C1 Energy Ltd.
TSX : CTT

C1 Energy Ltd.

November 08, 2006 07:00 ET

C1 Energy Ltd. Announces Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 8, 2006) - C1 Energy Ltd. (TSX:CTT) of Calgary, Alberta is pleased to report its operating and financial results for the nine months ended September 30, 2006.

THIRD QUARTER HIGHLIGHTS

During the third quarter of 2006, C1 accomplished the following:

- Drilled a new natural gas discovery in our core Peace River Arch area

- Achieved an average production rate of 736 boe/d



FINANCIAL AND OPERATING HIGHLIGHTS


For the Three Months Ended For the Nine Months Ended
September 30 June 30 September 30
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(Unaudited) 2006 2005 2006 2006 2005
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Financial ($000s,
except share
information)
Petroleum and natural
gas sales 3,301 3,286 3,616 10,190 10,161
Cash flow from
operations (1) 1,253 1,790 1,323 3,952 4,970
Per share basic and
diluted $ 0.04 $ 0.06 $ 0.04 $ 0.12 $ 0.17
Net income (loss) (107) 446 245 266 689
Per share basic and
diluted $ 0.00 $ 0.01 $ 0.01 $ 0.01 $ 0.02
Capital expenditures,
net 2,581 6,655 5,913 14,259 23,527
Net debt 11,007 (1,463) 13,446 11,007 (1,463)
Total assets 79,196 67,302 79,324 79,196 67,302
Shareholders'
equity 61,142 56,008 57,432 61,142 56,008
Weighted Average
common shares
outstanding (000s) 34,959 32,954 33,053 33,690 29,664

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Operations
Crude oil and NGL's
production
Barrels 21,920 25,435 20,989 66,062 87,538
Barrels per day 238 276 231 242 298
Average selling price
($/bbl) 79.51 72.35 73.52 73.14 64.12
WTI (US $/bbl) 70.21 63.31 70.61 68.07 55.53

Natural gas production
Thousand cubic feet 274,769 162,284 332,524 838,463 580,011
Thousand cubic feet per
day 2,987 1,769 3,654 3,071 2,125
Average selling price
($/mcf) 5.67 8.65 6.24 6.39 7.82

Oil equivalent
production
Barrels of oil
equivalent 67,715 52,482 76,410 205,806 184,207
Barrels of oil
equivalent per day (6:1) 736 570 840 754 675
Average selling price
($/boe) 48.75 62.62 47.32 49.51 55.15
Average operating
netback ($/boe) 26.48 37.95 26.24 27.17 32.56

Wells drilled
Gross 2 3 4 9 19
Net 1.0 2.1 0.9 3.9 12.8

(1) The Company, in part, evaluates its performance based on cash flow from
operations. Cash flow from operations is a non-GAAP measure that
represents cash generated from operating activities before changes in
non-cash working capital items and asset retirement expenditures during
the period. Cash flow from operations may not be comparable to similar
measures used by other companies.


OPERATIONS REVIEW

Drilling Activity

C1 participated in the drilling of 2 wells (1.0 net) during the third quarter. We drilled one well in the Blueberry area and one well in the Seal area. Both wells have been cased as potential gas wells. Completion activities will occur in the fourth quarter.





Nine Months Ended September 30, 2006 Nine Months Ended September 30, 2005
Exploration Development Total Exploration Development Total
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Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net
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Oil - - - - - - 1 1.0 - - 1 1.0
Gas 7 2.2 1 0.8 8 3.0 8 5.3 7 4.0 15 9.3
D&A 1 1.0 - - 1 1.0 1 0.5 2 2.0 3 2.5
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Total 8 3.2 1 0.8 9 4.0 10 6.8 9 6.0 19 12.8
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Production Summary

Our production for the third quarter of 2006 averaged 736 boe/d comprised of 238 bbls/d of light oil and 2,987 mcf/d of natural gas and has averaged 754 boe/d for the nine month period comprised of 242 bbls/d of light oil and 3,071 mcf/d of natural gas. This represents a decrease of 12% compared to average production of 840 boe/d last quarter and is 29% higher than the third quarter of 2005 when we produced 570 boe/d. Our production mix has changed from the same period last year as we have averaged about 68% natural gas production compared to about 52% for the corresponding nine month period last year. The decreased production from last quarter primarily related to normal production declines on new production in the Peace River Arch area.

