Burmis Energy Inc.
TSX : BME

Burmis Energy Inc.

May 14, 2008 08:00 ET

Burmis Energy Announces Record Production and Funds Flow From Operations in the First Quarter of 2008

CALGARY, ALBERTA--(Marketwire - May 14, 2008) - Burmis Energy Inc. ("Burmis") (TSX:BME) is pleased to announce its operating and financial results for the three months ended March 31, 2008.

HIGHLIGHTS

- Average production increased 77 percent to 3,791 barrels of oil equivalent per day in the first quarter of 2008 compared to 2,143 barrels of oil equivalent per day during the same period in 2007;

- Funds flow from operations increased 110 percent to $11.2 million ($0.28 per share) in the first quarter of 2008, compared to $5.3 million ($0.14 per share) in the first quarter of 2007;

- Cash flow from operating activities increased to $10.1 million in the first quarter of 2008 from $4.7 million in the first quarter of 2007;

- Earnings increased 228 percent to $4.0 million ($0.10 per share) in the first quarter of 2008 compared to $1.2 million ($0.03 per share) in the first quarter of 2007;

- Operating costs were $8.78 per barrel of oil equivalent in the first quarter of 2008 which was a seven percent improvement over per unit operating costs in the fourth quarter of 2007;

- Burmis entered into an arrangement agreement with Baytex Energy Trust and Baytex Energy Ltd. whereby each common share of Burmis is to be exchanged for 0.1525 of a Baytex Energy Trust unit under a statutory plan of arrangement subject to shareholder, Court and regulatory approvals;



Period ended March 31, 2008 2007 Change(%)
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FINANCIAL
($000s, except share and
per share amounts)
Petroleum and natural gas revenue $ 21,017 $ 9,520 + 121
Funds flow from operations (1) $ 11,178 $ 5,319 + 110
Basic per share $ 0.28 $ 0.14 + 100
Diluted per share $ 0.27 $ 0.14 + 93
Cash flow from operating activities $ 10,075 $ 4,733 + 113
Basic per share $ 0.25 $ 0.13 + 92
Diluted per share $ 0.25 $ 0.12 + 108
Earnings and other comprehensive income $ 4,022 $ 1,227 + 228
Basic per share $ 0.10 $ 0.03 + 233
Diluted per share $ 0.10 $ 0.03 + 233
Weighted average shares 39,782,529 37,561,133 + 6
Common shares outstanding 39,878,133 37,561,133 + 6
Capital expenditures (2) $ 5,704 $ 23,772 - 76
Working capital deficiency $ 30,218 $ 31,931 - 5
Total assets $ 138,860 $ 120,456 + 15
Shareholders' equity $ 77,869 $ 64,763 + 20
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(1) Funds flow from operations represents earnings before depletion,
depreciation and accretion, charges for stock-based compensation,
valuation, accretion and gains on loans receivable and future income
taxes.
(2) Capital expenditures in 2007 include $5.1 million for a proved property
acquisition in the Ferrier area of west central Alberta.


Period ended March 31, 2008 2007 Change(%)
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OPERATING
Natural gas (mcf/day) 16,168 9,486 + 70
Average price ($Cdn./mcf) $ 8.19 $ 7.74 + 6
Oil and NGL's (bbl/day) 1,096 562 + 95
Average price ($Cdn./bbl) $ 89.55 $ 56.91 + 57
Barrels of oil equivalent per day (2) 3,791 2,143 + 77
Operating netback ($Cdn./boe) $ 35.19 $ 31.13 + 13
Cash netback ($Cdn./boe) $ 32.40 $ 27.58 + 17
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(1) In this report, all references to barrels of oil equivalent (boe) are
calculated converting natural gas to oil at a ratio of six thousand
cubic feet to one barrel of oil. Boe's may be misleading, particularly
if used in isolation. A boe conversion ratio of one boe for six
thousand cubic feet of natural gas is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.


OPERATIONS

Burmis recorded average sales of 3,791 barrels of oil equivalent per day in the first quarter of 2008, a 77 percent increase compared to average sales of 2,143 barrels of oil equivalent per day over the same period in 2007 and a 28 percent increase compared to average sales of 2,961 barrels of oil equivalent in the fourth quarter of 2007.

Three gas wells were tied in at Brewster; one in mid February and two in late March. As a result, the Company's current onstream productive capability is approximately of 4,100 barrels of oil equivalent per day. The Company has approximately 300 barrels of oil equivalent per day of additional tested productive capability behind pipe awaiting tie-in.

The Company recorded a seven percent improvement in operating costs which were $8.78 per barrel of oil equivalent in the first quarter of 2008 compared to operating costs of $9.49 per barrel of oil equivalent in the fourth quarter of 2007. Operating cost improvements were the result of increased production at Ferrier North and Brewster which have lower operating costs than the average for the Company. Operating costs in the first quarter included $0.36 per barrel of oil equivalent attributable to 13th month and prior period adjustments.

Burmis drilled three gross (1.05 net) wells at Brewster in the first quarter, all of which were cased as potential gas wells for a 100 percent success rate. Two (0.65 net) of these gas wells commenced production in late March. One (1.0 net) well which was drilled and cased in December 2007 at Brewster, was completed and commenced production in mid February. In addition, one (0.16 net) well at Brazeau was completed as an oil well and commenced production on May 1, 2008.

FERRIER

The Company has licensed one 100 percent working interest drilling location and is acquiring licences for two additional (2.0 net) locations for drilling at Ferrier North in the second and third quarters of 2008. Two high deliverability, liquid rich natural gas wells commenced production on this property in the fourth quarter of 2007.

BRAZEAU

Burmis participated with a 16.25 percent working interest in an uphole completion on a well at Brazeau which yielded an oil well with associated gas. This well was tied in and commenced production on May 1, 2008. The Company recently obtained drilling licenses for one exploration well and one development well on two separate prospects at Brazeau.

BREWSTER

At Brewster, a 100 percent working interest well which was drilled and cased in the fourth quarter of 2007 was completed and commenced production in mid February. Two (0.65 net) wells which were drilled and cased in January were tied in and commenced production in late March. One (0.4 net) well which was drilled and cased in February is shut-in awaiting tie-in. The Company has budgeted for an additional five (2.0 net) wells to be drilled on this property in 2008. Burmis also acquired a 35 percent working interest in three additional sections of land at Brewster in the first quarter.

