Castle Rock Petroleum Ltd.
TSX VENTURE : RCK.A
TSX VENTURE : RCK.B

Castle Rock Petroleum Ltd.

May 18, 2006 09:00 ET

Castle Rock Petroleum Ltd.: Interim Report for the Three Months Ended March 31, 2006

CALGARY, ALBERTA--(CCNMatthews - May 18, 2006) - Castle Rock Petroleum Ltd. (TSX VENTURE:RCK.A) (TSX VENTURE:RCK.B)

Chairman's Letter to Shareholders

Operating and Financial Results

Sales volumes for the first quarter of 2006 averaged 71 barrels of oil equivalent ("boe") per day, comprised of 425 thousand cubic feet ("mcf") per day of natural gas and a nominal amount of natural gas liquids.

Sales revenue was $294,000 in the first quarter of 2006, reflecting average natural gas selling prices of $7.58 per mcf. Field net backs were $4.02 per mcf of natural gas and $24.25 per boe on a combined basis.

During the three months ended March 31, 2006, cash used by operations was $117,000 ($0.01 per share) and the net loss was $262,000 ($0.02 per share).

Exploration & Development and Capital Expenditures

Capital expenditures were $2,091,000 during the first quarter of 2006. One (0.25 net) well at Valhalla commenced drilling at the end of the quarter and finished drilling in April. The well will be completed and tied-in for production after spring break-up. In the Crossfield area, Castle Rock tied-in a natural gas well which came on stream in March. At Hotchkiss, three wells were pipeline connected during the first quarter, all of which commenced production in April.

Subsequent to the end of the first quarter of 2006, Castle Rock drilled and abandoned one (0.50 net) well in the Excelsior area of Alberta.

March 2006 Equity Offering

On March 28, 2006, Castle Rock completed a private placement of 1,626,625 Class A Shares at $1.20 per share for gross proceeds of $1,952,000.

Outlook

Sales volumes for April averaged 145 boe per day, up from 71 boe per day during the first quarter of 2006. Sales volumes in April were less than originally estimated, as a result of flush production at Hotchkiss and start-up problems at Crossfield. Castle Rock has two natural gas wells awaiting tie-in. A well in the Herronton area will be placed on production before the end of the second quarter and the Valhalla well is expected to come on-stream during the third quarter.

On behalf of the Board of Directors

Signed "Roger W. Hume", P. Geol.

Chairman and Chief Executive Officer

May 18, 2006

Management's Discussion and Analysis

This management's discussion and analysis of financial condition and results of operations ("MD&A") is dated May 18, 2006 and should be read in conjunction with the unaudited financial statements for the three months ended March 31, 2006, the audited financial statements for the year ended December 31, 2005 and the MD&A for the year ended December 31, 2005.

This document may contain forward-looking statements which are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied. Such forward-looking statements necessarily involve risks associated with oil and gas exploration, property development, production, marketing and transportation, such as dry holes and non-commercial wells, facility and pipeline damage, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers and the ability to access sufficient capital from internal and external sources. Readers are cautioned not to place undue reliance on forward-looking statements, as no assurances can be given as to future results, levels of activity or achievements.

The MD&A contains the terms cash flow from operations and cash used by operations, which should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles as an indicator of the Company's performance. Castle Rock's calculation of cash flow from operations may not be comparable to that reported by other companies. Cash flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of earnings per share. All references to cash flow throughout the MD&A are based on cash flow before changes in non-cash working capital.

Barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet ("mcf") of natural gas to one barrel of oil ("6:1"). The 6:1 conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe disclosure may be misleading, particularly if used in isolation.

DESCRIPTION OF BUSINESS AND COMPARISONS TO PRIOR PERIODS

Castle Rock is engaged in the acquisition, exploration, development and production of oil and natural gas reserves, primarily in Alberta. The Company's shares commenced trading on the TSX Venture Exchange in April 2005 shortly after completing an initial public offering. Castle Rock was created in May 2004 and exploration and development activities prior to the initial public offering were minor. Oil and gas production commenced in September 2005. As a result, a comparison of certain operating information for the three months March 31, 2006 to prior periods may not be meaningful or available.