Outlook

During the fourth quarter, our plans include the completion of our two new wells that were drilled in the third quarter. We also expect to recomplete another well in the Blueberry area for an uphole gas zone that was previously drill-stem tested. We will continue with our drilling program and plan to drill approximately 1 (0.6 net) new well over the balance of 2006. The program will primarily consist of multi-zone gas drilling at Blueberry. We also plan to make potential dispositions of non-core assets in order to reduce our net debt. C1's inventory of projects provides the company and its shareholders with strong potential for growth.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis ("MD&A") should be read in conjunction with the audited financial statements for the year ended December 31, 2005. This MD&A was written on November 7th, 2006.



Capital Expenditures
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
($000s) 2006 2005 2006 2005
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Drilling and completions 691 3,956 6,461 13,721
Land 394 427 1,856 1,205
Equipment and facilities 1,002 1,300 4,586 3,980
Geological & geophysical 14 516 14 3,173
Asset retirement obligations 127 77 361 192
Capitalized general and
administration expenses 353 359 974 781
Acquisitions - - - 425
Other - 20 7 50
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Total capital expenditures 2,581 6,655 14,259 23,527
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Capital expenditures were $2.6 million in the third quarter and $14.3 million year-to-date compared to $6.7 million and $23.5 million respectively over the same periods a year ago. Capital during the third quarter was spent primarily on land, drilling and facilities in the core Blueberry area as well as drilling costs at Seal.

LIQUIDITY AND CAPITAL RESOURCES

Funding of Capital Program

Capital expenditures for the nine months ended September 30, 2006 were $14.3 million. These expenditures were funded primarily by cash flow, and available working capital and bank debt. C1 expects the capital expenditures for the balance of the year to be funded by cash flow, bank debt and by new equity that was raised during the third quarter.

Working Capital

C1 had a working capital deficiency of $11.0 million at September 30, 2006. This represents a reduction in net debt of $2.4 million from last quarter.

Bank Facilities

C1 has a $17.0 million revolving demand credit facility available with a Canadian chartered bank. The interest rate on outstanding debt is set at the bank's prime lending rate plus 0.25%. The facility is secured by a floating charge over all of C1's assets. There was $9.9 million drawn at September 30, 2006.

Share Capital

At September 30, 2006, C1 had 35,742,787 shares issued and outstanding, an increase of 2,668,567 from last quarter due to a flow-through share issuance in July 2006 and conversion of performance shares. The weighted average number of shares outstanding for the nine month period was 33,690,193 (2005 - 29,664,036). Current outstanding shares at November 7th, 2006 are 35,742,787 and 1,001,334 performance shares which, on November 7th, 2006, would be convertible into nil common shares of C1.

RESULTS OF OPERATIONS

Revenue

Oil and natural gas sales were $10.2 million for the nine months ended September 30, 2006, similar to the same period last year. For the three months ended September 30, 2006, oil and natural gas sales of $3.3 million were similar to the same period last year and decreased 9% from $3.6 million last quarter. The decrease in revenue compared to last year was due to lower commodity prices which were only partially offset by higher production volumes.



