Crocotta Energy Inc.
TSX : CTA

Crocotta Energy Inc.

March 20, 2008 06:00 ET

Crocotta Energy Announces 2007 Financial and Operating Results

CALGARY, ALBERTA--(Marketwire - March 20, 2008) - CROCOTTA ENERGY INC. (TSX:CTA) is pleased to announce its financial and operating results for the year ended December 31, 2007, including audited consolidated financial statements, notes to the audited consolidated financial statements, and Management's Discussion and Analysis. All dollar figures are Canadian dollars unless otherwise noted.

HIGHLIGHTS

- Completed acquisition of Eastshore Energy Ltd. ("Eastshore"), by way of plan of arrangement, on June 8, 2007. Eastshore had oil and natural gas assets located in West Central Alberta that were producing approximately 500 boe/d at the date of acquisition.

- Completed acquisition of Diamond Tree Energy Ltd. ("Diamond Tree"), by way of plan of arrangement, on October 12, 2007. Diamond Tree had oil and natural gas assets located in West Central Alberta and Northeast British Columbia that added approximately 1,450 boe/d to Crocotta's production base at the date of acquisition.

- Raised approximately $42.6 million through private placement issuances of approximately 11.3 million common shares.

- Increased its operating demand loan credit facility to $34.0 million.

- Drilled 6.0 (3.4 net) successful wells during the year for a success rate of 73%.



Three Months Ended
December 31 Year Ended December 31
% %
FINANCIAL 2007 2006 (1) Change 2007 2006 (1) Change
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($000s, except
per share amounts)

Oil and natural gas
sales 9,994 290 3,346 14,378 290 4,858

Funds from operations 4,997 (194) 2,676 6,405 (194) 3,402
per share - basic and
diluted (2) 0.16 (0.16) 200 0.39 (0.16) 344

Net loss (523) (436) 20 (739) (436) 69
per share - basic and
diluted (2) (0.02) (0.36) (94) (0.04) (0.36) (89)

Capital expenditures 13,000 2,420 437 22,387 2,420 825

Property acquisition - 6,556 (100) - 6,556 (100)

Corporate
acquisitions 75,866 504 14,953 110,632 504 21,851

Net working capital
(deficiency) (11,455)13,469 (185)

Common shares
outstanding (000s)
weighted average -
basic and diluted (2) 16,605 1,215 1,267
end of period
- basic 33,045 7,980 314
end of period
- diluted 38,176 10,017 281

(1) Crocotta began active oil and natural gas operations on November 15,
2006. As such, comparative results from oil and natural gas activities
take into account only the 47-day period from November 15, 2006 to
December 31, 2006.

(2) On October 12, 2007, Crocotta's outstanding common shares were
consolidated on a three-to-one basis. As such, per share amounts and
outstanding shares for the comparative period have been adjusted to
reflect the three-to-one consolidation.


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Three Months Ended December 31 Year Ended December 31
OPERATING 2007 2006 (1) % Change 2007 2006 (1) % Change
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Number of producing
days 92 47 365 47

Daily production
Oil and NGLs -
(bbls/d) 724 52 1,292 278 52 435
Natural gas -
(mcf/d) 7,653 331 2,212 2,780 331 740
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Oil equivalent -
($/boe @ 6:1) 2,000 107 1,769 741 107 593

Revenue, net of
transportation
Oil and NGLs -
($/bbl) 79.70 66.28 20 75.50 66.28 14
Natural gas -
($/mcf) 6.45 7.94 (19) 6.39 7.94 (20)
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Oil equivalent -
($/boe @ 6:1) 53.53 56.67 (6) 52.28 56.67 (8)

Royalties
Oil and NGLs -
($/bbl) 18.29 2.89 533 15.24 2.89 427
Natural gas -
($/mcf) 1.26 1.43 (12) 1.17 1.43 (18)
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Oil equivalent -
($/boe @ 6:1) 11.45 5.81 97 10.12 5.81 74

Production expenses
Oil and NGLs -
($/bbl) 10.78 13.37 (19) 10.25 13.37 (23)
Natural gas -
($/mcf) 1.69 1.63 4 1.56 1.63 (4)
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Oil equivalent -
($/boe @ 6:1) 10.38 11.52 (10) 9.70 11.52 (16)

Operating netback
Oil and NGLs -
($/bbl) 50.63 50.02 1 50.01 50.02 -
Natural gas -
($/mcf) 3.50 4.88 (28) 3.66 4.88 (25)
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Oil equivalent -
($/boe @ 6:1) 31.70 39.34 (19) 32.46 39.34 (17)

(1) Crocotta began active oil and natural gas operations on November 15,
2006. As such, comparative results from oil and natural gas activities
take into account only the 47-day period from November 15, 2006 to
December 31, 2006.


Management's Discussion and Analysis

March 18, 2008

Crocotta Energy Inc. ("Crocotta" or the "Company") is an emerging oil and natural gas company, actively engaged in the acquisition, development, exploration, and production of oil and natural gas reserves in Western Canada. Crocotta commenced trading on the Toronto Stock Exchange ("TSX") on October 17, 2007 under the symbol "CTA".

On August 16, 2005, Donner Minerals Ltd., the predecessor to the Company, completed a reorganization, by way of statutory plan of arrangement, and restructured into two separate companies, Donner Metals Ltd. and Donner Minerals Ltd., which changed its name to Donner Petroleum Ltd. and subsequently to Crocotta Energy Inc. On November 14, 2006, the Company appointed a new board of directors and hired a new management team consisting of the previous directors and officers of Chamaelo Exploration Ltd. ("Chamaelo"). On November 15, 2006, the Company commenced active oil and natural gas operations with the acquisition of certain oil and natural gas properties from Chamaelo.

Effective December 31, 2006, the Company changed its fiscal year-end from February 28 to December 31. As a result, the consolidated financial statements for the year ended December 31, 2007 and the disclosure throughout the Management's Discussion and Analysis ("MD&A") reflect Crocotta's overall company results for the year ended December 31, 2007, with comparative results for the ten-month period ended December 31, 2006. Results from active oil and natural gas operations for the comparative period take into account only the 47-day period from November 15, 2006 to December 31, 2006.

The MD&A should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007 and the ten-month period ended December 31, 2006. The audited consolidated financial statements and financial data contained in the MD&A have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") in Canadian currency (except where noted as being in another currency).

Additional information related to the Company may be found on the SEDAR website at www.sedar.com.

BOE Conversions

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

Forward-Looking Information

This MD&A may contain forward-looking information that involves a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and natural gas industry (e.g. - operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).

Non-GAAP Measures

Funds from operations and operating netback as presented do not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies. Funds from operations refers to the cash flows from operations determined before changes in non-cash working capital. Operating netback, which is calculated as average unit sales price less royalties, production expenses, and transportation expenses, represents the cash margin for every barrel of oil equivalent sold.



Summary of Three Months Ended December 31 Year Ended December 31
Financial Results 2007 2006(1) % Change 2007 2006(1) % Change
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($000s, except
per share amounts)

Oil and natural gas
sales 9,994 290 3,346 14,378 290 4,858

Funds from
operations 4,997 (194) 2,676 6,405 (194) 3,402
per share -
basic and
diluted (2) 0.16 (0.16) 200 0.39 (0.16) 344

Net loss (523) (436) 20 (739) (436) 69
per share -
basic and
diluted (2) (0.02) (0.36) (94) (0.04) (0.36) (89)

Total assets 147,631 26,445 458

Net working
capital
(deficiency) (11,455) 13,469 (185)

Total long-term
liabilities 5,496 173 3,077

(1) Crocotta began active oil and natural gas operations on November 15,
2006. As such, comparative results from oil and natural gas activities
take into account only the 47-day period from November 15, 2006 to
December 31, 2006.
(2) On October 12, 2007, Crocotta's outstanding common shares were
consolidated on a three-to-one basis. As such, per share amounts for the
comparative period have been adjusted to reflect the three-to-one
consolidation.


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Summary of Quarterly Results (1)
Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007
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Number of producing days 47 90 91 92 92

($000s, except per share
amounts)
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Oil and natural gas sales 290 532 1,266 2,587 9,994

Funds from operations (194) (71) 323 1,157 4,997
per share - basic and diluted
(2) (0.16) (0.01) 0.03 0.07 0.16

Net earnings (loss) (436) 382 (339) (259) (523)
per share - basic and diluted
(2) (0.36) 0.05 (0.03) (0.02) (0.02)
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(1) There are not eight quarters of information disclosed as Crocotta began
active oil and natural gas operations on November 15, 2006. As such, the
disclosure reflects only those periods with active oil and natural gas
operations.
Results from oil and natural gas activities for Q4 2006 take into
account only the 47-day period from November 15, 2006 to December 31,
2006.
(2) On October 12, 2007, Crocotta's outstanding common shares were
consolidated on a three-to-one basis. As such, per share amounts for the
comparative periods have been adjusted to reflect the three-to-one
consolidation.