SUMMARY OF QUARTERLY RESULTS

------------------------------------------------------------------------
2006 2005
-----------------------------------
Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------------------

Financial Highlights
($000s except per share amounts)

Oil and gas revenue 294 463 130 - -
Royalties (61) (106) (23) - -
Interest income 21 23 37 51 3
Production and transportation (77) (67) (28) - -
General and administrative (242) (275) (226) (238) (85)
Financing charges (52) - - - -
Cash flow from (used by) operations (117) 38 (110) (187) (82)
Per share - basic and diluted (0.01) - (0.01) (0.01) (0.02)

Depletion, depreciation and accretion (252) (342) (41) (5) (4)
Stock-based compensation (9) (8) (8) (8) -
Goodwill impairment loss - (141) - - -
Future income tax recoveries 116 122 22 - -
Net loss (262) (331) (137) (200) (86)
Per share - basic and diluted (0.02) (0.02) (0.01) (0.01) (0.02)

Issue of shares 1,952 - 1,720 - 10,000
Capital expenditures 2,091 970 2,529 1,198 268
Corporate acquisition (net of
working capital acquired) - - 3,765 - -
Working capital 1,823 2,279 3,150 7,835 9,220
Shareholders' equity 9,161 10,957 11,280 9,688 9,880
Total assets 15,682 13,938 14,218 10,194 10,216
------------------------------------------------------------------------

Operating Highlights

Average daily production (boe/day) 71 69 20 - -

Selling prices:
Natural gas ($/mcf) 7.58 12.22 11.54 - -
Natural gas liquids ($/bbl) 79.07 66.75 81.49 - -

Field netbacks ($/boe):
Selling price 45.75 73.23 69.39 - -
Royalties (9.56)(16.78)(12.27) - -
Production and transportation (11.94)(10.61)(14.73) - -
------------------------------------------------------------------------
Field netbacks 24.25 45.84 42.39 - -
------------------------------------------------------------------------

Share Capital Information

Shares outstanding (000s):
Weighted average during the period 16,973 14,881 14,064 13,625 4,433
Period end - Class A 10,702 9,075 9,075 8,000 8,000
Period end - Class B 900 900 900 900 900
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
2004
--------------------------
Q4 Q3 Q2(1)
------------------------------------------------------------------------

Financial Highlights
($000s except per share amounts)

Oil and gas revenue - - -
Royalties - - -
Interest income - - -
Production and transportation - - -
General and administrative (17) (13) (4)
Financing charges - - -
Cash flow from (used by) operations (17) (13) (4)
Per share - basic and diluted (0.01) (0.01) -

Depletion, depreciation and accretion - (1) -
Stock-based compensation - - -
Goodwill impairment loss - - -
Future income tax recoveries - - -
Net loss (17) (14) (4)
Per share - basic and diluted (0.01) (0.01) -

Issue of shares 700 - 300
Capital expenditures 264 132 2
Corporate acquisition (net of working capital
acquired) - - -
Working capital 562 148 294
Shareholders' equity 959 282 296
Total assets 1,111 327 299
------------------------------------------------------------------------

Operating Highlights

Average daily production (boe/day) - - -

Selling prices:
Natural gas ($/mcf) - - -
Natural gas liquids ($/bbl) - - -

Field netbacks ($/boe): - - -
Selling price - - -
Royalties
Production and transportation - - -
------------------------------------------------------------------------
Field netbacks - - -
------------------------------------------------------------------------

Share Capital Information

Shares outstanding (000s):
Weighted average during the period 2,702 1,200 1,020
Period end - Class A 4,000 1,200 1,200
Period end - Class B - - -
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Two months ended June 30, 2004


THREE MONTHS ENDED MARCH 31, 2006
COMPARED TO
THREE MONTHS ENDED MARCH 31, 2005


Sales Volumes and Oil and Gas Revenue

During the first quarter of 2006, sales volumes averaged 71 boe per day, broken down as to 425 mcf per day of natural gas and a nominal amount of natural gas liquids ("NGLs").

Oil and natural gas sales were $294,000 during the first quarter of 2006, based on average selling prices of $7.58 per mcf of natural gas and $79.07 per barrel of NGL (equivalent unit price - $45.75 per boe). All of Castle Rock's sales volumes are sold at daily posted prices. Castle Rock has no immediate plans to enter into any arrangements to fix or hedge commodity prices.

Castle Rock had no oil and gas revenue in the first quarter of 2005.

