Burmis Energy Inc.
TSX : BME

Burmis Energy Inc.

November 10, 2005 08:00 ET

Burmis Energy Reports Continued Growth in the Third Quarter of 2005, Announces Capital Budget of $35 Million for 2006

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - Burmis Energy Inc. (TSX:BME) ("Burmis") is pleased to provide its operating and financial results for the reporting period ended September 30, 2005, and announces that its Board of Directors has approved a $35 million capital budget for 2006.

HIGHLIGHTS

- Increased funds flow (1) 147% to $5.4 million ($0.17 per share) in the third quarter of 2005

- Production increased 81% to average 1,839 boe/d during the third quarter of 2005

- Year to date earnings increased 195% to $3.7 million in the first nine months of 2005

- Drilled gas wells at Kehiwin, Ferrier and Westerose and cased five wells at Pembina

- Raised $11.1 million with a private placement of 3.0 million common shares in the third quarter

- Increased 2005 capital budget to $34.0 million

- Year to date drilling success rate of 92% on 35 gross (14.5 net) wells

- Participating with 15% ownership in a 30 mmcf/d gas plant at Pembina

- Production of 700 boe/d behind pipe at Pembina awaiting plant start-up

- Positive working capital of $0.6 million at September 30, 2005

Burmis continued its record of growth during the third quarter of 2005. Funds flow from operations rose to $5.4 million ($0.17 per common share) in the third quarter of 2005 compared to $2.2 million ($0.09 per common share) in the third quarter of 2004. Production volumes averaged 1,839 barrels of oil equivalent per day during the third quarter of 2005, an 81 percent increase compared to 1,017 barrels of oil equivalent per day in the third quarter of 2004.

Burmis is poised for a significant growth in production volumes in the first quarter of 2006. At Pembina, the Company has approximately 700 barrels of oil equivalent per day of net productive capability behind pipe awaiting the construction of a new natural gas processing plant designed to process 30 million cubic feet per day of natural gas and associated natural gas liquids. This plant is scheduled to commence operations in January 2006. When the plant is fully operational, the Company's net production is expected to be approximately 2,700 barrels of oil equivalent per day.



FINANCIAL HIGHLIGHTS

three months period
ended Sept. 30, ended Sept. 30,
2005 2004 2005 2004 Change
------------------------------------------------------------------------
($000s, except shares
and per share amounts)
Gross petroleum and
natural gas revenue $ 9,672 $ 4,085 $24,750 $ 9,425 + 163%
Funds flow from operations(1)$ 5,381 $ 2,182 $13,451 $ 4,969 + 171%
Basic per share $ 0.17 $ 0.09 $ 0.44 $ 0.22 + 100%
Diluted per share $ 0.16 $ 0.09 $ 0.42 $ 0.22 + 91%
Earnings $ 1,648 $ 561 $ 3,691 $ 1,250 + 195%
Basis per share $ 0.05 $ 0.02 $ 0.12 $ 0.05 + 140%
Diluted per share $ 0.05 $ 0.02 $ 0.11 $ 0.05 + 120%
Weighted average
shares ('000's) 32,430 24,017 30,544 22,553 + 35%
Common shares
outstanding ('000's) 34,224 27,216 34,224 27,216 + 26%
Capital expenditures (2) $ 7,274 $14,164 $21,914 $ 22,390 - 2%
Working capital
(deficiency) $ 643 $(10,075) n/a
Total assets $68,302 $ 42,484 + 61%
Shareholders' equity $48,430 $ 24,548 + 97%
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Funds flow from operations represents earnings before depletion,
depreciation and accretion, stock-based compensation, changes in the
fair value of crude oil price swaps and future income taxes.
(2) Capital expenditures in 2004 include $11,199,000 for a property
acquisition completed during the third quarter of 2004.


