Burmis Energy Inc.

Burmis Energy Inc.

March 10, 2005 08:00 ET

Burmis Energy Boosts Production in the Fourth Quarter and Generates Record Cash Flow


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: BURMIS ENERGY INC.

TSX SYMBOL: BME

MARCH 10, 2005 - 08:00 ET

Burmis Energy Boosts Production in the Fourth Quarter
and Generates Record Cash Flow

CALGARY, ALBERTA--(CCNMatthews - March 10, 2005) - In 2004, our second
year of operations at Burmis Energy Inc. (TSX:BME), we were successful
in delivering growth and creating value for our shareholders. Our
activities during the past year were focused in west central Alberta, an
area in which we will continue to grow substantially in 2005. We also
made a significant acquisition providing us with an additional growth
platform targeting shallow gas in east central Alberta and western
Saskatchewan.

Our achievements in 2004 include:

- A 175 percent increase in cash flow to $8.2 million ($0.34 per common
share);

- A 110 percent increase in proved plus probable reserves as evaluated
under NI 51-101;

- A 96 percent increase in average production to 986 barrels of oil
equivalent per day;

- A 148 percent increase in average production to 1,483 barrels of oil
equivalent per day in the fourth quarter of 2004 compared to 598 barrels
of oil equivalent per day in the fourth quarter of 2003;

- Finding, development and acquisition costs of $13.17 per barrel of oil
equivalent of proved plus probable reserves including revisions and
future development capital of $3.0 million;

- Increasing net asset value by 69 percent to $1.59 per diluted share at
December 31, 2004;

- Replacing production by 580 percent on a total proved plus probable
basis and 437 percent on a total proved basis;

- Increasing undeveloped land by 70 percent to 71,077 net acres;

- Commencing production of two high deliverability Nisku oil wells at
Pembina under GPP;

- A Nisku gas/condensate discovery at Brazeau, a light oil pool
discovery at Kidney, and three liquid-rich gas wells at Pembina and
Westerose;

- The acquisition of a shallow natural gas property at Kehiwin.

The combination of growth in production volumes and continued strength
in commodity prices led to significant improvements in Burmis' financial
results. Cash flow from operations rose to $8.2 million ($0.34 per
common share) in 2004, a 175 percent increase compared to $3.0 million
($0.15 per common share) in 2003. Earnings totaled $1.9 million ($0.08
per common share) in 2004, a 525 percent increase compared to $0.3
million ($0.02 per common share) in 2003.



HIGHLIGHTS

------------------------------------------------------------------------
------------------------------------------------------------------------
three months period
ended Dec. 31, ended Dec. 31,
2004 2003 (1) 2004 2003 (1) Change
------------------------------------------------------------------------
FINANCIAL
($000s, except shares
and per share amounts)
Gross petroleum
and natural
gas revenue $ 6,210 $ 1,851 $ 15,635 $ 6,048 + 159%
Cash flow from
operations (2) $ 3,191 $ 888 $ 8,160 $ 2,968 + 175%
Basic per share $ 0.12 $ 0.04 $ 0.34 $ 0.15 + 127%
Diluted per share $ 0.11 $ 0.04 $ 0.33 $ 0.15 + 120%
Earnings $ 644 $ 24 $ 1,894 $ 303 + 525%
Basic and diluted
per share $ 0.02 $ 0.00 $ 0.08 $ 0.02 + 300%
Weighted average
shares ('000's) 27,216 21,810 23,726 19,826 + 20%
Common shares
outstanding
('000's) 27,216 21,810 27,216 21,810 + 25%
Capital
expenditures (3) $ 4,337 $ 2,607 $ 26,727 $ 9,747 + 174%
Working capital
(deficiency) $ (11,214) $ (486) + 2,207%
Total assets $ 45,741 $ 21,971 + 108%
Shareholders'
equity $ 25,256 $ 15,096 + 67%
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Effective January 1, 2004 the Company adopted new accounting
standards for stock-based compensation, asset retirement
obligations and flow-through shares. See note 2 for the impact of
the adoption of these accounting standards.
(2) Cash flow from operations represents earnings before depletion,
depreciation and accretion, stock-based compensation, and future
income taxes.
(3) Capital expenditures include $11.2 million for a property
acquisition completed during the third quarter of 2004.


three months period
ended Dec. 31, ended Dec. 31,
2004 2003 2004 2003 Change
------------------------------------------------------------------------
OPERATING
Natural gas
(mcf/day) 5,381 1,960 3,518 1,537 + 129%
Average price
($Cdn./mcf) $ 6.80 $ 5.81 $ 6.68 $ 6.30 + 6%
Oil and NGL's
(bbl/day) 586 271 400 247 + 62%
Average price
($Cdn./bbl) $ 52.59 $ 31.86 $ 47.72 $ 32.84 + 45%
Barrels of oil
equivalent
per day 1,483 598 986 503 + 96%
Operating costs
($Cdn./boe) $ 7.25 $ 5.58 $ 6.76 $ 5.45 + 24%
Operating netback
($Cdn./boe) $ 26.82 $ 19.13 $ 26.67 $ 20.56 + 30%
Cash flow netback
($Cdn./boe) $ 23.40 $ 16.15 $ 22.60 $ 17.50 + 29%
------------------------------------------------------------------------
------------------------------------------------------------------------
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.


OPERATIONS

The Company's drilling program yielded a high deliverability Nisku gas
and condensate well at Brazeau, three substantial liquid rich natural
gas wells at Pembina, a liquid rich gas well at Westerose, a light oil
pool discovery at Kidney, and shallow gas wells at Kehiwin and Hoadley.

Burmis participated in the drilling of 19 gross (8.6 net) wells. The
Company cased 13 gross (5.5 net) gas wells, 2 gross (1.3 net) oil wells
and abandoned 4 gross (1.8 net) wells for an overall success rate of 79
percent.

During the fourth quarter of 2004, Burmis drilled six (2.7 net) wells
resulting in five (2.4 net) natural gas wells and one (0.3 net) dry and
abandoned well for an 89 percent success rate. This included natural gas
wells at Pembina, Westerose, Kehiwin and Minnehik.

Acquisition

On August 31, 2004, Burmis acquired 350 barrels of oil equivalent of
operated production and 21,000 net acres of undeveloped land for an
adjusted purchase price of $11.2 million. The principal producing
property at Kehiwin in east central Alberta features eighteen shallow
natural gas wells with working interests ranging from 23 percent to 100
percent and an average working interest of 71 percent. Burmis drilled
one successful gas well and recompleted one gas well on this property in
the fourth quarter of 2004. The Company has plans to further exploit the
potential of this property in 2005.

Reserves

An independent engineering evaluation of Burmis' petroleum and natural
gas reserves was completed by McDaniel and Associates Consulting Limited
for all of the properties of Burmis effective December 31, 2004 ("The
McDaniel Report"). These estimates were prepared in accordance with
National Instrument 51-101 Standards of Disclosure for Oil and Gas
Activities (NI 51-101). Burmis has a reserves committee comprised of
independent board members which reviews the qualifications and
appointment of the independent reserve evaluators. The committee also
reviews the process for providing information to the evaluators and
meets with the independent evaluators to discuss the procedures used in
the independent report, to review the Company's major properties and to
identify and discuss any areas of risk. The McDaniel Report was reviewed
by the reserves committee of Burmis and was approved by the Company's
Board of Directors on February 23, 2005.

