Churchill Energy Inc.
TSX VENTURE : CEI

Churchill Energy Inc.

April 12, 2007 21:49 ET

Churchill Announces 2006 Fourth Quarter and Year End Financial Results

CALGARY, ALBERTA--(CCNMatthews - April 12, 2007) - Churchill Energy Inc. (TSX VENTURE:CEI) ("Churchill") is pleased to announce operational and financial results for the fourth quarter and year ended December 31, 2006. Comparative numbers include the operating results of Outback Exploration Ltd. ("Outback") prior to the acquisition and the results of the consolidated entities after November 30, 2005.



FINANCIAL AND OPERATING HIGHLIGHTS

Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005 Change
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FINANCIAL ($, except
share data)

Oil and gas revenues,
before royalties 1,761,512 1,511,758 6,990,682 4,115,630 70%

Funds from operations 566,825 800,459 2,545,238 1,652,334 54%
Per Share - Basic
and diluted
($ per share) 0.02 0.06 0.10 0.10 0%

Net loss 1,944,514 259,443 1,604,672 1,179,626 36%
Per Share - Basic
and diluted
($ per share) 0.07 0.02 0.06 0.07 (14%)

Capital Expenditures,
net of dispositions 1,330,000 17,390,000 21,342,000 21,635,000 (1%)
Total assets 50,307,055 34,221,284 50,307,055 34,221,284 47%
Working capital
deficiency excluding
bank debt 4,229,994 867,695 4,229,994 867,695 387%
Bank debt - 675,000 - 675,000 (100%)

Weighted average shares
outstanding
Basic 28,995,967 13,595,135 26,581,544 16,799,970 58%
Diluted 29,022,791 14,010,202 26,756,694 16,907,255 58%

OPERATIONS (units as noted)

Average Daily
Production
Crude oil and
NGLs ($/bbl) 186 106 168 48 250%
Natural gas
(mcf/d) 1,474 972 1,544 981 57%
Barrels of oil
equivalent (boe/d) 432 268 425 211 101%

Average Product Prices
Received
Crude oil and
NGLs ($/bbl) 46.89 45.87 54.27 50.21 8%
Natural gas
($/mcf) 7.00 12.00 6.45 9.04 (29%)
Combined ($/BOE) 44.12 61.15 44.71 53.33 (16%)

Proven and probable
reserves
Oil and NGL (barrels) 730,000 487,000 50%
Natural gas (mcf) 12,951,000 6,040,000 115%
Combined (boe) 2,889,000 1,494,000 94%

Net present value,
discounted at 10%,
before tax 31,879,000 21,414,000 48%

Netback 24.01 31.32 25.30 26.84 (6%)

Wells Drilled
Gross 5 4 26 6 333%
Net 0.71 2.58 8.41 3.33 153%

Success 100% 72% 80% 67% 13%

Undeveloped land
(net acres) 57,115 47,413 57,115 47,413 20%


2006 HIGHLIGHTS

- Production averaged 425 boe per day in 2006 which is 101% higher than the 211 boe achieved in 2005. Fourth quarter production increased to 432 boe per day, a 61% increase over the same period in 2005. The increase in annual and fourth quarter production was due to the current year capital program, the Smoky acquisition in the second quarter of 2006, and the amalgamation of Outback and Churchill in December of 2005.

- Churchill realized funds from operations of $2.5 million ($0.10 per share) in 2006 compared to $1.7 million ($0.10 per share) in 2005. The 54% increase in 2006 cash flow was due to increased production volumes, slightly higher oil prices that offset the impact of lower natural gas prices and a lower effective royalty rate.

- Net loss for the year of $1.6 million was mainly attributed to the goodwill write-down of $1.8 million. Net income before goodwill impairment was $0.2 million compared to a net loss of $1.2 million in 2005.

- The Company drilled 26 gross wells (8.41 net), resulting in 12 oil wells (5.2 net), nine gas wells (1.46 net) and one (0.10 net) salt water disposal well, for an overall success rate, based on net wells of 80%. In the fourth quarter of 2006, Churchill drilled five gross wells (0.71 net wells) for a 100% success rate.

- At year end 2006, the Company's proved plus probable reserves almost doubled, standing at 2.9 million boe, compared to 1.494 million BOE at year end 2005. The Company's proved plus probable reserve life index is 10.4 years.

- During 2006, Churchill completed the following significant corporate transactions that have had a positive impact on the Company's operations.

-- Generated gross proceeds of $12.9 million by completing a private placement in March 2006 consisting of 4,644,500 common shares and 2,325,600 flow-through common shares at a price of $1.70 per common share and $2.15 per flow-through common share.

-- Completed the acquisition of an interest in a natural gas property in the Smoky area of West Central Alberta for a total of $9.55 million, prior to purchase price adjustments. The property included production, facilities, operatorship and 5,127 net acres of undeveloped land.

-- Completed the disposition of its non-operated production in SE Saskatchewan for cash consideration of $3.4 million, prior to purchase price adjustments.

-- Generated gross proceeds of $4 million by completing a private placement in November 2006 consisting of 3,200,000 flow-through common shares at a price of $1.25 per common share.

MESSAGE TO SHAREHOLDERS

2006 was an exciting and challenging year for Churchill. The oil and gas sector slowed down significantly due to the decline in natural gas prices that resulted in lower cash flows. This, however, did provide many juniors with the opportunity to access services that had otherwise been unavailable in late 2005 and early 2006. The federal government's surprise announcement on October 31st to tax the royalty trusts had a negative impact on the share prices of many juniors, including Churchill.

The Company took a major step by purchasing a significant position in the Smoky property and becoming the operator of the property. The acquisition in April increased the Company's presence in the deep basin and the Smoky property has become the focus of the Company's capital program for 2006 and 2007. The Company also successfully acquired one other small working interest partner in Smoky thus consolidating its position in the area. In the fourth quarter Churchill commenced drilling its first operated well (0.85 net) in the area and the well was cased as a potential gas well. The 1-16-59-2W6 well has been completed in six cretaceous zones. The Company was in the process of drilling out the plugs to flow the well for clean up and tie-in when road bans were put on and the Company was forced to shut down operations. Typically operations can continue until the end of March, however, the unseasonably warm weather and rainfall in the area resulted in an early spring break-up. Operations to complete and tie-in the 1-16 well will resume in mid July, or later depending on road conditions. In addition, the Company participated in drilling another well in the area at 8-17-59-2W6 (0.125 net) and the well was successfully completed in four Cretaceous zones and is currently producing at a rate of 575 mcf/d. Churchill also shut-in production from its 13-10-59-2W6M (0.85 net) well in November 2006 in order to complete an additional zone in the well. This operation was a challenging one as the Bluesky zone that was completed was below the producing Dunvegan and Falher zones. The Company was able to get the well back on production and it is currently producing at 510 mcf/d. Additional 3D seismic was also acquired and combined with this winters drilling activity the Company has identified a number of locations on its lands for future drilling.

The Company participated in a successful farmin opportunity in the Alexander area which resulted in the drilling of 13 wells in 2006 with an 82% success rate. The majority of the production from this project came on in late 2006 and early 2007.

Churchill did have challenges during the year as the Company had early indications of a successful Bow Island natural gas play in southern Alberta, however, due to a limited reservoir and increased water volumes, the wells were suspended.

Churchill successfully raised $16.9 MM in capital during the year in two financings which were completed in March and November. The March financing was done in order to acquire the Smoky property and to fund the Company's capital program. The November financing was to fund ongoing exploration activities as a result of our increased working interests and capital commitments in the Smoky area.

Business Strategy

Churchill intends to take a balanced approach to its growth by offsetting its drilling risk with strategic acquisitions which complement its asset base. Churchill believes that having a balanced commodity mix is the best strategy in today's environment; however the Company is and will continue to be opportunity driven.

The Company strives to operate and have high working interests in its properties and prospects which provide Churchill with the ability to control its operating and capital costs.

Industry Conditions

Escalating service costs combined with falling natural gas prices over the past year was cause for the industry to reconsider and delay some drilling programs due to economics. In addition the volatility in natural gas prices which resulted in the deferral of some drilling programs has not only resulted in services being available but expectations that costs will be lowered. The recent cold weather in North America has resulted in natural gas storage withdrawals that are substantially ahead of last year's withdrawals and resulted in firmer natural gas prices in the first quarter of 2007.

Outlook for 2007

The Company is now focused in three areas in Alberta where it holds high working interests and is the operator. In the deep basin in West Central Alberta which includes the Smoky and Chime properties, in the Grand Forks area of Southern Alberta, and at Killam, in Central Alberta. The Company has two non-operated properties, one being at Alexander, in Central Alberta where the Company will participate in drilling a number of wells primarily targeting natural gas. The other is in SW Saskatchewan where the Company has a 50% working interest and is continuing to evaluate its undeveloped land position.

Churchill has a planned capital budget of $10 million which anticipates drilling approximately 12 (3.42 net) wells in Smoky, Chime and Alexander. The Company at the time of writing this report has production capability of 600 boe/d of which 500 boe/d is currently on production. Completion results from the 1-16 well at Smoky will now be delayed until the third quarter, but based on logs and initial flow back information, should deliver increased production. In addition, Churchill will be proceeding with the drilling of another location at Smoky in the fall of 2007. The Company also anticipates drilling activity on its land base in Chime in 2007. Both of these areas have the potential to add significant production volumes and reserves to the Company. With the inventory of drilling locations in the deep basin at Chime and Smoky, the waterflood project at Grand Forks, identified drilling locations in Alexander and Killam, Churchill is poised to deliver solid, sustainable growth in production, reserves and cash flow and more importantly, shareholder value in 2007.