PLAN OF ARRANGEMENT

On April 8, 2008, Burmis entered into an arrangement agreement (which was subsequently amended and restated on April 25, 2008) with Baytex Energy Trust and Baytex Energy Ltd. whereby each common share of Burmis is to be exchanged for 0.1525 of a Baytex Energy Trust unit by way of a statutory plan of arrangement ("the "Arrangement"), subject to shareholder, Court and regulatory approval. The Burmis Board of Directors and its officers are in support of the Arrangement. Among the potential benefits to Burmis shareholders are the following:

- the Arrangement is anticipated to provide Burmis Shareholders with enhanced liquidity and ownership in a larger entity with strong growth prospects and the ability to accelerate the exploitation of Burmis' prospect inventory;

- the consideration to Burmis Shareholders under the Arrangement provides a substantial premium of nine percent over the 10 day volume weighted average price of the Burmis Shares ending on April 8, 2008 (being the last day of trading prior to the public announcement of the Arrangement);

- the Arrangement is anticipated to provide an opportunity for Burmis Shareholders to maximize the value of Burmis' assets through the receipt of trust units of a stable and growing oil-weighted energy trust, to receive monthly distributions from Baytex and to realize gains from potential future Baytex Energy Trust unit price appreciation;

- the Arrangement is anticipated to provide an opportunity for Burmis Shareholders to participate in a combined entity which may be operationally stronger than Burmis alone, enabling the combined entity to more effectively undertake and complete the development, production and marketing of oil and natural gas under a variety of economic conditions;

- the financial size and strength of the combined entity should provide greater access to capital markets to finance acquisition and development activities; and

- the geographic and geological nature of the core operational areas of Burmis overlap with Baytex's conventional oil and gas properties, particularly in west central Alberta, allowing for operational synergies.

ALBERTA NEW ROYALTY FRAMEWORK ADJUSTMENT FOR UNINTENDED CONSEQUENCES

The Government of Alberta announced on April 10, 2008 that, as a result of the analysis of unintended consequences related to Alberta's New Royalty Framework, the government will implement two, five-year deep resource programs intended to increase development and generate energy royalty revenues. These programs will be implemented with the New Royalty Framework on January 1, 2009. Highlights of the deep resource programs are as follows:

Deep Oil Wells

- A five-year oil program for exploration wells over 2,000 metres will provide royalty adjustments to offset higher drilling costs and provide a greater incentive for producers to continue to pursue new, deeper oil plays; and

- Wells will qualify for up to $1 million or 12 months of royalty offsets, whichever comes first.

Deep Natural Gas

- The existing Royalty Adjustment Program will be replaced with the Natural Gas Deep Drilling Program for wells deeper than 2,500 metres; and

- The Natural Gas Deep Drilling Program will provide greater benefits to deeper wells, creating a sliding scale of royalty credit according to depth, up to $3,750 per metre.

OUTLOOK

Burmis is currently preparing three 100 percent working interest locations at Ferrier North and two (1.3 net) locations at Brazeau for drilling over the second half of 2008. The Company has also budgeted for an additional five (2.0 net) locations to be drilled at Brewster in 2008.

The outlook for natural gas prices is more favorable in 2008 due to a significant drawdown of natural gas storage in both the USA and Canada and a reduction in LNG imports into the United States so far this heating season. Burmis is well positioned to take advantage of improving natural gas prices with its increased production base and significant inventory of drillable natural gas prospects.

Burmis' guidance for average production of 4,000 barrels of oil equivalent per day and exit production of 4,500 barrels of oil equivalent per day in 2008 remains unchanged. However, due to significant improvements in natural gas and crude oil pricing in 2008, the Company is revising its forecasted natural gas price to $9.25 per mcf and crude oil price to US $95.00 per barrel for West Texas Intermediate. The Company is still using an estimated Canadian to US dollar exchange rate of 1.02. Due to this improved pricing outlook, the Company's estimated funds flow from operations for 2008 is now $51 million ($1.25 per share). As Burmis' 2008 capital budget is unchanged at $31 million, the Company's net debt at the end of 2008 is now projected to be approximately $15 million or 0.3 times forecast 2008 funds flow from operations. Burmis has current onstream productive capability of approximately 4,100 barrels of oil equivalent per day and has an additional 300 barrels of oil equivalent per day which is tested and behind pipe awaiting tie-in.

The annual and special meeting of Burmis shareholders is scheduled for June 3, 2008 at which time the Burmis shareholders will be asked to vote on a resolution to approve the Arrangement between Burmis, Baytex Energy Ltd. and Baytex Energy Trust. If this Arrangement is approved by the Burmis shareholders, and receives the requisite Court and shareholder approvals, the Burmis exploration and development projects will become part of a larger opportunity portfolio for exploitation by Baytex Energy Ltd. and the Baytex Energy Trust.

The Burmis team has delivered capital efficient growth by combining their technical expertise with a strong work ethic and a passion for the oil and gas business. The Company's Board of Directors has provided dedicated and active leadership in overseeing the growth of Burmis. Our shareholders have been loyal supporters. Our industry consultants and service providers have provided substantial effort and expertise to our operational programs. I would like to thank all of these individuals for their significant contribution to the success and growth of Burmis over the past five years.

Respectfully submitted on behalf of the Board of Directors,

Aidan M. Walsh, P.Eng., MBA

President and Chief Executive Officer

May 13, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS - May 13, 2008

Description of Burmis Energy Inc.

Burmis Energy Inc. ("Burmis" or "the Company") is a full cycle, public junior oil and gas company. Since inception, Burmis has focused its exploration and development drilling activities in west central Alberta. The majority of the Company's lands are prospective for liquid rich natural gas and light oil at medium depths. The Company's drilling activities have resulted in significant growth in production, reserves and scope of operations. Burmis also has minor crude oil production in the United States which has been a source of funds flow from operations for the Company as it carries out its activities in Canada.

The Company pursues growth through exploration and development activities supported by land acquisitions and farm-in arrangements. In addition, Burmis pursues complimentary acquisitions in the Company's core operating areas to enhance future growth.

On April 8, 2008 the Company entered into an arrangement agreement (which was subsequently amended and restated on April 25, 2008) (the "Arrangement") with Baytex Energy Trust and Baytex Energy Ltd. (collectively "Baytex") whereby Baytex is offering to acquire by way of statutory plan of arrangement all of the issued and outstanding shares of the Company in exchange for 0.1525 of a Baytex trust unit for each common share of Burmis. The Arrangement is subject to certain conditions including the approval of the Arrangement by holders of at least 66 2/3% of the votes cast by shareholders of Burmis who vote in person or by proxy at the annual and special meeting of the shareholders of Burmis scheduled for June 3, 2008, as well as the approval of the Alberta Court of Queens Bench and the Toronto Stock Exchange.

Non-GAAP Measures

Burmis evaluates its performance and that of its business segments using several criteria including funds flow from operations. Funds flow from operations is a non-GAAP term that represents cash flow from operating activities before changes in non-cash working capital and asset retirement expenditures. Funds flow from operations is a key measure of the Company. It demonstrates the Company's ability to generate cash necessary to fund future growth through capital investment, and allows the Company to evaluate operating performance, leverage and liquidity. The following table reconciles funds flow from operations to cash flow from operating activities which is the most directly comparable measure calculated in accordance with GAAP:



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($'000's) 2008 2007
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Cash flow from operating activities $ 10,075 $ 4,733
Changes in non-cash working capital 843 (204)
Asset retirement expenditures 260 790
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Funds flow from operations $ 11,178 $ 5,319
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Burmis also assesses its performance utilizing operating and cash netbacks. Operating netbacks are the gross margin associated with the production and sale of crude oil, natural gas and natural gas liquids, and is calculated as revenues less royalties and operating costs on a barrel of oil equivalent basis. Cash netbacks represent the net amount retained per barrel of oil equivalent after the deduction of all cash costs, and is calculated as funds flow from operations on a barrel of oil equivalent basis. There is no GAAP measure that is reasonably comparable to netbacks.