General

During the year ended December 31, 2007, Crocotta closed two significant corporate acquisitions that will have a material impact on the Company's operations and operating results going forward. On June 8, 2007, Crocotta closed the acquisition of Eastshore Energy Ltd. ("Eastshore") which was producing approximately 500 boe/d at the date of acquisition. On October 12, 2007, Crocotta closed the acquisition of Diamond Tree Energy Ltd. ("Diamond Tree") which added approximately 1,450 boe/d to Crocotta's production base at the date of acquisition.

The acquisitions are comprised of high quality light oil and natural gas production that attract favourable pricing with production expenses lower than the previous corporate average. As a result of the acquisitions, Crocotta will have significantly higher production and per share funds from operations while lowering production and general and administrative costs per boe.



Production Three Months Ended December 31 Year Ended December 31
2007 2006 % Change 2007 2006 % Change
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Average Daily
Production
Oil and NGLs
(bbls/d) 724 52 1,292 278 52 435
Natural gas
(mcf/d) 7,653 331 2,212 2,780 331 740
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Total (boe/d) 2,000 107 1,769 741 107 593
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Daily production for the fourth quarter of 2007 increased significantly to 2,000 boe/d compared to 107 boe/d for the 47-day period ended December 31, 2006. Production for the year ended December 31, 2007 averaged 741 boe/d, also up significantly from 107 boe/d for the 47-day period ended December 31, 2006.

Production increased mainly as a result of the Eastshore and Diamond Tree acquisitions, which added approximately 500 boe/d and 1,450 boe/d, respectively, at the time of closing of each acquisition.

Crocotta's production profile for 2007 was comprised of 62% natural gas and 38% oil and NGLs compared to 51% natural gas and 49% oil and NGLs in 2006. The shift in product mix in 2007 was the result of the Eastshore and Diamond Tree acquisitions.



Revenue Three Months Ended December 31 Year Ended December 31
($000s) 2007 2006 % Change 2007 2006 % Change
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Oil and NGLs 5,351 164 3,163 7,746 164 4,623
Natural gas 4,643 126 3,585 6,632 126 5,163
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Total revenue 9,994 290 3,346 14,378 290 4,858
Transportation
expenses (147) (5) 2,840 (222) (5) 4,340
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Total revenue,
net of
transportation 9,847 285 3,355 14,156 285 4,867
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Average Sales Price
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Oil and NGLs
($/bbl) 80.32 67.27 19 76.21 67.27 13
Natural gas
($/mcf) 6.60 8.08 (18) 6.54 8.08 (19)
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Average sales
price ($/boe) 54.33 57.58 (6) 53.10 57.58 (8)
Transportation
expenses ($/boe) (0.80) (0.91) (12) (0.82) (0.91) (10)
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Average sales
price ($/boe),
net 53.53 56.67 (6) 52.28 56.67 (8)
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Revenue, before transportation, totaled $10.0 million for the fourth quarter of 2007 and $14.4 million for the year ended December 31, 2007, up dramatically from $0.3 million for the 47-day period ended December 31, 2006. Revenue increased as a result of the Eastshore and Diamond Tree acquisitions, successful drilling efforts during 2007, and the fact that the comparative period only had 47 days of active oil and natural gas operations.

On a per unit basis, revenue, before transportation, decreased 6% to $54.33/boe for the fourth quarter of 2007 and 8% to $53.10/boe for the year ended December 31, 2007 compared to $57.58/boe for the 47-day period ended December 31, 2006. The decrease was the result of a significant decrease in natural gas commodity prices during the year, which was partially offset by an increase in oil and NGLs commodity prices.

During the year, the Company sold all its oil, NGLs and natural gas on the spot market. Future prices received from the sale of the products may fluctuate as the result of market factors. The Company did not hedge any of its oil, NGLs or natural gas production in 2007 or 2006.

The following table outlines the Company's realized wellhead prices and industry benchmarks:



Commodity Three Months Ended December 31 Year Ended December 31
Pricing 2007 2006 % Change 2007 2006 % Change
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Oil and NGLs
Corporate Price
($Cdn/bbl) 80.32 67.27 19 76.21 67.27 13
West Texas
Intermediate
($US/bbl) 90.77 61.08 49 72.27 61.08 18
Edmonton Par
($Cdn/bbl) 87.18 66.89 30 77.06 66.89 15

Natural gas
Corporate Price
($Cdn/mcf) 6.60 8.08 (18) 6.54 8.08 (19)
AECO Daily Spot
Price ($Cdn/mcf) 6.16 7.29 (16) 6.45 7.29 (12)

Exchange Rates
U.S./Cdn. Dollar
Average Exchange
Rate 1.0197 0.8717 17 0.9351 0.8717 7
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Corporate average oil and NGLs prices were 92.1% and 98.9% of Edmonton Par price for the three months and year ended December 31, 2007, respectively. Corporate average natural gas prices were 107.1% and 101.4% of AECO Daily Spot price for the three months and year ended December 31, 2007, respectively. Differences between corporate and benchmark prices can be a result of quality (higher or lower API, higher or lower heat content), sour content, NGLs included in reporting, and various other factors. Crocotta's differences are mainly the result of lower priced NGLs included in oil price reporting and higher heat content natural gas production that is priced higher than AECO Daily Spot. Note that these differences change on a monthly basis depending on demand for each particular product.



Transportation Three Months Ended December 31 Year Ended December 31
Expenses 2007 2006 % Change 2007 2006 % Change
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Oil and NGLs
($/bbl) 0.62 0.99 (37) 0.71 0.99 (28)
Natural gas
($/mcf) 0.15 0.14 7 0.15 0.14 7
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Total ($/boe) 0.80 0.91 (12) 0.82 0.91 (10)
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Transportation expenses are mainly third-party pipeline tariffs incurred to deliver the products to the purchasers at main hubs. The decrease in 2007 per-unit transportation costs for oil and NGLs is mainly the result of a substantive increase in NGLs production from the Eastshore and Diamond Tree acquisitions which bear lower transportation costs.



Royalties Three Months Ended December 31 Year Ended December 31
($000s) 2007 2006 % Change 2007 2006 % Change
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Oil and NGLs 1,219 7 17,314 1,549 7 22,029
Natural gas 888 22 3,936 1,192 22 5,318
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Total royalties 2,107 29 7,166 2,741 29 9,352
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Average Royalty
Rate (% of sales)
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Oil and NGLs 22.8 4.3 430 20.0 4.3 365
Natural gas 19.1 17.7 8 18.0 17.7 2
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Average royalty
rate 21.1 10.1 109 19.1 10.1 89
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Oil, NGLs and natural gas royalties increased significantly in the three months and year ended December 31, 2007 from the 47-day period ended December 31, 2006 mainly as a result of increased revenue from the Eastshore and Diamond Tree acquisitions.

The overall effective royalty rates were 21.1% and 19.1% for the three months and year ended December 31, 2007, respectively, compared to 10.1% for the 47-day period ended December 31, 2006. The increase in the effective royalty rate is a result of higher royalty rates associated with the properties obtained in the Eastshore and Diamond Tree acquisitions, which also reduced the effect of crown royalty holidays for several original Crocotta wells on overall royalty rates.



Production Three Months Ended December 31 Year Ended December 31
Expenses 2007 2006 % Change 2007 2006 % Change
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Oil and NGLs
($/bbl) 10.78 13.37 (19) 10.25 13.37 (23)
Natural gas
($/mcf) 1.69 1.63 4 1.56 1.63 (4)
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Total ($/boe) 10.38 11.52 (10) 9.70 11.52 (16)
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Per unit production expenses for the fourth quarter of 2007 were $10.38/boe, down 10% from $11.52/boe for the 47-day period ended December 31, 2006. For the year ended December 31, 2007, per unit production expenses were $9.70/boe, a decrease of 16% from $11.52/boe for the 47-day period ending December 31, 2006. Per unit production expenses decreased as a result of significant increases in production during the year. Of note, production expenses included $0.3 million relating to one-time workover costs incurred at four of the Company's wells in the fourth quarter. Had these costs not been incurred, per unit production expenses would have decreased to $8.78/boe for the fourth quarter of 2007 and $8.61/boe for the year ended December 31, 2007.



Operating Three Months Ended December 31 Year Ended December 31
Netback 2007 2006 % Change 2007 2006 % Change
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Oil and NGLs
($/bbl)
Revenue 80.32 67.27 19 76.21 67.27 13
Royalties 18.29 2.89 533 15.24 2.89 427
Production
expenses 10.78 13.37 (19) 10.25 13.37 (23)
Transportation
expenses 0.62 0.99 (37) 0.71 0.99 (28)
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Operating netback 50.63 50.02 1 50.01 50.02 -
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Natural gas
($/mcf)
Revenue 6.60 8.08 (18) 6.54 8.08 (19)
Royalties 1.26 1.43 (12) 1.17 1.43 (18)
Production
expenses 1.69 1.63 4 1.56 1.63 (4)
Transportation
expenses 0.15 0.14 7 0.15 0.14 7
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Operating netback 3.50 4.88 (28) 3.66 4.88 (25)
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Combined ($/boe)
(6:1)
Revenue 54.33 57.58 (6) 53.10 57.58 (8)
Royalties 11.45 5.81 97 10.12 5.81 74
Production
expenses 10.38 11.52 (10) 9.70 11.52 (16)
Transportation
expenses 0.80 0.91 (12) 0.82 0.91 (10)
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Operating netback 31.70 39.34 (19) 32.46 39.34 (17)
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The operating netback is a key indicator of an exploration and production company's ability to generate cash flow for reinvestment. During the fourth quarter of 2007, Crocotta generated an operating netback of $31.70/boe, down 19% from $39.34/boe for the 47-day period ended December 31, 2006. For the year ended December 31, 2007, Crocotta generated an operating netback of $32.46, a decrease of 17% from $39.34/boe for the 47-day period ended December 31, 2006. The decrease in the operating netback was a result of a significant decline in natural gas prices combined with an increase in royalties, stemming from the higher per unit royalty expenses on the oil and natural gas assets acquired from Eastshore and Diamond Tree during 2007.



