Birchcliff Energy Ltd.
TSX : BIR

Birchcliff Energy Ltd.

August 14, 2006 21:21 ET

Birchcliff Energy Ltd. Announces Second Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 14, 2006) -

This press release is not for distribution to United States Newswire Services or for dissemination in the United States.

Birchcliff Energy Ltd. ("Birchcliff") (TSX:BIR) is pleased to announce its financial and operating results for the second quarter of 2006. The full text of the Financial Statements for the three month period and for the six month period ended June 30, 2006 and the related Management's Discussion and Analysis are set forth below and are available on SEDAR at www.sedar.com.

Operations Update

- Current production is approximately 6,000 boe per day and Birchcliff expects that it will exit 2006 with a production rate of 6,500 boe per day.

- Birchcliff has 16 gross wells (13.5 net) with productive capacity which are in various stages of testing, completion and/or tie in. These wells will be brought on production in the coming months.

- The significant 100% new pool discovery well announced with our first quarter results was tied-in in July and is currently producing at a rate of approximately 600 boe per day.

- Since July 1, 2006, Birchcliff has drilled 12 gross wells (10.5 net) of which 1 (1.0 net) was abandoned, 5 (net 4.5) were cased as potential natural gas wells, 5 (4 net) were cased as potential oil wells and 1 (1.0 net) was a water injection well.

- At present Birchcliff has 217,459 gross acres (171,871 net) of undeveloped land in the Peace River Arch area.

- Birchcliff presently has one drilling rig working.

Second Quarter 2006 Highlights

- Q2 production averaged 4,760 boe per day (81% natural gas), a decrease from Q1 average production of 5,271 as a result of third party plant turnarounds having taken longer than expected, delays in tieing-in wells, landowner issues and a general scarcity of services and equipment.

- Second quarter revenues were $20.5 million, cash flow was $11.1 million or $0.19 per share (basic), and earnings were $961,000 or $0.02 per share (basic).

- Total capital expenditures in the second quarter were $24.6 million. This amount included expenditures of $12.6 million on drilling and completions, $9.3 million on well equipment and facilities, $1.5 million on land and $0.6 million on seismic.

- During the second quarter Birchcliff drilled 9 100% wells of which 2 were abandoned and 7 were cased as potential natural gas wells of which 2 were new pool discoveries.

- Birchcliff continued to expand its high impact exploration portfolio, and its two resource plays and continued technical work on coal bed methane and fractured shale natural gas potential on its lands.

- Birchcliff added 21,414 gross acres of land bringing its undeveloped land holdings at June 30, 2006 to 207,539 acres (161,938 net).

- Birchcliff's capital budget for 2006 was reduced to $100 million.



2006 Original Budget 2006 Revised Budget

------------------------------------------------------------------------
Capital Expenditures
($ millions) $128 $100
Total Planned Drill Wells 85 (64 net) 49 (40.9 net)
Exit Production, boe per day 8,000 6,500
Year End Debt (1)$95 M

(1) Assumes the raising of $15 million by the sale of royalty income
volumes and/or other alternatives


Second Quarter Report

The full text of the Second Quarter Report follows:

August 14, 2006

Dear Shareholder:

On behalf of the management team at Birchcliff, I am pleased to provide you with our second quarter results for 2006. Birchcliff continues to expand its opportunity base and we are excited about our internally generated exploration and development opportunities.

As previously stated in our press release dated July 21, Birchcliff reduced its capital spending programs for the remainder of 2006 in order to ensure Birchcliff's financial flexibility during the current natural gas price environment.

Birchcliff sees the decision to cut its capital spending as financially prudent. We simply cannot out-spend our cash flow to the point where Birchcliff is financially constrained, whether it be because of continued weak commodity prices or other unforeseen circumstances. We believe that Birchcliff has significant opportunities, most of which are controlled and operated by us, so that when commodity prices strengthen we will react accordingly.

CURRENT PRODUCTION

Birchcliff's current production is approximately 6,000 boe per day. Further, Birchcliff has an additional 16 gross wells (14.3 net) with production capacity which are in various stages of testing, completion and or tie-in. These wells will be brought on production over the next 2 to 3 months.

2006 SECOND QUARTER RESULTS

Production averaged 4,760 boe per day for the second quarter of 2006. The decline from the previous quarter is mainly a result of third party gas plant turnarounds lasting significantly longer than expected. For example, Birchcliff's production going through the Progress gas plant was reduced by approximately 500 boe per day for 4 weeks. Delays in production additions due to landowner issues and scarcity of services and equipment were also contributing factors.

Cash-flow was $11.1 million or $0.19 per share for the second quarter 2006 and $24.4 million or $0.42 per share for the six months ended June 30, 2006. Earnings were $1.0 million or $0.02 per share for the second quarter 2006 and $2.5 million or $0.04 per share for the six months ended June 30, 2006.

It is also noteworthy that in an inflationary environment our operating costs have been declining, in part due to our high working interests and facility ownership. Operating costs fell below $8 to $7.93 per boe in the second Quarter as compared to $8.12 for the year to date and $10.04 for the comparable period. We continue to focus on operating cost reductions, especially in this heated economy. The Corporation expects to have relatively stable unit operating costs going forward.

In the second quarter general and administrative costs were $3.33 per boe, less than half of what they were in the comparable period for 2005. For the first half of 2006, general and administrative costs were $3.09 per boe.

DRILLING

Birchcliff drilled 9 gross (9 net) and cased 7 gross (7 net) wells in the second quarter.

To date in 2006 Birchcliff has drilled 34 wells (31.5 net) of which 30 wells (27.5 net) have been cased. In 2006, Birchcliff now expects to drill approximately 49 wells (40.9 net). Accordingly, Birchcliff expects to drill 15 wells (9.4 net) during the remainder of 2006.

Currently Birchcliff has one drilling rig working and plans to have one to two rigs working at any particular time for the remainder of 2006.

As a result of our successful drilling program the development of our natural gas resource and conventional plays in the Peace River Arch continue to be advanced.

DEBT

Total debt at June 30, 2006, including working capital deficiency is $100.3 million. Birchcliff was drawn to $85.3 million on its credit facilities as at June 30, 2006.

2006 REDUCED CAPITAL PROGRAM

In July 2006, the directors of Birchcliff approved a reduced capital budget for 2006 of $100 million, down from $128 million. Exit production is expected to be approximately 6,500 boe per day, down from 8,000 boe per day. Birchcliff is funding its reduced capital program from its cash flow and available credit facilities. Birchcliff's current credit facilities are $120 million, excluding any working capital deficit.



2006 Original Budget 2006 Revised Budget

------------------------------------------------------------------------
Capital Expenditures
($ millions) $128 $100
Total Planned Drill Wells 85 (64 net) 49 (40.9 net)
Exit Production, boe per day 8,000 6,500
Year End Debt (1)$95 M

(1) Assumes the raising of $15 million by the sale of royalty income
volumes and/or other alternatives.


Birchcliff expects to spend approximately $36 million in the second half of 2006. Approximately $33 million of the $36 million will be spent on drilling, completions, facilities and tie-ins with the remainder attributed to land and seismic. Birchcliff expects to drill 27 wells (20.0 net) in the second half of 2006.

Birchcliff has high working interests and controls a majority of the infrastructure it utilizes to market its commodities, which makes it easier to reduce or expand its capital expenditure program as required. Birchcliff does not expect to forego potential opportunities as a result of its reduced capital program as the majority of its undeveloped land has been acquired since May, 2005 and therefore has a long expiry time and the reduced capital budget addresses relevant expiry issues. The reduced operational activity will permit its technical team to thoroughly review past operations and plan for the future.

YEAR END DEBT

Birchcliff is targeting year end debt to be approximately $95 million, including any working capital deficit. In order to reach this target, Birchcliff is reviewing a number of alternatives including the sale of approximately 125 boe per day of royalty income which is NOT included in Birchcliff's reported production volumes. These royalty volumes are accounted for in Birchcliff's petroleum and natural gas revenues but the sale of these royalties will NOT affect Birchcliff's reported production volumes.

By annualizing our exit production of 6,500 boe per day and assuming an average gas price of $8.50/GJ at AECO for 2007 Birchcliff expects that its 2006 year end debt will be approximately 1.1 times 2007 forward cash flow. Management believes that this targeted year end debt will put Birchcliff in a very strong financial position.

2007 CASH FLOW SENSITIVITIES

It is very important to note that Birchcliff is currently unhedged. Therefore, assuming an average 6,500 boe per day for 2007 and $8.50 per GJ at AECO, every $1.00/GJ change to AECO represents $10 million of cash flow to Birchcliff.

Each additional 100 boe per day of natural gas production represents $1.3 million of cash flow to Birchcliff.

Accordingly, in the event that natural gas prices gain strength, Birchcliff will have significant cash-flow to reinvest on its properties. Birchcliff has a large inventory of opportunities and looks forward to the continued development of our Peace River Arch assets.

OUTLOOK

We have adopted a prudent operational plan for the second half of 2006 designed to see us through this period while continuing the development of our exploration and development plays and positioning Birchcliff for continued future growth. Our plans will provide us with the degree of financial flexibility necessary to pursue opportunities in the Peace River Arch area of Alberta when they arise. This reduced activity will also provide us with the time necessary to more effectively plan cost efficient and accelerated 2007 programs.

