Centurion Energy International Inc.
TSX : CUX
AIM : CUX.L

Centurion Energy International Inc.

November 10, 2006 19:22 ET

Centurion Announces Third Quarter Financial Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2006) -

REPORT TO SHAREHOLDERS

Centurion Energy International Inc. (Centurion or the Company), is pleased to announce the results of its third quarter. Centurion is an independent oil and gas exploration and production company operating principally in the Egyptian Nile Delta and its securities are listed on the Toronto (TSX:CUX) and London AIM (AIM:CUX.L) stock exchanges. The unaudited interim consolidated financial statements and management's discussion and analysis included in this interim report have been prepared by management and approved by Centurion's Audit Committee on behalf of the Board of Directors.

Highlights

- Cash flow from Centurion's continuing operations (Egypt) totaled $25.6 million ($0.28 per share diluted) during Q3, 2006 compared to $15.6 million ($0.17 per share diluted) for Q3, 2005.

- Earnings for Centurion's continuing operations (Egypt) totaled $12.6 million ($0.14 per share diluted) during Q3, 2006 compared to $7.6 million ($0.08 per share diluted) in Q3, 2005.

- 2006 year to date daily production has increased approximately 53% to 32,069 boe per day from 21,025 boe per day for 2005.

- In August 2006, the Company announced the signing of a Memorandum of Understanding to acquire an additional two percent working interest share in the Nigeria-Sao Tome Joint Development Zone for US$4.4 million.

- In September 2006, the Company closed a new credit facility with BNP Paribas, which replaces a previous facility with Standard Bank plc. The new facility gives Centurion an allowable borrowing base of US$215 million.

- Stage I of the new gas plant in El Wastani has been successfully commissioned, comprising a Mechanical Refrigeration Unit capable of processing all of the field's gas and condensates. Stage II, which will result in the recovery of additional condensates as well as LPG product, is on track for commissioning in the fourth quarter.

- The El Wastani gas plant project has achieved over 1.7 million man-hours of work without a lost-time incident.

- Ministerial approval has been obtained on four partner-operated development leases in the West Gharib concession; production started in two of the properties in October.

This report contains certain forward looking information that is subject to risks and uncertainties, and actual performance or results may vary from potential performance or results that are stated in this report. Risks and uncertainties include the risk that planned drilling programs may not be successful and may not result in an increase in reserves to the extent set out herein. Additional operational risks are set out in Centurion's Annual Information Form available on SEDAR at www.sedar.com.

All financial information is reported in Canadian dollars and is in accordance with Canadian generally accepted accounting principles (GAAP) unless otherwise noted. The financial measures of cash flow from operations and cash flow per share referred to in this report and Management's Discussion and Analysis (MD&A) are not recognized measures under GAAP.

Natural gas has been converted into barrels of oil equivalent (boe) at 6:1. The abbreviation boe, boe per day and mboe disclosed in this report and Centurion's MD&A may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.



Financial Summary
(In thousands of Canadian dollars, except per share amounts)

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

---------------------------------------------------------------------------
Continuing operations 25,575 15,576 80,660 41,008
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Discontinued operations (1) - - - 6,430
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Corporate total 25,575 15,576 80,660 47,438
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Basic per share - continuing
operations 0.28 0.18 0.90 0.47
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Diluted per share - continuing
operations 0.28 0.17 0.87 0.45
---------------------------------------------------------------------------
Basic per share - corporate 0.28 0.18 0.90 0.54
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Diluted per share - corporate 0.28 0.17 0.87 0.52
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---------------------------------------------------------------------------
Earnings
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Continuing operations 12,649 7,596 45,208 16,268
---------------------------------------------------------------------------
Discontinued operations (1) - - - 2,474
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Corporate total 12,649 7,596 45,208 18,742
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Basic per share - continuing
operations 0.14 0.09 0.51 0.19
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Diluted per share - continuing
operations 0.14 0.08 0.49 0.18
---------------------------------------------------------------------------
Basic per share - corporate 0.14 0.09 0.51 0.21
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Diluted per share - corporate 0.14 0.08 0.49 0.20
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(1) Discontinued Operations pertain to assets in Tunisia sold effective
April, 2005


Production Summary for the Periods Ended September 30, 2006

---------------------------------------------------------------------------
Natural
Gas Condensate LPG's
(mmscf) (bbls) (bbls) Oil (bbls)
Field 3 months 3 months 3 months 3 months
---------------------------------------------------------------------------
---------------------------------------------------------------------------
El Wastani 13,530 346,308 75,769 -
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South Manzala 1,096 - - -
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West Gharib - - - 67,624
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Total 14,626 346,308 75,769 67,624
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---------------------------------------------------------------------------
---------------------------------------------------------------------------
Average YTD YTD
Q3 9 months 9 months
Total Q3 BOE/D BOE BOE/D
Field BOE (6:1) (6:1) (6:1) (6:1)
---------------------------------------------------------------------------
El Wastani 2,677,095 29,099 7,838,592 28,713
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South Manzala 182,588 1,985 710,568 2,603
---------------------------------------------------------------------------
West Gharib 67,624 735 205,537 753
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Total 2,927,307 31,819 8,754,697 32,069
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OPERATING HIGHLIGHTS

Egypt

El Manzala Concession

El Wastani and El Wastani East Development Lease

(Centurion 100% W.I.)

Progress continued to be made on the construction of a major company-operated gas processing facility in El Wastani during the third quarter.

Most notably, the commissioning of Phase III, Stage I of the project was complete at the end of the quarter. This Stage comprises a Mechanical Refrigeration Unit (MRU) capable of processing all of the El Wastani gas and recovered condensates. Most of the field's gas is currently being processed through the MRU with a small side stream continuing to be diverted to the Abu Madi gas plant; this link with the third party-operated facility will remain available, providing operational flexibility and expansion capacity in the future.

At the same time work is ongoing for Stage II, comprising the installation of a Turbo Expander Unit and storage bullets which will achieve the recovery and added sales of LPG's. All major equipment items have now been installed and commissioning of Stage II is expected to take place starting late November.

Focus on safety continued to be successful at the El Wastani plant site, with the achievement of over 1.7 million man-hours without a lost time incident since the project began.

Natural gas production from the El Wastani field averaged 147.1 mmscf per day during the quarter. Related liquids production averaged 3,764 bbl per day of condensate and 824 bbl per day of LPG, for a combined total average daily rate of 29,099 boe per day.

South El Manzala Development Lease

(Centurion 100% W.I.)

The well Gelgel-13 was spud within the Lease boundary on September 19th, targeting Kafr El Sheikh and El Wastani formations. Initial log analysis indicated the presence of potential gas bearing sands, however well test data were inconclusive and the well was suspended. Further analysis is currently being performed on both the log interpretation and well test data.

Work plans for the development lease during the rest of 2006 will include a workover on an existing well and potentially one additional well targeting the shallow El Wastani formation.

Production during the quarter averaged 11.9 mmscf per day (1,985 boe per day).

West El Manzala and West El Qantara Exploration Concessions

(Centurion 50% W.I.)

The third quarter was marked by ongoing seismic data acquisition on the Concessions and the drilling of the two wells in the West El Manzala Concession, with an additional well being spud before quarter-end.

Luzi-1 was spud on May 23rd and reached a total depth of 2847 meters. Gas was encountered in both the Upper and Lower Abu Madi formations with net pay thicknesses of 10m and 35m respectively. The Lower Abu Madi was tested at a maximum gas rate of 9.0 mmscf per day with 123 bbl per day of condensate, whilst the Upper Abu Madi was left unperforated to facilitate the well's initial completion as a Lower Abu Madi producer. The well has been temporarily suspended and a Summary Plan of Development, which assumes early tie-back of the well to the El Wastani facilities, is under preparation for Government submission.

Al Hurani-1 was spud on July 6th and was drilled to a total depth of 2935 meters. The well encountered good sand development with no commercial gas in the Abu Madi and Qawasim formations. This well has been plugged and abandoned.

South Gamasa-1, the fifth well to be drilled on the West El Manzala concession, was spud on August 17th, with a primary target in the Qawasim formation and a secondary target in the Upper Sidi Salem. At quarter-end the well had drilled though the Qawasim which, according to open-hole log data, is water-wet. Casing was set at the base of the Qawasim and the well is currently drilling ahead in the Sidi Salem formation.

