expenditures by December 31, 2008. As at December 31, 2006 $23.6 million of the commitment remains.

The Company entered into a lease commitment for its office space extending to June 2008. Annual rental payments, inclusive of operating costs, total approximately $275,000 for 2007 and $69,000 for 2008.

The Company entered into a transportation contract in 2006 with the following related commitments:



----------------------------------------------------------------------------
($ CDN) 2007 2008 2009 2010
----------------------------------------------------------------------------

Gathering & Processing Fees 1,368,402 1,125,420 1,148,460 560,533
----------------------------------------------------------------------------


The Company is also committed to short term physical commodity commitments as described in the prices and marketing section of the MD&A. Bear Ridge believes gas production will significantly exceed these volume commitments during the term of the contracts. No additional firm transportation commitments have been entered into by the Company to date.

CHANGES IN ACCOUNTING POLICIES

On January 27, 2005, the Accounting Standard's Board (AcSB) issued CICA Handbook section 3855 "Financial Instruments - Recognition and Measurement", CICA Handbook section 3861 "Financial Instruments - Disclosure and Presentation", CICA Handbook section 1530 "Comprehensive Income" and CICA handbook section 3865 "Hedges" that deal with the recognition and measurement of financial instruments and comprehensive income. The new standards are intended to harmonize Canadian standards with United States and International accounting standards and are effective for annual and interim periods in fiscal years beginning on or after October 1, 2006. The Company is currently reviewing the standards and does not expect a significant impact the Company. Other standards are not expected to impact the Company at this time.

CRITICAL ACCOUNTING ESTIMATES

The significant accounting policies used by Bear Ridge are disclosed in Note 2 of the audited consolidated financial statements as at December 31, 2006. Certain accounting policies require management to make appropriate decisions in determining estimates and making assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates regularly. The emergence of new information and changed circumstance may result in actual results or changes to estimated amounts that may differ materially from current estimates. The following discussion helps assess the accounting policies and practices of the Company as they relate to estimates and the likelihood of material differences occurring.

Proved Oil and Gas Reserves

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

Reserve estimates are made using all available geological and reservoir data, as well as historical production information. Estimates are reviewed internally on a quarterly basis, and at least annually by external engineers, and are revised as appropriate. Revisions can occur as a result of various factors including: actual reservoir production, changes in commodity price forecasts and relevant operating costs or changes in the Company's plans. Changes in proved oil and gas reserves will impact financial results as reserves are used in the depletion calculation and are used to assess asset valuation and impairment. Reserve changes also affect other industry financial benchmarks such as finding and development costs; recycle ratios and net asset value calculations.

Depletion

The Company applies the full cost method of accounting for exploration and development activities. Under this method, all costs associated with the acquisition of, exploration for, and development of petroleum and natural gas reserves are capitalized whether or not the activities are successful. The aggregate of net capitalized costs and estimated future development costs, less undeveloped land, is depleted using the unit-of-production method based on production volumes in relation to estimated proven reserves. An increase in estimated proved oil and gas reserves would result in a corresponding reduction in depletion expense. A decrease in estimated future development costs would also result in a corresponding reduction in depletion expense.

Unproved Properties

Certain costs related to the acquisition and evaluation of unproved properties may be excluded from costs subject to depletion. These properties are reviewed quarterly to determine whether any impairment in value has occurred. When proved reserves are assigned or an unproved property is considered to be impaired, the cost of the unproved property or the amount of the impairment will be added to the capitalized costs subject to depletion.

Ceiling Test

The Ceiling test is a two part cost recovery test to assess the valuation of the Company's petroleum and natural gas properties. The first part measures whether impairment has occurred based on undiscounted future cash flows using estimated future prices, costs and proved reserves. When the first part indicates impairment exists, the second part of the test measures the amount of impairment based on discounted future cash flows from proved and probable reserves. The Company reviews the related estimates when it performs its ceiling test on a quarterly basis. The impact of changes in the estimates of future prices and costs applied and the quantity of proved and probable reserves on the financial statements could be material.

Asset Retirement Obligations

In recognizing its asset retirement obligation, the Company records a liability equal to the discounted fair value of the estimated costs to abandon petroleum and natural gas wells, dismantle and remove tangible equipment and return land to its original condition. Arriving at a discounted fair value requires the Company to make estimates relating to the projected timing of incurring costs, inflation rates and risk adjusted discount rates. These estimates will vary over time as new information becomes available and will impact both the liability recorded as well as the accretion expense. These estimates are reviewed by the Company on a quarterly basis to ensure circumstances supporting the estimates are still considered reasonable.

Income Taxes

The determination of the Company's income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by management.

Stock-based Compensation

The fair value of stock options granted is calculated using the Black-Scholes option pricing model and is recorded over the vesting period of the related options. The calculation involves estimates of the expected volatility in the trading value of the Company's shares, the price of the underlying shares, the expected life of the option, expected dividends and the risk-free rate of interest. All of these estimates are subjective and are reviewed by management on a quarterly basis.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that material information is gathered and reported to senior management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to permit timely decisions regarding public disclosure.

Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures, as defined in Multilateral Instrument 52-109 - certification of Disclosure in Issuers Annual and Interim Filings ("52-109"), are sufficient to ensure that the information required to be disclosed in reports that are filed or submitted under Canadian Securities legislation are recorded, processed, summarized and reported within the time period specified in those rules.

During the process of management's review and evaluation of the design of the Company's disclosure controls and procedures, it was determined that certain weaknesses existed in the effectiveness of disclosure controls. The weaknesses identified were around the internal AFE and capital commitment process. The Company is currently addressing these weaknesses and expects to have them fully remediated by the second quarter of 2007. Senior management will continue to closely monitor all financial activities of the Company with emphasis on the noted areas of weakness. The Company is taking steps to augment and improve the procedures and controls impacting these areas of weakness over disclosure controls and procedures.

INTERNAL CONTROL OVER FINANCIAL REPORTING ("ICOFR")

The Chief Executive Officer and Chief Financial Officer have designed and or caused to be designed under their supervision, ICOFR, to provide reasonable assurance that financial reporting and preparation of financial statements for external purposes are prepared in accordance with Canadian GAAP.

It should be noted that a control system, including the Company's disclosure and internal controls over Financial Reporting, no matter how well conceived can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met and it should not be expected that the disclosures and internal controls will prevent all errors or fraud.


BUSINESS CONDITIONS AND RISK

The business of exploration, development and acquisition of oil and gas reserves involves a number of uncertainties and as a result, Bear Ridge is exposed to a number or risks inherent to the oil and gas industry. Operationally Bear Ridge faces risks that are associated with finding, developing and producing oil and gas reserves. This includes risks associated with government access regulations, cost and availability of third party services, environmental and safety concerns, and access to processing facilities. Bear Ridge is subject to financial risks due to fluctuating commodity prices, interest rates and the Canadian/US dollar exchange rate. Bear Ridge's growth is dependant on external sources of financing which may not be available on acceptable terms.

