Burmis Energy Inc.
TSX : BME

Burmis Energy Inc.

November 09, 2006 16:30 ET

Burmis Energy Reports Results for the Third Quarter of 2006

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Burmis Energy Inc. (TSX:BME) ("Burmis") is pleased to announce its operating and financial results for the reporting period ended September 30, 2006.

HIGHLIGHTS

- Three Nisku new pool discoveries at Brazeau

- Drilling success at Ferrier on a multi-well program

- Average production of 2,258 boe/d in the third quarter of 2006, up 23 percent from 2005

- Funds flow(1) from operations of $15.8 million ($0.46 per share) over the nine month interim reported period

- Announced a private placement of 3.0 million flow-through common shares (including exercise of the over-allotment option) to raise gross proceeds of $11.25 million subsequent to the quarter

- Capital budget of $43 million conditionally approved for 2007



three months nine months
ended September 30, ended September 30,
2006 2005 2006 2005 Change
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FINANCIAL
($000s, except shares
and per share amounts)
Gross petroleum and
natural gas revenue $ 8,971 $ 9,672 $ 28,596 $ 24,750 + 16%
Funds flow from
operations (1) $ 5,113 $ 5,381 $ 15,784 $ 13,451 + 17%
Basic per share $ 0.15 $ 0.17 $ 0.46 $ 0.44 + 5%
Diluted per share $ 0.14 $ 0.16 $ 0.44 $ 0.42 + 5%
Earnings $ 1,236 $ 1,648 $ 3,424 $ 3,691 - 7%
Basic per share $ 0.04 $ 0.05 $ 0.10 $ 0.12 - 17%
Diluted per share $ 0.03 $ 0.05 $ 0.10 $ 0.11 - 9%
Weighted average shares
('000's) 34,539 32,430 34,345 30,544 + 12%
Common shares
outstanding ('000's) 34,561 34,224 34,561 34,224 + 1%
Capital expenditures $ 12,095 $ 7,274 $ 31,133 $ 21,914 + 42%
Working capital
(deficiency) (2) $(17,643) $ 643 n/a
Total assets $ 96,693 $ 68,302 + 42%
Shareholders' equity $ 55,110 $ 48,430 + 14%
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(1) Funds flow from operations represents earnings before depletion,
depreciation and accretion, stock-based compensation, unrealized losses
on a crude oil price swap, and future income taxes.
(2) Working capital (deficiency) includes balances borrowed on the
Company's production loan facility of $13.6 million (2005 - $2.0
million).


three months nine months
ended September 30, ended September 30,
2006 2005 2006 2005 Change
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OPERATING
Natural gas (mcf/day) 9,914 6,864 9,610 6,149 + 56%
Average price ($Cdn./mcf) $ 5.74 $ 8.87 $ 6.64 $ 7.92 - 16%
Oil and NGL's (bbl/day) 606 695 633 727 - 13%
Average price ($Cdn./bbl) $ 66.60 $ 63.64 $ 64.28 $ 58.63 + 10%
Barrels of oil equivalent
per day (1) 2,258 1,839 2,235 1,752 + 28%
Operating netback
($Cdn./boe) (2) $ 27.29 $ 34.71 $ 28.70 $ 31.38 - 9%
Cash netback ($Cdn./boe) (3) $ 24.61 $ 31.80 $ 25.87 $ 28.12 - 8%
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(1) In this report, all references to barrels of oil equivalent (boe) are
calculated converting natural gas to oil at a ratio of six thousand
cubic feet to one barrel of oil.
(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 2,258 barrels of oil equivalent per day in the third quarter of 2006, a 23 percent increase compared to 1,839 barrels of oil equivalent per day over the same period in 2005. Average production was lower than expected during the third quarter primarily due to a ten day turnaround at the Easyford battery and a 15 day shut-in on one well at Easyford in August due to a pump failure. In addition, gas well tie-ins at Ferrier were delayed due to wet weather and timing delays in obtaining approvals for pipeline rights-of-way.

Overall, the Company drilled nine gross (3.4 net) wells in the third quarter, of which seven (2.7 net) were cased as potential gas wells, one (0.4 net) was cased as a potential oil well, and one (0.33 net) was dry and abandoned, for a 90 percent success rate.

In the first nine months of 2006, Burmis drilled 29 gross (13.6 net) wells, of which 22 gross (9.6 net) were cased as gas wells, four (1.7 net) were cased as oil wells, and three (2.3 net) were dry and abandoned. This drilling activity has resulted in a nine month drilling success rate of 83 percent.

Ferrier

Burmis tied in a 50 percent working interest operated gas well at Ferrier 04-07-40-08W5M and commenced production in late August. The well was dually completed in the Shunda and Glauconite zones, with the latter zone producing up the casing of the wellbore. Gross production from the well is approximately 1.4 mmcf/d at this time. The Glauconite zone is experiencing liquid loading when flowing up the casing. The Company is planning to add a second tubing string to improve production from the Glauconite zone.