Reserves Highlights

- Proved plus probable reserves at December 31, 2004 evaluated under NI
51-101 were 3.31 million barrels of oil equivalent, a 110 percent
increase from 1.58 million barrels of oil equivalent of proved plus
probable at December 31, 2003 as evaluated under NI 51-101;

- Proved reserves at December 31, 2004 evaluated under NI 51-101 were
2.39 million barrels of oil equivalent, an increase of 104 percent
compared to 1.17 million barrels of oil equivalent of proved reserves at
December 31, 2003 as evaluated under NI 51-101;

- Additions to proved plus probable reserves which replaced 2004 average
production by 580 percent;

- An increase of 172 percent in the net present value (before tax
discounted at 10 percent) of total proved and probable reserves to $52.5
million;



Summary of Gross (working interest) Reserves at December 31, 2004 (2,3)
------------------------------------------------------------------------
Light
and
Medium Heavy Total Natural Barrels
Crude Crude Crude Gas Natural of Oil
Oil Oil Oil Liquids Gas Equivalent
Reserve Category (mbbl) (mbbl) (mbbl) (mbbl) (mmcf) (mboe)(1)
------------------------------------------------------------------------
Proved
-producing 406 97 503 137 5,819 1,610
-non-producing - - - 152 1,397 384
-undeveloped 140 - 140 69 1,116 395
------------------------------------------------------------------------
Total Proved 546 97 642 359 8,333 2,389
Probable 217 17 234 138 3,302 922
------------------------------------------------------------------------
Proved plus
probable 762 114 876 496 11,634 3,311
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Natural gas is converted to barrels of oil equivalent ("boe") at a
ratio of six thousand cubic feet to one boe.
(2) Numbers in this table are subject to round off error.
(3) Reserve estimates determined using forecasted prices and costs.


Summary of Net (working interest and royalties receivable less
royalties payable) Reserves at December 31, 2004 (2,3)
------------------------------------------------------------------------
Light
and
Medium Heavy Total Natural Barrels
Crude Crude Crude Gas Natural of Oil
Oil Oil Oil Liquids Gas Equivalent
Reserve Category (mbbl) (mbbl) (mbbl) (mbbl) (mmcf) (mboe)(1)
------------------------------------------------------------------------
Proved
-producing 269 78 347 94 4,626 1,211
-non-producing - - - 125 1,029 296
-undeveloped 84 - 84 48 871 277
------------------------------------------------------------------------
Total Proved 353 78 431 266 6,526 1,784
Probable 146 14 160 101 2,597 694
------------------------------------------------------------------------
Proved plus probable 499 92 590 368 9,123 2,479
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Natural gas is converted to boe at a ratio of six thousand cubic
feet to one boe.
(2) Numbers in this table are subject to round off error.
(3) Reserve estimates determined using forecasted prices and costs.


At December 31, 2004, Burmis had 779 thousand barrels of oil equivalent
of gross reserves booked as either non-producing or undeveloped.
Approximately 60 percent of these reserves are currently producing or
are expected to be on production by the end of the first quarter of
2005. The future capital associated with the proved non-producing and
undeveloped reserves included in the 2004 McDaniel report is
approximately $3.0 million.

The following tables reconcile the changes during 2004 in Burmis' proved
and proved plus probable reserves.



Reconciliation of Gross (working interest) Proved Reserves (2, 4)
------------------------------------------------------------------------
Light
and
Medium Heavy Total Natural Barrels
Crude Crude Crude Gas Natural of Oil
Oil Oil Oil Liquids Gas Equivalent
Reserve Category (mbbl) (mbbl) (mbbl) (mbbl) (mmcf) (mboe)(1)
------------------------------------------------------------------------
December 31, 2003 412 144 557 177 2,628 1,172
------------------------------------------------------------------------
Extensions 2 - 2 5 411 76
Discoveries 219 - 219 286 3,545 1,095
Revisions (3) (16) (9) (25) (79) (92) (120)
Acquisitions 20 - 20 - 3,170 548
Economic Factors (14) - (14) (1) (33) (21)
Production (77) (39) (116) (31) (1,295) (361)
------------------------------------------------------------------------
December 31, 2004 546 97 642 359 8,333 2,389
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Natural gas is converted to barrels of oil equivalent ("boe") at a
ratio of six thousand cubic feet to one boe.
(2) Numbers in this table are subject to round off error.
(3) Technical revisions were primarily due to the plant operator at
Ferrier reallocating NGL's in 2004.
(4) Reserve estimates determined using forecasted prices and costs.


Reconciliation of Gross (working interest) Proved plus Probable
Reserves (2, 4)
------------------------------------------------------------------------
Light
and
Medium Heavy Total Natural Barrels
Crude Crude Crude Gas Natural of Oil
Oil Oil Oil Liquids Gas Equivalent
Reserve Category (mbbl) (mbbl) (mbbl) (mbbl) (mmcf) (mboe)(1)
------------------------------------------------------------------------
December 31, 2003 556 172 728 252 3,600 1,579
------------------------------------------------------------------------
Extensions 3 - 3 11 811 149
Discoveries 289 - 289 376 4,847 1,471
Revisions (3) (20) (19) (39) (111) (201) (184)
Acquisitions 26 - 26 - 3,915 679
Economic Factors (14) - (14) (1) (42) (22)
Production (77) (39) (116) (31) (1,295) (361)
------------------------------------------------------------------------
December 31, 2004 762 114 876 496 11,634 3,311
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Natural gas is converted to barrels of oil equivalent ("boe") at a
ratio of six thousand cubic feet to one boe.
(2) Numbers in this table are subject to round off error.
(3) Technical revisions were primarily due to the plant operator at
Ferrier reallocating NGL's in 2004.
(4) Reserve estimates determined using forecasted prices and costs.


Finding, development and acquisition costs in 2004 were $13.17 per
barrel of oil equivalent for proved plus probable reserves, including
revisions and future development capital of $3.0 million.

The net present value at December 31, 2004 of Burmis' proved plus
probable reserves (before tax) increased 172 percent to $52.5 million
from $19.3 million at December 31, 2003.



The following table summarizes Burmis' share of the net present value of
its reserves at December 31, 2004 using forecasted prices and costs.

Net present value of Company reserves, discounted at 10 percent before
income taxes ($000's) (1,2,3)
------------------------------------------------------------------------
Light
and
Medium Heavy Total Natural
Crude Crude Crude Gas Natural
Reserve Category Oil Oil Oil Liquids Gas ARTC Total
------------------------------------------------------------------------
Proved
-producing 8,711 865 9,576 2,373 16,130 1,375 29,453
-non-producing (77) (35) (113) 3,803 3,056 159 6,905
-undeveloped 1,943 - 1,943 1,043 1,539 231 4,756
------------------------------------------------------------------------
Total Proved 10,576 830 11,406 7,220 20,726 1,765 41,114
Probable 3,119 116 3,235 1,685 5,991 480 11,391
------------------------------------------------------------------------
Proved plus
probable 13,695 946 14,641 8,904 26,715 2,245 52,505
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Utilizes McDaniel and Associates Consulting Limited price forecast
as of January 1, 2005.
(2) Values include royalty interest reserves and are net of abandonment
liabilities.
(3) Numbers in this table are subject to round off error.

The following price forecasts were used to determine future revenues
from the Company's reserves.