Oil and Gas Sales

For the Three For the Nine
Months Ended Months Ended
September 30 September 30
($000s) 2006 2005 2006 2005
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Crude oil and NGL sales 1,744 1,882 4,832 5,624
Natural gas sales 1,557 1,404 5,358 4,537
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Total petroleum and natural gas sales 3,301 3,286 10,190 10,161
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Average Selling Prices

For the Three For the Nine
Months Ended Months Ended
September 30 September 30
($000s) 2006 2005 2006 2005
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Crude oil and NGL's ($/bbl) 79.51 72.35 73.14 64.12
Natural gas ($/mcf) 5.67 8.65 6.39 7.82
Total average realized price ($/boe) 48.75 62.62 49.51 55.16
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Royalties

Royalty costs net of ARTC were $0.6 million for the quarter ($8.40/boe) and $1.8 million ($8.68/boe) for the nine month period ended September 30 compared to $0.5 million ($8.97/boe) and $1.8 million ($10.00/boe) for the same periods last year. Royalty costs per boe were lower than last quarters' royalties of $0.6 million ($7.90/boe) due to gas cost allowance adjustments related to 2005 royalties last quarter. For the quarter, crown royalties before ARTC averaged 16.7% and were 17.2% year-to-date while freehold and other royalties averaged 4.0% of total revenue for the quarter and averaged 3.8% of total revenue for the nine month period. In 2005, crown royalties before ARTC averaged 12.4% and 15.8% of total revenue for the three and nine-month periods and other royalties averaged 4.5% and 5.1% of total revenue during the same periods.

Operating Expenses

Operating costs for the quarter were $0.9 million ($13.41/boe) and are $2.7 million ($13.01/boe) year-to-date compared to $0.8 million ($14.61/boe) and $2.1 million ($11.46/boe) last year and $1.0 million ($12.83/boe) for the last quarter. Operating costs are higher than last year due to increased cost of services and lower production volumes in Gift and Seal which increase our costs per boe.

Transportation

Transportation costs were $31,000 for the three month period ($0.46/boe) and $133,000 ($0.65/boe) year-to-date compared to $57,000 ($1.09/boe) and $210,000 ($1.14/boe) over the same periods a year ago and $27,000 ($0.35/boe) last quarter. Transportation costs were lower this year primarily due to a change in our production mix.



General and Administrative
Expenses
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
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($000s except per unit
amounts) $ $/boe $ $/boe $ $/boe $ $/boe
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Gross G&A 719 10.62 730 13.91 2,218 10.78 2,172 11.79
Capitalized
overhead (353) (5.21) (359) (6.84) (974) (4.73) (781) (4.24)
Overhead recoveries (23) (0.34) (95) (1.81) (158) (0.77) (330) (1.79)
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343 5.07 276 5.26 1,086 5.28 1,061 5.76
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General and administrative expenses were $0.3 million for the quarter ($5.07/boe) and $1.1 million ($5.28/boe) year-to-date compared to $0.3 million ($5.26/boe) and $1.1 million ($5.76/boe) over the corresponding periods last year and $0.4 million ($5.11/boe) last quarter. Gross administrative costs during the nine month period was slightly higher than the same period last year due to higher salary and office costs and were lower than last quarter primarily due to lower consulting fees.

Interest

Interest expense was $189,000 ($2.79/boe) for the quarter and $534,000 ($2.59/boe) year-to-date compared to income of $(90,000) (($1.71/boe)) and $(49,000) (($0.27/boe)) during the same periods last year and interest expense of $285,000 ($3.73/boe) last quarter. Interest costs were higher than last year due to higher average outstanding bank debt. Interest was lower than last quarter primarily due to approximately $122,000 of interest relating to the timing of expenditures on C1's 2005 flow-through obligation that was incurred last quarter.

Stock-based Compensation

Stock-based compensation was $61,000 ($0.90/boe) for the quarter and $229,000 ($1.11/boe) for the nine months ended September 30 compared to last year's charges of $212,000 ($4.04/boe) and $498,000 ($2.71/boe) for the same periods and was higher than last quarter when we incurred costs of $24,000 ($0.31/boe). The increase from last quarter resulted from the charges for new options issued late last quarter and this quarter that were partially offset by the expiration of certain options this quarter.