Burmis drilled a 75 percent working interest operated gas well at 01-24-41-08W5M in June and a 25 percent working interest operated gas well at 07-24-40-06W5M in July. The 01-24-41-08W5M well commenced production in mid October and is currently producing approximately 0.5 mmcf/d. The 07-24-40-06W5M well tested at a rate of 1.0 mmcf/d and is expected to commence production in mid-November. A third well cased at Ferrier 06-12-40-09W5M is currently being evaluated.

Brazeau

In the second quarter, Burmis initiated its higher impact drilling program targeting the Nisku formation at Brazeau. The patch reef formations were identified using three dimensional seismic. Burmis is pleased to report three new pool discoveries in the Nisku formation at Brazeau.

The 50 percent working interest well at 14-08-45-13W5M tested at restricted gas rates ranging from 3.0 million cubic feet per day to 5.2 million cubic feet per day on a four hour clean-up test. The well was then flow tested for six days at a restricted rate of 3.3 million cubic feet per day of natural gas and 85 barrels per day of condensate at a flowing wellhead pressure of approximately 3,800 psig. The operator of the well is aiming to place the well on production prior to year end at an initial rate of approximately 3.5 million cubic feet per day (3.0 million cubic feet per day of sales gas), and 90 barrels per day of condensate. This equates to approximately 300 barrels of oil equivalent net to Burmis.

Burmis also cased an operated 66 percent working interest well at Brazeau 01-26-46-13W5M targeting the Nisku formation. During drilling, in excess of 5,000 barrels of mud was lost into the zone and the company isolated the zone with an external casing packer. The well was then completed as an open hole with approximately 16 meters of Nisku formation exposed. During clean-up, the well flowed back large volumes of loss circulation material and drilling fluid, natural gas at restricted rates up to 4.2 million cubic feet per day and water. Water production declined from approximately 2,000 barrels per day to 1,100 barrels per day while flowing pressure was building through the clean up flow period. The Company then flowed the well on a 24 hour production test during which it averaged 3.0 mmcfd of natural gas, 54 barrels per day of condensate and 1,092 barrels per day of water. Burmis is evaluating tie in options for this well.

The 25 percent working interest well at 05-14-48-11W5M was cased and well logs indicated approximately six meters of net pay in the Nisku formation. The well was completed and flowed at rates up to 1.5 million cubic feet per day of natural gas and 150 barrels per day of condensate during a one and a half hour test. The well was then shut in as the operator required a revised flare permit. The operator is planning to tie the well in based on this limited flow and pressure data and further test the well inline.

Burmis is participating with a 25 percent working interest in an additional location at 10-02-48-11W5M in the vicinity of this discovery and has a 15 percent working interest in a contingent location at 05-02-48-11W5M.

Easyford

Continuing its activities focused on the Nisku formation, Burmis drilled a 37.5 percent working interest well at Easyford targeting light oil and looking to extend the Pembina Nisku GG oil pool in a southeastern direction. This well penetrated the Nisku formation and is currently waiting on production testing.

Burmis has assembled eight sections of 100 percent working interest lands in the Easyford area. In the third quarter, the company drilled the 05-25-49-10W5M which was a new Rock Creek oil well discovery. This well was placed on production and produces approximately 15 barrels per day of sweet light crude oil. The well also produces approximately 100 mcfd of solution gas which will be tied in prior to year end. In October, Burmis drilled a follow up well at 13-25-49-10W5M. This well has been cased and is awaiting completion.

Pembina

At Pembina, Burmis has been active in adding additional 100 percent working interest lands through land sales and farm-ins. The Company has surveyed four locations for drilling commencing in the fourth quarter. These operated prospects are similar to the Rock Creek and Lower Mannville opportunities on our non-operated lands at Pembina.

In the third quarter, two (0.5 net) wells were drilled and cased as potential gas wells on our non-operated lands at Pembina. The operator of the property was acquired by an energy trust and activity on the property has been slowed by this transition. One of the two oil wells which were shut in due to GOR penalties resumed production in mid-September. A second well is awaiting Good Production Practice. One gas well (18.75 percent working interest) is currently shut-in and will resume production upon modification to the gas plant sales meter. The Company has approximately 30 barrels per day of net production capability behind pipe awaiting tie-in or resumption of production at Pembina.

EQUITY FINANCING

On October 30, 2006, the Company announced a private placement of 2.0 million flow-through common shares at a price of $3.75 per share which would raise gross proceeds of $7.5 million. The Company also granted the Underwriters an option to purchase an additional 1.0 million flow-through common shares at the same price and terms and conditions. If this option is exercised in full, total gross proceeds from the financing will be $11.25 million. Completion of this transaction is subject to certain conditions including receipt of all necessary regulatory approvals. This transaction is expected to close on November 17, 2006.

