Bulldog Energy Inc.

Bulldog Energy Inc.

March 21, 2005 06:00 ET

Bulldog Announces 2004 Financial and Operating Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: BULLDOG ENERGY INC.

TSX SYMBOL: BDE.A
TSX SYMBOL: BDE.B

MARCH 21, 2005 - 06:00 ET

Bulldog Announces 2004 Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - March 21, 2005) - BULLDOG ENERGY INC.
(TSX:BDE.A) (TSX:BDE.B):

Highlights

2004 - A BREAK-OUT YEAR

We achieved significant operational successes in 2004 which were
recognized in the market place through increases in our share price and
expanded liquidity.

- Bulldog recorded 100% success in its oil drilling program - 17 gross
oil wells (13.7 net). Two shut-in natural gas wells were also drilled.

- Horizontal drilling at Carlyle/Manor resulted in three new pool
discoveries and five pool extensions. This property is a major reservoir
of 34 degree API crude oil.

- We completed an acquisition in February 2004 that nearly doubled our
size at the time and significantly expanded our drilling opportunities.

- Our reserves increased substantially even after recognizing the year's
production and the sale of our Rosevear property at the end of the year
- proven reserves were up 93% to 2.5 million BOE while proven and
probable reserves more than doubled to 3.9 million BOE.

- Production volumes averaged 1,220 BOE/day more than doubling the 2003
average of 533 BOE/day.

- Our 2004 cash costs - royalties, operating costs, general &
administrative, and interest - per BOE of production declined 4% versus
the prior year reflecting the efficiencies of a larger scale of
operations.

- Our 2004 capital efficiency - as measured by our finding, development
and acquisition costs per BOE - declined primarily due to competitive
pressures. Nevertheless our recycle ratio excluding revisions improved
to 1.7 times demonstrating improved profitability.

- Cash flow increased 228% to $11.8 million due to the combination of
higher production volumes and the 29% increase in our average oil price;
cash flow per share increased 89% to $0.36/share.

- Net income increased 302% demonstrating that our operational successes
flowed through to the bottom line.

- To finance our growth, we raised a total of $17.0 million in two
equity issues and expanded our authorized credit facilities to $14.5
million.

- At year end, our financial position was very strong with total
indebtedness of $7.3 million equal to five months of projected cash flow.

- Bulldog's share trading expanded twenty fold to average 193,000
shares/day while the share price is up three times since mid-2004 to a
current level of approximately $3.00/share. Our analyst coverage has
expanded to seven investment firms.



------------------------------------------------------------------------
Three months Year
ended December 31 ended December 31
2004 2003 2004 2003
------------------------------------------------------------------------
FINANCIAL
(000s except per share)

Revenues $ 6,757 $ 2,032 $ 20,557 $ 7,584
Cash flow from
operations $ 4,026 $ 947 $ 11,784 $ 3,594
Per share - diluted $ 0.12 $ 0.04 $ 0.36 $ 0.19
Net income $ 1,192 $ 100 $ 3,831 $ 954
Per share - diluted $ 0.03 $ - $ 0.12 $ 0.05
Capital expenditures $ (448)(1) $ 5,120 $ 30,607 $ 8,021
------------------------------------------------------------------------
OPERATING
Production volumes
Oil (bbls/day) 1,373 465 1,067 365
Natural gas (mcf/day) 999 883 920 1,007
Oil equivalent
(BOE/day) 1,540 612 1,220 533
Average price realizations
Oil ($/bbl) $ 48.23 $ 35.58 $ 46.57 $ 37.52
Natural gas ($/mcf) $ 7.22 $ 6.28 $ 7.07 $ 7.01
Oil equivalent ($/BOE) $ 47.70 $ 36.09 $ 46.04 $ 38.96
Operating expense ($/BOE) $ 6.95 $ 6.53 $ 6.46 $ 6.51
Field netback ($/BOE) $ 32.34 $ 20.79 $ 30.06 $ 22.95
General and
administrative
($/BOE) $ 2.82 $ 2.89 $ 2.49 $ 2.95
Corporate netback ($/BOE) $ 28.42 $ 16.81 $ 26.39 $ 18.47
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Net of property dispositions totalling $6,362,000.


2005 - A PROMISING YEAR

Our guidance remains unchanged from our January 12, 2005 press release
with 2005 production volumes expected to average 1,850 BOE/day (100%
oil) representing a 50% increase from the 1,220 BOE/day (88% oil)
average for 2004. We have provided full guidance and a cash flow
sensitivity table on page 14 of this report.

Bulldog's production as of mid-March 2005 is approximately 1,600
bbls/day of light oil.

The following sections present certain operational information
consistent with our Form 51-101F1 regulatory filing. All of this
information, together with expanded explanatory comment, will be
included in our annual report which will be mailed to shareholders in
April. After March 31, 2005, the regulatory filing may be retrieved
electronically from the SEDAR website (www.sedar.com) or from Bulldog's
website (www.bulldogenergy.com).



UNDEVELOPED LAND
------------------------------------------------------------------------
2004 2003
December 31 (acres) Gross Net Gross Net
------------------------------------------------------------------------
Alberta - - 13,936 4,308
Saskatchewan 37,955 31,762 26,920 20,876
------------------------------------------------------------------------
Total 37,955 31,762 40,856 25,184
------------------------------------------------------------------------
Average working interest 84% 62%
------------------------------------------------------------------------
------------------------------------------------------------------------

DRILLING ACTIVITY
------------------------------------------------------------------------
2004 2003 2002
Year ended December 31 (wells) Gross Net Gross Net Gross Net
------------------------------------------------------------------------
Oil completions 17 13.7 12 4.7 3 1.0
Natural gas completions 2 2.0 2 1.2 7 2.6
Dry and abandoned - - 5 1.8 4 2.0
------------------------------------------------------------------------
Total wells 19 15.7 19 7.7 14 5.6
------------------------------------------------------------------------
Average working interest 83% 41% 40%
------------------------------------------------------------------------
------------------------------------------------------------------------


PETROLEUM AND NATURAL GAS RESERVES

Bulldog engaged the independent engineering firm Gilbert Lausten Jung
Associates Ltd. (GLJ) to evaluate our estimated reserves and future net
revenues as of December 31, 2004. Their report, dated March 4, 2005,
covered 100% of our reserves.

All of the following material presented is extracted from the GLJ report
based upon the sections prepared using escalating price and cost
assumptions for the company working interest reserves. Bulldog believes
these assumptions to be the most realistic presentation of such data.
The tables based upon constant price and cost assumptions are set out in
our 2004 Annual Information Form. Bulldog does not represent that the
tables showing the undiscounted and discounted future net revenues as
estimated by GLJ are representative of fair market value.



Summary of Reserve Volumes and Estimated Future Net Revenues
------------------------------------------------------------------------
Natural Net Present Value ($000s)
Oil Gas Total (before income taxes)
(mbbls) (mmcf) (mboe) Undiscounted 10% Discount
------------------------------------------------------------------------
December 31, 2004
Proved producing 1,701 306 1,752 $ 35,702 $ 29,126
Proved developed
non-producing 61 1 61 1,772 1,574
Proved undeveloped 643 71 654 11,794 8,712
------------------------------------------------------------------------
Total proved 2,405 378 2,468 49,268 39,412
Total probable 1,409 85 1,423 25,272 15,332
------------------------------------------------------------------------
Total proved
plus probable 3,814 463 3,891 $ 74,540 $ 54,744
------------------------------------------------------------------------
------------------------------------------------------------------------
December 31, 2003
Total proved
plus probable 1,318 2,795 1,784 $ 24,425 $ 16,592
------------------------------------------------------------------------
------------------------------------------------------------------------


Reconciliation Of Changes In Reserve Volumes
Escalating Prices And Costs
------------------------------------------------------------------------
Proved Proved & Probable
Natural Natural
Oil Gas BOE Oil Gas BOE
(mbbls) (mmcf) (mboe) (mbbls) (mmcf) (mboe)
------------------------------------------------------------------------
January 1, 2004 946 1,983 1,277 1,318 2,795 1,784
Drilling 1,216 98 1,232 1,909 131 1,931
Acquisitions 805 123 825 1,171 137 1,193
Dispositions (42) (1,519) (295) (68) (2,119) (421)
Revisions (129) 29 (124) (125) (145) (149)
Production (391) (336) (447) (391) (336) (447)
------------------------------------------------------------------------
December 31, 2004 2,405 378 2,468 3,814 463 3,891
------------------------------------------------------------------------
------------------------------------------------------------------------


EFFICIENCY MEASURES

Finding and development costs

Bulldog's finding and development costs (F&D) and finding, development
and acquisition costs (FD&A) are set out in the following table. These
calculations are based upon:

- using company working interest reserve volumes;

- using the escalated prices and costs case from the GLJ report;

- the inclusion of all capitalized costs recorded in the period
including land and seismic costs but excluding asset retirement costs;
and

- the inclusion of the change in estimated future development costs
required to bring the related reserves fully on production.