Bear Ridge manages operational risks through employing a highly competent management team with significant experience in the oil and gas industry and adheres to operational, safety and environmental standards that meet or exceed recognized levels. The Company may enter into commodity or interest rate hedging strategies to protect certain levels of cash flow. Finally, Bear Ridge maintains an insurance program consistent with industry practice to protect against destruction of assets, well blowouts, environmental problems and other business interruptions.

Forward Looking Statements - Statements that are not historical facts may be considered forward-looking statements including management's assessment of future plans and operations, expected commodity prices, expected or estimated royalty rates, transportation costs, operating costs, general administrative expenses and other costs and expenses, drilling plans, capital expenditures, timing of capital expenditures and the method of funding thereof. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements or information. Bear Ridge believes the expectations reflected in those forward-looking statements and information are reasonable but no assurance can be given that these expectations will prove to be correct, and such forward-looking statements and information included in this discussion and analysis should not be unduly relied upon. Furthermore, the forward looking statements contained herein are made as at the date hereof and Bear Ridge does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities law.



QUARTERLY INFORMATION

----------------------------------------------------------------------------
2006 2005
Financial
($ thousands
except per
share data) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Revenues
(including
recognized
gain on
financial
commodity
contract) 14,515 13,908 13,806 14,587 4,679 4,585 4,176 1,191
Royalties 2,953 2,968 2,231 3,983 1,146 921 287 330
Operating
expenses 4,348 3,802 2,415 2,115 718 607 595 166
Transportation
expenses 466 377 434 424 80 64 41 16

Cash flow
(000's) 4,098 4,973 7,003 6,972 2,389 2,741 2,927 406
Per share -
basic 0.08 0.10 0.15 0.16 0.08 0.10 0.12 0.02
Per share -
diluted 0.08 0.09 0.14 0.15 0.08 0.09 0.11 0.02

Net Income
(loss) (68,906) (1,112) 524 (1,078) 629 9,259 1,255 (208)
Per share -
basic (1.35) (0.02) 0.01 (0.02) 0.02 0.33 0.05 (0.01)
Per share -
diluted (1.35) (0.02) 0.01 (0.02) 0.02 0.30 0.05 (0.01)

Capital
expenditures,
net (80) 29,189 17,361 36,729 14,602 11,162 9,526 2,045
Acquisition
expenditures - - - 109,594 - - 10,344 24,466
----------------------------------------------------------------------------
Total
expenditures (80) 29,189 17,361 146,323 14,602 11,162 19,870 26,511
----------------------------------------------------------------------------

----------------------------------------------------------------------------
2006 2005
Operations Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Production
volumes
Natural gas
(mcf/day) 16,381 15,710 14,713 15,761 2,858 2,795 2,365 1,381
Oil and NGL's
(bbl/day) 597 665 576 599 223 318 413 57
----------------------------------------------------------------------------
Total boe/day 3,327 3,283 3,028 3,226 700 784 808 287
----------------------------------------------------------------------------
Average Selling
Price
Natural gas
($ per mcf) 7.59 6.61 7.38 7.83 12.41 9.63 8.03 7.26
Oil and NGL
($ per bbl) 56.04 71.14 74.87 64.52 68.80 72.83 64.25 58.76
----------------------------------------------------------------------------
Combined ($ per
boe) 47.42 46.04 50.10 50.24 72.70 63.58 56.81 46.09
Royalties
($ per boe) 9.65 9.83 8.10 13.72 17.82 12.78 3.91 12.77
Operating
expense
($ per boe) 14.20 12.59 8.76 7.28 9.93 7.53 7.55 6.45
Transportation
($ per boe) 1.52 1.25 1.58 1.46 1.23 0.89 0.56 0.63
----------------------------------------------------------------------------
Netback ($ per
boe) 22.05 22.38 31.66 27.79 43.72 42.38 44.79 26.24
----------------------------------------------------------------------------


BEAR RIDGE RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS (unaudited)

($ thousands)

As at December 31 2006 2005
----------------------------------------------------------------------------

ASSETS
Current
Accounts receivable $ 14,707 $ 7,373
Investment (note 4) 571 -
Deposits and prepaid expenses 821 626
Financial commodity contracts (note 12) 289 -
----------------------------------------------------------------------------
16,388 7,999

Future income tax (note 10) 8,724 9,457
Property and equipment (note 6) 182,581 66,182
----------------------------------------------------------------------------
$ 207,693 $ 83,638
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 40,650 $ 14,642
Credit facilities (note 7) 51,711 5,248
----------------------------------------------------------------------------
92,361 19,890

Asset retirement obligations (note 8) 3,386 519
----------------------------------------------------------------------------
95,747 20,409
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basis of Presentation and Going Concern
(note 1)

Shareholders' equity
Share capital (note 9(b)) 165,728 52,537
Warrants (note 9(d)) 4,898 711
Contributed surplus (note 9(c)) 2,905 994
Retained earnings (deficit) (61,585) 8,987
----------------------------------------------------------------------------
111,946 63,229
----------------------------------------------------------------------------
$ 207,693 $ 83,638
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes

On behalf of the Board:

David Ambedian, Director

Russell J. Tripp, Director


BEAR RIDGE RESOURCES LTD.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS (DEFICIT) (unaudited)

($ thousands, except per share data)

For the year ended December 31
----------------------------------------------------------------------------

2006 2005
----------------------------------------------------------------------------
REVENUE
Petroleum and natural gas sales $ 56,500 $ 14,631
Gain on financial commodity contract (note 12) 604 -
Royalties, net of Alberta Royalty Tax Credit (12,135) (2,685)
----------------------------------------------------------------------------
44,969 11,946
----------------------------------------------------------------------------
EXPENSES
Operating 12,680 1,903
Transportation 1,702 201
General and administrative 3,338 1,241
Stock based compensation (note 9(e)) 2,292 994
Interest on credit facilities 3,893 150
Depletion, depreciation and accretion 34,624 5,991
Impairment of goodwill (note 5) 31,740 -
Impairment of property and equipment (note 6) 41,994 -
----------------------------------------------------------------------------
132,263 10,480
----------------------------------------------------------------------------

Income (loss) before income taxes (87,294) 1,466
Income taxes
Capital taxes 21 -
Current recovery - (13)
Future income tax recovery (note 10) (16,743) (9,457)
----------------------------------------------------------------------------

Net income (loss) (70,572) 10,936

Retained earnings (deficit), beginning of year 8,987 (1,949)
----------------------------------------------------------------------------
Retained earnings (deficit), end of year (61,585) $ 8,987
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net income (loss) per share (note 9(f))
Basic $ (1.46) $ 0.44
Diluted $ (1.46) $ 0.40
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes


BEAR RIDGE RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

($ thousands)