OUTLOOK

As Burmis enters the winter season, there is much reason for optimism. The Company's success on its Niksu exploration prospects at Brazeau provides additional reserves and behind pipe production to bring on-stream. In total, Burmis has approximately 700 barrels of oil equivalent per day of net productive capacity behind pipe, tested and awaiting tie-in in late in 2006 and the first quarter of 2007.

The Company's recently announced equity financing will provide gross funds of $11.25 million which will be directed towards our ongoing exploration activities in the Pembina and Brazeau areas as well as several new prospects in west central Alberta. The Company's Board of Directors has approved a capital budget of $43 million for 2007, conditional upon closing the equity financing. The budget allows for participation in 25 gross (19.0 net) wells in 2007. Approximately 15 percent of the budget will be directed toward land and seismic acquisition activities.

The Company's year to date average production of 2,235 barrels of oil equivalent per day has been lower than expected due to operational downtime outlined in this and previous interim reports. Based on average production to date and timing delays in our capital program due to weather, equipment, permitting and other issues, the Company expects average production in 2006 between 2,250 barrels of oil equivalent per day and 2,300 barrels of oil equivalent per day.

Natural gas prices have recovered substantially in late October due to colder weather in parts of the US and Canada. Although natural gas storage levels in the United States are seasonably high, the long term outlook for gas remains very positive and the near term outlook is improving with seasonal winter weather. As our production base continues to grow, we have also increased our concentration in west central Alberta, an area best known for its high quality production and long life reserves. I look forward to updating you on our activities as we continue to grow the company with successful exploration and development programs and prudent financial discipline.

Respectfully submitted on behalf of the Board of Directors,

Aidan M. Walsh, P.Eng., MBA, President and Chief Executive Officer

November 9, 2006

MANAGEMENT'S DISCUSSION AND ANALYSIS - November 9, 2006

The following should be read in conjunction with the unaudited consolidated interim financial statements for the three and nine months ended September 30, 2006 and the audited consolidated financial statements and notes, and management's discussion and analysis included in the 2005 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 quarterly financial statements were prepared following the same accounting policies and methods that were used in the 2005 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 2006, Burmis continued to focus its efforts on exploration and development activities in west central Alberta. These activities, when combined with the commencement of operations of the Blue Rapids natural gas processing plant, have resulted in growth in the Company's production. 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 measure that represents earnings before depletion, depreciation and accretion, stock-based compensation, unrealized losses on a crude oil price swap, 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 March 23, 2006, is available under the Company's profile on SEDAR at www.sedar.com.

OVERVIEW

During the first nine months of 2006 Burmis exhibited strong growth compared to 2005. The impact of increased natural gas production volumes and continued strength in crude oil prices more than offset weakness in natural gas prices and reduced crude oil production volumes. Funds flow from operations rose to $15.8 million ($0.46 per common share - basic) in the first nine months of 2006, a 17 percent increase compared to $13.5 million ($0.44 per common share - basic) in 2005. Earnings totaled $3.4 million ($0.10 per common share - basic) in the first nine months of 2006 compared to $3.7 million ($0.12 per common share - basic) in 2005.

Average production increased 28 percent to 2,235 barrels of oil equivalent per day in the first nine months of 2006 compared to 1,752 barrels of oil equivalent per day in the first nine months of 2005. The increase in production was the result of the commencement of operations at the Blue Rapids natural gas processing plant in late December 2005, as well as new production from wells at Ferrier and Hoadley. With the start up of this gas plant, several natural gas wells drilled in the Pembina area during 2005 commenced production in 2006. During the third quarter of 2006, production averaged 2,258 barrels of oil equivalent per day, a 23 percent increase compared to the third quarter of 2005.

Prices for crude oil continued to strengthen during the first nine months of 2006, with the West Texas Intermediate ("WTI") reference price for crude oil averaging US $68.29 per barrel compared to US $55.36 per barrel in the first nine months of 2005. During the third quarter of 2006, crude oil prices averaged US $70.55 per barrel as ongoing uncertainty arising from geopolitical events in Iraq, Iran and Nigeria contributed to uncertainty in world crude oil markets, placing upward pressure on prices. During October and into November, crude oil prices have softened as increasing crude oil inventory levels and predictions of slowing global economic growth have put downward pressure on prices. The impact of the increase in WTI from 2005 to 2006 was partially offset by increased strength in the Canadian dollar as compared to the United States dollar, and losses from a crude oil price swap which expired at the end of March.

Natural gas prices decreased during the first nine months of 2006, with the AECO reference price for natural gas averaging $6.06 per gigajoule during that period compared to $7.42 per gigajoule in 2005. The decline in natural gas prices was due to very mild weather for much of North America in the first quarter of 2006 and associated increases in natural gas inventories year over year.

