Cyries Energy Inc.
TSX : CYS

Cyries Energy Inc.

August 14, 2007 08:00 ET

Cyries Energy Inc. Announces Production Gains, Increased Oil Weighting and Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2007) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Cyries Energy Inc. ("Cyries")(TSX:CYS) is pleased to announce its financial and operating results for the second quarter ended June 30, 2007.



Financial Highlights

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Three Three Six Six
months months months months
ended ended ended ended
(000s, except June 30, June 30, % June 30, June 30, %
as indicated) 2007 2006 Change 2007 2006 Change
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Petroleum and
natural gas sales 49,933 34,027 47 93,242 69,239 35


Net earnings 2,161 5,891 (63) 1,582 8,140 (81)
Per share basic 0.04 0.15 (73) 0.03 0.21 (86)
Per share diluted 0.04 0.14 (71) 0.03 0.19 (84)


Funds generated from
operations 24,920 18,337 36 44,455 35,970 24
Per share basic 0.49 0.47 4 0.89 0.92 (3)
Per share diluted 0.46 0.42 10 0.82 0.83 (1)


Capital expenditures 7,180 20,067 (64) 41,917 74,066 (43)
Acquisitions (net) 3,330 79 nm 18,305 4,829 279


Bank debt and working
capital deficiency 114,203 116,074 (2) 114,203 116,074 (2)


Weighted average
shares outstanding
Basic 50,486 39,268 29 50,091 39,266 28
Diluted 54,397 43,246 26 53,972 43,274 25


Average Sales Price
Oil $/bbl 68.15 74.37 (8) 65.56 69.45 (6)
Natural gas $/mcf 7.58 6.49 17 7.76 7.22 7
NGL $/bbl 55.19 64.83 (15) 52.64 61.19 (14)
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Total $/boe 51.91 45.76 13 51.25 48.27 6


Average Daily
Production
Oil bbl 2,716 1,263 115 2,279 1,222 86
Natural gas mcf 43,032 38,798 11 42,739 37,823 13
NGL bbl 681 442 54 649 399 63
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Total boe/d 10,570 8,172 29 10,051 7,925 27

Production expenses
$/boe 9.95 7.59 31 9.98 7.81 28

Operating netback
$/boe 29.85 26.01 15 28.68 26.84 7

Undeveloped land
gross acres 617,365 283,110 118 617,365 283,110 118
net acres 408,262 215,336 90 408,262 215,336 90

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TO OUR SHAREHOLDERS

Cyries Energy Inc. is pleased to report to shareholders the financial and operating results for the three months ended June 30, 2007.

Production increased in the second quarter by 29 percent to 10,570 boe per day compared to 8,172 boe per day in the prior year. Second quarter average production also represents an 11 percent increase compared with the first quarter of 2007.

With additional oil production from Cyries' Gold Creek property, Cyries' production mix becomes weighted to approximately 65 percent natural gas, and 35 percent light oil and natural gas liquids. Oil and NGL production increased to 3,397 boe per day in the second quarter compared to 1,705 in the prior year, about a 100 percent increase.

Cash flow increased in the quarter to $24.9 million, a 36 per cent increase over the prior year, as a result of the 29 percent increase in production volumes in combination with the higher netbacks on oil and NGL volumes.

Cyries participated in the drilling of 2 gross (1.4 net) wells during the second quarter resulting in a 100% percent drilling success rate.

Cyries' first well drilled following spring break-up resulted in an exploration success at Knopcik, with the well expected to come on stream in early August at over 2 mmcf/per day of gas. This discovery has follow up locations. The subsequent 3 wells drilled to date in the third quarter were also successful and resulted in 2 additional gas wells and 1 oil well. The successful oil well was drilled at our Judy Creek property with one of the follow up wells to be drilled immediately following the completion of the first well.

The company ended the quarter with total debt of $114 million (including working capital) on a credit facility of $160 million. Careful management of the capital expenditure program over the past year has resulted in a debt level equal to the previous year, yet production volumes have grown by 29 percent over the same period.

OPERATIONS UPDATE

During the second quarter Cyries obtained all necessary approvals to commence production from our Halfway oil pool at Gold Creek. Production from the pool is currently around 1,200 boe per day of light oil, approximately 900 boe per day of production commenced in early April with a further 300 boe per day of production in mid May. Production is expected to increase to about 1,000 boe per day during the third quarter with the benefit of new facilities to optimize production from the pool.

Cyries' exploration program for the winter of 2007/08 in Gold Creek includes drilling another prospect which may be similar to the existing Halfway oil pool.

