Burmis Energy Inc.
TSX : BME

Burmis Energy Inc.

August 10, 2005 08:00 ET

Burmis Energy Reports Continued Growth in the Second Quarter of 2005, Increases Capital Budget to $34 Million

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2005) - Burmis Energy Inc. (TSX:BME) ("Burmis") is pleased to announce its operating and financial results for the reporting period ended June 30, 2005.

HIGHLIGHTS

- Increased funds flow 190% to $8.1 million ($0.27 per share )(1) in the first half of 2005

- Increased earnings 197% to $2.0 million ($0.07 per share) in the first half of 2005

- Increased production 120% to average 1,764 boe/d during the second quarter of 2005

- Drilled 7 gross (1.7 net) gas wells for a 100% success rate during the second quarter of 2005

- Private placement to raise gross proceeds of $11.1 million by issuing of 3.0 million common shares

- Capital budget for 2005 increased 66% to $34 million

- Plans to drill 27 gross (10.9 net) wells in the second half of 2005



three months six months
ended June 30, ended June 30,
2005 2004 2005 2004 Change
------------------------------------------------------------------------
FINANCIAL
($000s, except shares
and per share amounts)
Gross petroleum and
natural gas revenue $ 7,863 $ 3,118 $ 15,078 $ 5,340 +182%
Funds flow from
operations (1) $ 4,110 $ 1,725 $ 8,070 $ 2,787 +190%
Basic per share $ 0.13 $ 0.08 $ 0.27 $ 0.13 +108%
Diluted per share $ 0.13 $ 0.08 $ 0.26 $ 0.13 +100%
Earnings $ 873 $ 531 $ 2,043 $ 689 +197%
Basic and diluted
per share $ 0.03 $ 0.02 $ 0.07 $ 0.03 +133%
Weighted average
shares ('000's) 31,224 21,816 29,585 21,814 + 36%
Common shares
outstanding ('000's) 31,224 21,816 31,224 21,816 + 43%
Capital expenditures $ 5,298 $ 3,114 $ 14,640 $ 8,226 + 78%
Working capital
deficiency $ (7,872) $ (5,921) + 33%
Total assets $ 58,080 $ 27,770 +109%
Shareholders' equity $ 35,899 $ 15,881 +126%
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Funds flow from operations represents earnings before depletion,
depreciation and accretion, stock-based compensation, an
unrealized loss on a crude oil price swap, and future income taxes.



three months six months
ended June 30, ended June 30,
2005 2004 2005 2004 Change
------------------------------------------------------------------------
OPERATING
Natural gas
(mcf/day) 5,991 2,831 5,785 2,575 +125%
Average price
($Cdn./mcf) $ 7.34 $ 7.16 $ 7.34 $ 6.87 + 7%
Oil and NGL's
(bbl/day) 766 331 743 291 +155%
Average price
($Cdn./bbl) $ 57.98 $ 41.98 $ 56.25 $ 39.56 + 42%
Barrels of oil
equivalent per day (1) 1,764 803 1,707 720 +137%
Operating netback
($Cdn./boe) (2) $ 30.10 $ 29.47 $ 29.56 $ 26.13 + 13%
Cash netback
($Cdn./boe) (3) $ 25.60 $ 23.61 $ 26.11 $ 21.26 + 23%
------------------------------------------------------------------------
------------------------------------------------------------------------

(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.

(2) Operating netback is calculated as revenues less royalties and
operating costs on a barrel of oil equivalent basis.

(3) Cash netback is calculated as funds flow from operations on a barrel
of oil equivalent basis.


OPERATIONS

In the second quarter of 2005 Burmis recorded average production of 1,764 barrels of oil equivalent per day, an increase of 120 percent compared to 803 barrels of oil per day in the second quarter of 2004. Average production in the quarter was reduced by approximately 110 barrels of oil equivalent per day due to wet weather and both planned and unplanned outages at Easyford and Brazeau in April and June.

The Company participated in seven gross (1.7 net) wells which resulted in seven gross (1.7 net) natural gas wells for a 100 percent success rate. For the year to date, Burmis has participated in drilling 18 gross (9.5 net) wells with a 93 percent success rate.

During the second quarter, Burmis drilled four gross (0.94 net) wells at Pembina which were all cased as potential gas wells. One of these wells (25 percent working interest) has been completed and tied-in, commencing production in June at an initial gross rate of approximately 1.0 mmcf per day. A second well, (25 percent working interest) was recently completed and tested at an initial unstablized rate of approximately 3.0 mmcf per day. The remaining two wells were completed, and each tested at gross rates of approximately 300 mcf per day at lower pressures and will require wellhead compression to produce.