Revenues

Gross petroleum and natural gas revenues increased 16 percent to $28.6 million in the first nine months of 2006 compared to $24.8 million in 2005. The following table outlines gross revenues by product, as well as daily production volumes and sales prices by product.



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nine months
ended September 30, 2006 2005
($000's unless Daily Daily
otherwise noted) Production Production
Component of Revenue Amount & Prices Amount & Prices
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Natural Gas $ 17,421 9,610 mcf/d $ 13,288 6,149 mcf/d
$6.64/mcf $7.92/mcf

Crude Oil & NGL's 11,136 633 bbl/d 11,682 727 bbl/d
$ 64.28/bbl(1) $ 58.63/bbl(1)

Crude Oil Hedge
Gain(Loss) - Realized (25) (44)
Unrealized - (218)

Royalty Income 64 42
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$ 28,596 $ 24,750
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(1) Includes impact of realized hedging gains and losses.


Natural gas sales volumes increased 56 percent in the first nine months of 2006 over 2005 levels, primarily as a result of the commencement of operations at the Blue Rapids natural gas processing plant in the Pembina area, as well as production from new wells at Ferrier and Hoadley. Crude oil and natural gas liquid sales volumes decreased thirteen percent from 2005 to 2006 primarily due to reduced crude oil volumes at Easyford and Kidney. During the third quarter of 2006, natural gas production averaged 9,914 mcf per day compared to 6,864 mcf per day in the third quarter of 2005. Crude oil and NGL production averaged 606 barrels per day compared to 695 barrels per day in the third quarter of 2005.

During the first quarter of 2005, Burmis entered into a WTI financial swap transaction which effectively fixed 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 first nine months of 2006, the Company realized a loss of $25,000 on this hedge (2005 - $44,000). This loss has been included in the crude oil & NGL prices reported for the first nine months of 2006.

Burmis did not have any financial instruments in place at September 30, 2006.



Royalties
($'000's)
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nine months ended September 30, 2006 2005
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Crown royalties $ 4,825 $ 5,014
Other royalties 1,482 1,647
Alberta Royalty Tax Credit (375) (375)
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Net royalties $ 5,932 $ 6,286
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Average royalty rate as a percentage of revenues 20.7% 25.4%
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Although revenues increased in 2006, royalties have decreased when compared to 2005. The decrease in crown royalties is due to the Company's investment in natural gas transportation and processing facilities in 2005. These investments resulted in higher gas cost allowance and processing credits being received from the crown in 2006. Additionally, the Company has some production which was on royalty holiday for portions of 2006. Other royalties have declined as production from wells to which overriding and freehold royalties apply has become a smaller component of the Company's revenue stream.

Operating Costs

Operating costs were $5.2 million ($8.44 per barrel of oil equivalent) during the first nine months of 2006 compared to $3.7 million ($7.68 per barrel of oil equivalent) during 2005. Total operating costs increased due to a 28 percent increase in daily production volumes as compared to the prior year. On a barrel of oil equivalent basis, operating costs increased ten percent from 2005 to 2006. Costs per barrel of oil equivalent have risen due to increased emulsion processing and water disposal charges at Easyford and Kidney, acid gas injection charges at Brazeau and inflationary pressures. These are partially offset by reduced operating costs at the Company's Pembina property as a result of the start-up of the Blue Rapids natural gas plant.

Operating Netback

The Company's operating netback of $28.70 per barrel of oil equivalent in the first nine months of 2006 was nine percent lower than the netback of $31.38 per barrel of oil equivalent during the comparable period of 2005. The impact of reduced natural gas prices and increased operating costs were partially offset by increased crude oil prices and reduced royalties per barrel of oil equivalent of production.

General and Administrative Expenses

General and administrative expenses totaled $1.5 million in the first nine months of 2006 compared to $1.3 million in 2005. The increase is the result of increased employee compensation, as well as increased costs for rent, insurance and information technology services. On a barrel of oil equivalent basis, general and administrative expenses were $2.45 in the first nine months of 2006 compared to $2.72 in 2005.

Stock Based Compensation Expense

Stock based compensation expense totalled $408,000 in 2006 compared to $351,000 in the first nine months of 2005. The increase is principally due to a grant of 936,000 stock options at a price of $2.45 per share during the second quarter of 2005.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion expense totalled $10.7 million in the first nine months of 2006 compared to $6.8 million in the comparable period of 2005. The increase in depletion, depreciation and accretion expense is due to the 28 percent increase in production volumes in 2006 compared to 2005, and an increase in the overall rate of depletion, depreciation and accretion to $17.56 per barrel of oil equivalent in 2006 from $14.18 in 2005. The increase in the rate of depletion, depreciation and accretion in 2006 reflects the high level of activity in the oil and gas industry which increased the costs to undertake the Company's capital program. The Company's three year rolling average finding, development and acquisition cost was $18.75 per barrel of oil equivalent for proved reserves at December 31, 2005.