OPERATIONAL HIGHLIGHTS

three months period
ended Sept. 30, ended Sept. 30,
2005 2004 2005 2004 Change
------------------------------------------------------------------------

OPERATING
Natural gas (mcf/day) 6,864 3,520 6,149 2,893 + 113%
Average price ($Cdn./mcf) $ 8.87 $ 6.24 $ 7.92 $ 6.61 + 20%
Oil and NGL's (bbl/day) 695 430 727 338 + 115%
Average price ($Cdn./bbl) $ 63.64 $ 52.01 $ 58.63 $ 44.88 + 31%
Barrels of oil equivalent
per day (1) 1,839 1,017 1,752 820 + 114%
Operating netback
($Cdn./boe) (2) $ 34.71 $ 27.22 $ 31.38 $ 26.59 + 18%
Cash flow netback
($Cdn./boe) (3) $ 31.80 $ 23.31 $ 28.12 $ 22.12 + 27%
------------------------------------------------------------------------
------------------------------------------------------------------------

(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

Burmis recorded average sales of 1,839 barrels of oil equivalent per day in the third quarter of 2005, an 81 percent increase compared to 1,017 barrels of oil equivalent per day over the same period in 2004. The Company tied in gas wells at Ferrier in July and Kehiwin in September which contributed to this growth.

Overall, the Company drilled 12 gross (3.5 net) wells in the third quarter, of which seven (2.4 net) were cased as gas wells, two gross (0.4 net) were cased as oil wells, two (0.2 net) were cased as service wells and one (0.5 net) was dry and abandoned, for an 85 percent success rate. At Pembina, the Company participated in the drilling of five (1.1 net) wells during the third quarter, three of which were cased as gas wells and two of which were cased as oil wells. The two service wells were water source and water injection wells for the Pembina Nisku GG pool.

In the first nine months of 2005, Burmis drilled 30 gross (13.0 net) wells, of which 22 gross (9.2 net) were cased as gas wells; four (2.4 net) were cased as oil wells, two (0.2 net) were cased as service wells and two (1.2 net) were dry and abandoned. This has resulted in a nine month drilling success rate of 91 percent excluding the two service wells drilled for the Pembina Nisku GG pool water injection project.

Pembina

The Company's most significant development project in 2005 is at Pembina, where Burmis has an ongoing multi-well drilling program targeting sweet liquid rich natural gas and light oil. The area is multi-zone in nature and the Company has encountered liquid rich gas in the Rock Creek formation, both oil and natural gas in the Viking formation, and oil in the Second White Specs formation. During the fourth quarter, completions will also be carried out on two wells to evaluate the productivity of the Notikewan formation on this property.

The Company has participated in 12 gross (2.6 net) wells at Pembina through the third quarter. During the fourth quarter, Burmis has drilled and cased four (0.8 net) wells, with an additional six (1.3 net) wells planned for drilling prior to year end. As a result of this drilling program, the Company currently has approximately 700 barrels of oil equivalent per day of net production behind pipe at Pembina which is scheduled to be placed on-stream with the start up of the Pembina 04-08-47-09 W5M gas plant in mid January 2006.

As Burmis continued to have drilling success at Pembina, the lack of gas processing capacity for the new production became a strategic issue. To alleviate this constraint, the Company has committed to participate, with a 15 percent ownership, in the construction of new gas gathering lines and a gas processing plant at Pembina. The Company made this decision based on the best long term alternative, realizing there would be short term delays in getting these production volumes on-stream. Burmis will invest approximately $3.0 million in the gas plant and gas gathering lines. The plant is expected to start up in mid-January 2006, at which time the Company's net production from the Pembina property is expected to increase to approximately 1,100 barrels of oil equivalent per day.

The start up of the Pembina 04-08-47-09 W5M gas plant will be a key element of the Company's growth in the first quarter of 2006 with an estimated 35 percent boost in the Company's existing production base. It will also result in a significant reduction in the Company's overall cost structure as operating costs on this property are expected to be approximately $3.00 per barrel of oil equivalent. Including the wells which are already onstream, approximately 40 percent of the Company's overall production will be generated from this property once the Pembina gas plant commences full operations.

At Pembina, Burmis owns Nisku rights on 13.5 sections and is participating in a 3-D seismic program over these lands to evaluate the Nisku potential.

West Central Alberta

Burmis drilled a 36 percent working interest gas well at Ferrier 10-18-040-08 W5M which commenced production in July at approximately 1.8 million cubic feet per day plus associated natural gas liquids. An additional non-operated well at Ferrier 10-06-041-08 W5M (working interest 22.75 percent) was drilled and tied in subsequent to the quarter. The Company recently drilled a 65 percent working interest well at Ferrier 02-19-040-08 W5M. This well has been completed and flowed at rates up to 1.0 million cubic feet per day. The well is expected to be on production by mid-November. Burmis has two additional locations at Ferrier in its 2006 drilling program.