McDaniel Report price forecast as of January 1, 2005 - Crude oil and
natural gas liquids (5)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Edmonton
WTI Edmonton Cromer Condensate
Crude Light Heavy Medium and
Oil Crude Crude Crude Natural Edmonton Edmonton
$US/bbl Oil Oil Oil Gasolines Propane Butanes
Year (1) $C/bbl(2) $C/bbl(3) $C/bbl(4) $/bbl $/bbl $/bbl
-----------------------------------------------------------------------
2005 42.00 49.60 29.40 43.50 50.40 32.00 36.30
2006 39.50 46.60 29.90 40.90 47.40 30.40 34.10
2007 37.00 43.50 27.90 38.20 44.30 28.80 31.90
2008 35.00 41.10 26.30 36.00 41.90 27.30 30.10
2009 34.50 40.50 25.90 35.50 41.30 26.90 29.70
2010 34.30 40.23 25.80 35.30 41.00 26.60 29.40
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) West Texas Intermediate at Cushing, Oklahoma, 40 degrees API, 0.5
percent sulphur.
(2) Edmonton Light Sweet, 40 degrees API, 0.5 percent sulphur.
(3) Heavy crude oil, 12 degrees API at Hardisty Alberta (after deduction
of blending costs to reach pipeline quality).
(4) Midale Cromer crude oil, 29 degrees API, 2.0 percent sulphur.
(5) Generally all price forecasts increase at 2 percent per year beyond
the last price shown above.


McDaniel Report price forecast as of January 1, 2005 - Natural gas (2)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
U.S. Henry Hub AECO Alberta Average Aggregator
Gas Price Spot Price Plantgate Plantgate
Year $US/Mmbtu $C/GJ $C/Mmbtu (1) $C/Mmbtu
-----------------------------------------------------------------------
2005 6.35 6.45 6.65 6.65
2006 6.05 6.20 6.40 6.40
2007 5.75 6.05 6.20 6.20
2008 5.45 5.80 5.90 5.90
2009 5.35 5.70 5.80 5.80
2010 5.30 5.60 5.70 5.70
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) This forecast also applies to direct sales contracts and the Alberta
gas reference price used in the crown royalty calculations.
(2) Generally all price forecasts increase at 2 percent per year beyond
the last price shown above.

The following table summarizes Burmis' share of the net present value
of its reserves at December 31, 2004 using constant prices and costs.

Net present value of Company reserves, discounted at 10 percent before
income taxes ($000's) (1,2,3)
------------------------------------------------------------------------
Light
and
Medium Heavy Total Natural
Crude Crude Crude Gas Natural
Reserve Category Oil Oil Oil Liquids Gas ARTC Total
------------------------------------------------------------------------
Proved
-producing 8,317 1,201 9,518 2,409 17,619 1,437 30,983
-non-producing (72) (29) (101) 3,918 3,431 182 7,430
-undeveloped 2,004 - 2,004 1,076 1,869 264 5,213
------------------------------------------------------------------------
Total Proved 10,249 1,172 11,421 7,403 22,919 1,883 43,626
Probable 3,359 184 3,543 1,807 6,750 519 12,619
------------------------------------------------------------------------
Proved plus
probable 13,608 1,355 14,963 9,211 29,669 2,402 56,245
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Utilizes McDaniel and Associates Consulting Limited constant price
schedule as of January 1, 2005 as follows: $46.51/bbl Cdn. Edmonton
Light crude oil; $18.03/bbl Cdn. Hardisty Heavy crude oil;
$38.46/bbl Cdn. Cromer Medium crude oil; $6.62/mmbtu Cdn. Alberta
Spot; and $35.30/bbl Cdn. NGL mix.
(2) Values include royalty interest reserves and are net of abandonment
liabilities.
(3) Numbers in this table are subject to round off error.


Finding, Development and Acquisition Costs

Burmis expended $26.7 million of capital in 2004, of which $2.3 million
was previously accounted for in 2003 as future development capital. The
Company's overall finding, development and acquisition costs for its
2004 capital expenditure program, including future development capital
of $3.0 million, were $13.17 per barrel of oil equivalent of proven plus
probable reserves and $17.41 per barrel of oil equivalent of proved
reserves. The Company's two year rolling average finding, development
and acquisition costs determined on the same basis are $12.06 per barrel
of oil equivalent of proved plus probable reserves, and $15.85 per
barrel of oil equivalent of proved reserves.

National Instrument 51-101 Cautionary Statements

Effective December 31, 2003 the Alberta Securities Commission
implemented new standards of disclosure for reporting issuers engaged in
upstream oil and gas activities. These new standards establish a system
of continuous disclosure and include specific reporting requirements for
oil and gas companies. Burmis' year-end reserve report summarized in
this press release is compliant with NI 51-101.

Under NI 51-101, proved reserve assignments are based on a 90 percent
certainty that quantities recovered will equal or exceed proved reserve
estimates. Probable reserves are assigned such that there is a minimum
50 percent certainty that quantities recovered will equal or exceed
estimates of proved plus probable reserves.

The term "boe" may be misleading if used in isolation. A boe conversion
ratio of six mcf to one barrel of oil is based on an energy equivalency
conversion method which is primarily applicable at the burner tip and
does not necessarily represent a value equivalency.

The discounted net present value information presented may not represent
the fair market value of the Company's reserves.

The estimates of reserves and future net revenues for individual
properties may not reflect the same level of confidence as estimates of
reserves and future net revenues for all properties due to the effects
of aggregation.

The aggregate capital expenditures incurred in the most recent financial
period and the change during the year in estimated future development
costs generally will not reflect total finding and development costs
related to reserve additions for that year.

Net Asset Value

At December 31, 2004, Burmis had a before tax net asset value of $1.59
per share at a 10 percent discount using total proven plus probable
reserves as evaluated by McDaniel & Associates under the standards of
National Policy 51-101 and independent assessments of undeveloped land
value. Forecast prices used in this assessment were the McDaniel and
Associates Consultants Ltd. price forecast as of January 1, 2005. No
value was assigned for the Company's proprietary seismic.



NET ASSET VALUE (per diluted share at December 31, 2004)
------------------------------------------------------------------------
------------------------------------------------------------------------

Net present value of proved plus
probable reserves (1) $ 52,505
Undeveloped land (2) 4,127
Working capital deficit (11,214)
Proceeds from exercise of stock options 1,288
------------------------------------------------------------------------
Total $ 46,706
Diluted shares at December 31, 2004 (000's) 29,363
Net asset value per diluted share $ 1.59
------------------------------------------------------------------------
------------------------------------------------------------------------

Amounts are in thousands of dollars except share and per share data.

(1) Net present value of reserves evaluated by McDaniel and Associates
Consulting Ltd. as of December 31, 2004, in accordance with the
standards of NI 51-101 using forecasted prices and costs, discounted
at 10 percent before taxes.

(2) Undeveloped lands in Canada were evaluated by Seaton Jordan and
Associates Ltd., and undeveloped lands in the U.S. were evaluated by
Baseline Minerals, Inc., both in accordance with the standards of NI
51-101.


OUTLOOK

Burmis is entering 2005 with a significantly larger production base and
drilling inventory compared to a year ago. Building on our success to
date, our activities will include the tie-in of liquid rich gas wells at
Brazeau, Pembina and Westerose, as well as two shallow gas wells at
Minnehik in the first quarter and undertaking an aggressive drilling
program. Development wells are planned at Kidney, Pembina, Hoadley,
Minnehik and Ferrier. Our exploration prospects include locations at
Raspberry, Brazeau and Chip Lake. To date in the first quarter, the
Company has drilled nine gross (5.6 net) wells, all of which have been
cased. Six of these wells have been completed resulting in six (4.0 net)
natural gas wells. Three (1.6 net) wells are awaiting completion.

