Burmis Energy Inc.
TSX : BME

Burmis Energy Inc.

August 10, 2006 08:00 ET

Burmis Energy Reports Results for the Second Quarter of 2006 and Increases Capital Budget to $42.5 Million

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Burmis Energy Inc. ("Burmis") is pleased to announce its operating and financial results for the reporting period ended June 30, 2006.

HIGHLIGHTS

- Production increased 30 percent to average 2,223 boe/d during the first half of 2006

- Funds flow from operations increased 32 percent to $10.7 million ($0.31 per share)(1) in the first half of 2006

- Earnings increased seven percent to $2.2 million ($0.06 per share) in the first half of 2006

- Drilled 20 gross (10.4 net) wells with an 81 percent success rate during the first half of 2006

- Capital budget for 2006 has been increased to $42.5 million with plans to drill 16 gross (9.6 net) wells in the second half of 2006

- The Company's credit facility has been increased to $33 million



three months six months
ended June 30, ended June 30,
2006 2005 2006 2005 Change
------------------------------------------------------------------------
FINANCIAL
($000s, except shares and
per share amounts)
Gross petroleum and
natural gas revenue $ 8,902 $ 7,863 $ 19,625 $ 15,078 + 30%
Funds flow from
operations (1) $ 4,926 $ 4,110 $ 10,671 $ 8,070 + 32%
Basic per share $ 0.14 $ 0.13 $ 0.31 $ 0.27 + 15%
Diluted per share $ 0.14 $ 0.13 $ 0.30 $ 0.26 + 15%
Earnings $ 948 $ 873 $ 2,188 $ 2,043 + 7%
Basic per share $ 0.03 $ 0.03 $ 0.06 $ 0.07 - 14%
Diluted per share $ 0.03 $ 0.03 $ 0.06 $ 0.07 - 14%
Weighted average shares
('000's) 34,268 31,224 34,247 29,585 + 16%
Common shares outstanding
('000's) 34,523 31,224 34,523 31,224 + 11%
Capital expenditures $12,129 $ 5,298 $ 19,038 $ 14,640 + 30%
Working capital deficiency
(2) $ 10,693 $ 7,872 + 36%
Total assets $ 84,857 $ 58,080 + 46%
Shareholders' equity $ 53,655 $ 35,899 + 49%
------------------------------------------------------------------------
------------------------------------------------------------------------
(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 $4.8 million (2005 - $8.0
million).


three months six months
ended June 30, ended June 30,
2006 2005 2006 2005 Change
------------------------------------------------------------------------
OPERATING
Natural gas (mcf/day) 9,068 5,991 9,456 5,785 + 63%
Average price ($Cdn./mcf) $ 6.20 $ 7.34 $ 7.12 $ 7.34 - 3%
Oil and NGL's (bbl/day) 612 766 647 743 - 13%
Average price ($Cdn./bbl) $ 67.54 $ 57.98 $ 63.17 $ 56.25 + 12%
Barrels of oil equivalent
per day (1) 2,124 1,764 2,223 1,707 + 30%
Operating netback
($Cdn./boe) (2) $ 29.42 $ 30.10 $ 29.43 $ 29.56 + -%
Cash netback ($Cdn./boe) (3) $ 25.49 $ 25.60 $ 26.53 $ 26.11 + 2%
------------------------------------------------------------------------
------------------------------------------------------------------------
(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 2,223 barrels of oil equivalent per day in the first half of 2006, a 30 percent increase compared to 1,707 barrels of oil equivalent per day over the same period in 2005. The start up of the Blue Rapids gas plant enabled the company to commence production from several shut-in gas wells at Pembina contributing to this growth. Production in the second quarter of 2006 averaged 2,124 barrels of oil equivalent per day, an increase of 20 percent compared to 1,764 barrels of oil equivalent per day in the second quarter of 2005. Production in the second quarter of 2006 was lower than the 2,323 barrels of oil equivalent per day recorded in the first quarter due to downtime at Easyford, and a fire at a third party compressor which shut-in a natural gas well at Brazeau for a portion of the quarter.