At Hoadley, Burmis tied-in a 100 percent working interest gas well which commenced production in September at a rate of 0.2 million cubic feet per day. The Company has two remaining shut-in 100 percent working interest gas wells at Hoadley constrained by lack of available Minnehik gas gathering system capacity. Burmis is planning to drill two additional shallow wells in this area and build a gas gathering pipeline to take this constrained gas into a different gathering system which feeds into the Rimbey Westerose gas plant.

Burmis has one operated drilling location, with a 37.5 percent working interest, targeting Nisku oil at Easyford and is participating, with a 25 percent working interest, in three non-operated locations for Nisku natural gas and associated liquids in the Brazeau area. These wells are in various stages of planning and licencing in preparation for drilling in 2006.

Kehiwin

At Kehiwin, Burmis drilled a 75 percent working interest gas well in July. This well commenced production in September at a rate of 0.9 million cubic feet per day. The Company has two locations at 100 percent and 50 percent working interests planned for drilling at Kehiwin in the fourth quarter of 2005.

OUTLOOK

Burmis continued to expand its behind pipe production base at Pembina in the third and fourth quarters with an active drilling program. This will generate a significant production boost in January 2006 with the startup of the Pembina gas plant, which will be a strategic asset for the Company. Additional production growth is expected over the winter drilling season from wells to be drilled at Ferrier, Kehiwin & Hoadley. Burmis has budgeted for 15 gross (6.0 net) wells in the fourth quarter, five (1.5 net) of which have been drilled and cased.

Burmis is increasing its funds flow guidance for 2005 from $19.1 million ($0.61 per common share) to $20.0 million ($0.63 per common share) based on the current outlook for prices over the remainder of 2005. The Company expects annual production to average approximately 1,800 barrels of oil equivalent per day in 2005. The average production rate is lower than expected due to existing gas plant constraints at Pembina, gas gathering system constraints at Hoadley, and unplanned maintenance outages at Easyford, Brazeau and Kehiwin. Additionally, a development Nisku well at Easyford which had been included in the Company's 2005 capital program has been delayed until 2006 due to changes in the licensing procedures for Nisku wells in the area.

For 2006, the board of directors of Burmis has approved a capital budget of $35.0 million. The Company's 2006 capital program will allow Burmis to participate in approximately 31 gross (16.7 net) wells in 2006. Funds will be directed at the ongoing development of the Company's Pembina property, participation in several Nisku exploration and development wells in the Brazeau and Easyford areas, development and infill drilling of the Company's shallow gas properties in west central Alberta, medium depth gas drilling at Ferrier, and commencement of drilling in two new exploration areas in west central Alberta. Approximately 18 percent of the 2006 budget will be directed towards land acquisition and seismic programs to facilitate future growth.

The Company is forecasting funds flow from operations to range between $31.4 million and $34.5 million ($0.92 per share to $1.00 per share) for 2006 based on estimated average production of 2,800 barrels of oil equivalent per day comprised of 12.0 million cubic feet per day of natural gas and 800 barrels per day of oil and NGL's. This guidance is based on estimated crude oil prices of US $55 to $58 per barrel for West Texas Intermediate, natural gas prices of $8.75 to $9.50 per mcf, and an exchange rate of $0.85 Canadian per United States dollar. Net debt to funds flow is projected to be in the range of 0.2 to 0.4 times funds flow throughout 2006.

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 opportunity portfolio, primarily in west central Alberta. Our balanced program targets liquid rich gas at medium depths, shallow gas and deeper sour light oil, natural gas and natural gas liquids, primarily from the Nisku formation. I look forward to updating you on our progress in the coming months as we continue to implement our growth strategy.



Respectfully submitted on behalf of the Board of Directors,


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


MANAGEMENT'S DISCUSSION AND ANALYSIS - November 9, 2005

The following should be read in conjunction with the unaudited consolidated interim financial statements for the nine months ended September 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 nine 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 funds 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 achieve 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 September 23, 2005, is available under the Company's profile on SEDAR at www.sedar.com.