According to the terms of the agreement with subsidiaries of Royal Dutch Shell PLC, if they continue as a partner in the exploration concessions after the drilling of an initial five well exploration program, a subsequent payment of US$20 million will be made to Centurion, followed by up to a total of US$225 million if and when specific discovery volumes and development objectives are met. If Shell elects not to continue after the initial five well program, their interest will revert back to Centurion.

3D seismic activities resumed in June, having already acquired 1400 square kilometers of data in the West El Manzala concession. The new acquisition includes 150 square kilometers of data in West El Manzala and 412 square kilometers in West El Qantara. Processing of the new data also commenced in the third quarter and interpretation will be ongoing throughout the process, expected to be complete early 2007.

West Gharib Concession

(Centurion 30% W.I.)

The final exploration phase of the West Gharib Concession has expired with four new development leases being issued to Centurion and its partner prior to expiry. A six month extension was granted by EGPC to complete the drilling of exploratory and development wells which had been commenced prior to the expiration of the permit.

Saad-1 is an exploration well spud on August 28th and has reached a total depth of 2343m. After logging oil pay in the Nukhul limestone, the well was suspended awaiting flow testing.

Arta-3, Arta-4 and Arta-5 are follow-up development wells to the initial exploration and appraisal wells; all three have logged oil in the Nukhul limestone formation. At quarter-end the Arta-6 well has also been drilled and is awaiting testing.

The well Hana-12 was drilled in the Hana development lease targeting the Rudeis and Kareem sandstones, but was found to be dry and has been plugged and abandoned.

During September, Ministerial approval was obtained on the Development Lease applications for the West Hoshia, North Hoshia, Arta and South Rahmi discoveries. Production has commenced at the Arta and South Rahmi fields, providing a net incremental oil rate of approximately 150 bbl per day and the remaining two fields should be put on production by year-end.

Production from the combined development leases within the West Gharib concession averaged 2,450 bbl per day of 22 degree API oil (735 bbl per day Centurion share) for the three months ended September 30, 2006.

Kom Ombo Concession

(Centurion 100% W.I.)

Centurion has high-graded the exploration play to the southern part of the concession where it has recently acquired an additional 516 Kilometers of 2D seismic. Processing of the newly acquired data has been completed and interpretation is ongoing with a view to firming up prospects for drilling in 2007.

NIGERIA-SAO TOME JOINT DEVELOPMENT ZONE (JDZ)

(Centurion 9.5% W.I.)

Interpretation of the 3D seismic is ongoing to finalize the mapping of prospects and firm up drilling locations. The operator Addax Petroleum is attempting to secure a deepwater rig to drill the first of three commitment wells in late 2007 or early 2008, on one of several large structures which are mapped on the Block.

TUNISIA

Mellita Permit

(Centurion 27.5% W.I.)

A final review of the remaining prospectivity on the Mellita permit has been conducted and this has failed to demonstrate sufficient potential to support continued exploration on the license. Therefore Centurion and their Partners decided to relinquish the permit on September 6, 2006.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE QUARTER ENDED SEPTEMBER 30, 2006

November 10, 2006

This Management's Discussion and Analysis (MD&A) is a review of operations, current financial position and outlook for Centurion Energy International Inc. (Centurion or the Company) and should be read in conjunction with the unaudited consolidated financial statements and related notes of Centurion for the periods ended September 30, 2006 and 2005. The unaudited consolidated financial statements included in this MD&A have been prepared by management and approved by Centurion's Audit Committee on behalf of the Board of Directors. These statements are based on certain estimates and assumptions and involve risks and uncertainties. Actual results may differ materially. Refer to the Business Risk Assessment section of this MD&A for additional information related to identified risks, estimates and uncertainties.

Non GAAP Measurements

Throughout this MD&A, Centurion discloses certain financial information (cash flow, cash flow per share and cash flow from operations) that do not have any standardized meaning as prescribed by Canadian GAAP and are therefore considered non GAAP measures. These measures may not be comparable to similar measures presented by other public issuers.

Quarterly Trends

Foreign Exchange Fluctuations

Centurion operates in a U.S. dollar based environment. All revenues and the majority of our costs (both capital and operating) are paid in U.S. dollars. However, being a Canadian issuer trading primarily on a Canadian stock exchange, Centurion reports its financial results in Canadian funds. Accordingly, all U.S. dollar amounts presented in Centurion's statements of operations and cashflows are converted to Canadian funds for reporting purposes based on the average Canadian to U.S. dollar exchange rates prevailing during the reporting period. Additionally, all dollar figures contained in this MD&A, including per barrel of oil equivalent (boe) and per share amounts are expressed in Canadian dollars unless otherwise noted.

During the nine month period ended September 30, 2006, the average Canadian to U.S. dollar exchange rate was $0.88 compared to $0.82 for the comparable period in 2005. The strengthening Canadian dollar in 2006 had the effect of reducing all U.S. dollar translated amounts on the statements of operations and cashflows by approximately seven percent compared to 2005. The effect of this reduction on earnings and cashflow for the nine months ended September 30, 2006 was approximately $0.06 and $0.04 per share, respectively.

Commodity Prices

For the nine months ended September 30, 2006 the average price realized, before royalty, by Centurion was US$2.91 per mscf of natural gas (US$2.75 per mscf in 2005), US$64.63 per barrel of condensate (US$59.55 per barrel in 2005) and US$46.61 per barrel of oil (US$33.74 per barrel in 2005). The corporate average price, before royalties, received for a barrel of oil equivalent was CAD$28.37 compared to CAD$25.62 in 2005 due to overall increases in world oil and condensate prices. The increase in realized sales gas prices is due to the use of the Company's JT facility, which has a lower liquid yield than the Abu Madi plant resulting in higher heat content sales gas.

Financial Review

Calculation of per Barrel Amounts

Production and sales volumes for the nine months ended September 30, 2006 are not the same figure due to the inventorying of approximately 14,485 barrels of condensate in Egypt at December 31, 2005. This volume was subsequently sold in early January 2006 and for financial reporting purposes it has been treated as sales in 2006. Accordingly, all per boe amounts referenced in this MD&A are based on the sales volumes achieved in the nine months ended September 30, 2006 which totaled 8,769,182 boe. There is no impact for the three months ended September 30, 2006, related to the year end inventory and as such the boe for that period are 2,927,307.

Continuing Operations

On April 26, 2005, Centurion completed the sale of its Tunisian assets to Candax Energy Inc. As a result of this transaction, Centurion has presented all of the 2005 revenues and expenses associated with the operations included in the sale as discontinued operations for financial reporting purposes, with no amounts reported in 2006 due to the sale.

This MD&A has been segregated between continuing operations (primarily Centurion's Egyptian operations) and discontinued operations (Tunisia), as a result of the sale of the Tunisian producing assets in 2005. Accordingly prior year comparative figures have been presented without the results of the Tunisian activities to give a meaningful comparison for the current year's activities.



For the three For the
months ended nine months ended
-------------------- --------------------
Revenue September September September September
($000s except per boe amounts) 30, 2006 30, 2005 30, 2006 30, 2005
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Oil and gas sales (net of
royalties) 47,914 28,844 137,366 72,898
Average gross price realized
before royalty ($ per boe) 28.69 29.25 28.37 25.62
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Sales, net of royalties, for Q3 2006 amounted to $47.9 million compared to $28.8 million for Q3 2005, and were $137.4 million for the nine months ended September 30, 2006 compared to $72.9 million for the comparable period in 2005, an increase of 66 and 89 percent, respectively. The increase was mainly due to the more than doubling of sales volumes achieved in the El Wastani field associated with both the installation of further field processing equipment, further development drilling in 2006 and 2005 and the increase in realized commodity prices received.

Centurion's share of Egyptian production increased to approximately 38 percent in 2006 from an average of 36 percent in 2005, due to Cost Recovery factors allowed under the terms of Centurion's Production Sharing Contract (PSC) with the Egyptian Government. The production volumes taken under the PSC by the Egyptian Government are in lieu of any further taxes and royalties and the 38 percent allocation Centurion received has no further financial encumbrances upon it.

