Burmis Energy Inc.
TSX : BME

Burmis Energy Inc.

March 13, 2008 08:00 ET

Burmis Energy Reports Significant Growth in 2007

CALGARY, ALBERTA--(Marketwire - March 13, 2008) - Burmis Energy Inc. ("Burmis") (TSX:BME) is pleased to provide its operating and financial results for the reporting year ended December 31, 2007.

HIGHLIGHTS

- A 51 percent increase in proved plus probable reserves to 9.52 million barrels of oil equivalent

- Finding, development & acquisition costs of $13.75 per barrel of oil equivalent of proved plus probable reserves in 2007 including revisions and future development capital

- Proved plus probable reserve additions replaced production by 4.7 times in 2007

- A recycle ratio of 2.2 times on a proved plus probable basis based on an operating netback of $29.95 per barrel of oil equivalent in 2007

- A reserve life index of 8.8 years for proved plus probable reserves based on fourth quarter 2007 average production

- Average daily production was 2,961 barrels of oil equivalent per day in the fourth quarter of 2007, a 33 percent increase from the previous quarter and 41 percent higher than the fourth quarter of 2006

- Annual average daily production increased nine percent to 2,405 barrels of oil equivalent per day during 2007

- Funds flow from operations (1) totalled $22.2 million ($0.57 per share) and earnings totalled $4.3 million ($0.11 per share) in 2007

- Net debt of $35.7 million at December 31, 2007

- Credit facility increased to $65.0 million in the first quarter of 2008

- Capital expenditures totalled $50.3 million in 2007

- Net asset value before tax of $3.47 per diluted share (10 percent discount) and $4.49 per diluted share (5 percent discount)

Burmis Energy continued to strengthen its position and grow its production and reserve base in the Company's core area of west central Alberta in 2007. The Company's successful exploration and development drilling program resulted in a 51 percent increase in total proved plus probable reserves and stellar overall finding and development costs of $13.75 per barrel of oil equivalent of total proved and probable reserves.

Burmis continued its consistent record of production growth during 2007 with daily production averaging 2,405 barrels of oil equivalent per day, a nine percent increase from 2006 average production of 2,200 barrels of oil equivalent per day in 2006. The Company tied in six (4.4 net) gas wells at Brazeau, Whitecourt, Brewster and Ferrier North and achieved average production of 2,961 barrels of oil equivalent per day in the fourth quarter, a 33 percent increase from average production of 2,221 barrels of oil equivalent per day in the third quarter of 2007. The Company is currently producing 4,000 barrels of oil equivalent per day and has an additional 750 barrels of oil equivalent per day which is tested and behind pipe awaiting tie-in.

Burmis is well positioned to continue its profitable growth in 2008. The Company will carry out a focused drilling program on its highly productive and largest producing properties at Brewster, Ferrier North and Brazeau with an approved capital budget of $31 million.



FINANCIAL HIGHLIGHTS
three months year
ended Dec. 31, ended Dec. 31,
2007 2006 2007 2006 Change
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($000s, except shares and
per share amounts)
Gross petroleum and natural
gas revenue $ 14,106 $ 8,741 $ 43,806 $ 37,337 + 17%
Funds flow from operations
(1) $ 7,012 $ 4,309 $ 22,212 $ 20,093 + 11%
Basic per share $ 0.18 $ 0.12 $ 0.57 $ 0.58 - 2%
Diluted per share $ 0.17 $ 0.12 $ 0.56 $ 0.55 + 2%
Earnings $ 1,677 $ 603 $ 4,312 $ 4,027 + 7%
Basic per share $ 0.04 $ 0.02 $ 0.11 $ 0.12 - 8%
Diluted per share $ 0.04 $ 0.02 $ 0.11 $ 0.11 N/C
Weighted average shares
('000's) 39,578 35,996 38,823 34,761 + 12%
Common shares outstanding
('000's) 39,578 37,561 39,578 37,561 + 5%
Capital expenditures $ 8,008 $ 9,632 $ 50,260 $ 40,765 + 23%
Working capital deficit $ 35,705 $ 13,357 +167%
Total assets $136,162 $ 100,737 + 35%
Shareholders' equity $ 75,593 $ 66,670 + 13%
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(1) Funds flow from operations represents earnings before depletion,
depreciation and accretion, stock-based compensation, valuation and
accretion of loans receivable, loss on provision for asset retirement
obligation and future income taxes.


OPERATIONAL HIGHLIGHTS
three months year
ended Dec. 31, ended Dec. 31,
2007 2006 2007 2006 Change
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OPERATING
Natural gas (mcf/day) 12,965 9,417 10,533 9,562 + 10%
Average price ($Cdn./mcf) $ 7.09 $ 7.00 $ 7.22 $ 6.73 + 7%
Oil and NGL's (bbl/day) 801 527 649 606 + 7%
Average price ($Cdn./bbl) $ 76.53 $ 54.91 $ 67.36 $ 62.23 + 8%
Barrels of oil equivalent
per day (1) 2,961 2,097 2,405 2,200 + 9%
Operating netback
($Cdn./boe) (2) $ 31.03 $ 25.84 $ 29.95 $ 28.02 + 7%
Cash netback
($Cdn./boe) (3) $ 25.74 $ 22.34 $ 25.31 $ 25.02 + 1%
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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 per barrel of oil equivalent.
(3) Cash netback is calculated as funds flow from operations per barrel of
oil equivalent.


DRILLING OPERATIONS

Once again in 2007, Burmis was successful in growing its reserves and production with an active drilling program. The Company participated in 22 gross (11.3 net) wells of which 18 gross (10.2 net) were cased as gas wells while four (1.1 net) were dry and abandoned for an overall success rate of 90 percent.

During the fourth quarter of 2007, the Company drilled two (1.3 net) wells, resulting in two gross (1.3 net) gas wells for a 100 percent success rate.

The Company's 2007 drilling program resulted in proved plus probable reserve additions of 4.1 million barrels of oil equivalent, including revisions.

Reserves

An independent engineering evaluation of Burmis' petroleum and natural gas reserves was completed by Sproule Associates Limited for all of the properties of Burmis effective December 31, 2007 ("The Sproule Report"). These estimates were prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101). Burmis has a reserves committee comprised of independent board members which reviews the qualifications and appointment of the independent reserve evaluators. The committee also reviews the process for providing information to the evaluators and meets with the independent evaluators to discuss the procedures used in the independent report. The Sproule Report was reviewed by the reserves committee of Burmis and was approved by the Company's Board of Directors on January 22, 2008.

Reserves Highlights

- Proved plus probable reserves at December 31, 2007 were 9.52 million barrels of oil equivalent, a 51 percent increase from 6.32 million barrels of oil equivalent of proved plus probable reserves at December 31, 2006;

- Proved reserves at December 31, 2007 were 6.50 million barrels of oil equivalent, an increase of 34 percent compared to 4.87 million barrels of oil equivalent of proved reserves at December 31, 2006;

- Net additions to proved plus probable reserves replaced 2007 average production by 4.7 times;

-The net present value (before tax discounted at 10 percent) of total proved plus probable reserves at December 31, 2007 was $168.2 million, a 54 percent increase compared to $109.0 million at December 31, 2006;



Summary of Gross (working interest) Reserves at December 31, 2007 (1,2,3)
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Light and Natural Barrels of
Medium Gas Natural Oil
Crude Oil Liquids Gas Equivalent
Reserve Category (Mbbl) (Mbbl) (MMcf) (Mboe) (4)
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Proved
-producing 548 848 22,303 5,114
-non-producing 153 136 2,149 647
-undeveloped -- 173 3,401 739
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Total Proved 701 1,157 27,853 6,500
Probable 288 519 13,262 3,017
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Proved plus probable 989 1,676 41,114 9,517
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(1) Gross reserves are the Company's working interest share prior to the
deduction or inclusion of royalties.
(2) Numbers in this table are subject to round off error.
(3) Reserve estimates determined using forecasted prices and costs.
(4) Natural gas is converted to barrels of oil equivalent ("boe") at a ratio
of six thousand cubic feet to one boe.


Summary of Net Reserves at December 31, 2007 (1,2,3)
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Light and Natural Barrels of
Medium Gas Natural Oil
Crude Oil Liquids Gas Equivalent
Reserve Category (Mbbl) (Mbbl) (MMcf) (Mboe) (4)
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Proved
-producing 471 536 16,562 3,767
-non-producing 103 77 1,440 420
-undeveloped - 99 2,302 483
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Total Proved 574 713 20,304 4,671
Probable 242 329 9,818 2,208
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Proved plus probable 816 1,042 30,122 6,878
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(1) Net reserves are the Company's working interest share after the
deduction of royalties payable and the inclusion of royalties
receivable.
(2) Numbers in this table are subject to round off error.
(3) Reserve estimates determined using forecasted prices and costs.
(4) Natural gas is converted to barrels of oil equivalent ("boe") at a ratio
of six thousand cubic feet to one boe.