OVERVIEW

Burmis continued its record of growth during the third quarter of 2005. Increasing production volumes and ongoing strength in commodity prices led to significant improvements in Burmis' financial results. Funds flow from operations rose to $5.4 million ($0.17 per common share) in the third quarter of 2005, a 147 percent increase compared to $2.2 million ($0.09 per common share) in the third quarter of 2004, and 31 percent higher than the second quarter of 2005. During the first nine months of 2005, funds flow from operations increased 171 percent to $13.5 million ($0.44 per common share), compared with $5.0 million ($0.22 per common share) in the first nine months of 2004. Earnings totaled $1.6 million ($0.05 per common share) in the third quarter of 2005 compared to $0.9 million ($0.03 per common share) in the second quarter of 2005 and $0.6 million ($0.02 per common share) in the third quarter of 2004. In the first nine months of 2005, earnings were $3.7 million ($0.12 per common share) compared to $1.3 million ($0.05 per common share) for the corresponding period of 2004.

Average production increased 81 percent to 1,839 barrels of oil equivalent per day in the third quarter of 2005 compared to 1,017 barrels of oil equivalent per day in the third quarter of 2004, and was four percent higher than the second 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. Currently, Burmis has approximately 700 barrels of oil equivalent per day of production behind pipe awaiting completion of a natural gas plant in the Pembina area of Alberta. Once this plant is fully operational, the Company's net production is expected to be approximately 2,700 barrels of oil equivalent per day.

The growth in production volumes during the third quarter of 2005 was enhanced by continued strength in commodity prices. During the third quarter of 2005, the West Texas Intermediate ("WTI") reference price for crude oil averaged US $63.16 per barrel, increasing the year to date WTI reference price to US $55.36 per barrel. This compares to US $43.78 per barrel during the third quarter of 2004, and US $39.09 during the first nine months of 2004. Natural gas prices were also strong with the AECO reference price for natural gas averaging $7.42 per gigajoule in the first nine months of 2005 compared to $6.20 per gigajoule in the same period of 2004. During the third quarter of 2005, two major hurricanes moved through the Gulf of Mexico in the United States, causing significant disruptions of both crude oil and natural gas production. Further, damage from the hurricanes caused substantial production to remain shut-in, resulting in considerable increases in crude oil and natural gas commodity prices in the third quarter of 2005. Burmis expects these commodity prices to pull back moderately in the fourth quarter and into 2006, but remain well above historic levels.

EARNINGS

Gross petroleum and natural gas revenues increased 163 percent to $24.8 million in the first nine months of 2005 compared to $9.4 million in the first nine months of 2004. During the third quarter of 2005, gross petroleum and natural gas revenues were $9.7 million, up from $4.1 million in the corresponding period of 2004.

Natural gas sales averaged 6,149 mcf per day in the first nine months of 2005, an increase of 113 percent compared to 2,893 mcf per day in the first nine months of 2004. The Company received an average natural gas price of $7.92 per mcf in the first nine months of 2005 compared to an average natural gas price of $6.61 per mcf in the comparable period of 2004. During the third quarter of 2005, natural gas sales averaged 6,864 mcf per day, an increase of 95 percent compared to 3,520 mcf per day in the third quarter of 2004. The average price received for natural gas was $8.87 per mcf in the third quarter of 2005 compared to $6.24 per mcf in the third 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
------------------------------------------------------------------------
------------------------------------------------------------------------


These fixed price contracts expired on October 31, 2005. Burmis is currently selling all of its natural gas production at spot prices.

In the first nine months of 2005, crude oil and natural gas liquid sales increased 115 percent to average 727 barrels per day compared to 338 barrels per day in the first nine months of 2004. The Company realized an average price of $58.63 per barrel for its crude oil and natural gas liquid production in 2005 compared to $44.88 per barrel in the first nine months of 2004. During the third quarter of 2005, crude oil and natural gas liquid sales averaged 695 barrels per day, an increase of 62 percent compared to 430 barrels per day in the third quarter of 2004. The average price received for the Company's crude oil and natural gas liquids was $63.64 per barrel in the third quarter of 2005 compared to $52.01 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 and third quarters of 2005, the Company realized a loss of $44,000 on this hedge as the hedged price was lower than the reference price during the relevant period. This loss has been included in the crude oil and natural gas prices reported for the third quarter and the year to date. At September 30, 2005, an unrealized mark to market loss of $218,000 was recognized on this instrument as a result of strong future crude oil prices at the end of the third quarter. The loss has been included in petroleum and natural gas revenues.