Burmis drilled 20 gross (10.4 net) wells in the first half of 2006. The Company's drilling program resulted in 16 gross (7.3 net) gas wells, two gross (1.1 net) oil wells and two gross (2.0 net) dry and abandoned wells for an overall success rate of 81 percent. During the second quarter of 2006, Burmis drilled 12 gross (5.7 net) wells resulting in eight gross (2.6 net) gas wells, two gross (1.1 net) oil wells and two gross (2.0 net) dry and abandoned wells.

BRAZEAU

Burmis commenced its high impact Nisku drilling program at Brazeau in the second quarter of 2006 with three wells spudding in June. One well, located at 5-14-48-11W5 (25 percent working interest) has been cased. Logs from the well indicate approximately six metres of net pay in the Nisku formation. Completion operations of the well are expected to commence in late August. The Company's operated well at 1-26-46-13W5 (66 percent working interest) is currently drilling after having set intermediate casing. A well at 14-8-46-13W5 (50 percent working interest) has been cased above the Nisku and will undergo an open hole completion.

The Company's exploration program for the remainder of 2006 includes one additional Nisku location at Brazeau. This 25 percent working interest well is expected to spud in the fourth quarter. A second well may be drilled in the first quarter of 2007.

FERRIER

Burmis drilled and cased a 50 percent working interest gas well at Ferrier in the first quarter of 2006. The well was completed in both the Shunda and Glauconite formations and is expected to add approximately 200 barrels of oil equivalent per day of net production upon tie-in in late August. Two additional wells (1.0 net) have been drilled and cased at Ferrier. The first well (75 percent working interest) has been dually completed for natural gas in two zones and flowed on an initial clean-up rate of 1.2 million cubic feet per day. Further flow testing of the well is ongoing. The second well (25 percent working interest) is awaiting completion in the Rock Creek. The Company has two (0.8 net) additional locations at Ferrier targeting natural gas in the Cardium and Ellerslie formations, the first of which was spud on August 8, 2006.

PEMBINA

The start-up of the Blue Rapids gas plant, in which the Company owns 4.5 mmcf per day of capacity, enabled Burmis to tie-in several shut-in gas wells during the first quarter, boosting our net production from this property to approximately 925 barrels of oil equivalent per day over the first half of 2006. The Company continued its participation in an ongoing drilling program on the property targeting natural gas and associated natural gas liquids in the Rock Creek and Lower Mannville formations. In the first half of 2006, ten gross (2.5 net) wells were drilled. Of these wells, four are awaiting completion or tie-in operations. The Company estimates it has approximately 100 barrels of oil equivalent of production behind pipe at Pembina.

As a result of the pending change in operator of this property, the recently announced expansion of the Blue Rapids gas plant has been cancelled and a cash call of $200,000 relating to the plant expansion has been refunded by the operator. Burmis has identified nine (2.0 net) additional locations on its lands at Pembina for future drilling.

EASYFORD

Burmis has assembled approximately eight sections of 100 percent working interest lands in the Easyford. The first exploratory well drilled on these lands was abandoned. The second well drilled on these lands resulted in the discovery of a new Rock Creek oil pool. This well has been equipped and commenced production in July at approximately 25 barrels per day of sweet light crude oil. The Company plans to drill two additional locations on this prospect in 2006.

The Company has one location at Easyford targeting light oil in the Nisku formation to extend the Nisku GG oil pool. This location, in which Burmis has a 37.5 percent working interest, is currently awaiting a drilling license which is expected to be issued in mid-August.

HOADLEY

Burmis drilled two 100 percent working interest shallow natural gas wells at Hoadley in the first quarter of 2006. These two wells and a well drilled in 2005 were tied-in after break-up, commencing production in late June at approximately 500 mcf per day.

PERSONNEL

Burmis is pleased to announce that Mr. Darrin Drall, P.Eng. has been appointed Vice President, Engineering & Operations. Mr. Drall was previously Vice President, Corporate Development of the Company and has twenty-four years of industry experience. Mr. Drall will take on the additional responsibilities of drilling and completions while retaining responsibility for the Company's reserve base.

The Company is also pleased to announce that Mr. Neil Bosch, P.Eng. has joined the Company as Manager of Production. Mr. Bosch, a graduate of the University of Calgary's chemical engineering program, has nine years of experience in the industry with a major international oil and gas company. Mr. Bosch will be responsible for property evaluations, oil and gas facilities and optimizing the Company's overall production base.