- the effect of all revisions to previous reports



------------------------------------------------------------------------
Three year
2004 2003 Average
------------------------------------------------------------------------
F&D Costs/BOE
Proved $ 17.12 $ 18.30 $ 15.34
Proved plus probable $ 11.45 $ 13.95 $ 12.02
------------------------------------------------------------------------
------------------------------------------------------------------------
FD&A Costs/BOE
Proved $ 23.28 $ 16.54 $ 19.75
Proved plus probable $ 16.39 $ 12.38 $ 14.94
------------------------------------------------------------------------
------------------------------------------------------------------------


Excluding revisions, Bulldog's 2004 F&D and FD&A costs based on proved
and probable reserves for 2004 were $10.57 and $15.61 per BOE
respectively.

Our 2004 FD&A costs/BOE were higher than in the prior year and above the
F&D costs/BOE from our exploration and development programs. This is
indicative of the highly competitive environment within our industry
particularly in pursuing corporate or property acquisition opportunities
and underscores the importance of having active on-going exploration and
development programs. The Helmsman acquisition completed in early 2004
was a major undertaking and almost doubled Bulldog's size at the time.
We based our purchase upon an Ashton Jenkins Mann report dated November
1, 2003. These properties were evaluated by Gilbert Laustsen Jung (GLJ)
for the December 31, 2004 report. GLJ has excluded certain areas with
respect to the Wauchope pool from the proven and probable reserves
categories in their report. However, GLJ has recognized 621,000 barrels
of additional possible reserves in the pool from these excluded areas in
a separate evaluation. When viewed in the context of our three year
history and how we are positioned going into 2005, we believe our FD&A
costs/BOE are reasonable and reflective of the industry environment in
which we operate.

Reserve Life index

As of December 31, 2004, the reserve life index on our oil reserves was
4.8 years on a proved basis and 7.6 years on a proved plus probable
basis. We believe a reserve life index of 5-8 years is an appropriate
balance of reserve longevity and capital deployment.

In the GLJ report, our probable reserves only look forward to mid-2006.
We plan a very active drilling program in 2005 and expect to validate
most of the probable reserves as proved reserves this year. Not only
will this have a favourable impact on future production volumes, but it
will result in improvement in our proved reserve life index.



Recycle Ratio

ANNUAL RECYCLE RATIO (TIMES)
------------------------------------------------------------------------
FD& A Costs(1) Recycle Ratio
Proved & Proved &
Net Back/BOE Proved Probable Proved Probable
------------------------------------------------------------------------
2004 $26.39 $21.88 $15.61 1.2 1.7
2003 $18.47 $13.18 $11.83 1.4 1.6
2002 $ 8.34 $14.50 $13.04 0.6 0.6
------------------------------------------------------------------------
(1) Excluding revisions to reserve volumes.


Currently, Bulldog only produces light crude oil and therefore enjoys
one of the highest cash flow netbacks in the industry. Our cash flow
netback during the first quarter of 2005 will exceed $30.00/BOE.

Financial Reports

MANAGEMENT'S DISCUSSION AND ANALYSIS

Advisories

The intention of this Management's Discussion and Analysis (MD&A) is for
Bulldog to explain to its shareholders and the investment community
three analyses from management's perspective:

(1) Bulldog's performance in 2004,

(2) Bulldog's current financial condition, and

(3) Bulldog's future prospects.

This MD&A complements and supplements the disclosures in our audited
financial statements which have been prepared according to Canadian
generally accepted accounting principles (GAAP).

Given the objectives of the MD&A, certain information presented is of a
forward looking nature. Such forward looking information involves
substantial known and unknown risks and uncertainties. Most of these are
beyond Bulldog's control and include: the impact of general economic
conditions, industry conditions, volatility of commodity prices,
currency fluctuations, imprecision of reserve estimates, environmental
risks, competition from other producers, the availability of qualified
personnel, stock market volatility, and the access to sufficient capital
from internal and external sources. The reader is cautioned that
assumptions used in the preparation of such information, while
considered reasonable by Bulldog at the time, may prove to be incorrect.
Bulldog's actual results could differ materially from those expressed
in, or implied by, such forward looking information.

Finally, in the presentation of the MD&A Bulldog uses two terms that are
universally applied in analyzing corporate performance within our
industry but which regulators require that we provide disclaimers.

- Barrel of Oil Equivalent (BOE) - Our industry commonly expresses
production volumes and reserves on a "barrel of oil equivalent" basis
(BOE) whereby natural gas volumes are converted at the ratio of six
thousand cubic feet to one barrel of oil. The intention is to sum oil
and natural gas measurement units into one basis for improved analysis
of results and comparisons with other industry participants. Throughout
this MD&A Bulldog has used the 6:1 BOE measure which is the approximate
energy equivalency of the two commodities at the burner tip. BOE does
not represent a value equivalency at the plant gate which is where
Bulldog sells its production volumes and therefore may be a misleading
measure if used in isolation.

- Cash Flow from Operations (Cash flow) - This measure is considered
critical within our industry both in terms of measuring success in our
historical operations and being an indicator of funding sources for
on-going efforts to replace production volumes and increase reserve
volumes. Canadian GAAP requires that "cash flow from operating
activities" be the measurement focus. This latter term is derived from
"cash flow" as defined by Bulldog adjusted for the change in non-cash
working capital. Bulldog believes "cash flow" and "cash flow per share"
to be more meaningful measures of our performance and therefore have
used these terms throughout this MD&A. Accordingly, we are required to
advise the reader that: (a) these are non-GAAP measures for purposes of
Canadian accounting standards; and (b) our determinations may not be
comparable to those reported by other companies.

Overview

In mid-2001, Bulldog was a concept developed by the three most senior
members of our management team. Our initial funding in December 2001
totalled $5 million and we commenced active operations at the beginning
of 2002. Bulldog has now completed three full years of operations
encompassing exploration, development, acquisitions, divestitures, and
financing initiatives. Our initial equity capital base of $5 million has
been supplemented by an additional $26 million of financing proceeds.
Reflecting our success in building shareholder value, this total equity
base of $31 million has more than tripled to a market capitalization of
$100 million as of March 17, 2005.

As an overview on our performance in 2004, we have summarized our
production volumes, emphasizing daily averages, and our income
statement, emphasizing each line item on a BOE basis.



Production Volumes
------------------------------------------------------------------------
Year ended December 31 2004 2003 Change
------------------------------------------------------------------------
Annual volumes
Oil (barrels) 390,343 133,394
Natural gas (mcf) 336,643 367,710
Barrels of oil equivalent (BOE) 446,450 194,679
Daily averages
Oil (bbls/day) 1,067 365 192%
Natural gas (mcf/day) 920 1,007 (9%)
Barrels of oil equivalent (BOE/day) 1,220 533 129%
------------------------------------------------------------------------
------------------------------------------------------------------------


Summarized Income Statement
------------------------------------------------------------------------
Per BOE $000s
Year ended December 31 2004 2003 2004 2003 Change
------------------------------------------------------------------------
Revenues $ 46.04 $ 38.96 $ 20,557 $ 7,584
Royalties (9.52) (9.50) (4,252) (1,849)
Operating costs (6.46) (6.51) (2,884) (1,268)
------------------------------------------------------------------------
Operating income 30.06 22.95 13,421 4,467 200%
General & administrative (2.49) (2.95) (1,111) (574)
Interest (1.18) (1.53) (526) (299)
------------------------------------------------------------------------
Cash flow 26.39 18.47 11,784 3,594 228%
Depletion & depreciation (13.50) (11.19) (6,025) (2,177)
Accretion of asset
retirement obligations (0.54) (0.47) (242) (91)
Stock-based compensation (0.61) (0.85) (271) (166)
Future income taxes (3.17) (1.06) (1,415) (206)
------------------------------------------------------------------------
Net income $ 8.57 $ 4.90 $ 3,831 $ 954 302%
------------------------------------------------------------------------
------------------------------------------------------------------------

The increase in revenues was attributable to changes in both production
volumes and commodity prices analyzed as:

Revenues
------------------------------------------------------------------------
(000s) Oil Natural Gas Total
------------------------------------------------------------------------
Reported 2003 revenues $ 5,005 $ 2,579 $ 7,584
Increase (decrease) in
production volumes 9,641 (218) 9,423
Increase in prices 3,531 19 3,550
------------------------------------------------------------------------
Reported 2004 revenues $ 18,177 $ 2,380 $ 20,557
------------------------------------------------------------------------
------------------------------------------------------------------------


The major factors influencing Bulldog's improved results in 2004 were:

- Oil production volumes almost tripled primarily due to successful
drilling and the Helmsman acquisition completed in February 2004.

