Caribou Resources Corp.
TSX VENTURE : CBU

Caribou Resources Corp.

August 22, 2006 09:00 ET

Caribou Resources Corp. Q2 2006 Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 22, 2006) - Caribou Resources Corp. ("Caribou") (TSX VENTURE:CBU) is pleased to report its operational and financial results for the reporting period ended June 30, 2006:

Highlights

- During Q2, Caribou completed the construction of a strategic pipeline on the west side of the Astrobleme in the Steen area of Alberta. This pipeline allowed the tie-in of two wells at the end of May, and will be utilized for further tie-ins on future development of the area.

- Brought on the new 11-18 Keg River oil well (100% WI) at 150 boe/d in May. Analysis indicates a high fluid level and potential to increase pump size in the winter of 2006/2007. Up to ten development drilling locations offset 11-18.

- Secured the required surface approvals for tie-ins to proceed at Redwater. Approximately 200 boe/d WI initial production awaiting tie-in from three recently recompleted and stimulated wells. Plans are underway to recomplete a fourth well (65% WI) and two offset wells are drill-ready.

- In June, our short-term bridge facility was increased to $15.0 million with repayment extended to December 31, 2006. In July, our operating credit line was increased to $18.5 million.

- Closed a $10 million private equity offering in June.

- In addition to the approximately 200 boe/d of tested production to be tied-in at Redwater, Caribou estimates that it has 1,400 boe/d of tested behind pipe initial production, which can be tied-in during the first half of 2007 in Northern Alberta at a cost of $15 million.

- Within the northern core area, Caribou has prospect inventory, including 18 drillable locations, 13 wells for tie-in, and 12 wells for workover/completion. Within the central core area, Caribou has an inventory which includes 11 drillable locations, two horizontal re-entries, four tie-ins, and two recompletion/fracture stimulations.

- On June 22, 2006, the board of directors and management determined, in the best interests of shareholders, to initiate a process of reviewing alternatives to maximize shareholder value. Caribou retained Scotia Waterous to act as its financial advisor. The Company's data room opened the week of August 8, 2006.



Three months ended Six months ended % change
June 30 June 30 (six
2006 2005 2006 2005 months)
------------------------------------------------------------------------
Financial ($000's,
except shares and
per share amounts)
Oil and natural gas
revenues 7,190 6,900 13,842 13,276 4
Funds flow from
operations (1) 2,020 3,386 5,388 6,053 (11)
Per share - basic (1) 0.06 0.12 0.15 0.21 (29)
Net loss (1,247) (970) (2,022) (2,206) (8)
Per share - basic (0.03) (0.03) (0.06) (0.08) (25)
Per share - diluted (0.03) (0.03) (0.06) (0.08) (25)
Total assets 144,433 94,180 144,433 94,180 53
Bank debt 12,742 15,877 12,742 15,877 (20)
Short-term bridge
facility 15,000 - 15,000 - n/a
Shareholders' equity 72,672 51,029 72,672 51,029 42
Common shares
outstanding 38,529,540 28,194,165 38,529,540 28,194,165 37
Weighted average -
basic 35,739,501 28,170,056 35,297,170 28,155,982 25
Weighted average -
diluted 35,739,501 28,170,056 35,297,170 28,155,982 25
------------------------------------------------------------------------

Operating(boe - 6:1
basis)

Sales volumes
Natural gas
(mcf/day) 7,323 4,814 6,518 4,195 55
Crude oil and
NGL's (bbls/day) 514 671 507 724 (30)
Total oil
equivalent
(boe/day) 1,735 1,473 1,593 1,423 12

Product prices ($)
Natural gas per
mcf 5.93 7.18 6.57 7.20 (9)
Crude oil and
NGL's per bbl 69.15 61.51 66.36 59.56 11
Netback per
boe ($) 25.06 30.69 29.24 29.42 (1)
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Funds flow from operations and funds flow from operations per share
are non-GAAP terms that represent net loss adjusted for non-cash
items. The Company evaluates its performance based on these
measures. The Company considers funds flow from operations a key
measure as it demonstrates the Company's ability to generate cash
flow necessary to fund future growth through capital investment and
to repay debt.


Message to Shareholders

Caribou Resources Corp. is an opportunity rich exploration and development company that has assembled a highly prospective undeveloped land base of over 300,000 net acres (84% working interest) focused in two core areas of Northern and Central Alberta. The Company owns and has access to an extensive seismic database of over 4,345 km of 2D and 142 km2 of 3D over its lands. Caribou operates over 85% of its production, split approximately 60% natural gas and 40% light oil. Caribou also owns and operates strategic oil and gas infrastructure in both its core areas. The Company has significant inventory including 29 drillable locations, 17 wells to be tied-in, and 14 wells for workover/completion operations. At June 30, 2006, the Company had an estimated $93 million in tax pools.

At December 31, 2005, proved plus probable reserves, as per the Company's independent engineers (McDaniel & Associates) was 5.65 million barrels of oil equivalent. In addition, McDaniel & Associates has completed a Supplementary Report of new additions based on operations activity during Q1 and Q2 2006. This report indicates incremental total proved plus probable reserves of 750 Mboes. The incremental NPV at 10% based on McDaniel's July 1, 2006 price forecast is approximately $15 million.

During 2005, the Company carried out two strategic asset acquisitions for $16 million, which increased the Company's production land base and ownership of gas infrastructure facilities. These asset acquisitions provided substantial Gas Cost Allowance ("GCA") pools. Caribou estimates the total value of the corporate GCA benefits over 10 years, to be approximately $12 million at a 10% NPV discount rate. These benefits are realized as a direct credit against corporate gas crown royalties; $1 of GCA against $1 of gas crown royalty expense.

As part of the Company's continuing efforts to create and realize value and liquidity for its shareholders, on June 22, 2006, management recommended to the board of directors, and it was the board's unanimous view, that it is in the best interests of shareholders to initiate a process of reviewing alternatives to maximize shareholder value. In arriving at this decision, the board of directors is of the opinion that the current market price of Caribou's shares do not reflect the underlying value of Caribou's assets and future prospects. To facilitate the process of maximizing shareholder value, the board of directors retained Scotia Waterous Inc. to act as its financial advisor. The Company's data room opened the week of August 8, 2006.

Caribou intends to continue with the implementation of its tie-in and development program in Central Alberta, as well as prepare for the 2006-2007 winter drilling program simultaneous to reviewing strategic alternatives.