The following tables reconcile the changes during 2007 in Burmis' proved and
proved plus probable reserves.


Reconciliation of Gross (working interest) Proved Reserves (1,2,3)
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Light and Natural Barrels of
Medium Gas Natural Oil
Crude Oil Liquids Gas Equivalent
Reserve Category (Mbbl) (Mbbl) (MMcf) (Mboe) (4)
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December 31, 2006 736 795 20,007 4,865
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Extensions - 275 4,915 1,094
Discoveries - 382 6,854 1,524
Revisions (5) 48 (205) (1,039) (330)
Acquisitions/Dispositions - 41 908 192
Economic Factors 20 4 53 32
Production (102) (135) (3,845) (878)
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December 31, 2007 701 1,157 27,853 6,500
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(1) Gross reserves are the Company's working interest share prior to the
deduction or inclusion of royalties.
(2) Numbers in this table are subject to round off error.
(3) Reserve estimates determined using forecasted prices and costs.
(4) Natural gas is converted to barrels of oil equivalent ("boe") at a ratio
of six thousand cubic feet to one boe.
(5) Technical revisions were primarily due to underperforming wells at Bat
Lake, Ferrier and Pembina and wells exceeding last year's forecast at
Brazeau and Kidney.


Reconciliation of Gross (working interest) Proved plus Probable Reserves
(1,2,3)
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Light and Natural Barrels of
Medium Gas Natural Oil
Crude Oil Liquids Gas Equivalent
Reserve Category (Mbbl) (Mbbl) (MMcf) (Mboe) (4)
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December 31, 2006 1,013 1,007 25,804 6,320
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Extensions - 536 10,091 2,218
Discoveries - 453 8,375 1,849
Revisions (5) 49 (241) (521) (279)
Acquisitions/Dispositions - 52 1,159 245
Economic Factors 29 3 53 41
Production (102) (135) (3,845) (878)
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December 31, 2007 989 1,676 41,114 9,517
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(1) Gross reserves are the Company's working interest share prior to the
deduction or inclusion of royalties.
(2) Numbers in this table are subject to round off error.
(3) Reserve estimates determined using forecasted prices and costs.
(4) Natural gas is converted to barrels of oil equivalent ("boe") at a ratio
of six thousand cubic feet to one boe.
(5) Technical revisions were primarily due to underperforming wells at Bat
Lake, Ferrier and Pembina and wells exceeding last year's forecast at
Brazeau, Kehiwin and Kidney.


The net present value as of December 31, 2007 of Burmis' proved plus probable reserves (discounted at 10 percent and before tax) increased 54 percent to $168.2 million compared to $109.0 million at December 31, 2006. The increase in net present value is primarily due to the 51 percent increase in proved plus probable reserve volumes.

The following table summarizes Burmis' share of the net present value of its reserves at December 31, 2007 using forecasted prices and costs.



Net present value of Company reserves, discounted at 10 percent before
income tax (1,2,3,4,5) (thousands of dollars)
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Light and Non
Medium Associated
Reserve Category Crude Oil Natural Gas Total
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Proved
-producing 15,222 92,788 108,011
-non-producing 1,644 5,609 7,253
-undeveloped - 12,481 12,481
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Total Proved 16,866 110,878 127,744
Probable 5,041 35,424 40,465
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Proved plus probable 21,908 146,302 168,209
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(1) Utilizes Sproule Associates Limited price forecast as of December 31,
2007.
(2) Values include royalty interest reserves and are net of abandonment
liabilities.
(3) Solution gas and associated by-products value included with Light &
Medium Oil.
(4) Non-associated natural gas includes the value of associated by-products.
(5) Numbers in this table are subject to round off error.


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

Sproule Report price forecast as of December 31, 2007 - Crude oil and
natural gas liquids (5)
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WTI Edmonton
Crude Edmonton Cromer Condensate
Oil Light Heavy Medium and Natural Edmonton Edmonton
$US/bbl Crude Oil Crude Oil Crude Oil Gasolines Propane Butanes
Year (1) $C/bbl (2) $C/bbl (3) $C/bbl (4) $C/bbl $C/bbl $C/bbl
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2008 89.61 88.17 54.67 75.83 90.30 52.29 65.72
2009 86.01 84.54 52.42 72.71 86.58 50.14 63.01
2010 84.65 83.16 51.56 71.52 85.17 42.32 61.98
2011 82.77 81.26 50.38 69.89 83.23 48.20 60.57
2012 82.26 80.73 50.05 69.43 82.68 47.88 60.17
2013 82.81 81.25 50.38 69.88 83.21 48.19 60.56
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(1) West Texas Intermediate at Cushing, Oklahoma, 40 degrees API, 0.4
percent sulphur.
(2) Edmonton Light Sweet, 40 degrees API, 0.4 percent sulphur.
(3) Heavy crude oil, 12 degrees API at Hardisty Alberta (after deduction of
blending costs to reach pipeline quality).
(4) Midale Cromer crude oil, 29 degrees API, 2.0 percent sulphur.
(5) Escalation rates vary until 2017 and then increase at 2.0 percent per
year thereafter.


Sproule Report price forecast as of December 31, 2007 - Natural gas (2)
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U.S. Henry Hub AECO Alberta Average Aggregator
Gas Price Spot Price Plantgate Plantgate
Year $US/Mmbtu $C/ Mmbtu $C/Mmbtu (1) $C/Mmbtu
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2008 7.56 6.51 6.19 6.06
2009 8.27 7.22 6.94 6.87
2010 8.74 7.69 7.46 7.44
2011 8.75 7.70 7.50 7.50
2012 8.66 7.61 7.41 7.41
2013 8.83 7.78 7.58 7.58
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(1) This forecast also applies to direct sales contracts and the Alberta gas
reference price used in the crown royalty calculations.
(2) Escalation rates vary until 2017 and then increase at 2.0 percent per
year thereafter.


Finding, Development and Acquisition Costs

Burmis expended $50.3 million of capital in 2007. On a proven plus probable reserve basis, the Company's finding, development and acquisition cost for 2007 was $13.75 per barrel of oil equivalent, and the three year rolling average finding, development and acquisition cost was $15.32 per barrel of oil equivalent. The calculation of finding, development and acquisition costs for proved plus probable reserves in 2007 includes revisions and a change in future development capital of $5.8 million. On a proven reserve basis, the Company's finding, development and acquisition cost for 2007 was $20.95 per barrel of oil equivalent, and the three year rolling average finding, development and acquisition cost was $19.68 per barrel of oil equivalent. The calculation of finding, development and acquisition cost for proved reserves in 2007 includes revisions and a change in future development capital of $2.4 million.

National Instrument 51-101 Cautionary Statements

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

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

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

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

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

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

Net Asset Value

At December 31, 2007, Burmis had a before tax net asset value of $3.47 per diluted share at a 10 percent discount and $4.50 per diluted share at a five percent discount using total proven plus probable reserves as evaluated by Sproule Associates Limited under the standards of National Instrument 51-101. Forecast prices used in this assessment were the Sproule Associates Limited price forecast as of December 31, 2007. No value was assigned for the Company's proprietary seismic database.

The calculation of net asset value per diluted share is outlined in the following table:



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5% discount 10% discount
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Net present value of proved plus probable
reserves (1) $212.1 $168.2
Undeveloped land (2) 12.7 12.7
Working capital deficit (3) (35.0) (35.0)
Asset retirement obligation (4) (1.6) (2.2)
Proceeds from exercise of stock options 6.4 6.4
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Total $194.6 $150.1
Diluted shares at December 31, 2007 (millions) 43.3 43.3
Net asset value per diluted share $ 4.49 $ 3.47
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Amounts are in millions of dollars except per share data.
(1) Net present value of reserves evaluated by Sproule Associates Limited.
as of December 31, 2007, in accordance with the standards of NI 51-101
using forecasted prices and costs, discounted at five percent and ten
percent before taxes.
(2) Undeveloped lands in Canada were evaluated by Sproule Associates Limited
as of December 31, 2007 in accordance with the standards of NI 51-101.
Undeveloped lands in the US were evaluated by Baseline Minerals, Inc. at
December 31, 2007 in accordance with the standards of NI 51-101.
(3) The estimated working capital deficit included in the calculation of net
asset value has been reduced by $0.85 million receivable by the Company
for outstanding loans to executives, net of amounts classified as
current assets.
(4) The net present value of reserves evaluated by Sproule Associates
Limited at December 31, 2007 includes discounted abandonment costs of
$1.3 million and $0.8 million discounted at 5% and 10%, respectively. At
December 31, 2007, the Company's estimated asset retirement obligation
totalled approximately $3.0 million, discounted at six percent.
(5) "Proceeds from the exercise of stock options" and "Diluted shares at
December 31, 2007" include all options outstanding as at December 31,
2007 as all options are dilutive to the calculation of net asset value
at December 31, 2007.