For the year ended December 31 2006 2005
----------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income (loss) $ (70,572) $ 10,936
Items not involving cash:
Unrealized gain on financial commodity -
contracts(note 12) (289)
Depletion, depreciation and accretion 34,624 5,991
Impairment of property and equipment 41,994 -
Impairment of goodwill 31,740
Future income tax recovery (16,743) (9,457)
Stock based compensation 2,292 994
Abandonment expenditures - (165)
----------------------------------------------------------------------------
Cash flow from operations before changes in non-
cash working capital 23,046 8,299
Change in non-cash working capital (note 13) (9,231) (1,444)
----------------------------------------------------------------------------
Cash provided by operating activities 13,815 6,855
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Common shares issued, net of issue costs 46,180 28,489
Preferred shares issued - 6,200
Repurchase of preferred shares - (25)
Advances on credit facilities 42,040 5,247
Repayment of debt (note1(b)) - (2,000)
----------------------------------------------------------------------------
Cash provided by financing activities 88,220 37,911
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Acquisition/disposition of properties 43,380 (2,200)
Expenditures on property and equipment (126,528) (40,361)
Acquisitions (note 3) (35,752) (8,344)
Change in non-cash working capital (note 13) 16,865 5,659
----------------------------------------------------------------------------
Cash used in investing activities (102,035) (45,246)
----------------------------------------------------------------------------

Change in cash - (480)

----------------------------------------------------------------------------
Cash and cash equivalents, beginning of year $ - $ 480

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents, end of year $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes


Notes to the Consolidated Financial Statements
December 31, 2006 and 2005


1. BASIS OF PRESENTATION AND GOING CONCERN

Bear Ridge Resources Ltd. ("Bear Ridge" or the "Company") was incorporated as 1142356 Alberta Ltd. on December 14, 2004 under the Business Corporations Act (Alberta) as a wholly-owned subsidiary of Ceyba Inc. (the "Parent"). On December 16, 2004 the Parent and Ceyba Corp. ("Ceyba") entered into the Bear Ridge Come-Along Agreement with Bear Creek Energy Ltd. (Bear Creek") and Ketch Resources Ltd. ("Ketch") to participate in the Plan of Arrangement involving the two companies.

a) Going Concern

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. A portion of the Company's oil and gas properties are still in the exploration and development stage. The Company incurred a loss of $ 70.6 million, for the year ended December 31, 2006 and has a working capital deficiency of $24.3 million and bank debt of $51.7 million as at December 31, 2006. In addition, although it had received a waiver, the Company was in breach of a debt to cash flow ratio covenant for the non-revolving credit facility as at December 31, 2006 (see note 7).

Management plans to address the above matters by raising additional share capital, pursuing property dispositions (note 14) and reducing capital expenditures. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue its operations.

b) Pre-Plan of Arrangement Transactions

On January 5, 2005 the Company acquired Ceyba from the Parent. As Ceyba and the Company were under the common control of the Parent, the accompanying consolidated financial statements of the Company have been accounted for on a "continuity of interests' basis" with all assets and liabilities of Ceyba consolidated with the Company at their former carrying values. The financial statements assume the Company and Ceyba have been combined since inception. As a consequence, financial information presented for the year ended December 31, 2005 reflects only the results from the Company's oil and gas operations for that period, together with cash of $480,402, accounts payable of $2,429,513 and a deficit of $1,949,111 brought forward from Ceyba as at January 5, 2005.

On January 17, 2005, the articles of incorporation of the Company were amended and the previously issued 700,000 issued Class A shares were converted into 723,404 new Class A common shares of the Company and the previously issued 2,800,000 preferred shares were converted into 2,893,617 new preferred shares of the Company.

c) Plan of Arrangement

On October 27, 2004, Ketch and Bear Creek jointly announced that their respective Boards of Directors had unanimously approved a proposal to combine the two entities pursuant to a Plan of Arrangement ("Arrangement") which resulted in the creation of Ketch Resources Trust, the creation of Kereco Energy Ltd. ("Kereco") as a public oil and gas exploration and development company which initially owns certain oil and gas assets of Ketch, and the creation of Bear Ridge as a public oil and gas exploration and development company which initially owned certain oil and gas assets of Bear Creek. The Arrangement was completed on January 18, 2005.

Under the Arrangement, Bear Creek transferred to Bear Ridge certain producing and exploratory petroleum and natural gas properties and a portion of its bank debt and accounts payable. As the former Ketch shareholder group was the controlling shareholder group resulting from the Arrangement, the properties were transferred and accounted for at their fair market value as follows:



Net Assets Received:
----------------------------------------------------------------------------
Petroleum and natural gas properties $ 24,529,629
Bank debt assumed (2,000,000)
Accounts payable (2,829,620)
Asset retirement obligations (263,888)
----------------------------------------------------------------------------
$ 19,436,121
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consideration given:
15,400,375 Common Shares issued (Note 9(b)) $ 18,584,232
Cash 851,889
----------------------------------------------------------------------------
$ 19,436,121
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Relationship with Ketch Resources Ltd.

In conjunction with the Arrangement, Bear Ridge and Ketch (a wholly owned subsidiary of Ketch Resources Trust) entered into a Technical Services Agreement, which provided for the shared services required to manage Bear Ridge's activities and govern the allocation of general and administrative expenses between the entities. Under the Technical Services Agreement, Bear Ridge was charged a technical services fee by Ketch, on a cost recovery basis, in respect of management, development, exploitation, operations and marketing activities using production and capital expenditures as the basis for determining the allocation. The Technical Services Agreement with Ketch was terminated effective September 30, 2005. Fees charged under the Technical Services Agreement up to September 30, 2005, the date of termination, totaled $818,819.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles. The timely preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as they primarily relate to unsettled transactions and events as of the date of the consolidated financial statements. Accordingly, actual results may differ from those estimated.

Specifically, the amounts reported for depletion and depreciation of petroleum and natural gas properties, and the ceiling test calculation are based on estimates of proved reserves, production rates, commodity prices, future costs and other relevant assumptions. The amounts recorded relating to fair values of stock options, special performance units and warrants issued are based on estimates of future volatility of the Company's share price, expected lives of options, units and warrants, expected dividends to be paid by the Company 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.

a) Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Bear Ridge Exploration Ltd. All inter-company transactions and outstanding balances have been eliminated.

b) Cash and cash equivalents

Cash and cash equivalents include cash and short-term investments with a maturity of less than 90 days at the date of purchase.

c) Property and equipment

i. Petroleum and natural gas properties and production equipment

The Company follows the Canadian Accounting Standards Guideline on full cost accounting for its petroleum and natural gas operations, whereby all costs associated with the acquisition of, exploration for and the development of, petroleum and natural gas reserves, including the fair value of asset retirement costs are capitalized and accumulated in one cost center. Such costs include lease acquisition, drilling, geological and geophysical expenditures, lease rentals on non-producing properties, equipment costs and overhead expenses directly related to exploration and development activities. No indirect general and administrative costs are capitalized.