On behalf of the Board of Directors,


Christina M. Fehr, BA, MSc Ross G. Robertson, P.Eng
Vice Chairman and CEO President and COO
August 18, 2006


Management's Discussion and Analysis

Management's Discussion & Analysis ("MD&A") is intended to assist in the understanding of the trends and significant changes in the financial condition and results of operations of Caribou. The following information has been prepared by management and should be read in conjunction with the unaudited interim financial statements for the three and six month periods ended June 30, 2006, as well as the audited financial statements and MD&A for the years ended December 31, 2005 and 2004 together with the notes related thereto. All data is presented in Canadian dollars. The calculation of barrels of oil equivalent ("boe") is based on a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil to estimate relative energy content and does not represent a value equivalency at the wellhead. Boes may be misleading, particularly if used in isolation. Additional information relating to Caribou is available at www.sedar.com.

Non-GAAP measurements

The MD&A contains the term funds flow from operations which should not be considered an alternative to, or more meaningful than, cash flow from operating activities or net earnings as determined in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") as an indicator of Caribou's performance. Caribou's determination of funds flow from operations may not be comparable to that reported by other companies. The reconciliation between net earnings and cash flow from operations, (which is also called "funds flow from operations") can be found in the statements of cash flows. The Company also presents funds flow per share, whereby funds flow from operations is divided by the weighted average number of shares outstanding to determine per share amounts. This measure does not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.

Forward looking statements

Statements throughout this interim report that are not historical facts may be considered "forward looking statements." These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company's objectives, goals or future plans are forward looking statements. Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to any number of factors, including such variables as new information regarding recoverable reserves, changes in demand for, and commodity prices of crude oil and natural gas, legislative, environmental and other regulatory or political changes, competition in areas where the Company operates and other factors discussed in this interim report.

The Company

Caribou Resources Corp. ("Caribou" or the "Company") is a full cycle exploration and development company primarily focused on exploring for oil and natural gas in Northern and Central Alberta. The following discussion and analysis is dated August 18, 2006, and is management's assessment of Caribou's three and six months ended June 30, 2006 operating and financial results, compared to the corresponding periods for 2005.

Operations

During Q2, Caribou was successful in completing a seven mile pipeline at Steen West that has to date allowed the tie-in of two wells (100% WI) in May. The second well drilled and cased at Steen will be completed next winter as a potential Slave Point gas well which can be tied in to the newly constructed pipeline. In addition, there is an existing completed Slave Point gas well which will also be tied-in to the pipeline next winter, which has production tested at initial rates as high as 800 mcf/d. The Company has also identified additional drilling locations on its 100% WI lands for next winter along the route of the pipeline. An additional 3,840 acres of 100% WI lands were acquired, offsetting successful operations performed this winter in the area.

Caribou also completed and placed on production one of two wells drilled, a step out well to a significant long reserve life Keg River oil producer. The Company believes, that based on its 3D seismic interpretation over the structure, this step out well confirms the presence of an exciting new light oil development project with up to ten infill locations (100% WI) on reduced spacing. The well commenced production on May 17 at 150 boe/d. Pressure data gathered for the well indicates that the well has a high fluid level and IPR calculations indicate that the well should be capable of approximately 220 boe/d with installation of a larger pump next winter.

Within five miles on a similar geological structure where the Company currently has approximately a 20% WI, existing Keg River producing oil wells have recovered between 600,000 and 750,000 bbls and are still producing at rates between 70 and 225 boe/d (gross) since commencing year-round production at initial rates of 200 - 400 boe/d in the late 1990's. Approvals are in place for construction of a three mile all weather road extension that could allow year-round access and development.

At Redwater, during Q2, three wells with an average working interest of 80%, were recompleted and hydraulic fracture stimulated in the Ellerslie Green Sand Interval. These sands had been previously bypassed as a result of the apparent low resistivity indicated on logs. Relatively small five to eight tonne fracs have resulted in increased production capability. One of the wells was producing from the Basal Quartz formation prior to recompletion and stimulation. The two zones could eventually be commingled. A second well was producing from the underlying Orange Sand at an average rate of 10 bbl/d before the recompletion. Caribou expects to commingle the Orange and Green Sands. Caribou estimates that there is approximately 200 boe/d of WI production capability to be tied-in from the three wells. Caribou expects to proceed with construction of the pipeline tie-ins during the next month. Surface approvals are in place, and construction initiatives are proceeding at this time.

Caribou is planning recompletion and stimulation of a fourth well (65% WI) in the Ellerslie Green Sand, and the drilling of two Ellerslie Green Sand development locations offsetting the wells recently recompleted. Waterflood feasibility determinations are underway for the Ellerslie Green Sand and Orange Sand oil accumulations.

As operator, Caribou successfully drilled and completed an Ellerslie gas well at Legal in Central Alberta. The well encountered approximately 3m of net pay and is expected to be brought on production at approximately 1 mm/d. Caribou has a 15% WI BPO as well as 15% GORR BPO and is 65% WI APO. Caribou anticipates tieing in the well by the end of September.

Caribou has also recently initiated a number of cost saving operational initiatives, including optimization of its chemical program at Redwater and the trucking of produced water from Larne to Caribou's disposal well at Steen River. This will eliminate third party processing and disposal fees to third party disposal wells. Caribou estimates that total potential yearly savings of up to $1 million on these two initiatives.

As part of the ongoing evaluation of remaining potential on its lands, the Company has identified significant recompletion, and tie-in opportunities. Caribou estimates potential risked production adds of over 5,000 boe/d representing risked reserves of over 5 mmboe. Approximately 1,400 boe/d of the 5,000 boe/d are the tie-in of existing production tested wells.



Net loss and funds flow

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Net loss (1,246,714) (970,428) (2,022,113) (2,206,152)
Per share - basic (0.03) (0.03) (0.06) (0.08)
Per share - diluted (0.03) (0.03) (0.06) (0.08)
Funds flow from
operations 2,020,473 3,385,722 5,387,761 6,052,626
Per share - basic 0.06 0.12 0.15 0.21
Per share - diluted 0.06 0.12 0.15 0.21
------------------------------------------------------------------------


The Company has recorded a loss for the six months ended June 30, 2006. Higher costs in the field, higher depletion, interest, G&A and stock-based compensation costs have all contributed to the loss in 2006.

Higher production levels of natural gas and marginally higher prices for oils and liquids were offset by higher costs in all areas of operation and considerably lower oil production. Consequently, cash flows were reduced on a per share basis and in absolute terms.



