Cordero Energy Inc.
TSX : COR

Cordero Energy Inc.

November 08, 2005 16:14 ET

Cordero Energy Reports Third Quarter 2005 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 8, 2005) - Cordero Energy Inc. (TSX:COR) is pleased to announce operational and financial results for the period ended September 30, 2005.

Highlights

- Third quarter average production increased 29% to 1,421 boe/d compared to 1,103 boe/d for the period ended June 30, 2005.

- Production has recently reached 2,000 boe/d.

- Production is expected to reach 3,000-3,400 boe/d in April 2006.

- Cash flow was $4.3 million ($0.15/share) for the quarter.

- Cash costs decreased by $2.45/boe (18%) compared to the period ended June 30, 2005.

- The 2005 budget increased to $44 million from $28 million.

- Active drilling program underway for Q4 2005:

-- 28.5 net CBM/Belly River wells; and

-- 5.5 net conventional wells in northeast British Columbia and central and northern Alberta (first 2 net wells successful at Willesden Green and Knopcik).

- Strong balance sheet with only $0.1 million of net debt and a $1.3 million capital lease.

- Credit facility increased to $25 million from $12 million driven by results to date.



Three Months Ended Period Ended
September 30, 2005 September 30, 2005(1)
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FINANCIAL
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Gross oil and natural
gas revenue ($000s) 6,919 9,795
Cash flow from operations
($000s) 4,268 5,711
Per share basic ($) 0.16 0.22
Per share diluted ($) 0.15 0.20

Net earnings ($000s) 1,057 1,073
Per share basic ($) 0.04 0.04
Per share diluted ($) 0.04 0.04

Net capital expenditures ($000s) 11,610 16,829
Net debt and working capital
deficiency ($000s) 121 121
Long term obligation under
capital lease ($000s) 1,322 1,322

Shares outstanding (000s)
At period end 27,125 27,125
Weighted average during period,
basic 27,125 26,091
Weighted average during period,
diluted 29,433 28,245
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OPERATING
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Production
Natural gas (mmcf/d) 8.5 7.8
Oil and natural gas liquids (bbls/d) 1 1
Oil equivalent (boe/d) (6:1) 1,421 1,294

Average wellhead prices
Natural gas ($/mcf) 8.82 8.24
Oil and natural gas liquids ($/bbl) 51.13 50.03
Oil equivalent ($/boe) (6:1) 52.93 49.46

Operating expenses ($/boe) (6:1) 5.80 6.05

Wells drilled (gross/net)
Natural gas - 8/7.4
Oil - -
Dry - -
Total - 8/7.4

Net success rate (%) - 100

Undeveloped land holdings (000s)
Gross acres 74
Net acres 62
Average working interest (%) 84
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(1) The Company was incorporated on March 30, 2005 but commenced
operations April 30, 2005. These amounts represent activity from April
30, 2005 to September 30, 2005


President's Message

I am pleased with the execution of our business plan, which includes the results from our coalbed methane ("CBM") and Belly River development program at Malmo, Alberta and the progress made on our conventional exploration program. Our 2005 capital budget was recently expanded from $28 million to $44 million to accommodate an increased 34 well (28.5 net) drilling program at Malmo and 5.5 net conventional wells at Knopcik, Willesden Green, Kakwa and Flatrock. We have also increased our land and seismic budget to enhance our exploration efforts.

Cordero has recently reached 2,000 boe/d (over 99% natural gas) with 17 (16.8 net) wells (15 Malmo and 2 conventional) in various stages of completion, tie-in or awaiting facilities. The Company expects to reach the higher end of its exit production guidance of 2,000-2,300 boe/d. It is anticipated that most of the wells drilled during the fourth quarter will not be on-stream until the first quarter of 2006. Based on the expanded capital program, Cordero expects to reach a production range of 3,000-3,400 boe/d in April of 2006, primarily from wells drilled by the end of the fourth quarter.

Malmo CBM and Belly River Project

Despite wet ground conditions, the Company managed to pipeline connect 9 wells and commenced installation of 4 compressors during the period. Excluding wells cased during the fourth quarter, Cordero has 50 (47.4 net) wells on production with an additional 15 (14.8 net) wells in various stages of completion, pipelining or awaiting facilities. Compression is a critical element in lowering wellhead flowing pressure as a means of facilitating desorption of methane from coal and enhancing well productivity. The Company expects to have 5,300 hp of compression operational by the end of November with an additional 1,450 hp planned for start-up during the first quarter of 2006. This will increase total field compression to 6,750 hp.

Cordero also contracted for a new meter station with TransCanada Pipelines to centralize and expand firm transportation capacity at Malmo. The station was fully commissioned in October, further enabling Cordero to gather and compress the majority of our production through Company-operated facilities.

Cordero recently drilled its first 45 degree slant well to confirm the technical and commercial feasibility of accessing reserves under areas where surface access is impractical. The well was a technical and commercial success and encountered both the Belly River and Horseshoe Canyon formations. The formations were subsequently completed for a combined test rate of 850 mcf/d. The Company plans to drill 7 additional slant wells during the fourth quarter and expects to drill 6 additional locations in 2006.

We have experienced a 100% success rate on our wells drilled at Malmo thus far and our drilling inventory of 73 (63.0 net) wells, including the current program, has the potential to provide meaningful growth over the next 12 months. At this time, the Company is positioning itself for a 15 to 20 well CBM and Belly River drilling program in the first quarter of 2006 and further development following break-up. We continue to encounter new reserves in the Belly River formation below the Horseshoe Canyon. Since the CBM resource fully carries the economics of our development at Malmo on a standalone basis, the modest incremental cost of evaluating the Belly River is providing exceptional returns. Additional wells, beyond the planned 4 wells per section, may be required to fully exploit the incremental potential of this resource.

Conventional Exploration and Drilling Program

We are equally pleased with the progress of the conventional exploration program. The increased budget is being applied to near-term drilling opportunities and to accommodate an aggressive land and seismic acquisition program. The Company has plans to drill 4-5 net conventional wells during the first quarter of 2006.

To date, the Company has drilled and cased two 100% working interest wells in Willesden Green and Knopcik. Both wells have shown encouraging test results upon completion and are awaiting equipping and pipeline connection.

At Flatrock, British Columbia, the Company has commenced drilling the first of two conventional exploration wells targeting the Triassic and Cretaceous formations.