Depletion, Depreciation and Accretion

Depletion, depreciation, and accretion amounted to $1.3 million ($18.93/boe) for the quarter and $3.8 million ($18.40/boe) year-to-date compared to $0.7 million ($13.95/boe) and $3.0 million ($16.30/boe) respectively last year and $1.5 million ($19.11/boe) last quarter. Depletion was higher compared to the corresponding periods last year as our internal assessment of proved reserves was adjusted downwards for certain wells that have not performed as well as expected.

Income Taxes

Current taxes were estimated to be $8,000 ($0.12/boe) for the quarter and $21,000 ($0.10/boe) for the nine month period compared to $15,000 ($0.29/boe) and $15,000 ($0.08/boe) for the corresponding periods last year. Future tax expense was $17,000 ($0.25/boe) for the quarter and a recovery of $329,000 ($1.60/boe) for the nine month period compared to an expense of $400,000 ($7.62/boe) and $781,000 ($4.24/boe) during the same periods last year. The tax recovery this year primarily resulted from the reduction of provincial and federal tax rates contained in legislation that was passed by the respective bodies during the second quarter. C1 has estimated tax pools of $58.8 million as at September 30, 2006. These tax pools are available to reduce taxes otherwise payable in the future.

Cash Flow from Operations and Net Income

Cash flow from operations was $1.3 million for the quarter and $4.0 million for the nine month period compared to $1.8 million and $5.0 million for the same periods last year. We had a net loss of $(107,000) for the quarter ($0.00/share) and net income of $266,000 ($0.01/share) year-to-date compared to net income of $446,000 ($0.01/share) and $689,000 ($0.02/share) over the same periods last year.



NETBACK, CASH FLOW AND NET INCOME
Three Months Ended September 30
2006 2005
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Operations
Natural gas (mcf/d) 2,987 1,769
Oil and NGL's (bbls/d) 238 276
Boe/d (6:1) 736 570
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Financial ($000s except per
unit amounts) $ $/boe $ $/boe
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Oil and gas production 3,301 48.75 3,286 62.62
Royalties (net of ARTC) (569) (8.40) (471) (8.97)
Operating (908) (13.41) (767) (14.61)
Transportation (31) (0.46) (57) (1.09)
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Operating netback 1,793 26.48 1,991 37.95
General and administrative (343) (5.07) (276) (5.26)
Interest (189) (2.79) 90 1.71
Current taxes (8) (0.12) (15) (0.29)
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Cash flow from operations 1,253 18.50 1,790 34.11
Depletion, depreciation and
accretion (1,282) (18.93) (732) (13.95)
Stock-based compensation (61) (0.90) (212) (4.04)
Future taxes (17) (0.25) (400) (7.62)
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Net income (loss) (107) (1.58) 446 8.50
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Earnings per share (0.00) 0.01
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Nine Months Ended September 30
2006 2005
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Operations
Natural gas (mcf/d) 3,071 2,125
Oil and NGL's (bbls/d) 242 298
Boe/d (6:1) 754 675
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Financial ($000s except per
unit amounts) $ $/boe $ $/boe
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Oil and gas production 10,190 49.51 10,161 55.16
Royalties (net of ARTC) (1,786) (8.68) (1,842) (10.00)
Operating (2,678) (13.01) (2,112) (11.46)
Transportation (133) (0.65) (210) (1.14)
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Operating netback 5,593 27.17 5,997 32.56
General and administrative (1,086) (5.28) (1,061) (5.76)
Interest (534) (2.59) 49 0.27
Current taxes (21) (0.10) (15) (0.08)
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Cash flow from operations 3,952 19.20 4,970 26.99
Depletion, depreciation and
accretion (3,786) (18.40) (3,002) (16.30)
Stock-based compensation (229) (1.11) (498) (2.71)
Future taxes 329 1.60 (781) (4.24)
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Net income (loss) 266 1.29 689 3.74
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Earnings per share 0.01 0.02
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Additional information relating to the Company can be found on SEDAR at www.sedar.com.

Forward Looking Statements

This disclosure contains forward looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond C1's control, including: the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. C1's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that C1 will derive there from.