Centurion accounts for the Egyptian Government's share of production volumes as royalty and tax expense. For the three and nine months ended September 30, 2006, the royalty expense approximated $36.1 million and $111.4 million (43 and 45 percent of gross sales, respectively) compared to $36.5 million and $79.9 million (56 and 52 percent of gross sales, respectively) for the comparable periods in 2005. For more details on the Company's PSC refer to the 2005 annual report.



For the three For the
months ended nine months ended
-------------------- --------------------
Operating Expense September September September September
($000s except per boe amounts) 30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------------------------------

Operating expense 4,606 5,108 16,372 12,013
Field cost per boe ($) 0.92 0.92 1.11 1.05
Processing cost per boe ($) 0.65 1.37 0.76 1.04
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Per boe ($) 1.57 2.29 1.87 2.09
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Total operating expense for Q3 2006 amounted to $4.6 million ($1.57 per boe) compared to $5.1 million ($2.29 per boe) for Q3 2005 and were $16.4 million ($1.87 per boe) for the nine months ended September 30, 2006 compared to $12.0 million ($2.09 per boe) for the comparable period in 2005. Total operating expense for 2006 has increased over the prior year as a result of increased production levels and continued workover and routine maintenance expenditures although lower workover costs in Q3 2006 have decreased the year to date per boe field costs to $1.11 per boe compared to $1.20 per boe at June 30, 2006. Per boe amounts have declined as a result of lower liquid yields from the new JT facility which results in lower LPG processing charges.



For the three For the
months ended nine months ended
-------------------- --------------------
September September September September
Netback ($ per boe) 30, 2006 30, 2005 30, 2006 30, 2005
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Revenue (net of royalty) 16.37 12.91 15.66 12.70
Operating expense (1.57) (2.29) (1.87) (2.09)
---------------------------------------------------------------------------
Netback 14.80 10.62 13.79 10.61
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The netback on the Company's production for Q3 2006 (revenues net of royalties less operating costs) was $43.3 million ($14.80 per boe) compared to $23.7 million ($10.62 per boe) for Q3 2005 and were $121.0 million ($13.79 per boe) for the nine months ended September 30, 2006 compared to $60.9 million ($10.61 per boe) for the comparable period in 2005. The increase in netbacks per boe can be largely explained by the increase in gross realized sales prices. Refer to the Commodity Prices section above for further explanation.



For the three For the
months ended nine months ended
General and Administrative -------------------- --------------------
Expenses September September September September
($000s except per boe amounts) 30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------------------------------

General and Administrative
Expenses 2,721 1,567 6,726 4,864
Capitalized - continuing
operations (858) (932) (2,733) (2,633)
Capitalized - discontinued
operations - - - (129)
-------------------------------------------
Expensed 1,863 635 3,993 2,102
Expensed per boe ($) 0.64 0.28 0.46 0.37
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General and administrative expenses for Q3 2006 amounted to $1.9 million ($0.64 per boe) compared to $0.6 million ($0.28 per boe) for Q3 2005 and were $4.0 million ($0.46 per boe) for the nine months ended September 30, 2006 compared to $2.1 million ($0.37 per boe) for the comparable period in 2005. The increase in expensed general and administrative costs is the result of increased staffing levels and the opening of the London office offset by a reduction of direct capitalized costs incurred during the period.



For the three For the
months ended nine months ended
Depletion, Depreciation and -------------------- --------------------
Amortization September September September September
($000s except per boe amounts) 30, 2006 30, 2005 30, 2006 30, 2005
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Oil and gas depletion,
depreciation and amortization 8,911 6,652 28,337 20,734
Per boe ($) 3.04 2.98 3.23 3.61
Other depreciation 94 215 269 635
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The depletion provision for Q3 2006 amounted to $8.9 million ($3.04 per boe) compared to $6.7 million ($2.98 per boe) for Q3 2005 and was $28.3 million ($3.23 per boe) for the nine months ended September 30, 2006 compared to $20.7 million ($3.61 per boe) for the comparable period in 2005. The remaining depreciation relates to depreciation of non-oil and gas assets.



For the three For the
months ended nine months ended
-------------------- --------------------
Interest and Finance Costs September September September September
($000s) 30, 2006 30, 2005 30, 2006 30, 2005
---------------------------------------------------------------------------

Interest and Finance Costs 2,490 297 6,075 867
Capitalized Interest (1,814) - (2,958) -
--------------------- ---------------------
Expensed 676 297 3,117 867
Per boe ($) 0.23 0.13 0.36 0.15
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Interest and finance costs for Q3 2006 amounted to $0.7 million ($0.23 per boe) compared to $0.3 million ($0.13 per boe) for Q3 2005 and were $3.1 million ($0.36 per boe) for the nine months ended September 30, 2006 compared to $0.9 million ($0.15 per boe) of the comparable period in 2005. The increase in interest and finance costs resulted from an increase in Centurion's outstanding debt balance and fees related to performance bonds issued by the Company. As at September 30, 2006, the Company had drawn US$100 million on its credit facility as compared to US$10 million at September 30, 2005. Offsetting this increase is the capitalization of interest expenses related to long-term capital projects and the financing of the capital inventory balance. Refer to Changes in Accounting Principles below for a further discussion on capitalized interest.

Foreign Prospect Review Costs

Foreign prospect review costs for Q3 2006 amounted to $0.3 million compared to $0.4 million for Q3 2005 and were $0.7 million for the nine months ended September 30, 2006 compared to $0.8 million for the comparable period in 2005. The 2006 costs primarily relate to ongoing activities in Libya, Angola and Nigeria. Costs associated with these activities are expensed until a concession or exploration license has been acquired.

Stock Based Compensation

Stock based compensation expense for Q3 2006 amounted to $2.1 million compared to $1.0 million for Q3 2005 and was $4.6 million for the nine months ended September 30, 2006 compared to $2.9 million for the comparable period in 2005. The Company expenses stock options based on the Black-Scholes valuation method over the vesting life of the granted options.

Liquidity, Capital Resources and Capital Expenditures

Capital asset and materials and supplies expenditures for 2006 totaled $182.5 million of which $162.3 million was spent in Egypt and $19.9 million was spent in Nigeria-Sao Tome. The expenditures in Egypt consisted of the 2006 drilling program costs, facility installation costs, an initial payment to acquire the additional 25% working interest in the West El Manzala and West El Qantara Concessions (refer to Significant Transaction below), pre-purchase of drilling inventory and supplies, 3-D seismic acquisition and general geological and geophysical programs. Expenditures in Nigeria-Sao Tome consisted of seismic acquisition costs, payment of the Block signature bonus and the acquisition of a further 2 percent (net) working interest in the Block (see Significant Transactions below).

Cash on hand as at September 30, 2006, was $12.4 million compared to $27.1 million as at December 31, 2005. Centurion had working capital of $43.9 million as at September 30, 2006, compared to working capital of $28.9 million as at December 31, 2005.

The Company has $70.9 million in accounts receivable outstanding as at September 30, 2006 compared to $46.8 million at December 31, 2005. As at September 30, 2006 $69.1 million of the balance related to gas and condensate sales to the Egyptian Government, $1.6 million related to balances due from joint venture partners and $0.2 million from other sources. Consistent with prior periods and other industry participants in Egypt, all gas and condensate receivables are due from the Egyptian Government and are expected to be received in the normal course of operations.

In September 2006, the Company completed a new credit facility agreement with BNP Paribas replacing a previous credit facility with Standard Bank plc. Under the new credit facility, the Company will have an allowable borrowing base of US$215 million available in three tranches: Tranche A, which bears interest at LIBOR plus a margin of 2.75 to 3.25 percent, is a US$140 million borrowing base loan which has no scheduled repayments for the first two years; subsequently the facility will be reduced in half-yearly increments based on borrowing base reserve values: Tranche B, which bears interest at LIBOR plus a margin of 1.50 percent, is a revolving credit facility of US$50 million secured by accounts receivable from the sale of hydrocarbons to the Egyptian Government which is a revolving 18 month facility with lender option to extend based on evaluation of accounts receivable balances. Tranche C, which bears interest at 0.3 percent, is a US$25 million tranche which is available for issuing performance and work commitment bonds.

Long-term debt as at September 30, 2006 consists of drawings of approximately US$50 million on Tranche A and US$50 million on Tranche B. Proceeds from the new facility have been used to repay the Standard Bank facility. The credit facility is secured by an assignment of all shares of Centurion's operating legal entities.