Financial

Cordero is in a strong financial position to execute its capital program with net debt at September 30, 2005 of only $0.1 million against an undrawn credit facility, recently expanded to $25 million. We expect our credit facililty to be expanded further as production volumes grow. Our cash flow for the quarter increased to $4.3 million compared to $1.4 million for the period ended June 30, 2005. Subject to the prevailing strength in natural gas prices, the trend of higher cash flow is anticipated to continue as we are expecting to add significant production volumes in the coming months. Furthermore, our cash costs per boe are decreasing. In an increasingly competitive environment for oilfield equipment and contracting services, the Company has continued to exert downward pressure on costs. Operating costs for the period improved to $5.80 per boe, an 11% improvement over the period ended June 30, 2005 while general and administrative expense fell 27% over the same period from $5.29 per boe to $3.86 per boe.

Outlook

The Malmo development project continues to exceed our expectations and we expect this area to deliver significant growth through 2006. We remain confident that our conventional drilling and prospecting efforts are providing a unique and balanced capital portfolio in combination with the Malmo development project. Our early investment in seismic and land is critical to our growth and sets the stage for Cordero to dedicate a higher proportion of the capital budget to test exploration concepts in 2006.

Cordero is finalizing its 2006 Business Plan and expects to announce budget guidance by early December.

On behalf of the Board of Directors,

David V. Elgie

President and CEO

November 7, 2005

Management's Discussion and Analysis

November 8, 2005

Cordero Energy Inc. ("Cordero" or "the Company") is an exploration and coalbed methane development company pursuing oil and natural gas production and reserve growth through the development of its extensive coalbed methane and Belly River sand assets in central Alberta as well as its conventional exploration program in Alberta and British Columbia.

Cordero is based in Calgary, Alberta and was incorporated on March 30, 2005 under the Business Corporations Act (Alberta). The Company commenced operations on April 30, 2005 when certain oil and gas properties were transferred to Cordero in exchange for common shares of the Company under a plan of arrangement involving Resolute Energy Inc. (Resolute), Esprit Energy Trust, Esprit Exploration Ltd., Cordero and Cordero Finance Corp. Information presented in the Management's Discussion and Analysis (MD&A) under the heading "2005" represents operations for the 154-day period April 30, 2005 to September 30, 2005. Information under the heading "Q3" represents the 92-day quarter ended September 30, 2005 and information under the heading "Q2" represents the 62-day period April 30, 2005 to June 30, 2005. Amounts presented on a daily basis are calculated based on the number of days in the respective periods. Cordero commenced trading on the Toronto Stock Exchange on May 3, 2005 under the symbol "COR".

This MD&A of the financial condition and the results of operations should be read in conjunction with the unaudited interim financial statements for the three months and period ended September 30, 2005 together with the accompanying notes. Readers should be aware that historical results are not necessarily indicative of future performance. Additional information relating to the Company can be viewed or downloaded at www.corderoenergy.com or www.sedar.com.

Production information is commonly reported in units of barrel of oil equivalent. For purposes of computing such units, barrel of oil equivalent (boe) amounts have been calculated using an energy equivalence conversion rate of six thousand cubic feet of natural gas to one barrel of oil (6:1).

The financial information presented has been prepared in accordance with Canadian Generally Accepted Accounting Principles (Canadian GAAP). The reporting and measurement currency is the Canadian dollar.

Forward-Looking Statements

The information herein contains forward-looking statements and assumptions, such as those relating to guidance, results of operations and financial condition, capital spending, financing sources, commodity prices, costs of production and the magnitude of oil and gas reserves. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. The forward-looking statements contained herein are as of November 8, 2005 and are subject to change after this date. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Cordero disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures

Cordero management uses and reports certain non-GAAP measures in the evaluation of operating and financial performance. Cash flow, which is expressed before changes in non-cash working capital, is used by the Company to analyze operating performance, leverage and liquidity. Income from operations, which represents net income excluding gains or losses on foreign currency translation and on disposal of assets, is used by the Company to evaluate operating performance. Operating netback, which is calculated as average unit sales price less royalties, transportation costs and operating expenses, and corporate netback, which deducts administrative and interest expense and current income tax, represents the cash margin for every barrel of oil equivalent sold. Cash flow, income from operations and netback do not have any standardized meanings prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measure for other companies.



Production
2005 Q3 Q2
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Natural gas (mcf/d) 7,762 8,520 6,616
Oil and NGLs (bbls/d) 1 1 1
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Total (boe/d) 1,294 1,421 1,103
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Daily production for the three months ended September 30, 2005 increased to 1,421 boe/d, from 1,103 boe/d for the period ended June 30, 2005. The additional production volumes are attributed to 6 (5.8 net) wells brought on-stream at the end of the second quarter and another 9.0 net wells that came on production throughout the third quarter. Offsetting the impact of these incremental production volumes was compressor downtime and third party facility constraints which have since been resolved. During the current quarter, the Company focused on compression capacity in order to maximize production from both existing and anticipated future wells. This involved installation of new compressors as well as shutdown and relocation of existing compression equipment to more effectively match deliverability with previously-drilled and planned wells.

The Company's current activity consists of a drilling program of 34 net wells, which includes 2 successful wells at Willesden Green and Knopcik, and installation of additional compression equipment. Production has recently reached 2,000 boe/d and the Company has 16.8 net wells in various stages of completion, tie-in or awaiting facilities. Future average production will depend on a number of factors including drilling success, the time required to place new wells on production, well performance and ultimate recoveries on existing wells.



Petroleum & Natural Gas Revenue
($000s) 2005 Q3 Q2
------------------------------------------------------------------------

Natural gas 9,790 6,915 2,874
Oil and NGLs 5 4 1
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Total 9,795 6,919 2,875
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Prices and Marketing
Benchmark prices: 2005 Q3 Q2
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AECO natural gas ($/mmbtu) 8.49 9.37 7.17
WTI oil (USD$/bbl) 59.19 63.19 53.20
CDN/USD foreign exchange rate 0.820 0.833 0.801
WTI oil (CDN equivalent $/bbl) 72.17 75.89 66.38
Edmonton Light ($/bbl) 72.11 76.51 65.52
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Average Sale Price 2005 Q3 Q2
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Natural gas ($/mcf) 8.24 8.82 7.12
Oil and NGLs ($/bbl) 50.03 51.13 41.40
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Total ($/boe) 49.46 52.93 42.73
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Petroleum and natural gas revenue before royalties was $6.9 million and $9.8 million for the three months and period ended September 30, 2005 respectively. Essentially all of the Company's revenue is from natural gas production. The high price environment in North America contributed to the increase in the Company's realized natural gas price, from $7.12/mcf for the period ended June 30, 2005 to $8.82/mcf for the quarter ended September 30, 2005.