We remain bullish on the longer term outlook for natural gas and the value of our Peace River Arch assets. Our goal remains that of building a natural gas focused company in the Peace River Arch that will provide superior returns to our shareholders. Our operational plans for the remainder of 2006 are consistent with that goal.

On behalf of the Board of Directors and our Management Team,

A. Jeffery Tonken

President and Chief Executive Officer



FINANCIAL AND OPERATIONAL HIGHLIGHTS

Three months Six months
ended ended
June 30, 2006 June 30, 2006
------------------------------------------------------------------------
OPERATING
Daily Average Production
Light Oil - barrels 742 756
Natural Gas - thousands of cubic feet 23,242 24,540
NGLs - barrels 144 168
Total - barrels of oil equivalent (6:1) 4,760 5,014
------------------------------------------------------------------------
Average Sales Price ($ Canadian)
Light Oil - per barrel 74.13 68.12
Natural Gas - per thousand cubic feet 6.48 7.32
NGLs - per barrel 72.95 70.00
Total - per barrel of oil equivalent (6:1) 45.42 48.46
------------------------------------------------------------------------
Undeveloped Land
Gross (acres) 207,539 207,539
Net (acres) 161,938 161,938
------------------------------------------------------------------------
------------------------------------------------------------------------

NETBACK AND COST
($ per barrel of oil equivalent at 6:1)
Petroleum & natural gas revenue 47.36 50.10
Royalties, net of ARTC (6.51) (8.47)
Operating expense (7.93) (8.12)
Transportation and marketing expense (1.69) (1.65)
------------------------------------------------------------------------
Netback 31.23 31.86
General & administrative expense (3.33) (3.09)
Stock-based compensation expense (0.21) (0.15)
Interest expense (2.34) (1.78)
Other income - -
Taxes 0.19 -
------------------------------------------------------------------------
Cash Flow Netback 25.54 26.84
Depletion and depreciation (21.29) (20.31)
Accretion (0.47) (0.43)
Stock-based compensation expense (1.59) (1.44)
Future income tax expense 0.01 (1.86)
------------------------------------------------------------------------
Net Earnings 2.20 2.80
------------------------------------------------------------------------
------------------------------------------------------------------------

FINANCIAL
Petroleum & Natural Gas Revenue ($000) 20,515 45,473
------------------------------------------------------------------------
Cash Flow from Operations ($000) 11,068 24,364
Per share - basic ($) 0.19 0.42
Per share - diluted ($) 0.18 0.40
------------------------------------------------------------------------
Net Earnings ($000) 961 2,542
Per share - basic ($) 0.02 0.04
Per share - diluted ($) 0.02 0.04
------------------------------------------------------------------------
Common Shares Outstanding
End of Period - Basic 58,167,747 58,167,747
End of Period - Diluted 66,277,414 66,277,414
Weighted Average for Period - Basic 58,167,747 58,165,648
Weighted Average for Period - Diluted 61,499,413 61,662,592
------------------------------------------------------------------------
Capital Expenditures ($000) 24,627 64,303
Working Capital (Deficiency) ($000) (15,022) (15,022)
Revolving Credit Facility ($000) 85,299 85,299
Total Debt ($000) 100,321 100,321
------------------------------------------------------------------------
------------------------------------------------------------------------


MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") in respect of the three and six month periods ended June 30, 2006 (the "Reporting Periods") as compared to the three and six month periods ended June 30, 2005 (the "Comparable Prior Periods") is dated August 14, 2006.

The following discussion and analysis is management's assessment of the historical financial and operating results of Birchcliff Energy Ltd. (the "Corporation" or "Birchcliff") and should be read in conjunction with the unaudited financial statements of the Corporation for the Reporting Period and the audited financial statements for the year ended December 31, 2005 together with the notes thereto, all of which has been prepared in accordance with Canadian Generally Accepted Accounting Principles.

Additional information relating to the Corporation is available on SEDAR at www.sedar.com. Birchcliff is listed for trading on the Toronto Stock Exchange under the symbol "BIR".

FORWARD LOOKING STATEMENTS

This disclosure includes forward-looking statements and assumptions respecting the Corporation's strategies, future operations, expected financial results, financing sources, commodity prices, costs of production and quantum of petroleum and natural gas reserves and discusses certain issues, risks and uncertainties that can be expected to impact on any of such matters.

By their nature, forward-looking statements are subject to numerous risks and uncertainties that can significantly affect future results. Actual future results may differ materially from those assumed or described in such forward-looking statements as a result of the impact of issues, risks and uncertainties whether described herein or not, which the Corporation may not be able to control. The reader is therefore cautioned not to place undue reliance on such forward-looking statements.

The Corporation disclaims any intention or obligation to update or revise these forward-looking statements as a result of new information, future events or otherwise.

NON-GAAP MEASURES

Included in this MD&A for the Reporting Periods are references to terms commonly used in the petroleum and natural gas industry, such as cash flow or cash generated from operations, cash flow per share, operating netback and cash flow netback.

Cash flow, as discussed in this MD&A for the Reporting Periods, appears as a separate caption on the Corporation's statements of cash flows as "cash generated by operations" and is reconciled to net earnings or loss. In the Corporation's financial disclosure documents, operating netback denotes petroleum and natural gas revenue less royalties (net of ARTC), less operating expenses and less transportation and marketing expenses. Cash flow netback as used herein denotes net earnings plus future income tax expense, depletion, depreciation and accretion expense and non-cash stock-based compensation expense.

These terms are not defined by Generally Accepted Accounting Principles and consequently, they are referred to as non-GAAP measures. The reader should be cautioned that these amounts may not be directly comparable to measures for other companies where similar terminology is used.

BOE CONVERSIONS

Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and is based on an energy equivalent conversion method primarily applicable at the burner tip and does not necessarily represent an economic value equivalency at the wellhead.

OVERALL PERFORMANCE

In the first half of 2006, the Corporation completed two minor acquisitions for just under $1.5 million allowing its operational team to stay focused on its strategy of generating its own internal projects on Birchcliff's significant undeveloped land base. The Corporation's total capital expenditures were $64.3 million for the six months ended June 30, 2006 with $10.6 million or 17% spent on land acquisitions. Birchcliff continued to purchase land aggressively in the first half of 2006 adding to its prospective undeveloped land base and inventory of projects. Birchcliff also spent $15.6 million or 24% on facilities and tie-ins with just under 50% of this amount being spent in May and June due to significant timing delays. As a result many tie-ins did not occur until late June, which contributed to a decline in average production from 5,271 BOE per day in the first quarter to 4,760 BOE per day in the second quarter of 2006. Also contributing to this decline were third party gas plant turnarounds which lasted significantly longer than expected, land owner issues and scarcity of services and equipment.

Birchcliff is highly sensitive to the price of natural gas as it is unhedged and just over 80% of its production is natural gas. The average price received in Q1 2006 was $8.09/mcf compared to Q2 2006 of $6.48/mcf. In spite of this, Birchcliff maintained a similar operating netback in Q2 2006 as Q1 2005 due to the annual gas cost allowance adjustment for 2005 exceeding the estimate recorded in 2005, and due to recovery of prior months royalty income amounts. The Corporation was also able to reduce its operating costs on a per BOE basis even though the total BOE's were much less in Q2 2006 versus Q1 2006.

Total debt grew by 16% or $13.6 million, increasing to $100.3 million at June 30, 2006 compared to $86.7 million at March 31, 2006. This increase was due mainly to capital spending of $24.6 million during the three month Reporting Period, which exceeded Birchcliff's cash flow of $11.1 million during the same period. The Corporation's credit facilities limit is $120 million excluding the working capital deficit. The Corporation had drawn $85.3 million on the credit facilities as at June 30, 2006.

The Corporation is always reviewing potential property acquisitions, joint venture opportunities and corporate acquisitions with the intention of completing such a transaction if acceptable terms can be negotiated. As a result, Birchcliff is continuously involved in negotiations with other parties in respect of property and corporate acquisition opportunities. Management is confident that in the current environment, the Corporation is capable of raising sufficient equity and/or debt financing to fund one or more of these transactions should it be necessary.

MAJOR TRANSACTIONS AFFECTING FINANCIAL RESULTS

On May 31, 2005 the Corporation completed the acquisition of significant properties in the Peace River Arch of Alberta for a purchase price of approximately $243 million (the "Acquisition").

The Corporation's credit facility was amended and syndicated during the three month Reporting Period. Birchcliff now has available to it an extendible revolving term credit facility with an authorized limit of $105 million and an extendible revolving working capital facility with an authorized limit of $15 million. The $120 million of credit facilities are provided by a syndicate of two Canadian chartered banks.

LIQUIDITY AND BANK DEBT

As a result of its capital program, the Corporation had a working capital deficit of $15.0 million at June 30, 2006, as compared to a working capital surplus of $911,000 on June 30, 2005. The working capital surplus in the Comparable Prior Period was due to proceeds of Birchcliff's flow-through share financing which closed in June 2005. At June 30, 2006 the largest component of Birchcliff's current assets (54%) is the cash to be received from its marketers in respect of June 2006 production which was subsequently received in July 2006. In contrast, the current liabilities consist of trade payables (46%); accrued capital and operating costs (37%); royalties (7%) and other minor amounts. Management expects this working capital deficit to continue into the foreseeable future as Birchcliff continues its capital program in the Peace River Arch area.

The Corporation's bank debt or revolving credit facilities which have an aggregate limit of $120 million were drawn to $85.3 million at June 30, 2006. At June 30, 2006 the prime rate was 6%.