- Benchmark oil prices increased throughout 2004 due to rising demand
and political uncertainties.

- Administrative and interest costs expressed on a BOE basis decreased
reflecting efficiencies realized through increased scale of operations.

Some of our growth in 2004 was partially financed by equity issues and
therefore the improvements in absolute results were diluted when
expressed on a per share basis. Nevertheless, our results expressed on a
per share basis improved significantly with cash flow per share almost
doubling.



------------------------------------------------------------------------
2004 2003 Change
------------------------------------------------------------------------
Cash flow per share - diluted $ 0.36 $ 0.19 89%
Earnings per share - diluted $ 0.12 $ 0.05 140%
------------------------------------------------------------------------
------------------------------------------------------------------------


Bulldog's financial position at December 31, 2004 was strong. Our
balance sheet was heavily weighted to equity financing with our
indebtedness (outstanding debt less positive working capital) to total
capitalization of 19%. Our ratio of indebtedness to annualized fourth
quarter cash flow was 5 months. Both of these measures compare
favourably with our industry peers.

The success of our operations in 2004 has positioned Bulldog with a
large inventory of prospects to be drilled in 2005. Average production
volumes are expected to increase 50% in 2005 which together with current
oil prices significantly in excess of 2004 levels will result in
increased cash flow.

Bulldog's biggest challenge over the next few years is to expand into
new areas of operations in a very competitive environment.

Results of Operations

Our industry commonly expresses various operating results on a unit of
production basis and other statistical measures which are the bases of
the following analyses.

Operating Income

Operating income is defined as revenues less royalties and operating
costs. In 2004, 90% was derived from our oil operations all of which are
conducted in Southeast Saskatchewan. The balance was sourced from our
natural gas operations at Rosevear in West Central Alberta. The
relationship in 2003 was 72%.



OIL NETBACKS PER BARREL
------------------------------------------------------------------------
Year ended December 31 2004 2003 Change
------------------------------------------------------------------------
WTI benchmark price - $US $ 41.40 $ 31.04 33%
Market differential - $US $ (0.95) $ (0.19)
Exchange rate - $US/$Cdn $ 0.770 $ 0.716
------------------------------------------------------------------------
Edmonton light benchmark price - $Cdn $ 52.54 $ 43.14 22%
Corporate differential - $Cdn (3.27) (4.99)
------------------------------------------------------------------------
Bulldog average oil price realization/barrel 49.27 38.15 29%
Loss on forward price contracts (2.70) (0.63)
Royalties (9.55) (8.60)
Operating costs (6.58) (4.69)
------------------------------------------------------------------------
Bulldog realized netback / barrel $ 30.44 $ 24.23 26%
------------------------------------------------------------------------
------------------------------------------------------------------------
Average royalty rate 19.4% 22.5%
Average daily production (barrels) 1,067 365 192%
------------------------------------------------------------------------


Production volumes tripled in 2004 reflecting the incremental volumes
from our 2004 drilling program, and 10 months production from the
Helmsman acquisition that was completed on February 20, 2004.

The benchmark WTI oil price increased 33% year over year due to tight
supply and demand fundamentals and political uncertainties. However, the
improvement was partially negated by the appreciation of the Canadian
dollar in 2004 resulting in a 29% gain in Bulldog's average oil price
realization over 2003. Our average royalty rate decreased due to royalty
holidays on new wells placed on production.

Bulldog's operating cost per barrel increased due to high trucking costs
associated with production from the new Manor oil wells. The majority of
these wells will be tied into our central production facilities in early
2005 resulting in cost efficiencies. Oilfield service sector costs have
also increased significantly.



NATURAL GAS NETBACKS PER THOUSAND CUBIC FEET
------------------------------------------------------------------------
Year ended December 31 2004 2003 Change
------------------------------------------------------------------------
NYMEX benchmark price - $US $ 5.90 $ 5.49 7%
Market differential - $US $ (0.85) $ (0.70)
Exchange rate - $US/$Cdn $ 0.770 $ 0.716
------------------------------------------------------------------------
AECO benchmark price - $Cdn $ 6.55 $ 6.70 (2%)
Corporate differential - $Cdn 0.52 0.31
------------------------------------------------------------------------
Bulldog average natural gas price
realization / mcf 7.07 7.01 1%
Royalties (1.76) (2.23)
Operating costs (0.94) (1.75)
------------------------------------------------------------------------
Bulldog realized netback / mcf $ 4.37 $ 3.03 44%
------------------------------------------------------------------------
------------------------------------------------------------------------
Average royalty rate 24.8% 32.0%
Average daily production (mcf) 920 1,007 (9%)
------------------------------------------------------------------------


Production volumes declined due to natural reservoir declines. The 7%
increase in the benchmark NYMEX natural gas price in 2004 was offset by
the appreciation of the Canadian dollar yielding a flat natural gas
price realization for Bulldog. Nevertheless, Bulldog still realized a
44% improvement in realized netbacks as a result of decreased royalty
rates and operating cost efficiencies following the higher cost start-up
phase of production in 2003. Bulldog sold its Rosevear natural gas
property at the end of 2004.



General and Administrative Expenses
------------------------------------------------------------------------
Year ended December 31 (000s) 2004 2003
------------------------------------------------------------------------
Gross expenses $ 2,234 $ 1,185
Operator recoveries (585) (318)
Capitalized overhead (538) (293)
------------------------------------------------------------------------
Net expenses $ 1,111 $ 574
------------------------------------------------------------------------
------------------------------------------------------------------------
Average cost per BOE
Gross $ 5.00 $ 6.08
Net $ 2.49 $ 2.95
------------------------------------------------------------------------
------------------------------------------------------------------------


While gross expenses have almost doubled from 2003, we have realized
economies of scale on a per unit basis. Gross expenses increased due to
the scale of operations and the addition of experienced professional
staff in early 2004. We employed the equivalent of nine full time staff
members versus six full time equivalents in 2003.



Interest and Financial Expenses
------------------------------------------------------------------------
Year ended December 31 (000s) 2004 2003
------------------------------------------------------------------------
Interest expenses - long-term debt $ 192 $ 258
Interest expenses - bank loans 313 14
Other financial charges 21 27
------------------------------------------------------------------------
Total $ 526 $ 299
------------------------------------------------------------------------
------------------------------------------------------------------------
Average cost per BOE $ 1.18 $ 1.53
Average debt outstanding $ 9,008 $ 2,553
Average interest rate 5.61% 10.70%
------------------------------------------------------------------------
------------------------------------------------------------------------


Total interest and financial expenses increased substantially in 2004;
however, the draw on credit facilities in 2004 was considerably
different than in 2003 accounting for the substantial reduction in the
average interest rate. In 2003, most of the draw was on the 11%
subordinated long-term debt assumed on a 2002 corporate acquisition;
monthly principal repayments and a lump sum payment of $683,000 on
November 1st, 2004 resulted in the reduction in this component of
interest expense in 2004. Drawings on our bank loan facilities, which
were drawn to partially finance the Helmsman acquisition and ongoing
capital expenditures, comprised 81% of our average debt utilization in
2004. The average interest rate on this component of our debt in 2004
was 4.3% reflecting the low interest rate environment prevailing in
Canada throughout the year.