To date in the third quarter, the Company has drilled four gross (0.9 net) wells at Pembina resulting in one (0.25 net) gas well, one (0.13 net) oil well and two (0.5 net) cased wells awaiting completion. The gas well tested at a gross rate of approximately 8 mmcf per day on a 24 hour test. The oil well commenced production testing in August at an initial constrained gross rate of approximately 185 barrels per day. The Company's expanded capital budget includes an additional nine gross (1.8 net) wells at Pembina over the remainder of 2005.

Burmis currently processes its natural gas in the Pembina area at a third party gas plant at O'Chiese, which is now nearing full capacity. As a result the Company has nominated for 15 percent ownership in a 30 million cubic foot per day natural gas plant to be constructed at Pembina by the operator. AEUB approval to construct this gas plant was granted in July 2005. Once this new gas plant is operational, Burmis will benefit from substantially lower operating costs for its Pembina natural gas and NGL production and will have guaranteed 4.5 mmcf per day of processing capacity for its production in the area. This facility is scheduled to be fully operational by year end.

At Ferrier, the Company cased and completed a Cardium gas well (36 percent working interest). This well commenced production in late July at an initial gross rate of approximately 2.5 million cubic feet per day plus natural gas liquids.

At Hoadley, the Company is tying in a 100 percent working interest gas well which was drilled in the first quarter of 2005. This well is expected to produce at an initial gas rate of 300 mcf per day.

At Brazeau, the Company participated with a 25 percent before payout working interest in an exploratory well targeting Nisku gas at a depth of 3,700 metres. This well was recently completed and stimulated with acid. On clean-up, the well flowed at an average rate of 2.7 million cubic feet per day and an average wellhead pressure of 1,360 psig over the last five hours of flow. Natural gas produced from this well is sour with a hydrogen sulphide content of 19 percent. The well has now been shut-in to run recorders prior to production testing. This well will be tied into existing sour gas facilities at Brazeau to commence production in the fourth quarter of 2005.

At Kehiwin, Burmis recently drilled a 75 percent working interest well which tested at 1.0 million cubic feet per day on a short-term test. This well is expected to be tied-in for production in September.

OUTLOOK

Burmis grew its production base in the second quarter by commencing production from two oil wells at Kidney and a gas well at Pembina. The Company cased seven wells in the second quarter which will generate additional production in the second half of the year. Two of these wells, one at Pembina and one at Ferrier, have recently commenced production. Additional gas well tie-ins are planned at Kehiwin, Hoadley, Pembina and Brazeau where the Company has approximately 600 barrels of oil equivalent per day behind pipe.

Burmis is expanding its drilling program and its 2005 capital budget by 66 percent to $34 million. During the second half of 2005, Burmis plans to drill an additional 13 gross (2.7 net) wells at Pembina and participate, with a 15 percent working interest, in the construction of a new gas plant capable of handling up to 30 mmcf per day of production. In addition, the Company plans to participate in drilling up to 14 gross (8.2 net) wells at Kehiwin, Ferrier, Westerose, Bigoray, Brazeau, Calais and Easyford.

The Company continues to forecast average daily production of 2,000 barrels of oil equivalent per day, and is targeting a 2005 exit production rate of approximately 2,600 barrels of oil equivalent per day. Since natural gas and crude oil prices remain strong, we are increasing our 2005 funds flow guidance to $19 million ($0.61 per share). This is based on revised forecast prices of US $50.00 per barrel for West Texas Intermediate crude oil and $7.00 per mcf for natural gas over the remainder of 2005. Using these assumptions, and including the net proceeds of the recently announced private placement, net debt is projected to be approximately $5.5 million at the end of 2005.

The Burmis team continues to expand the Company's production base by pursuing incremental exploration and development opportunities. The Pembina gas plant and development drilling project will be a significant component of our growth in 2005. This will be complimented by our expanded portfolio of drilling opportunities in west central Alberta. I look forward to updating you on these activities as we proceed with our exciting program over the remainder of 2005 and beyond.



Respectfully submitted on behalf of the Board of Directors,

Aidan M. Walsh, P.Eng., MBA
President & Chief Executive Officer
August 10, 2005


MANAGEMENT'S DISCUSSION AND ANALYSIS - August 10, 2005

The following should be read in conjunction with the unaudited consolidated interim financial statements for the six months ended June 30, 2005 and the audited consolidated financial statements and management's discussion and analysis included in the 2004 annual report of the Company. 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 2004 audited consolidated financial statements.

Burmis intends to pursue growth through exploration and development activities supported by land acquisitions and farm-in arrangements. The Company also pursues complimentary acquisitions in its core operating areas to enhance future growth.