Acknowledgements

First, we wish to thank our shareholders for their continued support and commitment to the Company. We wish to thank the Board of Directors for their active guidance along with their substantive input and direction. We also wish to thank the entire Churchill team for their valued contribution to the Company over the past year.

On behalf of the Board of Directors,

Kelly D. Cowan, Chief Executive Officer

James P. Baker, President

April 12, 2007

MANAGEMENT DISCUSSION AND ANALYSIS

Introduction

Pursuant to a merger agreement with Outback Exploration Ltd. ("Outback"), which was incorporated on May 8, 2003 under the laws of Alberta, the shareholders of Outback exchanged their shares on a 4 to 1 basis for Churchill Energy Inc. ("Churchill") shares on November 30, 2005. Churchill was continued as an Alberta corporation on June 29, 2006. All historical share amounts have been restated to reflect this conversion.

The transaction was accounted for as a reverse takeover of Churchill by Outback. The Outback shareholders held approximately 55% of the outstanding shares of the combined entity following the acquisition.

The comparative financial statements of the Company for the year ended December 31, 2005 include the operating results of Outback prior to the acquisition and the results of the consolidated entities after November 30, 2005.

Churchill's head office is based in Calgary, Alberta, Canada. Common shares of the Company are listed and posted for trading on the TSX Venture Exchange ("TSX.V") under the symbol "CEI".

The following management's discussion and analysis ("MD&A") should be read in conjunction with the Company's audited financial statements and related notes for the year ended December 31, 2006, and the audited consolidated financial statements for the year ended December 31, 2005. This MD&A is effective April 12, 2007. The accompanying financial statements of Churchill have been prepared by management and approved by the Company's Audit Committee and Board of Directors. These financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Additional information relating to Churchill can be found on the SEDAR website at www.sedar.com.

Non-GAAP Financial Measurements

This document contains the terms "funds from operations" and "operating netbacks", which do not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Churchill uses funds from operations and operating netbacks as key measures of performance. Funds from operations and operating netbacks are not intended to represent operating profits nor should they be viewed as an alternative to cash flow provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. The reconciliation between net earnings and funds from operations can be found in the statement of cash flows included in the financial statements. Operating netbacks are determined by deducting royalties, production expenses and transportation and selling expenses from oil and gas revenue. The Company calculates funds from operations per share using the same method and shares outstanding that are used in the determination of earnings per share.

Other Measurements

All dollar amounts are referenced in Canadian dollars, except when noted otherwise. Where amounts are expressed on a barrel of oil equivalent ("BOE") basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel. The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. References to oil in this discussion include crude oil and natural gas liquids ("NGLs"). NGLs include condensate, propane, butane and ethane.

Advisory Regarding Forward looking Statements

Statements throughout this MD&A that are not historical facts may be considered to be "forward looking statements". These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe Churchill's objectives, goals, or future, including management's assessment of future plans and operations, production estimates and expected production rates, timing of tie-ins and the effect of delays in tieing-in wells and the effects of third party compressor issues and other infrastructure issues, levels of decline rates and the effects thereof, expected royalty rates, expected general and administrative expenses and other expenses, effects of the results of successful wells, expected level of capital expenditures and the method of funding them, the ability to incur qualifying expenditures renounceable to purchasers of flow-through shares and the expected levels of activities and results of operations of Churchill may constitute forward looking information under securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence Churchill's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly no assurance can be given that any events anticipated by the forward looking statements will transpire or occur, or, if any of them do so, what benefits Churchill will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Churchill's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), at Churchill's website (www.churchillenergy.ca). Furthermore, the forward looking statements contained in this MD&A are made as at the date of this MD&A and Churchill does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Growth Strategy

Churchill's growth strategy is based on its ability to implement a full cycle exploration program and at the same time acquire assets and companies that have identified upside and operational synergies. To date this strategy has been successful for the Company as evidenced by our property and corporate acquisitions in 2005 and the Smoky property acquisition in 2006. With the amalgamation of Outback and Churchill into the "new" Churchill, we have assembled a seasoned team of experienced professionals to take advantage of these opportunities. Churchill expects that its growth strategy will result in increased funds from operations per share, net asset value per share and production per share.



RESULTS OF OPERATIONS

Production

Churchill's average daily production volumes and commodity splits were as
follows:

----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
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Crude Oil and NGLs (bbls/d) 186 106 168 48
Natural Gas (mcf/d) 1,474 972 1,544 981
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Total (boe/d) 432 268 425 211
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Production Split (%)
Crude Oil and NGLs 43% 40% 40% 23%
Natural Gas 57% 60% 60% 77%

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Total 100% 100% 100% 100%
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Oil and gas production in 2006 increased 101% to average 425 boe/d compared to 211 boe/d in 2005. Average production in the fourth quarter of 2006 was 432 boe/d. The increase is mainly due to the current year capital program, the Smoky acquisition in the second quarter of 2006 and the amalgamation of Outback and Churchill in December of 2005.

Churchill's production is based in Alberta and Saskatchewan and is divided into four core areas. In Southern Alberta, the Company's primary oil producing property is located at Grand Forks. In Central Alberta, the principal producing properties are located at Killam and Alexander, which produce primarily natural gas. In West Central Alberta, Churchill's production is sweet gas and NGLs from Chime and Smoky. In Southeast Saskatchewan, the Company produced light oil at Stoughton, Hastings, Star Valley and Elswick.



The following table provides a summary of daily average production in each
core area:

(BOE/d) Years ended December 31, 2006 2005
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Southern Alberta 137 38
Central Alberta 111 96
West Central Alberta 139 73
South East Saskatchewan 37 3
Minor Properties 1 1
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425 211
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Realized Prices

The Company sells the majority of its production at market prices, with its oil based mainly on Bow River Hardisty reference price and its natural gas based on Alberta's AECO daily spot reference price, both adjusted for quality differentials.



Benchmark prices and Churchill's realized average prices are as follows:

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Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
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Benchmark prices
Bow River Hardisty ($/bbl) 45.48 43.68 51.54 45.62
AECO natural gas ($/mmbtu) 6.91 11.36 6.51 8.73
Average realized prices
Crude Oil and NGLs ($/bbl) 46.89 45.87 54.27 50.21
Natural gas ($/mcf) 7.00 12.00 6.45 9.04
Combined ($/boe) 44.12 61.15 44.71 53.33
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The Company realized a premium to the AECO daily spot price in the fourth quarter of 2006 due to increased production in Alexander. The natural gas production from Alexander has high heat content, which receives a higher energy value. The Company also received a premium to the Bow River Hardisty reference price due to its SE Saskatchewan production which is marked against light sour crude oil.

Management regularly assesses the risk associated with fluctuating commodity prices. In November 2006, the Company entered into the following costless collar contracts as part of its risk management and cash flow strategy.



Type Volume Price Index Term
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Costless Collar 500 GJ/d Cdn $6.50 to $11.00 AECO Jan to Mar 2007
Costless Collar 500 GJ/d Cdn $6.50 to $8.50 AECO Apr to Oct 2007
Costless Collar 500 GJ/d Cdn $6.50 to $11.00 AECO Nov to Dec 2007


In addition subsequent to the year end, Churchill entered into the following financial derivative contract.



Type Volume Price Index Term
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Swap 400 GJ/d Cdn $6.57 AECO Feb to Dec 2007


Revenue

Revenue increased to $7.0 million in 2006 compared to $4.1 million in 2005. The increase in revenue was attributable to higher production volumes offset by an average lower price per boe for the year. Average crude oil and NGL prices received increased by 8% to $54.27 per bbl. while average natural gas prices received decreased by 29% to $6.45 per mcf.



A breakdown of revenue is as follows:

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Three Months Ended Year Ended
December 31, December 31,
$ 2006 2005 2006 2005
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Oil and NGL sales 803,304 465,451 3,327,945 897,561
Natural gas sales 949,360 1,040,751 3,613,908 3,211,796
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Total commodity revenue 1,752,664 1,506,202 6,941,853 4,109,357
Other revenue 8,848 5,556 48,829 6,273
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Total 1,761,512 1,511,758 6,990,682 4,115,630
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Operating Netbacks

Churchill's operating netback decreased 6% to $25.30 per boe in 2006 compared to $26.84 per boe in 2005. The decrease in netbacks is primarily due to a decline in natural gas prices. Higher oil prices in 2006 and a decrease in the effective royalty rate partially offset the lower natural gas prices.



The components of operating netbacks are shown below:

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Three Months Ended Year Ended
December 31, December 31,
$ per BOE 2006 2005 2006 2005
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Average sales price 44.12 61.15 44.71 53.33
Other revenue 0.22 0.23 0.31 0.08
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Total revenue 44.34 61.38 45.02 53.41
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Royalties (5.28) (10.14) (1.71) (8.73)
Transportation (0.90) (0.38) (1.08) (1.51)
Operating costs (14.15) (19.54) (16.93) (16.33)
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Operating Netback 24.01 31.32 25.30 26.84
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Royalties, net of Alberta royalty tax credits decreased to $1.71 per boe compared to $8.73 per boe in 2005. Royalties as a percentage of commodity revenue decreased to 4% compared to 16% in 2005. The low royalty rate for 2006 is mainly attributed to the Crown adjustment for gas cost allowance associated with asset acquisitions in 2005.