Oil and natural gas revenues

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Oil and liquids 3,237,403 3,754,053 6,088,471 7,806,320
Per barrel 69.15 61.51 66.36 59.56
Natural gas 3,952,596 3,146,324 7,753,420 5,470,110
Per mcf 5.93 7.18 6.57 7.20
------------------------------------------------------------------------


Year to date, oil and liquids revenue decreased 22%, reflecting a 30% decline in oil and liquids production volumes, as compared to the corresponding period in 2005. Through slightly higher prices for oil, combined with a 33% increase in natural gas volumes over the same period in 2005, total revenues increased 4%. The decrease in production of oil and liquids was more than offset by the increased revenue attributed to the increase in natural gas volumes. Since Q2 2005, the product mix, as determined by revenues, has changed from 59:41 (oil and liquids to natural gas) to 44:56.



Royalties

Three months ended June 30 Six months ended June 30
$ (except %) 2006 2005 2006 2005
------------------------------------------------------------------------
Royalties, net of
GCA and ARTC 321,553 940,802 761,777 2,084,493
Per boe 2.04 7.02 2.64 8.09
% of revenue 4.5% 13.6% 5.5% 15.7%
------------------------------------------------------------------------


For the three and six months ended June 30, 2006, royalties decreased due mainly to the application of increased gas cost allowances associated with strategic infrastructure acquisitions completed in the fall of 2005.



Operating and transportation

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Operating 2,659,847 1,660,808 4,126,388 3,314,774
Per boe 16.85 12.39 14.31 12.86
Transportation 250,684 184,475 522,409 298,327
Per boe 1.59 1.38 1.81 1.16
------------------------------------------------------------------------
Total 2,910,531 1,845,283 4,648,797 3,613,101
Per boe 18.44 13.77 16.12 14.02
------------------------------------------------------------------------


Total operating costs for the first half of the year increased 29% in total, due largely to a higher level of production and increased field costs, while transportation costs, particularly at Bistcho, increased substantially reflecting industry's current escalating cost environment. In addition, operating costs were negatively impacted in Q2 by approximately $800,000 of prior period costs from 2005, equivalent to over $5 per boe.

As a result of the strategic infrastructure acquisitions made in the fall of 2005, Caribou is entitled to unusually high credits for processing and transporting the Crown's share of gas production. The substance of these credits are similar to processing fee recoveries from joint venture partners. However, they are recorded as a reduction of Crown royalties instead of a reduction of operating costs. If credits were recorded against operating costs, the total three and six month operating and transportation costs would be $10.11/boe and $11.56/boe, respectively. Caribou estimates the total value of these recoveries over 10 years to be approximately $12 million at a 10% NPV discount rate.



Netbacks

Three months ended June 30 Six months ended June 30
$/boe 2006 2005 2006 2005
------------------------------------------------------------------------
Revenue 45.54 51.48 48.00 51.53
Royalty, net of ARTC 2.04 7.02 2.64 8.09
Operating and
transportation 18.44 13.77 16.12 14.02
------------------------------------------------------------------------
Operating netback 25.06 30.69 29.24 29.42
------------------------------------------------------------------------
General and
administrative 7.50 4.42 6.36 4.95
Interest 4.88 0.92 4.20 0.88
Taxes (0.12) 0.10 - 0.10
------------------------------------------------------------------------
Cash netback 12.80 25.25 18.68 23.49
------------------------------------------------------------------------


Operating netbacks decreased due to lower revenue per boe caused by a shift in product mix, increased operating costs, and were somewhat offset by lower royalties.

Cash netbacks were further impacted by higher one-time G&A costs as detailed below.



General and administrative ("G&A")

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
General and
administrative 1,184,728 592,747 1,832,663 1,274,375
Per boe 7.50 4.42 6.36 4.95
------------------------------------------------------------------------


For the three months ended June 30, 2006, G&A included $484,000 (or $3.07 per boe) bonuses paid to the staff in response to the highly competitive environment for retaining employees. On a six month basis, G&A per boe would be $4.67 before payment of these bonuses, or 40% lower compared to 2005. During the quarter, Caribou capitalized approximately $508,000 (2005 - $351,000) of G&A expenses directly related to exploration and development activities.



Stock-based compensation

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Stock-based
compensation 186,094 141,199 416,060 278,534
Per boe 1.18 1.05 1.44 1.08
------------------------------------------------------------------------


Total stock-based compensation in 2006 increased from 2005, reflecting the stock options issued to the increased complement of full-time staff.



Interest and other financing charges

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Interest and other
financing charges 771,224 123,408 1,210,893 226,490
Per boe 4.88 0.92 4.20 0.88
------------------------------------------------------------------------


The increased loan carrying costs reflect higher levels of principal and subordinated debt now carried by the Company, higher interest rates, and one-time financing charges associated with the bridge facility.



Depletion, depreciation and accretion ("DD&A")

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Depletion and
depreciation 5,394,306 4,511,315 9,500,778 8,564,131
Per boe 34.17 33.65 32.95 33.25
Accretion 99,562 65,330 197,053 127,468
Per boe 0.63 0.49 0.68 0.49
------------------------------------------------------------------------


Year to date, DD&A increased 11% in total, and decreased 1% on a per boe basis. DD&A rates during Q2 were unfavorably impacted by the expenditure of $8.4 million on infrastructure, principally pipelines, with no immediate increase in reserves. This infrastructure will serve to bring on new production and revenues in the future as the Company continues to develop the area.



Taxes

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Capital taxes (18,510) 13,533 - 26,570
Future income tax
expense (recovery) (2,412,775) (361,694) (2,704,017) (711,355)
------------------------------------------------------------------------


Effective January 1, 2006, the Large Corporations Tax ("LCT") has been eliminated. $18,510 of LCT was recorded in Q1 2006, and fully reversed in the current quarter to reflect this tax policy change.

Caribou follows the liability method of accounting for income taxes whereby future income taxes are calculated based on temporary differences arising from the variance between the tax basis of an asset or liability and its property, plant and equipment carrying value.

The Company has estimated that available tax pools to reduce future taxable income are approximately $93 million. The Company has a further $6.2 million CEE to incur to honor the commitments of the June 2006 flow-through share issue.

Liquidity and capital resources

In order to support Caribou's growth oriented business plan, the Company's strategy is to fund its aggressive capital expenditure program by issuing common and flow-through shares, by using available bank debt, and by reinvesting its cash flow.

In June the Company increased its $13.5 million subordinated development bridge facility to $15 million. This facility, provided by an independent Canadian lending company, has a December 31, 2006 repayment date.

In July 2006, Caribou increased its senior credit facility to $18.5 million. At June 30, 2006 the amount drawn against this credit facility was $12.7 million.

In August, the Company obtained from a third party, a signed letter of intent to acquire Caribou's interest in the Westlock property. Closing is scheduled for September 1, 2006 and net proceeds amount to $1.1 million, which represents a significant premium to the Company's year-end engineering report value.