Overall, the Corporation did not have any liquidity issues with respect to the operations of its petroleum and natural gas business in the Reporting Period nor does it anticipate a liquidity issue in the foreseeable future.

The Corporation intends to finance its oil and natural gas business primarily through cash generated from operations, proceeds from bank debt, and equity financings to the extent required. Management expects to be able to continue to raise additional equity and debt financing sufficient to meet both its short-term and long-term growth requirements in the current environment. Birchcliff is now at such a size that it anticipates it will not require additional equity except in significant acquisition situations or to increase its capital spending. The Corporation is currently reviewing the potential sale of its royalty income production as an alternative financing source to provide the Company with more financial flexibility.

The major risk factors affecting the Corporation's liquidity are a further decline in commodity prices for natural gas since Birchcliff was 82% weighted to natural gas during the six month Reporting Period; the risk of natural production declines being greater than the Corporation anticipates; and the risk that future production increases will be less than anticipated.

The success of the Corporation's business is highly dependent on its ability to acquire and/or discover new reserves in a cost efficient manner. Substantially all of the Corporation's cash flow will be derived from the sale of the petroleum and natural gas reserves it accumulates and develops. In order to remain financially viable, the Corporation must be able to replace reserves over time at a lesser cost on a per unit basis than its cash flow on a per unit basis. The reserves and costs used in this determination are estimated each year based on numerous assumptions and these estimates and costs may vary materially from the actual reserves produced or from the costs required to produce those reserves. In order to mitigate this risk, the Corporation employs a competent and experienced team of petroleum and natural gas professionals and closely monitors the capital expenditures made for the purposes of increasing its petroleum and natural gas reserves.

Cash Generated by Operations

Cash generated by the Corporation was $11.1 million for the three month Reporting Period and $24.4 million for the six month Reporting Period. In the Comparable Prior Periods, Birchcliff had only one month of significant petroleum and natural gas production which occurred in June 2005 after the Acquisition closed on May 31, 2005. For the three month Comparable Prior Period, the Corporation generated cash flow of $3.1 million; for the six month Comparable Prior Period, the Corporation generated cash flow of $2.8 million.

Future cash flow will mainly be dependent on production increases and natural gas prices.

OUTSTANDING SHARE DATA

The common shares of Birchcliff began trading on the TSX Exchange on July 21, 2005 under the symbol "BIR" and were at the same time de-listed from the TSX Venture Exchange where they were trading under the same symbol prior to such time. The following table summarizes the common shares issued from December 31, 2004 to June 30, 2006 which are the only class of shares outstanding:



------------------------------------------------------------------------
Common Shares
------------------------------------------------------------------------
Balance at December 31, 2004 1
Exercise of Options and Warrants -
Private Placements 5,225,900
Issue of Common Shares for Subscription Receipts 13,966,000
Issue of Common Shares for Common Shares of Scout 1,056,436
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance at March 31, 2005 20,248,337
Exercise of Options and Warrants
Issue of Common Shares for Veracel Subscription Receipts
and/or Class B Common Shares 34,000,000
Issue of Common Shares for Common Shares of Veracel 117,010
Issue of Flow-Through Common Shares 2,000,000
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance at June 30, 2005 56,365,347
Issue of Common Shares and Exercise of Options and
Warrants -
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance at September 30, 2005 56,365,347
Issue of Common Shares upon Exercise of Warrants 300,000
Issue of Flow-Through Common Shares 1,482,400
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance at December 31, 2005 58,147,747
Issue of Common Shares upon Exercise of Options 20,000
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance at March 31, 2006 58,167,747
Issue of Common Shares upon Exercise of Options -
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance at June 30, 2006 58,167,747
------------------------------------------------------------------------
------------------------------------------------------------------------


RESULTS OF OPERATIONS

Petroleum and Natural Gas Revenue

Petroleum and natural gas revenues totaled $20.5 million for the three month Reporting Period and $45.5 million for the six month Reporting Period as compared to $6.8 million in the Comparable Prior Periods for which there was only one month of petroleum and natural gas production. The following table details Birchcliff's petroleum and natural gas revenue, production and sales prices by category for the Reporting Periods and Comparable Prior Periods:



------------------------------------------------------------------------
Three months ended June 30,
2006
------------------------------------------------------------------------
Total Average
Revenue Daily Average
(All in Canadian $) ($000's) Production % ($/unit)
------------------------------------------------------------------------
Natural Gas (mcf) 13,708 23,242 81 6.48
------------------------------------------------------------------------
Light oil (bbls) 5,003 742 16 74.13
------------------------------------------------------------------------
Natural gas liquids (bbls) 963 144 3 72.95
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas sales (BOE) 19,674 4,760 100 45.42
------------------------------------------------------------------------
Royalty revenue 841 1.94
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas revenue 20,515 47.36
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Three months ended June 30,
2005(1)
------------------------------------------------------------------------
Total Average
Revenue Daily Average
(All in Canadian $) ($000's) Production % ($/unit)
------------------------------------------------------------------------
Natural Gas (mcf) 4,873 6,966 80 7.69
------------------------------------------------------------------------
Light oil (bbls) 1,515 248 17 67.05
------------------------------------------------------------------------
Natural gas liquids (bbls) 277 51 3 59.58
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas sales (BOE) 6,665 1,460 100 50.15
------------------------------------------------------------------------
Royalty revenue 107 0.80
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas revenue 6,772 50.95
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Six months ended June 30,
2006
------------------------------------------------------------------------
Total Average
Revenue Daily Average
(All in Canadian $) ($000's) Production % ($/unit)
------------------------------------------------------------------------
Natural Gas (mcf) 32,530 24,540 82 7.32
------------------------------------------------------------------------
Light oil (bbls) 9,321 756 15 68.12
------------------------------------------------------------------------
Natural gas liquids (bbls) 2,130 168 3 70.00
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas sales (BOE) 43,981 5,014 100 48.46
------------------------------------------------------------------------
Royalty revenue 1,492 1.64
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas revenue 45,473 50.10
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Six months ended June 30,
2005(1)
------------------------------------------------------------------------
Total Average
Revenue Daily Average
(All in Canadian $) ($000's) Production % ($/unit)
------------------------------------------------------------------------
Natural Gas (mcf) 4,873 3,502 80 7.69
------------------------------------------------------------------------
Light oil (bbls) 1,515 125 17 67.05
------------------------------------------------------------------------
Natural gas liquids (bbls) 277 26 3 59.58
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas sales (BOE) 6,665 734 100 50.15
------------------------------------------------------------------------
Royalty revenue 107 0.80
------------------------------------------------------------------------
------------------------------------------------------------------------
Total petroleum and
natural gas revenue 6,772 50.95
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The Comparable Prior Periods only include one month of significant
production due to the Acquisition being completed on May 31, 2005.


Commodity Prices

Birchcliff received $6.48/mcf for its natural gas sales in the three month Reporting Period as compared to $7.69/mcf in the three month Comparable Prior Period. The AECO daily spot price averaged $6.04/mmbtu in the three month Reporting Period as compared to $7.37/mmbtu in the three month Comparable Prior Period. The differential from the well head to AECO daily spot was $0.44/mcf in the three month Reporting Period as compared to $0.32/mcf in the three month Comparable Prior Period. Birchcliff receives a premium to AECO daily spot prices due to the high heat content of its natural gas.

The price the Corporation receives for its production depends on a number of factors, including AECO Canadian dollar spot market prices for natural gas, U.S. dollar oil prices, the U.S./Canadian dollar exchange rate, and transportation and product quality differentials. Birchcliff regularly considers managing the risk associated with fluctuating spot market prices for natural gas and U.S. dollar oil prices and the U.S./Canadian dollar exchange rate. Birchcliff currently has no fixed commodity price contracts or other hedge type contracts and no current plans to enter into such contracts.

Royalties and ARTC

Oil and natural gas royalties, net of ARTC totaled $2.8 million ($6.51 per BOE) during the three month Reporting Period and $7.7 million ($8.47 per BOE) during the six month Reporting Period. The overall effective royalty rate in the three and six month Reporting Periods was 13.7% and 16.9% of the Corporation's total petroleum and natural gas sales. The royalty rates for the Reporting Periods are lower than the royalty rates for the Comparable Prior Periods due to the impact of booking in the three month Reporting Period a $1.1 million Gas Cost Allowance
("GCA") adjustment which related to 2005. Birchcliff is primarily a natural gas producer and therefore any capital it spends for gathering and processing is eligible for a GCA credit which effectively reduces the amount of Crown royalties paid. The amount of the credit is estimated each year based on the previous year's GCA credit amount and as a result there was a significant difference between Birchcliff's actual GCA credit amount for 2005 as compared to the estimated GCA credit amount based on the previous owner's activities.

Birchcliff's royalties as a percentage of sales for the 7 months of production in 2005 was 23% prior to the GCA adjustment and 21.5% after the adjustment. Birchcliff's royalties as a percentage of sales for the six month Reporting Period after removing the 2005 GCA adjustment is 20% and for the three month Reporting Period would be 20% as well. The Corporation expects that over the long term its properties will obtain increased GCA credits as long as its capital program grows from year to year.