Summary of Contractual Obligations

As at September 30, 2006 Obligations Payments Due by Period ($000s)
---------------------------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Total 1 year years years years
---------------------------------------------------------------------------
BNP Paribas Financing 111,420 - 55,710 55,710 -
Capital lease obligations (1) 1,575 511 1,064 - -
Nigeria/Sao Tome JDZ (2) 5,610 - - 5,610 -
West El Qantara obligations (3) 3,890 3,890 - - -
---------------------------------------------------------------------------
Total contractual obligations 122,495 4,401 56,774 61,320 -
---------------------------------------------------------------------------

(1) A capital lease agreement with Northstar Trade Finance Ltd. for a sales
leaseback arrangement of compression equipment previously purchased and
installed at the Company's gas fields in Egypt was entered into in May
2004. The lease requires equal monthly payments of US$51,000 for five
years. The lease arrangement results in an interest rate of
approximately 8 percent.
(2) Under the terms of the Nigeria/Sao Tome JDZ Production Sharing
Contract, the Company will be obligated to pay for its 9.5 percent
share of the minimum work program of US$53 million. This commitment is
backed by a performance bond issued by BNP Paribas, backed by Export
Development Canada.
(3) In May 2004, Centurion was awarded the West El Manzala and West El
Qantara blocks in the Nile Delta of Egypt. Centurion has committed to
spend US$18 million on the blocks (US$11 million in West El Manzala and
US$7 million in West El Qantara) during the first phase of exploration.
These commitments are backed by performance bonds issued by BNP Paribas
and further backed by Export Development Canada. As of September 30,
2006, Centurion has met the minimum obligation related to the West El
Manzala Concession. Centurion's share of the West El Qantara commitment
is US$3.5 million.


Discontinued Operations

Sale of Tunisian Producing Assets

On April 26, 2005, Centurion completed the sale of its Tunisian assets to Candax Energy Inc. The transaction resulted in final proceeds of approximately $43.7 million inclusive of working capital adjustments.

Although the sale of the Tunisian properties was effective January 1, 2005, GAAP requires that the vendor continue recording financial activity of the discontinued operations until the transaction actually closes. Accordingly, production volumes, revenues, operating costs and tax expense associated with the discontinued operations have been reported for the period of January 1, 2005 to the closing date of April 26, 2005 by Centurion.

Net income from discontinued operations of approximately was $2.5 million being recorded in the nine months ended September 30, 2005 (no operations related to 2006). Sales, net of royalties for the nine months ended September 30, 2005 were $9.0 million with associated operating costs and income taxes totaling $3.2 million and $2.6 million respectively.

Accounting Policies and Estimates

Changes in Accounting Principles

Effective April 1, 2006, the Company has amended its accounting policy related to capitalizing interest costs incurred in conjunction with significant construction projects and development activities in accordance with Section 3061 "Property, Plant and Equipment" issued by the Canadian Institute of Chartered Accountants. As a result of this amendment, the Company will capitalize interest costs directly attributable to significant capital projects. Capitalization of interest costs will cease for a project when it is determined that the project is substantially complete and ready for productive use.

Critical Estimates

In reporting financial and reserve information, the Company is required to use specified estimates relating primarily to the future development costs associated with proved undeveloped reserves, reserve volumes, future production and revenues, and future costs associated with site restoration liabilities. The Company has all of its oil and gas reserves, future development costs and future cash flows from those reserves evaluated and reported upon by independent petroleum reserve engineering consultants. The estimation of these amounts is a subjective process, based on engineering data, forecasted prices and production levels and the timing of expenditures. All estimates are subject to numerous uncertainties and various interpretations, and consequently will change over time to reflect updated information as it is received.

Significant Transactions

Termination of the Conditional Purchase of a Private Company with Operations in Egypt and Texas

In February, 2006, the Company entered into a conditional purchase and sales agreement to acquire a private U.S. corporation. The acquisition was to include operated properties in Egypt's Nile Delta region and in the American state of Texas. The purchase agreement was terminated by the Private Company in April 2006, which resulted in the return of the US$11.3 million deposit paid by the Company in addition to a US$7.4 million ($8.5 million Canadian) break fee (before associated expenses).

The $7.8 million reported as income from terminated acquisition on the statement of operations reflects the break-fee received, net of acquisition due diligence costs incurred by the Company prior to the termination of the agreement.

Nigeria/Sao Tome - Joint Development Zone (JDZ)

On March 14, 2006, the Company signed a Production Sharing Contract (PSC) and received formal granting by the JDZ of its 10 percent (gross) equity interest, 7.5 percent (net) in Block 4. In accordance with the PSC the Company paid US$ 6.75 million, being its share of the total signature bonus.

In August 2006, the Company signed a Memorandum of Understanding to acquire the remaining 25 percent share of Hercules Petroleum Limited for US$4.4 million. This acquisition resulted in the acquisition of a further 2 percent working interest share in the JDZ, thereby increasing the Company's share to a net 9.5 percent, subject to a third party Net Profit Interest of 0.5 percent.

The Company will also be obligated to pay its share of the minimum work program of three wells, or its share of the total minimum expenditure of US$53 million, for the Block.

CTIP Oil and Gas Limited Acquisition

On March 15, 2006, the Company entered into an agreement with CTIP Oil and Gas Limited to acquire a 25 percent participating interest in the West El Manzala and West El Qantara Concessions. On April 30, 2006, the Egyptian Government granted formal approval of the acquisition giving the Company a 100 percent participating interest in each of these Concessions.

Under the terms of the acquisition agreement, the Company has paid US$20 million and issued 1,000,000 common shares at a price of Cdn$12.10 per share for the Concession interest. The Company has agreed to pay additional payments that could total up to a further US$25 million as and when specific discovery volumes and development objectives are met. Centurion has also granted a three percent net profits interest to CTIP on future production from the Concessions.

West El Manzala and West El Qantara Farm-out

On March 20, 2006, the Company signed an agreement with Shell Egypt West Manzala GmbH and Shell Egypt West Qantara GmbH ("Shell"). The agreement provides for a Farm-in and LNG Cooperation Agreement through which Shell will acquire a 50 percent interest in the West El Manzala and West El Qantara Concessions. The farm-out to Shell is subject to certain conditions, including obtaining the government approvals for a transfer that is required under the Concessions agreements.

Under the Shell agreement, Shell made an initial payment to the Company of US$15 million in April, 2006 and will pay 50 percent of all exploration and development costs for as long as they remain a Concession owner. The US$15 million proceeds were accounted for as a reduction to the costs subject to depletion.

If Shell continues as a Concession owner after the drilling of an initial five well exploration program, an additional payment of US$20 million is payable by Shell to the Company. If Shell elects not to continue, the interest of Shell will revert back to Centurion. Shell has agreed to pay additional premiums that could total up to a further US$225 million if and when specific discovery volumes and development objectives are met.

Discussions on Possible Corporate Transaction

Subsequent to quarter end, Centurion was approached by a third party on an unsolicited basis with respect to a possible corporate transaction. Centurion and the third party are currently in discussions in this regard. While it is possible that these discussions may lead to some form of transaction, there is no assurance such discussions will lead to a transaction being consummated or the ultimate form of any such transaction.