Mr. Brian Goodfellow, P.Eng. has resigned his position as Vice President, Operations and Production at Burmis to pursue personal interests. We would like to thank Mr. Goodfellow for his contributions to the Company's growth in its first three years of operations and extend to him best wishes in his future endeavors.

OUTLOOK

Burmis will continue with an active exploration and development program over the remainder of 2006. A substantial portion of the Company's exploration budget has been devoted to high impact drilling of Nisku prospects in the Brazeau area which provides substantial upside for the Company.

The Company will also continue drilling on a multi-well program of medium depth locations targeting light oil and liquid rich natural gas at Easyford, Ferrier and Pembina. Burmis has six gross (4.2 net) additional locations planned for the third and fourth quarters of 2006 on these properties.

The 2006 capital budget has been expanded to $42.5 million. Burmis has budgeted for participation in 36 gross (20 net) wells in 2006, an increase of five gross (3.3 net) wells at Ferrier and Easyford, plus associated tie-in and facility expenditures. Approximately 16 percent of this budget is being directed toward land and seismic acquisitions. The Company has purchased 7,680 net acres of land at Crown land sales so far this year.

Although natural gas prices have lagged crude oil prices in the first half of 2006 due to high storage levels in the United States and Canada, warm summer weather has recently slowed the rate of inventory builds in the United States. As a result, natural gas prices have firmed somewhat in late July and early August. We expect natural gas prices to remain volatile throughout the fall as traders react to the weekly natural gas storage reports, while the long term outlook for natural gas prices remains favorable.

Burmis continues to grow a high netback production base with a significant component of liquid rich natural gas and light oil. Our primary area of activity continues to be west central Alberta, an area known for its high quality production, long reserve life and multi-zone potential. Our strengths include a balanced prospect inventory, an experienced management team, and a strong balance sheet. I look forward to updating you on our progress in 2006 as we implement our aggressive exploration and development program.



Respectfully submitted on behalf of the Board of Directors,

Aidan M. Walsh, P.Eng., MBA
President and Chief Executive Officer
August 10, 2006


MANAGEMENT'S DISCUSSION AND ANALYSIS - August 10, 2006

The following should be read in conjunction with the unaudited consolidated interim financial statements for the three and six months ended June 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 six 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 half of 2006 Burmis exhibited strong growth compared to 2005. The combination of increased production volumes and continued strength in commodity prices led to strong financial results. Funds flow from operations rose to $10.7 million ($0.31 per common share - basic) in the first half of 2006, a 32 percent increase compared to $8.1 million ($0.27 per common share - basic) in the first half of 2005. Earnings totaled $2.2 million ($0.06 per common share - basic) in the first half of 2006 compared to $2.0 million ($0.07 per common share - basic) in 2005.

Average production increased 30 percent to 2,223 barrels of oil equivalent per day in the first half of 2006 compared to 1,707 barrels of oil equivalent per day in 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. 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 second quarter of 2006, production averaged 2,124 barrels of oil equivalent per day, a 20 percent increase compared to the second quarter of 2005, but nine percent below the first quarter of 2006. The decrease from the first quarter of 2006 was the result of a combined 35 days of downtime on two oil wells at Easyford, and a fire at a third party compressor which resulted in a natural gas well at Brazeau being shut-in for three and a half weeks.

Prices for crude oil continued to strengthen during the first half of 2006, with the West Texas Intermediate ("WTI") reference price for crude oil averaging US $67.14 per barrel compared to US $51.39 per barrel in the first half of 2005. During the second quarter of 2006, crude oil prices averaged US $70.70 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. 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 half of 2006, with the AECO reference price for natural gas averaging $6.46 per gigajoule compared to $6.74 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 30 percent to $19.6 million in the first half of 2006 compared to $15.1 million in 2005. The following table outlines gross revenues by product, as well as daily production volumes and sales prices by product.



------------------------------------------------------------------------
six months ended June 30, 2006 2005
($000's unless otherwise Daily Daily
noted) Production Production
Component of Revenue Amount & Prices Amount & Prices
------------------------------------------------------------------------
Natural Gas $12,182 9,456 mcf/d $ 7,686 5,785 mcf/d
$7.12/mcf $7.34/mcf
Crude Oil & NGL's 7,420 647 bbl/d 7,474 743 bbl/d
$63.17/bbl(1) $56.25/bbl(1)
Crude Oil Hedge Gain (Loss)
- Realized (25) 93
Unrealized - (203)
Royalty Income 48 28
------------------------------------------------------------------------

$19,625 $15,078
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Includes impact of realized hedging gains and losses.