Proceeds from the disposition of petroleum and natural gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such disposition would alter the depletion and depreciation rate by 20% or more.

ii. Depletion and depreciation

Depletion and depreciation of petroleum and natural gas properties is calculated using the unit-of-production method based upon production volumes, before royalties, in relation to total proved petroleum and natural gas reserves as estimated by independent engineers. In determining costs subject to depletion, the Company includes estimated future costs to be incurred in developing proved reserves and excludes estimated salvage values. The cost of undeveloped properties are excluded from costs subject to depletion until it is determined that proved reserves are attributable to the property or impairment has occurred. For depletion and depreciation purposes, natural gas volumes are converted to equivalent oil volumes based upon a relative energy content of six thousand cubic feet of natural gas to one barrel of oil.

iii. Office furniture and fixtures

Office furniture and fixtures are carried at cost and depreciated over the estimated useful lives of the assets at a rate of 20% per annum calculated on a declining balance basis. Depreciation is charged at half rates in the year of acquisition.

iv. Computer equipment and software

Computer equipment and software are carried at cost and depreciated over the estimated useful lives of the assets at a rate of 30% per annum calculated on a declining balance basis. Depreciation is charged at half rates in the year of acquisition.

v. Ceiling test

Under the full cost method of accounting, a "ceiling test" is performed to recognize and measure impairment, if any, of the carrying amount of petroleum and natural gas properties. Impairment is recognized if the carrying amount of petroleum and natural gas properties, less the cost of undeveloped properties not subject to depletion, exceeds the estimated undiscounted future cash flows from the Company's proved reserves. The future cash flows are based on a forecast of prices and costs, as provided by an independent third party. If recognized, the magnitude of the impairment is then measured by comparing the adjusted carrying amount to the estimated discounted future cash flows from the Company's proved and probable reserves. The future cash flows are discounted at a credit adjusted risk-free interest rate, using forecasted prices and costs, and are exclusive of indirect costs such as interest charges, general and administrative expenses and future income taxes.

vi. Asset retirement obligations

The fair value of estimated asset retirement obligations ("ARO") is recognized in the consolidated financial statements in the period in which they are identified and a reasonable estimate of fair value can be made. The ARO includes the costs of abandonment of petroleum and natural gas wells, dismantling and removing tangible equipment, and returning land to its original condition. The estimated fair value of the asset retirement obligations is capitalized as part of the cost of the related long-lived asset. Asset retirement costs for petroleum and natural gas assets are amortized using the unit of production method and are included in the depletion, depreciation and amortization on the consolidated statement of income.

Increases in the asset retirement obligations resulting from the passage of time are recorded as accretion expense on the consolidated statement of income. Any revisions to the original estimate of cost or the timing of the cash outflows may result in a change to the ARO. Actual expenditures incurred to abandon petroleum and natural gas properties reduce the ARO liability.

vii. Joint operations

Substantially all of the Company's exploration, development and production activities are conducted jointly with others. These financial statements reflect only the Company's proportionate interest in such activities.

d) Income taxes

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

e) Flow-through shares

The resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share arrangements are renounced to shareholders. To recognize the forgone tax benefits to the Company, the carrying value of the shares issued is reduced by the tax effect of the tax benefits renounced to subscribers. The tax effect is recorded on the date that the renouncement forms are mailed to the shareholders.

f) Revenue recognition

Revenue from the sale of petroleum and natural gas is recognized based on volumes delivered to customers at contractual delivery points and rates. The costs associated with the delivery, including operating, transportation, and production based royalties are recognized in the same period in which the related revenue is earned.

g) Commodity contracts

The Company may enter into commodity price derivative instruments and physical fixed price sales contracts to reduce the Company's exposure to adverse fluctuations in commodity prices. No contracts are entered into for trading or speculative purposes and the Company accounts for all financial derivative contracts based on the fair value method. Gains and losses on financial derivative commodity contracts are recorded as a gain/(loss) on commodity contracts in the period earned.

h) Stock based compensation

The Company follows the fair-value method of accounting for stock options and special performance units granted to employees and directors. Fair value is determined at the grant date using the Black-Scholes option pricing model. Fair value of special performance units is based on the fair value of Bear Ridge common shares at the grant date less the nominal exercise price of $0.01. The value attributed to options and special performance units is recognized over the respective vesting period as stock based compensation expense with a corresponding credit to contributed surplus. The contributed surplus balance is reduced as the options or special performance units are exercised with the amount initially recorded being credited to share capital.

i) Per share amounts

Basic per share amounts are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted per share amounts are calculated using the treasury stock method, whereby any proceeds from stock options or other dilutive instruments are assumed to be used to purchase common shares at the average market price during the year.

j) Goodwill

The Company records goodwill relating to a corporate acquisition when the total purchase price exceeds the fair value for accounting purposes of the net identifiable assets and liabilities of the acquired company. The goodwill balance is assessed for impairment annually at year end or as events occur that could result in an impairment. Impairment is recognized based on the fair value of the reporting entity (consolidated Company) compared to the book value of the reporting entity. If the fair value of the Company is less than the book value, impairment is measured by allocating the fair value of the Company to the identifiable assets and liabilities as if the Company had been acquired in a business combination for a purchase price equal to its fair value. The excess of the fair value of the Company over the amounts assigned to the identifiable assets and liabilities is the fair value of the goodwill. Any excess in the book value of goodwill over this implied fair value of goodwill is the impairment amount. Impairment is charged to earnings in the period in which it occurs.

k) Investments

Investments are recorded at cost less provision for any declines in value that are other than temporary.

3. BUSINESS COMBINATIONS

a) Veteran Resources Inc. Acquisition

Pursuant to an Arrangement Agreement ("the Agreement") dated November 4, 2005 the Company agreed to complete a business combination with Veteran Resources Inc. ("Veteran"), a public oil and gas company, by way of a Plan of Arrangement. Under the terms of the Agreement, Bear Ridge agreed to acquire all of the issued and outstanding shares of Veteran for consideration consisting of $34,651,144 cash and 17,022,333 Bear Ridge common shares valued at a five day, pre and post announcement, weighted average price of $4.48 per share. The Agreement received regulatory and Veteran shareholder approval on January 17, 2006 and closed January 19, 2006. The combination is an acquisition of Veteran by Bear Ridge and consequently Veteran's results of operations have been included with Bear Ridge's operations from the date of close, January 19, 2006.

The estimated fair value of the assets and liabilities acquired have been allocated as follows:



Accounts receivable $ 4,263,447
Deposits and prepaid expenses 160,988
Property and equipment 109,594,000
Goodwill 31,740,015
Accounts payable (15,268,559)
Bank debt (4,423,272)
Asset retirement obligations (2,020,000)
Future income taxes (12,034,000)
----------------------------------------------------------------------------
Total $ 112,012,619
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On closing, Bear Ridge assumed a future income tax liability of approximately $23.5 million representing the difference between the book value and the tax value of the assets acquired. The liability was offset by previously unrecognized Bear Ridge tax deductions and accordingly the tax liability was reduced to $12.0 million on acquisition.



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

Consideration paid:
17,022,333 common shares issued $ 76,260,051
Cash 34,651,144
Bear Ridge transaction costs 1,101,424
----------------------------------------------------------------------------
Total consideration $ 112,012,619
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Partnership Acquisition

On April 20, 2005 the Company acquired all of the issued and outstanding units of an oil and gas partnership, pursuant to an acquisition agreement dated April 20, 2005, for consideration consisting of $8,344,050 in cash. The Partnership was wound up immediately after the last partners' units were acquired in the transaction.