Summary of Quarterly Results

---------------------------------------------------------------------------
($ millions, except
per share amounts) 2006 - Q3 2006 - Q2 2006 - Q1 2005 - Q4
---------------------------------------------------------------------------
Sales (net of royalties)
---------------------------------------------------------------------------
Continuing operations 47.9 46.6 42.9 34.3
---------------------------------------------------------------------------
Discontinued operations - - - -
---------------------------------------------------------------------------
Corporate total 47.9 46.6 42.9 34.3
---------------------------------------------------------------------------
Cash flow
---------------------------------------------------------------------------
Continuing operations 25.6 32.3 22.8 18.2
---------------------------------------------------------------------------
Discontinued operations - - - -
---------------------------------------------------------------------------
Corporate total 25.6 32.3 22.8 18.2
---------------------------------------------------------------------------
Basic per share - continuing
operations 0.28 0.36 0.26 0.20
---------------------------------------------------------------------------
Diluted per share - continuing
operations 0.28 0.35 0.25 0.19
---------------------------------------------------------------------------
Basic per share - corporate
total 0.28 0.36 0.26 0.20
---------------------------------------------------------------------------
Diluted per share - corporate
total 0.28 0.35 0.25 0.19
---------------------------------------------------------------------------
Earnings
---------------------------------------------------------------------------
Continuing operations 12.6 21.0 11.5 (9.6)
---------------------------------------------------------------------------
Discontinued operations - - - -
---------------------------------------------------------------------------
Corporate total 12.6 21.0 11.5 (9.6)
---------------------------------------------------------------------------
Basic per share - continuing
operations 0.14 0.23 0.13 (0.11)
---------------------------------------------------------------------------
Diluted per share - continuing
operations 0.14 0.23 0.12 (0.11)
---------------------------------------------------------------------------
Basic per share - corporate
total 0.14 0.23 0.13 (0.12)
---------------------------------------------------------------------------
Diluted per share - corporate
total 0.14 0.23 0.12 (0.12)
---------------------------------------------------------------------------
---------------------------------------------------------------------------





---------------------------------------------------------------------------
($ millions, except
per share amounts) 2005 - Q3 2005 - Q2 2005 - Q1 2004 - Q4
---------------------------------------------------------------------------
Sales (net of royalties)
---------------------------------------------------------------------------
Continuing operations 28.8 22.9 21.2 16.6
---------------------------------------------------------------------------
Discontinued operations - 0.3 8.6 3.4
---------------------------------------------------------------------------
Corporate total 28.8 23.2 29.8 20.0
---------------------------------------------------------------------------
Cash flow
---------------------------------------------------------------------------
Continuing operations 15.6 13.2 12.2 10.2
---------------------------------------------------------------------------
Discontinued operations - 0.2 6.2 1.3
---------------------------------------------------------------------------
Corporate total 15.6 13.4 18.4 11.5
---------------------------------------------------------------------------
Basic per share - continuing
operations 0.18 0.15 0.14 0.13
---------------------------------------------------------------------------
Diluted per share - continuing
operations 0.17 0.15 0.13 0.12
---------------------------------------------------------------------------
Basic per share - corporate
total 0.18 0.15 0.22 0.14
---------------------------------------------------------------------------
Diluted per share - corporate
total 0.17 0.15 0.20 0.13
---------------------------------------------------------------------------
Earnings
---------------------------------------------------------------------------
Continuing operations 7.6 4.4 4.3 4.1
---------------------------------------------------------------------------
Discontinued operations - (0.5) 3.0 (0.4)
---------------------------------------------------------------------------
Corporate total 7.6 3.9 7.3 3.7
---------------------------------------------------------------------------
Basic per share - continuing
operations 0.09 0.05 0.05 0.05
---------------------------------------------------------------------------
Diluted per share - continuing
operations 0.08 0.05 0.05 0.05
---------------------------------------------------------------------------
Basic per share - corporate
total 0.09 0.04 0.08 0.04
---------------------------------------------------------------------------
Diluted per share - corporate
total 0.08 0.04 0.08 0.04
---------------------------------------------------------------------------


Financial Instruments

Balance Sheet Financial Instruments

Centurion's financial instruments presented in the Consolidated Balance Sheet consist of cash and equivalents, accounts receivable, prepaids, accounts payable and long-term debt. The estimated fair values of recognized financial instruments have been determined based on the Company's assessment of available market information and appropriate valuation methodologies; however, these estimates may not necessarily be indicative of the amounts that could be realized or settled in current market transactions. Based on these assessments, the carrying value of identified financial instruments approximates fair value.

Concentration of Credit Risk

Currently, all of the Company's production is sold to a single customer: the Egyptian Government. The Company is exposed to credit risk in the event that the Egyptian Government is unable to meet its financial obligations.

Business Risk Assessment

There are a number of inherent risks associated with oil and gas operations and development. Many of these risks are beyond the control of management. The following outlines some of the principal risks and their potential impact on the Company.

Foreign Investments

All of the Company's oil and gas operations and related assets are located outside Canada. These operations are subject to the risks associated with foreign investment including tax increases, royalty increases, renegotiations of contracts, currency exchange fluctuations and political uncertainty. Egypt has a well established fiscal regime and there are some improved fiscal terms to encourage investment. The U.S. dollar is the functional currency in Egypt and Centurion is paid in U.S. dollars for the sale of its production.

As operations are primarily carried out in U.S. dollars, the main exposure to currency exchange fluctuations is the conversion to equivalent Canadian funds for reporting purposes. Based upon the 2006 cash flow estimate and a Canadian dollar exchange rate between US$0.85 and US$0.90, the effect for each $0.01 change in exchange rate is less than $0.01 per share, fully diluted.

Commodity Prices

Centurion's oil and gas prices are affected by factors such as supply and demand, oil quality and transportation adjustments. During 2006, the Company expects to have oil, gas and natural gas liquids sales from its Egyptian operations. Centurion's gas production from its Egyptian reserves has a sales contract with a selling price of US$2.65 per mmbtu when the Brent oil reference price is US$22 or greater. The contract also has a floor of US$1.50 per mmbtu when the Brent oil price is US$10 or lower with a sliding scale gas price for Brent oil reference prices between US$10 and US$22. Changes in the price for Brent crude oil over US$22 have no impact on cash flow for Egyptian gas production.

Competition

The oil and gas industry is highly competitive. The Company believes that it is well positioned in Egypt; both in terms of Company-owned infrastructure, an excellent land base and significant level of reserves and activity, making it able compete strongly with other companies operating in Egypt.

Environment

The Company has an ongoing program to abandon and reclaim wells and facilities in accordance with government regulation. Centurion maintains adequate insurance for environmental risks.

Conclusion Regarding Effectiveness of Disclosure Controls and Procedures

During 2006, Centurion's Chief Executive Officer, Chief Financial Officer and other key management personnel have conducted an evaluation of the effectiveness of Centurion's disclosure controls and procedures. Based on the evaluation conducted, the Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of Centurion's disclosure controls and procedures were effective as at the end of the three and nine months ended September 30, 2006. The disclosure controls and procedures are effective to provide reasonable assurance that all material financial information relating to Centurion and its consolidated subsidiaries are made known to the Chief Executive Officer and Chief Financial Officer by others within those entities and to enable the principle executive officers to complete an analysis and review of the financial position and results of operations of Centurion for the three and nine months ended September 30, 2006. During the quarter ended September 30, 2006 there were no changes to Centurion's internal controls over financial reporting that have materially altered Centurion's internal controls over financial reporting.

Cautionary Statement regarding Forward-Looking Information

Certain statements contained in this MD&A including statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this MD&A includes, but is not limited to: statements relating to "reserves" and "resources" as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future; expected cash provided by continuing operations; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and outlook; competition in Egypt from other Oil and Gas producers; expansion and growth of our business and operations; the maintenance of existing government, supplier and partner relationships; supply channels; accounting policies; balance sheet financial instruments; credit risks; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, including, without limitation: the risks associated with foreign operations; foreign exchange fluctuations; commodity prices; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us and other factors, many of which are beyond our control. The foregoing factors are not exhaustive and are further discussed in the Annual Information Form of Centurion filed on SEDAR at www.sedar.com.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits will be derived therefrom. Except as required by law, Centurion disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Company Information

Centurion Energy International Inc. is a Calgary-based oil and gas exploration and development Company engaged in the exploration, development and production of oil, natural gas and natural gas liquids with a focus in Egypt.

Additional information related to the Company, including the Company's Annual Information Form and Management Information Circular, are available at www.sedar.com.