Going forward, Castle Rock expects sales volumes and revenue to increase. The pace of growth will depend on a number of factors including future drilling success, the ability to place successful projects on-stream and continued access to capital to fund capital expenditure programs.

Interest Income

Castle Rock recorded interest income of $21,000 during the first quarter of 2006, compared to $3,000 during the same period in 2005. Castle Rock's average daily cash-on-hand balances were higher during the first quarter of 2006 than the first quarter of 2005.

Royalties

Royalties were $61,000 ($9.56 per boe) during the three months ended March 31, 2006. The total is comprised of freehold royalties (67%), Crown charges (30%) and overriding royalties (5%). Crown charges are net of ARTC. The effective royalty rate during the first quarter of 2006 was 21%. Castle Rock did not pay royalties during the first quarter of 2005.

In 2006 Castle Rock expects royalties to increase with increasing revenue. The mix of royalties will change; however, Castle Rock's overall effective royalty rate is not expected to decrease. Production from new areas will be burdened with varying types and levels of royalties.

Production and Transportation Expenses

Production expenses were $59,000 ($9.21 per boe) and transportation costs were $18,000 ($2.73 per boe) during the three months ended March 31, 2006. There were no production or transportation expenses in the first quarter of 2005.

For the balance of 2006, Castle Rock expects production and transportation expenses to increase with higher sales volumes and combined per unit costs to be in the range of levels experienced during the first quarter.



General and Administrative Expenses

Three months ended March 31, 2006 2005
------------------------------------------------------------------------
($000s)

Personnel 207 55
Occupancy 51 19
Professional fees and public company 35 7
Office and other 36 27
------------------------------------------------------------------------
Total general and administrative costs 329 108
Capitalized to oil and gas properties (46) (23)
Overhead recoveries (41) -
------------------------------------------------------------------------
Expensed general and administrative costs 242 85
------------------------------------------------------------------------
------------------------------------------------------------------------


Total general and administrative costs were $329,000 for the three months ended March 31, 2006. Of the total, $46,000 was capitalized to oil and gas properties, $41,000 was charged to company operated capital projects and producing wells and $242,000 was expensed. At 63% of the total, personnel is the largest component of general and administrative costs. Throughout the first quarter of 2006, Castle Rock had nine employees. Most of the amount capitalized to oil and gas properties is with respect to exploration related personnel. Comparing the first quarter of 2006 to the same period last year, total general and administrative expenses has increased threefold. Castle Rock completed its initial public offering at the end of the first quarter of 2005, prior to which activity was minimal.

Financing Charges

Financing charges of $52,000 were recorded during the first quarter of 2006, most of which is on account of Part XII.6 tax. The tax, which is calculated monthly, is based on the difference between the flow-through share tax deductions renounced effective December 31, 2005 and the eligible expenditures incurred. The shortfall, which will decline during 2006 as eligible expenditures are incurred, attracts the tax.

Depletion, Depreciation and Accretion Expense (DD&A expense)

DD&A expense for the three months ended March 31, 2006 was $252,000 ($39.21 per boe), comprised of $241,000 ($37.50 per boe) for depletion and depreciation of oil and gas properties, $8,000 (1.24 per boe) for depreciation of office equipment and $3,000 ($0.47 per boe) for accretion of asset retirement obligations. The unit rate for depletion and depreciation of oil and gas properties is high because a disproportionate amount of 2005 capital expenditures did not result in proved reserve bookings. DD&A expense was $5,000 in the first quarter of 2005.

In 2006, Castle Rock expects overall DD&A expense to increase primarily as result of higher sales volumes. Lower DD&A unit rates can be achieved with increased drilling success.

Stock-based Compensation

Stock-based compensation expense was $9,000 for the three months ended March 31, 2006. Castle Rock did not record stock-based compensation expense in the first quarter of 2005.

Income Taxes

For the three months ended March 31, 2006, Castle Rock recorded a future income tax recovery of $116,000. No income taxes were recorded for the three months ended March 31, 2005.

Effective December 31, 2005, Castle Rock renounced $10.0 million of income tax deductions to the subscribers of its initial public offering. To March 31, 2006, approximately $3,920,000 has been incurred, leaving $6,080,000 to be incurred by December 31, 2006. The income tax deductions generated by these expenditures will not be available to Castle Rock.