Operating costs increased to $16.93 per boe compared to $16.33 per boe in 2005. In general, operating costs in 2006 have experienced price pressures in response to high activity levels in the sector, competition for services and higher energy costs.

Operating costs for the fourth quarter of 2006 were $14.15 per boe. The lower operating cost was mainly attributed to the rental compressor purchase in Smoky and higher production volumes. Churchill expects lower operating costs in 2007 as the Company increases its production.

General and Administrative

General and administrative expenses in 2005 include those of Outback prior to the acquisition and expenses of the consolidated entities after November 30, 2005. The increase in general and administrative expenses from $3.69 per boe in 2005 to $6.82 in 2006 is mainly attributed to current year expenses including those of the combined entity for the full year.



The following is a breakdown of G&A expense:

----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31, December 31,
$, except per BOE amounts 2006 2005 2006 2005
----------------------------------------------------------------------------
General and administrative
- gross 378,854 36,523 1,669,633 545,970
Overhead recoveries (113,977) (78,030) (390,565) (173,087)
Capitalized (58,500) (20,000) (219,700) (87,500)
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General and administrative
- net 206,377 (61,507) 1,059,368 285,383
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$ per boe 5.19 (2.49) 6.82 3.69
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Stock Based Compensation

Stock-based compensation expense is the amortization over the vesting period of the fair value of stock options granted to employees, consultants and directors of the Company. The fair value of all options granted is estimated at the grant date using the Black-Scholes option pricing model.

Stock based compensation expense of $743,541 ($4.79 per boe) was recorded in 2006 compared to $678,071 ($8.80 per boe). The decrease on a per boe basis is mainly attributed to higher production volumes.



The following assumptions were used to calculate stock based compensation
expense:

2006 2005
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Risk-free interest rate 4.03% 4.17%
Expected life (year) 5 5
Expected volatility 65% 60%
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Expected dividend yield 0% 0%
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Interest and Financing Expenses

Interest and financing charges increased to $277,655 in 2006 from $111,175 due to an increase in short-term interest rates and higher debt balances as a result of the Company's capital expenditure program. Interest expense also includes Part XII.6 tax on flow through expenditures of $106,440 in 2006 and $44,226 in 2005.



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Three Months Ended Year Ended
December 31, December 31,
$, except per BOE amounts 2006 2005 2006 2005
----------------------------------------------------------------------------
Interest and financing
expenses 170,035 5,362 277,655 111,175
$ per boe 4.28 0.22 1.79 1.44
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Depletion, Depreciation and Accretion

The depletion, depreciation and accretion ("DD&A") rate decreased to $21.40 per boe in 2006 from $30.64 per boe in 2005. The decrease in the depletion rate is mainly due to an increase in salvage values and reserves added during the year. The DD&A rate will fluctuate from one period to the next depending on the amount and type of capital spending and the amount of reserves added.

Accretion expense was higher in 2006 primarily as a result of additional liabilities associated with the Smoky acquisition, new drilling activity and revisions in the amount and timing in estimated retirements.



A breakdown of the DD&A rate as follows:

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Three Months Ended Year Ended
December 31, December 31,
$, except per BOE amounts 2006 2005 2006 2005
----------------------------------------------------------------------------
Depletion and Depreciation
expense 1,080,683 503,602 3,251,662 2,331,258
Accretion expense 22,701 12,604 70,797 29,647
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1,103,384 516,206 3,322,459 2,360,905
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$ per boe 27.77 20.94 21.40 30.64
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Ceiling Test

The Company performed a ceiling test calculation at December 31, 2006 in accordance with CICA full-cost accounting guidelines. As a result of the calculation, Churchill was not required to record an impairment loss. In addition, based on the calculation conducted at December 31, 2005, there was no impairment loss required. The forecasted future oil and gas prices for the next 5 years used in the ceiling test evaluation of the Company's proved reserves at December 31, 2006 is included in the notes to the financial statements.

Goodwill

The goodwill balance of $1.8 million arose as a result of the reverse take-over of Churchill by Outback on November 20, 2005. The goodwill balance was determined based on the excess of total consideration paid plus the future income tax liability less the fair value of the assets for accounting purposes acquired in the transaction.

Accounting standards require that the goodwill balance be assessed for impairment at least annually or more frequently if events or changes in circumstances indicate that the balance might be impaired. If such impairment exists, it would be charged to income in the period in which the impairment occurs. The Company has determined that goodwill was impaired as of December 31, 2006. Therefore a goodwill impairment charge of $1.8 million has been charged to income in 2006.

Taxes

The Company has a future income tax recovery of $1.6 million for the year ended December 31, 2006 compared to a future income tax recovery of $0.2 million for the year ended December 31, 2005. The increase in the future income tax recovery relates mainly to a reduction in federal, Alberta and Saskatchewan income tax rates in 2006. The future income tax recoveries in the reporting periods reflect reduction to future tax rates, excesses of tax pools over accounting values, and tax pool adjustments from the prior year.

Current tax recorded of $16,231 relates to the Saskatchewan capital tax and resource surcharge on properties operated in that province.



The following deductions are available for future income tax purposes:

$ 2006 2005
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Undepreciated capital cost 10,564,163 4,921,156
Canadian development expense 4,981,042 1,706,151
Canadian exploration expense 5,580,330 3,351,642
Canadian oil and gas property expense 12,380,438 7,106,551
Non-capital loss carry forward 3,441,573 1,065,612
Share issue costs 1,418,002 472,689
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Total 38,365,548 18,623,801
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Net loss and Funds from Operations

Net loss for the year ended December 31, 2006 was $1.6 million ($0.06 per share, basic and fully diluted). The net loss for the year was mainly attributed to the goodwill impairment write-down of $1.8 million in connection with the reverse take-over of Churchill by Outback. Net income before goodwill impairment was $0.2 million ($0.01 per share, basic and fully diluted). During the same period, funds from operations were $2.5 million ($0.10 per share, basic and fully diluted).

INVESTMENT AND INVESTMENT EFFICIENCIES

Capital Expenditures

Capital expenditures for field operations in 2006 were $13.9 million which included the drilling of 12 oil wells (5.2 net), nine gas wells (1.46 net) and one (0.10 net) salt water disposal well, for an overall success rate, based on net wells of 80%.

Twelve oil wells were drilled consisting of four (4 net) wells in the Grand Forks area of Southern Alberta, six (0.80 net) wells in Southeast Saskatchewan and two (0.40 net) wells in the Alexander area of Central Alberta. Nine gas wells were drilled consisting of one (0.125 net) well in the Smoky area of West Central Alberta and eight (1.33 net) wells in the Alexander area of Central Alberta. One (0.10 net) salt water disposal well was drill in the Alexander area of Central Alberta.

Investments in facilities of $3.7 million for 2006 include the purchase of the rental compressor in Smoky for $1.0 million which has contributed to the reduction of operating costs in the fourth quarter.

Property acquisitions of $10.6 million for 2006 relate mainly to the Smoky property purchased in the second quarter of 2006. In addition, included in property acquisitions is an additional minor working interest in Chime purchased for shares in the amount of $0.3 million. Property disposition of $3.2 million in 2006 relates to the disposition of non-operated oil production in SE Saskatchewan.



A breakdown of capital expenditures and net acquisitions is shown below:

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Three Months Ended Year Ended
December 31, December 31,
$M 2006 2005 2006 2005
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Land and lease 117 79 463 355
Geological and geophysical - 699 727 890
Drilling and completions 3,950 1,500 8,820 3,281
Equipment and facilities 387 189 3,698 1,553
Capitalized administration 58 20 220 88
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4,512 2,487 13,928 6,167
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Office and other 14 99 50 111
Property acquisitions (1) - 728 10,560 1,534
Property dispositions (1) (3,196) (200) (3,196) (453)
Corporate acquisitions - 14,276 - 14,276
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Net Capital Expenditures 1,330 17,390 21,342 21,635
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(1) Value is net of post closing adjustments


At December 31, 2006, the Company had an estimated $7.3 million remaining obligation to incur Canadian Exploration Expenditures of which $7.3 million is required to be spent by December 31, 2007. Approximately $3.4 million has been incurred to date.

Finding, Development and Acquisition Costs

During 2006, the Company's capital expenditures, net of dispositions, resulted in proved plus probable reserve additions (before technical revisions) of 1.8 million boe, resulting in finding, development and acquisition ("FD&A") costs of $11.62 per boe (before future capital) and $19.89 (including future capital). After technical revisions, FD&A costs were $13.77 per boe (before future capital) and $23.58 (including future capital). Technical revisions on a proved and proved plus probable basis relate mainly to the Bow Island gas play. After early encouraging results from two re-completions, the initial gas production declined quickly and produced ever-increasing amounts of water and the wells were suspended at the end of November 2006.