Natural gas sales volumes increased 63 percent in the first half of 2006 over 2005 levels as a result of the commencement of operations at the Blue Rapids natural gas processing plant in the Pembina area. Crude oil and natural gas liquid sales volumes decreased thirteen percent from 2005 to 2006 as reduced crude oil volumes at Easyford and Kidney more than offset the impact of increased NGL volumes from the Company's Pembina property. During the second quarter of 2006, natural gas production averaged 9,068 mcf per day compared to 5,991 mcf per day in the second quarter of 2005. Crude oil and NGL production averaged 612 barrels per day compared to 766 barrels per day in the second 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 quarter of 2006, the Company realized a loss of $25,000 on this hedge (2005 - $93,000 gain). This loss has been included in the crude oil & NGL prices reported for the first half of 2006.

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



Royalties
------------------------------------------------------------------------
six months ended June 30, 2006 2005
------------------------------------------------------------------------
($'000's)
Crown royalties $3,616 $2,983
Other royalties 979 1,061
Alberta Royalty Tax Credit (250) (250)
------------------------------------------------------------------------
Net royalties $4,345 $3,794
------------------------------------------------------------------------
Average royalty rate as a percentage of revenues 22.1% 25.2%
------------------------------------------------------------------------
------------------------------------------------------------------------


Royalties increased in 2006 compared to 2005 as a result of the increase in Burmis' gross revenues. As a percentage of revenue, royalties have decreased compared to 2005. The reduction in royalty rate is due to the Company's investment in natural gas transportation and processing facilities in 2005, resulting in increased gas cost allowance and processing credits being received from the crown. Royalties are expected to average between 24 and 25 percent for the remainder of 2006.

Operating Costs

Operating costs were $3.4 million ($8.55 per barrel of oil equivalent) during the first half of 2006 compared to $2.4 million ($7.61 per barrel of oil equivalent) during 2005. Total operating costs increased due to a 30 percent increase in daily production volumes as compared to the prior year. On a barrel of oil equivalent basis, operating costs increased twelve percent from the first half of 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 $29.43 per barrel of oil equivalent in the first half of 2006 was marginally below the netback of $29.56 per barrel of oil equivalent the first half of 2005. Changes in commodity prices were essentially offset by reduced royalties and increased operating costs per barrel of oil equivalent of production.

General and Administrative Expenses

General and administrative expenses totaled $1.1 million in the first half of 2006 compared to $0.9 million in 2005. The increase is the result of increased employee compensation, as well as increased costs for rent, insurance and information technology services. During the second quarter of 2006, the Company paid its employees and management an aggregate discretionary bonus of $260,000 (2005 - $220,000). On a barrel of oil equivalent basis, general and administrative expenses were $2.66 in the first half of 2006 compared to $2.90 in 2005.

Stock Based Compensation Expense

Stock based compensation expense totalled $282,000 in the first half of 2006 compared to $149,000 in the first half 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 totaled $7.5 million in the first half of 2006 compared to $4.3 million in the comparable period of 2005. The increase in depletion, depreciation and accretion expense is due to the 30 percent increase in production volumes in 2006 compared to 2005, and an increase in the overall rate of depletion, depreciation and accretion to $18.53 per barrel of oil equivalent in 2006 from $13.89 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 and its impact on 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 totaled $101,000 in the first half of 2006 compared to $172,000 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 $0.7 million in the first half of 2006 compared to $1.4 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 $19.0 million in the first half of 2006. The Company's capital program included exploratory drilling expenditures of $5.1 million, development drilling expenditures of $8.4 million and investments in production facilities totaling $2.1 million. During the first half of 2006, Burmis acquired 6,400 acres of land at crown land sales for $2.0 million, and spent $1.1 million acquiring 3-D seismic to evaluate the Company's Brazeau and Pembina prospects. In the United States, Burmis acquired an additional working interest in the East Swartz Draw unit for approximately $0.3 million.