The second quarter of the year is typically characterized by lower drilling activity due to spring break-up. Despite this Cyries managed to increase production substantially during the quarter. We also began drilling again in the third week of June and currently have two drilling rigs active. To date we have drilled three successful gas wells in the Knopcik area and one successful oil well on our Judy Creek property.

The drilling program for the third quarter of 2007 is expected to include 3 wells at Judy Creek targeting Swan Hills oil targets and 8 - 10 wells at Knopcik and Gold Creek targeting high impact, multi-zone gas prospects.

Cyries expects to drill 30 - 35 additional wells in the last half of 2007 with 50 - 70 locations in inventory to complete the 2008 drilling program.

The undeveloped land base of Cyries expanded by 10,592 net acres during the quarter. Cyries currently has approximately 415,490 net undeveloped acres of land.

FINANCIAL PERFORMANCE

Cash flow from operations in the quarter increased to $24.9 million or $0.49 per share, a 36 percent increase from $18.3 million or $0.47 per share in the second quarter of 2006.

Operating costs for the second quarter were $9.95 per boe. As operation of the Gold Creek oil pool stabilizes we hope to achieve further cost efficiencies in the future.

Cyries expects to spend total capital of $130 - $140 million, excluding acquisitions, in 2007, compared to previous estimates of $140 - $160 million. As a result Cyries expects production to be in the range of 12,000 - 13,000 boe per day by the end of 2007.

Cyries has effectively managed the company's balance sheet in combination with the capital expenditure program over the past year. Cyries' bank debt at June 30, 2007 is less than at June 30, 2006, yet Cyries' production is 29% higher over the same period. Existing bank credit facilities are $160 million, providing Cyries the ability to finance the 2007 drilling program from a combination of cash flow and bank debt.

OUTLOOK

Cyries has increased significantly the proportion of light oil production in the company. Combined with a strong balance sheet, the company is able to withstand a period of weaker gas prices. Despite a weaker near term outlook for natural gas prices Cyries will continue to grow the production base of the company and undertake an active drilling program.

We will continue to expand our presence in our core areas while targeting our drilling program to light oil prospects and high impact gas prospects. Cyries is able to maintain an aggressive drilling program through the remainder of 2007, drilling locations that have robust economics, potentially taking advantage of a reduced industry cost structure.


On behalf of the Board of Directors,

Donald F. Archibald, Chairman and Chief Executive Officer


MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements of Cyries Energy Inc. ("Cyries" or the "Company") for the three and six month periods ended June 30, 2006 and the audited financial statements for the year ended December 31, 2006. This MD&A is dated as of August 13, 2007.

Cyries was incorporated under the Business Corporations Act (Alberta) on May 20, 2004 and commenced operations July 2, 2004. Cyries is a Calgary based oil and natural gas exploration and development company operating primarily in northwestern Alberta and northeastern British Columbia. The Company is traded on the Toronto Stock Exchange under the symbol CYS.

Units of measure - Per 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"). All values are presented in thousands, other than boe and per share amounts.

Non-GAAP Measurements - Cyries evaluates performance based on net income, operating netback and funds generated from operations. Operating netback is a benchmark used in the oil and gas industry to measure the contribution of oil and natural gas sales following the deduction of royalties, production expenses and transportation costs. A calculation of operating netback is included in the MD&A. Working capital deficiency is defined as current assets less current liabilities, excluding any debt presented as a current liability. Funds generated from operations is expressed before changes in non-cash operating working capital and asset retirement expenditures. The Company considers funds generated from operations a key measure as it is used to analyze operations, performance, leverage and liquidity.



The following table reconciles funds generated from operations to cash
flow from operating activities, the most directly comparable GAAP
measure:

Quarter Ended Six Months Ended
June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Cash flow from
operating
activities 20,766 16,687 36,791 33,209
Net changes in
non-cash
operating
working capital 4,154 1,650 7,443 2,617
Asset retirement
expenditures - - 221 144
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Funds generated
from operations 24,920 18,337 44,455 35,970
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Funds generated from operations, operating netback and working capital deficiency do not have a standard meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to other companies.

Forward-looking statements - This MD&A contains forward-looking statements. Forward-looking statements are based on current expectations that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those reflected in the MD&A. Forward-looking statements are based on the estimates and opinions of Cyries' management at the time the statements were made. The reader should be aware that historical results are not necessarily indicative of future performance.