Non-Cash Expenses
------------------------------------------------------------------------
Year ended December 31 2004 2003
------------------------------------------------------------------------

Depletion and depreciation (000s) $ 6,025 $ 2,177
Per BOE $ 13.50 $ 11.19

Accretion of asset retirement obligations (000s) $ 242 $ 91
Per BOE $ 0.54 $ 0.47

Stock-based compensation (000s) $ 271 $ 166
Per BOE $ 0.61 $ 0.85

Future income taxes (000s) $ 1,415 $ 206
Per BOE $ 3.17 $ 1.06

Apparent income tax rate 27.0% 17.7%
------------------------------------------------------------------------
------------------------------------------------------------------------


The depletion and depreciation expense rate per unit rose in 2004
reflecting higher costs of drilling and facilities; this trend is
consistent with industry peers and reflects the increase in cost
structures in the current highly competitive environment. Accretion of
asset retirement obligations and stock-based compensation expense did
not change significantly in 2004 when expressed on a per BOE basis. In
2003, there were several changes to the income tax act with respect to
natural resources including a reduction in the federal tax rate,
deductibility of Crown royalties, and the elimination of the resource
allowance. These changes are to be phased in over a five year period.
There was a very significant reduction in future income taxes in the
first year of these changes taking place and therefore the apparent
income tax expense and rate in 2003 are unusually low.



Net Capital Expenditures
------------------------------------------------------------------------
Year ended December 31 (000s) 2004 2003
------------------------------------------------------------------------
Corporate acquisition $ 19,507 $ -
Property acquisitions - 1,493
Property disposition (6,362) -
Lease acquisitions and retentions 712 495
Seismic 584 662
Drilling & completions 10,712 4,007
Equipping,pipelines and facilities 5,429 1,335
Head office 25 29
------------------------------------------------------------------------
Total capitalized costs $ 30,607 $ 8,021
------------------------------------------------------------------------
------------------------------------------------------------------------


These numbers represent capital expenditures capitalized to petroleum
and natural gas properties during the respective years. In addition,
capitalized costs with respect to asset retirement obligations were
reduced in 2004 by $364,000 (2003 increase of $348,000). This decrease
was primarily as a result of selling the Rosevear property and revising
the fair value of the future asset retirement obligations.

Liquidity and Capital Resources

Our industry operates within several parameters affecting its liquidity
and capital resources:

- It is capital intensive requiring cash infusions on a regular basis as
it seeks to grow its business.

- Its inventory of product for sale - its reserves - needs to be
constantly replenished and augmented.

- It is a price taker when selling its inventory of oil and natural gas
reserves.

Given these constraints, Bulldog finances its operations primarily
through equity sources and cash flows. We maintain credit facilities to
finance working capital fluctuations, incremental exploration and
development activities, and acquisitions.

December 31, 2004 Analysis

Our indebtedness at December 31, 2004 totalled $7.3 million consisting
of revolving bank loans of $10.0 million and a term facility of $1.0
million offset by positive working capital of $3.7 million. The positive
working capital position was due to a receivable of $5.6 million for a
property sale. This transaction closed on January 12, 2005 and the
proceeds were applied to a reduction in the revolving bank loans. The
ratio of total indebtedness to the total of indebtedness and
shareholders' equity was 19%. The ratio of indebtedness outstanding to
annualized fourth quarter cash flows was 5 months. Both of these
measures compare favourably with our industry peers.

Bulldog's Class A and Class B common shares trade on The Toronto Stock
Exchange. The Class A shares are the primary measure and experienced
significant price appreciation and increased liquidity in 2004.



------------------------------------------------------------------------
Year ended December 31 2004 2003
------------------------------------------------------------------------
Average daily trading volumes 193,000 9,100
Share price - high $ 2.30 $ 1.25
- low $ 0.80 $ 0.55
- close $ 2.16 $ 1.20
------------------------------------------------------------------------
------------------------------------------------------------------------

These statistics are indicative of our improved market profile which
enhances our ability to access equity capital markets to finance our
growth initiatives.

Current Environment Analysis

Currently, Bulldog's capital structure is strong and reflects the
following debt and outstanding share positions:

OUTSTANDING DEBT
------------------------------------------------------------------------
(000s) March 17,2005
------------------------------------------------------------------------
Bank loans (authorized $14,500,000) $ 4,800
Term debt facility (due by November 1,2005) 900
------------------------------------------------------------------------
Total debt $ 5,700
------------------------------------------------------------------------
------------------------------------------------------------------------

The bank's annual review of our credit facilities will be completed in
the second quarter; we do not expect a reduction in the authorized
amount.

COMMON SHARES OUTSTANDING
------------------------------------------------------------------------
(000s) March 17,2005
------------------------------------------------------------------------
Class A common shares outstanding 32,276
Class B common shares outstanding 373
------------------------------------------------------------------------
Total Common Shares outstanding (conversion rate $3.00(1)) 33,518
Stock options to purchase Class A shares 2,410
------------------------------------------------------------------------
Total Common Shares outstanding
after exercise of all stock options 35,928
------------------------------------------------------------------------
Total proceeds due on conversion
and exercise of all stock options $ 2,709
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The conversion of the Class B common shares into Class A common
shares is based upon a formula of $10.00 divided by the greater of
$1.00 and the Class A market price at the time of conversion which
may occur at any time in 2005 and 2006 at Bulldog's option. The
$3.00 conversion rate used in the table represents the recent
trading price of the Class A shares.


Contractual Obligations

In the normal course of business, Bulldog enters into various
commitments including debt obligations and operating leases. Our forward
contractual obligations for the next five years are summarized as:



------------------------------------------------------------------------
(000s) 2005 2006
------------------------------------------------------------------------
Term debt repayments $ 975 $ -
Office lease 81 77
------------------------------------------------------------------------
Total contractual obligations $ 1,056 $ 77
------------------------------------------------------------------------
------------------------------------------------------------------------


In December 2004, Bulldog issued 1,400,000 Class A common shares on a
flow-through basis for income tax purposes. Bulldog is obligated to
incur qualifying expenditures for income tax purposes of $3.0 million by
December 31, 2005; as of March 17, 2005 the remaining obligation was
approximately $1.6 million. We have an inventory of drilling prospects
and seismic programs to fulfill this obligation.

As the majority of our on-going capital expenditure program is directed
to the further growth of reserves and production volumes, Bulldog is
readily able to adjust its budgeted capital expenditures should the need
arise. Bulldog has considerable financial strength, through its cash
flows and credit capacity, to fund all of its commitments in 2005.

Guidance for 2005

Our guidance remains unchanged from our January 12, 2005 press release.

Our critical budget parameters for 2005 include the following:

- Benchmark price assumptions

-- WTI oil price US$40.00/barrel

-- Foreign exchange rate of US$0.82 to Cdn$1.00

- Production volume assumptions

-- Average daily production 1,850 barrels of oil per day

- Resultant cash flows - $17.5 million

-- Per common share basic & diluted - $0.50/share

- Capital expenditures (excluding acquisitions) - $22.0 million

Current forward prices for oil are higher than our budget assumptions.
Our cash flow sensitivities to fluctuations are:



2005 Cash Flow Sensitivity
------------------------------------------------------------------------
Amount Per share
------------------------------------------------------------------------
PRODUCTION VOLUMES
- Change of 100 bbls/day
of average oil production $1,000,000 $ 0.03

COMMODITY PRICES
- Change of US$1.00/barrel
in the benchmark WTI oil price $ 600,000 $ 0.02

EXCHANGE RATE
- Change of $0.01 in the
$US / $Cdn exchange rate $ 300,000 $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------


We will continue to provide meaningful updates on these projections
throughout 2005.

We reiterate our caution about forward looking statements that was
presented at the beginning of this MD&A. There is a high degree of
volatility in our industry generally and in the degree of success in our
capital expenditure programs.

Additional Disclosures

Critical Accounting Estimates

In the preparation of the financial statements, it was necessary for
Bulldog to make certain estimates that were critical to determining our
assets, liabilities and net income. None of these estimates affect the
determination of cash flow but do have a significant impact in the
determination of net income. The most critical of these estimates is the
reserves estimations and the resulting effect on various income
statement and balance sheet measures.

Bulldog engaged the independent engineering firm Gilbert Laustsen Jung
Associates Ltd. (GLJ) to evaluate 100% of our oil and natural gas
reserves and prepare a report thereon. This report was utilized in: a)
the calculation of depletion and depreciation expense, b) the
application of the ceiling test, and c) the calculation of asset
retirement obligations. The estimation of the reserve volumes and future
net revenues set out in the GLJ report is complex and subject to
uncertainties and interpretations. Judgments are based upon engineering
data, projected future rates of production, forecasts of commodity
prices, and the timing of future expenditures. Inevitably the estimates
of reserve volumes and future net revenues will vary over time as new
data becomes available. The impact of such revisions in 2004 was not
significant.