By contrast, royalties paid in the Comparable Prior Periods (essentially for one month of production in both the three and six month periods) were $1.4 million ($10.84 per BOE), resulting in an overall effective royalty rate of 21.6% . The proportion of Crown to freehold and overriding royalties in the Comparable Prior Periods was consistent with the Reporting Periods and remains at approximately 1% of total petroleum and natural gas sales.

In November 2005, Birchcliff became eligible for ARTC when the first two wells it drilled were brought on production. Birchcliff is now maximizing its ARTC claim, however due to our size it is no longer significant in amount.

Operating Costs

Operating costs were $3.4 million ($7.93 per BOE) for the three month Reporting Period and $7.4 million ($8.12 per BOE) for the six month Reporting Period as compared to $1.3 million ($10.04 per BOE) for the Comparable Prior Periods during which only one month of significant operating expenses were incurred. The following table compares operating costs for the Reporting Periods and the Comparable Prior Periods:



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

Operating Costs Three Months Ended Three Months Ended
($000's) June 30, 2006 June 30, 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Total ($000's) $/BOE Total ($000's) $/BOE
------------------------------------------------------------------------
Field operating costs 3,108 7.17 1,335 10.04
Expensed workovers 327 0.75 - -
------------------------------------------------------------------------
------------------------------------------------------------------------
Total operating costs 3,435 7.93 1,335 10.04
------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
Operating Costs Six Months Ended Six Months Ended
($000's) June 30, 2006 June 30, 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Total ($000's) $/BOE Total ($000's) $/BOE
------------------------------------------------------------------------
Field operating costs 6,680 7.36 1,335 10.04
Expensed workovers 686 0.76 - -
------------------------------------------------------------------------
------------------------------------------------------------------------
Total operating costs 7,366 8.12 1,335 10.04
------------------------------------------------------------------------


Operating costs are mitigated by the impact of third party revenues Birchcliff receives for processing, treating and transporting other companies' production, water disposal fees, road use fees and other minor recoveries. One of Birchcliff's strategic objectives is to maximize the use of its underutilized facilities in order to bring unit production costs down.

The Corporation recognizes that optimizing production expenses is critical to effective exploitation of reserves. It is committed to reducing operating costs on a per BOE basis as it develops economies of scale and continues to implement cost reduction programs. Birchcliff continues to implement strategies aimed at lowering its operating costs on a per BOE basis, but these decreases are being offset by rising processing fees at third party plants and general increases of costs of necessary services.

Transportation and Marketing Expenses

Transportation and marketing expenses were $731,000 ($1.69 per BOE) for the three month Reporting Period and $1.5 million ($1.65 per BOE) for the six month Reporting Period. In the Comparable Prior Periods during which only one month of significant production was marketed and transported, the costs were $149,000 or $1.13 per BOE. These costs consist primarily of transportation costs. Although the aggregate amount of these costs will increase with increased production volumes, Birchcliff does not expect these costs to increase significantly on a per BOE basis.

General and Administrative Expense

Net general and administrative costs in the three and six month Reporting Periods were $1.4 million ($3.33 per BOE) and $2.8 million ($3.09 per BOE) respectively as compared to the three month Comparable Prior Period of $900,000 ($6.81 per BOE) and the six month Comparable Prior Period of $1.6 million ($11.82 per BOE). Gross general and administrative costs in the three month Reporting Period were $2.1 million and in the six month Reporting Period were $4.1 million. The components of G&A are as follows:



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

General and
Administrative Expense Three Months Ended Three Months Ended
($000's) June 30, 2006 June 30, 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Salaries, benefits and
consultants 1,320 63% 808 73%
Other 770 37% 299 27%
------------------------------------------------------------------------
G & A expense, gross 2,090 100% 1,107 100%
Overhead recoveries (431) (53)
Capitalized overhead (218) (148)
------------------------------------------------------------------------
G & A expense, net 1,441 906
------------------------------------------------------------------------
------------------------------------------------------------------------
G & A expense, net per BOE $3.33 $6.81
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
General and
Administrative Expense Six Months Ended Six Months Ended
($000's) June 30, 2006 June 30, 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Salaries, benefits and
consultants 2,572 62% 1,374 73%
Other 1,564 38% 519 27%
------------------------------------------------------------------------
G & A expense, gross 4,136 100% 1,893 100%
Overhead recoveries (894) (53)
Capitalized overhead (441) (269)
------------------------------------------------------------------------
G & A expense, net 2,801 1,571
------------------------------------------------------------------------
------------------------------------------------------------------------
G & A expense, net per BOE $3.09 $11.82
------------------------------------------------------------------------
------------------------------------------------------------------------


The Corporation expects that as it increases production its G&A cost per BOE will be reduced because it is currently staffed for further growth. However, the market for qualified staff continues to be competitive and therefore staffing costs are likely to continue to rise which will somewhat mitigate the G&A per BOE reduction.

Interest Expense

Interest expense for the three month Reporting Period was just over $1.0 million ($2.34 per BOE) and for the six month Reporting Period was $1.6 million ($1.78 per BOE). In the six month Comparable Prior Period, interest expense was $169,000 ($1.27 per BOE). The Corporation expects interest expense to increase on a monthly basis in aggregate over time as the amount drawn on the revolving credit facility increases to fund its capital program. The Corporation's average debt drawn against its facilities was approximately $80 million for the three month Reporting Period and as at June 30, 2006 it was $85.3 million.

Depletion, Depreciation and Accretion Expense

The provision for depletion, depreciation and accretion ("DD&A") for the three month Reporting Period was $9.4 million ($21.76 per BOE). For the six month Reporting Period, the DD&A was $18.8 million ($20.74 per BOE). Depletion and depreciation expense for three month Reporting Period was $9.2 million ($21.29 per BOE), leaving the remaining $0.2 million ($0.47 per BOE) as accretion in relation to the Corporation's asset retirement obligations. For the six month Reporting Period, depletion & depreciation was $18.4 million ($20.31 per BOE) and accretion was $0.4 million ($0.43 per BOE). In the six month Comparable Prior Period, the Corporation recorded $2.9 million ($22.04 per BOE) of depletion and depreciation and $32,000 of accretion. Substantially all of these amounts related to June 2005, after the Acquisition was completed.

Depletion and depreciation expense is a function of the proved reserve additions and the cost of petroleum and natural gas properties in the full cost pool attributable to those proved reserves. At June 30, 2006, Birchcliff has excluded from its full cost pool $45.9 million (June 30, 2005 - $70 million) of costs for undeveloped land acquired by Birchcliff and for unproved properties acquired from the Acquisition relating to opportunities in the probable reserve category and the potential drilling, recompletion and workover opportunities which have not yet been assigned any reserves. The Corporation intends that over time it will, for depletion calculation purposes, continue to reduce the cost amount excluded from the full cost pool in respect of unproved properties as those unproved properties are drilled, developed, or have their value impaired by new information or circumstances.

Petroleum and Natural Gas Properties Impairment Test

The Corporation follows the full cost method of accounting which requires periodic review of capitalized costs to ensure that they do not exceed the recoverable value of the petroleum and natural gas properties and that they do not exceed the fair value of the assets.

Birchcliff performed an impairment (ceiling) test review at June 30, 2006 on its petroleum and natural gas assets. Based on this review, Birchcliff determined there is no impairment of its petroleum and natural gas assets.

Taxes

During the three month Reporting Period, the May 2, 2006 federal budget was passed and the Large Corporation Tax ("LCT") was repealed effective January 1, 2006. Consequently, the Corporation recorded an $83,000 income tax recovery relating to LCT accrued in 2006. In the six month Comparable Prior Period, $35,000 of LCT was recorded.

Birchcliff recorded a future income tax recovery of $6,000 ($0.01 per BOE) during the three month Reporting Period and a future income tax expense of $1.7 million ($1.86 per BOE) during the six month Reporting Period, as compared to $375,000 ($2.88 per BOE) during the three and six month Comparable Prior Periods. In the first quarter of 2005, no future tax expense was recognized and a full valuation allowance was taken against the Corporation future income tax asset. The recovery in the three month Reporting Period is due to the impact of rate reductions; in the future, the Corporation will record future income tax expense in future periods because it expects to utilize the tax basis of its assets at a rate greater than the book rate of depletion and depreciation in order to remain non-taxable.

Stock-Based Compensation

Birchcliff accounts for its stock-based compensation programs, including performance warrants and stock options, using the fair value method. Under this method, the Corporation records compensation expense related to the stock-based compensation programs in the income statement over the vesting period.

Outstanding stock options in respect of 354,500 common shares vested during the three month Reporting Period and stock options in respect of 555,000 common shares vested in the six month Reporting Period. The Corporation recorded $778,000 ($1.80 per BOE) of stock-based compensation expense relating to stock options in the three month Reporting Period and $1.4 million ($1.59 per BOE) during the six month Reporting Period, as compared to $385,000 ($2.90 per BOE) during the three month Comparable Prior Period and $704,000 ($5.30 per BOE) during the six month Comparable Prior Period, which included both stock options and performance warrants. Although there is no compensation expense relating to the warrants included in the amounts for the Reporting Periods, the total expense has increased due to the increase in the number of options issued subsequent to the Comparable Reporting Period. This amount is expected to remain relatively consistent going forward on an absolute value basis since the performance warrants fully vested during the fourth quarter of 2005 and only stock options are now affecting the expense amount.