With this balanced opportunity portfolio, we are confident that we can
continue to deliver growth as we have demonstrated consistently over our
first two years of operations. The Burmis team is committed to creating
value for our shareholders. We have made great strides in building a
solid asset base and have expanded our platforms for growth. The
recently announced equity financing, which is scheduled to close on
March 15, 2005, will strengthen the Company's financial position and
enhance our abilities to pursue new opportunities. I look forward to
updating you on our progress in the coming months as we continue to
implement our growth strategy and execute our business plan.



Respectfully submitted on behalf of the Board of Directors,

Aidan M. Walsh, P.Eng., MBA
President & Chief Executive Officer
March 9, 2004


MANAGEMENT'S DISCUSSION AND ANALYSIS - MARCH 9, 2005

The following should be read in conjunction with the unaudited
consolidated interim financial statements for the year ended December
31, 2004, management's discussion and analysis included in the March 31,
2004 interim report and the audited consolidated financial statements
and management's discussion and analysis included in the 2003 annual
report of the Company. As the Company commenced operations on January
28, 2003, the comparative information for 2003 includes operations for
the period from January 28, 2003 to December 31, 2003. 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 interim financial statements were prepared following the same
accounting policies and methods that were used in the year-end annual
financial statements except for changes in asset retirement obligation,
stock-based compensation, and flow-through share policies as described
in note 2.

Burmis evaluates its performance and that of its business segments using
several criteria including cash flow from operations. Cash flow from
operations is a non-GAAP term that represents earnings before depletion,
depreciation and accretion, charges for stock-based compensation, and
future income taxes The inclusion of site restoration expenditures and
changes in non-cash working capital results in cash provided from
operating activities on the statement of cash flows. Cash flow from
operations is a key measure as it demonstrates the Company's ability to
generate cash necessary to fund future growth through capital investment.

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.

Certain information regarding Burmis set forth in this document and
Management's Discussion and Analysis, including management's assessment
of the Company's future plans and operations, may constitute
forward-looking statements under applicable securities law. By their
nature, forward-looking statements necessarily involve risks associated
with oil and gas exploration, production, marketing, and transportation
such as loss of market, volatility of prices, currency fluctuations,
imprecision of reserves estimates, environmental risks, competition from
other producers and ability to access sufficient capital from internal
and external sources. 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 April 30, 2004, is available
under the Company's profile on SEDAR at www.sedar.com.

OVERVIEW OF 2004

2004 was a year of significant growth for Burmis. The combination of
growth in production volumes and continued strength in commodity prices
led to significant improvements in Burmis' financial results. Cash flow
from operations rose to $8.2 million ($0.34 per common share) in 2004, a
175 percent increase compared to $3.0 million ($0.15 per common share)
in 2003. Earnings totaled $1.9 million ($0.08 per common share) in 2004,
a 525 percent increase compared to $0.3 million ($0.02 per common share)
in 2003.

Average production increased 96 percent to 986 barrels of oil equivalent
per day in 2004 compared to 503 barrels of oil equivalent per day in
2003. The Company's production growth was the result of a successful
drilling program combined with an $11.2 million natural gas property
acquisition in the third quarter of 2004. With a $15.5 million
exploration and development program in 2004, Burmis drilled 19 wells
(8.6 net) with a 79 percent success rate, and participated in several
tie-in and facility projects. These capital expenditures resulted in the
addition of 2.1 million barrels of oil equivalent of proved plus
probable reserves, and increased average production to 1,483 barrels of
oil equivalent in the fourth quarter of 2004 from 598 barrels of oil
equivalent per day in the fourth quarter of 2003.

The Company's increase in production in 2004 was enhanced by continued
strength in commodity prices. During 2004, the West Texas Intermediate
("WTI") reference price for crude oil averaged US $41.40 compared to US
$30.88 during 2003. Crude oil prices increased during 2004 as demand for
crude oil was strong, particularly in China, and concerns arose over
potential supply disruptions. Geopolitical events in Iraq, Venezuala,
Russia and demand growth in China continue to dominate crude oil
markets. Hence, this strength in crude oil prices has carried into 2005,
with the price of WTI crude oil averaging US $47.45 during the first two
months of the year.

Natural gas prices also remained strong during 2004. Although natural
gas in storage has been seasonally high in the United States this
winter, concerns persist over future supplies of natural gas and the
ability of North American natural gas suppliers to meet growing demand.
Any weakening of natural gas prices due to higher natural gas
inventories is expected to be modest in 2005.

EARNINGS

Gross petroleum and natural gas revenues increased 159 percent to $15.6
million in 2004 compared to $6.0 million for 2003.

During 2004, natural gas sales averaged 3,518 mcf per day, an increase
of 129 percent compared to 1,537 mcf per day in 2003. The Company
received an average natural gas price of $6.68 per mcf in 2004 compared
to an average natural gas price of $6.30 per mcf in 2003. During the
fourth quarter of 2004, natural gas production averaged 5,381 mcf per
day, up 175 percent compared to 1,960 mcf per day in the fourth quarter
of 2003. Natural gas prices averaged $6.80 per mcf in the fourth quarter
of 2004 compared to $5.81 in the fourth quarter of 2003.

During 2004 Burmis entered into fixed price physical natural gas sales
contracts at an intra-Alberta inventory transfer point for 2,000
gigajoules per day for the period from November 2004 to October 2005 as
follows:



------------------------------------------------------------------------
------------------------------------------------------------------------
Period Gigajoules per day Fixed Price
------------------------------------------------------------------------
(Cdn. $ per gj)
November 2004 to March 2005 1,000 $7.10
November 2004 to March 2005 1,000 $6.96
April 2005 to October 2005 1,000 $6.46
April 2005 to October 2005 1,000 $6.40
------------------------------------------------------------------------
------------------------------------------------------------------------


During 2004, crude oil and natural gas liquid sales increased 62 percent
to average 400 bbl per day compared to 247 bbl per day in 2003. The
Company realized an average price of $47.72 per bbl for its crude oil
and natural gas liquid production compared to $32.84 per bbl in 2003.
Crude oil and natural gas liquid sales averaged 586 bbl per day during
the fourth quarter of 2004, an increase of 116 percent compared to 271
bbl per day during the fourth quarter of 2003. During the fourth
quarter, Burmis realized an average price for crude oil and natural gas
liquids of $52.59 per barrel compared to $31.86 per bbl in the fourth
quarter of 2003.

Burmis does not have any fixed price contracts for crude oil at December
31, 2004 and there are no other financial instruments in place at
December 31, 2004.

Royalties were 25.2 percent of gross revenues during the fourth quarter
(2003 - 26.6 percent) and 22.8 percent of gross revenues for the year
ended December 31, 2004 (2003 - 27.1 percent). Royalties, as a
percentage of gross revenues, decreased in 2004 as Burmis has become
eligible to claim the Alberta Royalty Tax Credit on production from
newly drilled wells. In addition, the Kidney well, which commenced
production during the second quarter of 2004, is free from crown
royalties for a 12-month period. During 2003, Burmis paid $85,000 in
compensatory gas royalties to the government of Alberta. The well to
which these royalties related was brought on production in December 2003
and the compensatory royalty is no longer being charged to the Company.
Burmis was not liable for any compensatory royalties during 2004.