Changes in Accounting Policies

The Canadian Institute of Chartered Accountants adopted several new
accounting standards that become effective in 2004. As Bulldog chose to
early adopt all of these standards in the preparation of its 2003
financial statements, there were no changes in accounting policies in
2004.

Forward Price Contracts & Financial Instruments

COMMODITY PRICE RISK MANAGEMENT

Bulldog is exposed to fluctuations in oil prices and occasionally enters
into future price contracts specifying either a fixed future settlement
price or a price range within which Bulldog will realize. The primary
reason for entering into such contracts is to protect cash flows and in
doing so assure the financing for our capital expenditure program.

As of December 31, 2004, Bulldog had two costless collar oil contracts
in place with the purchaser of our crude oil covering production volumes
of 200 barrels/day. These contracts expired February 28, 2005 and
resulted in reduced revenues of $208,000 over the first two months of
2005. These were the last of the contracts entered into to provide some
cash flow certainty after the completion of Helmsman acquisition in
February 2004.

As of March 17, 2005, there are no commodity price risk management
contracts outstanding.

CREDIT RISK MANAGEMENT

A substantial portion of Bulldog's accounts receivable are with
customers and joint venture partners in the oil and natural gas industry
and are subject to normal industry credit risks. Normal settlement terms
are 30 days. We are exposed to credit risk on our commodity contracts
due to the potential for non-performance by the counter parties. We
mitigate this risk by only dealing with well established marketing
companies or major financial institutions.

FAIR VALUE MEASUREMENT

The carrying values of cash, cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their fair values
due to their short term to maturity. The fair value of fixed rate
long-term debt is determined by discounting the contractual cash flows
under the debt facility at discount rates which represent interest rates
presently available to Bulldog for a debt facility with a similar term
and maturity. Based on this, the fair value of long-term debt as at
December 31, 2004 was not significantly different from its carrying
value.

Related Party Transactions

During 2004, Bulldog sold its Sarcee, Alberta property to its working
interest partner for a sales price of $70,000. A director of Bulldog is
an officer of the purchasing company. The transaction was approved by
the remaining members of the Board of Directors.

During 2003, Bulldog completed the purchase of an oil and natural gas
property from a private company which was controlled by a director of
Bulldog for cash consideration of $1,100,000 and a 2.5% gross overriding
royalty on one quarter section of undeveloped land. The property was
evaluated by an independent reserve engineering firm to substantiate the
purchase price and the transaction was approved by the remaining members
of the Board of Directors prior to its completion.

During 2004, Bulldog incurred $137,000 (2003 - $62,000) of legal fees to
a law firm in which one of Bulldog's directors is a partner. At December
31, 2004 accounts payable and accrued liabilities included $26,000 (2003
- $6,600) due to this related party.



Annual Analysis
------------------------------------------------------------------------
Year ended December 31 (000s) 2004 2003
------------------------------------------------------------------------
Production volumes
Oil (bbls/day) 1,067 365
Natural gas (mcf/day) 920 1,007
BOE/day 1,220 533
------------------------------------------------------------------------
Average selling price
Oil/bbl $ 46.57 $ 37.52
Natural gas/mcf $ 7.07 $ 7.01
BOE $ 46.04 $ 38.96
------------------------------------------------------------------------
Revenues (000s) $ 20,557 $ 7,584
Cash flow (000s) $ 11,784 $ 3,594
Per share - basic $ 0.37 $ 0.19
Per share - diluted $ 0.36 $ 0.19
Net income (000s) $ 3,831 $ 954
Per share - basic & diluted $ 0.12 $ 0.05
------------------------------------------------------------------------
Capital expenditures (000s) $ 30,607 $ 8,021
Total assets (000s) $ 58,210 $ 23,633
Indebtedness (000s) $ 7,274 $ 4,473
------------------------------------------------------------------------
------------------------------------------------------------------------


Financial Reports

Quarterly Analysis
------------------------------------------------------------------------
2004 2003
Three months ended Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------------------

Production volumes
Oil (bbls/day) 1,373 1,225 945 717 465 365 328 301
Natural gas
(mcf/day) 999 772 1,018 890 883 1,149 1,273 721
BOE/day 1,540 1,354 1,115 866 612 557 541 421
Average selling
price
Oil/bbl $48.23 $50.09 $45.47 $38.71 $35.58 $35.76 $36.26 $44.15
Natural gas/mcf $ 7.22 $ 6.49 $ 7.46 $ 6.96 $ 6.28 $ 6.35 $ 7.34 $ 8.42
BOE $47.70 $49.03 $45.36 $39.23 $36.09 $36.56 $39.33 $45.98
Revenues (000s) $6,757 $6,108 $4,601 $3,091 $2,032 $1,873 $1,935 $1,744
Cash flow (000s) $4,026 $3,673 $2,419 $1,666 $ 946 $ 853 $ 978 $ 817
Per share
- basic &
diluted $ 0.12 $ 0.11 $ 0.07 $ 0.06 $ 0.05 $ 0.04 $ 0.06 $ 0.05
Net income (000s)$1,192 $1,502 $ 754 $ 383 $ 100 $ 101 $ 573 $ 180
Per share
- basic $ 0.04 $ 0.04 $ 0.02 $ 0.01 $ 0.01 $ 0.00 $ 0.04 $ 0.01
Per share
- diluted $ 0.03 $ 0.04 $ 0.02 $ 0.01 $ 0.01 $ 0.00 $ 0.04 $ 0.01
Capital
expenditures(1)
(000s) $ (448) $5,642 $3,306 $2,600 $5,120 $1,090 $ 934 $ 877
------------------------------------------------------------------------
(1) Excluding business combinations and asset retirement costs


In 2004, quarterly cash flows have grown significantly reflecting the
growth in oil production volumes and the strengthening of prices
throughout the year. Quarterly net income followed the same pattern
except for the fourth quarter when the depletion and expense rate was
adjusted upwards following receipt of the annual reserve report. The
decrease in capital expenditures in the fourth quarter of 2004 reflects
the recognition of $6.3 million of sales proceeds from a property
disposition in accordance with generally accepted accounting principles;
capital expenditures before this disposition amounted to $5.9 million.
Quarterly cash flows and earnings in 2003 did not vary significantly
quarter to quarter reflecting the same pattern as production volumes and
commodity prices. The only exception was net income in the second
quarter - the unusual increase was the result of tax rate reductions
enacted in that quarter.



Financial Reports

UNAUDITED FINANCIAL STATEMENTS

Consolidated Balance Sheets
------------------------------------------------------------------------
As at December 31 (000s) 2004 2003
------------------------------------------------------------------------

Assets
Current assets:
Cash $ 1,067 $ 2,772
Property sale receivable (note 4) 5,625 -
Accounts receivable 3,629 1,711
------------------------------------------------------------------------
10,321 4,483
Petroleum and natural gas properties (note 4) 44,446 17,884
Goodwill 3,443 1,266
------------------------------------------------------------------------
$ 58,210 $ 23,633
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 6,570 $ 6,831
Bank indebtedness (note 5(a)) 10,050 -
Current portion of long-term debt (note 5(b)) 975 1,150
------------------------------------------------------------------------
17,595 7,981
Long-term debt - 975
Asset retirement obligations (note 6) 1,960 1,436
Future income taxes (note 7(b)) 7,378 2,904

Shareholders' equity:
Share capital (note 8(b)) 27,362 10,513
Contributed surplus (note 8(f)) 496 236
Retained earnings (deficit) 3,419 (412)
------------------------------------------------------------------------
31,277 10,337
------------------------------------------------------------------------
$ 58,210 $ 23,633
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