Net debt, which is current assets plus the undiscounted value of loans receivable less current liabilities, is used to assess efficiency and financial strength. There is no GAAP measure that is reasonably comparable to net debt.

These non-GAAP measures are not standardized and therefore may not be comparable to similar measures utilized by other entities.

Reader Guidance

The following should be read in conjunction with the unaudited consolidated interim financial statements for the three months ended March 31, 2008 and the audited consolidated financial statements and notes thereto and management's discussion and analysis filed on SEDAR. The financial statements are prepared in accordance with Canadian generally accepted accounting principles. The Company's quarterly operating and financial information is provided following Management's Discussion and Analysis of operations and should be read in conjunction with Management's Discussion and Analysis.

The quarterly financial statements were prepared following the same accounting policies and methods that were used in the 2007 audited consolidated financial statements except for the adoption of two new accounting policies outlined in Note 1 to the unaudited consolidated interim financial statements.

In conformity with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities, natural gas volumes have been converted to barrels of oil equivalent ("boe") using a conversion ratio of 6 mcf to 1 bbl. This ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that boe's may be misleading, particularly if used in isolation.

Forward Looking Statements

This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "might" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to the following:

- estimated volumes and timing of future production;

- business plans for drilling, exploration and development and funding of those activities; and

- other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.

Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking statements throughout this document. Statements which discuss business plans for drilling, exploration and development in 2008 and beyond assume that the extraction of crude oil, natural gas and natural gas liquids remains economic.

The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions including, without limitation:

- the quantity of reserves;

- oil and natural gas production levels;

- commodity prices, foreign currency exchange rates and interest rates;

- capital expenditure programs and other expenditures;

- supply and demand for oil and natural gas;

- expectations regarding Burmis' ability to access capital and to continually add reserves through exploration and development drilling and acquisitions;

- schedules and timing of certain projects and Burmis' strategy for growth;

- Burmis' future operating and financial results; and

- treatment under governmental regulatory regimes and tax, environmental and other laws.

The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation:

- volatility in market prices for oil and natural gas;

- volatility or fluctuations in oil and natural gas production levels;

- volatility in exchange rates for the Canadian dollar relative to other world currencies;

- liabilities and risks inherent in oil and natural gas operations including geological, technical, drilling and processing problems;

- uncertainties associated with estimating reserves;

- competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;

- Burmis' success at acquisition, exploitation and development of reserves;

- changes in general economic, market and business conditions in Canada, North America and worldwide; and

- actions by governmental or regulatory authorities including changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.

With respect to the Arrangement with Baytex, the following is a list of certain factors relating to the activities of Baytex and the ownership of Baytex units which Burmis shareholders should carefully consider:

- Court approval and other regulatory and securityholder approvals for the Arrangement may not be obtained;

- Baytex may fail to realize the anticipated benefits of the Arrangement;

- the impact of SIFT Tax;

- reliance on management of Baytex;

- the impact of future capital expenditures and the ability to maintain cash distributions from Baytex's cash flow;

- variability, delay or cessation of cash distributions; and

- cash distributions are not assured and Baytex units are not comparable to bonds or other fixed yield securities.

We caution that the foregoing list of assumptions, risks and uncertainties is not exhaustive. Additional information on these and other factors which could affect operations or financial results are included under the heading "Risk Factors" in the Company's Annual Information Form, dated March 24, 2008, and in the Company's Information Circular, dated May 5, 2008. Additional information may also be found in Burmis' other reports on file with the Canadian securities regulatory authorities.

Burmis continually assesses the Company's operations and changes in factors affecting future operations and plans. The Company provides updated forward looking information when expectations of future operations have changed materially from previously announced expectations, and updated budget and forecast information has been reviewed and approved by the Company's board of directors.

The forward looking statements contained herein are as of May 13, 2008 and are subject to change after this date. Readers are cautioned that the assumptions used in the preparation of forward-looking information and statements, although considered reasonable at the time may prove to be imprecise. As such, undue reliance should not be placed on forward-looking statements. Burmis' actual results and performance could differ materially from those expressed in or implied by those forward-looking statements. Accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will occur, or if they do occur, what benefit Burmis will derive therefrom.

Additional information regarding Burmis Energy Inc., including the Company's Annual Information Form, dated March 24, 2008, is available under the Company's profile on SEDAR at www.sedar.com.

OVERVIEW

The first quarter of 2008 saw significant growth in the operational and financial results of Burmis as a result of the Company's successful drilling programs in 2007 and in the first quarter of 2008, combined with significant increases in commodity prices. Average production in the first quarter of 2008 totalled 3,791 barrels of oil equivalent per day. This is 77 percent higher than production of 2,143 barrels of oil equivalent per day in the first quarter of 2007, and 28 percent higher than production of 2,961 barrels of oil equivalent per day in the fourth quarter of 2007. Funds flow from operations increased to $11.2 million ($0.28 per common share - basic) in the first quarter of 2008, an increase of 110 percent from funds flow of $5.3 million ($0.14 per common share - basic) in the first quarter of 2007. Funds flow from operations in the fourth quarter of 2007 totaled $7.0 million ($0.18 per common share - basic). Cash flow from operating activities increased to $10.1 million in the first quarter of 2008 compared to $4.7 million in the first quarter of 2007 and $6.2 million in the fourth quarter of 2007. Earnings and other comprehensive income totaled $4.0 million ($0.10 per common share - basic) in the first quarter of 2008, an increase of 228 percent compared to $1.2 million ($0.03 per common share - basic) in the first quarter of 2007.

Natural gas prices increased during the first quarter of 2008, with the AECO reference price for natural gas averaging $7.45 per gigajoule compared to $7.01 per gigajoule in the first quarter of 2007. Natural gas inventory levels were very high at the beginning of winter in North America. However, generally normal weather during the winter, combined with reduced natural gas production in North America and lower imports of liquefied natural gas, resulted in large draws from natural gas storage in both Canada and the United States during the first quarter of 2008. This significant decrease in natural gas inventories has resulted in increased natural gas prices to date in 2008.

During the first quarter of 2008, the West Texas Intermediate ("WTI") reference price for crude oil averaged US $97.90 per barrel compared to US $58.12 per barrel during the first quarter of 2007. Crude oil prices were higher during the first quarter of 2008 as crude oil inventories have declined sharply from 2007 and persisting concerns regarding crude oil supply and growing demand continue to place upward pressure on crude oil prices.

Revenues

Gross petroleum and natural gas revenues increased 121 percent to $21.0 million in the first quarter of 2008 compared to $9.5 million in the first quarter of 2007. The following table outlines gross revenues by product, as well as daily production volumes and sales prices by product.



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($000's unless otherwise noted) 2008 2007
Daily Daily
Production & Production
Component of Revenue Revenue Prices Revenue & Prices
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Natural Gas $ 12,043 16,168 mcf/d $ 6,610 9,486 mcf/d
$8.19/mcf $7.74/mcf
Crude Oil & NGL's 8,932 1,096 bbl/d 2,879 562 bbl/d
$ 89.55/bbl $ 56.91/bbl
Royalty Income 42 31
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$ 21,017 $ 9,520
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Natural gas sales volumes increased 70 percent in the first quarter of 2008 compared to the first quarter of 2007 as a result of successful exploration and development drilling throughout 2007. Crude oil and natural gas liquid sales volumes increased 95 percent from 2007 to 2008, primarily due to increased natural gas liquid production associated with the increased natural gas production volumes.