HIGHLIGHTS

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($000s, except Three months ended Six months ended
per share data) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Net income 2,161 5,891 1,582 8,140
Net income per
share - basic 0.04 0.15 0.03 0.21
Net income per
share - diluted 0.04 0.14 0.03 0.19

Funds generated
from operations 24,920 18,337 44,455 35,970
Funds generated
per share - basic 0.49 0.47 0.89 0.92
Funds generated
per share - diluted 0.46 0.42 0.82 0.83

Total assets 567,437 413,143 567,437 413,143

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The second quarter of 2007 was highlighted by an increase in crude oil and natural gas production and higher average prices compared to the prior year. Funds generated from operations increased 36 percent to $24,920 in the second quarter of 2007 compared to $18,337 in the prior. In the six month period ended June 30, 2007 funds generated from operations increased 24 percent to $44,455 compared to $35,970 in 2006. Average production in the second quarter of 2007 increased 29 percent to 10,570 boe/d from 8,172 boe/d in the second quarter of 2006. For the six month period ended June 30, 2007 production increased by 27 percent to average 10,051 boe/d.

Net earnings for the three and six month periods ended June 30, 2007 decreased 63 percent and 81 percent, respectively. Affecting the decreases from prior year in both the three and six month periods ended June 30, 2007 was $4,259 of income tax adjustments in 2006 relating to changes to income tax rates and a recovery of income tax expense associated with an income tax audit. In addition, increases to operating expense and depletion, depreciation and accretion negatively impacted earnings.

Capital expenditures were $10,510 in the three months ended June 30, 2007. Drilling is limited in the second quarter as spring break-up restricts access to many of the Company's prospects in Northern Alberta. The largest portion of capital expenditures in the quarter related to $6,099 in net land and property acquisitions.



DETAILED FINANCIAL ANALYSIS

Petroleum and natural gas production

Three months ended Six months ended
June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Oil (bbls/d) 2,716 1,263 2,279 1,222
Natural gas (mcf/d) 43,032 38,798 42,739 37,823
Natural gas liquids
(bbls/d) 681 442 649 399
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Total (boe/d) 10,570 8,172 10,051 7,925
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Production for the quarter ended June 30, 2007 increased 29 percent to 10,570 compared with the prior year. The production increase was driven by the ongoing drilling program, the acquisition of Dual Exploration in December 2006 and a number of smaller acquisitions in the first half of 2007. Cyries' production mix changed significantly from 2006. In the second quarter of 2007, 68 percent of the Company's production was natural gas compared to 79 percent in 2006. Oil and liquids production in the three months ended June 30, 2007 increased to 3,397 boe/d compared to 1,705 boe/d in the second quarter of 2006. The growth in oil and liquids production is a result of increased oil production at Gold Creek where in the second quarter the company was granted regulatory approval to increase production from a prolific oil pool. For the six month period ended June 30, 2007 oil and liquids production averaged 2,928 boe/d compare to 1,621 boe/d in 2006. Natural gas production in the three and six months ended June 30, 2007 increased to 43,032 mcf/d and 42,739 mcf/d, compared to 38,798 mcf/d and 37,823 mcf/d for the respective three and six month periods ended June 30, 2006.



Revenue

Three months ended Six months ended
($000s) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Revenue
Oil 16,847 8,548 27,042 15,359
Natural gas 29,664 22,870 60,013 49,457
Natural gas
liquids 3,422 2,609 6,187 4,423
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Total 49,933 34,027 93,242 69,239

Average sales price
Oil ($/bbl) 68.15 74.37 65.56 69.45
Natural gas
liquids ($/bbl) 55.19 64.83 52.64 61.19
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Average liquids
price 65.55 71.90 62.70 67.43
Natural gas ($/mcf) 7.58 6.49 7.76 7.22
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Total per boe ($/boe) 51.91 45.76 51.25 48.27

Benchmark pricing
Edmonton par - light
oil
($/bbl) 72.65 78.89 70.18 74.20
AECO-C Spot ($/mcf) 7.09 6.02 7.25 6.75
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In the three months ended June 30, 2007, revenues increased 47 percent to $49,933 from $34,027 in the comparative period in 2006. The increase in revenue was a result of the 29 percent increase in production volumes and 13 percent increase in the average sales price. In the six month period ended June 30, 2007, revenues increased 37 percent to $93,242 from $69,239 in the comparative period in 2006. The increase in revenue was due to a 27 percent increase in production volumes and a six percent increase in the average sales price. The increase in the average sales price realized by Cyries is consistent with the increase in benchmark natural gas prices. The average sales price for natural gas is at a premium to the AECO-C spot price due to the high energy content of the company's natural gas production. All the Company's production is sold on the spot market. Therefore, both the historical prices received and future prices are expected fluctuate with the prevailing market prices of crude oil and natural gas.