Cash Used by Operations and Net Loss

Cash used by operations was $117,000 ($0.01 per share) for the three months ended March 31, 2006 compared to $82,000 for the same period in 2005. In 2006, general and administrative expenses of $242,000 and financing charges of $52,000 exceeded net production revenue of $156,000 and interest income of $21,000. During the first quarter of 2005, Castle Rock earned a minor amount of interest income and general and administrative expenses were $85,000.

Castle Rock recorded a net loss of $262,000 ($0.02 per share) for the three months ended March 31, 2006, compared to a loss of $86,000 during the same period last year.



Capital Expenditures

Three months ended March 31, 2006 2005
------------------------------------------------------------------------
($000's)

Lease acquisition and retention 149 -
Geological and geophysical 41 124
Drilling and completions 394 43
Production equipment and facilities 1,459 -
Capitalized general and administrative expenses 46 23
Office and other 2 78
------------------------------------------------------------------------
Total 2,091 268
------------------------------------------------------------------------
------------------------------------------------------------------------


Capital expenditures were $2,091,000 during the three months ended March 31, 2006. Lease acquisition and retention costs were $149,000, most of which was spent to acquire exploratory Crown mineral rights. Castle Rock spent $41,000 on geological and geophysical, primarily to acquire and reprocess existing geophysical data. Drilling and completion expenditures of $394,000 were spent primarily in three areas. Drilling of the Valhalla well commenced at the end of the quarter, additional testing was performed in the Pearce area, and a number of drilling locations were surveyed in the Hotchkiss area. Tangible field expenditures totalled $1,459,000 during the first quarter of 2006. One well in the Crossfield area and three wells in the Hotchkiss area were pipeline connected during the quarter. The Crossfield well commenced production in March and the Hotchkiss wells were brought on-stream in April.

Capital expenditures totalled $268,000 during the first quarter of 2005. Geophysical expenditures of $124,000 includes the second of two $100,000 payments required pursuant to a seismic access agreement entered into in late 2004.

Equity

On March 28, 2006, Castle Rock completed a private placement of 1,626,625 Class A Shares at $1.20 per share for gross proceeds of $1.95 million. These shares are subject to a four-month hold. Castle Rock incurred expenses of $200,000 to complete the issue.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2006, Castle Rock had working capital of approximately $1.82 million and no debt. To fund the balance of its 2006 capital expenditure program and meet its contractual obligations (see below), Castle Rock will have to raise additional funds through equity sales, property dispositions or the use of credit facilities.

OUTSTANDING SHARE DATA

As of March 31, 2006, and the date of this MD&A, Castle Rock had the following securities outstanding: 10,701,625 Class A Shares; 900,000 Class B Shares; and options to acquire 800,000 Class A Shares at an average exercise price of $0.39 per share.

CONTRACTUAL OBLIGATIONS

Pursuant to the provisions of its initial public offering which was completed in March 2005, Castle Rock is committed to spend $10.0 million of qualifying expenditures by December 31, 2006. To March 31, 2006, approximately $3,920,000 of eligible expenditures have been incurred, leaving $6,080,000 to be incurred by December 31, 2006.

Castle Rock is a party to an agreement whereby $2.7 million of expenditures must be incurred by May 31, 2007. These expenditures relate to the completion, re-working, equipping, pipelining and/or abandoning of certain non-producing wells in the Hotchkiss area of Alberta. To March 31, 2006, approximately $1,250,000 has been spent on work commitment related items. Castle Rock will be required to make a lump sum payment for any shortfall in the commitment.

Castle Rock has entered into a lease for office space that expires on February 28, 2010. The annual amount due under the lease, including rent and related operating expenses and taxes, is $174,000.

OFF-BALANCE SHEET ARRANGEMENTS

Castle Rock does not have any special purpose entities nor is it a party to any arrangements that would be excluded from the balance sheet.

RELATED PARTY TRANSACTIONS

A director of Castle Rock is a partner of a law firm that provides legal services to Castle Rock. For the three months ended March 31, 2006, Castle Rock paid a total of $22,822 (2005 - $94,630) to this firm for legal fees and disbursements. Of this amount, $19,236 (2005 - $94,630) was charged to share issuance costs, and $3,586 (2005 - $Nil) was charged to general and administrative expenses. March 31, 2006 accounts payable and accrued liabilities includes $21,340 regarding these payments.

RISKS AND UNCERTAINTIES

There has been no material change in the risks and uncertainties affecting Castle Rock's business since the date of the MD&A for the year ended December 31, 2005.