Capital expenditures

Three months ended June 30 Six months ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Seismic and
geological
evaluation 166,017 56,456 779,000 121,862
Land acquisition
and retention 123,589 344,205 4,132,455 463,729
Well drilling,
completion,
equipping and
pipelining 11,670,655 1,756,329 32,322,002 15,286,689
Office equipment 4,705 27,332 18,257 66,687
------------------------------------------------------------------------
Total 11,964,966 2,184,322 37,251,714 15,938,967
------------------------------------------------------------------------
------------------------------------------------------------------------


Related party transactions

The following transactions with related parties were done on a fair value basis defined as the amounts that would be agreed upon in an arm's length transaction between knowledgeable, willing parties, who are under no compulsion to act.

During the six months ended June 30, 2006, the Company's legal counsel invoiced $161,607 (2005 - $72,808) for legal work charged. The Company's Corporate Secretary is a partner in the legal firm. Included in accounts payable at June 30, 2006 is $14,050 (2005 - $1,926) due to the Company's legal counsel.

Off-Balance Sheet obligations

The Company has no off-balance sheet obligations.

Business risks

The oil and natural gas industry inherently has many risks associated with it. The risks can be summarized in terms of economic, financial, cost of capital, environmental and human resource risk. Economic risk is the risk of finding and producing reserves at a cost which produces an economic return. Financial risk consists of marketing production at a reasonable price given market conditions. Cost of capital is the risk associated with Caribou's ability to obtain capital to fund its activities at a reasonable cost. Environmental risk is the risk of carrying out operations with potential for adverse impact upon the environment. Finally, human resource risk is the risk of having access to expertise which will allow Caribou to grow and prosper.

Caribou has also put in place a business strategy to mitigate these risks. In its initial stage of operations, Caribou intends to concentrate on shallow, multi-zone areas. Potential areas must have available lands to allow expansion and access to infrastructure to allow successful wells to be placed on production in a timely manner.

Critical accounting estimates

The preparation of the financial statements under Canadian GAAP requires management personnel to make estimates and assumptions for many financial statement items based on their estimate and judgment. The amounts recorded for depletion, depreciation of property and equipment, stock-based compensation, and the provision for asset retirement obligations are based on estimates. The ceiling test is based on estimates of oil and natural gas reserves, production rates, oil and gas prices, future costs and other relevant assumptions. The calculation of future income tax is based on assumptions, which are subject to uncertainty as to timing and which tax rates temporary differences are expected to reverse. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant.

The Company follows the full cost method of accounting for oil and natural gas properties as prescribed by the Canadian Institute of Chartered Accountants (CICA) in Accounting Guideline 16. Under this method all costs associated with the acquisition of, exploration for and the development of oil and natural gas reserves are capitalized. These capitalized costs are depleted or depreciated on the unit-of-production method based on the estimated proved reserves. A revision to the estimate for proved reserves can have a significant impact on earnings as proved reserves are a key component in the calculation of depreciation, depletion and amortization.

Costs related to unproved properties are excluded from capitalized costs being amortized through depletion and depreciation expense. These costs are excluded from the depletion and depreciation calculation until proved reserves are found or until it is determined that the costs are impaired. Including these costs in the calculation could have a significant impact on depletion and depreciation expense for the year. Proceeds on disposal of properties are generally deducted from capitalized costs without recognition of gain or loss except where such disposal constitutes a significant portion of the Company's reserves.

Under the full cost accounting method, a ceiling test is performed at least annually to ensure that the net capitalized costs do not exceed the undiscounted future net revenues from proved plus probable reserves, plus the cost of unproved properties. Any excess capitalized costs will be written off as an expense and charged to earnings; however, future depletion and depreciation expense would be reduced.

The Company retains McDaniel & Associates Consultants Ltd., an independent petroleum engineering firm, to evaluate the Company's proved plus probable oil and gas reserves. The estimation of reserves is subjective. Forecasts are based on engineering data, future prices, expected future rates of production and the timing of capital expenditures, all of which are subject to uncertainties and interpretations. Reserve estimates will be revised upward or downward based on the results of future drilling, testing and production levels.

The Company recognizes a liability for the future retirement obligations associated with its oil and natural gas properties. The retirement obligation is initially measured at fair value, which is the discounted future value of the liability. This fair value is capitalized as part of the cost of the related asset and amortized to expense over its useful life. The liability accretes until the date of expected settlement of the retirement obligation. Factors that can affect this estimate include the number of wells drilled, well depths and area-specific environmental legislation.

Changes in accounting policies and practices

Details outlining Caribou's accounting policies are contained in the notes to the financial statements. There were no changes in the Company's accounting policies and practices in 2006, compared to the previous year.

Outstanding share data

The Company's authorized share capital consists of an unlimited number of common shares without nominal or par value and an unlimited number of preferred shares issued in series. There were 38,529,540 common shares outstanding at June 30, 2006, and the same amount of common shares outstanding as at the date of this report. As at June 30, 2006 there were 1,614,573 share purchase warrants outstanding.

The Company's stock option plan provides for granting of options to directors, employees and consultants. At June 30, 2006 a total of 3,392,500 options were outstanding.

Outlook

As part of the Company's continuing efforts to create and realize value and liquidity for its shareholders, on June 22, 2006, management recommended to the board of directors, and it was the board's unanimous view, that it is in the best interests of shareholders to initiate a process of reviewing alternatives to maximize shareholder value. In arriving at this decision, the board of directors is of the opinion that the current market price of Caribou's shares do not reflect the underlying value of Caribou's assets and future prospects. To facilitate the process of maximizing shareholder value, the board of directors retained Scotia Waterous Inc. to act as its financial advisor. The Company's data room opened the week of August 8, 2006.

Caribou intends to continue with the implementation of its tie-in and development program in Central Alberta, as well as prepare for the 2006-2007 winter drilling program simultaneous to reviewing strategic alternatives.