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

Royalties were 25.4 percent of gross revenues during the first nine months of 2005 compared to 21.2 percent in the corresponding period 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 totaled $3.7 million ($7.68 per barrel of oil equivalent) during the first nine months of 2005 compared to $1.5 million ($6.46 per barrel of oil equivalent) during the first nine months of 2004. The increase in the expense is a result of the 114 percent increase in daily production volumes as compared to 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. Transportation charges included in operating costs totaled $0.21 per barrel of oil equivalent in the first nine months of 2005 compared to $0.07 per barrel of oil equivalent in the first nine months of 2004. Operating costs averaged $7.81 per barrel of oil equivalent during the third quarter of 2005.

The Company's third quarter operating netback was $34.71 per barrel of oil equivalent, increasing the year to date operating netback to $31.38 per barrel of oil equivalent. These compare to $27.22 and $26.59 per barrel of oil equivalent in the corresponding periods of 2004. The Company's cash netbacks increased to $31.80 and $28.12 per barrel of oil equivalent in the third quarter and first nine months of 2005, respectively, compared to $23.31 and $22.12 per barrel of oil equivalent in the comparable periods 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 $1.3 million in the first nine months of 2005 from $0.9 million in the first nine months 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 $2.72 in the first nine months of 2005 from $3.22 in 2004 because of the significant increase in production volumes.

Stock based compensation expense was $351,000 in the first nine months of 2005 compared to $150,000 in the first nine months 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 at September 30, 2005 totaled $6.8 million compared to $2.8 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 $14.18 per barrel of oil equivalent in 2005 from $12.61 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 totaled $0.3 million in the first nine months of 2005. The Company borrows funds under a production loan facility and utilizes bankers' acceptances from time to time. During 2004, nominal amounts were outstanding under the production loan facility until September when Burmis acquired a shallow natural gas property.

The provision for income taxes increased to $2.4 million in the first nine months of 2005 as a result of increased profitability of the Company. The effective tax rate in 2005 was 39.5 percent compared to 37.1 percent in the first nine months 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 non-deductible stock based compensation expense.

Capital expenditures in 2005 totaled $21.9 million to September 30, 2005. Expenditures in 2005 consisted of exploration activities of $3.1 million, development expenditures of $11.4 million, investments in production facilities of $4.9 million, and land and seismic additions of $2.5 million.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2005 Burmis had working capital of $0.6 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.

On August 24, 2005 Burmis closed a private placement of 3.0 million common shares at a price of $3.70 per share for gross proceeds of $11.1 million. Proceeds of the private placement are being used to fund the Company's 2005 capital program. Burmis currently has 34.2 million common shares outstanding. In addition, 3.1 million stock options are outstanding at an average exercise price of $1.16 per share.

Burmis has an approved capital budget of $34.0 million for 2005, and is projecting funds flow from operations of $20.0 million based upon estimated production of 1,800 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 $4.5 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 natural gas gathering lines and a plant to process natural gas in the Pembina area. The Company's budget includes approximately $3.0 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 September 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 Third Second First Fourth Third Second First Fourth
------------------------------------------------------------------------
Natural gas
(mcf/d) 6,864 5,991 5,578 5,381 3,520 2,831 2,320 1,960
Price
($/mcf) 8.87 7.34 7.35 6.80 6.24 7.16 6.52 5.81
Oil and
NGL's
(bbl/d) 695 766 720 586 430 331 251 271
Price
($/bbl)(1) 63.64 57.98 54.39 52.59 52.01 41.98 36.36 31.86
Barrels of
oil
equivalent
(per day) 1,839 1,764 1,650 1,483 1,017 803 638 598