During the first six months of 2005, Burmis continued to focus its efforts on exploration and development activities in west central Alberta. These activities, when combined with the impact of the acquisition of a shallow natural gas property in east central Alberta in the third quarter of 2004, have resulted in significant growth in the Company's production, reserves and scope of operations. Burmis also has minor crude oil production in the United States which has been a source of cash flow for the Company as it carries out its activities in Canada.

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 earnings before depletion, depreciation and accretion, charges for stock-based compensation, changes in the fair value of crude oil price swaps, 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. Funds flow from operations is a key measure as it demonstrates the Company's ability to generate the funds necessary to acheive future growth through capital investment. Burmis also assesses its performance utilizing operating and cash netbacks. Operating netbacks represent the profit 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 all cash costs, and is calculated as funds flow from operations on a barrel of oil equivalent basis. These non-GAAP measures are not standardized and therefore may not be comparable to similar measures utilized by other entities.

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, 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 March 23, 2005, is available under the Company's profile on SEDAR at www.sedar.com.

OVERVIEW

The second quarter of 2005 was the tenth consecutive quarter of growth for Burmis. The combination of increasing production volumes and continued strength in commodity prices led to significant improvements in Burmis' financial results. Funds flow from operations rose to $4.1 million ($0.13 per common share) in the second quarter of 2005, a 138 percent increase compared to $1.7 million ($0.08 per common share) in the second quarter of 2004. During the first six months of 2005, funds flow from operations increase 190 percent to $8.1 million ($0.27 per common share), compared with $2.8 million ($0.13 per common share) in the first half of 2004. Earnings totalled $0.9 million ($0.03 per common share) in the second quarter of 2005 compared to $0.5 million ($0.02 per common share) in the second quarter of 2004. In the first half of 2005, earnings were $2.0 million ($0.07 per common share) compared to $0.7 million ($0.03 per common share) in the first half of 2004.

Average production increased 120 percent to 1,764 barrels of oil equivalent per day in the second quarter of 2005 compared to 803 barrels of oil equivalent per day in the second quarter of 2004, and was seven percent higher than the first quarter of 2005. This production growth was the result of continued success from the Company's drilling program, combined with a natural gas property acquisition in the third quarter of 2004.

The continued growth in production volumes during the second quarter of 2005 was enhanced by continued strength in commodity prices. During the second quarter of 2005, the West Texas Intermediate ("WTI") reference price for crude oil averaged US $53.13 per barrel, increasing the year to date WTI reference price to US $51.39 per barrel. This compares to US $38.28 per barrel during the second quarter of 2004, and US $36.72 during the first half of 2004. Natural gas prices were also strong with the AECO reference price for natural gas averaging $6.74 per gigajoule in the first half of 2005 compared to $6.35 per gigajoule in the first half of 2004. Although natural gas in storage continues to be higher than both average and prior year levels in the United States, recent hot weather in the United States has increased demand and resulted in lower summer gas injections. Natural gas prices have strengthened as concerns persist over future supplies of natural gas and the ability of North American natural gas suppliers to meet growing demand.

EARNINGS

Gross petroleum and natural gas revenues increased 182 percent to $15.1 million
in the first half of 2005 compared to $5.3 million in the first half of 2004. During the second quarter of 2005, gross petroleum and natural gas revenues were $7.9 million, up from $3.1 million in the corresponding period of 2004.

Natural gas sales averaged 5,785 mcf per day in the first half of 2005, an increase of 125 percent compared to 2,575 mcf per day in the first half of 2004. The Company received an average natural gas price of $7.34 per mcf in the first half of 2005 compared to an average natural gas price of $6.87 per mcf in the comparable period of 2004. During the second quarter of 2005, natural gas sales averaged 5,991 mcf per day, an increase of 112 percent compared to 2,831 mcf per day in the second quarter of 2004. The average price received for natural gas was $7.34 per mcf in the second quarter of 2005 compared to $7.16 per mcf in the second quarter of 2004.

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. The prices to be received by Burmis under these contracts in 2005 for the period from January to October are as follows:



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


In the first half of 2005, crude oil and natural gas liquid sales increased 155 percent to average 743 barrels per day compared to 291 barrels per day in the first half of 2004. The Company realized an average price of $56.25 per barrel for its crude oil and natural gas liquid production in 2005 compared to $39.56 per barrel in the first half of 2004. During the second quarter of 2005, crude oil and natural gas liquid sales averaged 766 barrels per day, an increase of 131 percent compared to 331 barrels per day in the second quarter of 2004. The average price received for the Company's crude oil and natural gas liquids was $57.98 per barrel in the second quarter of 2005 compared to $41.98 per barrel in the same period of 2004.