Summary of quarterly operating and financial results

------------------------------------------------------------------------
2006 2005
--------------------------------
Second First Fourth Third
------------------------------------------------------------------------
Operating
Natural gas (mcf/day) 7,323 5,704 6,391 4,672
Price ($/mcf) 5.93 7.40 11.36 9.47
Oil and NGL's (bbls/day) 514 499 638 700
Price ($/bbl) 69.15 63.45 63.44 70.37
Barrels of oil equivalent (per day) 1,735 1,450 1,703 1,479

Financial ($000's, except per share
amounts)
------------------------------------------------------------------------
Oil and natural gas revenues 7,190 6,652 10,590 8,618
Royalties, net of ARTC (322) (440) (1,831) (1,554)
Interest and other revenue - - - -
------------------------------------------------------------------------
Net revenues 6,868 6,212 8,759 7,064
------------------------------------------------------------------------
Operating expenses 2,660 1,467 1,809 1,201
Transportation, gathering and
processing (1) 251 272 424 353
General and administrative 1,185 648 469 619
Stock-based compensation 186 230 298 302
Depletion and depreciation 5,394 4,106 4,417 4,424
Interest 771 440 367 538
Accretion 100 97 93 67
------------------------------------------------------------------------
Total expenses 10,546 7,260 7,877 7,504
------------------------------------------------------------------------
Income (loss) before income taxes and
non-controlling interest (3,678) (1,048) 882 (440)
Capital taxes 19 (18) (49) (22)
Future income taxes 2,413 291 443 100
------------------------------------------------------------------------
Net income (loss) for the period,
before non-controlling interest (1,247) (775) 1,276 (362)
Non-controlling interest - - - -
------------------------------------------------------------------------
Net income (loss) for the period (1,247) (775) 1,276 (363)
------------------------------------------------------------------------
------------------------------------------------------------------------
Income (loss) per share (basic and
diluted) (0.03) (0.02) 0.04 (0.01)
------------------------------------------------------------------------
Funds flow ($000's) 2,020 3,367 5,642 4,329
------------------------------------------------------------------------
Funds flow per share (basic) 0.06 0.10 0.16 0.15
------------------------------------------------------------------------
Netbacks ($/boe)
------------------------------------------------------------------------
Oil and natural gas revenues 45.54 50.97 67.59 63.34
Royalties, net of ARTC 2.04 8.29 15.04 11.42
Operating expenses 18.44 8.40 10.89 11.42
------------------------------------------------------------------------
Operating netback 25.06 34.28 41.66 40.49
General and administrative 7.50 4.97 2.99 4.55
Interest 4.88 3.37 2.34 3.96
Capital taxes (0.12) 0.14 0.31 0.16
------------------------------------------------------------------------
Cash netback 12.80 25.80 36.02 31.82
------------------------------------------------------------------------
------------------------------------------------------------------------
Total assets ($000's) 144,433 138,511 119,683 110,341
------------------------------------------------------------------------
------------------------------------------------------------------------


2005 2004
--------------------------------
Second First Fourth Third
------------------------------------------------------------------------
Operating
Natural gas (mcf/day) 4,814 3,569 4,032 1,902
Price ($/mcf) 7.18 7.23 6.39 6.29
Oil and NGL's (bbls/day) 671 778 449 152
Price ($/bbl) 61.51 57.90 55.03 55.19
Barrels of oil equivalent (per day) 1,473 1,373 1,120 469

Financial ($000's, except per share
amounts)
------------------------------------------------------------------------
Oil and natural gas revenues 6,900 6,376 4,680 1,926
Royalties, net of ARTC (941) (1,144) (885) (344)
Interest and other revenue - - - 93
------------------------------------------------------------------------
Net revenues 5,959 5,232 3,795 1,675
------------------------------------------------------------------------
Operating expenses 1,386 1,316 1,476 414
Transportation, gathering and
processing (1) 459 452 - -
General and administrative 593 681 888 641
Stock-based compensation 141 137 369 39
Depletion and depreciation 4,511 4,053 2,773 758
Interest 123 104 527 77
Accretion 65 62 23 12
------------------------------------------------------------------------
Total expenses 7,278 6,805 6,056 1,941
------------------------------------------------------------------------
Income (loss) before income taxes and
non-controlling interest (1,319) (1,573) (2,261) (266)
Capital taxes (14) (12) (35) (5)
Future income taxes 362 349 587 159
------------------------------------------------------------------------
Net income (loss) for the period,
before non-controlling interest (971) (1,236) (1,709) (112)
Non-controlling interest - - - -
------------------------------------------------------------------------
Net income (loss) for the period (971) (1,236) (1,709) (112)
------------------------------------------------------------------------
------------------------------------------------------------------------
Income (loss) per share (basic and
diluted) (0.03) (0.04) (0.07) (0.01)
------------------------------------------------------------------------
Funds flow ($000's) 3,386 2,667 939 597
------------------------------------------------------------------------
Funds flow per share (basic) 0.12 0.09 0.04 0.05
------------------------------------------------------------------------
Netbacks ($/boe)
------------------------------------------------------------------------
Oil and natural gas revenues 51.48 51.62 45.02 43.31
Royalties, net of ARTC 7.02 9.26 8.58 7.74
Operating expenses 13.77 14.31 13.64 9.30
------------------------------------------------------------------------
Operating netback 30.69 28.05 22.80 26.27
General and administrative 4.42 5.52 8.62 14.86
Interest 0.92 0.83 5.11 (0.37)
Capital taxes 0.10 0.11 0.34 0.12
------------------------------------------------------------------------
Cash netback 25.25 21.59 8.73 11.66
------------------------------------------------------------------------
------------------------------------------------------------------------
Total assets ($000's) 94,180 98,003 85,879 81,430
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Prior to Q1 2005, transportation, gathering and processing charges
were included in operating expenses.


Caribou Resources Corp.

Balance Sheets

As at June 30, 2006 and December 31, 2005

(unaudited)

2006 2005
------------------------------------------------------------------------

ASSETS
Current assets
Prepaid expenses $ 1,153,333 $ 810,548
Accounts receivable 9,033,031 12,499,328
------------------------------------------------------------------------
10,186,364 13,309,876
Property, plant and equipment (note 2) 131,639,601 103,765,670
Goodwill 2,607,407 2,607,407
------------------------------------------------------------------------
$ 144,433,372 $ 119,682,953
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 3) $ 12,742,351 $ 10,545,177
Short-term bridge facility (note 3) 15,000,000 13,500,000
Accounts payable and accrued liabilities 27,115,963 11,422,696
------------------------------------------------------------------------
54,858,314 35,467,873

Asset retirement obligations (note 4) 4,779,633 4,459,585
Future income taxes 12,123,902 9,581,922
------------------------------------------------------------------------
71,761,849 49,509,380
------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (note 6) 75,318,587 71,214,584
Warrants (note 6c) 1,111,527 1,111,527
Contributed surplus (note 7) 1,834,388 1,418,328
Deficit (5,592,979) (3,570,866)
------------------------------------------------------------------------
72,671,523 70,173,573
------------------------------------------------------------------------
$ 144,433,372 $ 119,682,953
------------------------------------------------------------------------
------------------------------------------------------------------------
Commitments (note 10). Basis of Presentation (note 1).

See accompanying notes to Financial Statements


Approved by the Board of Directors:

(signed) (signed)
Christina M. Fehr Stephen J.A. Fagan
Director Director


Caribou Resources Corp.