Included in Churchill's FD&A costs are $3.2 million (proved) in future capital for the Smoky 1-16 well, however, minimal reserves were assigned as a result of the completion being delayed to the third quarter of 2007. On a proved plus probable basis, $13.2 million is included in future capital for two additional wells at Smoky as well as the capital for the 1-16 well. It is the Company's view the reserves given to the 1-16 well and the two additional Smoky wells do not reflect the potential of these wells and anticipate a reduction to FD&A costs on a proved and proved plus probable basis once the Company finishes the Smoky 1-16 completion.

The recycle ratio is a measure for evaluating the effectiveness of a company's re-investment program. The ratio measures the efficiency of capital investment. It accomplishes this by comparing the operating netback per boe to that years' reserve FD&A cost per boe. Churchill's recycle ratio has been negatively impacted by the delay in the Smoky 1-16 completion program; however, the Company expects this ratio to improve once the completion is finished. Churchill has a recycle ratio of 1.07 times on a proved plus probable basis.



The following table provides detailed calculations relating to FD&A costs
and recycle ratios for 2006 and 2005:

2006 2005
----------------------------------------------------------------------------
Proved + Proved +
Proved Probable Proved Probable
----------------------------------------------------------------------------
Capital costs ($M) 21,342 21,342 21,636 21,636
Future capital cost required
to develop reserve 5,392 15,200 2,129 1,474
----------------------------------------------------------------------------
Total capital costs 26,734 36,542 23,765 23,110
----------------------------------------------------------------------------
Reserve additions,
before revisions (MBOE) 921 1,837 774 958
----------------------------------------------------------------------------
FD&A cost, before revisions
and future capital ($/BOE) 23.17 11.62 27.95 22.58
FD&A cost, before revisions
including future
capital ($/BOE) 29.02 19.89 30.70 24.12
----------------------------------------------------------------------------
Reserve additions,
including revisions (MBOE) 625 1,550 828 1,020
----------------------------------------------------------------------------
FD&A cost, including revisions,
before future capital ($/BOE) 34.16 13.77 26.13 21.21
FD&A cost, including revisions
and future capital ($/BOE) 42.79 23.58 28.70 22.66
----------------------------------------------------------------------------
Operating Netbacks ($/BOE) 25.30 25.30 26.84 26.84
Recycle ratio 0.59 1.07 0.94 1.18
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Reserves

Churchill retains GLJ Petroleum Consultants ("GLJ"), an independent qualified reserve evaluator, to prepare a report on its oil and gas reserves excluding its Alexander property. The report for the Alexander property is prepared by Sproule Associates Limited, also an independent qualified reserve evaluator. The Company's Board of Directors acts as the Reserves Committee and oversees the selection, qualifications and reporting procedures of the independent engineering consultants. Reserves as at December 31, 2006 were determined using the guidelines and definitions set out under National Instrument 51-101 ("NI 51-101"). At December 31, 2006, Churchill's proved plus probable reserves were 2.9 million BOE, up 93% from 1.494 million boe at the end of 2005.

The following table outlines the change in the Company's reserves year-over-year.



Reserve Reconciliation (Escalated pricing)
Gross Reserves (1)
----------------------------------------------------------------------------
Crude Oil & NGL (mbbl) Natural Gas (mmscf)
----------------------------------------------------------------------------
Proved Probable Total Proved Probable Total
----------------------------------------------------------------------------

December 31, 2005 382 105 487 4,593 1,447 6,040
Technical revisions 133 113 246 (2,574) (620) (3,194)
Exploration discoveries 4 1 5 1,381 109 1,490
Drilling extensions 10 24 34 1,409 3,226 4,635
Infill drilling 5 (5) - 1 (1) -
Improved recovery - - - 5 - 5
Acquisitions 28 16 44 2,556 1,985 4,541
Sold (18) (6) (24) (2) - (2)
Production (61) - (61) (564) - (564)

----------------------------------------------------------------------------
December 31, 2006(2) 483 247 730 6,805 6,146 12,951
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
BOE (mboe)
----------------------------------------------------------------------------
Proved Probable Total
----------------------------------------------------------------------------

December 31, 2005 1,148 346 1,494
Technical revisions (296) 10 (287)
Exploration discoveries 235 19 253
Drilling extensions 245 561 807
Infill drilling 5 (5) -
Improved recovery 1 - 1
Acquisitions 454 347 801
Sold (18) (6) (24)
Production (155) - (155)

----------------------------------------------------------------------------
December 31, 2006(2) 1,617 1,271 2,889
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Based on GLJ's January 1, 2007 escalated price forecast.
"Gross reserves" are the total Company's working interest share before
the deduction of any royalties.

(2) Table may not add due to rounding.


Summary of Oil & Gas Reserves as of December 31, 2006 (1)
----------------------------------------------------------------------------
Oil (mstb) Gas (mmscf) NGL (mbbls) Total (mboe)
----------------------------------------------------------------------------
Reserves Category (2) Gross Net Gross Net Gross Net Gross Net
----------------------------------------------------------------------------
Proved
Developed Producing 306 293 5,180 4,092 25 15 1,193 990
Developed Non-Producing - - 198 161 1 1 34 28
Undeveloped 142 110 1,427 1,071 9 6 390 294
----------------------------------------------------------------------------
Total Proved 448 402 6,805 5,324 35 23 1,617 1,312
----------------------------------------------------------------------------

Probable 206 166 6,146 4,430 42 26 1,271 931

----------------------------------------------------------------------------
Total Proved Plus
Probable(3) 653 569 12,951 9,754 77 49 2,889 2,243
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Based on GLJ's January 1, 2007 escalated price forecast.

(2) "Gross reserves" are the total Company's working interest share before
the deduction of any royalties. "Net reserves" are the total Company's
working interest share after deducting royalties.

(3) Table may not add due to rounding.


Summary of Pricing and Inflation Rate Assumptions Forecast Prices & Costs
----------------------------------------------------------------------------
Edmonton
WTI Cushing Par Price Hardisty Heavy Cromer Medium
Oklahoma 40 degrees 12 degrees 29.3 degrees
Year ($US/bbl) API ($Cdn/bbl) API ($Cdn/bbl) API ($Cdn/bbl)
----------------------------------------------------------------------------
Forecast
2007 62.00 70.25 39.25 61.25
2008 60.00 68.00 40.00 59.25
2009 58.00 65.75 39.75 57.25
2010 57.00 64.50 39.75 56.00
2011 57.00 64.50 40.25 56.00
2012 57.50 65.00 41.50 56.50
2013 58.50 66.25 42.50 57.75
2014 59.75 67.75 43.50 59.00
2015 61.00 69.00 44.25 60.00
2016 62.25 70.50 45.25 61.25
2017 63.50 71.75 46.00 62.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Natural Gas
AECO Gas Inflation Exchange
Price Rate (1) Rate(2)
Year (Cdn/MMBtu) %/Year ($US/$Cdn)
----------------------------------------------------------------------------
Forecast
2007 7.20 2.0 0.87
2008 7.45 2.0 0.87
2009 7.75 2.0 0.87
2010 7.80 2.0 0.87
2011 7.85 2.0 0.87
2012 8.15 2.0 0.87
2013 8.30 2.0 0.87
2014 8.50 2.0 0.87
2015 8.70 2.0 0.87
2016 8.90 2.0 0.87
2017 9.10 2.0 0.87
----------------------------------------------------------------------------

(1) Inflation rate for forecasting prices and costs
(2) Exchange rate used to generate the benchmark reference prices in this
table


Production Replacement

----------------------------------------------------------------------------
Proved Proved + Probable
----------------------------------------------------------------------------
Oil Gas Total Oil Gas Total
Year ended December 31, 2006 Mbbls Mmcf MBOE Mbbls Mmcf MBOE
----------------------------------------------------------------------------
Reserve addition, including
revisions 162 2,776 625 304 7,475 1,550
2006 production 61 564 155 61 564 155
Production replacement ratio 2.7 4.9 4.0 5.0 13.3 10
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Net Asset Value

Churchill's net asset value at December 31, 2006 increased to $41.5 million, up 17% from $35.4 million at December 31, 2005. On a per share basis, net asset value decreased 15% to $1.34 per share. The decrease is mainly attributable to lower natural gas prices. In addition, due to the delay in the completion of the Smoky 1-16 well, the Company did not receive full value for its reserves from Smoky. Churchill anticipates an increase to net asset value per share once the Company finishes the Smoky 1-16 completion in the third quarter of 2007. The present value of petroleum and natural gas ('P&NG") reserves was determined by GLJ in its year end evaluation report using forecast prices. Undeveloped land at December 31, 2006 was valued at an average price of $200 per acre. The components of net asset value are summarized in the following table:



Net Asset Value at December 31 (M$) 2006 2005
----------------------------------------------------------------------------
Present value of P+P Reserves discounted at 10%,
before tax 31,879 21,414
Undeveloped land 11,423 10,648
Other assets 2,385 1,950
Stock option proceeds - 2,906
Bank debt, net working capital (4,230) (1,543)
----------------------------------------------------------------------------
Net asset value 41,457 35,375
----------------------------------------------------------------------------
Diluted common shares outstanding (thousands) 31,048 22,388
Net asset value per share ($/share) $1.34 $1.58
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CAPITAL RESOURCES AND LIQUIDITY

Market Capitalization

The Company's total capitalization decreased to $36.2 million at December 31, 2006. The decrease is mainly due to the lower share price at December 31, 2006.