Birchcliff cancelled vested stock options in respect of 38,332 common shares during the three month Reporting Period and vested stock options in respect of 54,998 common shares during the six month Reporting Period, resulting in a cash-paid stock-based compensation expense of $91,000 and $137,000 respectively for those Reporting Periods which is included in total stock-based compensation expense.

CAPITAL EXPENDITURES AND CAPITAL RESOURCES

Capital expenditures amounted to $24.6 million during the three month Reporting Period and $64.3 million in the six month Reporting Period. In the three and six month Comparable Prior Periods $250.9 million and $253.3 million of capital expenditures were incurred relating primarily to the Acquisition. Birchcliff did not have significant oil and gas operations in the Comparable Prior Period until June 2005.



The following table sets forth a summary of the capital expenditures
incurred for the Reporting Periods and the Comparable Prior Periods:

Capital Expenditures

------------------------------------------------------------------------
Three Months Ended June 30 ($000's) 2006 2005
------------------------------------------------------------------------
Acquisitions 124 246,025
Land 1,503 2,252
Exploration - drilling and completions(1) 5,407 37
Exploration - seismic 646 199
Exploration - other 275 59
Development - drilling and completions 7,149 1,100
Development - other 1 398
Well equipment and facilities 9,310 349
Capitalized general and administrative expenses 206 147
------------------------------------------------------------------------
Total finding and on-stream costs 24,621 250,566
Corporate acquisitions - non oil and natural gas related - -
Administrative assets 6 380
------------------------------------------------------------------------
Total Capital Expenditures 24,627 250,946
------------------------------------------------------------------------

(1) The exploration categorization is based on internal criteria, mainly
utilizing information from the well license and does not necessarily
coincide with the Canadian Exploration Expense tax classification.

------------------------------------------------------------------------
Six Months Ended June 30 ($000's) 2006 2005
------------------------------------------------------------------------
Acquisitions 1,489 246,160
Land 10,631 2,706
Exploration - drilling and completions(1) 11,729 562
Exploration - seismic 2,572 1,117
Exploration - other 431 246
Development - drilling and completions 21,404 1,100
Development - other 6 398
Well equipment and facilities 15,559 349
Capitalized general and administrative expenses 441 267
------------------------------------------------------------------------
Total finding and on-stream costs 64,262 252,905
Corporate acquisitions - non oil and natural gas related - 36
Administrative assets 41 392
------------------------------------------------------------------------
Total Capital Expenditures 64,303 253,333
------------------------------------------------------------------------

(1) The exploration categorization is based on internal criteria, mainly
utilizing information from the well license and does not necessarily
coincide with the Canadian Exploration Expense tax classification.

The following table sets forth a summary of the Corporation's capital
resources for the Reporting Periods and the Comparable Prior Periods:

Capital Resources

------------------------------------------------------------------------
Three Months Ended June 30 ($000's) 2006 2005
------------------------------------------------------------------------
Cash generated by (used in) operations 11,068 3,109
Changes in working capital from operations 3,696 (2,839)
Loans payable - -
Equity issues, net of issue costs (54) 139,364
Increase in revolving credit facility 18,698 55,155
Deposit on petroleum and natural gas properties - 25,000
Changes in working capital from investing (8,781) 1,458
------------------------------------------------------------------------
Total capital resources 24,627 221,247
------------------------------------------------------------------------

------------------------------------------------------------------------
Six Months Ended June 30 ($000's) 2006 2005
------------------------------------------------------------------------
Cash generated by (used in) operations 24,364 2,767
Changes in working capital from operations 5,063 (2,461)
Loans payable - (708)
Equity issues, net of issue costs (37) 154,982
Increase in revolving credit facility 48,685 55,155
Deposit on petroleum and natural gas properties - -
Changes in working capital from investing (13,771) 1,638
------------------------------------------------------------------------
Total capital resources 64,304 211,373
------------------------------------------------------------------------


Discussion of Quarterly Results

Activity during the three month Reporting Period slowed due to the impact of spring break up on drilling, completion and tie-in operations and due to scheduled plant turnarounds taking longer than expected. As a result, production averaged 4,760 BOE per day for the three month Reporting Period, a 10% decrease from the first quarter of 2006. Average commodity prices for the three month Reporting Period were $45.42 per BOE, due to continuing low commodity prices for natural gas since Birchcliff is predominantly a natural gas producer. This average price was 11% lower than the Corporation's first quarter average price. The combination of lower production and lower commodity prices resulted in a 17% decrease in cash flow (from $13.3 million in the first quarter to $11.1 million in the second quarter). Nevertheless, Birchcliff remains bullish about natural gas prices and is committed to its drilling opportunities and its strategy to acquire land and infrastructure in its core area. Overall, the book value of total assets increased 5% due to capital invested in development and exploration programs. To finance the capital program in light of reduced cash flow due to natural gas prices, the Corporation's total debt increased in the second quarter to $100.3 million but remains within Birchcliff's credit facility limits. The number of basic common shares outstanding did not change during the three month Reporting Period.



SELECTED QUARTERLY INFORMATION

------------------------------------------------------------------------
Quarter Ended June 30, March 31, December September
($000's, except share and per 31, 30,
share amounts) 2006 2006 2005 2005
------------------------------------------------------------------------
Petroleum and natural gas
production (BOE per day) 4,760 5,271 5,009 4,626
Petroleum and natural gas
commodity price ($ per BOE) $45.42 $51.24 $ 72.65 $ 62.20

Total petroleum and natural
gas revenue 20,515 24,958 34,175 26,843
Total royalties, net of ARTC (2,820) (4,871) (8,269) (5,711)
Total interest and other
revenue - 3 1 2
Total revenues, net 17,695 20,090 25,907 21,134

Net income 961 1,581 124 4,336
Per share basic 0.02 0.03 - 0.08
Per share diluted 0.02 0.03 - 0.07

Cash generated by operations 11,068 13,296 18,112 15,303
Per share basic 0.19 0.23 0.32 0.27
Per share diluted 0.18 0.22 0.30 0.26

Book value of total assets 345,092 329,632 311,364 276,961
Loans - - - -
Revolving credit facility (85,299) (66,601) (36,614) (47,945)
Total (debt) / working
capital (100,321) (86,708) (60,344) (53,748)
Shareholder's equity
(deficit) 219,719 218,124 223,894 204,198

Common shares outstanding
- end of period
Basic 58,167,747 58,167,747 58,147,747 56,365,347
Diluted 66,277,414 66,292,746 65,091,912 63,259,512
Weighted average common
shares outstanding
Basic 58,167,747 58,163,525 56,614,330 56,365,347
Diluted 61,499,413 61,827,830 59,964,046 58,842,965
------------------------------------------------------------------------

------------------------------------------------------------------------
Quarter Ended June 30, March 31, December September
($000's, except share and per 31, 30,
share amounts) 2005 2005 2004 2004
------------------------------------------------------------------------
Petroleum and natural gas
production (BOE per day) 1,460(1) - - -
Petroleum and natural gas
commodity price ($ per BOE) $ 50.16 - - -
Total petroleum and natural
gas revenue 6,772 - - -
Total royalties (1,441) - - -
Total interest and other
revenue 365 329 66 -
Total revenues 5,696 329 66 -

Net income (loss) (601) (672) (631) (87)
Per share basic (0.02) (0.04) (631) (87)
Per share diluted (0.02) (0.04) (631) (87)

Cash generated by (used in)
operations 3,109 (342) (558) (79)
Per share basic $0.10 (0.02) (558) (79)
Per share diluted $0.09 (0.02) (558) (79)
Book value of total assets 266,655 57,658 42,983 337
Loans - - (708) (300)
Revolving credit facility (55,155) - - -
Total (debt) / working capital (54,244) 29,232 41,343 (205)
Shareholder's equity (deficit) 199,193 56,923 41,694 (87)

Common shares outstanding
- end of period
Basic 56,365,347 20,248,337 1 1
Diluted 63,143,512 25,963,002 1,665,001 1
Weighted average common
shares outstanding
Basic 32,507,978 16,423,651 1 1
Diluted 34,012,050 17,862,366 1 1
------------------------------------------------------------------------

(1) Average is based on production for June 2005 only, which is the
period during which Birchcliff recorded petroleum and natural gas
production and associated revenues and expenses following the
acquisition of properties in the SWPRA area of Alberta.


OUTLOOK

Birchcliff expects to exit 2006 at 6,500 BOE per day, is currently producing approximately 6,000 BOE per day and currently has 16 wells in various stages of completion and tie-in. Birchcliff continues to tie-in wells and bring on new production as quickly as possible and as a result production is expected to continue to increase during the third quarter of 2006. Like others in the industry, Birchcliff faces a general scarcity of necessary oilfield services but remains confident that it will continue to secure the necessary services to advance its production goals.

The previously announced $28 million reduction to Birchcliff's capital budget will result in a decreased number of wells being drilled for 2006, but this will allow our technical team more time to assess prior results and add to our internally generated prospect inventory. Should natural gas prices continue to strengthen as they have in the past couple of weeks, we look forward to a very robust capital program during 2007. Birchcliff expects to reduce its debt before year end to increase its financial flexibility to permit it to take advantage of future opportunities.