Operating expenses were $2,441,000 ($6.76 per barrel of oil equivalent)
during 2004 compared to $925,000 ($5.45 per barrel of oil equivalent)
during 2003. The increase in the expense is a result of a full year of
operations in 2004 and a 96 percent increase in daily production volumes
as compared to 2003. The increase in expense per barrel of oil
equivalent is due to several factors. The Company's Pembina Nisku oil
wells have relatively higher operating costs due to the nature of sour
oil and natural gas production and higher transportation and processing
costs for the sour solution gas. Throughput volumes in a non-operated
sour gas gathering system in the area have been lower than projected by
the operator. This is resulting in a higher per unit cost being charged
to parties utilizing these facilities. As incremental gas volumes are
brought on-stream and are processed through this system, per unit costs
are expected to decrease. Additionally, some minor well workovers, and
increased road and lease maintenance costs as a result of wet weather
also increased per barrel operating costs during 2004. Overall, the cost
of supplies and services to the oil and gas industry have been
increasing due to high levels of industry activity. During the fourth
quarter of 2004, operating costs were $7.25 per barrel of oil equivalent
compared to $5.58 per barrel of oil equivalent in the fourth quarter of
2003. The increase in operating costs per barrel of oil equivalent is a
result of higher operating costs at Pembina due to a hydrate in a
gathering line and the requirement to swab a well back on production
after the completion of a pressure survey on the GG pool. In addition,
Burmis pays transportation charges for natural gas production at
Kehiwin. This increased operating costs in the fourth quarter of 2004 as
compared with the fourth quarter of 2003.

The Company's operating netback increased 30 percent in 2004 to $26.67
per barrel of oil equivalent compared to $20.56 per barrel of oil
equivalent in 2003. The increase is attributable primarily to the
strength in crude oil prices combined with new, light crude oil
production which receives a premium price, and the reduction in
royalties as a percentage of sales.

General and administrative expenses totaled $1,251,000 in 2004 compared
to $493,000 in 2003. The increase is the result of additional staff
levels to support the increased scope of the Company's operations, a
bonus paid during the second quarter, as well as increased costs for
rent, insurance and information technology services.

During 2004, the Company retroactively adopted the fair value method of
accounting for stock options. Stock based compensation expense was
$208,000 in 2004 compared to $252,000 in 2003. The fair value of stock
options granted in 2004 was $143,000 (2003 - $450,000). The fair value
of stock options granted is expensed over the vesting period of the
options.

Depletion, depreciation and accretion expense totaled $4,817,000 during
2004 compared to $1,956,000 in 2003. The increase in depletion,
depreciation and accretion expense is due to both a 96 percent increase
in production volumes in 2004 compared to 2003, and an increase in the
overall rate of depletion, depreciation and accretion to $13.35 per
barrel of oil equivalent in 2004 from $11.54 in 2003. The increase in
the rate of depletion, depreciation and accretion in 2004 reflects the
high level of activity in the oil and gas industry and its impact on
costs to undertake the Company's capital program.

Interest expense totalled $179,000 in 2004. The Company borrows funds
under a production loan facility and utilizes bankers' acceptances from
time to time. During 2003, no amounts were outstanding under the
production loan facility.

The provision for income taxes increased to $1,243,000 in 2004 as a
result of increased profitability of the Company. Current taxes in 2004
and 2003 represent Large Corporations Tax in Canada and state taxes in
the United States. As a result of the current high commodity price
environment and the rapid growth of the Company, Burmis expects that it
will be liable for current Canadian income taxes in 2005. The amount of
current income taxes owing in 2005 will be dependent upon cash flows
generated by the Company, and the level and allocation of 2005 capital
expenditures. Under the Company's current forecast, Burmis estimates
current income taxes will be approximately $1.0 million in 2005.

Net capital expenditures totalled $26.7 million in 2004 compared to $9.7
million in 2003. The Company's 2004 exploration and development program
totalled $15.5 million, consisting of exploration expenditures of $4.6
million, development expenditures of $4.4 million, investments in
production facilities of $4.8 million, and land and seismic additions of
$1.7 million.

Additionally, Burmis acquired petroleum and natural gas producing assets
for $11.2 million during 2004. On August 31, 2004, Burmis closed an
acquisition of properties producing 350 barrels of oil equivalent per
day. The acquired assets included producing natural gas wells at
Kehiwin, oil production at Kippen and 21,000 net acres of undeveloped
land.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2004 Burmis had a total working capital deficit of $11.2
million, including $9.0 million outstanding on its production loan
facility. The Company's revolving production loan facility with a
Canadian chartered bank was increased to $18.0 million in the fourth
quarter of 2004. The borrowing rate on this facility was decreased to
the bank prime lending rate plus 0.125 percent, or the banker's
acceptance rate plus a stamping fee of 1.45 percent. The production loan
facility is subject to annual review in May 2005 at which time repayment
may be required. Burmis expects the production loan facility to be
renewed in May 2005 as the Company's reserves are currently sufficient
to support a credit facility of this size.

On September 8, 2004, Burmis closed a private placement of 2.7 million
common shares for gross proceeds of $3.5 million. Proceeds of the
private placement will be used to fund the Company's ongoing capital
program. After giving effect to the private placements, Burmis had 27.2
million common shares outstanding. In addition, 2.1 million stock
options have been granted at an average exercise price of $0.60 per
share.

On August 10, 2004 Burmis closed a private placement of 2.7 million
flow-through common shares for gross proceeds of $4.9 million. Proceeds
of the private placement were used to fund the Company's exploration and
development program in west central Alberta and Saskatchewan.

On February 25, 2005 the Company announced a private placement of 3.0
million common shares at a price of $2.70 per share which would raise
gross proceeds of $8.1 million. The Company also granted the
underwriters an option to purchase an additional 1.0 million common
shares at the same price and terms and conditions. If this option is
exercised in full, total gross proceeds from the financing will be $10.8
million. Proceeds from this offering will be used to fund Burmis'
ongoing exploration and development activities and for general corporate
purposes. Upon closing of this transaction in March 2005, Burmis is
expected to have approximately 31.2 million common shares outstanding.

Burmis has an approved capital budget of $16.5 million for 2005, and is
projecting cash flow from operations of $13.4 million based upon
estimated production of 1,900 barrels of oil equivalent per day. With
these forecasted amounts Burmis is projecting net debt of approximately
$14.2 million at the end of 2005. After including the estimated net
proceeds from the private placement which is expected to close in March
2005, net debt at the end of 2005 is expected to be approximately $4.1
million assuming full exercise of the underwriters option and no change
in the Company's projected capital program and estimated cash flow from
operations.

CONTRACTUAL OBLIGATIONS

The Company's production loan facility is subject to annual review in
May 2005 at which time repayment may be required. Burmis expects the
production loan facility to be renewed in May 2005 as the Company's
reserves are currently sufficient to support a credit facility of this
size.

During August 2004, Burmis issued flow-through common shares for gross
proceeds of $4.9 million. At that time, the Company committed to incur
$4.9 million of eligible expenditures under this flow-through
arrangement by December 31, 2005. At December 31 2004, Burmis had
incurred approximately $1.6 million of eligible expenditures. The
remaining $3.3 million of eligible expenditures will be incurred prior
to December 31, 2005.