Financial statements for the six months ended June 30, 2006 and 2005 are attached.



C1 ENERGY LTD.

Balance Sheets
(dollars in thousands) (unaudited)

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September 30 December 31
2006 2005
------------------------------

ASSETS

Current assets
Cash $ - $ 864
Accounts receivable 3,510 4,975
Prepaid expenses 106 220
-----------------------------
3,616 6,059

Property and equipment(note 2) 69,009 58,448

Goodwill 6,571 6,532
-----------------------------
$ 79,196 $ 71,039
-----------------------------

LIABILITIES

Current liabilities
Accounts payable and accrued liabilities $ 4,746 $ 9,028
Bank loan(note 3) 9,877 1,650
-----------------------------
14,623 10,678

Asset retirement obligations(note 4) 1,348 996

Future income tax liability(note 7) 2,083 1,621
-----------------------------
18,054 13,295
-----------------------------

SHAREHOLDERS' EQUITY

Share capital(note 5) 54,196 51,190
Contributed surplus(note 5) 1,498 1,372
Retained earnings 5,448 5,182
-----------------------------
61,142 57,744
-----------------------------
$ 79,196 $ 71,039
-----------------------------

See accompanying notes to the financial statements.


C1 ENERGY LTD.

Statements of Operations and Retained Earnings
(dollars in thousands)(unaudited)

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Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------

Revenue
Petroleum and natural
gas sales $ 3,301 $ 3,286 $ 10,190 $ 10,161
Royalties, net of Alberta
Royalty Tax Credit (569) (471) (1,786) (1,842)
---------------------------------------------
2,732 2,815 8,404 8,319
---------------------------------------------

Expenses
Operating 908 767 2,678 2,112
Transportation 31 57 133 210
General and administrative 343 276 1,086 1,061
Interest 189 (90) 534 (49)
Stock-based compensation
(note 5) 61 212 229 498
Depletion, depreciation and
accretion 1,282 732 3,786 3,002
---------------------------------------------
2,814 1,954 8,446 6,834
---------------------------------------------

Income (loss) before income
taxes (82) 861 (42) 1,485
---------------------------------------------
Income taxes (recovery)
Current 8 15 21 15
Future 17 400 (329) 781
---------------------------------------------
25 415 (308) 796
---------------------------------------------

Net income (loss) $ (107) $ 446 $ 266 $ 689

Retained earnings, beginning
of period 5,555 3,234 5,182 2,991
---------------------------------------------

Retained earnings, end of
period $ 5,448 $ 3,680 $ 5,448 $ 3,680
---------------------------------------------

Earnings per common
share (note 6)
- Basic and diluted $ 0.00 $ 0.01 $ 0.01 $ 0.02
---------------------------------------------

See accompanying notes to the financial statements.


C1 ENERGY LTD.

Statements of Cash Flows
(dollars in thousands except per share amounts)(unaudited)

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Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------

Cash provided by (used in)

Operating activities
Net income(loss) $ (107) $ 446 $ 266 $ 689
Add:
Future income taxes(recovery) 17 400 (329) 781
Depletion, depreciation and
accretion 1,282 732 3,786 3,002
Stock-based compensation 61 212 229 498
---------------------------------------------
Cash flow from operations 1,253 1,790 3,952 4,970
Asset retirement
expenditures(note 4) (5) - (97) -
Net change in non-cash
working capital(note 8) 2,392 4,851 (2,854) (1,512)
---------------------------------------------
3,640 6,641 1,001 3,458
---------------------------------------------


Investing activities
Property and equipment
expenditures (2,454) (6,578) (13,898) (23,335)
Net change in non-cash
working capital(note 8) (2,363) (2,240) 151 2,819
---------------------------------------------
(4,817) (8,818) (13,747) (20,516)
---------------------------------------------


Financing activities
Issuance of common shares 4,000 804 4,000 13,359
Redemption of performance
shares - - - (2)
Share issue costs (355) (39) (345) (923)
Increase in bank
indebtedness (2,468) - 8,227 -
---------------------------------------------
1,177 765 11,882 12,434
---------------------------------------------

Net decrease in cash - (1,412) (864) (4,624)

Cash, beginning of period - 3,718 864 6,930
---------------------------------------------

Cash, end of period $ - $ 2,306 $ - $ 2,306
---------------------------------------------

See accompanying notes to the financial statements.