During the first quarter of 2008, Burmis had in place fixed price physical natural gas sales contracts at an intra-Alberta inventory transfer point for an average of 4,000 gigajoules per day at an average price of $6.97 per gigajoule. Due to the strength of natural gas prices during the first quarter of 2008, the Company realized a loss of approximately $0.2 million on these contracts.

For the period from April 1, 2008 to December 31, 2008 the Company has fixed price physical natural gas sales agreements in place for a total of 7,000 gigajoules per day at an average fixed price of $7.67 per gigajoule at the intra-Alberta Nova Inventory Transfer point.

There were no financial derivative instruments in place at March 31, 2008.



Royalties

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($'000's) 2008 2007
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Crown royalties $ 4,303 $ 1,541
Other royalties 1,545 384
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Total royalties $ 5,848 $ 1,925
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Average royalty rate as a percentage of revenues 27.8% 20.2%
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Royalties increased in 2008 compared to 2007 as a result of the increase in Burmis' gross revenues. As a percentage of revenue, royalties increased to 27.8 percent from 20.2 percent in 2007. The increases are due to higher crown royalties as a result of higher commodity prices, wells becoming liable for crown royalties after realizing full royalty holidays, and increases in overriding royalties payable due to the Company drilling successful wells on farm-in lands which are burdened with overriding royalties.

Operating Costs

Operating expenses were $3.0 million ($8.78 per barrel of oil equivalent) during the first quarter of 2008 compared to $1.6 million ($8.24 per barrel of oil equivalent) during the first quarter of 2007. The increase in total operating costs is consistent with the increase in daily production volumes as compared to the prior period. On a barrel of oil equivalent basis, operating costs were higher in the first quarter of 2008 as compared with the first quarter of 2007, but decreased from $9.95 per barrel of oil equivalent in the fourth quarter of 2007. Per unit operating costs for the Company increased during 2007 as the Company commenced production from higher cost sour natural gas wells. The Company refocused its capital program to be directed at lower cost sweet natural gas targets in mid 2007 and is now seeing unit costs trend down. Operating cost improvements were the result of increased natural gas production at Brewster and Ferrier North which have lower operating costs than average for the Company. Unit operating costs in the first quarter of 2008 include $0.36 per barrel of oil equivalent attributable to 13th month and prior period adjustments.

Operating and Cash Netbacks

The Company's operating netback of $35.19 per barrel of oil equivalent in the first quarter of 2008 was 13 percent higher than that reported in the first quarter of 2007. Increased commodity prices were partially offset by increased royalties and operating costs on a barrel of oil equivalent basis. The Company's cash netback of $32.40 per barrel of oil equivalent in the first quarter of 2008 was 17 percent higher than that reported in the first quarter of 2007.

General and Administrative Expenses

General and administrative expenses totaled $0.6 million in the first quarter of 2008 compared to $0.5 million in 2007. The increase is the result of increased employee costs and includes a charge in respect of an interest free loan made to an officer of the Company during the first quarter. On a barrel of oil equivalent basis, cash general and administrative expenses were $1.61 in the first quarter of 2008 compared to $2.69 in the comparable period of 2007.

Stock Based Compensation Expense

Stock based compensation expense totalled $89,000 in the first quarter of 2008, compared to an expense of $193,000 in the first quarter of 2007. This reduction is largely due to the forfeiture of stock options upon the resignation of two employees during the first quarter of 2008.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion expense totalled $5.9 million in the first quarter of 2008 compared to $3.4 million in the comparable period of 2007. The increase in depletion, depreciation and accretion expense is due to a 77 percent increase in production during the first quarter of 2008 as compared with the first quarter of 2007. The overall rate of depletion, depreciation and accretion decreased to $17.20 per barrel of oil equivalent in 2008 from $17.47 in the first quarter of 2007. The decrease in the rate of depletion, depreciation and accretion in 2008 reflects the efficiency of the Company's capital program in 2007 and in the first quarter of 2008.

Interest

Interest expense totalled $412,000 in the first quarter of 2008 compared to $172,000 in the first quarter of 2007. The Company borrows funds under a production loan facility and utilizes bankers' acceptances from time to time. The increase in interest expense is due to higher borrowings in 2008 as a result of the large capital program carried out by the Company throughout 2007.

Income Taxes

The provision for income taxes increased to $1.2 million in the first quarter of 2008 compared to $0.5 million in the comparable period of 2007. The increase in the tax provision is the result of increase pre-tax earnings.

CAPITAL EXPENDITURES

During the first quarter of 2008, costs incurred for the Company's exploration and development program totalled $5.7 million. The Company's capital program included development drilling expenditures of $3.4 million and investments in production facilities totalling $1.5 million. During the first quarter of 2008, Burmis acquired 672 net acres of land at crown land sales for $0.5 million, and spent $0.3 million acquiring seismic to evaluate the Company's Brazeau and Brewster prospects.

During the first quarter of 2007, the Company's capital expenditures totalled $23.8 million including $5.1 million for the acquisition of producing properties in the Ferrier area of Alberta.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2008 Burmis had a total working capital deficiency of $30.2 million, a reduction of 15 percent from $35.7 million at December 31, 2007. The Company's working capital deficiency at March 31, 2008 includes $23.7 million borrowed on the Company's revolving production loan facility.

The Company's revolving production loan facility with a Canadian chartered bank was reviewed during the first quarter of 2008 and was increased from $45.0 million to $65.0 million. The production loan facility is subject to semi-annual review in October 2008 and May 2009 at which time repayment may be required.

Oil and gas exploration, development and production requires significant expenditures to fund ongoing capital programs required to maintain and grow production, reserves and complete acquisitions. At this time, Burmis expects to be able to fund the remainder of the Company's anticipated 2008 capital program and other contractual obligations utilizing internally generated cash flow from operating activities and proceeds available under the Company's revolving credit facility given the existing commodity price environment and current production levels. Should crude oil or natural gas prices or production decline significantly during the remainder of the year, Burmis has the ability to adjust its capital expenditure program accordingly. Funding of future capital expenditures and contractual obligations will be influenced by the capital market environment for equity, the cost of debt and the nature and amount of expenditures expected to be incurred.

The Company currently has 39,965,133 common shares outstanding. In addition, 3,188,500 stock options are outstanding at an average exercise price of $1.74 per share.

CONTRACTUAL OBLIGATIONS

The Company's production loan facility is subject to semi-annual review in October 2008 and May 2009 at which time repayment may be required.

As a result of a private placement of flow-through common shares completed in May 2007, the Company was obligated to incur eligible Canadian Exploration Expenditures in the amount of $7.36 million under the flow-through share arrangement by December 31, 2008. As at March 31, 2008, these flow-through expenditures had been incurred.

Burmis has remaining office lease space commitments of $279,000 in 2008, $372,000 in 2009, $384,000 in 2010, $387,000 in 2011 and $97,000 in 2012.