Personnel

Mr. Darrin Drall, P.Eng. resigned his position as Vice President, Engineering and Operations at Burmis in mid-January, 2008 to pursue other business interests. We would like to thank Mr. Drall for his contributions to the Company's growth in its first five years of operations and extend to him best wishes in his future endeavours.

Burmis has engaged the services of Mr. Donald Finley, P.Eng. to fulfill the operations duties previously managed by Mr. Drall. Mr. Finley has been an independent consultant in oil and gas engineering since 2001 and has over 23 years of engineering experience in drilling, completions, facilities and production.

Outlook

Burmis entered 2008 with increased production, an expanded reserve base, low debt and a large prospect inventory. These factors, combined with improved natural gas prices, high oil and natural gas liquid prices and increased cash flows, provide a strong platform for the continued profitable growth of the Company. Our 2008 drilling program will be focussed on our Brewster, Ferrier and Brazeau properties in west central Alberta.

Burmis is estimating 2008 average production of 4,000 barrels of oil equivalent per day, with an estimated 2008 exit production rate of 4,500 barrels of oil equivalent per day. This estimated production would generate funds flow from operations of $40.7 million ($1.00 per share) in 2008 using a forecasted natural gas price of $7.50 per mcf and an oil price of US $80.00 per barrel of West Texas Intermediate as well as a Canadian to US dollar exchange rate of 1.02. Burmis has current production of 4,000 barrels of oil equivalent per day and has an additional 750 barrels of oil equivalent per day which is tested and behind pipe awaiting tie-in.

The outlook for natural gas prices is more favourable in 2008 due to a significant drawdown of natural gas storage in both the United States and Canada so far this winter heating season. Burmis is well positioned to take advantage of improving natural gas prices with its significant inventory of drillable natural gas prospects. The Company also expects the current strong pricing for crude oil and natural gas liquids to continue throughout 2008.

Once again, I would like to commend the Burmis team for their efforts in executing a successful exploration and development program and delivering capital efficient growth. I would like to thank all the industry consultants and service providers who work tirelessly with us to effectively implement our programs. I would also like to thank the Company's Board of Directors for their continued active role in overseeing the growth of Burmis. Burmis will continue to draw on its strengths in 2008 to further grow the company. These strengths include a persistent management team, a solid underlying asset base, a strong balance sheet, a portfolio of exciting drillable prospects and a greater concentration in our core area.

Respectfully submitted on behalf of the Board of Directors,

Aidan M. Walsh, P.Eng., MBA

President & Chief Executive Officer

March 12, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS - March 12, 2008

Description of Burmis Energy Inc.

Burmis Energy Inc. ("Burmis" or "the Company") is a junior oil and gas company pursuing liquid rich natural gas and light oil production and reserves at medium depths primarily in west central Alberta.

Since inception, Burmis has focused on exploration and development drilling activities in west central Alberta. The majority of the Company's lands are prospective for liquid rich natural gas. The Company's drilling activities have resulted in significant growth in production, reserves and scope of operations. Burmis also has minor crude oil production in the United States which has been a source of funds flow from operations for the Company as it carries out its activities in Canada.

The Company intends to pursue growth through exploration and development activities supported by land acquisitions and farm-in arrangements. In addition, Burmis pursues complimentary acquisitions in the Company's core operating areas to enhance future growth.

Non-GAAP Measures

Burmis evaluates its performance and that of its business segments using several criteria including funds flow from operations. Funds flow from operations is a non-GAAP term that represents earnings before depletion, depreciation and accretion, charges for stock-based compensation, valuation and accretion of loans receivable, loss on provision for asset retirement obligation 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 of the Company. It demonstrates the Company's ability to generate cash necessary to fund future growth through capital investment, and allows the Company to evaluate operating performance, leverage and liquidity. The following table reconciles funds flow from operations to cash flow from operating activities which is the most directly comparable measure calculated in accordance with GAAP:



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($'000's) 2007 2006
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Cash flow from operating activities $20,844 $19,151
Changes in non-cash working capital 275 579
Asset retirement expenditures 1,093 363
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Funds flow from operations $22,212 $20,093
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Burmis also assesses its performance utilizing operating and cash netbacks. Operating netbacks are the gross 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 the deduction of all cash costs, and is calculated as funds flow from operations on a barrel of oil equivalent basis. There is no GAAP measure that is reasonably comparable to netbacks.

Net debt, which is current assets plus the undiscounted value of loans receivable less current liabilities, is used to assess efficiency and financial strength. There is no GAAP measure that is reasonably comparable to net debt.

These non-GAAP measures are not standardized and therefore may not be comparable to similar measures utilized by other entities.

Reader Guidance

The following Management's Discussion and Analysis ("MD&A") provided by Burmis Energy Inc. ("Burmis" or "the Company") reviews the Company's activities and results of operations in 2007 as compared to the previous period. The MD&A should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2007. 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.

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.

Forward Looking Statements

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

Burmis continually assesses the Company's operations and changes in factors affecting future operations and plans. The Company provides updated forward looking information when expectations of future operations have changed materially from previously announced expectations, and updated budget and forecast information has been reviewed and approved by the Company's board of directors.

The forward looking statements contained herein are as of March 12, 2008 and are subject to change after this date. 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.

This MD&A was reviewed and approved by the Company's audit committee and board of directors on March 12, 2008.

Additional information regarding Burmis Energy Inc., including the Company's Annual Information Form dated March 23, 2007, is available under the Company's profile on SEDAR at www.sedar.com.

OVERVIEW OF 2007

Burmis continued its record of sustained production growth in 2007, increasing average daily production volumes by nine percent to 2,405 barrels of oil equivalent per day compared to 2,200 barrels of oil equivalent in 2006. The majority of the Company's production growth occurred during the second half of 2007 as a result of new discoveries drilled during the year. During the fourth quarter of 2007, production averaged 2,961 barrels of oil equivalent per day, an increase of 41 percent compared to the fourth quarter of 2006, and an increase of 33 percent compared to the third quarter of 2007. The Company's 2007 exit production was approximately 3,600 barrels of oil equivalent per day.

The Company's financial results in 2007 strengthened as a result of the increases in production. Gross revenue increased to $43.8 million in 2007, 17 percent higher than $37.3 million in 2006. Funds flow from operations totalled $22.2 million in 2007, an increase of 11 percent from $20.1 million in 2006. Funds flow from operations was $0.57 per share in 2007 compared to $0.58 per share in 2006. Cash flow from operating activities increased to $20.8 million in 2007 from $19.2 million in 2006. Earnings increased seven percent to $4.3 million in 2007 from $4.0 million in 2006. Earnings per share were $0.11 per common share in 2007 compared to $0.12 per common share in 2006.

Natural gas volumes increased ten percent to 10.5 million cubic feet per day in 2007 from 9.6 million cubic feet per day in 2006. Crude oil and natural gas liquid volumes increased to 649 barrels per day, seven percent higher than 2006 production volumes of 606 barrels per day. The Company's production growth was the result of a successful drilling program in 2007 which focused on liquid rich natural gas wells. With a $50.3 million capital expenditure program in 2007, Burmis drilled 22 gross (11.3 net) wells with a 90 percent success rate, and completed a minor property acquisition which added approximately 0.5 million cubic feet per day of natural gas production at Ferrier. New wells drilled on the Brazeau, Brewster, Ferrier North, Pembina and Whitecourt properties in west central Alberta were brought on production throughout 2007, solidifying the Company's production base.

Natural gas prices were volatile throughout 2007, with the AECO reference price for natural gas averaging $6.12 per gigajoule in 2007 compared to $6.17 per gigajoule in 2006. Natural gas in storage was seasonally high in both Canada and the United States throughout 2007, but comparable to storage levels in 2006. As a result of a warmer than normal winter in 2006/07, natural gas inventories were at record high levels in March 2007. This high storage level at the start of the storage injection season and generally moderate temperatures in North America, combined with significantly increased volumes of liquefied natural gas imports into the United States, resulted in high levels of natural gas inventories which weakened natural gas prices throughout most of the year.

During 2007, the West Texas Intermediate ("WTI") reference price for crude oil averaged US $72.31, an increase of nine percent compared to US $66.22 during 2006. Crude oil prices increased during 2007 as growing worldwide demand for crude oil continued to outpace incremental supply growth. Additionally, ongoing geopolitical tension due to conflicts in Iraq, Iran and Nigeria, and significant deterioration in the strength of the United States dollar, stressed world crude oil markets and place upward pressure on prices during 2007.

During 2007, the Canadian dollar strengthened significantly as compared with the United States dollar, increasing to 0.9311 Canadian dollars to one United States dollar from 0.8816 Canadian dollars per United States dollar in 2006. This strength effectively reduces the price received by the Company for both natural gas and crude oil production as both commodities' prices are based in United States dollars.