Approximately 20% of Cordero's natural gas production is dedicated to an aggregator contract and the remainder is sold at daily spot prices. The Company has not hedged or entered into any fixed price arrangements during or subsequent to the period ended September 30, 2005. Cordero's realized natural gas price is primarily determined by the AECO Hub in Alberta and will fluctuate depending on market conditions.



Royalties

($000s) 2005 Q3 Q2
------------------------------------------------------------------------
Crown 1,389 1,001 388
Freehold, GORR 337 208 128
ARTC - - -
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Total royalties 1,726 1,209 516
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Average Royalty Rates
(average % of total sales)
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Crown 14.2 14.5 13.5
Freehold, GORR 3.4 3.1 4.5
ARTC - - -
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Total royalties 17.6 17.6 18.0
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The Company's royalties totaled $1.2 million in the third quarter and $1.7 million to date for an average royalty rate of 17.6% for both periods. Crown royalties paid on wells acquired from Resolute are not eligible for the Alberta Royalty Tax Credit (ARTC) therefore the Company has not recorded ARTC in the period ended September 30, 2005 as substantially all Crown royalties are associated with production from wells drilled prior to the Company's inception.

Royalty rates in subsequent periods may fluctuate based on future reference prices relative to average wellhead prices, the proportion of new production additions qualifying for royalty holidays and the Crown royalties associated with wells that are eligible for ARTC.



Operating Expenses

($000s, except per boe) 2005 Q3 Q2
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Operating expense (gross) 1,346 894 452
Processing income (149) (136) (13)
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Operating expense (net, as reported) 1,197 758 439
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Operating expense per boe (net) 6.05 5.80 6.53
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For the three months ended September 30, 2005 net operating expenses were $5.80/boe and $758,000 in total, an improvement over $6.53/boe for the period ended June 30, 2005. The 11% reduction on a boe basis is a function of fixed operating costs and incremental production volumes in the current period, as well as the Company's increasing ownership and operatorship of facilities.

The Company expects the benefits of economies of scale to continue, however, future offsetting increases are anticipated with the escalating cost of field supplies and services and the addition of conventional wells to the Company's production profile. These factors, along with the level of ownership in gathering and processing facilities will determine future operating expenses.



Transportation and Selling Expenses

2005 Q3 Q2
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Transportation and selling expenses - $000s 248 172 76
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Transportation and selling expenses - $/boe 1.25 1.31 1.13
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Transportation and selling expenses for the three months ended September 30, 2005 were $172,000 or $1.31 per boe, compared to $1.13 per boe for the period ended June 30, 2005. Future transportation expenses on a boe basis will depend on the type of production additions (oil versus natural gas), distance from wellhead to sales point, ownership of gathering and pipeline facilities and, if the Company produces significant volumes of oil in the future, the method of transporting oil (pipeline versus trucking).



General and Administrative Expense (G&A)

($000s, except per boe) 2005 Q3 Q2
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G&A expense (gross) 1,887 1,121 766
Overhead recoveries (221) (127) (94)
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1,666 994 672
Allocated to capital projects (805) (489) (316)
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G&A expense 861 505 356
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G&A expense per boe 4.35 3.86 5.29
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For the quarter ended September 30, 2005, net G&A expenses were $505,000 or $3.86/boe, a decline of 27% from $5.29/boe for the period ended June 30, 2005. This decrease on a boe basis is primarily due to the incremental production volumes over the period ended June 30, 2005. The amount of gross G&A expense allocated to capital projects is determined by the Company's capital strategy. In an effort to secure future growth opportunities, the Company is currently focusing significant resources on its exploration program, resulting in a higher proportion of salaries and other overhead costs capitalized. This proportion will continue to depend on the Company's capital activities.

Stock-Based Compensation

Stock-based compensation expense was $362,000 for the quarter ended September 30, 2005 and $721,000 to date. This expense represents the fair value of the Company's stock options, performance warrants and performance shares, amortized over the respective vesting periods. The expense recorded in the period ended September 30, 2005 is primarily due to start-up compensation arrangements including 135,000 options granted to directors that vested upon grant, 115,000 in the period ended June 30, 2005 and 20,000 in the current quarter.



Depletion, Depreciation and Amortization (DD&A)

2005 Q3 Q2
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Depletion, depreciation and amortization
- $000s 2,793 1,943 849
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Depletion, depreciation and amortization
- $/boe 14.10 14.87 12.62
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The assets transferred to Cordero in the plan of arrangement represent the majority of the depletable base and were transferred at the historic net book value of Resolute. In accordance with oil and gas full cost accounting policies, the net book value transferred to Cordero was determined based on the ratio of discounted future net revenue of the property transferred to the discounted future net revenue of Resolute's total proved reserves.

The Company's DD&A expense for the quarter and period ended September 30, 2005 was $1.9 million and $2.8 million respectively. The DD&A rate on a per boe basis was $14.87 for the three month period ended September 30, 2005 compared to $12.62/boe for the period ended June 30, 2005. The increase is the result of an upward adjustment for estimated future capital costs and the significant amount spent on facilities and other capital for which proved reserves additions are anticipated.

Cordero's future DD&A expense will reflect finding, development and acquisition costs for proved reserves.



Accretion

2005 Q3 Q2
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Accretion - $000s 55 34 20
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Accretion - $/boe 0.28 0.26 0.30
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Accretion of Cordero's asset retirement obligations is calculated at the Company's credit-adjusted, risk-free rate of 7.5%. Pursuant to the plan of arrangement, the Company recorded a liability of $1,250,000 associated with the assets transferred to Cordero. At September 30, 2005 the liability grew to $1,988,000 as a result of wells drilled, compressors installed and interests obtained in processing facilities.

Income Taxes

Current income tax expense represents Large Corporation Tax (LCT). The Company does not expect to pay current taxes other than LCT in 2005 based on existing tax pools, planned capital activities and current forecasts of taxable income. However, the current tax horizon will ultimately depend on several factors including commodity prices, future production, corporate expenses and both the type and amount of capital expenditures incurred during the remainder of the year and future reporting periods.

Future tax expense for the quarter ended September 30, 2005 was $872,000 or 45% of earnings before taxes, compared to an effective future tax rate of 90% for the period ended June 30, 2005. The Company's future tax rate is a function of the non-deductible, stock-based compensation expense relative to earnings before taxes. It was especially high in the period ended June 30, 2005 due to start-up compensation arrangements as stock-based compensation expense exceeded earnings before income taxes.