The allocation of the purchase price paid is as follows:



Amount
----------------------------------------------------------------------------
Petroleum and natural gas properties $ 8,431,303
Asset retirement obligations (87,253)
----------------------------------------------------------------------------
$ 8,344,050
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On closing, Bear Ridge also assumed a non-cash future income tax liability of approximately $2.5 million representing the difference between the book value and the tax value of the partnership assets acquired. The liability was offset by previously unrecognized Bear Ridge tax deductions and accordingly the tax liability was reduced to nil on acquisition.

4. INVESTMENT

Effective March 23, 2006 Bear Ridge entered into a joint venture agreement with a private oil and gas company. As part of the agreement, the private company issued Bear Ridge 457,000 shares, valued at the founder's price of $1.25 per share, in consideration for land and seismic costs totaling $571,250 previously incurred by Bear Ridge. The investment is carried at cost and is subject to impairment in the event of a non-temporary decline in value.

Subsequent to December 31, 2006 the Company disposed of its investment in the private company. See the Subsequent Events (Note 14) for more details.



5. GOODWILL

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

Year ended December 31, 2006
----------------------------------------------------------------------------

Balance, beginning of year $ -
Veteran acquisition (note 3(a)) 31,740,015
Goodwill impairment recognized (31,740,015)
----------------------------------------------------------------------------
Balance, end of year $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Company reviewed the valuation of goodwill as of December 31, 2006 based upon the latest available information including the market capitalization of the Company as indicated by the Company's share price. Based upon this review, an impairment of goodwill of $31.74 million has been recorded as a non-cash charge to income as of December 31, 2006.

6. PROPERTY AND EQUIPMENT



Accumulated
depletion and Net book
As at December 31, 2006 Cost depreciation value
----------------------------------------------------------------------------

Petroleum and natural gas
properties $ 264,227,668 $ 82,202,726 $ 182,024,942
Office equipment 710,093 153,983 556,110
----------------------------------------------------------------------------
Balance at December 31, 2006 $ 264,937,761 $ 82,356,709 $ 182,581,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Accumulated
depletion and Net book
As at December 31, 2005 Cost depreciation value
----------------------------------------------------------------------------

Petroleum and natural gas
properties $ 71,894,935 $ 5,948,000 $ 65,946,935
Office equipment 249,938 14,749 235,189
----------------------------------------------------------------------------
Balance at December 31, 2005 $ 72,144,873 $ 5,962,749 $ 66,182,124
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the year ended December 31, 2006, the Company capitalized general and administrative expenses in the amount of $2.3 million (December 31, 2005 - $0.6 million) related to exploration and development expenditures.

As at December 31, 2006, costs totaling $27.8 million (December 31, 2005 - $12.1 million) related to unproven properties have been excluded from assets subject to depletion, while estimated future development costs of $23.4 million (December 31, 2005 - $2.7 million), related to proven reserves, were included in the calculation of depletion expense.

During 2006 a ceiling test impairment of $42.0 million was recorded as a write-down of petroleum and natural gas properties.

The oil and gas prices used in the ceiling test calculation are based on the December 31, 2006 benchmark commodity price forecast of our independent reserve evaluators as follows:



----------------------------------------------------------------------------
Natural Gas Petroleum

AECO - Spot Company Company
Price Average WTI Average
(CDN$/mcf) (CDN$/mcf) (US$/bbl) (CDN$/bbl)
----------------------------------------------------------------------------
2007 7.20 7.15 62.00 65.57
2008 7.45 7.45 60.00 64.08
2009 7.75 7.77 58.00 62.23
2010 7.80 7.83 57.00 61.15
2011 7.85 7.88 57.00 61.36
2012 8.15 8.19 57.50 61.92
2013 8.30 8.34 58.50 63.38
2014 8.50 8.55 59.75 64.91
2015 8.70 8.74 61.00 65.94
2016 8.90 8.89 62.25 67.29
2017 9.10 9.10 63.50 68.40
----------------------------------------------------------------------------


Prices increase at a rate of 2.0 percent per year after 2017. In this price forecast, US dollars have been converted to Canadian dollars at an exchange rate of 0.87.

7. CREDIT FACILITIES

As at December 31, 2006 the Company had combined credit facilities available totaling $95 million. The facilities are comprised of the following individual components:

Revolving Production & Operating demand Loans with a Canadian financial institution to a maximum of $55 million. The revolving loans bear interest at prime plus an applicable margin based on the Company's debt to cash flow ratio.

In addition, a non-revolving demand Development Loan with a Canadian financial institution to a maximum of $10 million. The Development Loan bears interest at prime plus one percent.

The Production, Operating and Development Loans discussed above are secured by a $100 million Fixed and Floating Charge Demand Debenture on the assets of the Company. The facility is subject to an annual review April 30.

A non-revolving Loan with a separate Canadian financial institution to a maximum of $95 million. The amount available under this facility is reduced by the amount of the revolving Production and Operating Loans available and the amount drawn on the non-revolving Development Loan. The loan matures on May 31, 2007, with the Company having the option to extend the facility to October 31, 2007. This facility is secured by a $200 million Fixed and Floating Charge Debenture on the assets of the Company.



As at December 31, 2006 the balances drawn on the facilities are as follows:

----------------------------------------------------------------------------
Amount
----------------------------------------------------------------------------
Development Loan $ 3,462,651
Operating Loan 5,048,022
Production Loan 13,200,000
Non-Revolving Loan 30,000,000
----------------------------------------------------------------------------
Balance at December 31, 2006 $ 51,710,673
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at December 31, 2006, the Company was in breach of its covenant on the non-revolving loan to maintain a debt to cash flow ratio of not more than 2.5:1. The lender has agreed to waive this covenant as at December 31, 2006.

The lender has further agreed to change this covenant for the three months ended March 31, 2007 to a debt to cash flow ratio proposed by management, based on management's best estimate of the debt to cash flow for this period. Management may require further waivers beyond March 31, 2007 and if not received the lender may require other remedies including requiring immediate repayment of the loan. If this was to occur, additional financing through debt and/or equity would be required by the Company.

8. ASSET RETIREMENT OBLIGATIONS

The following table presents the reconciliation of the beginning and ending carrying amount of the Company's asset retirement obligations for the year ended December 31, 2006.



----------------------------------------------------------------------------
Year ended December 31, 2006 2005
----------------------------------------------------------------------------
Balance, beginning of year $ 519,416 $ -
Liabilities incurred 1,155,000 304,829
Liabilities acquired 2,020,000 351,141
Liabilities transferred on disposition (533,000) (164,938)
Accretion expense 224,300 28,384
----------------------------------------------------------------------------
Balance, end of year $ 3,385,716 $ 519,416
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Total estimated future asset retirement costs of $8.6 million have been discounted using an average credit adjusted risk free rate of 7 percent. An inflation factor of 2 percent has been applied to the estimated asset retirement costs. These obligations are to be settled based on the economic lives of the underlying assets, which currently extend up to 24 years into the future and will be funded from general corporate resources at the time of abandonment.