During the first quarter of 2005, Burmis entered into a WTI financial swap transaction which effectively fixes the price on 200 barrels per day of crude oil production at US $57.04 per barrel for the period from April 2005 to March 2006. During the second quarter, the Company realized a gain of $91,000 on this hedge as the hedged price was higher than the reference price during each of the three months. This gain has been included in the crude oil and natural gas prices reported for the second quarter and the year to date. At June 30, 2005, an unrealized mark to market loss of $203,000 was recognized on this instrument as a result of strengthening future crude oil prices at the end of the second quarter. The loss has been included in petroleum and natural gas revenues.

There were no other financial instruments in place at June 30, 2005.

Royalties were 25.2 percent of gross revenues during the first half of 2005 compared to 20.5 percent in the first half of 2004. In absolute terms, royalties have increased significantly in 2005 in conjunction with the increase in petroleum and natural gas revenues. Royalties, as a percentage of gross revenues, have increased as a result of a well at Kidney coming off royalty holiday and the addition of production from a well at Brazeau which has both crown and override royalties.

Operating expenses totalled $2.4 million ($7.61 per barrel of oil equivalent) during the first half of 2005 compared to $0.8 million ($6.26 per barrel of oil equivalent) during the first half of 2004. The increase in the expense is a result of the 137 percent increase in daily production volumes as compared to the first half of 2004. The increase in expense per barrel of oil equivalent is due to the commencement of production of sour crude oil from the Company's two wells in the Pembina Easyford Nisku GG oil pool, as well as new production from a sour Nisku gas well in the Brazeau area. These wells generally have higher operating costs due to the increased complexity of handling sour crude oil and natural gas production. In addition, Burmis experienced freezing and hydrate problems at its Easyford property during January 2005 which resulted in one time costs to bring the wells back on production, and the Company was charged natural gas processing cost adjustments relating to 2004 in the first quarter of 2005. Transportation charges included in operating costs totalled $0.22 per barrel of oil equivalent in the first half of 2005. There was no comparable charge in the first half of 2004. Operating costs averaged $7.41 per barrel of oil equivalent during the second quarter of 2005. Costs to clear a hydrate at Easyford, as well as annual lease rental and property tax charges increased second quarter unit costs. Burmis expects operating costs going forward to be approximately $7.00 to $7.25 per barrel of oil equivalent.

The Company's operating netback increased to $29.56 per barrel of oil equivalent in the first half of 2005 compared to $26.13 per barrel of oil equivalent in the first half of 2004. The Company's cash netback increased to $26.11 per barrel of oil equivalent in the first half of 2005 compared to $21.26 per barrel of oil equivalent in the first half of 2004. The increase is attributable primarily to the strength in commodity prices. In addition, new light crude oil production and lower administrative costs per barrel of oil equivalent have increased the Company's netbacks.

General and administrative expenses increased to $897,000 in the first half of 2005 from $617,000 in the first half of 2004. The increased expense reflects an increase in staff levels and a bonus paid during the second quarter of 2005. On a barrel of oil equivalent basis, general and administrative costs decreased to $2.90 in the first half of 2005 from $4.70 in the first half of 2004 because of the significant increase in production volumes.

Stock based compensation expense was $149,000 in the first quarter of 2005 compared to $92,000 in the first quarter of 2004. During the second quarter of 2005, the Company granted 936,000 stock options at an exercise price of $2.45 per share. The fair value of stock options granted is expensed over the vesting period of the options.

Depletion, depreciation and accretion expense totalled $4.3 million during the first half of 2005 compared to $1.6 million in the comparable period of 2004. The increase in depletion, depreciation and accretion expense is due to the increase in production volumes in 2005 compared to 2004, and an increase in the overall rate of depletion, depreciation and accretion to $13.89 per barrel of oil equivalent in the first quarter of 2005 from $12.29 in the comparable period of 2004. The increase in the rate of depletion, depreciation and accretion 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 $0.2 million in the first half of 2005. The Company borrows funds under a production loan facility and utilizes bankers' acceptances from time to time. During the first half of 2004, nominal amounts were outstanding under the production loan facility.

The provision for income taxes increased to $1.4 million in the first half of 2005 as a result of increased profitability of the Company. The effective tax rate in 2005 was 40 percent compared to 36 percent in the first half of 2004. The increase in the effective tax rate is due to an increase in the difference between non-deductible crown charges and resource allowance, as well as increased stock based compensation expense.

Capital expenditures totalled $14.6 million in the first half of 2005 compared to $8.2 million in the first half of 2004. Expenditures in 2005 consisted of exploration activities of $4.1 million, development expenditures of $6.2 million, investments in production facilities of $2.8 million, and land and seismic additions of $1.5 million.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2005 Burmis had a total working capital deficiency of $7.9 million. During the second quarter, the Company's revolving production loan facility was increased to $20.0 million. The borrowing rate on this facility is the bank prime lending rate, or the banker's acceptance rate plus a stamping fee of 1.35 percent.