General and
Administrative Three Months Ended December 31 Year Ended December 31
Expenses ($000s) 2007 2006 % Change 2007 2006 % Change
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G&A expenses
(gross) 992 523 90 3,238 523 519
G&A capitalized (96) (80) 20 (392) (80) 390
G&A recoveries (127) (35) 263 (228) (35) 551
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G&A expenses (net) 769 408 88 2,618 408 542
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G&A expenses
($/boe) 4.18 80.98 (95) 9.67 80.98 (88)
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General and administrative expenses ("G&A") decreased 95% to $4.18/boe for the fourth quarter of 2007 and 88% to $9.67/boe for the year ended December 31, 2007 compared to $80.98/boe for the 47-day period ended December 31, 2006. The decrease in G&A on a per unit basis is the result of a significant increase in production.



Interest Three Months Ended December 31 Year Ended December 31
($000s) 2007 2006 % Change 2007 2006 % Change
----------------------------------------------------------------------------
Interest expense 100 139 (28) 102 139 (27)
Interest income (34) (44) (23) (336) (44) 664
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Net interest
expense / (income) 66 95 (31) (234) 95 346
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Interest expense /
(income) ($/boe) 0.35 18.99 (98) (0.87) 18.99 105
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Interest income amounts relate to interest earned during the first 10 months of 2007 on funds raised through the November 2006 and May 2007 private placement issuances. Interest expense amounts relate to interest incurred on outstanding flow-through share obligations inherited from Diamond Tree and on amounts drawn from the Company's credit facility, which was used to facilitate the Company's drilling program in the fourth quarter of 2007.



Depletion,
Depreciation Three Months Ended December 31 Year Ended December 31
and Accretion 2007 2006 % Change 2007 2006 % Change
----------------------------------------------------------------------------

DD&A ($000s) 5,835 131 4,354 8,113 131 6,093
DD&A ($/boe) 31.72 25.94 22 29.96 25.94 15
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Depletion, depreciation and accretion ("DD&A") increased 22% to $31.72/boe for the three months ended December 31, 2007 and increased 15% to $29.96/boe for the year ended December 31, 2007 compared to $25.94/boe for the 47-day period ended December 31, 2006. The provision for DD&A for the three months and year ended December 31, 2007 includes $0.1 million for accretion of asset retirement obligations and $0.1 million for the amortization of equipment under capital lease.

The increase in the DD&A rate resulted from a large portion of the reserves acquired in the Plan of Arrangements with Eastshore and Diamond Tree being classified as "probable" (which are not recognized for depletion) as the wells were relatively new. The Company expects the DD&A rate per boe to decrease over time as the reserves acquired from Eastshore and Diamond Tree move from probable to proved due to a longer production history, allowing for a higher confidence in reserve estimates.



Stock-based Three Months Ended December 31 Year Ended December 31
Compensation 2007 2006 % Change 2007 2006 % Change
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Stock-based
compensation
($000s) 96 - 100 169 - 100
Stock-based
compensation
($/boe) 0.52 - 100 0.62 - 100
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The Company grants stock options to officers, directors, employees and consultants and calculates the related stock-based compensation using the Black-Scholes option-pricing model. The Company recognizes the expense over the vesting period of the stock options. During the year ended December 31, 2007, 2.7 million stock options and 2.4 million warrants were issued, resulting in the increase in stock-based compensation.

Taxes

At December 31, 2007, the Company had approximately $128.0 million in tax pools, losses, and share issue costs.



December 31, 2007 December 31, 2006 % Change
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($000s)
Canadian oil and gas
property expense (COGPE) 3,938 5,076 (22)
Canadian development
expense (CDE) 28,234 3,408 728
Canadian exploration
expense (CEE) 58,100 13,182 341
Undepreciated capital
costs (UCC) 26,865 1,468 1,730
Non-capital losses
carried forward 5,067 3,751 35
Capital losses carried
forward 3,416 3,416 -
Share issue costs 2,387 229 942
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Total pools, losses,
and share issue costs 128,007 30,530 319
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Subsequent to year end, the Company renounced $5.0 million of flow-through share obligations to shareholders. This, combined with $3.4 million in capital losses and $1.2 million in non-capital losses, against which a valuation allowance is provided, leaves the Company with $118.4 million of effective tax pools. During the year ended December 31, 2007, the Company had a future income tax recovery of $0.7 million relating to the renunciation of approximately $2.5 million in flow-through share obligations. Additional income tax recovery of $0.4 million was due to a net loss before taxes and federal income tax rate reductions.

Funds from Operations and Net Loss

Funds from operations for the three months and year ended December 31, 2007 were $5.0 million ($0.16 per diluted share) and $6.4 million ($0.39 per diluted share), respectively. The Company had a net loss of $0.5 million ($0.02 per diluted share) for the three months ended December 31, 2007. Year-to-date, the Company had a net loss of $0.7 million ($0.04 per diluted share). The net loss for each of the three months and year ended December 31, 2007 was mainly due to high depletion expense, which arose as a result of a large portion of the reserves acquired in the Plan of Arrangements with Eastshore and Diamond Tree being classified as "probable" (which are not recognized for depletion) as the wells were relatively new.

Capital Expenditures

Net capital expenditures during 2007 were $22.4 million. Crocotta also completed the acquisitions of Eastshore and Diamond Tree, adding a total of $110.6 million to oil and natural gas properties and equipment.



Three Months Ended December 31 Year Ended December 31
($000s) 2007 2006 % Change 2007 2006 % Change
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Land 3,132 9 34,700 6,685 9 74,178
Drilling,
completions,
and workovers 6,962 1,919 263 11,478 1,919 498
Equipment 2,494 20 12,370 3,034 20 15,070
Geological and
geophysical 412 472 (13) 1,158 472 145
Other - - - 32 - 100
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Total exploration
and development 13,000 2,420 437 22,387 2,420 825

Corporate
acquisitions 75,866 504 14,953 110,632 504 21,851
Property
acquisitions - 6,556 (100) - 6,556 (100)

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Total capital
expenditures 88,866 9,480 837 133,019 9,480 1,303
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During the fourth quarter of 2007, Crocotta drilled 6 (2.9 net) wells, which resulted in 1 (0.5 net) oil well, 3 (1.6 net) natural gas wells, and 2 (0.8 net) uneconomical wells. During the year ended December 31, 2007, Crocotta drilled 9 (4.7 net) wells, which resulted in 2 (1.3 net) oil wells, 4 (2.1 net) natural gas wells, and 3 (1.3 net) uneconomical wells. Crocotta also recompleted 2 (1.5 net) wells during the year, resulting in 1 (0.5 net) oil well and 1 (1.0 net) natural gas well.

During the year, the Company increased its land holdings to 98,200 gross (69,900 net) acres at December 31, 2007, up from 16,500 gross (12,700 net) acres at December 31, 2006.

Finding, Development and Acquisition Costs ("FD&A")

FD&A costs reflect the efficiency and value added by the Company's capital spending. While NI 51-101 requires that the effects of acquisitions and dispositions be excluded, Crocotta has included these items because it believes that acquisitions can have a significant impact on the Company's ongoing reserve replacement costs and that excluding these amounts could result in an inaccurate portrayal of Crocotta's cost structure. The Company's FD&A costs for the period ended December 31, 2007 are as follows:



2007 2006 2 Years

($000's, except Proved & Proved & Proved &
where noted) Proved Probable Proved Probable Proved Probable
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Reserve additions
(mboe) (1) 3,720 4,952 394 728 4,114 5,680

Capital expenditures 22,387 22,387 2,420 2,420 24,807 24,807
Property acquisitions - - 6,556 6,556 6,556 6,556
Corporate acquisitions 110,632 110,632 504 504 111,136 111,136
----------------------------------------------------------------------------
Total, excluding
future capital costs 133,019 133,019 9,480 9,480 142,499 142,499

Less: Undeveloped
land(2) (14,102) (14,102) - - (14,102) (14,102)
----------------------------------------------------------------------------
Total, excluding
undeveloped land and
future capital costs 118,917 118,917 9,480 9,480 128,397 128,397

Add: Change in future
capital costs (3) 5,123 8,847 1,983 3,051 7,106 11,898
----------------------------------------------------------------------------
Total, including
undeveloped land and
future capital costs 138,142 141,866 11,463 12,531 149,605 154,397

FD&A costs, excluding
undeveloped land
and future capital
costs ($/boe) 31.97 24.01 24.06 13.02 31.21 22.61

FD&A costs, excluding
future capital costs
($/boe) 35.76 26.86 24.06 13.02 34.64 25.09

FD&A costs, including
undeveloped land
and future capital
costs ($/boe) 37.13 28.65 29.10 17.21 36.36 27.18
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Based on total company interest reserves before deduction of royalties
to others and including any royalty interest of Crocotta. Based on the
evaluation by GLJ Petroleum Consultants Ltd. ("GLJ").
(2) Undeveloped land includes lands acquired through acquisitions and crown
land sales during 2007 that were not evaluated as at December 31, 2007.
Crocotta has estimated the individual values and will include them in
FD&A in future years as drilled.
(3) Future development capital expenditures required to recover reserves
estimated by GLJ. The aggregate of the exploration and development
costs incurred in the most recent financial period and the change during
that period in estimated future development costs generally will not
reflect total finding and development costs related to reserve additions
for that period.