Comparison of Selected Annual Information
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($'000's of dollars unless otherwise noted) 2007 2006 2005
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Petroleum and natural gas revenue $ 43,806 $ 37,337 $36,205

Funds flow from operations $ 22,212 $ 20,093 $20,145
Per share basic ($) 0.57 0.58 0.64
Per share diluted ($) 0.56 0.55 0.61

Cash flow from operating activities $ 20,844 $ 19,151 $19,191
Per share basic ($) $ 0.54 $ 0.55 $ 0.61
Per share diluted ($) $ 0.52 $ 0.53 $ 0.58

Earnings $ 4,312 $ 4,027 $ 6,084
Per share basic ($) 0.11 0.12 0.19
Per share diluted ($) 0.11 0.12 0.18

Capital expenditures $ 50,260 $ 40,765 $31,762
Total assets $136,162 $100,737 $71,876
Total long-term liabilities $ 14,820 $ 10,378 $ 9,289
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Burmis has actively pursued growth in its crude oil and natural gas reserves and production throughout its history. The Company's capital expenditure program has grown each year, increasing the Company's asset base and resulting in consistent production growth. From 2005 to 2007, crude oil and natural gas prices have been volatile, with softer natural gas prices at times offsetting the impact of increasing production levels and limiting growth in revenue and funds flow. Additionally, high levels of industry activity have resulted in increasing service costs over this period, increasing finding and development costs and reducing profitability.

Revenues

Gross petroleum and natural gas revenues increased 17 percent to $43.8 million in 2007 compared to $37.3 million for 2006. The following table outlines gross revenues by product, as well as daily production volumes and sales prices by product.



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($000's of dollars unless
otherwise noted) 2007 2006
--------------------------------------------------
Daily Daily
Component of Petroleum and Production Production
Natural Gas Revenue Revenue & Prices Revenue & Prices
----------------------------------------------------------------------------
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Natural Gas $27,758 10,533 mcf/d $23,487 9,562 mcf/d
$ 7.22/mcf $ 6.73/mcf

Crude Oil & NGL's 15,959 649 bbl/d 13,799 606 bbl/d
$67.36/bbl $62.23/bbl(1)

Crude Oil Hedging Loss - (25)

Royalty Income 89 76
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$43,806 $37,337
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(1) Includes impact of realized hedging loss.


Natural gas sales volumes increased 10 percent in 2007 over 2006 levels as a result of the Company's ongoing exploration and development drilling program at Brazeau, Brewster, Ferrier North and Whitecourt.

During 2007, the Company entered into fixed price physical natural gas sales contracts at an intra-Alberta inventory transfer point for 3,000 gigajoules per day for the period from March 1, 2007 to December 31, 2007 at an average price of $7.87 per gigajoule, and for 2,000 gigajoules per day for the period from November 1, 2007 to December 31, 2007 at an average price of $6.90 per gigajoule. These fixed price physical natural gas sales contracts increased the Company's natural gas sales revenue by approximately $1.9 million in 2007.

Crude oil and natural gas liquid sales volumes increased seven percent from 2006 volumes. The increase is attributable to higher natural gas liquid volumes from the Company's Brazeau, Brewster and Ferrier North properties, partially offset by natural declines from the Company's oil producing properties.

At December 31, 2007, the Company had the following fixed price physical natural gas sales agreements in place at an intra-Alberta inventory transfer point:



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

Period Gigajoules per day Fixed Price
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(Cdn. $ per gj)
January 1, 2008 to March 31, 2008 1,000 $6.91
January 1, 2008 to March 31, 2008 1,000 $6.81
January 1, 2008 to March 31, 2008 1,000 $6.70
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Subsequent to December 31, 2007 the Company entered into additional fixed price physical natural gas sales contracts at an intra-Alberta inventory transfer point. The additional contracts cover the period from March 1, 2008 to December 31, 2008 as follows:



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Average
Period Gigajoules per day Fixed Price
----------------------------------------------------------------------------
(Cdn. $ per gj)
March 1, 2008 to March 31, 2008 3,000 $7.80
April 1, 2008 to December 31, 2008 7,000 $7.67
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Royalties
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($'000's) 2007 2006
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Crown royalties $6,811 $6,224
Other royalties 2,105 1,926
Alberta Royalty Tax Credit - (500)
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Net royalties $8,916 $7,650
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Average royalty rate as a percentage of revenues 20.4% 20.5%
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Royalties increased in 2007 compared to 2006 as a result of the increase in gross revenues year over year. As a percentage of revenue, royalties were consistent from 2006 to 2007. During 2007, Burmis commenced production from wells which were eligible for the Alberta Deep Gas Royalty Holiday. This royalty holiday reduced royalties payable and the overall royalty rate for the Company in 2007, partially offsetting the reduction in Alberta Royalty Tax Credit from 2006. Royalties became payable on these wells at various dates throughout 2007 after Burmis received the full benefit of the royalty holidays.

During 2006, the government of Alberta eliminated the Alberta Royalty Tax Credit program effective January 1, 2007.

Operating Costs

Operating expenses were $8.6 million ($9.80 per barrel of oil equivalent) during 2007 compared to $7.2 million ($8.95 per barrel of oil equivalent) during 2006. Total operating costs increased due to inflationary pressures and changes in the Company's production base as compared to the prior year. On a barrel of oil equivalent basis, operating costs increased nine percent in 2007 compared to 2006. During 2007, production from the Brazeau, Brewster and Ferrier areas increased substantially from 2006 while production from the Pembina area declined. Operating costs at Brazeau are generally higher than average due to sour gas handling requirements and the associated higher natural gas gathering and processing fees. During 2007, one well at Brazeau which had been incurring high water disposal costs was shut-in. This will reduce the Company's overall cost structure in future periods. Operating costs on new production at the Company's Brewster and Ferrier properties are lower than the Company's average and are also expected to help lower the Company's overall operating costs per barrel of oil equivalent in future periods.

Operating Netback

The Company's operating netback increased seven percent in 2007 to $29.95 per barrel of oil equivalent compared to $28.02 per barrel of oil equivalent in 2006. The increase is attributable to stronger commodity prices during 2007, partially offset by increased royalties and operating costs per barrel of oil equivalent of production.

General & Administrative Expenses

General and administrative expenses totalled $3.2 million in 2007 compared to $2.0 million in 2006. The increase is the result of increased employee costs, as well as increased costs for rent and information technology services. General and administrative expenses in 2007 include charges of $0.3 million in respect of interest free loans made to certain officers of the Company. Burmis does not capitalize any general and administrative costs. On a unit of production basis, cash general and administrative expenses increased to $3.31 per barrel of oil equivalent in 2007 from $2.46 per barrel of oil equivalent in 2006.

Stock based compensation expense totalled $0.9 million in 2007 compared to $0.6 million in 2006. During 2007, the Company granted 556,500 stock options at an average exercise price of $3.06 per share. The fair value of stock options granted is expensed over the vesting period of the options.

Depletion, Depreciation & Accretion

Depletion, depreciation and accretion expense totalled $15.7 million during 2007 compared to $14.0 million in 2006. The increase in depletion, depreciation and accretion expense is primarily due to a nine percent increase in production volumes in 2007 compared to 2006. The Company's overall depletion, depreciation and accretion rate increased three percent in 2007 to $17.85 per barrel of oil equivalent in from $17.39 in 2006. The increase in the rate of depletion, depreciation and accretion increased as service costs to the oil and gas industry remained relatively high during most of 2007 even though activity levels were declining.

The loss on provision for asset retirement obligation in 2006 was due to an increase in the estimated cost of abandoning wells in California in which the Company had interests. These wells were abandoned during 2007.

Interest

Interest expense totalled $1.2 million in 2007 compared to $0.4 million in 2006. The Company borrows funds under a production loan facility and utilizes bankers' acceptances from time to time. During 2007, borrowings under the production loan facility increased by $22.0 million, resulting in increased interest charges.

Income Taxes

The provision for future income taxes totalled $1.1 million in 2007 compared to $1.0 million in 2006 as earnings before income taxes increased to $5.4 million in 2007 from $5.0 million in 2006. The tax provision in 2007 was reduced by approximately $0.5 million (2006 - $0.7 million) due to reductions in enacted federal tax rates, as well as changes in the expectation of when the Company will become taxable. Increased profitability in the United States did not result in higher recorded taxes in 2007 as the Company has a valuation allowance against the United States tax assets. Current taxes in 2007 and 2006 represent state taxes in the United States.

FOURTH QUARTER 2007 RESULTS

Production volumes increased to 2,961 barrels of oil equivalent per day in the fourth quarter of 2007, an increase of 41 percent compared to the fourth quarter of 2006 and 33 percent compared to the third quarter of 2007. Natural gas production in the fourth quarter of 2007 totalled 13.0 million cubic feet per day, an increase of 38 percent compared to the fourth quarter of 2006 as a result of new production from the Company's 2007 drilling program. Crude oil and natural gas volumes increased to 801 barrels per day in the fourth quarter of 2007, 52 percent higher than the comparable period in 2006.