---------------------------------------------------------------------------
As at December 31
$M, except per share amounts 2006 2005
----------------------------------------------------------------------------

Common shares outstanding 31,048 20,603

Share price (last price traded
at in the year) 0.89 1.75

Market capitalizatio 27,633 76% 36,055 85%
Bank debt, net of working capital 4,230 12% 1,543 4%
Asset retirement obligation 1,918 5% 854 2%
Future income taxes 2,466 7% 3,721 9%
----------------------------------------------------------------------------
Total capitalization 36,247 100% 42,173 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Source of Funds

Investment fundraising for capital expenditures incurred in 2006 was provided by proceeds from equity financings, bank debt and cash provided by operating activities.

During 2006, Churchill completed the following significant corporate transactions that have had a positive impact on the Company's operations.

- On March 23, 2006 the Company closed a private placement of 4,644,500 common shares and 2,325,600 flow-through common shares at a price of $1.70 per common share and $2.15 per flow-through common share for gross proceeds of $12.9 million.

- On April 20, 2006 Churchill closed its acquisition of an interest in a natural gas property in the Smoky area of West Central Alberta for a total of $9.55 million, prior to purchase price adjustments.

- On November 15, 2006 the Company closed the disposition of its non-operated production in SE Saskatchewan for cash consideration of $3.4 million, prior to purchase price adjustments.

- On November 29, 2006 the Company closed a private placement of 3,200,000 flow-through common shares at a price of $1.25 per common share for gross proceeds of $4 million.

Churchill has an $11 million revolving operating demand loan with a Canadian chartered bank and a $2.5 million non-revolving acquisition/development demand loan. At December 31, 2006 nil was drawn against the credit facilities leaving sufficient unused credit lines available to fund working capital deficiencies and future capital expenditures.

Churchill expects to fund all future capital expenditures through cash provided by operating activities and bank debt, supplemented by new equity share offerings, as required.

Working Capital

The capital intensive nature of Churchill's activities creates a working capital deficiency position during periods with high levels of capital investment. However, during such periods, the Company maintains sufficient unused bank credit lines to satisfy such working capital deficiencies.

Churchill actively manages the pace of its capital spending program by monitoring forecasted production and commodity prices and resulting cash flows. Should circumstances affect cash flow in a detrimental way, the Company is capable of reducing capital investment levels.

Share Information

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares. As at April 12, 2007 there were 31,048,141 common shares outstanding. There were no preferred shares outstanding. Detailed information regarding the Company's stock options outstanding is contained in the notes to the financial statements.

Contractual Obligations

Churchill has a demand revolving credit facility with a Canadian chartered bank. Additional disclosure relating to bank debt is provided in the notes to the financial statements.

From time to time, the Company enters into agreements to transport and market oil and gas production. In addition, the Company has entered into agreements with third parties that provide employees with access to specialized computer software and information including production and reserves data, geological data, accounting systems and land management systems.

The Company uses financial derivative contracts to manage its exposure to fluctuation in commodity prices. Additional disclosure relating to financial instruments is provided in the note to the financial statements.

At December 31, 2006, the Company has an obligation to incur Canadian Exploration Expenditures of approximately $7.3 million prior to December 31, 2007. Approximately $3.4 million has been incurred to date.

As a normal course of business, the Company leases office space and office equipment such as computers, printers and photocopiers.

Critical Accounting Estimates

Churchill's financial and operating results incorporate certain estimates including:

- estimated revenues, royalties and operating expenses on production as at a specific reporting date but for which actual revenues and expenses have not yet been received;

- estimated capital expenditures on projects that are in progress;

- estimated depletion, depreciation and accretion that are based on estimates of oil and gas reserves that the Company expects to recover in the future, estimated future salvage values, and estimated future capital costs;

- estimated fair values of derivative contracts that are subject to fluctuation depending upon the underlying commodity prices and foreign exchange rates;

- estimated value of asset retirement obligations that are dependent upon estimates of future costs and timing of expenditures;

- estimated income and other tax liabilities requires interpretation of complex laws and regulations. All tax filings are subject to audit and potential reassessment after the lapse of considerable time.

The Company has hired individuals and consultants who have the skill sets to make such estimates and ensures that the individuals with the most knowledge of an activity are responsible for the estimates. Past estimates are reviewed and compared to actual in order to make more informed decisions on future estimates. The management team's mandate includes ongoing development of procedures, standards and systems to allow the Company to make the best estimates possible.

FUTURE ACCOUNTING CHANGES

Financial Instruments

The CICA issued new accounting standards, CICA Accounting Standard handbook section 3855, "Financial Instruments Recognition and Measurement", section 3865, "hedges" and section 1530 "Comprehensive Income". These standards prescribe how and at what amount financial assets, financial liabilities and non-financial derivatives are to be recognized on the balance sheet. The standards prescribe fair value in some cases while cost-based measures are prescribed in other cases. It also specifies how financial instrument gains and losses are to be presented. The new standards are effective for fiscal years beginning on or after October 1, 2006. The Company has not assessed the impact of these standards on its financial statements.

Disclosure Controls and Procedures

The Chief Executive Officer, the President and Chief Financial Officer evaluated the effectiveness of the Company's disclosure controls and procedures as at the financial year ended December 31, 2006. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as at December 31, 2006 to provide reasonable assurance that material information relating to the Company would be made known to them by others within the Company.

Internal Control over Financial Reporting

The Chief Executive Officer, the President and Chief Financial Officer have designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. There has been no change in the design of the Company's internal controls over financial reporting during the fourth quarter of 2006 that would materially affect or is reasonably likely to materially affect the Company's internal control over financial reporting.

While the Officers of the Company have evaluated the effectiveness of disclosure controls and procedures for the year ended December 31, 2006 and have concluded they are being maintained as designed, they expect that the disclosure controls and procedures or internal controls over financial reporting may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute assurance that the objectives of the control systems are met.

Business Risks

Churchill's exploration and production activities are concentrated in the Western Canadian Sedimentary Basin, where activity is highly competitive and includes a variety of different sized companies. Churchill is subject to a number of risks that are also common to other organizations involved in the oil and gas industry. Such risks include finding and developing oil and gas reserves at economic costs, estimating amounts of recoverable reserves, production of oil and gas in commercial quantities, marketability of oil and gas produced, fluctuations in commodity prices, financial and liquidity risks and environmental safety risks.

In order to reduce exploration risk, Churchill employs highly qualified and motivated professionals who have demonstrated the ability to generate quality proprietary geological and geophysical prospects. To maximize drilling success, Churchill explores in areas that afford multi-zone prospects, targeting a range of a shallower low-to moderate risk prospects with some exposure to select deeper high-risk prospects with high-reward opportunities.

Churchill retains independent engineering consulting firms that assist the Company in evaluating recoverable amounts of oil and gas reserves. Values of recoverable reserves are based on a number of variable factors and assumptions such as commodity prices, projected production, future production costs and government regulation. Such estimates may vary from actual results.

The Company mitigates its risk related to producing hydrocarbons through the utilization of the most advanced technology and information systems. In addition, Churchill strives to operate the majority of its prospects, thereby maintaining operational control. The Company does rely on its partners in jointly owned properties that Churchill does not operate.

Churchill is exposed to market risk to the extent that the demand for oil and gas produced by the Company exists within Canada and the United States. External factors beyond the Company's control may effect the marketability of oil and gas produced. These factors include commodity prices and variations in the Canada-United States currency exchange rate, which in turn responds to economic and political circumstances throughout the world. Oil prices are affected by worldwide supply and demand fundamentals while natural gas prices are affected by North American supply and demand fundamentals. Churchill may periodically use futures and options contracts to hedge its exposure to the potential adverse impact of commodity price volatility.

Exploration and production for oil and gas is very capital intensive. As a result, the Company relies on equity markets as a source of new capital. In addition, Churchill utilizes bank financing to support ongoing capital investments. Funds from operations also provide Churchill with capital required to grow its business. Equity and debt capital are subject to market conditions and availability may increase or decrease from time to time. Funds from operations also fluctuate with changing commodity prices.

Oil and gas exploration and production can involve environmental risks such as pollution of the environment and destruction of natural habitat, as well as safety risks such as personal injury. The Company conducts its operations with high standards in order to protect the environment and the general public. Churchill maintains current insurance coverage for comprehensive and general liability as well as limited pollution liability. The amount and terms of this insurance are reviewed on an ongoing basis and adjusted as necessary to reflect current corporate requirements, as well as industry standards and government regulations.



Selected annual information

$, except share data 2006 2005
----------------------------------------------------------------------------

Total revenue 6,807,324 3,442,720
Funds from operations 2,545,238 1,652,334
Funds from operations per share
- basic and diluted ($/share) 0.10 0.10
Net loss 1,604,672 1,179,626
Net loss per share - basic and diluted ($/share) 0.06 0.07
Total assets 50,307,055 34,221,284
Working deficiency excluding bank debt 4,229,994 867,695
Bank debt - 675,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Summary of quarterly results (1)

----------------------------------------------------------------------------
2006
Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
FINANCIALS ($, except share
data)
Oil and gas revenue before
royalties 1,761,512 1,911,783 1,913,784 1,403,602
Funds from operations 566,825 875,755 967,673 134,985
Basic & Diluted ($/share) 0.02 0.03 0.03 0.01
Net income (loss) (1,944,514) (208,441) 802,442 (254,159)
Basic & Diluted ($/share) (0.07) (0.01) 0.03 (0.01)
Capital expenditures, net of
dispositions 1,330,505 5,356,788 12,191,978 2,462,601
Working deficiency excluding
bank debt 4,229,994 1,921,159 355,312 7,592,371
Bank Debt - 5,276,292 2,388,741 -
Common shares outstanding 31,048,141 27,848,141 27,839,808 27,839,808
OPERATIONS (units as noted)
Average daily production
Crude oil and NGLs (bbls/d) 186 178 154 154
Natural gas (mcf/d) 1,474 1,732 1,814 1,152
Barrels of oil equivalent
(boe/d) 432 467 456 346
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) The quarterly results for 2005 are the operating results of Outback
prior to the acquisition and the results of the consolidated entities
after November 30, 2005 and therefore have not been shown for
comparative purposes.