9. SHARE CAPITAL

a) Authorized

An unlimited number of voting common shares.

An unlimited number of preferred shares, issuable in series.

An unlimited number of Series 1 preferred shares




b) Issued shares:

----------------------------------------------------------------------------
Number $
----------------------------------------------------------------------------
Common Shares
----------------------------------------------------------------------------
Balance outstanding prior to the Arrangement 723,404 1
Issued pursuant to the Arrangement (i) 15,400,375 18,584,232
Issued for cash (iii) 7,081,859 30,531,666
Issued on conversion of preferred shares
(iv) 6,276,597 5,463,647
Share issue costs - (2,043,115)
----------------------------------------------------------------------------
Balance, December 31, 2005 29,482,235 52,536,431
----------------------------------------------------------------------------
Issued on acquisition of Veteran
(note 3(a)) 17,022,333 76,260,051
----------------------------------------------------------------------------
Issued for cash (v) (e) 8,212,100 43,483,217
----------------------------------------------------------------------------
Issued on exercise of stock options and
special performance units 413,638 381,000
----------------------------------------------------------------------------
Future tax effect of flow through shares - (5,906,000)
----------------------------------------------------------------------------
Share issuance costs, net of future tax
effect of $463,258 - (1,026,742)
----------------------------------------------------------------------------
Balance, December 31, 2006 55,130,306 165,727,957
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Preferred Shares, Series 1 (iv)
Conversion of debenture into preferred
shares 2,800,000 2,200,000
Amendment to articles of incorporation 93,617 -
Issued for cash (ii) 3,404,256 3,288,646
Re-purchase of shares (21,276) (24,999)
Converted into common shares (iv) (6,276,597) (5,463,647)
----------------------------------------------------------------------------
Balance, December 31, 2005 - -
----------------------------------------------------------------------------
Balance, December 31, 2006 - -
----------------------------------------------------------------------------


i. On January 18, 2005, pursuant to the Plan of Arrangement 15,400,375 common shares were issued to former shareholders of Ketch and Bear Creek. A cash payment of $851,889 was made to shareholders electing the cash option and not participating in the Arrangement.

ii. On January 14, 2005 the Company completed an Initial Private Placement ("Private Placement") of 3,404,256 Bear Creek Finance Ltd. ("Finco") common shares at $1.175 per share to employees, contractors, officers and directors of Bear Ridge. Attached to each share was 0.84 of a share purchase warrant with an exercise price of $1.41 per whole warrant. Each Finco common share and corresponding warrant was exchanged for one Bear Ridge preferred share, Series 1 on a one for one basis on January 18, 2005. Each warrant entitled the holder to purchase one Bear Ridge preferred share at $1.41 per share. The Private Placement was subject to a contractual holding period whereby a third of the shares can be sold on the first, second and third anniversary dates of the Private Placement respectively. The warrants vest evenly on the second and third anniversary date of the Private Placement and expire one year after vesting.

iii. During the year ended 2005 the Company completed several additional financings and in total issued 7,081,859 common shares for gross proceeds of $30,531,666. The details of the individual private placements are as follows:

On February 16, 2005, the Company closed a private placement of 2,200,000 common shares at $3.55 per share for $7,810,000 (net proceeds of $7,303,045).

On May 31, 2005, the Company closed a private placement to a newly appointed director of 149,250 common shares at $2.68 per share and 57,635 flow-through common shares at $3.47 per share for total gross proceeds of $599,983.

On June 23, 2005, the Company closed a private placement of 1,492,600 common shares at $3.35 per share and 1,627,900 flow-through common shares at $4.30 per share for total gross proceeds of $12,000,180 (total net proceeds of $11,288,392).

On October 19, 2005 the Company closed a private placement to a newly appointed officer of 13,813 common shares at $3.62 per share and 10,661 flow-through common shares at $4.69 per share for total proceeds of $100,003.

On December 21, 2005 the Company closed a private placement of 1,530,000 flow-through common shares at $6.55 per share for gross proceeds of $10,021,500 (total net proceeds of $9,380,785). Subsequent to December 31, 2005 an additional $94,062 of share issue costs related to this private placement was incurred by the Company.

iv. On December 22, 2005 the Company's shareholders approved the reclassification of the issued series 1 preferred shares, on a one for one basis, into common shares of the Company. Shareholders also approved the cancellation of authorized class "A" and class "B" common shares of the Company.

The series 1 preferred shares had been convertible into common shares on a one-for-one basis and carried a fixed dividend rate of 8% per annum. The shares were not subject to dividends for a six-month period from the date of issuance, being January 18, 2005. All accrued and unpaid dividends owing on the series 1 preferred shares were waived by the holders of the shares prior to conversion.

v. On January 19, 2006, the Company closed a private placement to newly appointed members of senior management of 62,100 flow-through common shares at a price of $4.46 per common share for gross proceeds of $276,966. These expenditures were incurred prior to June 30, 2006.

On May 12, 2006 the Company closed a private placement of 3,150,000 flow-through common shares at $7.35 per share for gross proceeds of $23,152,500 (total net proceeds of $21,886,822). Pursuant to this private placement, Bear Ridge is committed to incur these expenditures by December 31, 2007. These expenditures were incurred prior to December 31, 2006.

On December 19, 2006 the Company closed a private placement of 5,000,000 flow-through common shares at an average price of $4.80 per share for gross proceeds of $24,000,000 (total net proceeds of $23,896,740). Pursuant to this private placement, Bear Ridge is committed to incur these expenditures by December 31, 2008. As at December 31, 2006, approximately $23.6 million of this commitment remains.

In conjunction with the December 19, 2006 private placement, the Company issued 5 million flow-through warrants exercisable at an average price of $4.90 per share for potential gross proceeds of $24.5 million.

c) Contributed surplus

A summary of the change in the Company's contributed surplus balance for the year ended December 31, 2006 is as follows:



----------------------------------------------------------------------------
Year ended December 31, 2006 2005
----------------------------------------------------------------------------
Balance, beginning of year $ 994,066 -
Stock based compensation 2,291,950 994,066
Options and special performance units
exercised (381,000) -
----------------------------------------------------------------------------
Balance, end of year $ 2,905,016 $ 994,066
----------------------------------------------------------------------------
----------------------------------------------------------------------------

d) Warrants outstanding

----------------------------------------------------------------------------
Number $
----------------------------------------------------------------------------
Balance outstanding, January 1, 2005 - -
Issued pursuant to private placement (i) 2,857,143 711,354
Cancelled on conversion of preferred shares (17,808) -
----------------------------------------------------------------------------
Balance outstanding, December 31, 2005 2,839,335 711,354
Issued pursuant to private placement (ii) 5,000,000 4,187,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance outstanding, December 31, 2006 7,839,335 4,898,354
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i) Each outstanding warrant entitles the holder to acquire one common share
at a price of $1.41 per share. The warrants vest as to one half on each
of the second and third anniversaries of their issuance, being January
18, 2005, and expire one year after the vesting date.