Burmis has office lease space commitments $127,500 in 2005, $133,000 in
2006 and $33,500 in 2007.

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

RELATED PARTY TRANSACTIONS

During the third quarter of 2004, three officers of the Company
participated in the common share private placement which closed on
September 8, 2004. In total, the officers purchased 135,000 common
shares of the Company at a price of $1.30 per share. There were no other
transactions with related parties during 2004.

During the first quarter of 2005, certain insiders and employees of
Burmis subscribed for 165,000 common shares at a price of $2.70 per
common share under a financing which is expected to close in March 2005.

At this time, Burmis has not entered into any proposed business or
property acquisitions or dispositions.



SUMMARY OF QUARTERLY OPERATING AND FINANCIAL RESULTS
------------------------------------------------------------------------
------------------------------------------------------------------------
2004 2003
OPERATING Fourth Third Second First Fourth Third Second First
------------------------------------------------------------------------
Natural gas
(mcf/d) 5,381 3,520 2,831 2,320 1,960 1,799 1,405 711
Price ($/mcf) 6.80 6.24 7.16 6.52 5.81 5.75 6.88 8.71
Oil and NGL's
(bbl/d) 586 430 331 251 271 233 237 248
Price ($/bbl) 52.59 52.01 41.98 36.36 31.86 31.52 29.63 40.72
Barrels of oil
equivalent
(per day) 1,483 1,017 803 638 598 533 471 367

EARNINGS ('000's of dollars) (1)
------------------------------------------------------------------------
Crude oil and
natural gas
liquid
revenues 2,835 2,057 1,265 830 794 675 640 627
Natural gas
revenues 3,375 2,028 1,853 1,392 1,057 962 897 396
Royalties (1,563) (907) (544) (551) (492) (418) (439) (287)
Interest and
other income - - - 18 11 21 15 -
-------------------------------------------------------
Net revenues 4,647 3,178 2,574 1,689 1,370 1,240 1,113 736
Operating expenses 989 632 421 399 307 267 217 134
General and
administrative 355 279 398 219 150 115 146 82
Stock based
compensation 58 58 56 36 69 61 61 61
Depletion,
depreciation
and accretion 1,983 1,223 889 722 708 571 404 273
Interest 87 55 28 9 - - - -
Other 25 28 2 - 4 3 33 -
-------------------------------------------------------
Total expenses 3,497 2,275 1,794 1,385 1,238 1,017 861 550
Earnings before
income taxes 1,150 903 780 304 132 223 252 186
Current income
taxes - 2 - - 21 5 4 3
Future income
taxes 506 340 249 146 87 114 153 103
-------------------------------------------------------
506 342 249 146 108 119 157 106
-------------------------------------------------------
Earnings 644 561 531 158 24 104 95 80
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per
share (basic
and diluted) $0.02 $0.02 $0.02 $0.01 $0.00 $0.01 $0.01 $0.00
------------------------------------------------------------------------
------------------------------------------------------------------------
CASH FLOW
('000's of
dollars) 3,191 2,182 1,725 1,062 888 850 713 517
------------------------------------------------------------------------
------------------------------------------------------------------------
Cash flow per
share (basic
and diluted) $0.12 $0.09 $0.08 $0.05 $0.04 $0.04 $0.04 $0.03
------------------------------------------------------------------------
------------------------------------------------------------------------
CASH NETBACKS ($/boe)
------------------------------------------------------------------------
Petroleum and
natural gas
revenues 45.52 43.67 42.68 38.30 33.67 33.41 35.85 44.96
Royalties (11.45) (9.70) (7.45) (9.49) (8.96) (8.53)(10.23)(12.62)
Operating
expenses (7.25) (6.75) (5.76) (6.88) (5.58) (5.46) (5.06) (5.90)
-------------------------------------------------------
Operating
netback 26.82 27.22 29.47 21.93 19.13 19.42 20.56 26.44
General and
administrative (2.61) (2.99) (5.45) (3.76) (2.74) (2.35) (3.41) (3.58)
Interest and
other income
(expense) (0.81) (0.90) (0.41) 0.14 0.14 0.40 (0.45) -
Current income
taxes - (0.02) - - (0.38) (0.10) (0.09) (0.14)
-------------------------------------------------------
Cashflow netback 23.40 23.31 23.61 18.31 16.15 17.37 16.61 22.72
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL ASSETS
($'000's of
dollars)(1) 45,741 42,484 27,770 25,230 21,971 22,578 18,348 15,944
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Prior year numbers have been restated to reflect current accounting
policies.


BURMIS ENERGY INC.
Consolidated Balance Sheets

(thousands of dollars)
------------------------------------------------------------------------
December 31, December 31,
(unaudited) 2004 2003
------------------------------------------------------------------------
(Restated - note 2)
Assets
Current assets
Cash $ 302 $ 1,832
Accounts receivable 5,229 2,610
------------------------------------------------------------------------
5,531 4,442
Petroleum and natural gas properties
(notes 2, 3, and 4) 40,210 17,529
------------------------------------------------------------------------
$ 45,741 $ 21,971
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 7,745 $ 4,928
Production loan facility (note 5) 9,000 -
------------------------------------------------------------------------
16,745 4,928
Asset retirement obligation (notes 2 and 6) 1,831 1,060
Future income tax liability 1,909 887
Shareholders' equity
Share capital (note 7) 22,602 14,541
Contributed surplus (notes 2 and 7) 457 252
Retained earnings 2,197 303
------------------------------------------------------------------------
25,256 15,096
------------------------------------------------------------------------
$ 45,741 $ 21,971
------------------------------------------------------------------------

Subsequent event (note 11)

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Earnings
(thousands of dollars, except per share amounts)
------------------------------------------------------------------------
------------------------------------------------------------------------
three months period
ended December 31, ended December 31,
(unaudited) 2004 2003 2004 2003
------------------------------------------------------------------------
(Restated (Restated
- note 2) - note 2)
Revenues
Petroleum and natural gas $ 6,210 $ 1,851 $ 15,635 $ 6,048
Royalties (1,563) (492) (3,565) (1,636)
Interest and other income - 11 18 47
------------------------------------------------------------------------
4,647 1,370 12,088 4,459
Expenses
Operating 989 307 2,441 925
General and administrative 355 150 1,251 493
Stock based compensation 58 69 208 252
Depletion, depreciation
and accretion
(notes 2, 4 and 6) 1,983 708 4,817 1,956
Interest 87 - 179 -
Other 25 4 55 40
------------------------------------------------------------------------
3,497 1,238 8,951 3,666
Earnings before income taxes 1,150 132 3,137 793
Income taxes
Current - 21 2 33
Future 506 87 1,241 457
------------------------------------------------------------------------
506 108 1,243 490
------------------------------------------------------------------------
Earnings $ 644 $ 24 $ 1,894 $ 303
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per share (note 8)
Basic and diluted $ 0.02 $ 0.00 $ 0.08 $ 0.02
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statement of Retained Earnings
(thousands of dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
three months period
ended December 31, ended December 31,
(unaudited) 2004 2003 2004 2003
------------------------------------------------------------------------
(Restated (Restated
- note 2) - note 2)
Retained earnings, beginning
of period as reported $ 1,553 $ 279 $ 435 $ -
Adoption of new accounting
standards:
Asset retirement obligation - - 120 -
Stock-based compensation - - (252) -
------------------------------------------------------------------------
Retained earnings, beginning
of period as restated 1,553 279 303 -
Earnings for the period 644 24 1,894 303
------------------------------------------------------------------------
Retained earnings,
end of period $ 2,197 $ 303 $ 2,197 $ 303
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Cash Flows