Business Outlook

2007 Outlook

Churchill is excited about its future prospects. The Company has been successful in consolidating its position in its core areas and has a production base that provides a cash flow stream that can be re-invested in Churchill's ongoing exploration and development activity. Churchill is opportunity driven and expects to continue to grow the Company's production base by building on its current inventory of development prospects and by adding new exploration prospects. In addition, the Company takes advantage of royalty incentive programs to further increase netbacks. Churchill will continue to focus its exploration and development efforts in areas of multi-zone potential for crude oil, natural gas and natural gas liquids.

Churchill's Board of Directors has approved a capital expenditure budget in the amount of $10 million for 2007. This capital spending will be financed by funds from operations, bank credit lines and additional financing.

After estimating risked production discoveries, timing of production on-stream dates resulting from the Company's planned capital expenditures for 2007 and estimated decline rates in existing volumes, Churchill expects exit production in 2007 to be approximately 750 boe/d. This represents a 79% increase from exit production of 420 boe/d in 2006.

Churchill's capital expenditure budget for 2007 will see the Company participate in the drilling of approximately 12 wells during the year as well as complete its high working interest well in Smoky at 1-16. Churchill will continue to evaluate acquisition opportunities that will complement its existing asset base and completion of such acquisitions would be over and above the Company's planned capital expenditure budget.

With the inventory of drilling locations in the deep basin at Chime and Smoky, the waterflood project at Grand Forks, identified drilling locations in Alexander and Killam, Churchill is poised to deliver solid, sustainable growth in production, reserves and cash flow and more importantly, shareholder value in 2007.

ADDITONAL INFORMATION

Additional information relating to Churchill's oil and gas disclosure in form 51-101 F1 is filed on Sedar and can be viewed on their website at www.sedar.com. Copies of this information can also be obtained by contacting Kelly D. Cowan, Chief Executive Officer, James P. Baker, President or Thanh C. Kang, Chief Financial Officer at Churchill Energy Inc., Suite 780, 700-4th Avenue S.W. Calgary, Alberta T2P 3J4. Further information relating to the Company is also available on its website www.churchillenergy.ca.



CHURCHILL ENERGY INC.
Balance Sheets (unaudited)
As at December 31,

$ 2006 2005
----------------------------------------------------------------------------
Assets

Current Assets
Cash 70,621 1,243,941
Accounts Receivable 1,411,083 1,525,479
Deposits and prepaid expenses 149,891 186,297
Risk Management Asset (note 10) 82,114 -
----------------------------------------------------------------------------
1,713,709 2,955,717

Goodwill (Note 4) - 1,784,714

Properties and Equipment (Note 2 & 3) 48,593,346 29,480,853
----------------------------------------------------------------------------
50,307,055 34,221,284
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Bank Debt (Note 6) - 675,000
Accounts payable and accrued liabilities 5,943,703 3,823,412
----------------------------------------------------------------------------
5,943,703 4,498,412

Future income taxes (Note 7) 2,466,331 3,721,229

Asset retirement obligation (Note 5) 1,918,244 854,159
----------------------------------------------------------------------------
10,328,278 9,073,800
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Shareholders' Equity
Share capital (Note 8) 41,629,457 25,895,092
Contributed surplus (Note 8) 1,429,883 728,283
Deficit (3,080,563) (1,475,891)
----------------------------------------------------------------------------
39,978,777 25,147,484
----------------------------------------------------------------------------
----------------------------------------------------------------------------

50,307,055 34,221,284
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments (note 11)

See accompanying notes to financial statements


CHURCHILL ENERGY INC.
Statements of Operations and Deficit
(unaudited)

Three Months Ended Year Ended
December 31, December 31,
$ 2006 2005 2006 2005
----------------------------------------------------------------------------
Revenue
Petroleum and natural
gas revenue 1,761,512 1,511,758 6,990,682 4,115,630
Royalties (209,868) (257,200) (265,472) (672,910)
----------------------------------------------------------------------------
1,551,644 1,254,558 6,725,210 3,442,720
Unrealized gains on
financial instruments
(Note 10) 82,114 - 82,114 -
----------------------------------------------------------------------------
1,633,758 1,254,558 6,807,324 3,442,720
----------------------------------------------------------------------------

Expenses
Operating 561,972 481,665 2,630,014 1,258,368
Transportation 35,891 9,296 167,709 116,177
General and
administrative 206,377 (61,507) 1,059,368 285,383
Stock-based compensation 298,994 669,471 743,541 678,071
Interest and financing 170,035 5,362 277,655 111,175
Depletion, depreciation
and accretion 1,103,384 516,206 3,322,459 2,360,905
Goodwill impairment 1,784,714 - 1,784,714 -
----------------------------------------------------------------------------
4,161,367 1,620,493 9,985,460 4,810,079
----------------------------------------------------------------------------

Net loss before income
taxes (2,527,609) (365,935) (3,178,136) (1,367,359)

Taxes
Current (expense)
recovery 4,769 - (16,231) -
Future income tax
recovery 578,326 106,492 1,589,695 187,733
----------------------------------------------------------------------------
583,095 106,492 1,573,464 187,733
----------------------------------------------------------------------------

Net loss for the period (1,944,514) (259,443) (1,604,672) (1,179,626)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Deficit, beginning of
period (1,136,049) (1,216,448) (1,475,891) (296,265)
----------------------------------------------------------------------------
Deficit, end of period (3,080,563) (1,475,891) (3,080,563) (1,475,891)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net loss per Share
(Note 9)
Basic and diluted (0.07) (0.02) (0.06) (0.07)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to financial statements


CHURCHILL ENERGY INC.
Statements of Cash Flows
(unaudited)

Three Months Ended Year Ended
December 31, December 31,
$ 2006 2005 2006 2005
----------------------------------------------------------------------------
Operating activities
Net loss for the period (1,944,514) (259,443) (1,604,672) (1,179,626)
Items not affecting cash:
Depletion, depreciation
and accretion 1,103,384 516,206 3,322,459 2,360,905
Future income taxes (578,326) (106,492) (1,589,695) (187,733)
Stock based compensation 298,994 669,471 743,541 678,071
Unrealized gains on
financial instruments (82,114) - (82,114) -
Goodwill impairment 1,784,714 - 1,784,714 -
Asset retirement
obligations settled (15,313) (19,283) (28,995) (19,283)
----------------------------------------------------------------------------
Funds from operations 566,825 800,459 2,545,238 1,652,334

Net change in non-cash
working capital items 1,848,519 335,662 233,503 284,549
----------------------------------------------------------------------------
2,415,344 1,136,121 2,778,741 1,936,883
----------------------------------------------------------------------------

Financing Activities
Increase (decrease) in
bank debt (5,276,292) (631,338) (675,000) 675,000
Issuance of share
capital, net of share
issue 3,659,566 1,410,534 15,691,222 4,041,306
Net change in non-cash
financing - 29,428 - 76,800
----------------------------------------------------------------------------
(1,616,726) 808,624 15,016,222 4,793,106
----------------------------------------------------------------------------

Investing activities
Property and equipment
additions (4,536,961) (3,063,241) (24,201,786) (7,612,644)
Property and equipment
dispositions 3,195,914 253,440 3,195,914 253,440
Funds contributed from
acquired companies - 1,086,507 - 1,339,947
Net change in non-cash
working capital items 613,050 1,018,557 2,037,589 (77,304)
----------------------------------------------------------------------------
(727,997) (704,737) (18,968,283) (6,096,561)
----------------------------------------------------------------------------

Increase (decrease) in
cash, during the period 70,621 1,240,008 (1,173,320) 633,428

Cash, beginning of period - 3,933 1,243,941 610,513
----------------------------------------------------------------------------
Cash, end of period 70,621 1,243,941 70,621 1,243,941
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash interest paid 95,035 58,552 202,655 111,175
Cash interest received - - 22,195 -

See accompanying notes to financial statements


Notes to Financial Statements

December 31, 2006 and 2005 (unaudited)

Pursuant to a merger agreement with Outback Exploration Ltd. ("Outback") which was incorporated on May 8, 2003 under the laws of Alberta, the shareholders of Outback exchanged their shares on a 4 to 1 basis for Churchill Energy Inc. ("Churchill") shares on November 30, 2005. Churchill was continued as an Alberta corporation on June 29, 2006. All historical share amounts have been restated to reflect this conversion.

The transaction was accounted for as a reverse takeover of Churchill by Outback. The Outback shareholders held approximately 55% of the outstanding shares of the combined entity following the acquisition.