Liquidity and Capital Resources

The Company had a working capital deficiency of $11.5 million at December 31, 2007 compared to positive working capital of $13.5 million at December 31, 2006. The change of $25.0 million was mainly due to $22.4 million used for the purchase and development of oil and natural gas properties and equipment, $46.9 million of cash used and bank debt obtained on the acquisitions of Eastshore and Diamond Tree, and $4.2 million of non-cash working capital deficiency obtained on the acquisitions of Eastshore and Diamond Tree. These negative changes to working capital were partially offset by funds from operations of $6.4 million and by proceeds from share issuances of $42.6 million as noted below:

- On June 5, 2007, approximately 2.0 million series I special voting shares were exercised for common shares for proceeds of approximately $6.1 million. The outstanding series I special voting shares related to a put and call financing arrangement from November 2006.

- On June 13, 2007, Crocotta issued approximately 1.1 million common shares on a flow-through basis at a price of $4.65 per share for gross proceeds of approximately $5.0 million. Of these shares, 0.1 million were issued to directors and officers of the Company. Crocotta is obligated to spend the full amount on qualifying exploration ("CEE") expenditures by the end of 2008.

- Crocotta also entered into put and call financing arrangements to issue approximately 5.1 million common shares priced at $3.75 per share for proceeds of $19.0 million and approximately 3.1 million common shares priced at $4.05 per share for gross proceeds of $12.5 million. The put and call financing arrangements were exercised on October 12, 2007.

Crocotta also issued approximately 5.7 million and 8.0 million common shares as part of the consideration for the acquisitions of Eastshore and Diamond Tree, respectively.

Crocotta has a revolving operating demand loan credit facility available up to $34.0 million bearing interest at prime plus a range of 0% to 1.50% with a Canadian bank. The credit facility is secured by a $75 million fixed and floating charge debenture on the assets of the Company. At December 31, 2007, $5.9 million had been drawn on the credit facility.

The Company anticipates it will make substantial capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. The Company will utilize internally generated cash flow from operations, debt where deemed appropriate, and equity financing if market conditions are favourable to finance its capital expenditures.

Contractual Obligations

The Company is committed to payments under an operating lease for office space, a capital lease for a field compression facility, and obligations under flow-through share agreements as follows:



Less than 1 - 3 After
($000s) Total 1 year years 3 years
----------------------------------------------------------------------------
Revolving credit facility 5,850 5,850 - -
Operating lease 2,395 630 1,249 516
Capital lease 719 261 458 -
Flow-through commitment 5,007 5,007 - -
----------------------------------------------------------------------------
Total contractual
obligations 13,971 11,748 1,707 516
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Outstanding Share Data

The Company is authorized to issue an unlimited number of voting common shares, an unlimited number of non-voting common shares, and Class A and Class B preferred shares, issuable in series. The voting common shares of the Company commenced trading on the TSX on October 17, 2007 under the symbol "CTA". The following table summarizes the common shares outstanding and the number of shares exercisable into common shares from options, warrants, and other instruments:



(000s) December 31, 2007 March 18, 2008
----------------------------------------------------------------------------

Voting common shares 33,045 33,045
Options 2,727 2,742
Warrants 2,404 2,404
----------------------------------------------------------------------------
Total 38,176 38,191
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Related Party Transactions

During the year, drilling services were performed for Crocotta by a private company that is partially owned by a director of Crocotta. The total amount of services performed for the Company during the year was $0.6 million. At December 31, 2007, the Company had a balance outstanding to the related party of $0.6 million.

Outlook

The information below represents Crocotta's guidance for 2008 based on Management's best estimates and the assumptions noted below.



Estimated Production Guidance
2008
----------------------------------------------------------------------------
Average Daily Production
Oil (bbls/d) 850
Natural gas (mcf/d) 10,500
----------------------------------------------------------------------------
Total (boe/d) 2,600
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Estimated Financial Results Guidance
2008
----------------------------------------------------------------------------

Oil and natural gas sales ($000s) 53,700

Funds from operations ($000s) 28,700
$ per share - basic 0.87
$ per share - diluted 0.75

Capital expenditures ($000s) 25,000

West Texas Intermediate $US/bbl 92.00
AECO Daily Spot Price $Cdn/mcf 6.75
U.S./Cdn Dollar Average Exchange Rate 1.000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Sensitivity Analysis

The outlook is based on estimates of key external market factors. Crocotta's actual results will be affected by fluctuations in commodity prices as well as the U.S./Canadian dollar exchange rate. The following table provides a summary of estimates for 2008 of the sensitivity of Crocotta's funds from operations to changes in commodity prices and the U.S./Canadian dollar exchange rate.



Guidance Variance in Variance in
2008 factor cash flows
----------------------------------------------------------------------------
($000s)
West Texas Intermediate
$US/bbl 92.00 US $1.00/bbl Cdn 220
AECO Daily Spot Price $Cdn/mcf 6.75 Cdn $0.10/mcf Cdn 276
U.S./Cdn Dollar Average
Exchange Rate 1.000 Cdn $0.01 Cdn 163
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Critical Accounting Policies

Management is required to make judgments, assumptions, and estimates in the application of generally accepted accounting principles that have a significant impact on the financial results of the Company. The following summarizes the accounting policies that are critical to determining the Company's financial results.

Full Cost Accounting - The Company follows the full cost method of accounting whereby all costs related to the acquisition of, exploration for, and development of oil and natural gas reserves are capitalized and charged against earnings. These costs, together with the estimated future costs to be incurred in developing proved reserves, are depleted or depreciated using the unit-of-production method based on the proved reserves before royalties as estimated by independent petroleum engineers. The costs of undeveloped properties are excluded from the costs subject to depletion and depreciation until it is determined whether proved reserves are attributable to the properties or impairment occurs. Reserve estimates can have a significant impact on earnings, as they are a key component in the calculation of depletion. A downward revision to the reserve estimate could result in higher depletion and thus lower net earnings. In addition, estimated reserves are also used in the calculation of the impairment (ceiling) test. Oil and natural gas properties are evaluated each reporting period through an impairment test to determine the recoverability of capitalized costs. The carrying amount is assessed as recoverable when the sum of the undiscounted cash flows expected from proved reserves plus the cost of unproved interests, net of impairments, exceeds the carrying amount. When the carrying amount is assessed not to be recoverable, an impairment loss is recognized to the extent that the carrying amount exceeds the sum of the discounted cash flows from proved and probable reserves plus the cost of unproved interests, net of impairments. The cash flows are estimated using expected future prices and costs and are discounted using a credit adjusted risk-free interest rate.

Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would result in a change in the depletion rate of 20% or more.

Oil and Natural Gas Reserves - The Company's oil and natural gas reserves are evaluated and reported on by independent petroleum engineers. The estimates of reserves is a very subjective process as forecasts are based on engineering data, projected future rates of production, estimated future commodity prices and the timing of future expenditures, which are all subject to uncertainty and interpretation.

Asset Retirement Obligations - The Company is required to provide for future abandonment and site restoration costs. These costs are estimated based on existing laws, contracts or other policies. The obligations are initially measured at fair value and subsequently adjusted each reporting period for the passage of time, with the accretion charged to earnings, and for revisions to the estimated future cash flows. The asset retirement cost is capitalized to oil and natural gas properties and equipment and amortized into earnings on a basis consistent with depletion and depreciation. The estimate of future abandonment and site restoration costs involves estimates relating to the timing of abandonment, the economic life of the asset and the costs associated with abandonment and site restoration which are all subject to uncertainty and interpretation.

New Accounting Standards

Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, Section 3251, Equity, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation, and Section 3865, Hedges, retroactively with no restatement of prior periods.

The Company has evaluated the impact of these new standards and determined that the adoption of these standards has had no material impact on the Company's net earnings or cash flows. The other effects of the implementation of the new standards are discussed below.