During the first half of 2005, the Company's capital expenditures totaled $14.6 million.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2006 Burmis had a total working capital deficiency of $10.7 million.

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 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.

At June 30, 2006, the Company had 34,523,133 common shares outstanding. An additional 2,713,500 stock options are outstanding at an average exercise price of $1.21 per share.

Burmis has an approved capital budget of $42.5 million for 2006. These expenditures will be funded by cash provided from operating activities and use of the Company's production loan facility.

CONTRACTUAL OBLIGATIONS

The Company's production loan facility is subject to annual review in May 2007 at which time 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.

Burmis has office lease space commitments of $98,000 in 2006, $226,000 in 2007 and $59,000 in 2008.

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 half of 2006.

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

------------------------------------------------------------------------
2004
OPERATING Fourth Third
------------------------------------------------------------------------
Natural gas (mcf/d) 5,381 3,520
Price ($/mcf) 6.80 6.24
Oil and NGL's (bbl/d) 586 430
Price ($/bbl) (1) 52.59 52.01
Barrels of oil equivalent (per day) 1,483 1,017

EARNINGS ('000's of dollars)
------------------------------------------------------------------------
Crude oil and natural gas liquid revenues 2,835 2,057
Natural gas revenues 3,375 2,028
Royalties (1,563) (907)
Interest and other income - -
-----------------
4,647 3,178
Operating expenses 989 632
General and administrative 355 279
Stock based compensation 58 58
Depletion, depreciation and accretion 1,983 1,223
Interest 87 55
Other 25 28
-----------------
Total expenses 3,497 2,275
Earnings before income taxes 1,150 903
Current income taxes - 2
Future income taxes 506 340
-----------------
506 342
-----------------
Earnings 644 561
------------------------------------------------------------------------
Earnings per share (basic) $ 0.02 $ 0.02
------------------------------------------------------------------------
FUNDS FLOW ('000's of dollars) 3,191 2,182
------------------------------------------------------------------------
Funds flow per share (basic) $ 0.12 $ 0.09
------------------------------------------------------------------------
NETBACKS ($/boe)
------------------------------------------------------------------------
Petroleum and natural gas revenues 45.52 43.67
Royalties (11.45) (9.70)
Operating expenses (7.25) (6.75)
-----------------
Operating netback 26.82 27.22
General and administrative (2.61) (2.99)
Interest and other income (expense) (0.81) (0.90)
Current income taxes - (0.02)
-----------------
Cash netback 23.40 23.31
------------------------------------------------------------------------
TOTAL ASSETS
($'000's of dollars) 45,741 42,484
------------------------------------------------------------------------
------------------------------------------------------------------------

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



BURMIS ENERGY INC.
Consolidated Balance Sheets

(thousands of dollars)
------------------------------------------------------------------------

June 30, December 31,
2006 2005
(unaudited) (audited)
------------------------------------------------------------------------

Assets

Current assets
Cash $ 77 $ 421
Accounts receivable 9,963 8,682
------------------------------------------------------------------------
10,040 9,103
Petroleum and natural gas properties
(note 2) 74,817 62,773
------------------------------------------------------------------------
$ 84,857 $ 71,876
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities $ 15,946 $ 11,566
Production loan facility (note 3) 4,787 -
------------------------------------------------------------------------
20,733 11,566
Asset retirement obligation (note 4) 2,866 2,433
Future income tax liability 7,603 6,856
Shareholders' equity
Share capital (note 5) 41,982 41,742
Contributed surplus (note 5) 1,204 998
Retained earnings 10,469 8,281
------------------------------------------------------------------------
53,655 51,021

------------------------------------------------------------------------
$ 84,857 $ 71,876
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



BURMIS ENERGY INC.
Consolidated Statement of Earnings

(thousands of dollars, except per share amounts)
------------------------------------------------------------------------
three months period
ended June 30, ended June 30,
(unaudited) 2006 2005 2006 2005
------------------------------------------------------------------------