CRITICAL ACCOUNTING ESTIMATES

There has been no material change in the accounting estimates critical to the financial statements since the date of the MD&A for the year ended December 31, 2005.

ADDITIONAL INFORMATION

Additional information regarding Castle Rock is available on SEDAR at www.sedar.com or on Castle Rock's website at www.castlerockpetroleum.com.



Financial Statements

Balance Sheets

March 31, 2006 December 31, 2005
------------------------------------------------------------------------
(Unaudited) (Audited)

Assets
Current assets
Cash and cash equivalents $ 3,841,698 $ 3,811,011
Accounts receivable 475,058 663,345
Prepaid expenses and deposits 46,577 38,834
------------------------------------------------------------------------
4,363,333 4,513,190
Property and equipment (Note 2) 10,318,332 8,424,420
Goodwill 1,000,000 1,000,000
------------------------------------------------------------------------
$ 15,681,665 $ 13,937,610
------------------------------------------------------------------------

Liabilities
Current liabilities
Accounts payable and accrued
liabilities $ 2,540,594 $ 2,234,316
Future income taxes 3,716,800 538,000
Asset retirement obligations (Note 3) 263,000 208,000
------------------------------------------------------------------------
6,520,394 2,980,316
------------------------------------------------------------------------

Shareholders' equity
Share capital (Note 4) 10,179,211 11,722,061
Contributed surplus 32,900 24,400
Deficit (1,050,840) (789,167)
------------------------------------------------------------------------
9,161,271 10,957,294
------------------------------------------------------------------------
$ 15,681,665 $ 13,937,610
------------------------------------------------------------------------
------------------------------------------------------------------------

Commitments (Note 9)

See accompanying notes



Statements of Operations and Deficit

Three Months Ended March 31, 2006 2005
------------------------------------------------------------------------
(unaudited)

Revenue
Oil and gas sales $ 294,060 $ -
Royalties, net of ARTC (61,446) -
------------------------------------------------------------------------
232,614 -
Interest income 20,728 3,223
------------------------------------------------------------------------
253,342 3,223
------------------------------------------------------------------------

Expenses
Transportation 17,550 -
Production 59,177 -
General and administrative 241,702 85,016
Financing charges (Note 7) 52,086 -
Depletion, depreciation and accretion 252,000 4,500
Stock-based compensation 8,500 -
------------------------------------------------------------------------
631,015 89,516
------------------------------------------------------------------------

Loss before income taxes (377,673) -

Future income tax recoveries 116,000 -
------------------------------------------------------------------------
Net loss (261,673) (86,293)
Deficit, beginning of period (789,167) (35,393)
------------------------------------------------------------------------
Deficit, end of period $ (1,050,840) $ (121,686)
------------------------------------------------------------------------

Net loss per share, basic and diluted
(Note 5) $ (0.02) $ (0.02)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes



Statements of Cash Flows

Three Months Ended March 31, 2006 2005
------------------------------------------------------------------------
(unaudited)

Cash provided by (used for)

Operations
Net loss $ (261,673) $ (86,293)
Items not affecting cash
Depletion, depreciation and accretion 252,000 4,500
Stock-based compensation 8,500 -
Future income tax recoveries (116,000) -
------------------------------------------------------------------------
(117,173) (81,793)
Changes in non-cash working capital
(Note 6) 77,107 22,257
------------------------------------------------------------------------
(40,066) (59,536)
------------------------------------------------------------------------

Financing
Issue of common shares 1,951,950 10,000,000
Share issue costs (200,000) (992,000)
Changes in non-cash working capital
(Note 6) 87,155 106,839
------------------------------------------------------------------------
1,839,105 9,114,839
------------------------------------------------------------------------

Investing
Expenditures on property and equipment (2,090,912) (268,209)
Changes in non-cash working capital
(Note 6) 322,560 40,000
------------------------------------------------------------------------
(1,768,352) (228,209)
------------------------------------------------------------------------

Increase in cash and cash equivalents 30,687 8,827,094
Cash and cash equivalents, beginning
of the period 3,811,011 651,226
------------------------------------------------------------------------
Cash and cash equivalents, end of the
period $ 3,841,698 $ 9,478,320
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes

Notes to Financial Statements
Three Months Ended March 31, 2006
(Unaudited)


Castle Rock Petroleum Ltd. ("Castle Rock" or the "Company") was incorporated under the laws of the province of Alberta on March 17, 2004 and commenced operations on May 1, 2004. The Company completed an initial public offering on March 29, 2005, and on April 8, 2005 Castle Rock's Class A and Class B shares commenced trading on the TSX Venture Exchange. Castle Rock is engaged in the acquisition, exploration, development and production of petroleum and natural gas reserves in western Canada.