Statements of Operations and Deficit

For the periods ended June 30, 2006 and 2005

(unaudited)

Three months ended June 30 Six months ended June 30
2006 2005 2006 2005
------------------------------------------------------------------------
REVENUES
Oil and natural
gas $ 7,189,999 $ 6,900,377 $13,841,891 $ 13,276,430
Interest and
other revenue - 1,118 - 1,225
Less: Royalties,
net of ARTC (321,553) (940,802) (761,777) (2,084,493)
------------------------------------------------------------------------
6,868,446 5,960,693 13,080,114 11,193,162
------------------------------------------------------------------------
EXPENSES
Operating 2,659,847 1,660,808 4,126,388 3,314,774
Transportation 250,684 184,475 522,409 298,327
General and
administrative 1,184,728 592,747 1,832,663 1,274,375
Stock-based
compensation
(note 6f) 186,094 141,199 416,060 278,534
Interest and
other financing
charges 771,224 123,408 1,210,893 226,490
Accretion (note 4) 99,562 65,330 197,053 127,468
Depletion and
depreciation 5,394,306 4,511,315 9,500,778 8,564,131
------------------------------------------------------------------------
10,546,445 7,279,282 17,806,244 14,084,099
------------------------------------------------------------------------
(3,677,999) (1,318,589) (4,726,130) (2,890,937)
------------------------------------------------------------------------
Capital taxes 18,510 (13,533) - (26,570)
Future income tax
recovery (note 5) 2,412,775 361,694 2,704,017 711,355
------------------------------------------------------------------------
2,431,285 348,161 2,704,017 684,785
------------------------------------------------------------------------

NET LOSS FOR THE
PERIOD (1,246,714) (970,428) (2,022,113) (2,206,152)
Deficit, beginning
of period (4,346,265) (3,513,648) (3,570,866) (2,277,924)
------------------------------------------------------------------------
Deficit, end of
period $(5,592,979) $(4,484,076) $(5,592,979) $(4,484,076)
------------------------------------------------------------------------
------------------------------------------------------------------------

Net loss per
share (note 6e)
Basic $ (0.03) $ (0.03) $ (0.06) $ (0.08)
Diluted $ (0.03) $ (0.03) $ (0.06) $ (0.08)
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted average
common shares
outstanding
Basic 35,739,501 28,170,056 35,297,170 28,155,982
Diluted 35,739,501 28,170,056 35,297,170 28,155,982
Outstanding
shares 38,529,540 28,194,165 38,529,540 28,194,165
------------------------------------------------------------------------
------------------------------------------------------------------------

Basis of Presentation (note 1).

See accompanying notes to Financial Statements


Caribou Resources Corp.

Statements of Cash Flows

For the periods ended June 30, 2006 and 2005

(unaudited)

Three months ended June 30 Six months ended June 30
2006 2005 2006 2005
------------------------------------------------------------------------
Cash provided by
(used in):

OPERATING
Net loss for the
period $ (1,246,714) $ (970,428) $(2,022,113) $ (2,206,152)
Add (deduct)
items not
affecting cash:
Depletion and
depreciation 5,394,306 4,511,315 9,500,778 8,564,131
Stock-based
compensation 186,094 141,199 416,060 278,534
Accretion 99,562 65,330 197,053 127,468
Future income
taxes (2,412,775) (361,694) (2,704,017) (711,355)
------------------------------------------------------------------------
Funds flow from
operations 2,020,473 3,385,722 5,387,761 6,052,626
Change in non-cash
working capital 1,247,387 2,420,918 18,822,578 3,360,739
------------------------------------------------------------------------
3,267,860 5,806,640 24,210,339 9,413,365
------------------------------------------------------------------------

FINANCING
Bank debt (2,820,085) 1,434,247 2,197,174 6,671,294
Proceeds from
bridge financing 1,500,000 - 1,500,000 -
Issue of common
shares, net of
costs 9,350,000 55,350 9,350,000 119,059
------------------------------------------------------------------------
8,029,915 1,489,597 13,047,174 6,790,353
------------------------------------------------------------------------

INVESTING
Property, plant
and equipment (11,964,966) (2,184,322) (37,251,714) (15,938,967)
Change in non-cash
working capital 667,191 (5,111,915) (5,799) (264,751)
------------------------------------------------------------------------
(11,297,775) (7,296,237) (37,257,513) (16,203,718)
------------------------------------------------------------------------
Decrease in cash - - - -
Cash, beginning
of period - - - -
------------------------------------------------------------------------
Cash, end of
period $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplementary
disclosure
Cash interest
paid $ 920,286 $ 123,408 $ 1,342,877 $ 226,490
------------------------------------------------------------------------

Cash is defined as cash and cash equivalents

See accompanying notes to Financial Statements


Caribou Resources Corp.

Notes to the Financial Statements

For the six months ended June 30, 2006 and 2005

(unaudited)


Note 1: Basis of presentation

These interim financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles consistent with those used in preparation of the audited financial statements at December 31, 2005. Accordingly, these interim financial statements should be read in conjunction with the notes contained in the Company's audited December 31, 2005 financial statements.

As at June 30, 2006, the Company had a working capital deficiency, excluding bank indebtedness and short-term bridge facility (see Note 3), of $17,068,588 and a deficit of $6,155,942. The working capital deficiency primarily results from accounts payable and accrued liabilities incurred during the Company's winter drilling program. Management is proposing to repay this working capital deficiency through a combination of increased cash flow resulting from the Company's current drilling program, proceeds from potential asset sales and future bank financing and equity issues. The actual outcome of future events may differ from these plans. These financial statements have been prepared on the basis that the Company will continue to realize its assets and discharge its obligations in the ordinary course of business an adjustments that would be necessary if the going concern assumption was not valid. Such adjustments, if necessary, may be material.

Note 2 : Property, plant and equipment




June 30, December 31,
$ 2006 2005
------------------------------------------------------------------------
Oil and natural gas properties, plant
and equipment 163,197,472 125,841,020
Office equipment and computers 134,651 116,394
------------------------------------------------------------------------
163,332,123 125,957,414

Less accumulated depletion and
depreciation (31,692,522) (22,191,744)
------------------------------------------------------------------------
131,639,601 103,765,670
------------------------------------------------------------------------
------------------------------------------------------------------------


Unproved oil and gas properties amounting to $22.5 million (2005 - $13.5 million) were excluded from the depletion and depreciation calculation. Future development costs on proved undeveloped reserves of $3.9 million (2005 - $4.0 million) are included in the depletion calculation. No ceiling test write-down was required as at June 30, 2006.

During the quarter, Caribou capitalized approximately $508,000 (2005 - $351,000) of general and administrative expenses directly related to exploration and development activities.