Interest

Interest expense totalled $232,000 in the first nine months of 2006 compared to $255,000 in 2005. The Company borrows funds under a production loan facility and utilizes bankers' acceptances from time to time.

Income Taxes

The provision for income taxes decreased to $1.2 million in the first nine months of 2006 compared to $2.4 million in the comparable period of 2005. The tax provision in 2006 was reduced by an approximate $0.5 million adjustment to the Company's effective tax rate due to reductions in enacted federal and provincial tax rates, as well as changes in the expectation of when the Company will become taxable.

CAPITAL EXPENDITURES

Capital expenditures totaled $31.1 million in the first nine months of 2006. The Company's capital program included exploratory drilling expenditures of $11.8 million, development drilling expenditures of $11.5 million and investments in production facilities totaling $3.6 million. During the first three quarters of 2006, Burmis spent $3.1 million acquiring approximately 8,000 net acres of undeveloped land at crown land sales as well as other minor interests, and spent $1.1 million acquiring 3-D seismic to evaluate the Company's Brazeau and Pembina prospects.

During the first nine months of 2005, the Company's capital expenditures totalled $21.9 million.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2006 Burmis had a total working capital deficiency of $17.6 million, including $13.6 million borrowed on the Company's revolving production loan facility.

The Company's revolving production loan facility with a Canadian chartered bank was increased to $33.0 million in the second quarter of 2006. This production loan facility is subject to annual review in May 2007 at which time the production loan facility may be renewed, or repayment may be required. Burmis expects the production loan facility to be renewed in May 2007 as the Company's reserves are currently sufficient to support a credit facility of this size.

The Company currently has 34,561,133 common shares outstanding. An additional 3,026,500 stock options are outstanding with a weighted average exercise price of $1.41 per share.

On October 30, 2006, the Company announced a private placement of 2.0 million flow-through common shares at a price of $3.75 per share which would raise gross proceeds of $7.5 million. The Company also granted the Underwriters an option to purchase an additional 1.0 million flow-through common shares at the same price and terms and conditions. If this option is exercised in full, total gross proceeds from the financing will be $11.25 million. Certain insiders of Burmis subscribed for 80,000 flow-through common shares at a price of $3.75 per share under this financing. Completion of this transaction is subject to certain conditions including receipt of all necessary regulatory approvals. This transaction is expected to close on November 17, 2006.

Burmis has an approved capital budget of $42.5 million for 2006. These expenditures will be funded by cash provided from operating activities, use of the Company's production loan facility, and proceeds from the flow-through common share private placement upon successful closing of the private placement.

CONTRACTUAL OBLIGATIONS

The Company's production loan facility is subject to annual review in May 2007 at which time the production loan facility may be renewed or repayment may be required. Burmis expects the production loan facility to be renewed in May 2007 as the Company's reserves are currently sufficient to support a credit facility of this size.

Upon successful closing of the private placement of flow-through common shares, which is subject to a number of conditions including the receipt of all necessary regulatory approvals, the Company will be committed to renounce, effective December 31, 2006, Canadian Exploration Expenditures in the amount of $11.25 million and to incur eligible expenditures of this amount under this flow-through arrangement by December 31, 2007.

At September 30, Burmis has office lease space commitments of $49,000 in 2006, $226,000 in 2007 and $59,000 in 2008. In addition, the Company leased field equipment during the third quarter of 2006. The remaining commitment on this lease is approximately $25,000 in 2006 and $13,000 in 2007.

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

RELATED PARTY TRANSACTIONS

There were no transactions with related parties during the first nine months of 2006.

During October 2006, certain directors and officers of the Company elected to participate in a private placement of flow-through common shares of the Company. These insiders subscribed for 80,000 flow-through common shares of the Company under the same price, terms and conditions as the remainder of the offering.