(thousands of dollars, except per share amounts)
------------------------------------------------------------------------
------------------------------------------------------------------------
three months period
ended December 31, ended December 31,
(unaudited) 2004 2003 2004 2003
------------------------------------------------------------------------
(Restated (Restated
- note 2) - note 2)
Cash provided by (used in)
Operations
Earnings $ 644 $ 24 $ 1,894 $ 303
Items not affecting cash
Depletion, depreciation
and accretion 1,983 708 4,817 1,956
Stock based compensation 58 69 208 252
Future income taxes 506 87 1,241 457
------------------------------------------------------------------------
3,191 888 8,160 2,968
Asset retirement
expenditures - (1) - (3)
Change in non-cash
working capital
Accounts receivable (596) (443) (2,619) (1,978)
Accounts payable and
accrued liabilities 1,005 (557) 2,817 4,100
------------------------------------------------------------------------
3,600 (113) 8,358 5,087
Financing
Production loan facility 895 - 9,000 -
Exercise of stock options - - 4 -
Cash received pursuant to
Plan of Arrangement - - - 1,315
Issue of common shares for
cash, net of share
issue costs 7 - 7,835 5,177
------------------------------------------------------------------------
902 - 16,839 6,492
------------------------------------------------------------------------
Investments
Additions to petroleum and
natural gas properties (4,337) (2,607) (15,528) (9,747)
Acquisition of petroleum
and natural gas properties - - (11,199) -
------------------------------------------------------------------------
(4,337) (2,607) (26,727) (9,747)

Increase (decrease) in cash 165 (2,720) (1,530) 1,832
Cash, beginning of period 137 4,552 1,832 -
------------------------------------------------------------------------
Cash, end of period $ 302 $ 1,832 $ 302 $ 1,832
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements
Period ended December 31, 2004
(Tabular amounts in thousands of dollars unless otherwise indicated)
------------------------------------------------------------------------


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 United States subsidiary, Bellevue
Resources, Inc.

These interim consolidated financial statements are based upon audited
financial information and have been prepared by management following the
same accounting policies and methods that were used and disclosed in the
audited financial statements for the period from January 28, 2003 to
December 31, 2003, except as described in note 2. These consolidated
interim financial statements include all adjustments necessary to
present fairly the results for the interim period ended December 31,
2004. Certain information and footnote disclosure normally included in
the financial statements has been condensed or omitted. These interim
financial statements should be read in conjunction with the most recent
audited consolidated financial statements and notes included in the
Company's annual report for the period from January 28, 2003 to December
31, 2003.

2. Changes in accounting policies:

(a) Asset retirement obligations

The Company uses the fair value method to provide for asset retirement
obligations. The fair value of an asset retirement obligation is
recognized in the period in which it is incurred when a reasonable
estimate of fair value can be made. The fair value is based on estimated
reserve life, inflation and discount rates. The provision is recorded as
a long-term liability, with a corresponding increase in the carrying
value of the associated asset. The capitalized amount is depleted on a
unit-of-production basis. The liability amount is increased each
reporting period due to the passage of time with this accretion charged
to earnings in the period. Revisions to the estimated timing of cash
flows or to the original estimated undiscounted cost would also result
in an increase or decrease to the asset retirement obligation. Actual
asset retirement expenditures are charged against the liability to the
extent of the liability recorded. Any difference between the actual
costs incurred and the amount of the liability recorded is recognized as
a gain or loss in earnings in the period the costs are incurred.

The effect of the change in accounting policy has been recorded
retroactively with restatement of prior periods. The effect of the
adoption on the comparative balance sheet and statement of earnings is
presented below as increases (decreases):



------------------------------------------------------------------------
------------------------------------------------------------------------
Balance sheet December 31, 2003
------------------------------------------------------------------------
Asset retirement cost, included
in property and equipment $ 289
Asset retirement obligations $ 103
Future income tax liability $ 66
Retained earnings $ 120
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Statement of earnings Period ended
December 31, 2003
------------------------------------------------------------------------

Accretion expense, included in depletion,
depreciation and accretion $ 44
Depletion and depreciation on asset retirement costs (110)
Reversal of future site restoration provision (120)
Future income tax expense 66
------------------------------------------------------------------------
Net change to earnings $ 120
------------------------------------------------------------------------
------------------------------------------------------------------------

Net change to earnings per share:

Basic and diluted $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------


(b) Stock-based compensation

The Company has a stock-based compensation plan as described in note 7.
Burmis uses the fair value method of accounting for stock options
granted. At the date of grant, the fair value of the stock options is
estimated. This fair value is recorded as general and administrative
expense over the vesting period of the option. In determining the fair
value of the stock options granted, the Black-Scholes model is used and
assumptions regarding interest rates, underlying volatility of the
Company's stock and expected life of the options are made.

During 2003, Burmis did not record a compensation expense for stock
options granted. The retroactive adoption of fair value accounting for
stock options granted resulted in a charge to general and administrative
expenses of $252,000 for the period ended December 31, 2003. As a
result, contributed surplus of $252,000 was recorded and retained
earnings were reduced by $252,000 as a result of the adoption of this
accounting.

(c) Flow-through shares

An EIC Abstract requires that the future income tax liability for all
share issues after March 19, 2004 be recorded in the financial
statements when the tax deductions are renounced to the investors. Prior
to that date, the Company had recognized the future income tax liability
at the time the expenditures were effectively renounced.

The adoption of this EIC Abstract defers recognition of a future tax
liability of approximately $1.9 million associated with the renouncement
of tax deductions associated with the flow-through shares issued in 2004
to the first quarter of 2005.

3. Acquisition of petroleum and natural gas producing properties

On August 31, 2004, Burmis completed an acquisition of petroleum and
natural gas producing properties for a net expenditure of $11.2 million.
The acquisition, which was funded by the Company's existing and expanded
credit facilities, was recorded as follows:



------------------------------------------------------------------------
------------------------------------------------------------------------
Petroleum and natural gas properties $ 11,652
Production loan facility $ (11,199)
Asset retirement obligation $ (453)
------------------------------------------------------------------------
------------------------------------------------------------------------


4. Petroleum and natural gas properties:
------------------------------------------------------------------------
------------------------------------------------------------------------
December 31, December 31,
2004 2003
------------------------------------------------------------------------
Petroleum and natural gas properties $ 46,869 $ 19,437
Accumulated depletion and depreciation (6,659) (1,908)
------------------------------------------------------------------------
$ 40,210 $ 17,529
------------------------------------------------------------------------
------------------------------------------------------------------------


At December 31, 2004, flow-through share arrangements require the
Company to incur approximately $4.9 million in exploration and
development costs prior to December 31, 2005. To December 31, 2004
approximately $1.6 million of costs required to fulfill the Company's
flow-through share commitments have been incurred.

5. Production loan facility:

During the fourth quarter, the Company's revolving production demand
loan facility was increased from $13.1 million to $18.0 million. The
facility bears interest at the bank prime rate plus 0.125 percent or the
banker's acceptance rate plus a stamping fee of 1.45 percent. Repayments
of the facility are not required provided the amounts borrowed do not
exceed $18.0 million or an amount determined from time to time. The next
scheduled review of the credit facility is in May 2005. All amounts
drawn under this facility are classified as a current liability.