Note 3: Loans

 

June 30, December 31,
$ 2006 2005
------------------------------------------------------------------------
Bank indebtedness 12,742,351 10,545,177

Short-term bridge facility 15,000,000 13,500,000
------------------------------------------------------------------------


The Company has a revolving credit facility in the amount of $15,500,000 with a Canadian chartered bank as well as a $1,000,000 USD swap facility, bearing interest at prime plus 0.25% per annum. The facilities are secured by a $35,000,000 demand debenture with a first floating charge (with a right to fix) over all the present and future property acquisitions. In July, the limit on this facility was increased to $18.5 million.

The short-term development bridge facility was obtained during the fourth quarter of 2005 from an independent Canadian lending company. The effective interest rate is at bank prime plus three percent and the maturity date is December 31, 2006. The bridge facility is subordinated to the above revolving credit facility.

Note 4: Asset retirement obligations



June 30, December 31,
$ 2006 2005
------------------------------------------------------------------------
Balance - beginning of period 4,459,585 2,918,925

Liabilities incurred 122,995 1,253,572

Accretion 197,053 287,088
------------------------------------------------------------------------
Balance - end of period 4,779,633 4,459,585
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company's asset retirement obligations result from net ownerships in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is $7.3 million, (2005 - $4.9 million) which will be incurred between 2006 and 2019. The majority of the costs will be incurred between 2010 and 2016. An inflation rate of 2% was used to inflate the costs, and a credit-adjusted risk-free rate of 8.5% was used to calculate the fair value of the asset retirement obligations.

Note 5: Taxes

The difference between the expected income tax provision based on the combined federal and provincial statutory tax rate of 34.49% (2005-37.62%) and the amount actually provided for is as follows:


Three months Six months
ended June 30 ended June 30
$ 2006 2005 2006 2005
------------------------------------------------------------------------
Tax expense at 34.49% of
net loss before taxes (1,256,698) (496,052) (1,630,042) (1,087,570)

Non-deductible crown
payments (45,064) 282,083 90,155 576,274

Alberta Royalty Tax Credit (1,238) (30,566) (30,179) (61,132)

Stock-based compensation 61,585 53,119 143,499 104,784

Resource allowance (79,273) (188,204) (204,735) (349,837)

Non-deductible expenditures (326) - 1,720 -

Other - - - 68,458

Rate reduction (1,091,761) 17,926 (1,074,435) 37,668
------------------------------------------------------------------------
Future income tax expense
(recovery) (2,412,775) (361,694) (2,704,017) (711,355)
------------------------------------------------------------------------
------------------------------------------------------------------------


Note 6 : Share capital

(a) Authorized

Unlimited number of common shares without nominal or par value and an unlimited number of preferred shares issued in series.

(b) Common shares issued and outstanding


Number
of shares Amount
------------------------------------------------------------------------
Balance, at December 31, 2005 34,849,924 $ 71,214,584

Issued pursuant to private placement of
flow-through shares 3,679,616 10,000,002

Tax effect on renunciation of flow-through
shares (September 2005 issue) - (3,575,152)

Tax effect on renunciation of flow-through
shares (June 2006 issue) - (1,889,376)

Share issue expenses, net of tax - (431,471)
------------------------------------------------------------------------
Balance, at June 30, 2006 38,529,540 $ 75,318,587
------------------------------------------------------------------------
------------------------------------------------------------------------


(c) Warrants

On February 28, 2003, the Company issued 152,786 share purchase warrants. Each warrant is exercisable into one common share at an exercise price of $1.75 per share until February 28, 2005, $2.00 per share until February 28, 2006, $2.50 per share until February 28, 2007, and $3.00 per share until February 28, 2008. As at December 31, 2005, 38,813 of these warrants had been exercised at $1.75 per share, and another 4,000 warrants at $2.00 per share, leaving a balance of 109,973 warrants outstanding.

On September 8, 2005, the Company issued 3,009,200 units in connection with a private placement. Each unit was issued for $2.45 and consisted of one common share and one-half of one common share purchase warrant with each full warrant entitling the holder thereof to acquire an additional common share at an exercise price of $3.00 at any time prior to September 8, 2006.



Balance, Exercise Fair Balance,
December price value Expiry June 30,
31, 2005 ($) ($) Expired Issued Exercised Date 2006
------------------------------------------------------------------------
109,973 2.50 208,767 - - - February 109,973
28, 2008

1,504,600 3.00 902,760 - - - September 1,504,600
8, 2006
------------------------------------------------------------------------
1,614,573 1,111,527 - - - 1,614,573
------------------------------------------------------------------------
------------------------------------------------------------------------


The fair value of the above warrants was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield - nil; expected volatility - 77%; risk-free interest rate - 3.5%; weighted average expected life - 1.26 years; and weighted average estimated value of underlying shares - $2.47. Each warrant entitles the holder to one common share of the Company.

(d) Flow-through shares

Under the terms of the Company's flow-through share agreements, the Company has committed to incur approximately $6.25 million (2005 - $11.2 million) of qualifying oil and natural gas Canadian Exploration Expenses ("CEE") between June 8, 2006 and December 31, 2007. Caribou has renounced the income tax benefits of these expenditures to the flow-through shareholders.

(e) Per share amounts

The following table summarizes the basis for the determination of basic and diluted per share amounts:



Six months ended June 30
2006 2005
------------------------------------------------------------------------
Weighted average common shares outstanding
- basic 35,297,170 28,155,982
Weighted average common shares outstanding
- diluted 35,297,170 28,155,982
------------------------------------------------------------------------

Net loss per share:

Net loss for the period ($) (2,022,113) (2,206,152)

Basic ($/share) (0.06) (0.08)

Diluted ($/share) (0.06) (0.08)


(f) Stock-based compensation

The Company has a stock option plan that is described below. Compensation costs attributable to share options granted to employees or directors are measured at fair value at the grant date and expensed over the expected vesting time frame with a corresponding increase to contributed surplus. The fair value of each option granted is estimated on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:



Six months ended June 30
2006 2005
------------------------------------------------------------------------
Fair value of options granted ($/option) 1.02 0.63

Expected life of options (years) 3.5 3.5

Expected volatility (%) 77 75

Risk free rate of return (%) 3.5 3.5

Expected dividend yield (%) Nil Nil
------------------------------------------------------------------------


(g) Stock options

The Company's stock option plan provides for granting of options to directors, employees and consultants to a maximum of ten percent of the total issued and outstanding common shares of the Company. These options have a term of five years to expiry and vest 30% as of the date of grant, 20% on each of the first two anniversary dates and 15% on the third and fourth anniversary dates. The Company has reserved common shares for issuance under the stock option plan in the amount of the stock options outstanding from time to time. The following tables summarize the information about options to purchase common shares as at June 30, 2006 and 2005.