The Company does not have any other off-balance sheet financing arrangements.

RELATED PARTY TRANSACTIONS

During the second quarter of 2007, the Company's Board of Directors approved, as a retention incentive, an executive loan program (the "program") under which certain officers of Burmis may borrow up to $250,000 from the Company on an interest free basis. The total amount of these unsecured borrowings under the program may not exceed $1.5 million in aggregate, and are repayable to the Company no later than March 30, 2012. During the first quarter of 2008, one loan totalling $250,000 was repaid to the Company, and a separate advance of $100,000 was made. As of March 31, 2008 three officers held loans totalling $700,000 in aggregate under the program.

OTHER TRANSACTIONS

On April 8, 2008 the Company entered into an arrangement agreement (the "Arrangement") with Baytex Energy Trust and Baytex Energy Ltd. (collectively "Baytex") whereby Baytex will acquire by way of statutory plan of arrangement all of the issued and outstanding shares of the Company in exchange for 0.1525 of a Baytex trust unit for each common share of Burmis. The Arrangement is subject to certain conditions including the approval of the Arrangement by holders of at least 66 2/3% of the votes cast by shareholders of Burmis who vote in person or by proxy at the annual and special meeting of the shareholders of Burmis scheduled for June 3, 2008.

CONTROLS AND PROCEDURES

Management of Burmis is responsible for designing and maintaining internal controls over financial reporting and disclosure controls and procedures. Internal controls over financial reporting and disclosure controls and procedures are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with Canadian GAAP. These controls may not prevent or detect fraud or misstatements because of inherent limitations in any system of internal controls. There were no significant changes in the design of the Company's internal controls over financial reporting or disclosure controls and procedures during the quarter.

CHANGES IN ACCOUNTING POLICIES

On January 1, 2008, the Company adopted the new Canadian accounting standards for capital disclosures and financial instruments disclosure and presentation. These standards have been applied prospectively.

Capital Disclosures

Effective January 1, 2008 the Company adopted CICA Handbook Section 1535 "Capital Disclosures". This Handbook Section requires companies to disclose their objectives, policies and processes for managing capital as well as compliance with any externally imposed capital requirements.

Financial Instruments - Presentation and Disclosure

Effective January 1, 2008 the Company adopted CICA Handbook Section 3862 "Financial Instrument - Disclosures" and Section 3863 "Financial Instruments - Presentation and Disclosure". These standards require companies to provide information about the nature and extent of risk arising from financial instruments and how an entity manages those risks.



SUMMARY OF QUARTERLY OPERATING AND FINANCIAL RESULTS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 2007
Operating First Fourth Third Second First
----------------------------------------------------------------------------
Natural gas (mcf/d) 16,168 12,965 9,570 10,084 9,486

Price ($/mcf) 8.19 7.09 6.32 7.77 7.74

Oil and NGL's (bbl/d) 1,096 801 626 605 562

Price ($/bbl) 89.55 76.53 70.42 61.50 56.91

Barrels of oil equivalent
(per day) 3,791 2,961 2,221 2,286 2,143

Earnings ('000's)
----------------------------------------------------------------------------

Petroleum and natural gas
revenues 21,017 14,106 9,645 10,535 9,520

Royalties (5,848) (2,939) (1,703) (2,349) (1,925)

Interest and other income 86 25 31 37 6
---------------------------------------------

Net revenues 15,255 11,192 7,973 8,223 7,601

Operating expenses 3,028 2,713 2,246 2,052 1,590

General and administrative 584 1,072 597 973 520

Stock based compensation 89 219 232 222 193

Depletion, depreciation and
accretion 5,934 4,812 3,829 3,658 3,370

Loss on provision for
retirement obligation - - - - -

Interest 412 443 329 303 172

Other - - - - -
---------------------------------------------

Total expenses 10,047 9,259 7,233 7,208 5,845

Earnings before income taxes 5,208 1,933 740 1,015 1,756

Current income taxes - - - 1 -

Future income taxes (recovery) 1,186 256 27 319 529
---------------------------------------------

1,186 256 27 320 529
---------------------------------------------

Earnings 4,022 1,677 713 695 1,227
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basis earnings per share $0.10 $0.04 $0.02 $0.02 $0.03

Diluted earnings per share $0.10 $0.04 $0.02 $0.02 $0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Funds Flow ('000's) 11,178 7,012 4,917 4,964 5,319

Basic funds flow per share $0.28 $0.18 $0.12 $0.13 $0.14
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash flow from operating
activities ('000's) 10,075 6,230 4,971 4,910 4,733

Basic cash flow per share $0.25 $0.16 $0.13 $0.13 $0.13
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Netbacks ($/boe)
----------------------------------------------------------------------------

Petroleum and natural gas
revenues 60.93 51.77 47.21 50.64 49.35

Royalties (16.96) (10.79) (8.34) (11.29) (9.98)

Operating expenses (8.78) (9.95) (10.99) (9.86) (8.24)
---------------------------------------------

Operating netback 35.19 31.03 27.88 29.49 31.13

General and administrative (1.61) (3.71) (2.32) (4.34) (2.69)

Interest and other income
(expense) (1.18) (1.58) (1.49) (1.28) (0.86)

Current income taxes - - - (0.01) -
---------------------------------------------

Cash netback 32.40 25.74 24.07 23.86 27.58
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets ($'000's) 138,860 136,162 131,207 122,388 120,456

Long-term liabilities
($'000's) 17,991 14,820 14,598 14,564 14,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
2006
Operating Fourth Third Second
----------------------------------------------------------------------------

Natural gas (mcf/d) 9,417 9,914 9,068

Price ($/mcf) 7.00 5.74 6.20

Oil and NGL's (bbl/d) 527 606 612

Price ($/bbl) 54.91 66.60 67.54

Barrels of oil equivalent (per
day) 2,097 2,258 2,124

Earnings ('000's)
----------------------------------------------------------------------------

Petroleum and natural gas
revenues 8,741 8,971 8,902

Royalties (1,718) (1,587) (1,499)

Interest and other income 7 2 1
---------------------------

Net revenues 7,030 7,386 7,404

Operating expenses 2,038 1,713 1,716

General and administrative 480 426 681

Stock based compensation 184 126 95

Depletion, depreciation and
accretion 3,248 3,259 3,525

Loss on provision for
retirement obligation 548 - -

Interest 203 131 73

Other - 1 8
---------------------------

Total expenses 6,701 5,656 6,098

Earnings before income taxes 329 1,730 1,306

Current income taxes - 2 -

Future income taxes (recovery) (274) 492 358
---------------------------

(274) 494 358
---------------------------

Earnings 603 1,236 948
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basis earnings per share $0.02 $0.04 $0.03

Diluted earnings per share $0.02 $0.03 $0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds Flow ('000's) 4,309 5,113 4,926

Basic funds flow per share $0.12 $0.15 $0.14
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash flow from operating
activities ('000's) 3,355 5,441 3,701

Basic cash flow per share $0.09 $0.15 $0.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Netbacks ($/boe)
----------------------------------------------------------------------------