The loan facility is secured by a $25 million floating charge demand
debenture over all Canadian assets, and a full recourse guarantee of the
United States subsidiary.

6. 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
December 31, 2004 is approximately $2.5 million. These costs will be
incurred between 2005 and 2025. Over 90 percent of the costs will be
incurred after 2007. 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:
------------------------------------------------------------------------
------------------------------------------------------------------------
December 31, December 31,
2004 2003
------------------------------------------------------------------------
Balance, beginning of period $ 1,060 $ 850
Accretion expense 66 44
Liabilities incurred 705 169
Liabilities settled - (3)
------------------------------------------------------------------------
Balance, end of period $ 1,831 $ 1,060
------------------------------------------------------------------------
------------------------------------------------------------------------

7. Share capital:

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

Issued:
------------------------------------------------------------------------
------------------------------------------------------------------------
Number of
Shares Amount
------------------------------------------------------------------------
Balance, December 31, 2003 21,810,133 $ 14,541
Exercise of stock options for cash 6,000 4
Transfer of contributed surplus to share
capital on exercise of stock options - 3
Common shares issued pursuant
to private placement 2,700,000 3,510
Flow-through shares issued pursuant
to private placement 2,700,000 4,914
Share issuance costs - (589)
Tax effect of share issuance costs - 219
------------------------------------------------------------------------
Balance, December 31, 2004 27,216,133 $ 22,602
------------------------------------------------------------------------
------------------------------------------------------------------------


The estimated tax effect of the amounts renounced to shareholders is
charged to share capital when the expenditures are renounced to the
shareholders.

Three officers of the Company participated in the common share private
placement which closed September 8, 2004. In total, the officers
purchased 135,000 common shares of the Company at a price of $1.30 per
common share.



(b) Contributed surplus:

A reconciliation of contributed surplus is provided below:
------------------------------------------------------------------------
------------------------------------------------------------------------
December 31, December 31,
2004 2003
------------------------------------------------------------------------
Balance, beginning of period $ 252 $ -
Stock-based compensation expense 208 252
Transfer to share capital on
exercise of stock options (3) -
------------------------------------------------------------------------
Balance, end of period $ 457 $ 252
------------------------------------------------------------------------
------------------------------------------------------------------------


(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. At December 31, 2004 there were 2,180,000 common shares
reserved for issuance under the plan. 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 December 31, 2004 and changes
during the period ending on that date is presented below:

------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Life Remaining
------------------------------------------------------------------------
Outstanding,
December 31, 2003 1,863,000 $ 0.53 4.1 years
Granted 301,500 $ 1.07 4.4 years
Cancelled (12,000) $ 0.61 4.0 years
Exercised (6,000) $ 0.61 4.0 years
------------------------------------------------------------------------
Outstanding,
December 31, 2004 2,146,500 $ 0.60 3.3 years
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable,
December 31, 2004 615,000 $ 0.53 3.2 years
------------------------------------------------------------------------
------------------------------------------------------------------------

The outstanding stock options and associated exercise prices are
outlined below:
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
------------------------------------------------------------------------
$ 0.50 1,755,000 3.1 years
$ 1.02 24,000 4.2 years
$ 1.05 90,000 3.9 years
$ 1.06 264,000 4.4 years
$ 1.35 13,500 4.7 years
------------------------------------------------------------------------
$ 0.50 - $1.35 2,146,500 3.3 years
------------------------------------------------------------------------
------------------------------------------------------------------------


The fair value of the stock options granted during 2004 is estimated to
be $143,000 using the Black-Scholes model with the following weighted
average assumptions: expected life of options - five years; interest
rate - 5.0 percent; volatility - 43 percent.

The fair value of 1,863,000 stock options granted during 2003 was
estimated to be $450,000 using the Black-Scholes model.

8. 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 period
ended December 31, ended December 31,
2004 2003 2004 2003
------------------------------------------------------------------------
Weighted average common
shares outstanding 27,216,133 21,810,133 23,725,526 19,826,454
Shares issuable pursuant
to stock options 2,146,500 1,863,000 2,146,500 1,773,000
Shares to be purchased
from proceeds of
stock options (743,599) (919,369) (986,200) (1,152,627)
------------------------------------------------------------------------
Weighted average
diluted common
shares outstanding 28,619,034 22,753,764 24,885,826 20,446,827
------------------------------------------------------------------------
------------------------------------------------------------------------


During the periods presented, outstanding stock options were the only
dilutive instrument.

9. Commodity price risk management:

The Company is exposed to fluctuations in both natural gas and crude oil
commodity prices. The Company monitors the risks associated with these
prices and periodically utilizes fixed price contracts to manage its
exposure to these risks.

The Company enters into gas sales agreements to provide exposure to a
portfolio of pricing indices. At December 31, 2004, the Company had
entered into fixed price physical sales agreements that fixed the gas
sales price on 2,000 gigajoules per day of production from November 2004
to October 2005 as follows:



------------------------------------------------------------------------
------------------------------------------------------------------------
Period Gigajoules per day Fixed Price
------------------------------------------------------------------------
(Cdn. $ per gj)
------------------------------------------------------------------------
November 2004 to March 2005 1,000 $ 7.10
November 2004 to March 2005 1,000 $ 6.96
April 2005 to October 2005 1,000 $ 6.46
April 2005 to October 2005 1,000 $ 6.40
------------------------------------------------------------------------
------------------------------------------------------------------------

10. Segment information:

2004 Operating and Geographic Segments as at December 31, 2004
------------------------------------------------------------------------
------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------
Revenues, net of royalties $ 10,870 $ 1,200 $ 12,070
Earnings before income taxes $ 2,479 $ 658 $ 3,137
Earnings $ 1,462 $ 432 $ 1,894
------------------------------------------------------------------------
------------------------------------------------------------------------
Petroleum and natural gas properties
Cost $ 44,805 $ 2,064 $ 46,869
Accumulated depletion
and depreciation (5,840) (819) (6,659)
------------------------------------------------------------------------
Net book value $ 38,965 $ 1,245 $ 40,210
------------------------------------------------------------------------


2003 Operating and Geographic Segments as at December 31, 2003
------------------------------------------------------------------------
------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------
Revenues, net of royalties $ 2,990 $ 1,422 $ 4,412
Earnings before income taxes $ 235 $ 558 $ 793
Earnings $ (63) $ 366 $ 303
------------------------------------------------------------------------
------------------------------------------------------------------------
Petroleum and natural gas properties
Cost $ 17,242 $ 2,195 $ 19,437
Accumulated depletion
and depreciation (1,324) (584) (1,908)
------------------------------------------------------------------------
Net book value $ 15,918 $ 1,611 $ 17,529
------------------------------------------------------------------------
------------------------------------------------------------------------


11. Subsequent event

On February 25, 2005 the Company announced a private placement of 3.0
million common shares at a price of $2.70 per share which would raise
gross proceeds of $8.1 million. The Company also granted the
Underwriters an option to purchase an additional 1.0 million common
shares at the same price and terms and conditions. If this option is
exercised in full, total gross proceeds from the financing will be $10.8
million. Certain insiders and employees of Burmis subscribed for 165,000
common shares at a price of $2.70 per common share under this financing.
Completion of this transaction is subject to receipt of all necessary
regulatory approvals. This transaction is expected to close in March
2005.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    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)
    Email: ir@burmisenergy.ca
    Website: www.burmisenergy.ca