2006 2005
---------------------------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
------------------------------------------------------------------------
($/share) ($/share)
Balance, beginning
of period 2,937,500 2.17 2,092,791 2.12
Granted 455,000 2.01 230,000 2.06
Terminated - - (1,051) 2.25
Exercised for cash - - - -
------------------------------------------------------------------------
Balance, end of
period 3,392,500 2.16 2,321,740 2.18
------------------------------------------------------------------------
Exercisable, end of
period 1,418,360 2.16 1,183,600 2.17
------------------------------------------------------------------------


Outstanding options Exercisable options
-----------------------------------------------------------
Weighted
average
Number of remaining Number of
Exercise options contractual options Weighted average
price outstanding life exercisable exercise price
------------------------------------------------------------------------
($/share) (years) ($/share)
1.80 50,000 3.59 15,000 1.80
1.95 100,000 4.67 30,000 1.95
2.00 30,000 3.85 9,000 2.00
2.02 35,000 4.78 10,500 2.02
2.03 320,000 4.61 96,000 2.03
2.05 1,020,000 3.39 490,000 2.05
2.06 100,000 3.87 30,000 2.06
2.10 120,000 3.85 36,000 2.10
2.20 127,500 4.27 38,250 2.20
2.25 541,300 2.97 358,910 2.25
2.31 28,700 2.35 28,700 2.31
2.33 880,000 4.21 264,000 2.33
2.50 40,000 3.72 12,000 2.50
------------------------------------------------------------------------
2.16 3,392,500 3.77 1,418,360 2.16
------------------------------------------------------------------------


Note 7: Contributed surplus

June 30, December 31,
$ 2006 2005
------------------------------------------------------------------------
Opening balance 1,418,328 603,997

Stock-based compensation 416,060 878,328

Exercise of stock options - (63,997)
------------------------------------------------------------------------
1,834,388 1,418,328
------------------------------------------------------------------------
------------------------------------------------------------------------


Note 8 : Related party transactions

The following transactions with related parties were done on a fair value basis defined as the amounts that would be agreed upon in an arm's length transaction between knowledgeable, willing parties, who are under no compulsion to act.

During the six months ended June 30, 2006, the Company's legal counsel invoiced $161,607 (2005 - $72,808) for legal work charged. The Company's Corporate Secretary is a partner in the legal firm. Included in accounts payable at June 30, 2006 is $14,050 (2005 - $1,926) due to the Company's legal counsel.

Note 9: Financial instruments

The Company's financial instruments recognized in the balance sheet consist of prepaid expenses, accounts receivable, accounts payable and accrued liabilities, bank indebtedness, and short-term bridge facility.

The estimated fair values of the financial instruments have been determined based on the Company's assessment of available market information and appropriate valuation methodologies; however, these estimates may not be necessarily indicative of the amounts that could be realized or settled in a current market transaction.

The carrying value of the Company's financial instruments approximate their fair market value due to their demand nature or relatively short periods to maturity. A substantial portion of the Company's accounts receivable are with customers and joint venture partners in the oil and natural gas industry and are subject to normal industry credit risks. The Company's bank indebtedness and short-term bridge facility are subject to floating interest rates.

Note 10: Commitments

Under the terms of the Company's flow-through share agreements, the Company has committed to incur approximately $6.25 million (2005 - $11.2 million) of qualifying oil and natural gas Canadian Exploration Expenses ("CEE") between June 8, 2006 and December 31, 2007. Of this amount approximately $6.16 million is still to be incurred.

At June 30, 2006 the Company has 21 months remaining on the lease of the office premises at approximately $21,000 per month.

Note 11: Subsequent events

In July 2006, Caribou increased its senior credit facility to $18.5 million. At June 30, 2006 the amount drawn against this credit facility was $12.7 million.

In August, the Company obtained from a third party, a signed letter of intent to acquire Caribou's interest in the Westlock property. Closing is scheduled for September 1, 2006 and net proceeds amount to $1.1 million.

Note 12: Comparative information

Certain information provided for the previous period has been restated to conform to the current period presentation.



Caribou Resources Corp.

Corporate Information

Directors Officers
Stephen J.A. Fagan, MBA Christina M. Fehr, BA, MSc
Calgary, Alberta Vice Chairman and CEO

Christina M. Fehr, BA, MSc Ross G. Robertson, P.Eng
Calgary, Alberta President and COO

Gordon A. Robertson, P.Geol (2) Giles Twogood, CA (SA)
Calgary, Alberta Vice President and CFO

Ross G. Robertson, P.Eng (1) Douglas Patterson, P.Land
Calgary, Alberta Vice President, Land

Donald J. Rowden, CA (1) (2) Daniel P.E. Fournier, LLB
Bend, Oregon Corporate Secretary

Gerald D. Sutton, Chairman (1) (2) Corporate Office
Oakville, Ontario 1545, 101 - 6th Avenue S.W.
Calgary, Alberta T2P 3P4
(1) Member of the Audit Committee Phone: (403) 269-5218
(2) Member of the Compensation Committee Fax: (403) 269-5221
Website: www.cariboures.com
Registrar and transfer agent Contact: Christina M. Fehr
Valiant Trust Company Email: cmfehr@cariboures.com
Calgary, Alberta
Stock Exchange Listing
Auditors TSX Venture Exchange
PricewaterhouseCoopers LLP Symbol: CBU
Calgary, Alberta
Legal Counsel
Evaluation Engineers Blake, Cassels & Graydon LLP
McDaniel & Associates Consultants Ltd.

Banker
Canadian Imperial Bank of Commerce


Certain information regarding Caribou in this news release including management's assessment of future plans and operations, production estimates, drilling inventory and wells to be drilled, timing of drilling and tie in of wells, productive capacity of new wells, capital expenditures and the timing thereof, may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence Caribou's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly no assurance can be given that any events anticipated by the forward looking statements will transpire or occur, or, if any of them do so, what benefits Caribou will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhausted. Furthermore, the forward looking statements contained in this news release are made as at the date of this news release and Caribou does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Natural gas reserves and volumes are converted to barrels of oil equivalent (boe) on the basis of six thousand cubic feet (mcf) per one barrel (bbl) of oil. Boes may be misleading, particularly if used in isolation. The 6:1 boe conversion ratio is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Caribou Resources Corp.
    Christina M. Fehr
    Vice Chairman and CEO
    (403) 539-4322
    or
    Caribou Resources Corp.
    Ross G. Robertson, P.Eng
    President and COO
    (403) 539-4316
    Website: www.cariboures.com