Centurion Energy International Inc.
Interim Financial Statements
Three and nine months ended September 30, 2006



Centurion Energy International Inc.
Consolidated Balance Sheets

($000's Canadian dollars)

As at As at
September 30 December 31
2006 2005
(unaudited) (unaudited)

Assets
Current Assets
Cash 12,375 27,111
Accounts receivable 70,941 46,779
Deposits and prepaids(Note 2) 7,328 873
Condensate inventory - 85
-------------- --------------
90,644 74,848

Capital assets(Note 5 and 6) 278,239 162,531
Materials and supplies 36,533 14,198
Deferred financing costs 2,993 2,176
-------------- --------------
408,409 253,753
-------------- --------------
-------------- --------------

Liabilities
Current liabilities
Accounts payable 46,235 45,362
Short-term portion of capital
lease obligation(Note 8) 511 560
-------------- --------------
46,746 45,922

Capital lease obligation(Note 8) 1,064 1,504
Long-term debt(Note 7) 111,420 13,618
Asset retirement obligation(Note 9) 4,944 3,743
-------------- --------------
164,174 64,787

Shareholders' Equity
Capital stock(Note 10) 156,895 143,770
Contributed surplus(Note 11) 15,137 10,739
Foreign currency translation adjustment (27,430) (19,968)
Retained earnings 99,633 54,425
-------------- --------------
244,235 188,966
408,409 253,753
-------------- --------------
-------------- --------------




Centurion Energy International Inc.
Consolidated Statement of Operations and Retained Earnings

($000's Canadian dollars)

Periods ending September 30, 2006 and 2005 (Unaudited)

Three months ended Nine months ended
2006 2005 2006 2005

Revenue
Sales - net of royalties 47,914 28,844 137,366 72,898
Income from terminated acquisition
(Note 13) - - 7,822 -
Other income 176 376 657 1,207
---------- -------- --------- ---------
48,090 29,220 145,845 74,105
---------- -------- --------- ---------

Expenses
Operating 4,606 5,108 16,372 12,013
Depletion, depreciation and
amortization 9,005 6,867 28,606 21,369
General and administrative 1,863 635 3,993 2,102
Foreign prospect review 251 396 712 835
Stock based compensation (Note 12) 2,095 972 4,569 2,919
Interest and finance costs 676 297 3,117 867
Amortization of deferred financing
costs (Note 3) 1,737 87 2,013 265
Foreign exchange loss/(gain) 58 (3) 444 134
Accretion 89 54 264 187
---------- -------- --------- ---------
20,380 14,413 60,090 40,691
---------- -------- --------- ---------

Income before income taxes 27,710 14,807 85,755 33,414

Current income taxes 15,061 7,211 40,547 17,146

---------- -------- --------- ---------
Income for the period from
continuing operations 12,649 7,596 45,208 16,268
---------- -------- --------- ---------

Income for the period from
discontinued operations - - - 2,474

---------------------------------------
Income for the period 12,649 7,596 45,208 18,742
---------- -------- --------- ---------

Retained earnings - Beginning of
period 86,984 56,444 54,425 45,298
---------- -------- --------- ---------
Retained earnings - End of period 99,633 64,040 99,633 64,040
---------- -------- --------- ---------
---------- -------- --------- ---------
Basic earnings per share from
continuing operations 0.14 0.09 0.51 0.19
Diluted earnings per share from
continuing operations 0.14 0.08 0.49 0.18

Basic earnings per share 0.14 0.09 0.51 0.21
Diluted earnings per share 0.14 0.08 0.49 0.20



Centurion Energy International Inc.
Consolidated Statement of Cash Flows

($000's Canadian dollars)

Periods ending September 30, 2006 and 2005 (Unaudited)

Three months ended Nine months ended

2006 2005 2006 2005

Cash provided by (used in)
operating activities
Income for the period from
continuing operations 12,649 7,596 45,208 16,268
Items not affecting cash
Depletion, depreciation and
amortization 9,005 6,867 28,606 21,369
Amortization of deferred
financing costs 1,737 87 2,013 265
Stock based compensation 2,095 972 4,569 2,919
Accretion 89 54 264 187
---------- -------- --------- ---------
Funds from continuing operations 25,575 15,576 80,660 41,008
Funds from discontinued operations - - - 6,430
25,575 15,576 80,660 47,438
Changes in continuing non cash
working capital items (2,232) (968) (16,608) (18,500)
Changes in discontinued working
capital items - - - 1,780
---------- -------- --------- ---------
23,343 14,608 64,052 30,718

Investing activities
Capital asset and materials and
supplies expenditures (39,530) (51,348) (182,485) (110,307)
Proceeds on sale of working interest - - 17,336 -
Changes in continuing non-cash
working capital items (10,432) 12,671 (10,250) 24,211
Restricted cash - - - (17,030)
Discontinued operations - - - 41,442
---------- -------- --------- ---------
(49,962) (38,677) (175,399) (61,684)

Financing activities
Issue/(repayments) of long
term debt (net) 17,120 (136) 99,682 (401)
Issuance of capital stock 431 435 855 38,645
Changes in continuing non-cash
working capital items (2,886) - (2,886) -
Discontinued operations - - - (653)
---------- -------- --------- ---------
14,665 299 97,651 37,591

Foreign currency translation (896) (193) (1,040) (778)
---------- -------- --------- ---------
Increase / (decrease) in cash (12,850) (23,963) (14,736) 5,847
---------- -------- --------- ---------
Cash - Beginning of period 25,225 67,226 27,111 37,416
---------- -------- --------- ---------
Cash - End of period 12,375 43,263 12,375 43,263
---------- -------- --------- ---------
---------- -------- --------- ---------



CENTURION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
Three and nine months ended September 30, 2006
All dollar figures are in $000s of Canadian dollars unless otherwise noted.
(Unaudited)


These unaudited interim consolidated financial statements for the periods ended September 30, 2006 and 2005 have been prepared in accordance with Canadian Generally Accepted Accounting Principles and should be read in conjunction with the annual financial statements prepared for the year ending December 31, 2005.

1 Accounting Policies

These interim consolidated financial statements have been prepared using the same accounting policies as are used in the financial statements for the year ended December 31, 2005, except for the amended policy noted below. Please refer to Note 1 "Summary of Accounting Policies" in the 2005 Consolidated Financial Statements for a detailed description of the applicable policies.

Interest Capitalization

Effective April 1, 2006, the Company has adopted the accounting policy of capitalizing interest costs relating to significant capital projects in progress as part of property, plant and equipment. Capitalization of interest ceases when the capital asset is substantially complete and ready for its intended productive use.

Interest capitalization for the period represents interest costs incurred in connection with the Company's construction of a gas processing facility in the El Manzala Concession and for carrying costs associated with materials and supplies inventory for future drilling and exploration projects.

2 Deposits and Prepaids

During the third quarter of 2006, the Company paid a US$5.6 million deposit to acquire a participation option to acquire a 50 percent working interest in three Concessions in Chad. Upon notification that the vendor has secured Government approvals for the rights to explore, develop or produce hydrocarbons in the Chad Concessions, the Company will have 30 days to review technical and commercial data related to the Concessions and to elect to proceed with the acquisition. Should the Company elect not to participate the US$5.6 million deposit will be returned. Other deposits and prepaids amounting to $1,018 relate to normal operating activities in Egypt.

3 Deferred Financing Costs

Deferred financing costs amounted to $2,993 (2005 - $2,176) as at September 30, 2006. These costs include $2,886 of legal and financing fees relating to the new credit facility (see Note 7). Deferred financing costs are being amortized over the term of the debt financing to which they relate. As a result of the Company's closing of a new credit facility, previously deferred costs in the amount of $1,726 relating to the former facility have been expensed. Other deferred financing costs amounting to $107 relates to the capital lease arrangement with Northstar Trade Finance Ltd (see Note 8). These costs are being amortized over the life of the lease.

4 Materials and Supplies

As at September 30, 2006, $36,533 (2005 - $14,198) of materials and supplies have been included in long-term assets. These materials and supplies represent casing, tubulars and wellheads which will be utilized in the planned drilling program and included in capital assets when used. Materials and supplies are recorded at the lower of market and average cost.

5 Working Interest Acquisition and Farm-out Agreement

On March 15, 2006, the Company entered into an agreement with CTIP Oil and Gas Limited (CTIP) to acquire a 25 percent working interest in the West El Manzala and West El Qantara Concessions. Following the closing of this acquisition, the Company held a 100 percent participating interest in each of these Concessions.

Under the terms of the acquisition agreement, the Company has paid US$20 million and issued 1,000,000 common shares at a price of CAD$12.10 per share for the concession interests. The Company has agreed to pay additional payments that could total up to a further US$25 million as and when specific discovery volumes and development objectives are met. Centurion has also granted a three percent net profits interest to CTIP on future production from the Concessions. The Egyptian Government granted formal approval of the acquisition on April 30, 2006.