EARNINGS ('000's of dollars)
------------------------------------------------------------------------
Crude oil
and natural
gas liquid
revenues 4,056 3,855 3,509 2,835 2,057 1,265 830 794
Natural gas
revenues 5,616 4,008 3,706 3,375 2,028 1,853 1,392 1,057
Royalties (2,492) (2,027)(1,767) (1,563) (907) (544) (551) (492)
Interest
and other
income 7 - 3 - - - 18 11
-----------------------------------------------------------
Net revenues 7,187 5,836 5,451 4,647 3,178 2,574 1,689 1,370
Operating
expenses 1,321 1,190 1,161 989 632 421 399 307
General and
administrative
403 653 244 355 279 398 219 150
Stock based
compensation 202 109 40 58 58 56 36 69
Depletion,
depreciation
and
accretion 2,491 2,311 1,982 1,983 1,223 889 722 708
Interest 83 70 102 87 55 28 9 -
Other 13 - - 25 28 2 - 4
-----------------------------------------------------------
Total
expenses 4,513 4,333 3,529 3,497 2,275 1,794 1,385 1,238
Earnings
before
income
taxes 2,674 1,503 1,922 1,150 903 780 304 132
Current
income
taxes 1 - - - 2 - - 21
Future
income
taxes 1,025 630 752 506 340 249 146 87
-----------------------------------------------------------
1,026 630 752 506 342 249 146 108
-----------------------------------------------------------
Earnings 1,648 873 1,170 644 561 531 158 24
------------------------------------------------------------------------
Earnings
per share
(basic and
diluted) $0.05 $0.03 $0.04 $0.02 $0.02 $0.02 $0.01 $0.00
------------------------------------------------------------------------
FUNDS FLOW
('000's of
dollars) 5,381 4,110 3,960 3,191 2,182 1,725 1,062 888
------------------------------------------------------------------------
Funds flow
per share
(basic) $0.17 $0.13 $0.14 $0.12 $0.09 $0.08 $0.05 $0.04
------------------------------------------------------------------------
NETBACKS ($/boe)
------------------------------------------------------------------------
Petroleum
and natural
gas
revenues 57.25 50.13 48.70 45.52 43.67 42.68 38.30 33.67
Royalties (14.73) (12.62)(11.90) (11.45) (9.70) (7.45) (9.49) (8.96)
Operating
expenses (7.81) (7.41) (7.82) (7.25) (6.75) (5.76) (6.88) (5.58)
-----------------------------------------------------------
Operating
netback 34.71 30.10 28.98 26.82 27.22 29.47 21.93 19.13
General and
administrative
(2.38) (4.06) (1.65) (2.61) (2.99) (5.45) (3.76) (2.74)
Interest and
other income
(expense) (0.53) (0.44) (0.67) (0.81) (0.90) (0.41) 0.14 0.14
Current
income
taxes - - - - (0.02) - - (0.38)
-----------------------------------------------------------
Cash netback 31.80 25.60 26.66 23.40 23.31 23.61 18.31 16.15
------------------------------------------------------------------------
TOTAL ASSETS
($'000's of
dollars) 68,302 58,080 57,022 45,741 42,484 27,770 25,230 21,971
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Average oil and NGL price is before the impact of an unrealized
$218,000 mark to market loss on a crude oil price swap.


BURMIS ENERGY INC.
Consolidated Balance Sheets

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

Assets

Current assets
Cash $ 4,879 $ 302
Accounts receivable 7,507 5,229
------------------------------------------------------------------------
12,386 5,531
Petroleum and natural gas properties (note 2) 55,916 40,210
------------------------------------------------------------------------
$ 68,302 $ 45,741
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities $ 9,743 $ 7,745
Production loan facility (note 3) 2,000 9,000
------------------------------------------------------------------------
11,743 16,745
Asset retirement obligation (notes 4) 2,370 1,831
Future income tax liability 5,759 1,909
Shareholders' equity
Share capital (note 5) 41,740 22,602
Contributed surplus (note5) 802 457
Retained earnings 5,888 2,197
------------------------------------------------------------------------
48,430 25,256
------------------------------------------------------------------------

$ 68,302 $ 45,741
------------------------------------------------------------------------
------------------------------------------------------------------------

Commitment (note 2)