The comparative financial statements of the Company for the year ended December 31, 2005 include the operating results of Outback prior to the acquisition and the results of the consolidated entities after November 30, 2005.

1. Significant accounting policies

Basis of presentation

The financial statements are stated in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP").

Management estimates and measurement uncertainty

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates.

The amounts recorded for depletion and depreciation of petroleum and natural gas properties and equipment, the provision for asset retirement obligation costs, and stock based compensation are based on estimates. In addition, the ceiling test calculation is based on estimates of proved reserves, production rates, future oil and gas prices, and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty, and the effect of changes in such estimates in future periods could be material.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and may include highly liquid short-term investments with initial maturities of three months or less. They are recorded at cost which approximates fair market value.

Financial instruments

The fair market values of cash and cash equivalents, accounts receivable, other current assets, payables and bank debt approximate their carrying value. From time to time, the Company may use derivative financial instruments to manage exposure to fluctuations in commodity prices and foreign currency exchange rates. All transactions of this nature entered into by the Company are related to an underlying financial position or to future petroleum and natural gas production. The Company does not use derivative financial instruments for speculative trading purposes.

Properties and equipment

a. Capitalized costs

The Company follows the full cost method of accounting for oil and gas activities whereby all costs associated with the acquisition of, exploration for, and development of oil and gas reserves are capitalized. Such costs include lease acquisition costs, geological and geophysical expenditures, lease rentals on non-producing properties, costs of drilling both productive and non-productive wells, equipment costs, and certain overhead expenditures related to exploration and development.

Gains or losses on the sale of properties and equipment are recognized only when crediting the proceeds to capitalized costs would result in a change of 20 percent or more in the depletion and depreciation rate.

b. Depletion and depreciation

Depletion and depreciation of properties and equipment is provided using the unit-of-production method based on total estimated proven petroleum and natural gas reserves, before royalties, as determined by independent engineers. Production and reserves of natural gas are converted to equivalent barrels of crude oil based on the energy equivalent ratio of six thousand cubic feet of natural gas to one barrel of crude oil.

The depletion and depreciation cost base includes total capitalized costs, less unimpaired costs of unproved properties and estimated future salvage values, plus provision for future development costs of proven undeveloped reserves, as determined by independent engineers.

c. Ceiling test

The Company applies a ceiling test as a test of impairment of its capitalized costs relating to its petroleum and natural gas properties. The cost centers are tested for recoverability through comparison to undiscounted future cash flows from proved reserves which are determined by using management's expectation of prices, plus the cost of unproved properties valued at cost. Upon recognition of impairment, the Company would then measure the amount of impairment by comparing the carrying amounts of the PP&E to an amount equal to the estimated net present value of future cash flows from proved plus risked probable reserves. The Company's risk-free interest rate is used to arrive at the net present value of the future cash flows. Any excess carrying value above the net present value of the Company's future cash flows would be recorded as permanent impairment and charged against net income.

Flow-through shares

The Company has financed a portion of its exploration and development activities through the issue of flow-through shares. Under the terms of these share issues, the tax attributes of the related expenditures are renounced to subscribers. Share capital is reduced, and future income taxes are increased, by the estimated income tax benefits renounced by the Company to the subscribers when the tax renunciation is made with the tax authorities.

Asset retirement obligation

The Company recognizes the estimated fair value of an Asset Retirement Obligation ("ARO") in the period in which it is incurred when a reasonable estimate of fair value can be made. The fair value of the estimated ARO is recorded as a long-term liability with a corresponding increase in the carrying amount of the related asset. ARO obligations are initially measured at fair value and subsequently adjusted for the accretion of discount and any changes to the underlying cash flows. The capitalized amount is depleted on a unit-of-production basis over the life of the proved reserves. The liability amount is increased each reporting period due to the passage of time and the amount of accretion is charged to earnings in the period. Revisions to the estimated timing of cash flows or to the original estimated undiscounted costs would also result in an increase or decrease to the ARO. Actual costs incurred are charged against the ARO to the extent of the recorded liability. Any difference between the actual costs incurred and the recorded liability is recognized as a gain or loss in the period in which the costs are incurred.

Stock option plan

The Company has a stock option plan enabling certain officers, directors and employees to purchase Class A voting common shares at exercise prices equal to the market price on the date the option is granted. The fair value of each option granted is estimated on the date of grant and a provision for the costs is provided for as contributed surplus over the term of the option agreement. Any consideration paid to the Company on exercise of stock options is credited to share capital, together with corresponding amounts previously recognized in contributed surplus. Forfeitures are accounted for as they occur, which could result in recoveries of the compensation expense.

Joint ventures

Certain of the Company's exploration, development and production activities are conducted jointly with others, and accordingly, the accounts reflect only the Company's proportionate interest in such activities.

Per share amounts

Basic per share amounts are calculated using the weighted average number of shares outstanding during the year. Weighted average number of shares is determined by relating the portion of time within the reporting period that common shares have been outstanding to the total time in that period. Diluted per share amounts are calculated using treasury stock method which assumes that any proceeds obtained on exercise of share options or other dilutive instruments would be used to purchase common shares at the average market price during the period. The weighted average number of shares outstanding is then adjusted by the net change.

Revenue recognition

Revenue from the sale of oil and natural gas is recorded when title passes to an external party.

Goodwill

Goodwill, which represents the excess of cost of an acquired enterprise over the net of the amounts assigned to assets acquired and liabilities assumed, is assessed at least annually for impairment. To assess impairment, the fair value of the company is determined and compared to the book value of the reporting company. If the value is less than the book value, then a second test is performed to determine the amount of the impairment. The amount of the impairment is determined by deducting the fair value of the company's assets and liabilities from the fair value of the company to determine the implied fair value of goodwill and comparing that amount to the book value of the company's goodwill. Any excess of the book value of goodwill over the implied fair value of goodwill is the impaired amount. Goodwill is not amortized.

2. Acquisition

On November 30, 2005, Outback acquired, by way of reverse takeover, Churchill. The revenue and expenses of Churchill have been included in the statement of operations effective December 1, 2005. The acquisition was accounted for as a reverse takeover.

The values assigned to the net assets of Churchill are as follows:




Allocation of purchase price $
----------------------------------------------------------------------------
Petroleum and natural gas properties 13,079,075
Working Capital 1,845,650
Future income taxes (2,432,972)
Goodwill 1,784,714
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14,276,467
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Calculation of purchase price $
----------------------------------------------------------------------------
Fair value shares issued 13,796,667
Transaction costs 479,800
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Purchase Price 14,276,467
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3. Properties and equipment

$ 2006 2005
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Properties and equipment, at cost 54,395,738 32,031,584
Less: accumulated depletion and depreciation (5,802,392) (2,550,731)
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48,593,346 29,480,853
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At December 31, 2006, oil and gas properties with a cost of $10.5 million (2005 - $7.6 million) relating to undeveloped properties have been excluded from the depletion and depreciation calculation. Future capital costs required to develop proved reserves in the amount of $5.4 million are included in the depletion and depreciation calculation.

The Company capitalized $0.22 million (2005 - $0.09 million) of general and administrative costs directly related to exploration and development activities. Included in properties and equipment, at cost are assets purchased with shares in the amount of $0.34 million.

At December 31, 2006, the Company had an estimated $7.3 million remaining obligation to incur Canadian Exploration Expenditures of which $7.3 million is required to be spent by December 31, 2007.

As a result of the ceiling test calculation at December 31, 2006, the Company was not required to record an impairment loss.

The forecasted future prices used for the next 5 years in the ceiling test evaluation of the Company's reserves as at December 31, 2006 were as follows:



AECO-C Medium Oil
($mcf) ($/bbl)
----------------------------------------------------------------------------
2007 7.20 61.25
2008 7.45 59.25
2009 7.75 57.25
2010 7.80 56.00
2011 7.85 56.00

The prices increase at an average inflation rate of 2% every year
thereafter.


4. Goodwill

The goodwill balance of $1.8 million arose as a result of the reverse take-over of Churchill by Outback on November 20, 2005. The goodwill balance was determined based on the excess of total consideration paid plus the future income tax liability less the fair value of the assets and liabilities for accounting purposes acquired in the transaction.

The Company has determined that goodwill was impaired as of December 31, 2006. Therefore a goodwill impairment charge of $1.8 million has been charged to income in the year ended December 31, 2006.

5. Asset retirement obligation

The following table provides a reconciliation of the carrying amount of the obligation associated with the retirement of oil and gas properties.




$ 2006 2005
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Asset retirement obligation, beginning of period 854,159 357,694
Liabilities incurred and acquired 311,380 486,101
Liabilities settled (28,995) (19,283)
Liabilities disposed (44,200) -
Accretion expense 70,797 29,647
Revisions in estimates 755,103 -
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Asset retirement obligation, end of period 1,918,244 854,159
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The key assumptions, on which the carrying amount of the asset retirement obligation is based, include a credit adjusted risk-free rate of 5% and inflation rate of 2%. The total undiscounted amount of the estimated cash flows required to settle the obligations was $3.6 million. The expected timing of payment of the cash flows required for settling the obligations ranges from 2 years to 30 years.