Cash Netbacks

The components of the Company's operating and corporate netbacks are
summarized below:

($/boe) 2005 Q3 Q2
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Sales price 49.46 52.93 42.73
Royalties (8.71) (9.25) (7.67)
Transportation costs (1.25) (1.31) (1.13)
Operating expenses (6.05) (5.80) (6.53)
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Operating netback 33.45 36.57 27.40
G&A (4.35) (3.86) (5.29)
Interest (net) (0.28) (0.12) (0.60)
Current income taxes (0.09) (0.08) (0.10)
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Corporate netback 28.73 32.51 21.41
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Capital Expenditures

On April 30, 2005, as a result of the plan of arrangement, Resolute transferred certain oil and gas properties to Cordero. As Cordero and Resolute were related parties at the time of the transaction, net assets acquired by Cordero were recorded at Resolute's net book value as follows:



Amount
Net Assets Acquired ($000s)
------------------------------------------------------------------------
Petroleum and natural gas interests and equipment 30,621
Undeveloped lands 5,161
Future income tax asset 12,737
Asset retirement obligations (1,250)
------------------------------------------------------------------------
47,269
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Consideration of Acquisition
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Issuance of 20,347,222 common shares 33,024
Cash - purchase price adjustment 14,245
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47,269
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($000s) 2005 Q3 Q2
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Land and lease retention 1,791 1,742 49
Geological and geophysical 1,348 1,101 247
Drilling and completions 4,700 2,966 1,734
Facilities and equipment 7,752 4,877 2,875
Property acquisitions 753 256 497
Other 1,457 681 776
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Total capital expenditures 17,801 11,623 6,178
Dispositions (972) (13) (959)
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Net capital expenditures 16,829 11,610 5,219
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Capital expenditures net of property dispositions were $11.6 million for the third quarter of 2005 and $16.8 million to date. Facilities and equipment expenditures of $7.8 million included the purchase, installation and relocation of compression equipment at Malmo and tie-in of 15 net wells. The majority of drilling and completion costs of $4.7 million represents 11 completions, initial drilling costs for two wells spudded, but not rig-released prior to the end of the period and purchase of drilling supplies to be used for future exploration and development. Land and seismic expenditures of $1.8 million and $1.3 million respectively are primarily related to the Company's conventional exploration program in northwest Alberta and northeast British Columbia. During the period ended June 30, 2005, Cordero disposed of certain properties in southwest Alberta that were not consistent with the Company's overall exploration and development strategy.

In June 2005, upon completion of financing for $13.95 million, the Company increased its initial capital budget of $18-24 million to $28-30 million for the period April 30, 2005 to December 31, 2005. In October 2005 the Company further increased the budget to $44 million for the same period. Actual costs may vary materially from budget as a result of numerous factors including, but not limited to, adjustments in the timing and scope of activities and changes in costs for land, services, equipment and materials.

Liquidity and Capital Resources

In exchange for the oil and gas properties transferred from Resolute, former Resolute shareholders received a total of 20,347,222 common shares of Cordero, as well as the same number of arrangement warrants which expired on May 30, 2005. Prior to May 30, 2005, warrants were exercised for 1,861,190 common shares for proceeds of $5.3 million.

On April 29, 2005, the Company issued 1,916,376 common shares and the same number of warrants to management, directors and employees in conjunction with an initial private placement of its common shares. The common shares issued under this private placement are subject to escrow conditions and the vesting of the warrants is subject to time and certain performance conditions.

On June 28, 2005, the Company closed a bought deal private placement whereby 3,000,000 common shares were issued at a price of $4.65 per share for total gross proceeds of $13.95 million. The common shares issued pursuant to the second private placement had a hold period which expired on October 29, 2005.

In August 2005, the Company entered into a sale-leaseback transaction with a third party for the construction, sale and use of compression equipment at Malmo. The total undiscounted lease obligation is $1.9 million at September 30, 2005, to be paid over a 10-year period. The Company is expected to have similar transactions with this party for additional compressors in the future.

In conjunction with the increased capital budget in October 2005, the Company expanded its $12 million credit facility to $25 million. The facility is with a major Canadian chartered bank, is subject to periodic review and is secured by the Company's petroleum and natural gas assets. Cordero expects the facility to be further expanded as production volumes grow.

Oil and natural gas prices have a significant impact on cash flows and, should commodity prices decline significantly, the Company has the ability to reduce its capital expenditure program accordingly. Cordero expects to have the ability to fulfill all of its contractual obligations at September 30, 2005 as summarized below:



Contractual Obligations ($000s)
Less
than 1-3 4-5 After
Total 1 Year Years Years 5 Years
------------------------------------------------------------------------
Operating
lease obligations 1,050 315 630 105 -
Capital lease
obligations 1,872 244 450 401 777
------------------------------------------------------------------------
Total contractual
obligations 2,922 559 1,080 506 777
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------------------------------------------------------------------------

Outstanding Share Data
November 7, September 30,
Outstanding at period-end (000s) 2005 2005
------------------------------------------------------------------------

Common shares 27,125 27,125
Common shares issuable
on conversion:
Performance warrants 1,916 1,916
Performance shares 726 726
Stock options 1,106 1,106
------------------------------------------------------------------------
Total 30,873 30,873
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2005 Guidance

The following table outlines guidance for the period April 30, 2005 to
December 31, 2005:

August 2005 November 2005
(initial) (revised)
Range Range
Low High Low High
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Average production
- natural gas (boe/d) 1,400 1,600 1,475 1,550
Exit production (boe/d) 2,000 2,000 2,000 2,300

Royalties (% of revenue) 18.5 19.5 17.5 18.5
Transportation ($/boe) 1.17 1.20 1.30 1.40
Operating ($/boe) 6.20 6.50 5.75 6.25
General and administrative ($/boe) 3.50 3.75 3.50 3.75

Capital expenditures ($ million) 28.0 30.0 44.0 46.0
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Cordero expects to reach the higher end of its 2005 exit production target of 2,000-2,300 boe/d based on drilling results to date and the timing of facilities, pipelines and equipment. The Company is pleased that royalties and operating costs are on track to be below the lower end of the initial guidance range. General and administrative costs on a per barrel of oil equivalent basis are expected to decline as production volumes grow.

In October 2005, Cordero announced an increase in its capital budget to $44 million from $28 million based on positive results to date at Malmo and the conventional exploration program. Production guidance for 2005 was not increased since most of the wells drilled during the fourth quarter are expected to be pipeline connected in the first quarter of 2006. The Company expects to reach 3,000-3,400 boe/d of production in April 2006 primarily from wells planned for drilling to the end of 2005.