Revenues
Petroleum and natural gas
(note 7) $ 8,902 $ 7,863 $ 19,625 $ 15,078
Royalties (1,499) (2,027) (4,345) (3,794)
Interest and other income 1 - 10 3
------------------------------------------------------------------------
7,404 5,836 15,290 11,287
Expenses
Operating 1,716 1,190 3,439 2,351
General and administrative 681 653 1,071 897
Stock based compensation 95 109 282 149
Depletion, depreciation and
accretion 3,525 2,311 7,454 4,293
Interest paid 73 70 101 172
Other 8 - 8 -
------------------------------------------------------------------------
6,098 4,333 12,355 7,862
Earnings before income taxes 1,306 1,503 2,935 3,425
Income taxes
Future 358 630 747 1,382
------------------------------------------------------------------------
358 630 747 1,382
------------------------------------------------------------------------
Earnings $ 948 $ 873 $ 2,188 $ 2,043
------------------------------------------------------------------------
Earnings per share (note 6)
Basic $ 0.03 $ 0.03 $ 0.06 $ 0.07
Diluted $ 0.03 $ 0.03 $ 0.06 $ 0.07
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statement of Retained Earnings
(thousands of dollars)
------------------------------------------------------------------------
three months six months
ended June 30, ended June 30,
(unaudited) 2006 2005 2006 2005
------------------------------------------------------------------------
Retained earnings, beginning
of period $ 9,521 $ 3,367 $ 8,281 $ 2,197
Earnings for the period 948 873 2,188 2,043
------------------------------------------------------------------------
Retained earnings, end of
period $ 10,469 $ 4,240 $ 10,469 $ 4,240
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



BURMIS ENERGY INC.
Consolidated Statement of Cash Flows

(thousands of dollars, except per share amounts)
------------------------------------------------------------------------
three months six months
ended June 30, ended June 30,
(unaudited) 2006 2005 2006 2005
------------------------------------------------------------------------
Cash provided by (used in)
Operations
Earnings $ 948 $ 873 $ 2,188 $ 2,043
Items not affecting cash
Depletion, depreciation and
accretion 3,525 2,311 7,454 4,293
Stock based compensation 95 109 282 149
Unrealized loss on crude oil
price swap - 187 - 203
Future income taxes 358 630 747 1,382
Asset retirement expenditures (27) - (27) (35)
Changes in non-cash working
capital (note 8) (1,198) (566) (289) (1,129)
------------------------------------------------------------------------
3,701 3,544 10,355 6,906

Financing
Production loan facility 4,610 5,000 4,787 (1,000)
Exercise of stock options 164 - 164 8
Issue of common shares for
cash, net of share issue
costs - - - 10,142
------------------------------------------------------------------------
4,774 5,000 4,951 9,150
Investments
Additions to petroleum and
natural gas properties (12,129) (5,298) (19,038) (14,640)
Changes in non-cash working
capital (note 8) 3,731 (4,218) 3,388 (1,296)
------------------------------------------------------------------------
(8,398) (9,516) (15,650) (15,936)

Increase (decrease) in cash 77 (972) (344) 120
Cash, beginning of period - 1,394 421 302
------------------------------------------------------------------------
Cash, end of period $ 77 $ 422 $ 77 $ 422
------------------------------------------------------------------------
------------------------------------------------------------------------


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 June 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:

------------------------------------------------------------------------
June 30, December 31,
2006 2005
------------------------------------------------------------------------
Petroleum and natural gas properties $ 98,636 $ 79,213
Accumulated depletion and depreciation (23,819) (16,440)
------------------------------------------------------------------------
$ 74,817 $ 62,773
------------------------------------------------------------------------
------------------------------------------------------------------------


Costs of unproved properties excluded from costs subject to depletion and depreciation at June 30, 2006 were $6.8 million (December 31, 2005 - $5.5 million). Future development costs of $3.0 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 time to time. 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 June 30, 2006 is approximately $4.2 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:

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

six months ended June 30, 2006 2005
------------------------------------------------------------------------
Balance, beginning of period $ 2,433 $ 1,831
Accretion expense 75 54
Liabilities incurred 385 365
Liabilities settled (27) (35)
------------------------------------------------------------------------
Balance, end of period $ 2,866 $ 2,215
------------------------------------------------------------------------
------------------------------------------------------------------------

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 298,000 164
Transfer of contributed surplus to share capital on
exercise of stock options - 76
------------------------------------------------------------------------
Balance, June 30, 2006 34,523,133 $ 41,982
------------------------------------------------------------------------
------------------------------------------------------------------------