C1 ENERGY LTD.

Notes to the Financial Statements
For the nine months ended September 30, 2006 and 2005
(all tabular dollars in thousands except share amounts)


1. BASIS OF PRESENTATION

The interim financial statements of C1 Energy Ltd. (the "Company") have been prepared following the same accounting policies and methods of computation as the audited financial statements for the year ended December 31, 2005. Certain information and footnote disclosures normally included in the annual financial statements have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's annual report for the year ended December 31, 2005.

2. PROPERTY AND EQUIPMENT



September 30 December 31,
2006 2005
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Petroleum and natural gas
properties and equipment $ 84,412 $ 70,153
Accumulated depletion and depreciation (15,403) (11,705)
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Net book value $ 69,009 $ 58,448
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At September 30, 2006, $20.3 million (September 30, 2005 - $20.4 million) of costs relating to unproved properties and seismic were excluded from costs subject to depletion.

During the nine months ended September 30, 2006, $973,600 (September 30, 2005 - $780,900) of general and administrative expenses relating to exploration and development activities were capitalized.

3. BANK LOAN

On September 30, 2006, the Company had $17,000,000 revolving demand loan facility available with a Canadian chartered bank. The interest rate on outstanding debt is set at the bank's prime lending rate plus 0.25% . The facility is secured by a floating charge over all of C1's assets.

4. ASSET RETIREMENT OBLIGATIONS

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas properties:



2006
---------------------------------------------------------------------------

Asset retirement obligations, December 31, 2005 $ 996
Liabilities incurred 261
Settlement of liabilities (97)
Disposition of liabilities (5)
Accretion expense 88
Change in estimates 105
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Asset retirement obligations, September 30, 2006 $ 1,348
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At September 30, 2006, the total undiscounted asset retirement obligations are estimated to be $6.7 million. A 2 percent inflation rate and a 9 percent discount rate assumption have been used to estimate the obligations. Most of the obligations related to oil and natural gas wells are expected to be settled from 2015 to 2025 and those related to facilities are expected to be settled up to 2039 with all being funded from general corporate resources at the time of settlement.

5. SHARE CAPITAL

a) Authorized

The Company is authorized to issue an unlimited number of common shares and 1,442,000 performance shares.

b) Issued and outstanding



Number of
Common shares shares Amount
---------------------------------------------------------------------------

Balance at December 31, 2005 33,036,726 $ 51,178
Issued on conversion of
performance shares 39,393 2
Issuance of flow-through shares(i) 2,666,668 4,000
Tax effect of renunciation of resource
expenditures on flow-through shares(ii) - (862)
Compensation expense related to
performance shares converted - 103
Share issue costs, net of future tax
benefit of $109,710 - (235)
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Balance at September 30, 2006 35,742,787 $ 54,186
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i) On July 28, 2006 C1 completed a private placement equity financing
to issue 2,666,668 common shares on a flow-through basis at a price of
$1.50 per share for total proceeds of $4,000,000 prior to share issue
costs of $0.2 million (net of future tax benefit of $0.1 million). The
tax effect of the renunciation will be recorded in 2007 when the
related expenditures are renounced. The funds must be expended by
December 31, 2007.
ii) In accordance with the terms of the Company's various flow-through
share offerings, and pursuant to certain provisions of the Income Tax
Act (Canada), the Company renounced, for income tax purposes,
exploration expenditures related to a previous issuance of its
flow-through shares in the aggregate of $2,500,000.