Cordero is finalizing its Business Plan and expects to announce its 2006 budget guidance by early December.

Critical Accounting Estimates

Management makes certain judgments and estimates in preparing financial statements in accordance with Canadian GAAP. Changes to these judgments and estimates could have a material effect on Cordero's financial statements and financial position.

Proved Petroleum and Natural Gas Reserves

Proved reserves, the estimated quantities of natural gas, crude oil and natural gas liquids that can be recovered in future years under future economic and operating conditions, are critical to many aspects of the Company's financial statements. These estimates are made with reasonable certainty using all available geological and reservoir data as well as historical production data and are subject to revisions based on changes in reservoir performance and the pricing environment.

Depletion Expense

In accordance with the full cost method of accounting for exploration and development activities, all costs associated with exploration and development are capitalized, whether successful or not. The aggregate of capitalized costs and future development costs, net of costs related to unproved properties, is amortized using the unit-of-production method based on estimated proved reserves. Changes in estimated proved reserves or future development costs have a direct impact on depletion expense.

Certain costs related to unproved properties may be excluded from costs subject to depletion until proved reserves have been determined or their value impaired. These properties are reviewed quarterly to be determined if proved reserves should be assigned or if impairment exists.

Full Cost Accounting Ceiling Test

The Company reviews the carrying value of all petroleum and natural gas assets for potential impairment on a quarterly basis. Impairment is indicated if the carrying value of the assets is not recoverable by the future undiscounted cash flows. This impairment test is based on estimates of proved reserves, production rates, petroleum and natural gas prices, future costs and other relevant assumptions. If impairment exists, the amount by which the carrying value exceeds the estimated fair value of the assets will be charged to earnings.

Asset Retirement Obligations

The provision for asset retirement obligations is estimated based on costs to abandon and reclaim wells and facilities, timing of abandonment and reclamation of wells and facilities, and inflation and discount rates over the life of the reserves. Changes to any assumptions used in the calculation will have an impact on the provision and the accretion expense included in earnings.

Stock-based Compensation Expense

Compensation costs attributable to stock options, performance warrants and performance shares granted by the Company are charged to earnings over the vesting period of the securities. The fair value calculation method adopted by the Company is the Black-Scholes model, which requires management to estimate the expected life of the securities and the expected volatility of Cordero's share price over the life of the options, performance warrants and performance shares. These estimates may be different than the actual life and volatility.

Income Taxes

The determination of the Company's income tax liabilities requires interpretation of complex laws and regulations and all tax filings are subject to audit and potential reassessment. Future income tax expense is calculated using tax rates based on the estimated timing of reversal of temporary differences between accounting and tax values of certain assets and liabilities. The actual current and future tax expenses recorded may differ from those actually incurred.



Consolidated Balance Sheet

As at
(unaudited) September 30,
($000s) 2005
------------------------------------------------------------------------

Assets

Current
Cash 1,456
Accounts receivable 3,395
------------------------------------------------------------------------
4,851

Petroleum and natural gas interests (note 4) 50,507

Future income tax asset (note 12) 11,958
------------------------------------------------------------------------

67,316
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities

Current
Accounts payable and accrued liabilities 4,801
Current portion of obligation under
capital lease (note 6) 171
------------------------------------------------------------------------
4,972

Obligation under capital lease (note 6) 1,322

Asset retirement obligations (note 7) 1,988

Shareholders' equity
Share capital (notes 8 and 9) 57,240
Contributed surplus 721
Retained earnings 1,073
------------------------------------------------------------------------
59,034
------------------------------------------------------------------------

67,316
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Consolidated Statement of Operations and Retained Earnings

Three Months Period
Ended Ended
(unaudited) September 30, September 30,
($000s, except per share amounts) 2005 2005(1)
------------------------------------------------------------------------

Revenue
Gross oil and natural gas revenue 6,919 9,795
Royalties (1,209) (1,726)
------------------------------------------------------------------------
5,710 8,069
------------------------------------------------------------------------

Expenses
Operating 758 1,197
Transportation and selling 172 248
Administrative 505 861
Interest (notes 5 and 6) 16 55
Depletion, depreciation and amortization 1,943 2,793
Accretion (note 7) 34 55
Stock-based compensation (note 10) 362 721
Other revenue (20) (20)
------------------------------------------------------------------------
3,770 5,910
------------------------------------------------------------------------

Earnings before income taxes 1,940 2,159

Income taxes (note 12)
Current income taxes 11 17
Future income taxes 872 1,069
------------------------------------------------------------------------
883 1,086

Net earnings 1,057 1,073

Retained earnings, beginning of period 16 -
Retained earnings, end of period 1,073 1,073
------------------------------------------------------------------------

Net earnings per share (note 11)
Basic 0.04 0.04
Diluted 0.04 0.04
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) These results comprise the period from commencement of operations,
April 30, 2005, to September 30, 2005.

See accompanying notes.


Consolidated Statement of Cash Flows

Three Months Period
Ended Ended
(unaudited) September 30, September 30,
($000s) 2005 2005(1)
------------------------------------------------------------------------
Cash flows from the following:

Operating activities
Net earnings 1,057 1,073
Items not affecting cash
Depletion, depreciation and amortization 1,943 2,793
Accretion (note 7) 34 55
Future income taxes (note 12) 872 1,069
Stock-based compensation (note 10) 362 721
------------------------------------------------------------------------
Cash flow from operations 4,268 5,711
Asset retirement obligation expenditures (5) (5)
Changes in non-cash working capital
(note 13) (166) (1,139)
------------------------------------------------------------------------
4,097 4,567
------------------------------------------------------------------------

Financing activities
Issue of common shares and performance
shares (note 8) - 24,799
Share issue costs (1) (873)
Proceeds from sale-lease back transaction
(note 6) 1,504 1,504
Repayment of long-term debt (11) (11)
------------------------------------------------------------------------
1,492 25,419
------------------------------------------------------------------------

Investing activities
Purchase of petroleum and natural
gas assets and equipment (note 3) (1,273) (14,245)
Petroleum and natural gas expenditures (11,623) (17,801)
Disposition of petroleum and natural
gas interests 13 972
Changes in non-cash working capital
(note 13) (876) 2,544
------------------------------------------------------------------------
(13,759) (28,530)
------------------------------------------------------------------------

Net (decrease) increase in cash (8,170) 1,456

Cash, beginning of period 9,626 -
------------------------------------------------------------------------

Cash, end of period 1,456 1,456
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) These results comprise the period from commencement of operations,
April 30, 2005, to September 30, 2005.