1. Basis of Presentation

The interim financial statements of Castle Rock have been prepared in accordance with Canadian generally accepted accounting principles and are consistent with the presentation and disclosure in the audited financial statements and notes thereto for the year ended December 31, 2005. The interim financial statements contain disclosures which are supplemental to Castle Rock's annual audited financial statements. Certain disclosures, which are normally required to be included in the notes to the annual audited financial statements, have been condensed or omitted. The interim financial statements should be read in conjunction with Castle Rock's audited financial statements and notes thereto for the year ended December 31, 2005.



2. Property and Equipment

March 31, 2006 December 31, 2005
------------------------------------------------------------------------

Oil and natural gas properties $ 10,848,637 $ 8,707,686
Office equipment 100,195 98,234
------------------------------------------------------------------------
10,948,832 8,805,920
Accumulated depletion and depreciation (630,500) (381,500)
------------------------------------------------------------------------
$ 10,318,332 $ 8,424,420
------------------------------------------------------------------------
------------------------------------------------------------------------


At March 31, 2006, unproved property costs of $2,824,000 (December 31, 2005 - $2,617,000) were excluded from the depletion and depreciation calculation.

For the three months ended March 31, 2006, Castle Rock capitalized general and administrative expenses of $46,224 (three months ended March 31, 2005 - $23,002) to oil and natural gas properties.

3. Asset Retirement Obligations

Castle Rock has estimated the net present value of its total asset retirement obligations to be $263,000, based on a total future liability of $404,000, discounted at an average credit adjusted risk free rate of approximately 6.0%. These obligations are not expected to be paid for several years and will be funded from general corporate resources at the time of abandonment. The following table reconciles Castle Rock's asset retirement obligations:



Three Months
Ended Year Ended
March 31, 2006 December 31, 2005
------------------------------------------------------------------------

Balance, beginning of period $ 208,000 $ 7,300
Liabilities incurred 52,000 165,200
Liabilities acquired - 84,500
Liabilities settled - (60,000)
Accretion expense 3,000 11,000
------------------------------------------------------------------------
Balance, end of period $ 263,000 $ 208,000
------------------------------------------------------------------------
------------------------------------------------------------------------


4. Share Capital

a) Shares Issued

Number of Shares Amount
------------------------------------------------------------------------

Class A Shares

Balance, December 31, 2005 9,075,000 $ 3,614,861
Issued for cash 1,626,625 1,951,950
Share issue costs - (200,000)
Income tax effect of share issue costs - 67,200
Income tax effect of flow-through shares - (336,000)
------------------------------------------------------------------------
Balance, March 31, 2006 10,701,625 $ 5,098,011
------------------------------------------------------------------------

Class B Shares

Balance, December 31, 2005 900,000 $ 8,107,200
Income tax effect of flow-through shares - (3,026,000)
------------------------------------------------------------------------
Balance, March 31, 2006 900,000 $ 5,081,200
------------------------------------------------------------------------
Total share capital, March 31, 2006 $ 10,179,211
------------------------------------------------------------------------
------------------------------------------------------------------------



b) Initial Public offering of Flow-through Shares

Castle Rock completed a $10.0 million initial public offering of flow-through shares in March 2005. Four million flow-through Class A Shares at $0.25 per share and 900,000 flow-through Class B Shares at $10.00 per share were issued. Pursuant to the terms of the offering (see Note 9), Castle Rock renounced $10.0 million of income tax deductions to the subscribers in March 2006, effective December 31, 2005. The income tax effect of the renunciation was recorded in the first quarter of 2006.

c) Share Capital Offering

On March 28, 2006, Castle Rock completed a private placement of 1,626,625 Class A Shares at $1.20 per share for gross proceeds of $1,951,950. These shares are subject to a four month hold.

d) Shares in Escrow

At March 31, 2006, 3,000,000 Class A Shares were held in escrow pursuant to the requirements of the TSX-V. One fifth of these shares will be released from escrow in six month intervals over a 24 month period, commencing April 7, 2006. The above escrow release schedule is subject to acceleration in accordance with National Policy 46-201 - "Escrow for Initial Public Offerings" and the policies of the TSX-V in the event that Castle Rock subsequently meets certain listing requirements.