Petroleum and natural gas
revenues 45.32 43.17 46.06

Royalties (8.91) (7.63) (7.76)

Operating expenses (10.57) (8.25) (8.88)
---------------------------

Operating netback 25.84 27.29 29.42

General and administrative (2.48) (2.05) (3.52)

Interest and other income
(expense) (1.02) (0.63) (0.41)

Current income taxes - - -
---------------------------

Cash netback 22.34 24.61 25.49
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total assets ($'000's) 100,737 96,693 84,857

Long-term liabilities
($'000's) 10,378 11,072 10,469
----------------------------------------------------------------------------
----------------------------------------------------------------------------


BURMIS ENERGY INC.
Consolidated Balance Sheets
(thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
(unaudited) 2008 2007
----------------------------------------------------------------------------

Assets
Current assets
Cash $ 349 $ 201
Accounts receivable 12,433 9,664
Loan receivable (note 3) - 179
---------------------------------------------------------------------------

12,782 10,044
Petroleum and natural gas properties (note 2) 125,559 125,681
Loan receivable (note 3) 519 437
----------------------------------------------------------------------------
$ 138,860 $ 136,162
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 19,290 $ 15,586
Production loan facility (note 4) 23,710 30,028
Current portion of asset retirement
obligation(note 5) - 135
---------------------------------------------------------------------------
43,000 45,749
Asset retirement obligation (note 5) 2,886 2,903
Future income taxes 15,105 11,917
Shareholders' equity
Share capital (note 6) 54,893 56,654
Contributed surplus (note 6) 2,334 2,319
Retained earnings 20,642 16,620
---------------------------------------------------------------------------
77,869 75,593

----------------------------------------------------------------------------
$ 138,860 $ 136,162
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Subsequent event (note 12)
See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Earnings and Other Comprehensive Income
(thousands of dollars, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
three months ended March 31, 2008 2007
----------------------------------------------------------------------------
Revenues
Petroleum and natural gas (note 8) $ 21,017 $ 9,520
Royalties (5,848) (1,925)
Interest and other income 86 6
---------------------------------------------------------------------------
15,255 7,601

Expenses
Operating 3,028 1,590
General and administrative 584 520
Stock based compensation 89 193
Depletion, depreciation and accretion 5,934 3,370
Interest 412 172
---------------------------------------------------------------------------
10,047 5,845
---------------------------------------------------------------------------
Earnings before income taxes 5,208 1,756
Income taxes
Future 1,186 529
---------------------------------------------------------------------------
1,186 529

----------------------------------------------------------------------------
Earnings and other comprehensive income $ 4,022 $ 1,227
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings and other comprehensive income
per share (note 7)
Basic $ 0.10 $ 0.03
Diluted $ 0.10 $ 0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Consolidated Statement of Retained Earnings
(thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
three months ended March 31, 2008 2007
----------------------------------------------------------------------------

Retained earnings, beginning of period $ 16,620 $ 12,308
Earnings and other comprehensive income 4,022 1,227
----------------------------------------------------------------------------
Retained earnings, end of period $ 20,642 $ 13,535
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Cash Flows
(thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
three months ended March 31, 2008 2007
----------------------------------------------------------------------------

Cash provided by (used in)
Operations
Earnings and other comprehensive income $ 4,022 $ 1,227
Items not affecting cash
Depletion, depreciation and accretion 5,934 3,370
Stock based compensation 89 193
Valuation of loan receivable (note 3) 28 -
Accretion of loan receivable (note 3) (10) -
Gain on settlement of loan receivable (note 3) (71) -
Future income taxes 1,186 529
Asset retirement expenditures (260) (790)
Change in non-cash working capital (note 9) (843) 204
----------------------------------------------------------------------------
10,075 4,733
Financing
Production loan facility (6,318) 10,740
Common shares issued (note 6) 167 -
----------------------------------------------------------------------------
(6,151) 10,740
Investments
Additions to petroleum and natural gas properties (5,704) (18,713)
Acquisition of petroleum and natural gas properties - (5,059)
Loan receivable (note 3) 150 -
Changes in non-cash working capital (note 9) 1,778 8,405
----------------------------------------------------------------------------
(3,776) (15,367)

Increase in cash 148 106
Cash, beginning of period 201 31
----------------------------------------------------------------------------
Cash, end of period $ 349 $ 137
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


1. Significant accounting policies:

The consolidated financial statements of Burmis Energy Inc. (the "Company") have been prepared by management in accordance with accounting principles generally accepted in Canada. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries in Canada and the United States.

These interim consolidated financial statements have been prepared by management following the same accounting policies and methods that were used and disclosed in the audited financial statements for the year ended December 31, 2007, except as disclosed below. These consolidated interim financial statements include all adjustments necessary to present fairly the results for the interim period ended March 31, 2008. These interim financial statements should be read in conjunction with the most recent audited consolidated financial statements and notes filed on SEDAR for the year ended December 31, 2007.

(a) New accounting policies

The following summarizes accounting changes that will be relevant to the Company's consolidated financial statements, effective January 1, 2008.

Capital Disclosures

Effective January 1, 2008 the Company adopted CICA Handbook Section 1535 "Capital Disclosures". This Handbook Section requires companies to disclose their objectives, policies and processes for managing capital as well as compliance with any externally imposed capital requirements.

Financial Instruments - Presentation and Disclosure

Effective January 1, 2008 the Company adopted CICA Handbook Section 3862 "Financial Instrument - Disclosures" and Section 3863 "Financial Instruments - Presentation and Disclosure". These standards were adopted prospectively and require companies to provide information about the nature and extent of risk arising from financial instruments and how an entity manages those risks.

International Financial Reporting Standards

In January 2006 the CICA Accounting Standards Board adopted a strategic plan for accounting standards in Canada and under the current plan, accounting standards for public companies in Canada are expected to converge with International Financial Reporting Standards by the end of 2011. The Company continues to monitor the developments in regards to the plan and has not yet assessed the impact of these prospective changes.



2. Petroleum and natural gas properties:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Petroleum and natural gas properties $ 177,164 $ 171,398
Accumulated depletion and depreciation (51,605) (45,717)
----------------------------------------------------------------------------
$ 125,559 $ 125,681
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Costs of unproved properties excluded from costs subject to depletion and depreciation at March 31, 2008 were $7.6 million (2007 - $5.8 million). Future development costs of $6.1 million (2007 - $7.0 million) have been included in costs subject to depletion.

3. Loan receivable:

The Company's board of directors approved a loan program under which certain executives may borrow up to $250,000 from the Company on an interest-free unsecured basis. Borrowings under the program may not exceed $1.5 million in aggregate, and are repayable on or before March 30, 2012. As of March 31, 2008 loans totalling $700,000 had been provided under the program. The loans are recorded as a long-term receivable of $519,000, being the fair value of the loans. The difference between the face value of the loans and the fair value has been reflected as an administrative cost. Interest income is recognized to accrete the loan receivable to its face value over the life of the loans. During the first quarter of 2008 a loan for $100,000 was advanced to an officer of the Company. In addition, a loan totalling $250,000 was repaid during the first quarter resulting in a gain of approximately $71,000 being recognized during the quarter.