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Earnings

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

Revenues
Petroleum and natural
gas (note 7) $ 9,672 $ 4,085 $ 24,750 $ 9,425
Royalties (2,492) (907) (6,286) (2,002)
Interest and other income 7 - 10 18
------------------------------------------------------------------------
7,187 3,178 18,474 7,441
Expenses
Operating 1,321 632 3,672 1,452
General and administrative 403 279 1,300 896
Stock based compensation 202 58 351 150
Depletion, depreciation
and accretion 2,491 1,223 6,784 2,834
Interest 83 55 255 92
Other 13 28 13 30
------------------------------------------------------------------------
4,513 2,275 12,375 5,454
------------------------------------------------------------------------
Earnings before income taxes 2,674 903 6,099 1,987
Income taxes
Current 1 2 1 2
Future 1,025 340 2,407 735
------------------------------------------------------------------------
1,026 342 2,408 737
------------------------------------------------------------------------
Earnings $ 1,648 $ 561 $ 3,691 $ 1,250
------------------------------------------------------------------------
Earnings per share (note 6)
Basic $ 0.05 $ 0.02 $ 0.12 $ 0.05
Diluted $ 0.05 $ 0.02 $ 0.11 $ 0.05
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statement of Retained Earnings
(thousands of dollars)
------------------------------------------------------------------------
three months nine months
ended September 30, ended September 30,
(unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------
Retained earnings,
beginning of period 4,240 992 2,197 303
Earnings for the period 1,648 561 3,691 1,250
------------------------------------------------------------------------
Retained earnings,
end of period $ 5,888 $ 1,553 $ 5,888 $ 1,553
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Cash Flows

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

Cash provided by (used in)
Operations
Earnings $ 1,648 $ 561 $ 3,691 $ 1,250
Items not affecting cash
Depletion, depreciation
and accretion 2,491 1,223 6,784 2,834
Stock based compensation 202 58 351 150
Unrealized loss on crude
oil price swap 15 - 218 -
Future income taxes 1,025 340 2,407 735
Asset retirement
expenditures (note 4) (2) - (37) -
Change in non-cash
working capital
Accounts receivable (824) (1,349) (2,278) (2,023)
Accounts payable and
accrued liabilities 2,751 185 1,780 1,812
------------------------------------------------------------------------
7,306 1,018 12,916 4,758
Financing
Production loan facility (6,000) 5,236 (7,000) 8,105
Exercise of stock options - - 8 4
Issue of common shares for cash,
net of share issue costs 10,425 7,828 20,567 7,828
------------------------------------------------------------------------
4,425 13,064 13,575 15,937
Investments
Additions to petroleum and
natural gas properties (7,274) (2,965) (21,914) (11,191)
Acquisition of petroleum
and natural gas properties - (11,199) - (11,199)
------------------------------------------------------------------------
(7,274) (14,164) (21,914) (22,390)

Increase (decrease) in cash 4,457 (82) 4,577 (1,695)
Cash, beginning of period 422 219 302 1,832
------------------------------------------------------------------------
Cash, end of period $ 4,879 $ 137 $ 4,879 $ 137
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


1. Significant accounting policies:

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

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

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 crude oil swap transaction (see note 7). These consolidated interim financial statements include all adjustments necessary to present fairly the results for the interim period ended September 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:

------------------------------------------------------------------------
September 30, December 31,
2005 2004
------------------------------------------------------------------------
Petroleum and natural gas properties $ 69,272 $ 46,869
Accumulated depletion and depreciation (13,356) (6,659)
------------------------------------------------------------------------
$ 55,916 $ 40,210
------------------------------------------------------------------------
------------------------------------------------------------------------


Costs of unproved properties excluded from costs subject to depletion and depreciation at September 30, 2005 were $4.7 million. Future development costs of $3.4 million have been included in costs subject to depletion.

Burmis has committed to participate in the construction of gas gathering lines and a plant to process natural gas in the Pembina area. The Company's budget includes approximately $3.0 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 September 30, 2005 these expenditure commitments had been fulfilled.