See accompanying notes.


CORDERO ENERGY INC.

Notes to Consolidated Interim Financial Statements
(unaudited)


For the three months and period ended September 30, 2005 (tabular amounts in thousands of dollars, except share and per share data):

1. Description of Business

Cordero Energy Inc. ("Cordero" or "the Company") is an independent exploration and development company pursuing conventional oil and natural gas production and reserves as well as coalbed methane development in western Canada. Cordero is based in Calgary, Alberta and was incorporated under the Business Corporations Act (Alberta) on March 30, 2005. The Company commenced operations on April 30, 2005 when certain oil and gas properties of Resolute Energy Inc. (Resolute) were transferred to Cordero under a plan of arrangement (note 3).

2. Significant Accounting Policies and Basis of Presentation

The consolidated financial statements are presented in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and are expressed in Canadian dollars.

(a) Joint Venture Activities

A portion of the Company's exploration, development and production activities are conducted jointly with others. These financial statements reflect the Company's proportionate interest in such activities.

(b) Cash

Cash includes cash and short-term investments with a maturity of 90 days or less at the time of issue.

(c) Petroleum and Natural Gas Interests

The Company follows the full cost method of accounting for petroleum and natural gas interests whereby all costs relating to exploration for and development of petroleum and natural gas reserves are capitalized in one cost centre. Such costs include land acquisition costs, geological and geophysical expenses, costs of drilling both productive and non-productive wells and tangible equipment and administrative costs directly related to acquisition, exploration and development activities. Gains or losses are not recognized upon disposition of oil and natural gas properties unless crediting the proceeds against accumulated costs would result in a change in the rate of depletion of 20% or more.

Depletion and Depreciation

Petroleum and natural gas interests, including assets under capital lease, are depleted or depreciated using the unit-of-production method based on an independent engineering estimate of the Company's share of proved reserves, before royalties, with natural gas converted to its energy equivalent at a ratio of six thousand cubic feet of natural gas to one barrel of oil. Included in the depletion base are estimated costs to be incurred in developing proved reserves and, excluded, are estimated salvage values and the cost of acquiring and evaluating unproved properties.

Impairment

Petroleum and natural gas interests are evaluated quarterly to determine whether the costs capitalized are impaired. The costs are assessed to be impaired if the carrying value of the assets exceeds the sum of the undiscounted cash flows expected from the production of proved reserves and the lower of cost and market of unproved properties. If the carrying value is assessed as impaired, an impairment loss is recognized to the extent that the carrying value of assets exceeds the sum of the discounted cash flows expected from the production of proved and probable reserves and the lower of cost and market of unproved properties. The cash flows are estimated using expected future product prices and costs, discounted using a risk-free rate. Unproved properties are assessed for impairment in a separate impairment test.

Asset Retirement Obligations

The fair value of a liability for asset retirement obligations is recorded in the period when a reasonable estimate of the fair value can be determined, with a corresponding increase to the carrying amount of the related asset. Increases in the fair value of the asset retirement obligations due to the passage of time are recorded as accretion expense. Actual expenditures incurred are charged against the obligations.

(d) Revenue Recognition

Revenue is recognized when title passes to the customer.

(e) Stock-Based Compensation Plans

The Company has stock-based compensation plans described in notes 9 and 10 and accounts for its plans using the fair value method. Under this method, compensation cost attributable to stock options, performance warrants and performance shares granted to officers, directors, and employees is measured at fair value at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus. Consideration paid upon the exercise of stock options, performance warrants or performance shares, together with corresponding amounts previously recognized in contributed surplus, is recorded as an increase to share capital. In the event that vested options or warrants expire without being exercised, previously recognized compensation costs associated with such stock options are not reversed.

(f) Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases, using enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs.

(g) Earnings per Share

Per share information is calculated on the basis of the weighted average number of common shares outstanding during the period. Diluted per share information is calculated using the treasury stock method which assumes that any proceeds received by the Company upon the exercise of in-the-money stock options, performance warrants, performance shares and share appreciation rights, plus unamortized stock compensation costs, would be used to buy back common shares at the average market price for the period.

(h) Measurement Uncertainty

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.

The amounts recorded for depletion and deprecation of petroleum and natural gas interests and for asset retirement obligations are based on estimates of petroleum and natural gas reserves and future costs. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements of future periods could be material.

3. Plan of Arrangement

On April 30, 2005, as a result of the plan of arrangement, Resolute transferred certain oil and gas properties to Cordero. In exchange, Resolute shareholders received a total of 20,347,222 common shares of Cordero, as well as the same number of arrangement warrants. Each arrangement warrant entitled the holder to acquire 0.0269 Cordero common shares, exercisable for 30 days after the effective date of the arrangement, at a price of $2.87 per Cordero common share. As Cordero and Resolute were related parties at the time of the transaction, net assets acquired by Cordero were recorded at Resolute's net book value as follows:



Net Assets Acquired Amount
------------------------------------------------------------------------
Petroleum and natural gas interests and equipment 30,621
Undeveloped lands 5,161
Future income tax asset 12,737
Asset retirement obligations (1,250)
------------------------------------------------------------------------
47,269
------------------------------------------------------------------------
------------------------------------------------------------------------


Consideration of Acquisition
------------------------------------------------------------------------
Issuance of 20,347,222 common shares 33,024
Cash - purchase price adjustment 14,245
------------------------------------------------------------------------
47,269
------------------------------------------------------------------------
------------------------------------------------------------------------


4. Petroleum and Natural Gas Interests

Accumulated
Depletion and Net Book
At September 30, 2005 Cost Depreciation Value
------------------------------------------------------------------------
Petroleum and natural gas interests 51,358 (2,702) 48,656
Asset under capital lease (note 6) 1,503 (46) 1,457
Other assets 438 (44) 394
------------------------------------------------------------------------
53,299 (2,792) 50,507
------------------------------------------------------------------------
------------------------------------------------------------------------


As at September 30, 2005, unproved properties of $5,756,000 and other petroleum and natural gas (P&NG) assets of $814,000, which consisted of drilling supplies for future exploration and development, were not subject to depletion.

The Company capitalized overhead expenses of $489,000 and $805,000 relating to petroleum and natural gas exploration and development activities for the three months and period ended September 30, 2005, respectively.

Cordero performed a ceiling test calculation at September 30, 2005 to assess whether petroleum and natural gas interests are impaired. The future oil and gas prices are based on October 1, 2005 benchmark prices in the futures market. These prices have been adjusted for commodity price differentials, and transportation costs specific to Cordero.