(ii) Each outstanding warrant entitles the holder to acquire one common share on a "flow-through" basis under the Income Tax Act (Canada) at an average price of $4.90 per share. The warrants expire on March 31, 2009.

The fair value of each warrant option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions. In 2006 the Company used a risk free interest rate of 3.0 percent, an expected life of 2.3 years and an expected volatility of 40 percent.

e) Stock Based Compensation

Pursuant to the Arrangement the Company established a Stock Option Plan and Special Performance Unit Plan (collectively, the "Plan"). Under the Plan, options and Special Performance Units ("SPU's") may be granted to directors, officers, employees, consultants and services providers of the Company.

i. Stock options:

Under the plan, stock options vest evenly over a three-year period, beginning on the first anniversary of the grant date and expiring after five years. The stock options are exercisable into Bear Ridge common shares on a one-for-one basis. The exercise price of options granted cannot be less than the five-day average closing price immediately preceding the date of grant of the options. The following table summarizes the options outstanding as at December 31, 2006 and December 31, 2005.



----------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
----------------------------------------------------------------------------
Opening 1,231,673 $ 3.82 - -
Granted 2,388,000 $ 4.76 1,361,670 $ 3.81
Cancelled (180,000) $ 4.96 (129,997) $ 3.65
Exercised (65,004) $ 3.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Closing 3,374,669 $ 4.43 1,231,673 $ 3.82
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During 2006 a total of 65,004 stock options were exercised at an exercise price of $3.65 per share for total cash consideration of $237,265.

As at December 31, 2006 345,554 stock options were exercisable. The following table summarizes information about stock options outstanding at December 31, 2006.



----------------------------------------------------------------------------
Weighted Average
Number Remaining Weighted Average
Grant Price Outstanding Contractual Life Exercise Price
----------------------------------------------------------------------------
$ 3.25 to $3.69 622,669 3.53 $ 3.51
$ 3.89 to $5.08 2,752,000 3.99 $ 4.64
----------------------------------------------------------------------------
3,374,669 3.90 $ 4.43
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at December 31, 2005 no stock options were exercisable. The following table summarizes information regarding stock options outstanding at December 31, 2005.



----------------------------------------------------------------------------
Weighted Average
Number Remaining Weighted Average
Grant Price Outstanding Contractual Life Exercise Price
----------------------------------------------------------------------------
$ 3.25 to $3.65 561,673 4.2 $ 3.50
$ 3.98 to $4.40 670,000 4.7 $ 4.10
----------------------------------------------------------------------------
1,231,673 4.4 $ 3.82
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Company has not incorporated an estimated forfeiture rate for stock options that will not vest, rather the Company accounts for actual forfeitures as they occur. The fair value of each common share option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions. In 2006 the Company used a risk free interest rate of 3.0 percent, an expected life of 3.5 years and an expected volatility of 40 percent. In 2005 the Company used a risk free interest rate of 3.0 percent, an expected life of 3.5 years and an expected volatility of 36 percent. These assumptions resulted in a weighted average fair value for options granted in 2006 of $1.57 per option compared to $1.15 per option in 2005.

ii. Special Performance Units

SPU's are exercisable at a price of $0.01 per share and are convertible into a Bear Ridge Common Share at a rate to be determined on each vesting date. The conversion rate is calculated by taking the difference between the closing trading price of Bear Ridge Common Shares on the Toronto Stock Exchange on the trading day immediately prior to vesting and $1.175 and then dividing that difference by the same Bear Ridge closing trading price. The SPU's were granted on a one-time basis on the effective date of the Arrangement. The SPU's vest evenly over 3 years, starting on the first anniversary date of their grant, and expire 30 days after vesting. A summary of the SPU's outstanding as at December 31, 2006 and December 31, 2005 is presented below.



----------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price ($) Number Price ($)
----------------------------------------------------------------------------
Opening Balance 955,276 0.01 - -
Granted - - 1,345,275 0.01
Cancelled - - (389,999) 0.01
Exercised (448,426) 0.01 - -
----------------------------------------------------------------------------
Closing Balance 506,850 0.01 955,276 0.01
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value is calculated based on the fair value of a Bear Ridge common share at the grant date less the nominal exercise price of $0.01. At December 31, 2005 the number of common shares issuable under the plan is calculated and year to date compensation expense is determined based on the initial grant date fair value and percentage of special performance units vested. There was no significant impact resulting from this change.

(i) On January 18, 2006, 448,426 SPU's, representing the first third of the originally granted SPU's vested and were exercised resulting in the issuance of 348,634 common shares for total cash consideration of $3,486.

(ii) On January 18, 2007 253,425 SPU's, representing the second third of the originally granted SPU's vested and were exercised resulting in the issuance of 179,717 common shares.

f) Per share amounts

The following table summarizes the weighted average shares outstanding for the years ended December 31, 2006 and December 31, 2005.



----------------------------------------------------------------------------
Weighted Average - Common
shares outstanding
----------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------

Basic 48,271,616 25,069,836
Add dilutive effect of:
Warrants 1,959,945 1,758,797
SPU's 343,890 656,735
Stock Options 172,304 52,592
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted 50,747,755 27,537,960
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. INCOME TAXES

The Company's future income tax assets and liabilities as at December 31, 2006 and December 31, 2005 are as follows:



----------------------------------------------------------------------------
December 31, December 31,
2006 2005
----------------------------------------------------------------------------
Temporary differences related to:
Oil and gas properties $ (4,614,207) $ (514,000)
Non capital losses carried forward 402,247 3,741,000
Share issuance costs 916,057 556,000
Scientific research and experimental
development costs 13,268,949 17,154,000
Financial Derivatives (92,666) -
----------------------------------------------------------------------------
Total future income tax (liability) assets 9,880,380 20,937,000
Less: Valuation allowance (1,156,622) (11,480,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Recognized future income tax asset $ 8,723,758 $ 9,457,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


A valuation allowance of $1.2 million (December 31, 2005 - $11.5 million) has been recorded to reduce the amount of future income tax assets available to the amount that is more likely than not to be recovered.

The Company has accumulated non-capital losses for income tax purposes of approximately $1.2 million, which can be used to offset income in future periods. These losses expire as follows:



Year of expiry Amount
----------------------------------------------------------------------------
2015 $ 501,531
2026 711,152
----------------------------------------------------------------------------
$ 1,212,683
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Company also has approximately $40 million of Scientific Research and Experimental Development Expenses available to reduce future years' income tax payable. These deductions can be carried forward for an indefinite period.