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
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2006
OPERATING Third Second First
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Natural gas (mcf/d) 9,914 9,068 9,848
Price ($/mcf) 5.74 6.20 7.97
Oil and NGL's (bbl/d) 606 612 682
Price ($/bbl) (1) 66.60 67.54 59.20
Barrels of oil equivalent (per day) 2,258 2,124 2,323
EARNINGS ('000's of dollars)
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Crude oil and natural gas liquid revenues 3,715 3,764 3,631
Natural gas revenues 5,256 5,138 7,092
Royalties (1,587) (1,499) (2,846)
Interest and other income 2 1 9
-----------------------------
7,386 7,404 7,886
Operating expenses 1,713 1,716 1,723
General and administrative 426 681 390
Stock based compensation 126 95 187
Depletion, depreciation and accretion 3,259 3,525 3,929
Interest 131 73 28
Other 1 8 -
-----------------------------
Total expenses 5,656 6,098 6,257
Earnings before income taxes 1,730 1,306 1,629
Current income taxes 2 - -
Future income taxes 492 358 389
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494 358 389
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Earnings 1,236 948 1,240
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Earnings per share (basic) $ 0.04 $ 0.03 $ 0.04
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FUNDS FLOW ('000's of dollars) 5,113 4,926 5,745
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Funds flow per share (basic) $ 0.15 $ 0.14 $ 0.17
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NETBACKS ($/boe)
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Petroleum and natural gas revenues 43.17 46.06 51.29
Royalties (7.63) (7.76) (13.61)
Operating expenses (8.25) (8.88) (8.24)
-----------------------------
Operating netback 27.29 29.42 29.44
General and administrative (2.05) (3.52) (1.87)
Interest and other income (expense) (0.63) (0.41) (0.09)
Current income taxes - - -
-----------------------------
Cash netback 24.61 25.49 27.48
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TOTAL ASSETS ($'000's of dollars) 96,693 84,857 73,230
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2005 2004
OPERATING Fourth Third Second First Fourth
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Natural gas (mcf/d) 7,615 6,864 5,991 5,578 5,381
Price ($/mcf) 11.30 8.87 7.34 7.35 6.80
Oil and NGL's (bbl/d) 616 695 766 720 586
Price ($/bbl) (1) 59.92 63.64 57.98 54.39 52.59
Barrels of oil equivalent
(per day) 1,885 1,839 1,764 1,650 1,483
EARNINGS ('000's
of dollars)
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Crude oil and natural gas
liquid revenues 3,508 4,056 3,855 3,509 2,835
Natural gas revenues 7,947 5,616 4,008 3,706 3,375
Royalties (2,722) (2,492) (2,027) (1,767) (1,563)
Interest and other income 4 7 - 3 -
-----------------------------------------------
8,737 7,187 5,836 5,451 4,647
Operating expenses 1,552 1,321 1,190 1,161 989
General and
administrative 363 403 653 244 355
Stock based compensation 198 202 109 40 58
Depletion, depreciation
and accretion 3,117 2,491 2,311 1,982 1,983
Interest 16 83 70 102 87
Other 2 13 - - 25
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Total expenses 5,248 4,513 4,333 3,529 3,497
Earnings before income
taxes 3,489 2,674 1,503 1,922 1,150
Current income taxes - 1 - - -
Future income taxes 1,096 1,025 630 752 506
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1,096 1,026 630 752 506
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Earnings 2,393 1,648 873 1,170 644
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---------------------------------------------------------------------------
Earnings per share
(basic) $ 0.07 $ 0.05 $ 0.03 $ 0.04 $ 0.02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
FUNDS FLOW ('000's of
dollars) 6,694 5,381 4,110 3,960 3,191
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Funds flow per share
(basic) $ 0.20 $ 0.17 $ 0.13 $ 0.14 $ 0.12
---------------------------------------------------------------------------
---------------------------------------------------------------------------
NETBACKS ($/boe)
---------------------------------------------------------------------------
Petroleum and natural gas
revenues 65.40 57.25 50.13 48.70 45.52
Royalties (15.69) (14.73) (12.62) (11.90) (11.45)
Operating expenses (8.95) (7.81) (7.41) (7.82) (7.25)
-----------------------------------------------
Operating netback 40.76 34.71 30.10 28.98 26.82
General and
administrative (2.09) (2.38) (4.06) (1.65) (2.61)
Interest and other income
(expense) (0.08) (0.53) (0.44) (0.67) (0.81)
Current income taxes - - - - -
-----------------------------------------------
Cash netback 38.59 31.80 25.60 26.66 23.40
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL ASSETS ($'000's of
dollars) 71,876 68,302 58,080 57,022 45,741
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Average oil and NGL price is before the impact of unrealized mark to
crude oil price swap.


BURMIS ENERGY INC.
Consolidated Balance Sheets

(thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
September 30, December 31,
(unaudited) 2006 2005
---------------------------------------------------------------------------

Assets
Current assets
Cash $ 112 $ 421
Accounts receivable 12,756 8,682
---------------------------------------------------------------------------
12,868 9,103
Petroleum and natural gas properties (note 2) 83,825 62,773
---------------------------------------------------------------------------
$ 96,693 $ 71,876
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Production loan facility (note 3) $ 13,559 $ -
Accounts payable and accrued liabilities 16,952 11,566
---------------------------------------------------------------------------
30,511 11,566
Asset retirement obligation (note 4) 2,977 2,433
Future income tax liability 8,095 6,856
Shareholders' equity
Share capital (note 5) 42,122 41,742
Contributed surplus (note 5) 1,283 998
Retained earnings 11,705 8,281
---------------------------------------------------------------------------
55,110 51,021

---------------------------------------------------------------------------
$ 96,693 $ 71,876
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Subsequent event (note 10)

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) 2006 2005 2006 2005
---------------------------------------------------------------------------