Comprehensive Income

The new standards introduce comprehensive income, which consists of net earnings and other comprehensive income ("OCI"). Because the Company does not have any OCI, the Company's consolidated financial statements do not include a Statement of Comprehensive Income which would otherwise describe the components of comprehensive income. Accordingly, since there are no cumulative changes in OCI to be included in accumulated other comprehensive income ("AOCI"), the Company has not presented AOCI as a new category within shareholders' equity in the consolidated balance sheet and has not included a Statement of Accumulated Other Comprehensive Income, which would otherwise provide the continuity of the AOCI balance.

Financial Instruments

The financial instruments standard establishes the recognition and measurement criteria for financial assets, financial liabilities and derivatives. All financial instruments are required to be measured at fair value on initial recognition of the instrument, except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as "held-for-trading", "available-for-sale", "held-to-maturity", "loans and receivables", or "other financial liabilities" as defined by the standard.

Financial assets and financial liabilities classified as "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets classified as "available-for-sale" are measured at fair value, with changes in those fair values recognized in OCI. Financial assets classified as "held-to-maturity", "loans and receivables" and "other financial liabilities" are measured at amortized cost using the effective interest method of amortization. The methods used by the Company in determining fair value of financial instruments are unchanged as a result of implementing the new standard.

Cash and cash equivalents are designated as "held-for-trading" and are measured at carrying value, which approximates fair value due to the short-term nature of these instruments. Accounts receivable and deposits are designated as "loans and receivables" and accounts payable and accrued liabilities are designated as "other liabilities".

Risk management assets and liabilities are derivative financial instruments classified as "held-for-trading" unless designated for hedge accounting. The Company has no commodity financial contracts or fixed-price physical contracts in place at this time.

Section 1506 - Accounting Changes

Beginning January 1, 2007 the Company adopted Section 1506 "Accounting Changes," the only impact of which is to provide disclosure of when an entity has not applied a new source of GAAP that has been issued but is not yet effective. This is the case with Section 3862, Financial Instruments - Disclosures and Section 1535, Capital Disclosures, which are required to be adopted for fiscal years beginning on or after October 1, 2007. The Company will adopt these standards on January 1, 2008 and it is expected the only effect on the Company will be incremental disclosures regarding the significance of financial instruments for the entity's financial position and performance, the nature, extent and management of risks arising from financial instruments to which the entity is exposed, and the policies and processes the Company uses for managing its capital.

International Financial Reporting Standards (IFRS)

The Accounting Standards Board confirmed recently that public companies will be required to report under IFRS effective January 1, 2011. The Company is currently assessing the impact of adopting IFRS, including an examination of recognition, measurement, and disclosure differences.

Risk Assessment

The acquisition, exploration, and development of oil and natural gas properties involves many risks common to all participants in the oil and natural gas industry. Crocotta's exploration and development activities are subject to various business risks such as unstable commodity prices, interest rate and foreign exchange fluctuations, the uncertainty of replacing production and reserves on an economic basis, government regulations, taxes and safety and environmental concerns. While the management of Crocotta realizes these risks cannot be eliminated, they are committed to monitoring and mitigating these risks. The Company currently does not have any commodity price, interest rate, or foreign exchange contracts in place.

Reserves and Reserve Replacement

The recovery and reserve estimates on Crocotta's properties are estimates only and the actual reserves may be materially different from that estimated. The estimates of reserve values are based on a number of variables including price forecasts, projected production volumes and future production and capital costs. All of these factors may cause estimates to vary from actual results.

Crocotta's future oil and natural gas reserves, production, and funds from operations to be derived therefrom are highly dependent on Crocotta successfully acquiring or discovering new reserves. Without the continual addition of new reserves, any existing reserves Crocotta may have at any particular time and the production therefrom will decline over time as such existing reserves are exploited. A future increase in Crocotta's reserves will depend on its abilities to acquire suitable prospects or properties and discover new reserves.

To mitigate this risk, Crocotta has assembled a team of experienced technical professionals who have expertise operating and exploring in areas which Crocotta has identified as being the most prospective for increasing Crocotta's reserves on an economic basis. To further mitigate reserve replacement risk, Crocotta has targeted a majority of its prospects in areas which have multi-zone potential, year-round access and lower drilling costs and employs advanced geological and geophysical techniques to increase the likelihood of finding additional reserves.

Operational Risks

Crocotta's operations are subject to the risks normally incidental to the operation and development of oil and natural gas properties and the drilling of oil and natural gas wells. Continuing production from a property, and to some extent the marketing of production therefrom, are largely dependent upon the ability of the operator of the property.

Commodity Price Risk

The Company's oil and natural gas production is marketed and sold on the spot market to area aggregators based on daily spot prices that are adjusted for product quality and transportation costs. The Company is exposed to foreign currency fluctuations as crude oil prices received are referenced to U.S. dollar denominated prices.

Safety and Environmental Risks

The oil and natural gas business is subject to extensive regulation pursuant to various municipal, provincial, national, and international conventions and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and natural gas operations. Crocotta is committed to meeting and exceeding its environmental and safety responsibilities. Crocotta has implemented an environmental and safety policy that is designed, at a minimum, to comply with current governmental regulations set for the oil and natural gas industry. Changes to governmental regulations are monitored to ensure compliance. Environmental reviews are completed as part of the due diligence process when evaluating acquisitions. Environmental and safety updates are presented and discussed at each Board of Directors meeting. Crocotta maintains adequate insurance commensurate with industry standards to cover reasonable risks and potential liabilities associated with its activities as well as insurance coverage for officers and directors executing their corporate duties. To the knowledge of management, there are no legal proceedings to which Crocotta is a party or of which any of its property is the subject matter, nor are any such proceedings known to Crocotta to be contemplated.

Disclosure Controls and Procedures and Internal Controls over Financial Reporting

The Company's President and Chief Executive Officer ("CEO") and Vice President Finance and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in Multilateral Instrument 52-109 of the Canadian Securities Administrators.

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. The Company evaluated its disclosure controls and procedures for the year ended December 31, 2007. The Company's CEO and CFO have concluded that, based on their evaluation, the Company's disclosure controls and procedures are effective to provide reasonable assurance that all material or potentially material information related to the Company is made known to them and is disclosed in a timely manner if required.

Internal controls over financial reporting have been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. No material changes in the Company's internal controls over financial reporting were identified during the most recent reporting period that have materially affected, or are likely to material affect, the Company's internal controls over financial reporting.

Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, errors, or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met.



Crocotta Energy Inc.
Consolidated Balance Sheets

As at December 31, 2007 2006
---------------------------------------------------------------------------
($000s)
---------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 3,003 15,848
Accounts receivable 8,414 965
Prepaid expenses and deposits 1,366 109
---------------------------------------------------------------------------
12,783 16,922

Oil and natural gas properties
and equipment (note 3) 134,848 9,523
---------------------------------------------------------------------------

147,631 26,445
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities 18,170 3,453
Revolving credit facility (note 4) 5,850 -
Current portion of capital lease (note 6) 218 -
---------------------------------------------------------------------------
24,238 3,453

Asset retirement obligations (note 5) 3,050 173
Capital lease (note 6) 432 -
Future income tax liability (note 7) 2,014 -

Shareholders' equity:
Capital stock (note 8) 119,838 24,224
Contributed surplus 203 -
Deficit (2,144) (1,405)
---------------------------------------------------------------------------
117,897 22,819

Subsequent events (note 13)
Commitments (note 11)
---------------------------------------------------------------------------
147,631 26,445
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

Approved by the Board of Directors:

Director, "signed" Rob Zakresky Director, "signed" Larry Moeller

The interim consolidated financial statements of the Company have not been
reviewed by the Company's auditors.


Crocotta Energy Inc.
Consolidated Statements of Operations and Deficit

Year ended Ten months ended
December 31, 2007 December 31, 2006
---------------------------------------------------------------------------
($000s, except per share amounts)
---------------------------------------------------------------------------
Revenue:
Oil and natural gas sales 14,378 290
Transportation expense (222) (5)
Royalties (2,741) (29)
Interest income 336
---------------------------------------------------------------------------
11,751 256
Expenses:
Production 2,626 58
General and administrative 2,618 408
Interest expense 102 95
Depletion, depreciation and accretion 8,113 131
Stock-based compensation 169 -
---------------------------------------------------------------------------
13,628 692

---------------------------------------------------------------------------
Loss before taxes (1,877) (436)

Taxes (note 7):
Future income tax recovery (1,138) -
---------------------------------------------------------------------------

Net loss for the period (739) (436)
Deficit, beginning of period (1,405) (969)
---------------------------------------------------------------------------
Deficit, end of period (2,144) (1,405)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net loss per share:
Basic and diluted (0.04) (0.36)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements


Crocotta Energy Inc.
Consolidated Statements of Cash Flows

Year ended Ten months ended
December 31, 2007 December 31, 2006
---------------------------------------------------------------------------
($000s)
---------------------------------------------------------------------------
Cash provided by (used in):