INTERIM FINANCIAL STATEMENTS
JUNE 30, 2006
(UNAUDITED)

BIRCHCLIFF ENERGY LTD.
Balance Sheets
(Unaudited) ($000's)
------------------------------------------------------------------------
------------------------------------------------------------------------
June 30, December 31,
2006 2005
--------------------------
ASSETS
CURRENT
Cash and cash equivalents 65 64
Accounts receivable 10,651 16,385
Prepaid and other 3,382 1,426
--------------------------
14,098 17,875

Future income tax asset 5,056 14,735

Petroleum and natural gas properties and
equipment (Note 4) 325,938 278,754
--------------------------
345,092 311,364
--------------------------
--------------------------

LIABILITIES
CURRENT
Accounts payable and accrued liabilities 29,120 41,605
--------------------------
29,120 41,605
--------------------------

Revolving credit facility (Note 5) 85,299 36,614
Asset retirement obligations (Note 6) 10,954 9,251

SHAREHOLDERS' EQUITY
Share capital (Note 7) 207,030 214,951

Contributed surplus (Note 8) 7,783 6,579
Retained earnings 4,906 2,364
--------------------------
219,719 223,894
--------------------------
345,092 311,364
--------------------------
--------------------------

See accompanying notes to the financial statements.

APPROVED BY THE BOARD

"Larry A. Shaw"
Larry A. Shaw, Director

"A. Jeffery Tonken"
A. Jeffery Tonken, Director



BIRCHCLIFF ENERGY LTD.
Statement of Net Income (Loss) and Retained Earnings (Deficit)
(Unaudited) ($000's)
------------------------------------------------------------------------
------------------------------------------------------------------------

Three months ended Six months ended
June 30 June 30
2006 2005 2006 2005
---------------------------------------------
REVENUE
Petroleum and natural gas 20,515 6,772 45,473 6,772
Royalties (2,820) (1,441) (7,691) (1,441)
Interest and other - 365 3 695
---------------------------------------------
17,695 5,696 37,785 6,026
---------------------------------------------

EXPENSES
Production 3,435 1,335 7,366 1,335
Transportation 731 149 1,501 149
General and administrative 1,441 906 2,801 1,571
Stock-based compensation 778 385 1,447 704
Depletion, depreciation and
accretion 9,426 2,950 18,823 2,961
Interest 1,012 167 1,616 169
---------------------------------------------
16,823 5,892 33,554 6,889
---------------------------------------------

INCOME (LOSS) BEFORE TAXES 872 (196) 4,231 (863)

TAXES
Capital taxes (83) 30 - 35
Future income taxes
(recovery) (6) 375 1,689 375
---------------------------------------------
(89) 405 1,689 410
---------------------------------------------
NET INCOME (LOSS) 961 (601) 2,542 (1,273)

RETAINED EARNINGS (DEFICIT),
BEGINNING OF PERIOD 3,945 (1,497) 2,364 (789)

PLAN OF ARRANGEMENT COSTS
(Note 2) - - - (36)
---------------------------------------------

RETAINED EARNINGS (DEFICIT),
END OF PERIOD 4,906 (2,098) 4,906 (2,098)
---------------------------------------------
---------------------------------------------

Net income (loss) per common
share basic and diluted $0.02 $(0.02) $0.04 $(0.05)

Weighted average common
shares
basic 58,167,747 32,507,978 58,165,648 24,510,246
diluted 61,499,413 34,012,050 61,662,592 26,011,180

See accompanying notes to the financial statements.



BIRCHCLIFF ENERGY LTD.
Statement of Cash Flows
(Unaudited)($000's)
------------------------------------------------------------------------
------------------------------------------------------------------------

Three months ended Six months ended
June 30 June 30
2006 2005 2006 2005
---------------------------------------------
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:

OPERATING
Net income (loss) 961 (601) 2,542 (1,273)
Adjustments for items not
affecting cash:
Depletion, depreciation and
accretion 9,426 2,950 18,823 2,961
Stock-based compensation
(Note 8) 687 385 1,310 704
Future income tax (recovery) (6) 375 1,689 375
---------------------------------------------
11,068 3,109 24,364 2,767
Changes in non-cash working
capital (Note 10) 3,696 (2,839) 5,063 (2,461)
---------------------------------------------
14,764 270 29,427 306
---------------------------------------------

FINANCING
Increase in revolving credit
facility 18,698 55,155 48,685 55,155
Decrease in loans payable - - - (708)
Issuance of share capital, net
of issue costs (Note 7) (54) 139,364 (37) 154,982
---------------------------------------------
18,644 194,519 48,648 209,429
---------------------------------------------

INVESTING
Scout arrangement costs
(Note 2) - - - (36)
Purchase of petroleum and
natural gas properties and
equipment (124) (221,025) (1,489) (246,160)
Development of petroleum and
natural gas properties and
equipment (24,502) (4,921) (62,814) (7,137)
Changes in non-cash investing
working capital (Note 10) (8,781) 1,458 (13,771) 1,638
---------------------------------------------
(33,407) (224,488) (78,074) (251,695)
---------------------------------------------

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1 (29,699) 1 (41,960)

CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 64 29,770 64 42,031
---------------------------------------------
---------------------------------------------

CASH AND CASH EQUIVALENTS,
END OF PERIOD 65 71 65 71
---------------------------------------------
---------------------------------------------

Cash interest paid 1,012 167 1,616 169
Cash taxes paid - - 60 -

See accompanying notes to the financial statements



BIRCHCLIFF ENERGY LTD.
Notes to the Financial Statements
For the Six Months Ended June 30, 2006
(Unaudited)


1. BASIS OF PRESENTATION

Birchcliff Energy Ltd. ("Birchcliff" or the "Corporation") was a private company, incorporated under the Business Corporations Act (Alberta) on July 6, 2004 as 1116463 Alberta Ltd. It changed its name from 1116463 Alberta Ltd. to Birchcliff Energy Ltd. on September 10, 2004. The Corporation is engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves in Western Canada. Birchcliff's financial year end is December 31.

On January 18, 2005, the Corporation completed a merger arrangement ("Scout Arrangement") involving the Corporation and Scout Capital Corp. ("Scout"), a publicly traded corporation. The newly amalgamated entity, Birchcliff Energy Ltd., became a publicly traded corporation on the TSX Venture Exchange on January 20, 2005.

On May 31, 2005, the Corporation completed a merger arrangement ("Veracel Arrangement") involving the Corporation and Veracel Inc. ("Veracel"), a privately held corporation that sought to reorganize and enter the oil and gas business. Concurrent with the Veracel Arrangement, Birchcliff completed the purchase of certain properties in the South West Peace River Arch area of Alberta (the "Acquisition"). On July 21, 2005, Birchcliff commenced trading on the Toronto Stock Exchange and was de-listed from the TSX Venture Exchange.

The interim financial statements of Birchcliff Energy Ltd. have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the period ended December 31, 2005. The disclosure which follows does not include all disclosures required for the annual financial statements. These interim financial statements should be read in conjunction with the financial statements and notes thereto for the period ended December 31, 2005.

2. SCOUT ARRANGEMENT

Pursuant to an arrangement agreement dated November 8, 2004, as amended on December 1, 2004, the Corporation implemented a Plan of Arrangement with Scout that was completed on January 18, 2005. The Corporation has accounted for this transaction as a reverse takeover of Scout by Birchcliff. Costs incurred to December 31, 2005 of $36,000 relating to the transaction were charged directly to the deficit in 2005.

3. VERACEL ARRANGEMENT AND ACQUISITION OF PETROLEUM AND NATURAL GAS PROPERTIES AND EQUIPMENT

On March 29, 2005, the Corporation signed a purchase and sale agreement relating to the purchase of certain properties in the South West Peace River Arch area of Alberta effective January 1, 2005, for $255 million before closing adjustments and related costs. The Acquisition closed on May 31, 2005, immediately after the completion of the Veracel Arrangement. Pursuant to an arrangement agreement, the Corporation implemented a Plan of Arrangement with Veracel which was completed on May 31, 2005.



The following table details the purchase price allocation for the
Veracel Arrangement and the Acquisition:

------------------------------------------------------------------------
------------------------------------------------------------------------
Net assets acquired: $000's
------------------------------------------------------------------------
Petroleum and natural gas properties and equipment 233,921
Asset retirement costs (8,357)
Future tax benefit 17,248
------------------------------------------------------------------------
242,812
------------------------------------------------------------------------
------------------------------------------------------------------------
Consideration: $000's
------------------------------------------------------------------------
Purchase price, net of adjustments, paid in cash 238,564
Costs related to the Veracel Arrangement 2,119
Costs related to the Acquisition 2,129
------------------------------------------------------------------------
242,812
------------------------------------------------------------------------
------------------------------------------------------------------------


The Corporation has made its best estimate as to the net assets acquired and the consideration given. The final purchase price adjustment has been determined by the Corporation and the vendor but not all costs have yet been finalized, such as annual through-put adjustments. The Corporation has made its best estimate for these costs, but the above amount remains subject to adjustment for those costs.



4. PETROLEUM AND NATURAL GAS PROPERTIES AND EQUIPMENT

June 30, 2006
------------------------------------------------------------------------
Accumulated Depletion
Cost and Depreciation Net Book Value
$000's $000's $000's
------------------------------------------------------------------------

Petroleum and natural gas
properties and
equipment 363,329 (38,107) 325,222
Office and other
equipment 1,008 (292) 716
------------------------------------------------------------------------
364,337 (38,399) 325,938
------------------------------------------------------------------------
------------------------------------------------------------------------

December 31, 2005
------------------------------------------------------------------------
Accumulated Depletion
Cost and Depreciation Net Book Value
$000's $000's $000's
------------------------------------------------------------------------

Petroleum and natural gas
properties and
equipment 297,756 (19,804) 277,952
Office and other
equipment 967 (165) 802
------------------------------------------------------------------------
298,723 (19,969) 278,754
------------------------------------------------------------------------
------------------------------------------------------------------------


As at June 30, 2006, the cost of petroleum and natural gas properties includes $45.9 million (as at December 31, 2005 - $64.4 million) relating to unproved properties which have been excluded from costs subject to depletion and depreciation. Most of these costs relate to unproved properties acquired in the Acquisition.