Commodity prices were mixed in the fourth quarter of 2007. The AECO reference price for natural gas was $5.81 per gigajoule, 11 percent lower than a price of $6.54 per gigajoule in the fourth quarter of 2006. However, crude oil prices increased sharply in the fourth quarter of 2007 from the fourth quarter of 2006, with the WTI reference price averaging US $90.63 and US $60.22 for each period, respectively. During the fourth quarter of 2007, Burmis realized a gain of approximately $0.7 million on its fixed price physical natural gas sales contracts. On a barrel of oil equivalent basis, the Company received a price of $51.77 per barrel in the fourth quarter of 2007 compared to $45.32 in the fourth quarter of 2006.

The increase in production volumes and prices in the fourth quarter of 2007 led to a 61 percent increase in gross revenues. Funds flow from operations increased 63 percent to $7.0 million ($0.18 per common share) in the fourth quarter of 2007 from $4.3 million ($0.12 per common share) in the comparable period of 2006. Cash flow from operating activities increased to $6.2 million in the fourth quarter of 2007 from $3.4 million in the fourth quarter of 2006.

Royalties, as a percentage of revenues, increased to 20.8 percent in the fourth quarter of 2007 from 19.7 percent in the comparable period of 2006. During the fourth quarter of 2006, Burmis added production from wells which were eligible for crown royalty holidays, effectively lowering the overall royalty rate in that period.

Operating costs in the fourth quarter of 2007 increased to $2.7 million from $2.0 million in the fourth quarter of 2006. On a unit basis, operating costs decreased to $9.95 per barrel of oil equivalent from $10.57 in the fourth quarter of 2006. Burmis has focused its 2008 capital program on sweet natural gas. This is expected to reduce the Company's operating costs on a unit basis in the future as these wells are generally less expensive to operate than sour natural gas wells.

The Company's operating netback increased to $31.03 per barrel of oil equivalent in the fourth quarter of 2007 compared to $25.84 per barrel of oil equivalent in the comparable period of 2006. The increase is attributable primarily to increased prices received for production in the fourth quarter of 2007 and reduced operating costs per barrel of oil equivalent, partially offset by increased royalties.

General and administrative expenses increased to $1.1 million in the fourth quarter of 2007 from $0.5 million in the comparable period of 2006. During the fourth quarter of 2007, the Company accrued a bonus of approximately $0.3 million and recorded a charge of $0.1 million in respect of an interest free loan made to an officer of the Company.

During the fourth quarter of 2007, depletion, depreciation and accretion expense increased to $4.8 million ($17.66 per barrel of oil equivalent) compared to $3.2 million ($16.84 per barrel of oil equivalent) in the fourth quarter of 2006. The increase in depletion, depreciation and accretion expense is primarily due to a 41 percent increase in production volumes. The increase in the rate of depletion, depreciation and accretion per barrel of oil equivalent is due to service costs in the oil and gas industry remaining relatively high during most of 2007 even though activity levels were declining.

Earnings in the fourth quarter of 2007 increased to $1.7 million ($0.04 per common share) from $0.6 million ($0.02 per common share) in the fourth quarter of 2006.

CAPITAL EXPENDITURES

Capital expenditures totalled $50.3 million in 2007. The Company's capital program included exploratory drilling expenditures of $21.0 million and development drilling expenditures of $8.3 million. Investments in production facilities totalled $11.1 million. During 2007, Burmis acquired approximately 4,400 net acres of land at crown land sales, as well as other minor interests, for $2.3 million, and spent $2.5 million on seismic.

In addition, Burmis acquired working interests in three natural gas wells producing 80 barrels of oil equivalent per day, 1,676 net acres of undeveloped lands and overriding royalties in three gas wells for total consideration of $5.1 million. The acquisition closed in March 2007.

During 2006, the Company's capital expenditures totalled $40.8 million.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007 Burmis had a working capital deficit of $35.7 million, including $30.0 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 $65.0 million in the first quarter of 2008. Advances under this facility are available by way of prime rate loans with interest rates of up to 0.75 percent over the bank's prime lending rate, and bankers' acceptances and LIBOR loans which are subject to stamping fees and margins ranging from 1.10 percent to 2.00 per cent depending upon the debt to trailing funds flow ratio of the Company, calculated at the Company's previous quarter end, using funds flow from operations for the preceding two quarters. The production loan facility is scheduled to be reviewed in October 2008 at which time repayment may be required. Burmis expects the production loan facility to be extended in October 2008 as the Company's reserves are currently sufficient to support a credit facility of this size.

On May 17, 2007 Burmis closed a private placement of 2.0 million flow-through common shares at a price of $3.68 per flow-through common share for gross proceeds of $7.36 million. Proceeds from the private placement were used to fund the Company's exploration program in its core area of west central Alberta. At March 12, 2008 Burmis had 39.9 million common shares outstanding. In addition, 3.3 million stock options are outstanding at an average exercise price of $1.77 per share.

Burmis has an approved capital budget of $31 million in 2008 dedicated to pursuing growth through exploration and development drilling. The Company's 2008 budget currently provides for the drilling of approximately 13 gross exploration and development wells as well as completing or recompleting an additional five gross wells. Burmis intends to fund the 2008 capital program with funds flow from operations and by utilizing the Company's existing credit facility.

CONTRACTUAL OBLIGATIONS

The Company's production loan facility is subject to review in October 2008 at which time repayment may be required. Burmis expects the production loan facility to be extended in October 2008 as the Company's reserves are currently sufficient to support a credit facility of this size.

As a result of the private placement of flow-through common shares, the Company is obligated to incur eligible Canadian Exploration Expenditures in the amount of $7.36 million under the flow-through share arrangement by December 31, 2008.

Burmis has office lease space commitments of $338,000 in 2008, $372,000 in 2009, $384,000 in 2010, $387,000 in 2011 and $97,000 in 2012.

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

RELATED PARTY TRANSACTIONS

During the second quarter of 2007, certain directors and officers of the Company participated in the private placement of flow-through common shares which closed on May 17, 2007. These insiders purchased 60,000 flow-through common shares of the Company under the same price, terms and conditions as the remainder of the offering.

During the second quarter of 2007, the Company's Board of Directors approved an executive loan program (the "program") under which certain officers of Burmis may borrow up to $250,000 from the Company on an interest free basis. The program was implemented as a retention incentive for the Company's key executives as part of Burmis' overall executive compensation program. The total amount of these unsecured borrowings under the program may not exceed $1.5 million in aggregate, and are repayable to the Company no later than March 30, 2012. As of December 31, 2007 four loans totalling $850,000 in aggregate had been provided under the program. Subsequent to December 31, 2007 a loan totalling $100,000 was advanced under the program, and a loan totalling $250,000 was repaid.

During 2007, the Company was charged legal fees totalling approximately $75,000 (2006 - $74,000) by a law firm, a partner of which is the Company' Corporate Secretary. The work done on behalf of the Company was in the ordinary course of business and was billed at market rates.

There were no other transactions with related parties during 2006.

OTHER TRANSACTIONS

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

SEGMENT INFORMATION

Essentially the Company's entire annual capital budget is directed to pursuing growth in Canada, and approximately 97 percent of the Company's average 2007 production was from Canadian properties. Since inception, the Company has operated two small oil units in the United States, using the funds flow generated from these properties to reinvest in Canada. During 2007, crude oil production from the Company's United States properties averaged 64 barrels per day compared to 80 barrels per day in 2006. This decrease in production resulted in revenues, net of royalties, decreasing to $1.0 million in 2007 compared to $1.1 million in 2006. Funds flow from operations from Burmis' United States operations totalled $0.8 million in 2007 compared to $0.9 million in 2006. Earnings in the United States increased to $0.7 million in 2007 from $0.3 million in 2006. The Company does not intend to expend any capital in the United States in 2008.

CHANGES IN ACCOUNTING POLICIES

The Accounting Standards Board of the Canadian Institute of Chartered Accountants ("CICA") continually amends and improves certain standards or guidelines contained in the CICA Handbook. We monitor these changes as they are proposed and will make changes to our accounting policies and disclosures as necessary. The audited consolidated financial statements for the year ended December 31, 2007 were prepared following the same accounting policies and methods that were used in the previous year-end annual financial statements, expect as noted below.

Comprehensive Income

The CICA issued section 1530 of the CICA Handbook, Comprehensive Income. The section was effective for fiscal years beginning on or after October 1, 2006. It describes how to report and disclose comprehensive income and its components. An integral part of the accounting standards on recognition and measurement of financial instruments is the ability to present certain gains and losses outside net income, in other comprehensive income. This standard requires that a company should present comprehensive income and its components in a financial statement displayed with the same prominence as other financial statements that constitute a complete set of financial statements, in both annual and interim financial statements.

The CICA also made changes to section 3250 of the CICA Handbook, Surplus, and reissued it as section 3251, Equity. The section is also effective for fiscal years beginning on or after October 1, 2006. The changes in how to report and disclose equity and changes in equity are consistent with the new requirements of section 1530, Comprehensive Income.