6. Available credit facilities

At December 31, 2006, the Company had an $11.0 million revolving operating demand loan and a $2.5 million non-revolving acquisition/development demand loan. The interest rate charged on the demand operating loan is the bank's prime rate plus 0.25% or banker's acceptance rates plus stamping fees depending on the form of borrowing by the Company. The interest rate charged on the acquisition/development demand loan is the bank's prime rate plus 0.75% . At December 31, 2006 nil was drawn against the credit facilities (December 31, 2005 - $0.7 million). There are no specific terms of repayment aside from the bank's right of demand and periodic review. The credit facility is secured by a general assignment of book debts, a $35 million debenture with a floating charge over all assets with a negative pledge and undertaking to provide fixed charges on the Company's major producing reserves at the request of the bank.

7. Income Taxes

The Company's provision for income taxes differs from the result that would be obtained by applying the combined Canadian Federal and Provincial statutory income tax rate of 34.80% (2005 - 38.24%) to income before taxes. This difference results from the following:



$ 2006 2005
----------------------------------------------------------------------------

Computed expected provision for income taxes (484,946) (522,878)
Increase (decrease) resulting from
Non-deductible crown charges (5,381) 149,491
Change in statutory rate and other (765,163) 80,425
Resource allowance (84,082) (154,065)
Non-deductible stock based compensation 258,771 259,294
Change in estimated pool balances (508,894) -
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Income tax recovery (1,589,695) (187,733)
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The significant components of the future income tax liability are as follows:




$ 2006 2005
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Capital assets in excess of tax value 4,578,914 4,556,845
Risk management asset 26,375 -
Attributed Canadian royalty income (10,191) -
Asset retirement obligation (556,291) (298,544)
Non-capital loss carryforward (1,141,332) (376,329)
Share issue costs (431,144) (160,743)
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2,466,331 3,721,229
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----------------------------------------------------------------------------


The following deductions are available for future income tax purposes:



$ 2006 2005
----------------------------------------------------------------------------
Undepreciated capital cost 10,564,163 4,921,156
Canadian development expense 4,981,042 1,706,151
Canadian exploration expense 5,580,330 3,351,642
Canadian oil and gas property expense 12,380,438 7,106,551
Non-capital loss carry forward 3,441,573 1,065,612
Share issue costs 1,418,002 472,689
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38,365,548 18,623,801
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8. Share capital

Authorized

Unlimited number of Class A voting common shares with no par value ("common share").

Unlimited number of Class B non voting preferred shares redeemable and retractable at $1.00 per share.

Issued and outstanding

The following table summarizes the changes in common shares outstanding during the years ended December 31, 2006 and December 31, 2005.



2006 2005
----------------------------------------------------------------------------
Shares $ Shares $
----------------------------------------------------------------------------
Balance, beginning of period 20,603,042 25,895,092 8,883,383 8,981,558
Issue of common shares (1) 4,844,500 8,231,650 909,382 1,410,534
Issue of flow-through shares 5,525,600 9,000,040 1,612,500 2,902,500
Options exercised 74,999 116,940 - -
Share issue costs - (1,279,467) - (271,728)
Future income tax on share
issue costs - 425,515 - 91,355
Future income tax on
flow-through - (760,313) - (1,015,794)
Existing Churchill shares
outstanding - - 9,197,777 13,796,667
November 30, 2005
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Balance, end of period 31,048,141 41,629,457 20,603,042 25,895,092
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(1) Included in the 2006 balance is 200,000 common shares issued for assets
purchased with shares for $0.34 million.


Stock Options

The following table summarizes the changes in stock options outstanding during the years ended December 31, 2006 and December 31, 2005.



2006 2005
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price ($) Options Price ($)
----------------------------------------------------------------------------
Balance beginning of year 1,885,000 1.50 850,000 0.25
Options granted 1,210,000 1.17 1,247,500 1.83
Outback options converted on a
4 to 1 basis - - - (712,500) 0.25
Existing Churchill options - - 500,000 1.00
Options exercised (74,999) 1.00 - -
Options expired (150,001) 1.67 - -
----------------------------------------------------------------------------
Balance end of year 2,870,000 1.43 1,885,000 1.50
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The following table summarizes information regarding stock options outstanding at December 31, 2006.



Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Number Contractual price Number price
Price outstanding Life (years) ($/share) Exercisable ($/share)
----------------------------------------------------------------------------
$1.00 - $2.00 2,870,000 4.15 1.43 1,699,167 1.44



The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:




2006 2005
----------------------------------------------------------------------------
Risk-free interest rate 4.03% 4.17%
Expected life (year) 5 5
Expected volatility 65% 60%
Expected dividend yield 0% 0%
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Contributed surplus ($) 2006 2005
----------------------------------------------------------------------------
Opening balance 728,283 50,212
Stock based compensation 821,487 678,071
Stock options exercised (41,941) -
Stock options forfeited (77,946) -
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Closing balance 1,429,883 728,283
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9. Per share results
2006 2005
----------------------------------------------------------------------------

Per share loss, basic and diluted $ 0.06 $ 0.07

Weighted average shares outstanding
Basic 26,581,544 16,799,970
Diluted 26,756,694 16,907,255
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10. Financial instruments

The fair value of the Company's financial instruments that are included on the balance sheet approximate their carrying amounts due to the short-term maturity of the Company's current assets and current liabilities including bank indebtedness. A substantial portion of the Company's accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risk. None of the Company's financial contracts have been designated as accounting hedges. Accordingly, all financial contracts on the balance sheet are based on their fair values. The Company had an unrealized hedging gain of $82,114 for the year ended December 31, 2006.

The following financial contracts were outstanding at December 31, 2006:




Type Volume Price Index Term
----------------------------------------------------------------------------
Costless Collar 500 GJ/d Cdn $6.50 to $11.00 AECO Jan to Mar 2007
Costless Collar 500 GJ/d Cdn $6.50 to $8.50 AECO Apr to Oct 2007
Costless Collar 500 GJ/d Cdn $6.50 to $11.00 AECO Nov to Dec 2007



11. Commitments

The Company is committed to payments under a rental agreement for office space as follows:




$
2007 162,836
2008 162,836
2009 167,678
2010 167,678
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661,028
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12. Subsequent Events

Subsequent to the year end, Churchill entered into the following financial derivative contract to mitigate its exposure to future fluctuations in natural gas prices.




Type Volume Price Index Term
----------------------------------------------------------------------------
Swap 400 GJ/d Cdn $6.57 AECO Feb 2007 to Dec 2007


13. Comparative Information

Certain comparative figures have been reclassified to conform to the financial presentation adopted in the current year.



CORPORATE INFORMATION

DIRECTORS (1)
Thomas W. Buchanan
President & Chief Executive Officer, Provident Energy Trust

Kelly D. Cowan
Chief Executive Officer, Churchill Energy Inc.

Rob Duguid (2)
Vice President Investments
PFM Capital Inc.

Brad Hertz
President, Chestermere Industrial Park

M.H. (Mike) Shaikh (2)
President, M.H. Shaikh Professional Corp.

Kevin Stangeland (2)
Chairman of the Board
President and Chief Executive Officer,
Urban Forest Recyclers Inc.

(1) The Board of Directors acts as both the Reserves and Compensation
Committee

(2) Member of the Audit Committee

EVALUATION ENGINEERS
GLJ Petroleum Consultants
Calgary, Alberta

Sproule Associates Limited
Calgary, Alberta

TRANSFER AGENT
Computershare Trust Company of Canada
Calgary, Alberta

HEAD OFFICE
780, 700 - 4th Avenue S.W.
Calgary, Alberta
Canada T2P 3J4

OFFICERS
Kelly D. Cowan
Chief Executive Officer

James P. Baker
President

Thanh Kang
Chief Financial Officer

Gerard Dobek
Vice President Exploration

Byron Mann
Vice President Engineering & Operations

AUDITORS
PricewaterhouseCoopers LLP
Calgary, Alberta

LEGAL COUNSEL
Burnet Duckworth & Palmer LLP
Calgary, Alberta

TingleMerrett LLP
Calgary, Alberta

BANKERS
National Bank of Canada
Calgary, Alberta

STOCK EXCHANGE
The TSX Venture Exchange, Trading Symbol CEI

Telephone: (403) 693-3000 Fax: (403) 693-0086 www.churchillenergy.ca

ABBREVIATIONS
bbls barrels
bbls/d barrels per day
boe barrels of oil equivalent
boe/d barrels of oil equivalent per day
bop/d barrels of oil per day
Mbbl thousand barrels
mcf thousand cubic feet
mcf/d thousand cubic feet per day
mmcf million cubic feet
mstb 1000 stock tank barrels
NGL's natural gas liquids
WTI West Texas Intermediate

(x) Natural gas is equated to oil on the basis of 6 Mcf of natural gas=1
barrel of oil equivalent (boe)


Contact Information

  • Churchill Energy Inc.
    Kelly D. Cowan
    Chief Executive Officer
    (403) 693-3000
    (403) 693-0086 (FAX)
    or
    Churchill Energy Inc.
    James P. Baker
    President
    (403) 693-3000
    (403) 693-0086 (FAX)
    or
    Churchill Energy Inc.
    Thanh C. Kang
    Chief Financial Officer
    (403) 693-3000
    (403) 693-0086 (FAX)
    or
    Churchill Energy Inc.
    Suite 780, 700-4th Avenue S.W.
    Calgary, Alberta T2P 3J4
    Website: www.churchillenergy.ca