Operating:
Net loss (739) (436)
Items not affecting cash:
Depletion, depreciation and accretion 8,113 131
Accretion of convertible debentures - 55
Amortization of deferred financing costs - 56
Stock-based compensation 169 -
Future income tax recovery (1,138) -
---------------------------------------------------------------------------
6,405 (194)
Net change in non-cash working
capital (note 10) (5,616) (542)
---------------------------------------------------------------------------
789 (736)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Financing:
Issuance of capital stock 42,617 23,393
Share issue costs (421) (76)
Repayment of debt acquired through
business combinations (note 2) (38,319) -
Bank loan 5,850 -
Capital lease principal payments (56) -
---------------------------------------------------------------------------
9,671 23,317
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Investing:
Business combinations (note 2) (8,536) -
Purchase and development of oil and
natural gas properties and equipment (22,387) (9,480)
Net change in non-cash investing
working capital (note 10) 7,618 2,706
---------------------------------------------------------------------------
(23,305) (6,774)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Change in cash and cash equivalents (12,845) 15,807
Cash and cash equivalents, beginning
of period 15,848 41
---------------------------------------------------------------------------

Cash and cash equivalents, end of period 3,003 15,848
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements




Crocotta Energy Inc.
Notes to the Consolidated Financial Statements
Year ended December 31, 2007
----------------------------------------------------------------------------
(Tabular amounts in 000s, unless otherwise stated)


1. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of presentation

On August 16, 2005, Donner Minerals Ltd., the predecessor to Crocotta Energy Inc. ("Crocotta" or the "Company"), completed a reorganization, by way of statutory plan of arrangement, and restructured into two separate companies, Donner Metals Ltd. and Donner Minerals Ltd., which changed its name to Donner Petroleum Ltd., and subsequently to Crocotta Energy Inc. On November 15, 2006, the Company commenced active oil and natural gas operations with the acquisition of certain oil and natural gas properties from Chamaelo Exploration Ltd.

Effective December 31, 2006, the Company changed its fiscal year-end from February 28 to December 31. As a result, the consolidated financial statements prepared are as at and for the year ended December 31, 2007, with comparative amounts as at and for the ten-month period ended December 31, 2006.

The Company commenced trading on the Toronto Stock Exchange on October 17, 2007 under the symbol "CTA". The Company is engaged in the acquisition, development, exploration, and production of oil and natural gas reserves in Western Canada.

These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada and include the accounts of the Company and its wholly owned subsidiaries.

b) Oil and natural gas properties and equipment

The Company follows the full cost method of accounting whereby all costs related to the acquisition of, exploration for, and development of oil and natural gas reserves are capitalized. Such costs include land acquisition costs, geological and geophysical expenses, production equipment, carrying charges of non-producing properties, costs of drilling both productive and non-productive wells, and overhead charges directly related to acquisition, exploration, and development activities.

These costs, together with the estimated future costs to be incurred in developing proved reserves, are depleted or depreciated using the unit-of-production method based on the proved reserves before royalties as estimated by independent petroleum engineers. Oil and natural gas reserves and production are converted into equivalent units based upon estimated relative energy content of six thousand cubic feet of natural gas to one barrel of oil. The costs of undeveloped properties are excluded from the costs subject to depletion and depreciation until it is determined whether proved reserves are attributable to the properties or impairment occurs.

Oil and natural gas properties are evaluated each reporting period through an impairment test to determine the recoverability of capitalized costs. The carrying amount is assessed as recoverable when the sum of the undiscounted cash flows expected from proved reserves plus the cost of unproved interests, net of impairments, exceeds the carrying amount. When the carrying amount is assessed not to be recoverable, an impairment loss is recognized to the extent that the carrying amount exceeds the sum of the discounted cash flows from proved and probable reserves plus the cost of unproved interests, net of impairments. The cash flows are estimated using expected future prices and costs and are discounted using a credit adjusted risk-free interest rate.

Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would result in a change in the depletion rate of 20% or more.

A significant portion of the Company's oil and natural gas activities are conducted jointly with others and accordingly these consolidated financial statements reflect only the Company's proportionate interest in such activities.

c) Office and other equipment

Office and other equipment are depreciated using the straight-line method over the estimated useful life of three years.

d) Asset retirement obligations ("ARO")

The Company recognizes the liability associated with future site reclamation costs in the consolidated financial statements at the time when the liability is incurred, normally when the asset is purchased or developed. ARO obligations are initially measured at fair value and subsequently adjusted each reporting period for the passage of time, with the accretion charged to earnings, and for revisions to the estimated future cash flows. The asset retirement cost is capitalized to oil and natural gas properties and equipment and amortized into earnings on a basis consistent with depletion and depreciation. Actual costs incurred upon settlement of the obligations are charged against the liability.

e) Flow-through shares

The Company may finance a portion of its exploration and development activities through the issuance of flow-through common shares. Under the terms of the flow-through share agreements, the resource expenditure deductions for income tax purposes are renounced to investors in accordance with the appropriate income tax legislation. The Company provides for the future effect on income taxes related to flow-through shares as a charge to share capital in the period in which the expenditures are renounced.

f) Stock-based compensation

The Company has a stock-based compensation plan, which is described in note 8(d). The Company applies the fair value method for valuing stock options granted to officers, directors, employees and consultants. Under this method, compensation cost attributable to stock options granted to officers, directors, employees and consultants is measured at fair value and expensed over the vesting period with a corresponding increase to contributed surplus. Upon the exercise of the stock options, consideration paid together with the amount previously recognized in contributed surplus is recorded as an increase to share capital.

g) Use of estimates

The amounts recorded for depletion and depreciation, asset retirement obligations, stock-based compensation, purchase accounting for acquisitions, and the amounts used in impairment test calculations are based on estimates of proved reserves, production rates, oil and natural gas prices, future costs, and other relevant assumptions. By their nature, these estimates are subject to change and the effect on the consolidated financial statements of changes in such estimates in future periods could be significant.

h) Revenue recognition

Oil and natural gas revenues are recognized when title and risk pass to the purchaser, normally at the pipeline delivery point.

i) Cash and cash equivalents

Cash and cash equivalents includes short-term investments, such as money market deposits or similar type instruments, with maturity of three months or less when purchased.

j) Income taxes

The Company follows the asset and liability method of accounting for future income taxes, whereby temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using tax rates anticipated to apply in the periods that the temporary differences are expected to reverse.

k) Per share information

Per share information is computed using 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 from the exercise of stock options, warrants, and other instruments would be used to purchase common shares at the average market price during the period. No adjustment to diluted earnings per share is made if the result of these calculations is anti-dilutive.

l) New accounting standards

Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, Section 3251, Equity, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation, and Section 3865, Hedges, retroactively with no restatement of prior periods.

The Company has evaluated the impact of these new standards and determined that the adoption of these standards has had no material impact on the Company's net earnings or cash flows. The other effects of the implementation of the new standards are discussed below.

Comprehensive Income

The new standards introduce comprehensive income, which consists of net earnings and other comprehensive income ("OCI"). Because the Company does not have any OCI, the Company's consolidated financial statements do not include a Statement of Comprehensive Income which would otherwise describe the components of comprehensive income. Accordingly, since there are no cumulative changes in OCI to be included in accumulated other comprehensive income ("AOCI"), the Company has not presented AOCI as a new category within shareholders' equity in the consolidated balance sheet and has not included a Statement of Accumulated Other Comprehensive Income, which would otherwise provide the continuity of the AOCI balance.

Financial Instruments

The financial instruments standard establishes the recognition and measurement criteria for financial assets, financial liabilities and derivatives. All financial instruments are required to be measured at fair value on initial recognition of the instrument, except for certain related party transactions. Measurements in subsequent periods depends on whether the financial instrument has been classified as "held-for-trading", "available-for-sale", "held-to-maturity", "loans and receivables", or "other financial liabilities" as defined by the standard.

Financial assets and financial liabilities classified as "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets classified as "available-for-sale" are measured at fair value, with changes in those fair values recognized in OCI. Financial assets classified as "held-to-maturity", "loans and receivables" and "other financial liabilities" are measured at amortized cost using the effective interest method of amortization. The methods used by the Company in determining fair value of financial instruments are unchanged as a result of implementing the new standard.

Cash and cash equivalents are designated as "held-for-trading" and are measured at carrying value, which approximates fair value due to the short-term nature of these instruments. Accounts receivable and deposits are designated as "loans and receivables" and accounts payable and accrued liabilities are designated as "other liabilities".

Risk management assets and liabilities are derivative financial instruments classified as "held-for-trading" unless designated for hedge accounting. The Company has no commodity financial contracts or fixed-price physical contracts in place at this time.

Section 1506 - Accounting Changes

Beginning January 1, 2007 the Company adopted Section 1506 "Accounting Changes" the only impact of which is to provide disclosure of when an entity has not applied a new source of GAAP that has been issued but is not yet effective. This is the case with Section 3862, Financial Instruments - Disclosures and Section 1535, Capital Disclosures, which are required to be adopted for fiscal years beginning on or after October 1, 2007. The Company will adopt these standards on January 1, 2008 and it is expected the only effect on the Company will be incremental disclosures regarding the significance of financial instruments for the entity's financial position and performance, the nature, extent and management of risks arising from financial instruments to which the entity is exposed, and the policies and processes the Company uses for managing its capital.

2. ACQUISITIONS

a) Corporate acquisitions:

Diamond Tree Energy Ltd.