The following table summarizes the benchmark prices used in the ceiling test calculation. Based on these assumptions, there was no impairment at September 30, 2005.




Foreign Edmonton Light
WTI Oil Exchange Crude Oil AECO Gas
Year (US$/bbl) Rate (Cdn$/bbl) (Cdn$/mmbtu)
------------------------------------------------------------------------
2005 67.78 0.85 79.74 11.31
2006 68.62 0.85 80.73 10.83
2007 62.14 0.85 73.10 9.43
2008 44.23 0.85 52.04 6.47
2009 42.70 0.85 50.24 6.24
2010 43.35 0.85 51.00 6.27
Escalate
thereafter 2.0% per year 2.0% per year 2.0% per year
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Revolving Credit Facility

In October 2005, the Company increased its $12 million extendible revolving term credit facility to $25 million. The facility is provided by a Canadian chartered bank, is subject to periodic review and is secured by a $40 million first floating charge debenture over all the Company's assets. Borrowings are made by way of prime loans with interest at the bank's prime lending rate or banker's acceptances and LIBOR advances at LIBOR plus a stamping fee of 1.10%.

6. Capital Lease Commitments

Commencing August 2005, the Company has a long-term capital lease for compression equipment at Malmo for a term of ten years. The future minimum payments under this lease are as follows:



Year Amount
------------------------------------------------------------------------
2005 61
2006 241
2007 228
2008 216
2009 204
2010 191
Thereafter 731
------------------------------------------------------------------------
Total minimum lease payments 1,872
Less amount representing interest at 5.18% (379)
------------------------------------------------------------------------
Present value of obligation under capital lease 1,493
Due within one year (171)
------------------------------------------------------------------------
Long-term portion of obligation under capital lease 1,322
------------------------------------------------------------------------
------------------------------------------------------------------------


The leased assets are depreciated using the unit-of-production method (see note 2). DD&A expense for this equipment for both the three months and period ended September 30, 2005 was $46,000. Interest expense incurred on the obligation was $10,000 for both the quarter and period ended September 30, 2005.

7. Asset Retirement Obligations

Cordero's asset retirement obligations are based on the Company's net ownership in wells and facilities and management's estimate of costs to abandon and reclaim those wells and facilities and the potential future timing of the costs to be incurred.

The Company has estimated the present value of its total asset retirement obligations to be $1,988,000 at September 30, 2005 based on a total future liability, after adjusting for inflation at 2.0%, of $5,888,000. Payments to settle asset retirement obligations occur over the operating lives of the underlying assets, estimated to be from zero to 30 years, with the majority of costs expected to occur between 2012 and 2020. Estimated costs have been discounted at Cordero's credit-adjusted, risk-free rate of 7.5%.



Three Months Ended Period Ended
September 30, 2005 September 30, 2005
------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 1,817 -
Liabilities transferred upon
plan of arrangement (note 3) - 1,250
Liabilities incurred in period 142 688
Liabilities settled
during period (5) (5)
Accretion 34 55
------------------------------------------------------------------------
Asset retirement obligations,
end of period 1,988 1,988
------------------------------------------------------------------------
------------------------------------------------------------------------

8. Share Capital

(a) Authorized

At September 30, 2005, the Company had authorized an unlimited number of
common shares and an unlimited number of preferred shares.

(b) Issued and Outstanding

------------------------------------------------------------------------
Common Shares Number Consideration
------------------------------------------------------------------------

Issued on incorporation, March 30, 2005 1 1
Issued on completion of plan
of arrangement (note 3) 20,347,222 33,024
Initial private placement 1,916,376 5,500
Exercise of arrangement warrants 1,861,190 5,341
Private placement, June 28, 2005 3,000,000 13,950
Share issue costs (net of future tax effect) - (576)
------------------------------------------------------------------------
Balance, September 30, 2005 27,124,789 57,240
------------------------------------------------------------------------
------------------------------------------------------------------------


Of the 20,347,222 arrangement warrants issued to Resolute shareholders in conjunction with the plan of arrangement (note 3), 19,908,347 were exercised by the expiry date of May 30, 2005 for 1,861,190 common shares and total gross proceeds of $5,341,000.

On April 29, 2005, the Company issued 1,916,376 common shares and the same number of performance warrants to management, directors and employees in conjunction with an initial private placement of its common shares. On June 28, 2005, the Company closed a bought deal private placement whereby 3,000,000 common shares were issued at a price of $4.65 per share for total gross proceeds of $13,950,000. The common shares issued pursuant to the second private placement had a hold period of four months which expired on October 29, 2005.

Each performance warrant is exercisable into one common share of the Company at a price of $2.87 per share. The performance warrants have a term of five years and one-third will vest on each of the first, second and third anniversaries of April 29, 2005 as long as the twenty-day weighted average trading price of the common shares of Cordero reach 1.5 times, 2.0 times and 2.5 times the market value of $2.87 as at or after each respective anniversary date. As at September 30, 2005, the performance clauses of 1.5 and 2.0 times the market value have been met.



------------------------------------------------------------------------
Performance Shares Number Consideration
------------------------------------------------------------------------
Initial private placement 725,900 7
------------------------------------------------------------------------
Balance, September 30, 2005 725,900 7
------------------------------------------------------------------------
------------------------------------------------------------------------


Each performance share was issued for a price of $0.01 per share and will be convertible into the percentage of a Cordero common share equal to the closing trading price of the Cordero common shares less market value of $2.87 if positive, divided by the Cordero closing share price. The Cordero performance shares will automatically convert into Cordero common shares as to one-third on each of the first, second and third anniversaries of the closing of the arrangement if the holder is a service provider on such date.

9. Stock-Based Compensation Plans

(a) Stock Option Plan

The Company has established a stock option plan whereby officers, directors and employees may be granted options to purchase common shares at a fixed price not less than the volume-weighted five-day average preceding grant. During the period ended September 30, 2005, 1,105,800 stock options were granted of which 135,000 issued to directors vested upon grant. Vesting and expiry provisions vary for each grant and are determined at the date of grant. The aggregate number of common shares reserved for issuance under the stock option plan, and any other security based share compensation of Cordero, is fixed at a rolling maximum of 10% of the issued and outstanding common shares calculated on a non-diluted basis.