UNAUDITED FINANCIAL STATEMENTS

Consolidated Statements of Income and Retained Earnings (Deficit)
------------------------------------------------------------------------
Three monthes ended Years ended
Years ended December 31 December 31 December 31
(000s except per share amounts) 2004 2003 2004 2003
------------------------------------------------------------------------
Revenues $ 6,757 $ 2,032 $ 20,557 $ 7,584
Royalties (1,191) (494) (4,252) (1,849)
Production expenses (985) (367) (2,884) (1,268)
------------------------------------------------------------------------
4,581 1,171 13,421 4,467
Expenses:
General and administrative 399 163 1,111 574
Financial (note 5(c)) 156 62 526 299
Depletion and depreciation 2,376 763 6,025 2,177
Accretion of asset retirement
obligations (note 6) 72 25 242 91
Stock-based compensation (note 8(e)) 86 45 271 166
------------------------------------------------------------------------
3,089 1,058 8,175 3,307
------------------------------------------------------------------------
Income before income taxes 1,492 113 5,246 1,160
Future income tax expense
(note 7(a)) 300 13 1,415 206
------------------------------------------------------------------------
Net income 1,192 100 3,831 954
Deficit ,beginning of period 2,227 (512) (412) (1,366)
------------------------------------------------------------------------
Retained earnings (deficit),
end of period $ 3,419 $ (412) $ 3,419 $ (412)
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per common share:
Basic and diluted $ 0.03 $ 0.03 $ 0.12 $ 0.05
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



UNAUDITED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows
------------------------------------------------------------------------
Three monthes ended Years ended
December 31 December 31
Years ended December 31 (000's) 2004 2003 2004 2003
------------------------------------------------------------------------
Cash provided by (used in)
Operating activities:
Net income $ 1,192 $ 100 $ 3,831 $ 954
Items not involving cash:
Depletion and depreciation 2,376 763 6,025 2,177
Accretion of asset retirement
obligations 72 25 242 91
Stock-based compensation 86 45 271 166
Future income tax expense 300 13 1,415 206
------------------------------------------------------------------------
Cash flow from operations 4,026 946 11,784 3,594
Change in non-cash operating
working capital 895 62 (1,094) (294)
------------------------------------------------------------------------
Cash flow from operating
activities 4,921 1,008 10,690 3,300
Financing activities:
Issue of share capital,
net of issue costs 3,000 122 16,398 4,584
Borrowings on operating loan (430) - 10,050 -
Repayment of long-term debt (775) (83) (1,150) (375)
------------------------------------------------------------------------
1,795 39 25,298 4,209
------------------------------------------------------------------------
Investing activities:
Petroleum and natural gas
properties (5,913) (5,120) (17,462) (8,021)
Business combination (note 3) - - (19,507) -
Sale of petroleum and natural
gas properties (note 4) 6,362 - 6,362 -
Change in non-cash investing
working capital (8,248) 3,945 (7,086) 3,006
------------------------------------------------------------------------
(7,799) (1,175) (37,693) (5,015)
------------------------------------------------------------------------
Increase (decrease) in cash (1,083) (128) (1,705) 2,494
Cash,beginning of period 2,150 2,900 2,772 278
------------------------------------------------------------------------
Cash ,end of period $ 1,067 $ 2,772 $ 1,067 $ 2,772
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


UNAUDITED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
Years ended December 31, 2004 and 2003
(Tabular amounts stated in $000s except per share amounts)


1. Basis of presentation:

Bulldog Energy Inc. ("Bulldog") was incorporated under the laws of the
Province of Alberta on July 3, 2001 and commenced business in October
2001. Bulldog is engaged in the business of exploration, development and
production of petroleum and natural gas.

The preparation of these financial statements requires management to
make a number of estimates and assumptions relating to the reporting of
assets, liabilities, revenues, expenses and the disclosure of
contingencies. In particular, the amounts recorded for depletion and
depreciation of petroleum and natural gas properties, the ceiling test,
asset retirement obligations, and stock-based compensation are based on
estimates of proved reserves, production rates, oil and natural gas
prices, future costs and other relevant assumptions. By their nature,
these estimates are subject to measurement uncertainty and the effect on
the financial statements of changes in such estimates in future periods
could be significant.

2. Significant accounting policies:

These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles which require
adherence to numerous accounting policies. The following paragraphs
summarize the most significant of the policies followed by Bulldog.
Bulldog has selected the full cost method of accounting in preference to
the alternative successful efforts method of accounting in conformity
with the practice of virtually all Canadian independent oil and natural
gas companies. The policies described in the following paragraphs are
provided for greater clarity to understand the practices followed in the
preparation of these financial statements.

(a) PETROLEUM AND NATURAL GAS PROPERTIES:

Bulldog follows the full cost method of accounting for petroleum and
natural gas operations whereby all costs of exploring and developing oil
and natural gas properties and related reserves are capitalized. Such
capitalized costs include land acquisitions, geological and geophysical
expenditures, lease rentals on non-producing properties, expenditures of
drilling both productive and non-productive wells, production equipment,
asset retirement costs and the portion of general and administrative
expenses directly attributable to exploration and development activities.

Proceeds from the sale of properties are normally deducted from
capitalized costs without recognition of a gain or loss. Gains and
losses on the sale of properties are recognized only when such
dispositions would alter the depletion and depreciation expense rate by
a factor of 20% or more.

The costs of acquiring unproved properties are initially excluded from
capitalized costs in the calculation of depletion and depreciation
expense. These properties are assessed periodically to ascertain whether
a valuation impairment has occurred. When proven reserves are assigned
to such properties or a valuation impairment has occurred, the costs of
the properties are included in capitalized costs for purposes of the
depletion and depreciation expense calculation.

Capitalized costs, plus estimated future development expenditures less
estimated future salvage values, are recognized as depletion and
depreciation expense using the unit-of-production method based upon
estimated proven reserves (before deduction of royalties) as determined
by independent reserve consultants. For purposes of this calculation,
natural gas reserve and production volumes are converted to equivalent
volumes of oil based upon the energy equivalency ratio of six thousand
cubic feet of natural gas to one barrel of oil.

Bulldog applies a "ceiling test" to the net book value of petroleum and
natural gas properties to ensure that such carrying value does not
exceed the estimated fair value of the properties. The carrying value is
assessed to be recoverable when the sum of the undiscounted cash flows
expected from the production of proved reserves and the lower of cost
and market of unproved properties exceeds the carrying value. If the
carrying value is assessed to not be recoverable, the calculation
compares the carrying value to the sum of the discounted cash flows
expected from the production of proved and probable reserves and the
lower of cost and market of unproved properties. Should the carrying
value exceed this sum, an impairment loss is recognized. The cash flows
are estimated using projected future product prices and costs and are
discounted using the credit adjusted risk-free interest rate.

Certain of Bulldog's exploration, development, and production activities
are conducted jointly with others. These financial statements reflect
only Bulldog's proportionate share in such activities.

(b) GOODWILL:

Goodwill arises on business combinations to the extent that the
consideration given exceeds the fair value of the net assets acquired.
Goodwill is tested for impairment on a quarterly basis. A goodwill
impairment loss is recognized if the carrying value of goodwill exceeds
its fair value.

(c) ASSET RETIREMENT OBLIGATIONS:

The fair value of estimated asset retirement obligations is recognized
as a liability on the consolidated balance sheet in the period in which
it is incurred based upon discounted values (using Bulldog's credit
adjusted risk-free interest rate) of anticipated future expenditures
required to pay for such obligations. Such estimates vary from year to
year and are accounted for as follows:

(i) Increases resulting from the passage of time are recognized as
accretion expense in the consolidated statement of income.

(ii) Revisions resulting from changes to estimates or timing of future
expenditures to pay for such obligations are recorded as an increase or
decrease to the liability on the consolidated balance sheet.

(iii) Actual expenditures incurred in respect of asset retirements are
recorded as a reduction of the liability on the consolidated balance
sheet.

When an asset retirement obligation is recorded, an equivalent amount,
the asset retirement cost, is capitalized as part of petroleum and
natural gas properties. Such costs are amortized on the same basis as
other capitalized costs with the expense included in depletion and
depreciation expense.

(d) FUTURE INCOME TAXES:

Bulldog follows the liability method to account for income taxes. Under
this method, current income taxes are recognized for the estimated
income taxes payable for the current year at the substantively enacted
rates. Future income tax assets and liabilities are recognized for
temporary differences between the income tax and accounting cost bases
of assets and liabilities.

(e) FLOW-THROUGH SHARES:

Bulldog has financed a portion of its exploration and development
activities through the issuance of flow-through shares. The resource
expenditure deductions normally available for income tax purposes from
such activities are renounced to the investors in accordance with income
tax legislation. Bulldog's recorded amounts for future income taxes and
share capital are adjusted by the estimated income tax effect of the
deductions when renounced.