On October 12, 2007, the Company closed a Plan of Arrangement whereby it acquired all of the issued and outstanding shares of Diamond Tree Energy Ltd ("Diamond Tree"). The following table details the purchase price allocation for the business combination, which is subject to final adjustments:



Net assets acquired Amount
----------------------------------------------------------------------------
Oil and natural gas properties and equipment 75,866
Non-cash working capital deficit (5,396)
Bank debt (33,453)
Capital lease (488)
Asset retirement obligation (1,785)
Future income tax liability (2,425)
----------------------------------------------------------------------------
32,319
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consideration of acquisition
----------------------------------------------------------------------------
Issuance of 8,046,070 common shares (see note 8(b)) 32,587
Transaction costs 367
Purchase price adjustment (635)
----------------------------------------------------------------------------
32,319
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The results of operations include net revenue from this transaction effective October 12, 2007.

Eastshore Energy Ltd.

On June 8, 2007, the Company closed a Plan of Arrangement whereby it acquired all of the issued and outstanding shares of Eastshore Energy Ltd. ("Eastshore"). The following table details the purchase price allocation for the business combination:



Net assets acquired Amount
----------------------------------------------------------------------------
Oil and natural gas properties and equipment 34,766
Non-cash working capital 1,169
Bank debt (4,867)
Asset retirement obligation (707)
----------------------------------------------------------------------------
30,361
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consideration of acquisition
----------------------------------------------------------------------------
Cash 8,480
Issuance of 5,748,702 common shares (see note 8(b)) 21,558
Transaction costs 161
Purchase price adjustment 162
----------------------------------------------------------------------------
30,361
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The results of operations include net revenue from this transaction effective June 8, 2007.

On November 15, 2006, the Company acquired all of the issued and outstanding shares of a private company through the issuance of approximately 0.1 million common shares at a price of $3.60 per share. The private company's main asset was cash, which was subsequently used by the Company to shoot seismic data over certain of the properties acquired on November 15, 2006.

b) Property acquisition:

On November 15, 2006, Crocotta acquired certain oil and natural gas properties for $6.6 million, prior to adjustments for net revenues and capital expenditures. The following table details the allocation of the purchase price:



Net assets acquired Amount
----------------------------------------------------------------------------
Oil and natural gas properties 6,467
Office and other equipment 221
Asset retirement obligation (132)
----------------------------------------------------------------------------
6,556
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consideration of acquisition
Cash 6,600
Purchase price adjustment (44)
----------------------------------------------------------------------------
6,556
----------------------------------------------------------------------------
----------------------------------------------------------------------------

3. OIL AND NATURAL GAS PROPERTIES AND EQUIPMENT

2007 2006
----------------------------------------------------------------------------
Oil and natural gas properties 141,990 9,431
Equipment under capital lease 763 -
Office and other equipment 264 221
----------------------------------------------------------------------------
143,017 9,652
Accumulated depletion and depreciation (8,169) (129)
----------------------------------------------------------------------------
Net Book Value 134,848 9,523
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at December 31, 2007, the cost of oil and natural gas properties includes approximately $14.9 million relating to properties from which there is no production and no reserves assigned and which have been excluded from costs subject to depletion and depreciation. During the year ended December 31, 2007, the provision for depletion, depreciation and accretion includes $0.1 million for accretion of asset retirement obligations and $0.1 million for amortization of equipment under capital lease. During the year ended December 31, 2007, the Company capitalized $0.4 million of general and administrative costs.

The Company performed an impairment test calculation at December 31, 2007 to assess the recoverable value of the oil and natural gas properties. The oil and natural gas future prices are based on January 1, 2008 commodity price forecasts of the Company's independent reserve evaluators. These prices have been adjusted for commodity price differentials specific to the Company. The following table summarizes the benchmark prices used in the ceiling test calculation. Based on these assumptions, there was no impairment at December 31, 2007.



Foreign Edmonton Light
WTI Oil Exchange Crude Oil AECO Gas
Year ($US/bbl) Rate ($Cdn/bbl) ($Cdn/mmbtu)
----------------------------------------------------------------------------

2008 92.00 1.000 91.10 6.75
2009 88.00 1.000 87.10 7.55
2010 84.00 1.000 83.10 7.60
2011 82.00 1.000 81.10 7.60
2012 82.00 1.000 81.10 7.60
2013 82.00 1.000 81.10 7.60
2014 82.00 1.000 81.10 7.80
2015 82.00 1.000 81.10 7.97
2016 82.02 1.000 81.12 8.14
2017 83.66 1.000 82.76 8.31
Escalate
Thereafter 2.0% per year 2.0% per year 2.0% per year
----------------------------------------------------------------------------
----------------------------------------------------------------------------


4. REVOLVING CREDIT FACILITY

The Company has a revolving operating demand loan credit facility available up to $34.0 million bearing interest at prime plus a range of 0% to 1.50% with a Canadian bank. The credit facility is secured by a $75 million fixed and floating charge debenture on the assets of the Company. At December 31, 2007, $5.9 million had been drawn on the credit facility.

5. ASSET RETIREMENT OBLIGATIONS

The Company's asset retirement obligations result from net ownership interests in oil and natural gas properties including well sites, gathering systems, and processing facilities. The Company estimates the total undiscounted amount of cash flows (adjusted for inflation at 2% per year) required to settle its asset retirement obligations is approximately $8.1 million which is estimated to be incurred between 2007 and 2033. A credit-adjusted risk-free rate of 7% was used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

Year Ended Ten Months Ended
December 31, December 31,
2007 2006
----------------------------------------------------------------------------

Balance, beginning of period 173 -
Liabilities acquired through property
acquisition (note 2) - 132
Liabilities acquired upon Plans of
Arrangement (note 2) 2,492 -
Liabilities incurred in period 311 40
Accretion expense 74 1
----------------------------------------------------------------------------
Balance, end of period 3,050 173
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. CAPITAL LEASE OBLIGATION

As a result of the acquisition of Diamond Tree (see note 2), the Company acquired a lease obligation for a field compression facility. The lease obligation has an implicit interest rate of 7.9% and monthly instalments on the lease amount to $21,766. Security for the lease is the equipment itself and the term of the lease is three years, with a December 2009 expiry.



The following is a reconciliation of combined annual repayments:

Future Minimum Executory Costs and Annual Principal
Lease Payments Imputed Interest Repayments
----------------------------------------------------------------------------

2008 261 (43) 218
2009 458 (26) 432
----------------------------------------------------------------------------
Total 719 (69) 650
Less: Current portion (261) 43 (218)
----------------------------------------------------------------------------
458 (26) 432
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. TAXES

a) The recovery of income taxes on the consolidated statement of operations and deficit differs from the amount that would be computed by applying the expected tax rates to net loss before taxes. The reasons for the difference between such expected income tax recovery and the amount recorded are as follows:



Year ended Period ended
December 31, December 31,
2007 2006
Income tax rate 32.12% 34.12%
----------------------------------------------------------------------------

Expected income tax expense (recovery) (603) (149)
Increase (decrease) in income taxes resulting
from:
Non-deductible crown charges - 3
Stock-based compensation and other
non-deductible amounts 58 -
Resource allowance - 9
Rate reduction and other 56 669
Valuation allowance (649) (532)
----------------------------------------------------------------------------
(1,138) -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

b) The components of the net future income tax liability at December 31,
2007 are as follows:

Year ended Period ended
December 31, December 31,
2007 2006
----------------------------------------------------------------------------
Future income tax assets (liabilities):
Oil and natural gas properties and equipment (4,605) 4,674
Asset retirement obligations 793 50
Capital lease 169 -
Share issue costs 620 67
Non-capital losses 1,318 1,088
Capital losses 444 495
Valuation allowance (753) (6,374)
----------------------------------------------------------------------------
Net future income tax liability (2,014) -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

8. SHARE CAPITAL

a) Authorized

Unlimited number of voting common shares.
Unlimited number of non-voting common shares.
Class A preferred shares, issuable in series.
Class B preferred shares, issuable in series.

b) Issued and outstanding

On October 12, 2007, the Company's outstanding common shares were
consolidated on a three-to-one basis. The amounts disclosed in the following
table are presented on a post-consolidated basis.

Number Amount
----------------------------------------------------------------------------
Voting common shares
Balance at March 1, 2006 108 203
Private placements
- issued at $3.00 per share 7,462 22,385
- issued at $3.60 per share 140 504
----------------------------------------------------------------------------
Total private placements 7,602 22,889
Purchase of private company 140 504
Conversion of outstanding debentures to equity 130 704
Share issue costs (76)
----------------------------------------------------------------------------
Balance at December 31, 2006 7,980 24,224
Exercise of 2006 put and call obligations 2,037 6,110
Issued upon Plan of Arrangement to acquire Eastshore
(note 2) 5,749 21,558
Private placement of flow-through shares 1,080 5,007
Exercise of 2007 put and call obligations 8,153 31,500
Issued upon Plan of Arrangement to acquire Diamond Tree
(note 2) 8,046 32,587
Share issue costs - (421)
Future tax effect of flow-through share renunciation - (727)
----------------------------------------------------------------------------
Balance at December 31, 2007 33,045 119,838
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During November 2006, Crocotta issued, by way of private placement, approximately 7.6 million shares for proceeds of approximately $22.9 million. Of the 7.6 million shares issued, 0.5 million shares were issued on a flow-through basis at a price of $3.00 per share and approximately 0.1 million shares were issued on a flow-through basis at a price of $3.60 per share. In conjunction with the private placement, Crocotta entered into a put and call obligation agreement to issue approximately 2.0 million additional common shares at $3.00 per share for proceeds of approximately $6.1 million. The put and call obligation agreement was exercised during 2007.