Revenues
Petroleum and natural gas
(note 7) $ 8,971 $ 9,672 $ 28,596 $ 24,750
Royalties (1,587) (2,492) (5,932) (6,286)
Interest and other income 2 7 12 10
---------------------------------------------------------------------------
7,386 7,187 22,676 18,474
Expenses
Operating 1,713 1,321 5,152 3,672
General and administrative 426 403 1,497 1,300
Stock based compensation 126 202 408 351
Depletion, depreciation and
accretion 3,259 2,491 10,713 6,784
Interest paid 131 83 232 255
Other 1 13 9 13
---------------------------------------------------------------------------
5,656 4,513 18,011 12,375
Earnings before income taxes 1,730 2,674 4,665 6,099
Income taxes
Current 2 1 2 1
Future 492 1,025 1,239 2,407
---------------------------------------------------------------------------
494 1,026 1,241 2,408
---------------------------------------------------------------------------
Earnings $ 1,236 $ 1,648 $ 3,424 $ 3,691
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings per share (note 6)
Basic $ 0.04 $ 0.05 $ 0.10 $ 0.12
Diluted $ 0.03 $ 0.05 $ 0.10 $ 0.11
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Consolidated Statement of Retained Earnings
(thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
three months nine months
ended September 30, ended September 30,
(unaudited) 2006 2005 2006 2005
---------------------------------------------------------------------------
Retained earnings, beginning of
period $ 10,469 $ 4,240 $ 8,281 $ 2,197
Earnings for the period 1,236 1,648 3,424 3,691
---------------------------------------------------------------------------
Retained earnings, end of period $ 11,705 $ 5,888 $ 11,705 $ 5,888
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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) 2006 2005 2006 2005
---------------------------------------------------------------------------

Cash provided by (used in)
Operations
Earnings $ 1,236 $ 1,648 $ 3,424 $ 3,691
Items not affecting cash
Depletion, depreciation and
accretion 3,259 2,491 10,713 6,784
Stock based compensation 126 202 408 351
Unrealized loss on crude oil
price swap - 15 - 218
Future income taxes 492 1,025 1,239 2,407
Asset retirement expenditures (61) (2) (88) (37)
Changes in non-cash working
capital (note 8) 389 1,521 100 392
---------------------------------------------------------------------------
5,441 6,900 15,796 13,806
Financing
Production loan facility 8,772 (6,000) 13,559 (7,000)
Exercise of stock options 93 - 257 8
Issue of common shares for
cash, net of share issue costs - 10,425 - 20,567
---------------------------------------------------------------------------
8,865 4,425 13,816 13,575
Investments
Additions to petroleum and
natural gas properties (12,095) (7,274) (31,133) (21,914)
Changes in non-cash working
capital (note 8) (2,176) 406 1,212 (890)
---------------------------------------------------------------------------
(14,271) (6,868) (29,921) (22,804)

Increase (decrease) in cash 35 4,457 (309) 4,577
Cash, beginning of period 77 422 421 302
---------------------------------------------------------------------------
Cash, end of period $ 112 $ 4,879 $ 112 $ 4,879
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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, 2005. These consolidated interim financial statements include all adjustments necessary to present fairly the results for the interim period ended September 30, 2006. 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, 2005.



2. Petroleum and natural gas properties:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
September 30, December 31,
2006 2005
---------------------------------------------------------------------------
Petroleum and natural gas properties $ 110,858 $ 79,213
Accumulated depletion and depreciation (27,033) (16,440)
---------------------------------------------------------------------------
$ 83,825 $ 62,773
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Costs of unproved properties excluded from costs subject to depletion and depreciation at September 30, 2006 were $6.9 million (December 31, 2005 - $5.5 million). Future development costs of $6.0 million (December 31, 2005 - $4.9 million) have been included in costs subject to depletion.

3. Production Loan Facility:

During the reported period, the Company's revolving production loan facility was increased to $33.0 million. The facility bears interest at the bank prime rate or the banker's acceptance rate plus a stamping fee of 1.25 percent. Repayments of the facility are not required provided the amounts borrowed do not exceed $33.0 million or an amount determined from a periodic review. The loan facility is scheduled for review in May 2007. 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, 2006 is approximately $4.3 million. These costs will be incurred between 2006 and 2026. 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, 2006 2005
---------------------------------------------------------------------------
Balance, beginning of period $ 2,433 $ 1,831
Accretion expense 120 86
Liabilities incurred 512 490
Liabilities settled (88) (37)
---------------------------------------------------------------------------
Balance, end of period $ 2,977 $ 2,370
---------------------------------------------------------------------------
---------------------------------------------------------------------------


5. Share capital:

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

Issued:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Number of
Shares Amount
---------------------------------------------------------------------------
Balance, December 31, 2005 34,225,133 $ 41,742
Exercise of stock options for cash 336,000 257
Transfer of contributed surplus to share
capital on exercise of stock options - 123
---------------------------------------------------------------------------
Balance, September 30, 2006 34,561,133 $ 42,122
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(b) Contributed surplus:

A reconciliation of contributed surplus is provided below:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
nine months ended September 30, 2006 2005
---------------------------------------------------------------------------
Balance, beginning of period $ 998 $ 457
Stock-based compensation expense 408 351
Transfer to share capital on exercise of
stock options (123) (6)
---------------------------------------------------------------------------
Balance, end of period $ 1,283 $ 802
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(c) Stock-based compensation plan:

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



A summary of the status of the plan as of September 30, 2006 and changes
during the period ending on that date is presented below:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted Average
Shares Exercise Price Life Remaining
---------------------------------------------------------------------------
Outstanding,
December 31, 2005 3,073,500 $ 1.16 2.9 years
Granted 369,000 2.99 4.8 years
Cancelled (98,000) 2.18 3.8 years
Exercised (336,000) 0.77 1.7 years
---------------------------------------------------------------------------
Outstanding,
September 30, 2006 3,008,500 $ 1.40 2.5 years
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Exercisable,
September 30, 2006 1,983,000 $ 0.83 1.8 years
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
---------------------------------------------------------------------------
$0.50 1,485,000 1.3 years
$1.02 - $1.35 335,500 2.5 years
$2.45 819,000 3.6 years
$2.98 - $3.10 369,000 4.8 years
---------------------------------------------------------------------------
$0.50 - $3.10 3,008,500 2.5 years
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The fair value of stock options granted during 2006 was estimated to be approximately $440,000 using the Black-Scholes model with the following weighted average assumptions: expected life of options - five years; interest rate - five percent; volatility - 36 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,
2006 2005 2006 2005
---------------------------------------------------------------------------
Weighted average common
shares outstanding 34,538,829 32,430,655 34,345,111 30,544,104
Shares issuable pursuant
to stock options 3,008,500 3,074,500 3,008,500 3,074,500
Shares to be purchased
from proceeds of stock
options (1,484,116) (1,199,681) (1,418,247) (1,493,860)
---------------------------------------------------------------------------
Weighted average
diluted common shares
outstanding 36,063,213 34,305,474 35,935,364 32,124,744
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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 periodically enters into fixed price natural gas sales agreements to provide exposure to a portfolio of pricing indices. At September 30, 2006, the Company had no fixed price natural gas sales agreements in place.

(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 was for the period from April 2005 to March 2006. During the first nine months of 2006, the Company recognized a loss of $25,000 on this contract (2005 - $44,000). The loss is recorded in petroleum and natural gas revenues. At September 30, 2006, the Company had no contracts in place to fix the price on any portion of its crude oil production.



8. Changes in non-cash working capital

---------------------------------------------------------------------------
---------------------------------------------------------------------------
September 30, 2006 2005
---------------------------------------------------------------------------
Accounts receivable $ (4,074) $ (2,278)
Accounts payable and accrued liabilities 5,386 1,780
---------------------------------------------------------------------------
Total $ 1,312 $ (498)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Relating to:
Operating activities $ 100 $ 392
Investing activities $ 1,212 $ (890)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


9. Segment information:

September 30, 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Canada United States Total
---------------------------------------------------------------------------
Revenues, net of royalties $ 21,824 $ 840 $ 22,664
Earnings before income taxes $ 4,053 $ 612 $ 4,665
Earnings $ 2,814 $ 610 $ 3,424
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Petroleum and natural
gas properties
Cost $ 108,454 $ 2,404 $ 110,858
Accumulated depletion,
depreciation and
amortization (25,968) (1,065) (27,033)
---------------------------------------------------------------------------
Net book value $ 82,486 $ 1,339 $ 83,825
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital expenditures $ 30,805 $ 328 $ 31,133
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital expenditures $ 21,895 $ 19 $ 21,914
---------------------------------------------------------------------------
---------------------------------------------------------------------------


10. Subsequent event

On October 30, 2006, the Company announced a private placement of 2.0 million flow-through common shares at a price of $3.75 per share which would raise gross proceeds of $7.5 million. The Company also granted the Underwriters an option to purchase an additional 1.0 million flow-through common shares at the same price and terms and conditions. If this option is exercised in full, total gross proceeds from the financing will be $11.25 million. Certain insiders of Burmis subscribed for 80,000 flow-through common shares at a price of $3.75 per share under this financing. Completion of this transaction is subject to receipt of all necessary regulatory approvals. This transaction is expected to close on November 17, 2006.

Upon successful closing of the private placement of flow-through common shares the Company will be committed to renounce, effective December 31, 2006, Canadian Exploration Expenditures in the amount of $11.25 million and to incur eligible expenditures of this amount under this flow-through arrangement by December 31, 2007.

Contact Information

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