4. Production Loan Facility:

During the first quarter of 2008, the Company's revolving production demand loan facility was increased to $65.0 million from $45.0 million. Advances under this facility are available by way of prime rate loans with interest rates of up to 0.75 percent over the bank's prime lending rate, and bankers' acceptances and LIBOR loans which are subject to stamping fees and margins ranging from 1.10 percent to 2.00 per cent depending upon the debt to trailing funds flow ratio of the Company, calculated at the Company's previous quarter end, using funds flow from operations for the preceding two quarters. The production loan facility is scheduled to be reviewed in October 2008.

The loan facility is secured by a $100 million floating charge demand debenture over all Canadian assets, and a full recourse guarantee of the United States subsidiary.

5. Asset retirement obligation:

The Company's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites and gathering systems. The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations at March 31, 2008 is approximately $3.6 million. These costs will be incurred between 2009 and 2027. A credit adjusted risk-free rate of six percent was used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligation is provided below:

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

three months ended March 31, 2008 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 3,038 $ 3,446
Accretion expense 46 50
Liabilities incurred 62 252
Liabilities settled (260) (790)
----------------------------------------------------------------------------
Balance, end of period $ 2,886 $ 2,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the first quarter of 2007, the Company settled liabilities totaling
approximately $0.7 million abandoning five wells in California in which it
held interests.

6. Share capital:

(a) Authorized: Unlimited number of voting common shares.

Issued:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of
Shares Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 39,578,133 $ 56,654
Exercise of stock options for cash 300,000 167
Transfer from contributed surplus on exercise of
stock options - 74
Tax effect of 2007 flow-through share issue - (2,002)
----------------------------------------------------------------------------
Balance, March 31, 2008 39,878,133 $ 54,893
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(b) Contributed surplus:

A reconciliation of contributed surplus is provided below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------

three months ended March 31, 2008 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 2,319 $ 1,467
Stock-based compensation expense 89 193
Transfer to share capital on exercise of stock
options (74) -
----------------------------------------------------------------------------
Balance, end of period $ 2,334 $ 1,660
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(c) Stock-based compensation plan:

The Company has established a stock option plan whereby certain officers, directors and employees may be granted options to purchase common shares. The number of shares issuable under the plan is subject to a rolling maximum equal to 10 percent of the outstanding common shares. The exercise price of each option equals the market price of the common shares on the date of grant. Options granted under the plan have a maximum term of five years and vest equally over a three-year period starting on the first anniversary date of the grant.

A summary of the status of the plan as of March 31, 2008 and changes during the period ending on that date is presented below:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Average
Shares Exercise Price Life Remaining
----------------------------------------------------------------------------
Outstanding, December 31, 2007 3,728,500 $ 1.48 1.9 years
Exercised (300,000) 0.56 0.1 years
Forfeited (144,000) 2.85 3.5 years
----------------------------------------------------------------------------
Outstanding, March 31, 2008 3,284,500 $ 1.76 1.7 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable, March 31, 2008 2,226,000 $ 1.24 0.9 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The outstanding stock options and associated exercise prices are outlined
below:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
----------------------------------------------------------------------------
$ 0.50 - $1.35 1,505,500 0.2 years
$ 2.45 - $2.57 949,000 2.4 years
$ 2.97 - $3.10 830,000 3.8 years
----------------------------------------------------------------------------
$ 0.50 - $3.10 3,284,500 1.7 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------

7. Earnings per share:

Earnings per share is calculated using earnings and the weighted-average
number of common shares outstanding. Diluted earnings per share is
calculated using earnings and the weighted-average number of diluted common
shares outstanding.

----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended March 31, 2008 2007
----------------------------------------------------------------------------
Weighted average number of common shares
outstanding 39,782,529 37,561,133
Net shares issuable pursuant to stock options 992,400 1,107,722
----------------------------------------------------------------------------
Weighted average number of diluted common shares
outstanding 40,774,929 38,668,855
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the periods presented, outstanding stock options were the only
potentially dilutive instrument.


8. Financial Instruments

The Company has exposure to the following risks from its financial instruments:

- Credit risk;

- Liquidity risk; and

- Market risk.

This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework.

Credit Risk

Credit risk is primarily related to the Company's receivables from joint venture partners and petroleum and natural gas marketers and the risk of financial loss if a customer, partner or counterparty to a financial instrument fails to meet its contractual obligations. A substantial portion of the Company's accounts receivable are with customers in the energy industry and are subject to normal industry credit risk. The Company generally grants unsecured credit but routinely assesses the financial strength of its customers.

Receivables from petroleum and natural gas marketers are normally collected on the 25th day of the month following production. The Company sells the majority of its production to four petroleum and natural gas marketers and therefore, is subject to concentration risk which is mitigated by management's policies and practices related to credit risk, as discussed above. The Company historically has not experienced any collection issues with its petroleum and natural gas marketers. Joint venture receivables are typically collected within one to three months of the joint venture bill being issued to the partner. However, the receivables are from participants in the petroleum and natural gas sector, and collection of the outstanding balances is dependent on industry factors such as commodity price fluctuations, escalating costs, the risk of unsuccessful drilling and occasional disagreements between parties. The Company attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to expenditure. The Company does not typically obtain collateral from petroleum and natural gas marketers or joint venture partners; however in certain circumstances, it may cash call a partner in advance of the work. As well, the Company does have the ability to withhold production from joint venture partners in the event of non-payment.

The Company establishes an allowance for doubtful accounts as determined by management based on their assessment of collection therefore the carrying amount of accounts receivable generally represents the maximum credit exposure. There was no allowance required for the three months ended March 31, 2008.

Cash and cash equivalents consist of cash bank balances and short-term deposits maturing in less than 90 days. The Company manages the credit exposure related to short-term investments by selecting counter parties based on credit ratings and monitors all investments to ensure a stable return, avoiding complex investment vehicles with higher risk such as asset backed commercial paper.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking harm to the Company's reputation.

The Company prepares capital expenditures budgets which are regularly monitored and updated as considered necessary. As well, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. To facilitate the capital expenditure program, the Company has a revolving credit facility (note 4) that is reviewed semi-annually by the lender.

The following table illustrates the contractual maturities of financial liabilities as at March 31, 2008:



----------------------------------------------------------------------------
1 Year 1-2 Years 2-5 Years Thereafter
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities 19,290 - - -
Credit facility (1) - 23,710 - -
----------------------------------------------------------------------------
Total 19,290 23,710 - -
----------------------------------------------------------------------------

(1) Amount excludes interest as rates and outstanding balances fluctuate
making it not reasonable to accurately estimate.


Market Risk

Market risk is the risk that changes in market prices, such as commodity prices, interest rates and foreign exchange rates will affect the Company's net earnings or the value of financial instruments. The objective of market risk management is to mitigate exposures within acceptable limits, while maximizing returns.

The Company utilizes commodity price contracts to manage market risks relevant to commodity prices. All such transactions are conducted in accordance with the risk management policy that has been approved by the Board of Directors.

Foreign Currency Exchange Risk

Foreign currency exchange rate risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although substantially all of the Company's petroleum and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for petroleum and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar. The Company had no forward exchange rate contracts in place as at or during the three months ended March 31, 2008.