On March 20, 2006, the Company signed an agreement with Shell Egypt West Manzala GmbH and Shell Egypt West Qantara GmbH (together "Shell"). The agreement provides for a Farm-in and LNG Cooperation Agreement through which Shell may acquire a 50 percent interest in the West El Manzala and West El Qantara Concessions. The farm-out to Shell is subject to certain conditions, including obtaining government approvals for a transfer that is required under the Concessions agreement. During the second quarter, Shell made an initial payment to the Company of US$15 million and has paid its share of drilling costs incurred in 2006 on the farm-in lands. Under the terms of the agreement, Shell will pay 50 percent of all exploration and development costs for as long as they remain a partner in the Concessions. If Shell continues as a concession owner after the drilling of an initial five well exploration program, an additional payment of US$20 million is payable by Shell to the Company. If Shell elects not to continue, the interest of Shell will revert back to Centurion. Shell has agreed to pay additional premiums that could total up to a further US$225 million if and when specific discovery volumes and development objectives are met.

The initial US$15 million proceeds received by the Company have been accounted for as a reduction to the cost subject to depletion.

6 Nigeria-Sao Tome Additional Working Interest Acquisition

In August 2006, the Company signed a Memorandum of Understanding ("MOU") to acquire the remaining 25 percent share of Hercules Petroleum Limited ("Hercules") for US$4.4 million. This acquisition resulted in the acquisition of a further 2 percent working interest share in the Nigeria-Sao Tome Joint Development Zone, thereby increasing its share to a net 9.5 percent working interest subject to a third party Net Profit Interest of 0.5 percent. Prior to the signing of the MOU, the Company accounted for the non controlled 25 percent of Hercules as non-controlling interest on the consolidated balance sheet. As a result of this acquisition, the non-controlling interest has been removed.

7 Long-Term Debt

In September 2006, the Company completed a new credit facility agreement with BNP Paribas which replaces the previous credit facility with Standard Bank plc. Under the new credit facility, the Company will have an allowable borrowing base of US$215 million available in three tranches:

Tranche A - a US$140 million borrowing base loan bearing interest at LIBOR plus a margin ranging from 2.75 percent to 3.25 percent. Tranche A is a five year facility with no scheduled repayments for the first two years, subsequently; the facility will be reduced in half-yearly increments based on borrowing base reserve values;

Tranche B - a revolving credit facility of US$50 million secured by accounts receivable from the sale of hydrocarbons to the Egyptian Government bearing interest at LIBOR plus a margin of 1.50 percent. Tranche B is a revolving 18 month facility with lender option to extend based on evaluation of accounts receivable balances;

Tranche C - a US$25 million tranche which is available for issuing performance and work commitment bonds. Tranche C bears interest at 0.30 percent and is available for 5 years.

Long-term debt as at September 30, 2006 consists of drawings of approximately US$50 million on Tranche A and US$50 million on Tranche B. Proceeds from the new facility have been used to repay the Standard Bank facility. This credit facility is secured by an assignment of all shares of the operating legal entities.

8 Capital Lease Obligation

The capital lease obligation of $1,064 (2005 - $1,656) represents a capital lease for compression facilities related to the Company's gas fields in Egypt. This obligation is being repaid over a five-year term commencing May 2004 with a blended interest and principal payment of US$51 thousand per month. An amount of $511 (2005 - $550) has been included as the short-term portion of capital lease obligation.



9 Asset Retirement Obligation

($000s)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Asset retirement obligation at December 31, 2005 3,743

Additions during 2006 957
Foreign exchange effects (20)
Accretion expense 264
---------------------------------------------------------------------------
Asset retirement obligation at September 30, 2006 4,944
---------------------------------------------------------------------------


The total undiscounted amount of estimated cash flows required to settle the obligations is $10,395 (2005 - $7,692). Future obligations have been discounted at the Company's credit adjusted risk-free rate of 9 percent (2005 - 9 percent) and an inflation rate of 2 percent (2005 - 2 percent). These obligations are expected to be paid in 2010 through 2021.

To date, Centurion has not retired any wells or facilities from its continuing operations, nor has it segregated or restricted any funds to fulfill these future liabilities and obligations. Such future obligations will be funded from future cash flows, including future salvage value on existing capital equipment.



10 Capital Stock

Authorized

Unlimited number of common shares
Unlimited number of preferred shares (none outstanding)

Number of
shares ($000s)
---------------------------------------------------------------------------
Balance at December 31, 2005 88,577,185 143,770

Issued on acquisition of working interest in
Concessions (Note 5) 1,000,000 12,100

Issued on exercise of options (including allocation 859,000 1,025
of contributed surplus)
---------------------------------------------------------------------------
Balance at September 30, 2006 90,436,185 156,895
---------------------------------------------------------------------------
---------------------------------------------------------------------------


($000s)
---------------------------------------------------------------------------

Balance - December 31, 2005 10,739

Stock based compensation 4,569
Stock based compensation associated with exercised options (171)
---------------------------------------------------------------------------
Balance - September 30, 2006 15,137
---------------------------------------------------------------------------
---------------------------------------------------------------------------


12 Stock Options

Weighted
Average
Share Options Exercise
Price ($)
---------------------------------------------------------------------------

Balance - December 31, 2005 7,052,533 5.87

Options exercised in 2006 (859,000) 0.99
Options forfeited in 2006 (6,000) 11.95
Options granted in 2006 910,000 7.70
---------------------------------------------------------------------------

Balance - September 30, 2006 7,097,533 6.69


For the three and nine month periods ended September 30, 2006 an expense of $2,095 and $4,569 (2005- $972 and $2,919) has been recorded in respect of employee stock options. This expense has been calculated using a Black-Scholes model assuming risk free rates ranging from 3.40 % to 4.05%, an average 3 year expected option life, share price volatility ranging from 38% - 56% and no dividend yield.



Weighted Average Stock Option Exercise Prices and Remaining Option Lives

Weighted-
Remaining
Average
Exercise Price Options Contractual Options
Range ($) Outstanding Life in Years Exercisable
---------------------------------------------------------------------------
0.46 - 1.63 2,075,366 1.1 2,075,366
---------------------------------------------------------------------------
3.05 - 3.40 1,458,667 2.8 1,458,667
---------------------------------------------------------------------------
6.98 - 8.09 880,000 4.7 416,667
---------------------------------------------------------------------------
9.47 - 11.25 165,000 3.6 50,000
---------------------------------------------------------------------------
11.95 - 12.25 1,493,500 4.0 800,000
---------------------------------------------------------------------------
13.70 - 13.85 875,000 3.4 281,667
---------------------------------------------------------------------------
14.13 - 17.80 150,000 3.4 50,000
---------------------------------------------------------------------------
7,097,533 5,132,367
---------------------------------------------------------------------------


13 Income from Terminated Acquisition

On February 22, 2006, the Company entered into a conditional purchase and sales agreement to acquire a private U.S. corporation. On April 13, 2006, the private U.S. Corporation terminated the Company's agreement and under the terms of the contract, the US$11.3 million deposit paid by the Company was returned to the Company in addition to a US$7.4 million ($8.5 million Canadian) agreement break fee. The $7.8 million reported as income from terminated acquisition on the statement of operations reflects the break-fee received, net of acquisition due diligence costs incurred by the Company prior to the termination of the agreement.



14 Interest and Finance Expense

For the three months ended September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Interest expense 2,381 297
Capitalized interest (1,814) -
----------------------------------------
Net interest expense 567 297

Other financing expense 109 -
----------------------------------------
Total interest and financing expense 676 295
----------------------------------------

For the nine months ended September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Interest expense 5,082 867
Capitalized interest (2,958) -
----------------------------------------
Net interest expense 2,124 867

Other financing expense 993 -
----------------------------------------
Total interest and financing expense 3,117 867
----------------------------------------


15 Earnings per Share

Per share basic amounts are calculated using the weighted average common shares outstanding during the period. Diluted per share amounts are calculated assuming all in the money securities are exercised with the resultant proceeds realized on the exercise of these securities being used to repurchase the Company's common shares at the average share price during the period.