Adopting this standard on January 1, 2007 required the Company to disclose both comprehensive income and its components, and accumulated comprehensive income and its components. As the Company has no comprehensive income, the adoption of these standards did not have an effect on the Company's consolidated financial statements.

Financial Instruments - Recognition and Measurement

The CICA issued section 3855 of the CICA Handbook, Financial Instruments - Recognition and Measurement. The section was effective for fiscal years beginning on or after October 1, 2006. It describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. This section requires that (i) all financial assets be measured at fair value, with some exceptions, such as loans and investments that are classified as held-to-maturity; (ii) all financial liabilities be measured at fair value if they are derivatives or classified as held for trading purposes (other financial liabilities are measured at their carrying value); and (iii) all derivative financial instruments be measured at fair value, even when they are part of a hedging relationship.

The adoption of this standard on January 1, 2007 had no impact on the Company's consolidated financial statements.

Hedges

The CICA issued section 3865 of the CICA Handbook, Hedges. The section was effective for fiscal years beginning on or after October 1, 2006, and describes when and how hedge accounting can be used. Hedging is an activity used by a company to change an exposure to one or more risks by creating an offset between changes in the fair value of a hedged item and a hedging item; changes in the cash flows attributable to a hedged item and a hedging item; or changes resulting from a risk exposure relating to a hedged item and a hedging item. Hedge accounting ensures that all gains, losses, revenues and expenses from the derivative and the item it hedges are recorded in the income statement in the same period.

The adoption of this standard on January 1, 2007 had no impact on the Company's consolidated financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

The following summarizes accounting changes that will be relevant to the Company's consolidated financial statements.

Capital Disclosures

In December 2006, the CICA issued Handbook Section 1535, "Capital Disclosures". This standard requires the Company to disclose information that enables users of its financial statement to evaluate the Company's objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance. The new standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The Company is currently evaluating the impact of this standard on the Company's consolidated financial statements.

Financial Instruments - Presentation and Disclosure

In October 2006, the CICA issued Handbook Sections 3862 and 3863 to replace Section 3861, "Financial Instruments - Presentation and Disclosure". This standard requires an increased emphasis on disclosures about the nature and extent of risk arising from financial instruments and how an entity manages those risks. The new standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The Company is currently evaluating the impact of this standard on the Company's consolidated financial statements.

International Financial Reporting Standards

In January 2006 the CICA Accounting Standards Board adopted a strategic plan for accounting standards in Canada and under the current plan, accounting standards for public companies in Canada are expected to converge with International Financial Reporting Standards by the end of 2011. The Company continues to monitor the developments in regards to the plan and has not yet assessed the impact of these prospective changes.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer of Burmis are responsible for designing a system of internal controls over financial reporting, or causing them to be designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with Canadian generally accepted accounting principles.

Management of Burmis has designed and implemented a system of internal controls over financial reporting as of December 31, 2007 which it believes is effective for a company of its size. During the review of the design of the Company's control system over financial reporting it was noted that, due to the limited number of staff at Burmis, it is not feasible to achieve complete segregation of incompatible duties. The limited number of staff may also result in identifying weaknesses in accounting for complex or non-routine transactions due to a lack of technical resources within the Company, potentially resulting in misstatement of a transaction for financial reporting purposes. Given the size of the Company, management does not consider it cost effective at this time to increase staff levels with appropriate individuals to remediate this weakness, and will continue to rely on the existing system of internal controls over financial reporting. While management of Burmis has put in place certain procedures to mitigate the risk of a material misstatement in the Company's financial reporting, a system of internal controls can provide only reasonable, not absolute, assurance that the objectives of the control system are met, no matter how well conceived or operated.

DISCLOSURE CONTROLS AND PROCEDURES

Burmis has implemented a disclosure policy, and has designed controls and procedures, to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management to allow timely decisions regarding required disclosure. The Chief Executive Officer and Chief Financial Officer of Burmis have concluded, based on their evaluation at December 31, 2007, that the Company's disclosure controls and procedures are effective to provide reasonable assurance that material information related to the issuer, including its consolidated subsidiaries, is made known to them by others within those entities. It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures or internal control over financial reporting will prevent all errors or fraud. A system of internal controls can provide only reasonable, not absolute, assurance that the objectives of the control system are met, no matter how well conceived or operated.

OUTLOOK FOR 2008

Burmis enters 2008 with a significantly larger production base and a substantial drilling inventory of multi-zone prospects targeting liquid rich natural gas in west central Alberta. The Company's 2008 approved capital program of $31 million will be funded by funds flow from operations and the Company's existing production loan facility. The Company has budgeted for drilling 13 gross wells this year as well as completing or recompleting an additional five wells.



SUMMARY OF QUARTERLY OPERATING AND FINANCIAL RESULTS
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2007
Operating Fourth Third Second First
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Natural gas (mcf/d) 12,965 9,570 10,084 9,486
Price ($/mcf) 7.09 6.32 7.77 7.74
Oil and NGL's (bbl/d) 801 626 605 562
Price ($/bbl) 76.53 70.42 61.50 56.91
Barrels of oil equivalent (per day) 2,961 2,221 2,286 2,143
Earnings ('000's)
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Petroleum and natural gas revenues 14,106 9,645 10,535 9,520
Royalties (2,939) (1,703) (2,349) (1,925)
Interest and other income 25 31 37 6
-----------------------------------
Net revenues 11,192 7,973 8,223 7,601
Operating expenses 2,713 2,246 2,052 1,590
General and administrative 1,072 597 973 520
Stock based compensation 219 232 222 193
Depletion, depreciation and accretion 4,812 3,829 3,658 3,370
Loss on provision for retirement
obligation - - - -
Interest 443 329 303 172
Other - - - -
-----------------------------------
Total expenses 9,259 7,233 7,208 5,845
Earnings before income taxes 1,933 740 1,015 1,756
Current income taxes - - 1 -
Future income taxes (recovery) 256 27 319 529
-----------------------------------
256 27 320 529
-----------------------------------
Earnings 1,677 713 695 1,227
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Basis earnings per share $0.04 $0.02 $0.02 $0.03
Diluted earnings per share $0.04 $0.02 $0.02 $0.03
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Funds Flow ('000's) 7,012 4,917 4,964 5,319
Basic funds flow per share $0.18 $0.12 $0.13 $0.14
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Cash flow from operating activities
('000's) 6,230 4,971 4,910 4,733
Basic cash flow per share $0.16 $0.13 $0.13 $0.13
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Netbacks ($/boe)
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Petroleum and natural gas revenues 51.77 47.21 50.64 49.35
Royalties (10.79) (8.34) (11.29) (9.98)
Operating expenses (9.95) (10.99) (9.86) (8.24)
-----------------------------------
Operating netback 31.03 27.88 29.49 31.13
General and administrative (3.71) (2.32) (4.34) (2.69)
Interest and other income (expense) (1.58) (1.49) (1.28) (0.86)
Current income taxes - - (0.01) -
-----------------------------------
Cash netback 25.74 24.07 23.86 27.58
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Total assets ($'000's) 136,162 131,207 122,388 120,456
Long-term liabilities ($'000's) 14,820 14,598 14,564 14,414
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2006
Operating Fourth Third Second First
----------------------------------------------------------------------------
Natural gas (mcf/d) 9,417 9,914 9,068 9,848
Price ($/mcf) 7.00 5.74 6.20 7.97
Oil and NGL's (bbl/d) 527 606 612 682
Price ($/bbl) 54.91 66.60 67.54 59.20
Barrels of oil equivalent (per day) 2,097 2,258 2,124 2,323
Earnings ('000's)
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Petroleum and natural gas revenues 8,741 8,971 8,902 10,723
Royalties (1,718) (1,587) (1,499) (2,846)
Interest and other income 7 2 1 9
-----------------------------------
Net revenues 7,030 7,386 7,404 7,886
Operating expenses 2,038 1,713 1,716 1,723
General and administrative 480 426 681 390
Stock based compensation 184 126 95 187
Depletion, depreciation and accretion 3,248 3,259 3,525 3,929
Loss on provision for retirement
obligation 548 - - -
Interest 203 131 73 28
Other - 1 8 -
-----------------------------------
Total expenses 6,701 5,656 6,098 6,257
Earnings before income taxes 329 1,730 1,306 1,629
Current income taxes - 2 - -
Future income taxes (recovery) (274) 492 358 389
-----------------------------------
(274) 494 358 389
-----------------------------------
Earnings 603 1,236 948 1,240
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Basis earnings per share $0.02 $0.04 $0.03 $0.04
Diluted earnings per share $0.02 $0.03 $0.03 $0.03
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Funds Flow ('000's) 4,309 5,113 4,926 5,745
Basic funds flow per share $0.12 $0.15 $0.14 $0.17
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Cash flow from operating activities
('000's) 3,355 5,441 3,701 6,654
Basic cash flow per share $0.09 $0.15 $0.10 $0.19
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Netbacks ($/boe)
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Petroleum and natural gas revenues 45.32 43.17 46.06 51.29
Royalties (8.91) (7.63) (7.76) (13.61)
Operating expenses (10.57) (8.25) (8.88) (8.24)
-----------------------------------
Operating netback 25.84 27.29 29.42 29.44
General and administrative (2.48) (2.05) (3.52) (1.87)
Interest and other income (expense) (1.02) (0.63) (0.41) (0.09)
Current income taxes - - - -
-----------------------------------
Cash netback 22.34 24.61 25.49 27.48
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Total assets ($'000's) 100,737 96,693 84,857 73,230
Long-term liabilities ($'000's) 10,378 11,072 10,469 9,923
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BURMIS ENERGY INC.
Consolidated Balance Sheets