The following table summarizes information about the Company's stock
options granted and outstanding at September 30, 2005:

------------------------------------------------------------------------
Remaining Remaining
Options Contractual Options Contractual
Exercise Price Outstanding Life (years) Exercisable Life (Years)
------------------------------------------------------------------------
$4.43 672,000 4.62 - -
$4.84 283,400 4.71 115,000 4.71
$5.51 93,400 4.88 20,000 4.88
$5.65 57,000 4.95 - -
------------------------------------------------------------------------
$4.43 - $5.65 1,105,800 4.68 135,000 4.74
------------------------------------------------------------------------
------------------------------------------------------------------------


The weighted-average exercise price of all options outstanding at September 30, 2005 is $4.69.

(b) Share Appreciation Rights Plan

The Company has established a share appreciation rights plan whereby share appreciation rights (rights) may be granted to directors, officers, employees and other individuals who perform services for the Company or any subsidiary of the Company. The maximum number of rights which may be outstanding at any one time under the plan is 2% of the total number of issued and outstanding common shares of the Company, calculated on a non-diluted basis.

Each right entitles the holder to receive from the Company either: 1) an amount (the appreciation amount) per right being exercised equal to the positive difference, if any, obtained by subtracting $2.87 from the volume weighted average trading price of the common shares on the Toronto Stock Exchange for the five trading days immediately preceding the date of exercise; or 2) the number of common shares of the Company per right being exercised determined by the fraction equal to the appreciation amount divided by the five-day volume weighted average trading price.

As at September 30, 2005, no share appreciation rights had been granted.

10. Stock-Based Compensation

The fair value of each stock option, performance warrant and performance share granted during the period ended September 30, 2005 is estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions and resulting values as follows:



------------------------------------------------------------------------
Performance Performance
Stock Options Warrants Shares
------------------------------------------------------------------------
Risk-free interest rate (%) 3.15 3.30 3.30
Expected life (years) 3.5 3.5 3.5
Expected volatility (%) 40 40 40
Dividend yield (%) - - -

Weighted average
fair value ($) 1.547 0.637 0.955
------------------------------------------------------------------------
------------------------------------------------------------------------


The aggregate fair value of the options, performance warrants and performance shares is expensed over the respective vesting periods.

11. Net Earnings per Share

The following reconciles the number of shares used in the basic and diluted net earnings per share calculations:



------------------------------------------------------------------------
Three Months Ended Period Ended
Common Shares September 30, 2005 September 30, 2005
------------------------------------------------------------------------

Weighted average basic 27,124,789 26,091,148
Dilutive securities
Stock options 388,454 313,840
Performance warrants 1,099,171 1,009,584
Performance shares 820,463 830,826
------------------------------------------------------------------------
Weighted average diluted 29,432,877 28,245,398
------------------------------------------------------------------------
------------------------------------------------------------------------


12. Income Taxes

The Company has a future income tax asset resulting from the plan of arrangement pursuant to which tax pools associated with the assets transferred from Resolute exceeded the net book value of the assets. The future income tax provision reflects an effective tax rate which differs from the expected statutory tax rate. Differences were accounted for as follows:



------------------------------------------------------------------------
Three Months Ended Period Ended
September 30, 2005 September 30, 2005
------------------------------------------------------------------------
Earnings before income taxes 1,940 2,159

Expected income taxes at the
statutory rate of 37.62% 730 812
Increase (decrease) resulting from:
Non-deductible Crown charges 239 333
Resource allowance (230) (311)
Stock-based compensation 136 271
Other 8 (19)
------------------------------------------------------------------------
Income Taxes 883 1,086
------------------------------------------------------------------------
------------------------------------------------------------------------


The major components of the future income tax asset are as follows:

------------------------------------------------------------------------
As at September 30, 2005
------------------------------------------------------------------------
Petroleum and natural gas interests 10,977
Asset retirement obligations 668
Share issue costs 271
Other 42
------------------------------------------------------------------------
11,958
------------------------------------------------------------------------
------------------------------------------------------------------------


13. Statements of Cash Flows

Changes in non-cash Three Months Ended Period Ended
working capital September 30, 2005 September 30, 2005
------------------------------------------------------------------------
Accounts receivable 378 (3,395)
Accounts payable and accrued
liabilities (1,422) 4,801
------------------------------------------------------------------------
Change in non-cash working
capital relating to: (1,044) 1,406
------------------------------------------------------------------------
Operating activities (166) (1,139)
Investing activities (876) 2,544
------------------------------------------------------------------------
------------------------------------------------------------------------


Corporate Information

Board of Directors Officers

Brian K. Lemke David V. Elgie
Executive Chairman President and
Cordero Energy Inc. Chief Executive Officer
Calgary, Alberta
Richard Gleasure
Vice President, Engineering and
Don Driscoll(1)(3) Chief Operating Officer
Corporate Director
Calgary, Alberta Brian K. Lemke
Executive Chairman
David V. Elgie
President and C. Dean Setoguchi
Chief Executive Officer Vice President and
Cordero Energy Inc. Chief Financial Officer
Calgary, Alberta
Head Office

S. Barry Jackson (2)(3) 2400 Bow Valley Square 3
Corporate Director 255 - 5th Avenue SW
Calgary, Alberta Calgary, Alberta T2P 3G6
Tel: (403) 265-7006
Douglas G. Manner (1)(2) Fax: (403) 265-7050
Senior Vice President and Email: info@corderoenergy.com
Chief Operating Officer Website: www.corderoenergy.com
Kosmos Energy LLC
Dallas, Texas Solicitors

Robert R. Rooney (2)(3) Bennett Jones LLP
Partner, Bennett Jones LLP Calgary, Alberta
Barristers and Solicitors
Calgary, Alberta Banker

Jeffrey T. Smith(1)(2) Canadian Imperial Bank
Corporate Director of Commerce
Calgary, Alberta
Auditors
Philip Swift(1)(3)
Co-Chairman Deloitte & Touche LLP
ARC Financial Corporation Calgary, Alberta
Calgary, Alberta
Independent Reservoir Consultants
Members of the
following Committees: Sproule Associates Ltd.
(1) Audit and Calgary, Alberta
(2) Technical
(3) Human Resources Transfer Agent
and Governance
Valiant Trust Company
Calgary, Alberta

Stock Exchange Listing

Toronto Stock Exchange
Trading symbol: COR


Contact Information

  • Cordero Energy Inc.
    David V. Elgie
    President and Chief Executive Officer
    (403) 265-7006 or Toll Free: 1-888-266-6608
    or
    Cordero Energy Inc.
    C. Dean Setoguchi
    Vice President and Chief Financial Officer
    (403) 265-7006 or Toll Free: 1-888-266-6608
    Email: info@corderoenergy.com (FAX)
    Website: www.corderoenergy.com