For the three months ended September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Weighted-average number of common shares 90,161,544 88,330,390
Dilutive securities 2,568,287 3,857,895
----------------------------------------
Weighted-average number of diluted common
shares 92,729,831 92,188,285
----------------------------------------

For the nine months ended September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Weighted-average number of common shares 89,511,770 87,773,725
Dilutive securities 3,048,647 3,902,089
----------------------------------------
Weighted-average number of diluted common
shares 92,560,417 91,675,814
----------------------------------------


16 Supplemental Cash Flow Information

Cash taxes and interest

For the three months ended September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Cash taxes paid 15,050 7,211
Cash interest paid 2,381 297
---------------------------------------------------------------------------

For the nine months ended September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Cash taxes paid 40,536 17,146
Cash interest paid 5,082 867
---------------------------------------------------------------------------


17 Segmented Information

The Company has defined its continuing operations as oil and gas operations. The majority of the Company's oil and gas operations are located in Egypt. Certain exploration activities continue in other locations in Africa. Operations that have been discontinued are disclosed in Note 18.



Geographic Segments ($000s)

Canada
Three months ended Nigeria- and
September 30, 2006 Egypt Tunisia Sao Tome Other Total
---------------------------------------------------------------------------
Sales 47,914 - - - 47,914
---------------------------------------------------------------------------
Other Income 37 - - 139 176
---------------------------------------------------------------------------
Depletion
Depreciation and
Amortization 8,911 - - 94 9,005
---------------------------------------------------------------------------
Income Tax Expense 15,061 - - - 15,061
---------------------------------------------------------------------------
Net Income (Loss) 19,352 - 2 (6,705) 12,649
---------------------------------------------------------------------------
Capital Asset and
Material and Supplies
Expenditures 33,409 - 5,921 200 39,530
---------------------------------------------------------------------------


Canada
Nine months ended Nigeria- and
September 30, 2006 Egypt Tunisia Sao Tome Other Total
---------------------------------------------------------------------------
Sales 137,366 - - - 137,366
---------------------------------------------------------------------------
Other Income 114 - - 543 657
---------------------------------------------------------------------------
Depletion
Depreciation and
Amortization 28,337 - - 269 28,606
---------------------------------------------------------------------------
Income Tax Expense 40,547 - - - 40,547
---------------------------------------------------------------------------
Net Income (Loss) 52,098 - (43)(6,847) 45,208
---------------------------------------------------------------------------
Capital Assets 259,730 - 17,855 654 278,239
---------------------------------------------------------------------------
Materials and Supplies
Inventory 36,533 - - - 36,533
---------------------------------------------------------------------------
Capital Asset and
Material and Supplies
Expenditures 164,677 - 17,562 246 182,485
---------------------------------------------------------------------------



Canada
Three months ended Nigeria- and
September 30, 2005 Egypt Tunisia Sao Tome Other Total
---------------------------------------------------------------------------
Sales 28,844 - - - 28,844
---------------------------------------------------------------------------
Other Income 34 - - 342 376
---------------------------------------------------------------------------
Depletion
Depreciation and
Amortization 6,785 - - 82 6,867
---------------------------------------------------------------------------
Income Tax Expense 7,211 - - - 7,211
---------------------------------------------------------------------------
Net Income (Loss) 10,760 - - (3,164) 7,596
---------------------------------------------------------------------------
Capital Asset and
Material and Supplies
Expenditures 51,170 151 - 27 51,348
---------------------------------------------------------------------------


Canada
Nine months ended Nigeria- and
September 30, 2005 Egypt Tunisia Sao Tome Other Total
---------------------------------------------------------------------------
Sales 72,898 - - - 72,898
---------------------------------------------------------------------------
Other Income 88 - - 1,119 1,207
---------------------------------------------------------------------------
Depletion
Depreciation and
Amortization 21,131 - - 238 21,369
---------------------------------------------------------------------------
Income Tax Expense 17,146 - - - 17,146
---------------------------------------------------------------------------
Net Income (Loss) 25,790 - - (9,522) 16,268
---------------------------------------------------------------------------
Capital Asset and
Material and Supplies
Expenditures 109,743 433 - 131 110,307
---------------------------------------------------------------------------


Canada
Year ended Nigeria- and
December 31, 2005 Egypt Tunisia Sao Tome Other Total
---------------------------------------------------------------------------
Capital Assets 160,913 - 941 677 162,531
---------------------------------------------------------------------------
Materials and Supplies
Inventory 14,198 - - - 14,198
---------------------------------------------------------------------------


18 Discontinued Operations

In late 2004, the Company evaluated its ongoing operations in Tunisia and decided to pursue the sale of its operating assets in the country. The Company signed a purchase and sales agreement on February 25, 2005 for the sale of all the Company's Tunisian assets including SEEB, but excluding its interest in the Mellita Permit and a reduced interest in the Ezzaouia and El Biban Triassic prospects. On April 26, 2005, the sales transaction closed for final proceeds of $43.7 million.

Selected financial information for the operations included in discontinued operations for the nine months ended September 30, 2005 is reported below (there were no results for 2006):




($000s) September 30, 2005
---------------------------------------------------------------------------
Revenues 8,979
Income from discontinued operations before taxes 5,774
Income taxes 2,617
Loss on disposal of discontinued operations 683
Income from discontinued operations 2,474
---------------------------------------------------------------------------
---------------------------------------------------------------------------


19 Contingencies, Commitments

On June 30, 2005, Centurion awarded Presson-Enerflex a contract for the supply, delivery and project management of the El Wastani phase III stand alone gas plant in Egypt. This contract represents a US$32.3 million commitment which will be due and payable at project milestones throughout 2006 and is included in Centurion's 2006 capital budget. All amounts under the terms of the contract will be incurred in fiscal 2006.

Centurion has contracted four drilling rigs in connection with the 2006/2007 budgeted drilling program in Egypt. In the event that Centurion does not proceed with planned drilling with these rigs, the Company would be obligated to pay the rig operators a variable rate based on days not utilized under the contracts. The maximum commitment at September 30, 2006 related to these contracts is approximately US$7.8 million, which could be reduced by farm-outs to other operators.

In May 2004, Centurion was awarded the West El Manzala and West El Qantara blocks in the Nile Delta of Egypt. Centurion has committed to spend US$11 million on the West El Manzala block and US$7 million on the West El Qantara block during the first phase of exploration. These commitments are supported by performance bonds issued by BNP Paribas and supported by Export Development Canada. As at September 30, 2006, Centurion has fulfilled its spending commitment related to the West El Manzala block. Subsequent to quarter end, Centurion was notified that the US$11 million West El Manzala letter of guarantee was released by the Egyptian Government. As described in Note 5, Centurion currently holds a 100% working interest in these Concessions and as such is responsible for the entire obligation. Should Shell continue as a Concession owner following the initial five well exploration program, 50% of the remaining commitment will be transferred to Shell.

On March 14, 2006, the Company signed a Production Sharing Contract (PSC) and formal granting by the Joint Development Zone of its 10 percent (gross) equity interest, 9.5 percent (net) in Block 4 of the Nigeria/Sao Tome.

Under the PSC the Company has paid US$6.8 million, being its share of the total signature bonus. The Company will be obligated to pay US$5.0 million (net) for its share in the minimum expenditure of US$53 million for the block. This obligation is expected to be paid through 2007. This commitment is supported by a performance bond issued by BNP Paribas and supported by Export Development Canada.

20 Financial Instruments

Balance sheet financial instruments

Centurion's financial instruments presented on the Consolidated Balance Sheet consist of cash, accounts receivable, accounts payable and long-term debt. The estimated fair values of recognized financial instruments have been determined based on the Company's assessment of available market information and appropriate valuation methodologies; however, these estimates may not necessarily be indicative of the amounts that could be realized or settled in current market transactions. Based on these assessments, the carrying value of identified financial instruments approximates fair value.

Concentration of credit risk and economic dependence

Currently, all production of the Company is sold to one customer, the Egyptian Government. The Company is exposed to credit risk in the event that the Egyptian Government is unable to meet its financial obligations.

Contact Information

  • Centurion Energy International Inc.
    Said Arrata
    President and CEO
    (403) 263-6002
    or
    Centurion Energy International Inc.
    Paul McDougall
    VP Finance
    (403) 263-6002
    or
    Centurion Energy International Inc.
    Scott Koyich
    Investor Relations
    (403) 215-5979
    or
    Citigate Dewe Rogerson, London
    Martin Jackson
    +44 207 638 9571
    or
    Canaccord Adams Limited, London
    David Porter
    +44 20 7518 2777
    or
    Canaccord Adams Limited, London
    Tyler Broda
    +44 20 7518 2777