(thousands of dollars)
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December 31, December 31,
(unaudited) 2007 2006
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Assets
Current assets
Cash $ 201 $ 31
Accounts receivable 9,664 10,301
Loan receivable (note 3) 179 -
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10,044 10,332
Petroleum and natural gas properties (note 2) 125,681 90,405
Loan receivable (note 3) 437 -
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$ 136,162 $ 100,737
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 15,586 $ 15,020
Revolving credit facility (note 4) 30,028 8,000
Current portion of asset retirement obligation
(note 5) 135 669
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45,749 23,689
Asset retirement obligation (note 5) 2,903 2,777
Future income tax liability 11,917 7,601
Shareholders' equity
Share capital (note 6) 56,654 52,895
Contributed surplus (note 6) 2,319 1,467
Retained earnings 16,620 12,308
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75,593 66,670


Commitments (note 11)
----------------------------------------------------------------------------
$ 136,162 $ 100,737
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Earnings and Other Comprehensive Income

(thousands of dollars, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months year
ended ended
December 31, December 31,
(unaudited) 2007 2006 2007 2006
----------------------------------------------------------------------------

Revenues
Petroleum and natural gas (note 8) $ 14,106 $ 8,741 $43,806 $37,337
Royalties (2,939) (1,718) (8,916) (7,650)
Interest and other income 25 7 99 19
---------------------------------------------------------------------------
11,192 7,030 34,989 29,706
Expenses
Operating 2,713 2,038 8,601 7,190
General and administrative 1,072 480 3,162 1,977
Stock based compensation 219 184 866 592
Depletion, depreciation and
accretion 4,812 3,248 15,669 13,961
Loss on provision for asset
retirement obligation - 548 - 548
Interest paid 443 203 1,247 435
Other - - - 9
---------------------------------------------------------------------------
9,259 6,701 29,545 24,712
Earnings and other comprehensive
income before income taxes 1,933 329 5,444 4,994
Income taxes
Current - - 1 2
Future 256 (274) 1,131 965
---------------------------------------------------------------------------
256 (274) 1,132 967
----------------------------------------------------------------------------
Earnings and other comprehensive
income $ 1,677 $ 603 $ 4,312 $ 4,027
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings and other comprehensive
income per share (note 7)
Basic $ 0.04 $ 0.02 $ 0.11 $ 0.12
Diluted $ 0.04 $ 0.02 $ 0.11 $ 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consolidated Statement of Retained Earnings
(thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months year
ended ended
December 31, December 31,
(unaudited) 2007 2006 2007 2006
----------------------------------------------------------------------------
Retained earnings,
beginning of period $ 14,943 $11,705 $12,308 $ 8,281
Earnings and other comprehensive
income 1,677 603 4,312 4,027
----------------------------------------------------------------------------
Retained earnings,
end of period $ 16,620 $12,308 $16,620 $12,308
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


BURMIS ENERGY INC.
Consolidated Statement of Cash Flows

(thousands of dollars, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months year
ended ended
December 31, December 31,
(unaudited) 2007 2006 2007 2006
----------------------------------------------------------------------------

Cash provided by (used in)
Operations
Earnings and other comprehensive
income $ 1,677 $ 603 $ 4,312 $ 4,027
Items not affecting cash
Depletion, depreciation and accretion 4,812 3,248 15,669 13,961
Stock based compensation 219 184 866 592
Valuation of loan receivable (note 3) 61 - 255 -
Accretion of loan receivable (note 3) (13) - (21) -
Loss on provision for asset
retirement obligation - 548 - 548
Future income taxes 256 (274) 1,131 965
Asset retirement expenditures (31) (275) (1,093) (363)
Changes in non-cash working capital
(note 9) (751) (679) (275) (579)
----------------------------------------------------------------------------
6,230 3,355 20,844 19,151

Financing
Revolving credit facility 5,028 (5,559) 22,028 8,000
Issue of common shares for cash, net
of share issue costs - 10,553 6,902 10,553
Exercise of stock options - - 28 257
----------------------------------------------------------------------------
5,028 4,994 28,958 18,810

Investments
Additions to petroleum and natural
gas properties (8,008) (9,632) (45,201) (40,765)
Acquisition of petroleum and natural
gas properties - - (5,059) -
Loan receivable (note 3) (200) - (850) -
Changes in non-cash working capital
(note 9) (3,625) 1,202 1,478 2,414
----------------------------------------------------------------------------
(11,833) (8,430) (49,632) (38,351)

Increase (decrease) in cash (575) (81) 170 (390)
Cash, beginning of period 776 112 31 421
----------------------------------------------------------------------------
Cash, end of period $ 201 $ 31 $ 201 $ 31
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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 in Canada and the United States.

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, 2006, except as disclosed below. These consolidated interim financial statements include all adjustments necessary to present fairly the results for the interim period ended December 31, 2007. 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, 2006.

(a) New accounting policies

Effective January 1, 2007 the Company adopted the following new recommendations from the Canadian Institute of Chartered Accountants:

Comprehensive Income

The CICA issued section 1530 of the CICA Handbook, Comprehensive Income. The section is effective for fiscal years beginning on or after October 1, 2006. It describes how to report and disclose comprehensive income and its components. An integral part of the accounting standards on recognition and measurement of financial instruments is the ability to present certain gains and losses outside net income, in other comprehensive income. This standard requires that a company should present comprehensive income and its components in a financial statement displayed with the same prominence as other financial statements that constitute a complete set of financial statements, in both annual and interim financial statements.

The CICA also made changes to section 3250 of the CICA Handbook, Surplus, and reissued it as section 3251, Equity. The section is also effective for fiscal years beginning on or after October 1, 2006. The changes in how to report and disclose equity and changes in equity are consistent with the new requirements of section 1530, Comprehensive Income.

Adopting this standard on January 1, 2007 required the Company to disclose both comprehensive income and its components, and accumulated comprehensive income and its components. As the Company has no comprehensive income, the adoption of these standards did not have an effect on the Company's consolidated financial statements.

Financial Instruments - Recognition and Measurement

The CICA issued section 3855 of the CICA Handbook, Financial Instruments - Recognition and Measurement. The section is effective for fiscal years beginning on or after October 1, 2006. It describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. This section requires that (i) all financial assets be measured at fair value, with some exceptions, such as loans and investments that are classified as held-to-maturity; (ii) all financial liabilities be measured at fair value if they are derivatives or classified as held for trading purposes (other financial liabilities are measured at their carrying value); and (iii) all derivative financial instruments be measured at fair value, even when they are part of a hedging relationship.

The adoption of this standard on January 1, 2007 had no impact on the Company's consolidated financial statements.

Prior to adoption of the new standards, physical receipt and delivery contacts were not within the scope of the definition of a financial instrument. On adoption of the new standards, the Company elected to continue to account for its physical delivery contracts on an accrual basis rather than as non-financial derivatives. The contracts entered into by the Company are for the physical delivery of natural gas, and can only be settled upon delivery of the contracted volume of natural gas to the contracting party. The contract does not provide for a net settlement of the obligation. As a result, revenues are recorded under these contracts as natural gas is delivered.

Hedges

The CICA issued section 3865 of the CICA Handbook, Hedges. The section is effective for fiscal years beginning on or after October 1, 2006, and describes when and how hedge accounting can be used. Hedging is an activity used by a company to change an exposure to one or more risks by creating an offset between changes in the fair value of a hedged item and a hedging item; changes in the cash flows attributable to a hedged item and a hedging item; or changes resulting from a risk exposure relating to a hedged item and a hedging item. Hedge accounting ensures that all gains, losses, revenues and expenses from the derivative and the item it hedges are recorded in the income statement in the same period.

The adoption of this standard on January 1, 2007 had no impact on the Company's consolidated financial statements.



2. Petroleum and natural gas properties:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31,
2007 2006
----------------------------------------------------------------------------
Petroleum and natural gas properties $ 171,398 $ 120,642
Accumulated depletion and depreciation (45,717) (30,237)
----------------------------------------------------------------------------
$ 125,681 $ 90,405
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Costs of unproved properties excluded from costs subject to depletion and depreciation at December 31, 2007 were $7.1 million (2006 - $6.5 million). Future development costs of $7.0 million (2006 - $4.7 million) have been included in costs subject to depletion.