On March 15, 2005, Burmis closed a private placement of 4.0 million common shares at a price of $2.70 per share for gross proceeds of $10.8 million. Proceeds of the private placement were used to fund the Company's ongoing capital program and for general corporate purposes. Burmis currently has 31.2 million common shares outstanding. In addition, 3.1 million stock options are outstanding at an average exercise price of $1.16 per share.

On August 4, 2005 Burmis announced a bought deal private placement of 3.0 million common shares at a price of $3.70 per share which is expected to raise gross proceeds of $11.1 million. Proceeds of the financing will be used to fund the Company's expanded 2005 capital program. The private placement is expected to close on August 24, 2005. After giving effect to this private placement, Burmis will have 34.2 million common shares outstanding.

Burmis has an approved capital budget of $34 million for 2005, and is projecting funds flow from operations of $19 million based upon estimated production of 2,000 barrels of oil equivalent per day. With these forecasted amounts, and including the proceeds from the private placement, Burmis is projecting net debt of approximately $5.5 million at the end of 2005.

CONTRACTUAL OBLIGATIONS

The Company's production loan facility is subject to an annual review at which time repayment may be required. The next scheduled review of the Company's production loan facility is in May 2006. Burmis expects the production loan facility to be renewed in May 2006 as the Company's reserves and production base are sufficient to support a credit facility of this size.

Burmis has committed to participate in the construction of a plant to process natural gas in the Pembina area. The Company's budget includes approximately $2.1 million in respect of this project.

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 June 30 2005, Burmis had fulfilled its expenditure commitment under this flow-through share arrangement.

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 first quarter of 2005, certain insiders and employees of Burmis acquired 165,000 common shares of the Company at a price of $2.70 per common share under the private placement which closed on March 15, 2005.

OTHER TRANSACTIONS

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



SUMMARY OF QUARTERLY OPERATING AND FINANCIAL RESULTS
2005 2004 2003
OPERATING Second First Fourth Third Second First Fourth Third
------------------------------------------------------------------------
Natural gas
(mcf/d) 5,991 5,578 5,381 3,520 2,831 2,320 1,960 1,799
Price ($/mcf) 7.34 7.35 6.80 6.24 7.16 6.52 5.81 5.75
Oil and
NGL's
(bbl/d) 766 720 586 430 331 251 271 233
Price
($/bbl)(1) 57.98 54.39 52.59 52.01 41.98 36.36 31.86 31.52
Barrels of oil
equivalent
(per day) 1,764 1,650 1,483 1,017 803 638 598 533

EARNINGS ('000's of dollars)
------------------------------------------------------------------------
Crude oil
and
natural
gas
liquid
revenues 3,855 3,509 2,835 2,057 1,265 830 794 675
Natural gas
revenues 4,008 3,706 3,375 2,028 1,853 1,392 1,057 962
Royalties (2,027)(1,767) (1,563) (907) (544) (551) (492) (418)
Interest and
other income - 3 - - - 18 11 21
---------------------------------------------------------
5,836 5,451 4,647 3,178 2,574 1,689 1,370 1,240
Operating
expenses 1,190 1,161 989 632 421 399 307 267
General and
administrative 653 244 355 279 398 219 150 115
Stock based
compensation 109 40 58 58 56 36 69 61
Depletion,
depreciation
and accretion 2,311 1,982 1,983 1,223 889 722 708 571
Interest 70 102 87 55 28 9 - -
Other - - 25 28 2 - 4 3
---------------------------------------------------------
Total
expenses 4,333 3,529 3,497 2,275 1,794 1,385 1,238 1,017
Earnings
before
income taxes 1,503 1,922 1,150 903 780 304 132 223
Current
income taxes - - - 2 - - 21 5
Future
income taxes 630 752 506 340 249 146 87 114
---------------------------------------------------------
630 752 506 342 249 146 108 119
---------------------------------------------------------
Earnings 873 1,170 644 561 531 158 24 104
------------------------------------------------------------------------
Earnings per
share (basic) $0.03 $0.04 $0.02 $0.02 $0.02 $0.01 $0.00 $0.01
------------------------------------------------------------------------
------------------------------------------------------------------------
FUNDS FLOW
('000's of
dollars) 4,110 3,960 3,191 2,182 1,725 1,062 888 850
------------------------------------------------------------------------
------------------------------------------------------------------------
Funds flow per
share (basic) $0.13 $0.14 $0.12 $0.09 $0.08 $0.05 $0.04 $0.04
------------------------------------------------------------------------
NETBACKS ($/boe)
------------------------------------------------------------------------
Petroleum and
natural gas
revenues 50.13 48.70 45.52 43.67 42.68 38.30 33.67 33.41
Royalties (12.62)(11.90) (11.45) (9.70) (7.45) (9.49) (8.96) (8.53)
Operating
expenses (7.41) (7.82) (7.25) (6.75) (5.76) (6.88) (5.58) (5.46)
---------------------------------------------------------
Operating
netback 30.10 28.98 26.82 27.22 29.47 21.93 19.13 19.42
General and
administrative(4.06) (1.65) (2.61) (2.99) (5.45) (3.76) (2.74) (2.35)
Interest and
other income
(expense) (0.44) (0.67) (0.81) (0.90) (0.41) 0.14 0.14 0.40
Current income
taxes - - - (0.02) - - (0.38) (0.10)
---------------------------------------------------------
Cash netback 25.60 26.66 23.40 23.31 23.61 18.31 16.15 17.37
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL ASSETS
($'000's of
dollars) 58,080 57,022 45,741 42,484 27,770 25,230 21,971 22,578
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Average oil and NGL price is before the impact of an unrealized
$203,000 mark to market loss on a crude oil price swap.