Birchcliff capitalized general and administrative costs of $441,000 in the six month period ended June 30, 2006 (six months ended June 30, 2005 - $268,000) and $206,000 in the three month period ended June 30, 2006 (three months ended June 30, 2005 - $148,000) related to exploration and development activities.

The Corporation performed an impairment (ceiling) test review at June 30, 2006 to assess the recoverable value of the petroleum and natural gas properties and equipment and to assess that it does not exceed its fair value. Management's assessment is that there is no impairment of petroleum and natural gas properties and equipment as at June 30, 2006.

5. REVOLVING CREDIT FACILITY

The Corporation has available to it an extendible revolving term credit facility with an authorized limit of $105 million and an extendible revolving working capital facility with an authorized limit of $15 million. The $120 million of credit facilities are provided by a syndicate of two Canadian chartered banks (the "Syndicate"). As at June 30, 2006, Birchcliff had drawn $85.3 million on the credit facilities. At June 30, 2006 the prime rate was 6%.

The credit facilities allow for prime rate loans, US base rate loans, bankers' acceptances, letters of credit and LIBOR loans. The credit facilities bear interest at varying rates depending on the instrument utilized and the debt to EBITDA ratio, where EBITDA equals net earnings after income taxes, plus interest expense, income taxes and non-cash items deducted in determining net earnings.

The revolving term facility has a conversion date of May 24, 2007 and a maturity date which is two years after the conversion date. Birchcliff may request an extension of the conversion date with such an extension not exceeding 364 days, in order to maintain the revolving term facility. If the Syndicate does not grant an extension of the conversion date, then upon the expiry of the conversion date, the revolving term facility will convert to a term loan whereby all principal and interest will be required to be repaid at the maturity date.

The revolving working capital facility has a conversion date of May 24, 2007 and a maturity date which is two years after the conversion date. Birchcliff may request an extension of the conversion date with such an extension not exceeding 364 days, in order to maintain the revolving working capital facility. If the Syndicate does not grant an extension of the conversion date, then upon 4 months after the expiry of the conversion date, the revolving working capital facility will convert to a term loan whereby all principal and interest will be required to be repaid at the maturity date.

The credit facilities are subject to the Syndicate's redetermination of the borrowing base twice a year as of October 31 and the conversion date. Upon any change in or redetermination of the borrowing base limit which results in a borrowing base shortfall, Birchcliff must eliminate the borrowing base shortfall amount. The facility is secured by a fixed and floating charge debenture, an instrument of pledge, and a general security agreement encompassing all of the Corporation's assets.

6. ASSET RETIREMENT OBLIGATIONS

The Corporation's asset retirement obligations result from net ownership interests in petroleum and natural gas properties including well sites, gathering systems and processing facilities. Birchcliff estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations as at June 30, 2006 to be approximately $30.3 million to be incurred between 2006 and 2056. A credit-adjusted risk-free interest rate of 8% and an inflation rate of 2% were used to calculate the fair value of the asset retirement obligation.



A reconciliation of the asset retirement obligations is provided below:

------------------------------------------------------------------------
($000's) 2006 2005
------------------------------------------------------------------------
Balance, January 1 9,251 -
Change in estimates 497 -
Obligations incurred 813 5,874
Accretion expense 393 32
------------------------------------------------------------------------
Balance, June 30 10,954 5,906
------------------------------------------------------------------------
------------------------------------------------------------------------


7. SHARE CAPITAL

(a) Authorized:

Unlimited number of voting common shares
Unlimited number of non-voting first preferred shares

The preferred shares may be issued in one or more series and the directors are authorized to fix the number of shares in each series and to determine the designation, rights, privileges, restrictions and conditions attached to the shares of each series.

A series of 25,129,885 Series 1 Preferred Shares were designated by the Directors of the Corporation on May 30, 2005 for issuance pursuant to the Veracel Arrangement. On May 31, 2005, 17,287,432 Series 1 Preferred Shares were issued under the Veracel Arrangement in exchange for 9,988,008 common shares of Veracel and 7,299,424 Class A Preferred Shares of Veracel. All of the Series 1 Preferred Shares that were issued have been redeemed for cash.



(b) Issued:

---------------------------
Number of Amount
Common Shares $
---------------------------

Incorporation on July 6, 2004 1 3

---------------------------
Balance, December 31, 2004 1 3

Issued (Note (c)(i)) 383,800 575,700
Issued, net of costs (Note (c)(ii through iv)) 19,864,536 57,462,253
Issued (Note (d)(i)) 117,010 468,040
Issued, net of costs (Note (d)(ii)) 34,000,000 129,422,500
Issued, net of costs (Note (e)) 2,000,000 9,473,920
Issued upon exercise of warrants (Note (f)) 300,000 1,332,000
Issued, net of costs (Note (g)) 1,482,400 12,876,768
Tax effect of share issue costs (Note (h)) - 3,340,160

---------------------------
Balance, December 31, 2005 58,147,747 214,951,344

Issued upon exercise of stock options 20,000 88,800
Share issue costs (Note (i)) - (19,321)
Tax effect of share issue costs (Note (i)) - 6,500
Tax effect of flow-through shares
(Note (e) and (g)) - (7,997,000)
---------------------------
Balance, March 31, 2006 58,167,747 207,030,323
Issued upon exercise of stock options - -
---------------------------
Balance, June 30, 2006 58,167,747 207,030,323
---------------------------
---------------------------


(c) On January 18, 2005, as a result of the exchange of shares pursuant to the successful completion of the Scout Arrangement, the following shares were issued:

(i) 383,800 common shares of Birchcliff were issued to employees and consultants (not management), for which gross proceeds of $575,700 were collected on January 18, 2005, as a result of subscription agreements entered into in November 2004. These shares are held by a trustee and are subject to an option granted to Birchcliff to repurchase the shares if the holder ceases to be employed by Birchcliff (or any successor thereto) prior to January 1, 2008 at a purchase price per share equal to the lesser of $1.50 and the weighted average trading price of Birchcliff shares on a recognized stock exchange during the five trading days immediately prior to the date of which such holder ceases to be employed by Birchcliff or any successor thereto;

(ii) 13,966,000 subscription receipts issued by Birchcliff, as a private corporation, were exchanged for 13,966,000 common shares of Birchcliff for net proceeds of $39,766,677;

(iii) 4,842,100 common shares of Birchcliff were issued to management, directors and associates at a price of $3.00 per common share for net proceeds of $14,526,300;

(iv) 1,056,436 common shares of Birchcliff were issued to shareholders of Scout for net consideration of $3,169,276.

(d) On May 31, 2005, as a result of the successful completion of the Veracel Arrangement, the following shares were issued:

(i) 117,010 common shares of Birchcliff, at a price of $4.00 per common shares, were issued to Veracel shareholders who elected to receive shares rather than cash;

(ii) 34,000,000 common shares of Birchcliff were issued in exchange for 34,000,000 subscription receipts and/or Veracel class B common shares, previously issued by Veracel for net proceeds of $129,422,500;

(iii) 17,287,432 of Series 1 Preferred Shares of Birchcliff were issued in exchange for 9,988,008 common shares of Veracel and 7,299,424 Class A Preferred Shares of Veracel. All of the Series 1 Preferred Shares that were issued were redeemed for cash.

(e) On June 2, 2005, Birchcliff issued 2,000,000 flow-through shares at $5.00 per common share in exchange for flow-through share commitments made by Veracel prior to completion of the Veracel Arrangement, for net proceeds of $9,473,920. As at December 31, 2005 the commitment to spend and renounce $10,000,000 of qualified 100% deductible tax pools with respect to these flow-through shares was fulfilled.

(f) On December 2, 2005, 300,000 common shares were issued in exchange for 300,000 performance warrants with an exercise price of $3.00 per common share for gross proceeds of $900,000; in addition, $432,000 of compensation costs previously recorded to contributed surplus for these performance warrants was removed from contributed surplus and added to share capital.

(g) On December 20, 2005, Birchcliff issued 1,482,400 flow-through shares at a price of $9.12 per share for net proceeds of $12,876,768. As at December 31, 2005 Birchcliff renounced $13,519,488 of qualified 100% deductible tax pools with respect to these flow-through shares. As at June 30, 2006 the Corporation estimates it has incurred approximately $5.8 million of these expenditures.

(h) Birchcliff recognized a future tax benefit of $3,340,160 in respect of total share issue costs of $9,823,320 incurred to December 31, 2005.

(i) Birchcliff has recognized a future tax benefit of $6,500 in respect of total share issue costs of $19,321 relating to the issuance of flow-through shares on December 20, 2005.

8. STOCK-BASED COMPENSATION

The Corporation has established a stock-based compensation plan whereby officers, employees, directors and consultants may be granted options or performance warrants to purchase one common share for each option or performance warrant granted, at a fixed price not less than the fair market value of the stock at the time of grant, subject to certain conditions being met. Stock options granted under this plan vest over a three year period at the rate of one-third on each anniversary date of the stock option grant. All stock options granted are for a five year term.