(f) PER SHARE AMOUNTS:

Basic per share amounts are calculated using the weighted average number
of Class A and Class B common shares outstanding during the year. Class
B common shares are converted to Class A common shares at $10 divided by
the higher of $1 and the Class A average market price for the period.

Diluted per share amounts are calculated based on the treasury stock
method. The weighted average number of common shares is adjusted for the
dilutive effect of stock options and warrants. The dilutive effect of
stock options and warrants uses the proceeds receivable on exercise to
impute the redemption of Class A common shares at the average market
price during the period. The weighted average number of common shares
outstanding is then adjusted by the net change.

(g) STOCK-BASED COMPENSATION:

The exercise price of stock options granted to employees, directors and
consultants is determined by the market price of the Class A common
shares at the date of grant. The fair value of stock options granted, as
determined by the Black-Scholes option pricing model, is expensed in the
consolidated statement of income over the vesting period with a
corresponding increase to contributed surplus. Upon the exercise of the
stock options, consideration received together with the amount
previously recognized in contributed surplus is recorded as an increase
to share capital.



3. Business combination:

On February 20, 2004, Bulldog acquired all the issued and outstanding
shares of two private companies and eight associated properties for:

------------------------------------------------------------------------
Cash $ 19,366
Transaction costs 141
------------------------------------------------------------------------
Total consideration $ 19,507
------------------------------------------------------------------------
------------------------------------------------------------------------

The results of operations of this acquisition have been included in
these financial statements since the closing date of February 20,2004.

To finance the cost of this acquisition,Bulldog issued 12,200,000 Class
A common shares on a private placement basis for gross proceeds of
$14,030,000 and increased its operating line of credit with its bank
to $10,500,000.

The following table summarizes the estimated fair value of the assets
acquired and the liabilities assumed at the date of acquisition:

------------------------------------------------------------------------
Working capital deficiency $ (376)
Petroleum and natural gas properties 21,999
Goodwill 2,178
Asset retirement obligations (795)
Future income taxes (3,499)
------------------------------------------------------------------------
Net assets acquired $ 19,507
------------------------------------------------------------------------
------------------------------------------------------------------------

4. Petroleum and natural gas properties:

------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Petroleum and natural gas properties $ 42,641 $ 18,690
Production equipment 12,529 3,924
Office furniture and equipment 122 91
------------------------------------------------------------------------
55,292 22,705

Less accumulated depletion and depreciation (10,846) (4,821)
------------------------------------------------------------------------
Net book value $ 44,446 $ 17,884
------------------------------------------------------------------------
------------------------------------------------------------------------


General & administrative expenses of $538,000 (2003 - $294,000) were
capitalized during the year.

Land and seismic costs associated with unproven properties that were
excluded from costs subject to depletion and depreciation for 2004
totaled $9,519,000 (2003 - $2,529,000). Future development costs of
$8,316,000 (2003 - $1,745,000) were included in the costs subject to
depletion and depreciation. Salvage value totaling $3,264,000 (2003 -
$689,000) reduced the costs of equipment subject to depreciation.

On December 17, 2004, Bulldog entered into an agreement for the sale of
certain petroleum and natural gas properties for cash consideration of
$6,250,000. A deposit of $625,000 was received at that time. The
transaction closed on January 12, 2005. Bulldog has recognized the sale
as of December 31, 2004.



At December 31,2004,the "ceiling test"calculation was based upon cash
flows discounted at a rate of8% and the following forecast benchmark
prices obtained from third parties:

------------------------------------------------------------------------
Oil Exchange
Prices Rate
WTI $US $1US/$1Cdn
------------------------------------------------------------------------
2005 $ 42.00 $ 0.82
2006 $ 40.00 $ 0.82
2007 $ 38.00 $ 0.82
2008 $ 36.00 $ 0.82
2009 $ 34.00 $ 0.82
Thereafter 2.0% $ 0.82
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Bank indebtedness and long-term debt:

(a) BANK INDEBTEDNESS:

At December 31, 2004, Bulldog had bank credit facilities consisting of:
(a) an $11,500,000 operating line of credit, and (b) a $3,000,000
acquisition/development line of credit. These facilities bear interest
at the bank's prime lending rate plus 1/2% and 3/4% respectively or at
the Bankers' Acceptance rate. As of December 31, 2004, $7,550,000 was
drawn on the operating line of credit and $2,500,000 was drawn on the
acquisition /development line of credit.

Amounts drawn under both facilities are due on demand. Security for the
lines of credit is provided by a $20,000,000 Supplemental Debenture with
a Negative Pledge and Undertaking to provide fixed charges on major
producing petroleum properties at the request of the bank.



(b) LONG-TERM DEBT:
------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Long-term debt $ 975 $ 2,125
Current portion of long-term debt (975) (1,150)
------------------------------------------------------------------------
Balance,end of year $ - $ 975
------------------------------------------------------------------------
------------------------------------------------------------------------


As of December 31, 2004, Bulldog is required to make monthly principal
repayments of $25,000 with a final payment of $725,000 due on November
1, 2005. Amounts drawn pursuant to this facility bear interest at 11%
per annum. This debt is secured by debentures from Bulldog totaling
$6,000,000 subordinated to the lines of credit with the bank.

(c) FINANCIAL EXPENSES:

Interest on long-term debt in 2004 amounted to $192,000 (2003 - $
258,000). The balance of interest expense in both years included
interest on the bank indebtedness and other interest charges offset by
miscellaneous interest income. Actual interest paid during 2004 was
$524,000 (2003 - $273,000).

6. Asset retirement obligations:

Bulldog has estimated the fair value of its future asset retirement
obligations with respect to its petroleum and natural gas properties.
The following table reconciles Bulldog's asset retirement obligations at
the end of each year.



------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Balance,beginning of year $ 1,436 $ 997
Accretion expense 242 91
Liabilities incurred 431 348
Liabilities settled (149) -
------------------------------------------------------------------------
Balance,end of year $ 1,960 $ 1,436
------------------------------------------------------------------------
------------------------------------------------------------------------


The foregoing fair values are based upon estimated expenditures required
to pay for the obligations discounted using a credit adjusted risk-free
rate of 8% (2003 - 8%) and an inflation rate of 2% (2003 - 2%) The
estimated total undiscounted future expenditures at December 31, 2004
was $3,800,000 (2003 - $1,966,000). Most of these obligations are
expected to be incurred by 2019.

7. Future income taxes:

(a) RECONCILIATION OF PROVISION FOR FUTURE INCOME TAXES:

The provision for income taxes differs from the result which would have
been obtained by applying the combined Federal and Provincial statutory
tax rate of 41.1% (2003 - 42.1%) to the income before income taxes.



The difference results from the following items:
------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Income before income taxes $ 5,246 $ 1,160
------------------------------------------------------------------------
------------------------------------------------------------------------
Expected income tax at 41.1% (2003 - 42.1%) $ 2,156 $ 488
Increase (decrease) resulting from:
Crown payments 416 427
Resource allowance (1,123) (472)
Non-deductible stock based compensation 111 70
Effect of change in future tax rates (145) (307)
------------------------------------------------------------------------
Future income tax expense $ 1,415 $ 206
------------------------------------------------------------------------
------------------------------------------------------------------------


(b) ANALYSIS OF FUTURE INCOME TAX LIABILITY:

Future income taxes consist of the following temporary differences:
------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Future tax liabilities:
Petroleum and natural gas properties $ 8,607 $ 3,160
Future tax assets:
Share issue costs and asset retirement obligations (1,229) (256)
------------------------------------------------------------------------
Balance,end of year $ 7,378 $ 2,904
------------------------------------------------------------------------
------------------------------------------------------------------------


8. Share capital:

(a) AUTHORIZED:

Unlimited number of Class A and B voting common shares

Unlimited number of preferred shares

The Class B shares are convertible into Class A shares at Bulldog's
option at any time from January 1, 2005 to December 31, 2006. The number
of Class A shares to be issued upon conversion of each Class B share
will be equal to $10 divided by the greater of $1 and the then current
market price of Class A shares. If conversion has not occurred by
December 31, 2006, the Class B shares become convertible into Class A
shares at the option of the shareholder until February 1, 2007, at which
time all remaining Class B shares outstanding will be automatically
converted into Class A shares.