BURMIS ENERGY INC.
Consolidated Balance Sheets

(thousands of dollars)
------------------------------------------------------------------------
June 30, December 31,
2005 2004
(unaudited) (audited)
------------------------------------------------------------------------

Assets
Current assets
Cash $ 421 $ 302
Accounts receivable 6,683 5,229
------------------------------------------------------------------------
7,104 5,531
Petroleum and natural gas properties (note 2) 50,976 40,210
------------------------------------------------------------------------
$ 58,080 $ 45,741
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 6,976 $ 7,745
Production loan facility (note 3) 8,000 9,000
------------------------------------------------------------------------
14,976 16,745
Asset retirement obligation (note 4) 2,215 1,831
Future income tax liability 4,990 1,909
Shareholders' equity
Share capital (notes 5 and 9) 31,059 22,602
Contributed surplus (note 5) 600 457
Retained earnings 4,240 2,197
------------------------------------------------------------------------
35,899 25,256

------------------------------------------------------------------------
$ 58,080 $ 45,741
------------------------------------------------------------------------
------------------------------------------------------------------------

Commitment (note 2)
Subsequent event (note 9)

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 June 30, ended June 30,
(unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

Revenues
Petroleum and natural
gas (note 7) $ 7,863 $ 3,118 $ 15,078 $ 5,340
Royalties (2,027) (544) (3,794) (1,095)
Interest and other income - - 3 18
------------------------------------------------------------------------
5,836 2,574 11,287 4,263

Expenses
Operating 1,190 421 2,351 820
General and administrative 653 398 897 617
Stock based compensation 109 56 149 92
Depletion, depreciation and
accretion 2,311 889 4,293 1,611
Interest paid 70 28 172 37
Other - 2 - 2
------------------------------------------------------------------------
4,333 1,794 7,862 3,179
Earnings before income taxes 1,503 780 3,425 1,084
Income taxes
Current - - - -
Future 630 249 1,382 395
------------------------------------------------------------------------
630 249 1,382 395
------------------------------------------------------------------------
Earnings $ 873 $ 531 $ 2,043 $ 689
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per share (note 6)
Basic and diluted $ 0.03 $ 0.02 $ 0.07 $ 0.03
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statement of Retained Earnings
(thousands of dollars)
------------------------------------------------------------------------
three months six months
ended June 30, ended June 30,
(unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

Retained earnings, beginning
of period $ 3,367 $ 461 $ 2,197 $ 303
Earnings for the period 873 531 2,043 689
------------------------------------------------------------------------
Retained earnings, end
of period $ 4,240 $ 992 $ 4,240 $ 992
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Cash Flows

(thousands of dollars, except per share amounts)
------------------------------------------------------------------------
three months six months
ended June 30, ended June 30,
(unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

Cash provided by (used in)
Operations
Earnings $ 873 $ 531 $ 2,043 $ 689
Items not affecting cash
Depletion, depreciation and
accretion 2,311 889 4,293 1,611
Stock based compensation 109 56 149 92
Unrealized loss on crude
oil price swap 187 - 203 -
Future income taxes 630 249 1,382 395
------------------------------------------------------------------------
4,110 1,725 8,070 2,787
Asset retirement expenditures - - (35) -
Change in non-cash working
capital
Accounts receivable 1,083 (361) (1,454) (674)
Accounts payable and accrued
liabilities (5,867) (720) (971) 1,627
------------------------------------------------------------------------
(674) 644 5,610 3,740

Financing
Production loan facility 5,000 2,370 (1,000) 2,869
Exercise of stock options - - 8 4
Issue of common shares for cash,
net of share issue costs - - 10,142 -
------------------------------------------------------------------------
5,000 2,370 9,150 2,873

Investments
Additions to petroleum and
natural gas properties (5,298) (3,114) (14,640) (8,226)
------------------------------------------------------------------------

Increase (decrease) in cash (972) (100) 120 (1,613)
Cash, beginning of period 1,394 319 302 1,832
------------------------------------------------------------------------
Cash, end of period $ 422 $ 219 $ 422 $ 219
------------------------------------------------------------------------
------------------------------------------------------------------------

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.