The provision for income tax differs from that which would be obtained from applying the combined Canadian federal and provincial income tax rate to income before taxes. The difference results from the following:



----------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------
Corporate tax rate 34.69% 37.76%
Expected income tax expense (recovery) (30,282,421) 553,646
Increase (decrease) resulting from:
Non-deductible crown charges 1,209,686 483,167
Resource allowance (1,006,805) (658,520)
Non-deductible stock based compensation
expense 795,078 375,328
Other non-deductible charges 28,351 -
Impairment of goodwill 11,010,611 -
Change in effective tax rate applied 345,317 (289,899)
Change in income tax valuation allowance 1,156,622 (9,920,722)
----------------------------------------------------------------------------
Future income tax expense (recovery) (16,743,561) (9,457,000)
----------------------------------------------------------------------------


11. COMMITMENTS

Pursuant to flow-through share offerings during the year ended December 31, 2006, Bear Ridge is committed to incur a total of $24 million in qualifying expenditures by December 31, 2008. As at December 31, 2006 $23.6 million of the commitment remains.

The Company entered into a lease commitment for its office space for the period extending to June 2008. The amount due under this commitment, including rent and operating costs, is approximately $275,000 for 2007 and $69,000 for 2008.

During the year the Company entered into a transportation contract with the following related commitments:



----------------------------------------------------------------------------
($ CDN) 2007 2008 2009 2010
----------------------------------------------------------------------------

Gathering & Processing 1,368,402 1,125,420 1,148,460 560,533
----------------------------------------------------------------------------


12. FINANCIAL INSTRUMENTS

a) Fair values

The Company's financial instruments recognized in the Consolidated Balance Sheet consist of accounts receivable, deposits, financial commodity contracts, and accounts payable and accrued liabilities. The carrying value of these accounts approximates their fair value due to the relatively short periods to maturity of these instruments.

b) Credit Risk

A substantial portion of the Company's accounts receivable are with joint-venture partners in the oil and gas industry and are subject to normal industry risks.

c) Foreign currency exchange risk

While substantially all of the Company's sales are denominated in Canadian dollars, the market price in Canada for petroleum and natural gas products is impacted by changes in the exchange rate between the Canadian and United States dollar.

d) Interest rate risk

The Company is exposed to interest rate risk to the extent that its bank indebtedness is at a floating rate of interest.

e) Commodity price risk management

The Company uses various types of financial and physical sales contracts to manage risk related to fluctuating commodity prices. At December 31, 2006, the Company had the following fixed price financial and physical and costless collar arrangements:



----------------------------------------------------------------------------
Hedged Floor Ceiling
Term Type Volumes (CDN $) (CDN $)
----------------------------------------------------------------------------
Natural Gas

November 1, 2006 to March 31,
2007 Financial 2,000 GJ/d $ 8.00 $ 10.85
November 1, 2006 to March 31,
2007 Physical 2,000 GJ/d $ 8.76 -
November 1, 2006 to March 31,
2007 Physical 2,000 GJ/d $ 8.00 $ 11.50
November 1, 2006 to March 31,
2007 Physical 3,000 GJ/d $ 8.00 $ 11.55
April 1, 2007 - October 31,
2007 Physical 3,000 GJ/d $ 5.50 $ 8.05
April 1, 2007 - October 31,
2007 Physical 3,000 GJ/d $ 6.24 $ 8.00
April 1, 2007 to October 31,
2007 Physical 2,000 GJ/d $ 7.26 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Subsequent to year end the Company entered into the following physical
commodity contract:

----------------------------------------------------------------------------
Hedged
Term Type Volumes Floor Ceiling
----------------------------------------------------------------------------
Natural Gas

November 1, 2007 to March 31,
2008 Physical 3,000GJ/d $ 7.75 CDN $ 10.00CDN
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The Company has elected not to apply hedge accounting to the financial
contract noted above. The following table reconciles the changes in the fair
value of the contract.

----------------------------------------------------------------------------
Amount
----------------------------------------------------------------------------

Realized gains on financial contract $ 315,517
Unrealized gain on financial contract as at December 31, 2006 288,500
----------------------------------------------------------------------------
Gain on financial commodity contract $ 604,017
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. SUPPLEMENTAL CASH FLOW INFORMATION

----------------------------------------------------------------------------
Twelve months ended
December 31
----------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------
Changes in non-cash working capital - Operating
Accounts receivable $ (287,021) $ (3,492,260)
Deposits and prepaid expenses (102,284) (290,401)
Accounts payable and accrued liabilities (8,841,672) 2,338,190
-----------------------------
$ (9,230,978) $ (1,444,471)
-----------------------------
Changes in non-cash working capital - Investing
Accounts receivable $ (1,847,563) $ (3,880,212)
Deposits and prepaid expenses 67,858 (335,975)
Accounts payable and accrued liabilities 18,644,897 9,874,774
-----------------------------
$ 16,865,192 $ 5,658,587
-----------------------------

Interest Paid $ 3,893,512 $ 149,621
-----------------------------
Taxes Paid $ 20,929 $ (12,574)
-----------------------------


14. SUBSEQUENT EVENTS

On February 27, 2007 the Company sold its investment of shares in a private company for proceeds of $ 1.40 per share resulting in total gross proceeds of $639,800.

The Company has entered into an agreement to issue a private placement of 6,275,000 Canadian Development Expense ("CDE") flow-through common shares at a price of $1.80 per share for gross proceeds of $11,295,000, which closed on March 15, 2007. In addition the Company will issue 7,530,000 CDE flow-through warrants exercisable at $2.00 per share with a 2 year term for potential gross proceeds of $15,060,000.

In conjunction with the above private placement occurring, the Company will exchange the 5 million flow-through warrants issued on December 19, 2006. The 2 million Canadian Exploration Expense ("CEE") warrants originally priced at $5.50 and the 3 million CDE warrants originally priced at $4.50 will be converted to new CDE warrants, with a new exercise price of $2.00 per warrant.

Subsequent to year end, the Company engaged a third party to help evaluate various options including the sale, merger or takeover, of the Company, or the reorganization, restructuring or sale of some or all of the Company's properties. No assurance can be given at this time that any of the options will be acted upon.

Corporate

Bear Ridge is a technically-driven exploration and production company operating in Northeast BC and the West Central and Peace River Arch regions in Alberta. Bear Ridge executes a drillbit growth strategy focused on large scale, 3D-driven exploration projects. The Company's shares are listed for trading on the Toronto Stock Exchange under the symbol "BER".

Additional information regarding Bear Ridge and its business and operations is available on Bear Ridge's website www.bearridge.ca and Bear Ridge's SEDAR profile at www.sedar.com

Forward Looking Statements - Certain information regarding Bear Ridge Resources Ltd. set forth in this document, including management's assessment of Bear Ridge Resources Ltd.'s future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Bear Ridge Resources Ltd.'s control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, current fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Bear Ridge Resources Ltd.'s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Bear Ridge Resources Ltd. will derive there from.

Contact Information

  • Bear Ridge Resources Ltd.
    Russell J. Tripp
    Chief Executive Officer
    (403) 537-8440
    (403) 537-8450 (FAX)
    or
    Bear Ridge Resources Ltd.
    R. Alan Steele
    Chief Financial Officer
    (403) 537-8440
    (403) 537-8450 (FAX)
    or
    Bear Ridge Resources Ltd.
    2200, 330 - 5 Avenue SW
    Calgary, Alberta T2P 0L4