(b) ISSUED AND OUTSTANDING:
------------------------------------------------------------------------
2004 2003
Number Amount Number Amount
------------------------------------------------------------------------
Class A common shares:
Balance,beginning of year 18,186,730 $ 8,355 11,991,874 $ 4,183
Issued for cash 13,600,000 17,040 6,000,000 4,800
Warrants exercised 397,401 437 194,856 146
Stock options exercised 21,667 29 - -
Share issue costs - (1,097) - (362)
Income tax effect of
share issue costs - 440 - 153
Income tax effect of
flow-through shares - - - (565)
------------------------------------------------------------------------
Balance,end of year 32,205,798 25,204 18,186,730 8,355
Class B common shares:
Balance,beginning
and end of year 372,768 2,158 372,768 2,158
------------------------------------------------------------------------
Total share capital,
end of year $ 27,362 $ 10,513
------------------------------------------------------------------------
------------------------------------------------------------------------


On February 20, 2004, Bulldog issued 12,200,000 Class A common shares at
a price of $1.15 per share for gross proceeds of $14,030,000. These
proceeds financed the majority of the acquisition cost of the business
combination described in Note 3. On December 16, 2004, Bulldog issued a
further 1,400,000 Class A common shares at a price of $2.15 per share
for gross proceeds of $3,010,000. These shares were issued on a
flow-through basis for income tax purposes.

(c) RESERVED FOR ISSUE:

Stock options

Bulldog has a plan to provide stock options for directors, employees and
consultants to purchase Class A common shares. As at December 31, 2004,
the maximum number of stock options that Bulldog may grant under the
plan is 3,040,000.



The following table reconciles the changes in outstanding stock options
for the last two years:
------------------------------------------------------------------------
2004 2003
Weighted Weighted
average average
exercise exercise
Number Price Number Price
------------------------------------------------------------------------
Outstanding,beginning of year 1,425,000 $ 0.72 1,105,000 $ 0.62
Granted 1,110,000 1.59 380,000 1.02
Exercised (21,667) 0.80 - -
Forfeited (23,333) 0.85 (60,000) 0.80
------------------------------------------------------------------------
Outstanding,end of year 2,490,000 $ 1.10 1,425,000 $ 0.72
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable,end of year 971,672 $ 0.62 526,673 $ 0.54
------------------------------------------------------------------------
------------------------------------------------------------------------


The following table summarizes the expiry terms and exercise prices of
Bulldog's outstanding stock options as at December 31,2004:
------------------------------------------------------------------------
Number Weighted Number
Actual of stock average of stock
Exercise options remaining options
Prices outstanding term (years) exercisable
------------------------------------------------------------------------
$0.40 505,000 2.0 505,000
$0.75 80,000 2.8 53,334
$0.80 415,000 3.0 276,669
$0.85 30,000 2.7 20,000
$0.96 45,000 4.6 -
$1.02 90,000 3.7 30,000
$1.05 260,000 4.0 86,669
$1.15 215,000 4.5 -
$1.20 125,000 4.1 -
$1.25 125,000 4.2 -
$1.95 600,000 5.0 -
------------------------------------------------------------------------
2,490,000 3.7 971,672
------------------------------------------------------------------------
------------------------------------------------------------------------


The stock options exercisable at $0.40 per share are fully vested, and
the stock options exercisable at $1.95 vest in 2007. The remaining stock
options vest as to one-third on each of the first, second, and third
anniversary dates from the date of issue. All unexercised stock options
will expire on the fifth anniversary from the date of issue.

Warrants

Bulldog granted certain warrants to purchase Class A common shares in
conjunction with the initial public offering of common shares completed
in 2001 and a business combination completed in 2002. The following
table reconciles the changes in outstanding warrants for the last two
years:



------------------------------------------------------------------------
2004 2003
Weighted Weighted
Number average Number average
of exercise of exercise
Warrants Price Warrants Price
------------------------------------------------------------------------
Outstanding,beginning of year 400,000 $ 1.10 594,856 $ 0.99
Exercised (397,401) 1.10 (194,856) 0.75
Forfeited (2,599) 1.10 - -
------------------------------------------------------------------------
Outstanding,end of year - $ - 400,000 $ 1.10
------------------------------------------------------------------------
------------------------------------------------------------------------


(d) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Basic 31,713,284 18,729,352
Diluted 32,381,776 19,058,800
------------------------------------------------------------------------
Conversion price for Class B common shares $ 1.32 $ 1.00
------------------------------------------------------------------------
------------------------------------------------------------------------


Stock options of 600,000 (2003 - 360,000) and warrants (2003 - 400,000)
were excluded from the dilution calculation as the exercise prices were
greater than the average market price for the respective years.

(e) STOCK-BASED COMPENSATION:

Bulldog has recorded stock-based compensation expense for all stock
options granted since its inception in late 2001. Such compensation
expense is calculated based upon the fair value of stock options on the
date of the grant using the Black-Scholes option pricing model amortized
over the vesting period of the stock options applying the following
assumptions:



------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Weighted average fair value $ 1.02 $ 0.66
Risk-free interest rate 4.5% 4.5%
Years to expiry of stock options 5.0 5.0
Expected volatility 75% 75%
Dividend yield Nil Nil
------------------------------------------------------------------------
------------------------------------------------------------------------


The impact of this standard was the recording of stock-based
compensation expense for the year ended December 31, 2004 of $271,000
(2003 - $166,000) with a corresponding increase to contributed surplus.



(f) CONTRIBUTED SURPLUS:
------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Balance,beginning of year $ 236 $ 70
Stock options granted 271 166
Stock options exercised (11) -
------------------------------------------------------------------------
Balance,end of year $ 496 $ 236
------------------------------------------------------------------------
------------------------------------------------------------------------


9. Related party transactions:

During 2004, Bulldog sold its Sarcee, Alberta property to its working
interest partner for a sales price of $70,000. A director of Bulldog is
an officer of the purchasing company. The transaction was approved by
the remaining members of the Board of Directors.

During 2003, Bulldog completed the purchase of an oil and natural gas
property from a private company which was controlled by a director of
Bulldog for cash consideration of $1,100,000 and a 2.5% gross overriding
royalty on one quarter section of undeveloped land. The property was
evaluated by an independent reserve engineering firm to substantiate the
purchase price and the transaction was approved by the remaining members
of the Board of Directors prior to its completion.

During 2004 Bulldog incurred $137,000 (2003 - $62,000) of legal fees to
a law firm in which one of Bulldog's directors is a partner. At December
31, 2004 accounts payable and accrued liabilities included $26,000 (2003
- $6,600) due to this related party.

10. Forward price contracts:



At December 31,2004,Bulldog had the following costless collar oil
contracts in place with the purchaser of its crude oil:
------------------------------------------------------------------------
Realized Fair
Loss Value at
Price range December 31, December 31,
Dates WTI $US Volume 2004 2004
------------------------------------------------------------------------
March 1,2004 $28.45
to February 28,2005 - $33.20 100 bbls/day $ (376) $ (63)
March 1,2004 $29.00
to February 28,2005 - $33.00 100 bbls/day (384) (62)
------------------------------------------------------------------------
$ (760) $ (125)
------------------------------------------------------------------------
------------------------------------------------------------------------


Bulldog's accounting policy for these oil contract transactions
recognizes gains and losses in revenue on the settlement of the
contracts in the same period in which the contract volumes are produced.
The fair values of open contracts as of the balance sheet date are not
recorded in these financial statements.

11. Financial instruments:

(a) CREDIT RISK MANAGEMENT:

A substantial portion of Bulldog's accounts receivable are with
customers and joint venture partners in the oil and gas industry and are
subject to normal industry credit risks. Settlement terms are normally
30 days.

(b) FAIR VALUE:

The carrying values of cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair values due to their short
term to maturity. The fair value of fixed rate long-term debt is
determined by discounting the contractual cash flows under the debt
facility at discount rates, which represent interest rates presently
available to Bulldog for a debt facility with a similar term and
maturity. Based on this, the fair value of long-term debt as at December
31, 2004 was not significantly different from its carrying value.

12. Commitments:

On December 16, 2004 Bulldog issued 1,400,000 Class A common shares for
gross proceeds of $3,010,000. These shares were issued on a flow-through
basis for income tax purposes and obligated Bulldog to incur qualifying
expenditures in an equivalent amount by December 31, 2005.

Bulldog has lease commitments for office space which will require
payments of $81,000 in 2005 and $77,000 in 2006.

-30-

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