3. Loan receivable

The Company's board of directors approved a loan program under which certain executives may borrow up to $250,000 from the Company on an interest-free unsecured basis. Borrowings under the program may not exceed $1.5 million in aggregate, and are repayable on or before March 30, 2012. As of December 31, 2007 loans totalling $850,000 had been provided under the program. The loans are recorded as a long-term receivable of $595,000, being the fair value of the loans. The difference between the face value of the loans and the fair value has been reflected as an administrative cost. Interest income is recognized to accrete the loan receivable to its face value over the life of the loans. Subsequent to December 31, 2007 an additional loan for $100,000 was advanced, and a loan of $250,000 was repaid.

4. Revolving credit facility:

During 2007, the revolving production demand loan facility was increased from $33.0 million to $45.0 million. Subsequent to year end, the facility was increased to $65.0 million. Advances under this facility are available by way of prime rate loans with interest rates of up to 0.75 percent over the bank's prime lending rate, and bankers' acceptances and LIBOR loans which are subject to stamping fees and margins ranging from 1.10 percent to 2.00 per cent depending upon the debt to trailing funds flow ratio of the Company, calculated at the Company's previous quarter end, using funds flow from operations for the preceding two quarters. The production loan facility is scheduled to be reviewed in October 2008.

The loan facility is secured by a $100 million floating charge demand debenture over all Canadian assets, and a full recourse guarantee of the United States subsidiary.

5. Asset retirement obligation:

The Company's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites and facilities. The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations at December 31, 2007 is approximately $3.8 million. These costs will be incurred between 2008 and 2028. With respect to the remaining liabilities, over 95 percent of the costs are expected to be incurred after 2008. 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:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
Balance, beginning of year $ 3,446 $ 2,433
Accretion expense 189 164
Liabilities incurred 496 1,212
Liabilities settled (1,093) (363)
----------------------------------------------------------------------------
Balance, end of year $ 3,038 $ 3,446
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Included in liabilities settled in 2007 was approximately $0.8 million in asset retirement liabilities relating to properties the Company owns in California, U.S.A. This was recorded as a current liability in 2006, and a loss of $0.5 million on these expenditures was recognized.



6. Share capital:

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

Issued:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of
Shares Amount
----------------------------------------------------------------------------
Balance, December 31, 2006 37,561,133 $ 52,895
Flow-through shares issued pursuant
to private placement 2,000,000 7,360
Exercise of stock options for cash 17,000 28
Transfer from contributed surplus on
exercise of stock options - 14
Tax effect of 2006 flow-through share issue - (3,327)
Share issuance costs - (458)
Tax benefit of share issue costs - 142
----------------------------------------------------------------------------
Balance, December 31, 2007 39,578,133 $ 56,654
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the second quarter of 2007, certain directors and officers of the Company participated in the private placement of flow-through common shares which closed on May 17, 2007. These insiders purchased 60,000 flow-through common shares of the Company under the same price, terms and conditions as the remainder of the offering.



(b) Contributed surplus:

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

year ended December 31, 2007 2006
----------------------------------------------------------------------------
Balance, beginning of period $ 1,467 $ 998
Stock-based compensation expense 866 592
Transfer to share capital on exercise of stock options (14) (123)
----------------------------------------------------------------------------
Balance, end of period $ 2,319 $ 1,467
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(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 December 31, 2007 and changes during the period ending on that date is presented below:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Average
Shares Exercise Price Life Remaining
----------------------------------------------------------------------------
Outstanding, December 31, 2006 3,228,000 $ 1.48 2.4 years
Granted 556,500 3.06 4.4 years
Forfeited (39,000) 2.65 3.6 years
Exercised (17,000) 1.65 1.7 years
----------------------------------------------------------------------------
Outstanding, December 31, 2007 3,728,500 $ 1.70 1.9 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable, December 31, 2007 2,530,500 $ 1.16 1.0 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Average
Exercise Price Shares Life Remaining
----------------------------------------------------------------------------
$0.50 1,485,000 0.1 years
$1.02 - $1.35 320,500 1.3 years
$2.45 - $2.57 1,002,000 2.7 years
$2.97 - $3.10 921,000 4.0 years
----------------------------------------------------------------------------
$0.50 - $3.10 3,728,500 1.9 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of stock options granted during 2007 was estimated to be approximately $800,000 using the Black-Scholes model with the following assumptions: expected life of options - five years; interest rate - six percent; volatility - 45 percent; dividends - nil. The weighted average fair value of the options granted during 2007 was $1.47 per option (2006 - $1.23 per option).

7. Earnings per share:

Earnings per share is calculated using earnings and other comprehensive income and the weighted-average number of common shares outstanding. Diluted earnings per share is calculated using earnings and other comprehensive income and the weighted-average number of diluted common shares outstanding.



----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months year ended
ended December 31, December 31,
2007 2006 2007 2006
----------------------------------------------------------------------------
Weighted average common
shares outstanding 39,578,133 35,995,916 38,823,454 34,761,204
Net shares issuable
pursuant to stock options 838,179 1,081,225 1,039,245 1,608,632
----------------------------------------------------------------------------
Weighted average diluted
common shares
outstanding 40,416,312 37,077,141 39,862,699 36,369,836
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

8. Financial instruments:

The Company is exposed to fluctuations in commodity prices, interest rates and exchange rates. The Company monitors these risks and may utilize financial instruments to manage its exposure to these risks

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 gas sales agreements to provide exposure to a portfolio of pricing indices. At December 31, 2007, the Company had the following fixed price physical natural gas sales agreements in place:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Period Gigajoules per day Fixed Price
----------------------------------------------------------------------------
(Cdn. $ per gj)
January 1, 2008 to March 31, 2008 1,000 $6.91
January 1, 2008 to March 31, 2008 1,000 $6.81
January 1, 2008 to March 31, 2008 1,000 $6.70
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Subsequent to December 31, 2007 the Company entered into additional fixed price physical natural gas sales contracts at an intra-Alberta inventory transfer point. The additional contracts cover the period from March 1, 2008 to December 31, 2008 as follows:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Period Gigajoules per day Fixed Price
----------------------------------------------------------------------------
(Cdn. $ per gj)
March 1, 2008 to March 31, 2008 3,000 $7.80
April 1, 2008 to December 31, 2008 7,000 $7.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(b) Crude Oil

The Company periodically enters into crude oil sales agreements to provide exposure to a portfolio of pricing indices. At December 31, 2007 there were no financial instruments pertaining to crude oil sales in place.

Interest rate risk

The Company is exposed to interest rate cash flow risk to the extent that amounts borrowed under the production loan facility are at a floating rate of interest.

Foreign currency risk management

The Company is exposed to foreign currency fluctuations on its United States operating activities as these are denominated in U.S. dollars. At December 31, 2007 there were no contracts in place to fix exchange rates on these transactions.



9. Supplemental cash flow disclosures

Changes in non-cash working capital
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
Accounts receivable $ 637 $ (1,619)
Accounts payable and accrued liabilities 566 3,454
----------------------------------------------------------------------------
Total $ 1,203 $ 1,835
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Relating to:
Operating activities $ (275) $ (579)
Investing activities $ 1,478 $ 2,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest paid $ 1,436 $ 421
Income taxes paid $ 1 $ 2
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. Segment information:

2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada United States Total
----------------------------------------------------------------------------
Revenues, net of royalties $ 34,029 $ 960 $ 34,989
Earnings and other comprehensive
income before income taxes $ 4,790 $ 654 $ 5,444
Earnings and other comprehensive
income $ 3,659 $ 653 $ 4,312
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum and natural gas properties
Cost $ 168,941 $ 2,457 $ 171,398
Accumulated depletion and
depreciation (44,457) (1,260) (45,717)
----------------------------------------------------------------------------
Net book value $ 124,484 $ 1,197 $ 125,681
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures $ 50,201 $ 59 $ 50,260
----------------------------------------------------------------------------
----------------------------------------------------------------------------


2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada United States Total
----------------------------------------------------------------------------
Revenues, net of royalties $ 28,629 $ 1,077 $ 29,706
Earnings and other comprehensive
income before income taxes $ 4,810 $ 184 $ 4,994
Earnings and other comprehensive
income $ 3,845 $ 182 $ 4,027
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum and natural gas properties
Cost $ 118,244 $ 2,398 $ 120,642
Accumulated depletion and
depreciation (29,108) (1,129) (30,237)
----------------------------------------------------------------------------
Net book value $ 89,136 $ 1,269 $ 90,405
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures $ 40,443 $ 322 $ 40,765
----------------------------------------------------------------------------
----------------------------------------------------------------------------


11. Commitments:

As a result of the private placement of flow-through common shares, the Company has agreed to incur eligible Canadian Exploration Expenditures in the amount of $7.36 million under the flow-through share arrangement by December 31, 2008.

At December 31, 2007 the Company had commitments for the lease of office space totaling $338,000 in 2008, $372,000 in 2009, $384,000 in 2010, $387,000 in 2011 and $97,000 in 2012.

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