Number of
Performance shares shares Amount
---------------------------------------------------------------------------

Balance at December 31, 2005 1,178,000 $ 12

Conversion into common shares (176,666) (2)
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Balance at September 30, 2006 1,001,334 $ 10
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Contributed surplus Amount
---------------------------------------------------------------------------

Balance at December 31, 2005 $ 1,372
Conversion of performance shares (103)
Stock-based compensation 229
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Balance at September 30, 2006 $ 1,498
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c) Stock-based compensation

During the first nine months of 2006, C1 recorded $229,000 (2005 -- $498,000) of compensation expense related to the performance shares and stock options. The fair value of each performance share and option was determined at the share issuance and stock option grant date respectively using the Black-Scholes model. This value is amortized over the expected life of the instruments and is included in stock-based compensation expense.

C1 issued 41,667 options during the period to a director that have a term of five years and vest over three years on the basis of one-third per year at exercise prices of $1.70 per share. The fair value of each option was determined at the stock option grant date using the Black-Scholes model. The fair value was estimated to be an average of $0.80 per share using a risk free interest rate of 4.5%, volatility of 55%, and an expected life of three years. This value is amortized over the expected life of the options and is included in stock-based compensation expense. Details on the Company's stock options outstanding at September 30, 2006 are as follows:



Exercise Price Number of Options Contractual Life Options Exercisable
($/share) (000's) (years) (000s)
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1.40 157,000 4.72 years -
1.62 258,000 4.70 years -
1.70 41,667 4.86 years -
1.75 250,000 3.13 years 83,333
1.91 175,000 2.72 years 58,333
2.31 442,710 3.03 years 147,570
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1.89 1,324,377 3.75 years 289,236
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The activity related to the stock option plan is as follows:


Number of Weighted
options Average Price
---------------------------------------------------------------------------
Balance, December 31, 2005 1,335,410 2.08
Granted 456,667 1.55
Expired (467,700) 2.09
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Balance, September 30, 2006 1,324,377 1.89
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6. EARNINGS PER SHARE

C1 uses the treasury stock method to determine dilution resulting from the issuance of stock options, warrants and other dilutive instruments. The number of shares used to calculate the diluted net income per share for the three and nine months ended September 30, 2006 included the weighted average number of shares outstanding of 34,959,318 and 33,690,193 respectively plus 528,622 shares related to the dilutive effects of the exercise of stock options and the conversion of Performance Shares (September 30, 2005 -- 32,953,568 and 29,664,036 plus 1,232,252 shares related to the dilutive effects of the exercise of stock options and the conversion of Performance Shares).



7. INCOME TAXES
The components of the future income tax liability are as follows:

September 30, December 31,
2006 2005
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Future income tax liabilities (assets)
Property and equipment $ 3,450 $ 2,991
Asset retirement obligations (391) (335)
Attributed Canadian Royalty Income
benefit ("ACRI") (466) (436)
Share issue costs (526) (616)
Other 16 17
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Net future income tax liability $ 2,083 $ 1,621
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8. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items increased (decreased) cash
and cash equivalents as follows:

Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
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Accounts receivable $ 1,363 $ (748) $ 1,465 $ (650)
Prepaid expenses 95 84 114 14
Accounts payable and
accrued liabilities (1,429) 3,275 (4,282) 1,943
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Change in non-cash
working capital $ 29 $ 2,611 $ (2,703) $ 1,307
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Operating activities $ 2,392 $ 4,851 $ (2,854) $ (1,512)
Investing activities (2,363) (2,240) 151 2,819
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Change in non-cash
working capital $ 29 $ 2,611 $ (2,703) $ 1,307
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There was $182,100 and $399,800 paid during the three and nine month periods for interest expense (2005 - $3,600 and $44,600) and there was $21,000 of capital taxes paid during the same periods this year (2005 - nil).



Contact Information

  • C1 Energy Ltd.
    Hugh Pattillo
    President & CEO
    (403) 232-1115 ext 107
    or
    C1 Energy Ltd.
    Gary Lobb
    Vice-President, Finance & CFO
    (403) 232-1115 ext 106
    Website: www.c1energy.ca