During the year ended December 31, 2007, the Company renounced $2.5 million in flow-through share obligations, relating to flow-through share issuances in November 2006. The Company issued approximately 1.1 million additional common shares on a flow-through basis during the year ended December 31, 2007 for cash consideration of $5.0 million. Of these shares, 0.1 million were issued to directors and officers of the Company. Crocotta is obligated to spend the full amount on qualifying exploration ("CEE") expenditures during 2008.

Crocotta also entered into put and call financing arrangements to issue approximately 5.1 million common shares priced at $3.75 per share for proceeds of $19.0 million and approximately 3.1 million common shares priced at $4.05 per share for gross proceeds of $12.5 million for combined gross proceeds of $31.5 million. The put and call financing arrangements were exercised on October 12, 2007 in conjunction with the acquisition of Diamond Tree.

c) Warrants

The Company has an arrangement that allows warrants to be issued to directors, officers, and employees. The maximum number of common shares that may be issued, and that have been reserved for issuance under this arrangement, is 2.4 million, representing 24% of the total outstanding common shares and special voting shares as at February 28, 2007, on a post-consolidated basis (see note 8(b)). Warrants granted vest over three years and have exercise prices ranging from $3.75 per share to $6.75 per share.



During the year ended December 31, 2007, the Company authorized the
issuance of 2.4 million warrants as outlined below:

Weighted Exercisable
Number of Average at December
Warrants Price ($) 31, 2007 Expiry Date
----------------------------------------------------------------------------

Warrants
- issued at $3.75 per share 747 3.75 249 December 23, 2009
- issued at $4.05 per share 21 4.05 7 December 23, 2009
- issued at $4.50 per share 781 4.50 260 December 23, 2009
- issued at $5.25 per share 54 5.25 18 December 23, 2009
- issued at $6.00 per share 747 6.00 249 December 23, 2009
- issued at $6.75 per share 54 6.75 18 December 23, 2009
----------------------------------------------------------------------------
2,404 4.80 801
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of the warrants at the date of issue was determined to be $nil using the minimum value method as they were issued prior to the Company becoming publicly traded.

d) Stock options

The Company has authorized and reserved for issuance 3.3 million common shares under a stock option plan enabling certain officers, directors, employees, and consultants to purchase common shares. The Company will not issue options exceeding 10% of the shares outstanding at the time of the option grants. Under the plan, the exercise price of each option equals the market price of the Company's shares on the date of the grant. The options vest over a period of 3 years and an option's maximum term is 5 years. As at December 31, 2007, 2.7 million options have been granted and are outstanding at prices ranging from $3.00 to $3.75 per share with expiry dates ranging from January 23, 2012 to November 11, 2012.



The Company had the following stock options outstanding at December 31,
2007:

Weighted Weighted
Number of Average Average
Options Price ($) Years to Expiry
----------------------------------------------------------------------------
Balance at December 31, 2006 - - -
Options granted 2,727 3.01 4.60
----------------------------------------------------------------------------
Balance at December 31, 2007 2,727 3.01 4.60
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Exercisable at December 31, 2007 - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


e) Stock-based compensation

The compensation cost recognized during the year ended December 31, 2007 for the stock option plan was $0.2 million.

The Company applied the minimum value method to determine the fair value of approximately 0.9 million options that were granted prior to the Company becoming publicly traded. The fair value of the remaining 1.8 million options, which were granted subsequent to the Company becoming publicly traded, was determined using the Black-Scholes option-pricing model with the following assumptions:



Year Ended
December 31, 2007
----------------------------------------------------------------------------
Fair value per option $1.00
Risk-free rate 4.0%
Expected life 4.0 years
Expected volatility 41.0%
Dividend yield -
----------------------------------------------------------------------------

f) Per share information

The weighted average number of shares outstanding for the determination of
basic and diluted per share amounts are as follows:

Year Ended Ten Months Ended
December 31, December 31,
2007 2006
----------------------------------------------------------------------------
Basic and diluted 16,605 1,215
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. FINANCIAL INSTRUMENTS

a) Fair values

The carrying value of cash and cash equivalents, accounts receivable, prepaid expenses and deposits, and accounts payable and accrued liabilities approximate their fair value due to the near term maturity of these instruments.

b) Credit risk

A substantial portion of the Company's accounts receivable are with customers and joint venture partners in the oil and natural gas industry and are subject to normal industry credit risks. The credit risk on receivables is mitigated by selling to a number of large credit-worthy purchasers.

c) Commodity price risk

The Company's oil and natural gas production is marketed and sold on the spot market to area aggregators based on daily spot prices that are adjusted for product quality and transportation costs.

The Company is exposed to foreign currency fluctuations as crude oil prices received are referenced to U.S. dollar denominated prices.



10. SUPPLEMENTAL CASH FLOW INFORMATION

a) Net change in non-cash working capital

Year Ended Ten Months Ended
December 31, December 31,
2007 2006
----------------------------------------------------------------------------

Accounts receivable (7,449) (965)
Prepaid expenses and deposits (1,257) (109)
Accounts payable and accrued liabilities 14,717 3,313
Loan payable - (75)
Current portion of capital lease 218 -
Non-cash working capital deficiency acquired
on Plan of
Arrangements (see Note 2) (4,227) -
----------------------------------------------------------------------------
Net change in non-cash working capital 2,002 2,164
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Relating to:
Investing 7,618 (542)
Operating (5,616) 2,706
----------------------------------------------------------------------------
Net change in non-cash working capital 2,002 2,164
----------------------------------------------------------------------------
----------------------------------------------------------------------------

b) Interest and taxes

Year Ended Ten Months Ended
December 31, December 31,
2007 2006
----------------------------------------------------------------------------

Cash interest received 336 44
Cash interest paid (102) (48)
----------------------------------------------------------------------------
234 (4)

Cash taxes paid - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

11. COMMITMENTS

The Company is committed to payments under an operating lease for office
space as follows:

Amount
----------------------------------------------------------------------------

2008 630
2009 630
2010 619
2011 516
2012 -
----------------------------------------------------------------------------
2,395
----------------------------------------------------------------------------
----------------------------------------------------------------------------


12. RELATED PARTY TRANSACTIONS

During the year, drilling services were performed for Crocotta by a private company that is partially owned by a director of Crocotta. The total amount of services performed for the Company during the year was $0.6 million. At December 31, 2007, the Company had a balance outstanding to the related party of $0.6 million.

13. SUBSEQUENT EVENTS

On January 1, 2008, the Company amalgamated with its 100% wholly-owned subsidiaries.

On January 8, 2008, the Company sold non-producing oil and natural gas assets to an unrelated party for consideration of approximately $3.2 million.



CORPORATE INFORMATION


OFFICERS AND DIRECTORS

Robert J. Zakresky, CA BANK
President, CEO & Director National Bank of Canada
2700, 530 - 8th Avenue SW
Nolan Chicoine, MPAcc, CA Calgary, Alberta T2P 3S8
VP Finance & CFO

Terry L. Trudeau, P.Eng.
VP Operations & COO TRANSFER AGENT
Valiant Trust Company
Weldon Dueck, BSc., P.Eng. 310, 606 - 4th Street SW
VP Business Development Calgary, Alberta T2P 1T1

R.D. (Rick) Sereda, M.Sc., P.Geol.
VP Exploration
LEGAL COUNSEL
Helmut R. Eckert, P.Land Gowling Lafleur Henderson LLP
VP Land 1400, 700 -- 2nd Street SW
Calgary, Alberta T2P 4V5
Kevin Keith
VP Production

Larry G. Moeller, CA, CBV AUDITORS
Chairman of the Board KPMG LLP
2700, 205 - 5th Avenue SW
Daryl H. Gilbert, P.Eng. Calgary, Alberta T2P 4B9
Director

Don Cowie
Director INDEPENDENT ENGINEERS
Gilbert Laustsen Jung
Brian Krausert 4100, 400 - 3rd Avenue SW
Director Calgary, Alberta T2P 4H2

Gary W. Burns
Director

Don D. Copeland, P.Eng.
Director

Brian Boulanger
Director


FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking information that involves a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and gas industry (e.g. - operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).





























































Contact Information

  • Crocotta Energy Inc.
    Robert J. Zakresky
    President & CEO
    (403) 538-3736
    or
    Crocotta Energy Inc.
    Nolan Chicoine
    VP Finance & CFO
    (403) 538-3738
    or
    Crocotta Energy Inc.
    Suite 700, 639 - 5th Avenue SW
    Calgary, Alberta T2P 0M9
    (403) 538-3737
    (403) 538-3735 (FAX)
    Website: www.crocotta.ca