3. Production Loan Facility:

During the second quarter of 2005, 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 a reserve based amount determined from time to time by the lender. 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 September 30, 2005 is approximately $3.2 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:



------------------------------------------------------------------------
nine months ended September 30, 2005 2004
------------------------------------------------------------------------
Balance, beginning of period $ 1,831 $ 1,060
Accretion expense 86 43
Liabilities incurred 490 586
Liabilities settled (37) -
------------------------------------------------------------------------
Balance, end of period $ 2,370 $ 1,689
------------------------------------------------------------------------
------------------------------------------------------------------------



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 placements 7,000,000 21,900
Share issuance costs - (1,333)
Tax benefit of share issuance costs - 507
Tax effect of 2004 flow-through share issue - (1,950)
------------------------------------------------------------------------
Balance, September 30, 2005 34,224,133 $ 41,740
------------------------------------------------------------------------
------------------------------------------------------------------------


Certain insiders and employees of Burmis acquired 165,000 common shares of the Company at a price of $2.70 per common share under a private placement in March 2005.

(b) Contributed surplus:

A reconciliation of contributed surplus is provided below:



------------------------------------------------------------------------
nine months ended September 30, 2005 2004
------------------------------------------------------------------------
Balance, beginning of period $ 457 $ 252
Stock-based compensation expense 351 150
Transfer to share capital on exercise
of stock options (6) (3)
------------------------------------------------------------------------
Balance, end of period $ 802 $ 399
------------------------------------------------------------------------
------------------------------------------------------------------------


(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 September 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 4.6 years
Exercised (8,000) 1.02 4.0 years
------------------------------------------------------------------------
Outstanding,
September 30, 2005 3,074,500 $ 1.16 3.2 years
------------------------------------------------------------------------
Exercisable,
September 30, 2005 1,292,500 $ 0.55 2.6 years
------------------------------------------------------------------------
------------------------------------------------------------------------



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

------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
------------------------------------------------------------------------
$0.50 1,755,000 2.3 years
$1.02 - $1.06 370,000 3.5 years
$1.35 13,500 3.9 years
$2.45 936,000 4.6 years
------------------------------------------------------------------------
$ 0.50 - $2.45 3,074,500 3.2 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 nine months
ended September 30, ended September 30,
2005 2004 2005 2004
------------------------------------------------------------------------
Weighted average common
shares outstanding 32,430,655 24,017,220 30,544,104 22,553,498
Shares issuable pursuant
to stock options 3,074,500 2,146,500 3,074,500 2,133,000
Shares to be purchased
from proceeds of
stock options (1,199,681) (1,090,407) (1,493,860) (1,172,347)
------------------------------------------------------------------------
Weighted average
diluted common shares
outstanding 34,305,474 25,073,313 32,124,744 23,514,151
------------------------------------------------------------------------
------------------------------------------------------------------------


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 September 30, 2005, the Company had fixed price physical sales agreements that fixed the gas sales price on 2,000 gigajoules per day of production for October 2005 as follows:



------------------------------------------------------------------------
Period Gigajoules per day Fixed Price
------------------------------------------------------------------------
(Cdn. $ per gj)
October 2005 1,000 $ 6.46
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 September 30, 2005, an unrealized mark to market loss of $218,000 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 September 30, 2005
------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------
Revenues, net of royalties $ 17,705 $ 759 $ 18,464
Earnings before income taxes $ 5,596 $ 503 $ 6,099
Earnings $ 3,242 $ 449 $ 3,691
------------------------------------------------------------------------
Petroleum and natural gas properties
Cost $ 67,190 $ 2,082 $ 69,272
Accumulated depletion, depreciation
and amortization (12,409) (947) (13,356)
------------------------------------------------------------------------
Net book value $ 54,781 $ 1,135 $ 55,916
------------------------------------------------------------------------
------------------------------------------------------------------------



2004 Operating and Geographic Segments as at September 30, 2004
------------------------------------------------------------------------
Canada United States Total
------------------------------------------------------------------------
Revenues, net of royalties $ 6,469 $ 954 $ 7,423
Earnings before income taxes $ 1,401 $ 586 $ 1,987
Earnings $ 864 $ 386 $ 1,250
------------------------------------------------------------------------
Petroleum and natural gas properties
Cost $ 40,266 $ 2,146 $ 42,412
Accumulated depletion, depreciation
and amortization (3,923) (775) (4,698)
------------------------------------------------------------------------
Net book value $ 36,343 $ 1,371 $ 37,714
------------------------------------------------------------------------
------------------------------------------------------------------------




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