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, 2004, except that the Company has elected not to apply hedge accounting to a WTI swap transaction (see note 7). These consolidated interim financial statements include all adjustments necessary to present fairly the results for the interim period ended June 30, 2005. Certain information and footnote disclosure normally included in the financial statements have 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 year ended December 31, 2004.



2. Petroleum and natural gas properties:

------------------------------------------------------------------------
June 30, December 31,
2005 2004
------------------------------------------------------------------------
Petroleum and natural gas properties $ 61,873 $ 46,869
Accumulated depletion and depreciation (10,897) (6,659)
------------------------------------------------------------------------
$ 50,976 $ 40,210
------------------------------------------------------------------------
------------------------------------------------------------------------


Costs of unproved properties excluded from costs subject to depletion and depreciation at June 30, 2005 were $4.2 million. Future development costs of $3.0 million have been included in costs subject to depletion.

Burmis has committed to participate in the construction of a plant to process natural gas in the Pembina area. The Company's budget includes approximately $2.1 million in respect of this project.

At December 31, 2004, flow-through share arrangements required the Company to incur approximately $4.9 million in exploratory costs prior to December 31, 2005. At June 30, 2005 these expenditure commitments had been fulfilled.

3. Production Loan Facility:

During the reported period, the Company's revolving production loan facility was increased to $20.0 million. The facility bears interest at the bank prime rate or the banker's acceptance rate plus a stamping fee of 1.35 percent. Repayments of the facility are not required provided the amounts borrowed do not exceed $20.0 million or an amount determined from time to time. The loan facility is scheduled for review in May 2006. All amounts drawn under this facility are classified as a current liability.

The loan facility is secured by a $50 million floating charge demand debenture over all Canadian assets, and a full recourse guarantee of the United States subsidiary.

4. 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 June 30, 2005 is approximately $3.0 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:

------------------------------------------------------------------------
six months ended June 30, 2005 2004
------------------------------------------------------------------------
Balance, beginning of period $ 1,831 $ 1,060
Accretion expense 54 28
Liabilities incurred 365 95
Liabilities settled (35) -
------------------------------------------------------------------------
Balance, end of period $ 2,215 $ 1,183
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Share capital:

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

Issued:
------------------------------------------------------------------------
Number of
Shares Amount
------------------------------------------------------------------------
Balance, December 31, 2004 27,216,133 $ 22,602
Exercise of stock options for cash 8,000 8
Transfer of contributed surplus to share
capital on exercise of stock options - 6
Common shares issued pursuant
to private placement 4,000,000 10,800
Share issuance costs - (658)
Tax benefit of share issuance costs - 251
Tax effect of 2004 flow-through
share issue - (1,950)
------------------------------------------------------------------------
Balance, June 30, 2005 31,224,133 $ 31,059
------------------------------------------------------------------------
------------------------------------------------------------------------

Certain insiders and employees of Burmis acquired 165,000 common shares
of the Company at a price of $2.70 per common share under the private
placement.

(b) Contributed surplus:

A reconciliation of contributed surplus is provided below:

------------------------------------------------------------------------
six months ended June 30, 2005 2004
------------------------------------------------------------------------
Balance, beginning of period $ 457 $ 252
Stock-based compensation expense 149 92
Transfer to share capital on
exercise of stock options (6) (3)
------------------------------------------------------------------------
Balance, end of period $ 600 $ 341
------------------------------------------------------------------------
------------------------------------------------------------------------


(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. During the second quarter of 2005, shareholders of the Company approved a change in the stock option plan from a maximum number of shares to a rolling maximum equal to 10 percent of the outstanding common shares, subject to Toronto Stock Exchange ("TSX") approval. The TSX granted their approval in June 2005. 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 June 30, 2005 and changes during the period ending on that date is presented below:



------------------------------------------------------------------------
Weighted Average
Shares Exercise Price Life Remaining
------------------------------------------------------------------------
Outstanding,
December 31, 2004 2,146,500 $ 0.60 3.3 years
Granted 936,000 2.45 4.9 years
Exercised (8,000) 1.02 4.0 years
------------------------------------------------------------------------
Outstanding, June 30, 2005 3,074,500 $ 1.16 3.4 years
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable, June 30, 2005 1,288,000 $ 0.55 2.8 years
------------------------------------------------------------------------
------------------------------------------------------------------------


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

------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
------------------------------------------------------------------------
$0.50 1,755,000 2.6 years
$1.02 - $1.06 370,000 3.7 years
$1.35 13,500 4.2 years
$2.45 936,000 4.9 years
------------------------------------------------------------------------
$ 0.50 - $2.45 3,074,500 3.4 years
------------------------------------------------------------------------
------------------------------------------------------------------------


The fair value of stock options granted during 2005 was estimated to be $1.1 million using the Black-Scholes model with the following assumptions: expected life of options - five years; interest rate - 5.0 percent; volatility - 51 percent.

6. 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 June 30, ended June 30,
2005 2004 2005 2004
------------------------------------------------------------------------
Weighted average common
shares outstanding 31,224,133 21,816,133 29,585,194 21,813,595
Shares issuable pursuant
to stock options 3,074,500 2,133,000 3,074,500 2,133,000
Shares to be purchased
from proceeds of
stock options (1,658,657) (1,285,522) (1,770,461) (1,302,077)
------------------------------------------------------------------------
Weighted average
diluted common
shares outstanding 32,639,976 22,663,611 30,889,233 22,644,518
------------------------------------------------------------------------
------------------------------------------------------------------------


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

7. 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.

(a) Natural Gas

The Company enters into gas sales agreements to provide exposure to a portfolio of pricing indices. At June 30, 2005, the Company had fixed price physical sales agreements that fixed the gas sales price on 2,000 gigajoules per day of production from July 2005 to October 2005 as follows:



------------------------------------------------------------------------
Period Gigajoules per day Fixed Price
------------------------------------------------------------------------
(Cdn. $ per gj)
July 2005 to October 2005 1,000 $ 6.46
July 2005 to October 2005 1,000 $ 6.40
------------------------------------------------------------------------
------------------------------------------------------------------------


(b) Crude Oil

The Company enters into crude oil sales agreements to provide exposure to a portfolio of pricing indices. During the first quarter of 2005, the Company entered into a floating to fixed price financial swap on 200 barrels per day of crude oil production to fix the price at US $57.04 per barrel. The contract is for the period from April 2005 to March 2006.

The Company elected to not apply hedge accounting to this transaction. At June 30, 2005, an unrealized mark to market loss of $203,000 had been recorded on this contract. The loss is recorded in petroleum and natural gas revenues.



8. Segment information:

2005 Operating and Geographic Segments as at June 30, 2005
------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------
Revenues, net of royalties $ 10,831 $ 453 $ 11,284
Earnings before income taxes $ 3,122 $ 303 $ 3,425
Earnings $ 1,794 $ 249 $ 2,043
------------------------------------------------------------------------
------------------------------------------------------------------------

Petroleum and natural gas
properties
Cost $ 59,767 $ 2,106 $ 61,873
Accumulated depletion,
depreciation and amortization (9,994) (903) (10,897)
------------------------------------------------------------------------
Net book value $ 49,773 $ 1,203 $ 50,976
------------------------------------------------------------------------
------------------------------------------------------------------------

2004 Operating and Geographic Segments as at June 30, 2004
------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------
Revenues, net of royalties $ 3,636 $ 609 $ 4,245
Earnings before income taxes $ 709 $ 375 $ 1,084
Earnings $ 442 $ 247 $ 689
------------------------------------------------------------------------
------------------------------------------------------------------------

Petroleum and natural gas
properties
Cost $ 25,612 $ 2,146 $ 27,758
Accumulated depletion,
depreciation and amortization (2,774) (717) (3,491)
------------------------------------------------------------------------
Net book value $ 22,838 $ 1,429 $ 24,267
------------------------------------------------------------------------
------------------------------------------------------------------------


9. Subsequent event:

On August 4, 2005 Burmis announced a bought deal private placement of 3.0 million common shares at a price of $3.70 per share which is expected to raise gross proceeds of $11.1 million. Proceeds of the financing will be used to fund the Company's expanded 2005 capital program. The private placement is expected to close on August 24, 2005. After giving effect to this private placement, Burmis will have 34.2 million common shares outstanding.

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)
    Email: ir@burmisenergy.ca
    Website: www.burmisenergy.ca
    or
    Burmis Energy Inc.
    1000, 736 - 6th Avenue S.W.
    Calgary, Alberta T2P 3T7
    (403) 781-7230
    Email: ir@burmisenergy.ca
    Website: www.burmisenergy.ca