5. Per Share Amounts

Three Months Ended March 31, 2006 2005
------------------------------------------------------------------------

Weighted average number of Class A Shares
outstanding 9,147,295 4,133,333
Conversion of Class B Shares using a Class
A Share value of $1.15 (2005 - $1.00) 7,826,087 300,000
------------------------------------------------------------------------
Weighted average number of shares
outstanding, basic and diluted 16,973,382 4,433,333
------------------------------------------------------------------------
------------------------------------------------------------------------


The weighted average number of shares outstanding was not increased for outstanding stock options for purposes of calculating diluted shares outstanding as the effect would be anti-dilutive.



6. Supplemental Cash Flow Information

Three Months Ended March 31, 2006 2005
------------------------------------------------------------------------

Changes in Non-cash Working Capital
Balances

Accounts receivable $ 188,287 $ (22,823)
Prepaid expenses and deposits (7,743) 9,188
Accounts payable and accrued
liabilities 306,278 182,731
------------------------------------------------------------------------
$ 486,822 $ 169,096
------------------------------------------------------------------------
------------------------------------------------------------------------

Changes in Non-cash Working Capital
Related to

Operating activities $ 77,107 $ 22,257
Financing activities 87,155 106,839
Investing activities 322,560 40,000
------------------------------------------------------------------------
$ 486,822 $ 169,096
------------------------------------------------------------------------
------------------------------------------------------------------------


7. Financing Charges

Financing charges consist almost entirely of Part XII.6 tax, which is based on the difference between flow-through share tax deduction renounced and eligible expenditures incurred. The shortfall and the tax are calculated monthly, commencing in February 2006.

8. Related Party Transactions

A director of Castle Rock is a partner of a law firm that provides legal services to Castle Rock. For the three months ended March 31, 2006, Castle Rock paid a total of $22,822 (2005 - $94,630) to this firm for legal fees and disbursements. Of this amount, $19,236 (2005 - $94,630) was charged to share issuance costs, and $3,586 (2005 - $Nil) was charged to general and administrative expenses. March 31, 2006 accounts payable and accrued liabilities includes $21,340 regarding these payments.

These transactions have been recorded at the exchange amount.

9. Commitments

Pursuant to the terms of its initial public offering of flow-through shares, Castle Rock is committed to spending $10.0 million by December 31, 2006 on expenditures that will qualify as Canadian Exploration Expense for income tax purposes. Castle Rock has indemnified subscribers in an amount equal to the income taxes payable by the subscribers should Castle Rock fail to incur the full $10.0 million of qualifying expenditures by December 31, 2006. To March 31, 2006, approximately $3,920,000 of eligible expenditures have been incurred and Castle Rock will need to raise additional sources of financing to satisfy the remaining $6,080,000 commitment.

In November 2005, Castle Rock entered into an agreement with a major oil and gas producer (the "Farmor") regarding the Hotchkiss area of northern Alberta. The agreement gives Castle Rock access to 36 non-producing wells and a large tract of undeveloped mineral rights held by the Farmor. Castle Rock has committed to a $2.7 million work program (complete, re-work, equip, pipeline or abandon) to evaluate the non-producing wells. When the $2.7 million commitment is reached, Castle Rock will earn 50 percent of the Farmor's interest in all 36 wells, regardless of their status. If Castle Rock does not reach the minimum spending commitment by May 31, 2007, it will be required to pay the shortfall in cash. As at March 31, 2006, Castle Rock has spent approximately $1,250,000 on work commitment related items. In addition to the work commitment, Castle Rock has agreed to drill two Lower Cretaceous wells to earn an interest in six sections of mineral rights and an option to continue drilling to earn additional rights.


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

Contact Information

  • Castle Rock Petroleum Ltd.
    Roger Hume
    Chairman and CEO
    (403) 290-3262
    or
    Castle Rock Petroleum Ltd.
    Michael Makinson
    VP Finance and CFO
    (403) 290-3261 or Toll free 1-888-290-3255
    Website: www.castlerockpetroleum.com