(b) Contributed surplus:

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

six months ended June 30, 2006 2005
------------------------------------------------------------------------
Balance, beginning of period $ 998 $ 457
Stock-based compensation expense 282 149
Transfer to share capital on exercise of stock
options (76) (6)
------------------------------------------------------------------------
Balance, end of period $ 1,204 $ 600
------------------------------------------------------------------------
------------------------------------------------------------------------


(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 June 30, 2006 and changes
during the period ending on that date is presented below:

------------------------------------------------------------------------
Exercise Weighted Average
Shares Price Life Remaining
------------------------------------------------------------------------
Outstanding, December 31, 2005 3,073,500 $ 1.16 2.9 years
Granted 24,000 3.10 5.0 years
Cancelled (86,000) 2.29 3.8 years
Exercised (298,000) 0.55 1.7 years
------------------------------------------------------------------------

Outstanding, June 30, 2006 2,713,500 $ 1.21 2.5 years
------------------------------------------------------------------------
------------------------------------------------------------------------

Exercisable, June 30, 2006 2,016,500 $ 0.86 2.1 years
------------------------------------------------------------------------
------------------------------------------------------------------------

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

------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
------------------------------------------------------------------------
$0.50 1,485,000 1.6 years
$1.02 - $1.06 331,000 2.8 years
$1.35 13,500 3.2 years
$2.45 860,000 3.9 years
$3.10 24,000 5.0 years
------------------------------------------------------------------------
$0.50 - $3.10 2,713,500 2.5 years
------------------------------------------------------------------------
------------------------------------------------------------------------


The fair value of stock options granted during 2006 was estimated to be $29,000 using the Black-Scholes model with the following assumptions: expected life of options - five years; interest rate - five percent; volatility - 34 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 six months
ended June 30, ended June 30,
2006 2005 2006 2005
------------------------------------------------------------------------
Weighted average common
shares outstanding 34,267,924 31,224,133 34,246,647 29,585,194
Shares issuable
pursuant to stock
options 2,713,500 3,074,500 2,713,500 3,074,500
Shares to be purchased
from proceeds of stock
options (969,345) (1,658,657) (932,806) (1,770,461)
------------------------------------------------------------------------
Weighted average
diluted common shares
outstanding 36,012,079 32,639,976 36,027,341 30,889,233
------------------------------------------------------------------------
------------------------------------------------------------------------


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 June 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 half of 2006, the Company recognized a loss of $25,000 on this contract (2005 - $93,000 gain). The loss is recorded in petroleum and natural gas revenues. At June 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

------------------------------------------------------------------------
June 30, 2006 2005
------------------------------------------------------------------------
Accounts receivable $ (1,281) $ (1,454)
Accounts payable 4,380 (971)
------------------------------------------------------------------------
Total $ 3,099 $ (2,425)
------------------------------------------------------------------------
------------------------------------------------------------------------

Relating to:
Operating activities $ (289) $ (1,129)
Investing activities $ 3,388 $ (1,296)
------------------------------------------------------------------------
------------------------------------------------------------------------

9. Segment information:

June 30, 2006

------------------------------------------------------------------------
Canada United Total
States
------------------------------------------------------------------------
Revenues, net of royalties $ 14,753 $ 527 $ 15,280
Earnings before income taxes $ 2,545 $ 390 $ 2,935
Earnings $ 1,798 $ 390 $ 2,188
------------------------------------------------------------------------
------------------------------------------------------------------------

Petroleum and natural gas properties
Cost $ 96,237 $ 2,399 $ 98,636
Accumulated depletion, depreciation
and amortization (22,791) (1,028) (23,819)
------------------------------------------------------------------------
Net book value $ 73,446 $ 1,371 $ 74,817
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital expenditures $ 18,715 $ 323 $ 19,038
------------------------------------------------------------------------
------------------------------------------------------------------------


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

Petroleum and natural gas properties
Cost $ 59,767 $ 2,106 $ 61,873
Accumulated depletion, depreciation
and amortization (9,994) (903) (10,897)
------------------------------------------------------------------------
Net book value $ 49,773 $ 1,203 $ 50,976
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital expenditures $ 14,598 $ 42 $ 14,640
------------------------------------------------------------------------
------------------------------------------------------------------------



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