Commodity Price Risk

Commodity price risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by world economic events that dictate the levels of supply and demand. The Company has attempted to mitigate commodity price risk with respect to its natural gas production through the use of fixed price physical sales contracts. At March 31, 2008, the Company had fixed price physical natural gas sales agreements in place for a total of 7,000 gigajoules per day at an average fixed price of $7.67 per gigajoule covering the period from April 1, 2008 to December 31, 2008. The contracts in place during the three months ended March 31, 2008 resulted in a loss of $0.2 million (2007 - $0.1 million gain).

Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate fluctuations on its credit facility which bears a floating rate of interest. The Company had no interest rate swap or financial contracts in place as at or during the three months ended March 31, 2008. For the three months ended March 31, 2008, a difference in the interest rate of one percent would change net earnings by approximately $0.1 million, assuming all other variables are constant. The sensitivity is lower for the three months ended March 31, 2007 as the average outstanding debt for that period was lower.

Capital Management

The Company's policy is to maintain a strong capital base for the objectives of maintaining financial flexibility, creditor and market confidence and to sustain the future development of the business.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Company considers its capital structure to include shareholders' equity, bank debt and working capital. In order to maintain or adjust the capital structure, the Company may from time to time issue shares and adjust its capital spending to manage current and projected debt levels. To assess capital and operating efficiency and financial strength, the Company continually monitors its net debt and working capital which is a non-GAAP measure and calculated as follows:



----------------------------------------------------------------------------
As at As at
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Current assets 12,782 10,044
Credit facility (23,710) (30,028)
Current liabilities (19,290) (15,721)
----------------------------------------------------------------------------
Net debt and working capital deficiency (30,218) (35,705)
----------------------------------------------------------------------------


The net debt and working capital deficiency is a result of normal operating conditions in periods when the Company incurs significant capital expenditures relative to revenue. The Company monitors capital based on the ratio of net debt to annualized cash flow. This ratio is calculated as net debt, defined as outstanding bank debt plus or minus working capital, divided by cash flow from operations before changes in non-cash working capital and asset retirement expenditures for the most recent calendar quarter, annualized (multiplied by four). The Company's strategy is to maintain a ratio of approximately one to one. This ratio may increase at certain times as a result of the level or timing of capital expenditures or acquisitions. In order to facilitate the management of this ratio, the Company prepares annual capital expenditure budgets, which are updated as necessary depending on varying factors including current and forecast prices, successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors.

The Company's share capital is not subject to external restrictions; however the credit facility is based on petroleum and natural gas reserves. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.

There were no changes to the Company's approach to capital management during the quarter.

Fair Value of Financial Instruments

The Company's financial instruments as at March 31, 2008 include cash, accounts receivable, loans receivable, accounts payable and accrued liabilities and the production loan facility. The fair value of cash, accounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity. The Company's production loan facility bears interest at a floating market rate and accordingly the fair market value approximates the carrying value. Loans receivable by the Company are recorded at fair value at the time of the loan and are accreted over the life of the loan. The carrying and fair values of the Company's financial instruments are as follows:



----------------------------------------------------------------------------
Classification Carrying Value Fair Value
----------------------------------------------------------------------------
Loans and receivables $ 12,952 $ 12,952

Cash held-to-maturity 349 349

Accounts payable and accrued liabilities (19,290) (19,290)

Production loan facility (23,710) (23,710)
----------------------------------------------------------------------------
Total $ (29,699) $ (29,699)
----------------------------------------------------------------------------


The Company will assess at each reporting period whether a financial asset, other than those classified as held-for-trading, is impaired. Any impairment loss will be included in earnings for the period.



9. Changes in non-cash working capital

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, 2008 2007
----------------------------------------------------------------------------
Accounts receivable $ (2,769) $ 1,090

Accounts payable and accrued liabilities 3,704 7,519
----------------------------------------------------------------------------
Total $ 935 $ 8,609
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Relating to:

Operating activities $ (843) $ 204

Investing activities $ 1,778 $ 8,405
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest paid $ 323 $ 342
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. Segment information:

March 31, 2008

----------------------------------------------------------------------------
----------------------------------------------------------------------------
United
Canada States Total
----------------------------------------------------------------------------

Revenues, net of royalties $ 14,960 $ 295 $ 15,255

Earnings before income taxes $ 4,973 $ 235 $ 5,208

Earnings $ 3,787 $ 235 $ 4,022
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Petroleum and natural gas properties

Cost $ 174,707 $ 2,457 $ 177,164

Accumulated depletion, depreciation
and amortization (50,311) (1,294) (51,605)
----------------------------------------------------------------------------

Net book value $ 124,396 $ 1,163 $ 125,559
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital expenditures $ 5,704 $ - $ 5,704
----------------------------------------------------------------------------
----------------------------------------------------------------------------

March 31, 2007

----------------------------------------------------------------------------
----------------------------------------------------------------------------
United
Canada States Total
----------------------------------------------------------------------------

Revenues, net of royalties $ 7,354 $ 241 $ 7,601

Earnings before income taxes $ 1,605 $ 151 $ 1,756

Earnings $ 1,076 $ 151 $ 1,227
----------------------------------------------------------------------------
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Petroleum and natural gas properties

Cost $ 142,267 $ 2,398 $ 144,665

Accumulated depletion, depreciation
and amortization (32,394) (1,163) (33,557)
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Net book value $ 109,873 $ 1,235 $ 111,108
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Capital expenditures $ 23,772 $ - $ 23,772
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11. Contractual obligations:

As a result of a private placement of flow-through common shares completed in May 2007, the Company was obligated to incur eligible Canadian Exploration Expenditures in the amount of $7.36 million under the flow-through share arrangement by December 31, 2008. As at March 31, 2008, these flow-through expenditures had been incurred.

Burmis has remaining office lease space commitments of $279,000 in 2008, $372,000 in 2009, $384,000 in 2010, $387,000 in 2011 and $97,000 in 2012.

12. Subsequent event:

On April 8, 2008 the Company entered into an arrangement agreement (the "Arrangement") with Baytex Energy Trust and Baytex Energy Ltd. (collectively "Baytex") whereby Baytex is offering to acquire by way of statutory plan of arrangement all of the issued and outstanding shares of the Company in exchange for 0.1525 of a Baytex trust unit for each common share of Burmis. The Arrangement is subject to certain conditions including the approval of the Arrangement by holders of at least 66 2/3% of the votes cast by shareholders of Burmis who vote at the annual and special meeting of the shareholders of Burmis scheduled for June 3, 2008.

Contact Information

  • Burmis Energy Inc.
    Mr. Aidan M. Walsh, P.Eng., MBA
    President and Chief Executive Officer
    (403) 781-7284
    (403) 261-9028 (FAX)
    or
    Burmis Energy Inc.
    Mr. Scott R. Dyck, CA
    Chief Financial Officer
    (403) 781-7217
    (403) 261-9028 (FAX)
    or
    Burmis Energy Inc.
    1000, 736 - 6th Avenue S.W.
    Calgary, Alberta T2P 3T7
    Email: ir@burmisenergy.ca
    Website: www.burmisenergy.ca