In order to calculate the compensation expense, the fair value of the stock options or performance warrants is estimated using the Black-Scholes option-pricing model that takes into account, as of the grant date: exercise price, expected life, current price, expected volatility, expected dividends, and risk-free interest rates.

Stock Options

For the six months ended June 30, 2006, the Corporation recorded $1.3 million (2005 - $437,000) of non-cash stock-based compensation expense and a corresponding increase to contributed surplus related to the issuance of stock options during the period. For the three months ended June 30, 2006, the Corporation recorded $677,000 (three months ended June 30, 2005 - $118,000) of non-cash stock-based compensation expense and a corresponding increase to contributed surplus related to the issuance of stock options during the period.

The Corporation also recorded cash stock-based compensation expense of $137,000 (six months ended June 30, 2005 - $NIL) and paid out cash relating to the cancellation of vested stock options during the six month period. During the three months ended June 30, 2006, the Corporation recorded cash stock-based compensation expense of $91,000 (three months ended June 30, 2005 - $NIL) and paid out cash relating to the cancellation of vested stock options.

Using the fair value method the weighted average fair value of stock options granted during the six months ended June 30, 2006 was $2.92 per option.

At June 30, 2006 the Corporation has authorized for issuance options in respect of 4,360,002 common shares. At June 30, 2006, there remained available for issuance options in respect of 1,456,772 common shares.

A summary of the changes during the six months ended June 30, 2006 and the Corporation's outstanding stock options as at June 30, 2006 is presented below:



-----------------------------
Weighted Average
Exercise Price
Number $
-----------------------------

Outstanding, December 31, 2004 1,665,000 3.00

Granted 1,529,500 4.40
Exercised - -
Cancelled - -
-----------------------------

Outstanding, December 31, 2005 3,194,500 3.67

Granted 1,217,500 7.11
Exercised (20,000) (3.00)
Cancelled (16,666) (3.00)
-----------------------------

Outstanding, March 31, 2006 4,375,334 4.63

Granted 23,000 7.05
Exercised - -
Cancelled (38,332) (3.19)
-----------------------------

Outstanding, June 30, 2006 4,360,002 4.66
-----------------------------
-----------------------------


Number
Outstanding Number
at June 30, Exercise Exercisable at
Date of Grant 2006 Date of Expiry Price $ June 30, 2006
------------------------------------------------------------------------
December 3, January 21,
2004 (1) 1,596,668 2010 3.00 486,668(1)(2)
Apr 20 to Apr 20 to
Jun 22, 2005 1,056,834 Jun 22, 2010 3.50 to 4.09 347,834(3)
Jul 4 to Jul 4 to
Sep 7, 2005 116,000 Sept 7, 2010 4.06 to 5.45 -
Oct 6 to Oct 6 to
Nov 28, 2005 350,000 Nov 28, 2010 5.85 to 6.46 -
Jan 11 to Jan 11 to
Mar 6, 2006 1,217,500 Mar 1, 2011 6.50 to 7.60 -
Apr 11 to Apr 11 to
Apr 25, 2006 23,000 Apr 25, 2011 6.86 to 7.10 -
------------------------------------------------------------------------
4,360,002 834,502
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) All options granted under the stock-based compensation plan vest as
to one-third on each anniversary date of their grant except for the
initial options granted. These options vest one-third on January 1
in each of the years 2006, 2007 and 2008.
(2) 20,000 options were exercised and 48,332 options were cancelled in
the six months ended June 30, 2006.
(3) 6,666 options were cancelled in the six months ended June 30, 2006.


Performance Warrants

At June 30, 2006, there were 3,749,665 performance warrants outstanding with an exercise price of $3.00. Each performance warrant entitles the holder to purchase one common share at the exercise price.

The performance conditions were fulfilled in the fourth quarter of 2005, resulting in all of the performance warrants vesting and becoming fully exercisable. As a result, the full amount of the compensation expense related to the performance warrants was recorded by the Corporation in the fourth quarter of 2005. In December 2005, 300,000 performance warrants were exercised and the compensation expense ($432,000) relating to these exercised warrants was removed from contributed surplus and credited to share capital in accordance with the Corporation's accounting policy.

Consequently, for the six months ended June 30, 2006, the Corporation recorded $NIL (six months ended June 30, 2005 - $267,000) compensation expense in the statement of net income (loss) relating to stock based compensation for the performance warrants. For the three months ended June 30, 2006, the Corporation recorded $NIL (three months ended June 30, 2005 - $146,000) compensation expense in the statement of net income (loss) relating to stock based compensation for the performance warrants.

A summary of the changes during the six months ended June 30, 2006 and the Corporation's outstanding performance warrants as at June 30, 2006 is presented below:



-----------------------------
Weighted Average
Number Exercise Price
$
-----------------------------
Outstanding, December 31, 2004 - -
Issued 4,049,665 3.00
Exercised (300,000) 3.00
-----------------------------
Outstanding, December 31, 2005 3,749,665 3.00
Issued - -
Exercised - -
-----------------------------
Outstanding, March 31, 2006 and June 30,
2006 3,749,665 3.00
-----------------------------
-----------------------------

Number
Outstanding Number
at June 30, Exercise Exercisable at
Date of Grant 2006 Date of Expiry Price $ June 30, 2006
------------------------------------------------------------------------

January 14,
2005 3,749,665 January 31, 2010 $ 3.00 3,749,665
------------------------------------------------------------------------
------------------------------------------------------------------------


The fair value of each option and performance warrant was determined on the date of the grant using the Black-Scholes option-pricing model. The weighted average assumptions used in calculating the fair values are set forth below:



-------------------
2006 2005
-------------------

Risk-free interest rate 4.0% 3.6%
Expected maturity (years) 5.0 5.0
Expected volatility 40.1% 47.3%
Dividend per share $0.00 $0.00


Contributed Surplus Continuity
-------------------
$000's $000's
-------------------
Balance, December 31, 2004 63
Stock-based compensation expense - stock options 1,116
Stock-based compensation expense
- performance warrants (1) 5,832
--------
Stock-based compensation expense - total 2005 6,948
Exercise of performance warrants (432)
--------
Balance, December 31, 2005 6,579
Stock-based compensation expense - stock options 623
Cancellation of stock options (24)
Exercise of stock options (29)
--------
Balance, March 31, 2006 7,149
Stock-based compensation expense - stock options 687
Cancellation of stock options (53)
Exercise of stock options -
--------
Balance, June 30, 2006 7,783
--------
--------

(1) All of the performance warrants vested during the fourth quarter of
2005 and as such 100% of the stock-based compensation value to be
expensed was charged against income in the fourth quarter.


9. COMMITMENTS

Flow-Through Shares

In the fourth quarter of 2005, the Corporation committed to renounce approximately $13.5 million of exploration expenditures pursuant to a flow-through common share issue completed on December 20, 2005. Birchcliff has until December 31, 2006 to incur these exploration expenditures. The Corporation will be subject to Part XII.6 tax based on the prescribed rate and the balance of exploration expenditures not yet incurred at the end of each month subsequent to January 31, 2006.

At June 30, 2006 Birchcliff estimates it has incurred approximately $5.8 million of these costs.

Office Premises

Subsequent to June 30, 2006, the Corporation is committed under an operating lease for its current office premises which expires on September 30, 2007. It is also committed to March 29, 2011 under an operating lease for some other premises that it does not use and has sublet to an arm's length party on a basis that recovers all of its rental costs. The Corporation is committed to the following aggregate minimum lease payments (not reduced by rents receivable by the Corporation):



------------------------------------------------------------------------
$
------------------------------------------------------------------------
2006 (Jul 1 - Dec 31) 335,000
2007 682,000
2008 202,000
2009 202,000
2010 202,000
Thereafter 51,000

10. SUPPLEMENTARY CASH FLOW INFORMATION

The following table details the components of non-cash working capital:

-----------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-----------------------------------------------------
$000's $000's $000's $000's
-----------------------------------------------------
Provided by (used in)
Accounts receivable 2,289 (7,078) 5,734 (6,602)
Prepaid and other (1,962) 10 (1,956) (40)
Accounts payable and
accrued liabilities (5,412) 5,687 (12,486) 5,819
-----------------------------------------------------
(5,085) (1,381) (8,708) (823)
-----------------------------------------------------
-----------------------------------------------------

Operating 3,696 (2,839) 5,063 (2,461)
Investing (8,781) 1,458 (13,771) 1,638
-----------------------------------------------------
(5,085) (1,381) (8,708) (823)
-----------------------------------------------------
-----------------------------------------------------


Advisory

BOE Conversions: The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent ("6:1"). A boe conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Birchcliff is a publicly traded company that trades on the TSX Exchange under the symbol "BIR".

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

Contact Information

  • Birchcliff Energy Ltd.
    Jeff Tonken
    President and Chief Executive Officer
    (403) 261-6401
    (403) 261-6424 (FAX)
    or
    Birchcliff Energy Ltd.
    Bruno Geremia
    Vice President and Chief Financial Officer
    (403) 261-6401
    (403) 261-6424 (FAX)
    or
    Birchcliff Energy Ltd.
    Jim Surbey
    Vice President, Corporate Development
    (403) 261-6401
    (403) 261-6424 (FAX)