The table below summarizes the impact of both production volumes and
natural gas and oil prices on revenue for the three and six month periods
ended June 30, 2007:

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Three months ended Six months ended
($000s) June 30, 2007 June 30, 2007
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Natural Gas Sales Variance
Volume increase 2,495 6,429
Price increase 4,299 4,127
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Net gas sales change 6,794 10,556
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Crude Oil and NGLs Sales Variance
Volume increase 11,073 15,954
Price decrease (1,961) (2,507)
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Net crude oil and NGLs sales change 9,112 13,447
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Combined sales change 15,906 24,003
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Royalty Expense

Oil and natural gas royalties totaled $10,404 and $20,509 for the second quarter and first half of 2007, respectively, compared to $7,943 and $17,354 for the comparative periods in 2006. The increase in royalties corresponds to the increase in petroleum and natural gas sales. Royalties as a percentage of revenue decreased to 21 percent in the quarter ended June 30, 2007 from 24 percent in the prior year. Royalties as a percentage of revenue decreased to 22 percent in the six months ended June 30, 2007 from 25 percent in the prior year. The decrease in royalties as a percentage of revenue in 2007 compared to 2006 is consistent with the movements in the average monthly gas reference price.



Operating Netback and Production Expense

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Three months ended Six months ended
($000s) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Revenue 49,933 34,027 93,242 69,239
Royalty income 36 19 64 64
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49,969 34,046 93,306 69,303
Royalties (10,404) (7,943) (20,509) (17,354)
Production expense
(net) (9,569) (5,644) (18,158) (11,209)
Transportation
expense (1,245) (1,118) (2,392) (2,240)
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Operating netback 28,751 19,341 52,247 38,500
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Operating netback
per boe 29.85 26.01 28.68 26.84
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Three months ended Six months ended
($000s) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Production expense
gross 10,423 6,234 19,768 12,386
Overhead recoveries (516) (396) (1,019) (805)
Processing income (338) (194) (591) (372)
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Production expense
(net) 9,569 5,644 18,158 11,209
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Production expense
per boe (net) 9.95 7.59 9.98 7.81
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In comparison to the prior year, operating netback in the second quarter increased 15 percent to $29.85 per boe and for the six months ended June 30, 2007 increased seven percent to $28.68. The increase in both periods is primarily a result of increased sales prices.

Net production expenses increased 70 percent in the three month period ended June 30, 2007 to $9,569 compared to $5,644 in 2006. Net production expenses for the six months ended June 30, 2007 increased 62 percent to $18,158 from $11,209 in the comparative period in 2006. The increase in production expense is due to the increase in both production and production costs per boe. Production costs per boe have increased by approximately 30 percent from the prior year as a result of increasing costs within the oil and gas industry.

Transportation expense relates primarily to the cost of transporting natural gas on the main natural gas pipelines and a lesser amount for clean oil trucking charges. An increase in production volumes caused an increase in transportation costs to $1,245 for the three months ended June 30, 2007 from $1,118 for the comparative period in 2006. Transportation for the first half of 2007 increased to $2,392 from $2,240 for the first half of 2006. On per boe basis, transportation decreased 14 percent to $1.29 and 16 percent to $1.31 for the respective three and six months ended June 30, 2007 when compared to the equivalent periods in 2006.



General and Administrative Expenses

Three months ended Six months ended
($000s) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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General and
administrative
expense (gross) 2,152 1,400 4,260 2,768
Overhead recoveries (167) (321) (670) (985)
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General and
administrative
expense (net) 1,985 1,079 3,590 1,783
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General and
administrative
($/boe) 2.06 1.45 1.97 1.24
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General and administrative costs ("G&A") include costs incurred by the Company which are not directly associated with the exploration of oil and natural gas. G&A per boe increased 42 percent to $2.06 in the second quarter of 2007 compared to $1.45 in the second quarter of 2006. G&A expense per boe increased 59 percent to $1.97 in the six months ended June 2007 compared to $1.24 in 2006. G&A per boe increased in both periods due to higher costs for employees, rent, regulatory compliance and lower overhead recoveries as a result of reduced capital spending.

General and administrative costs per boe are expected to average approximately $1.50 - $1.75 per boe for the remainder of 2007.

Depreciation, Depletion and Accretion

Depletion, depreciation and accretion ("DD&A") was $20,770 in the second quarter of 2007 compared to $13,403 in 2006. Higher DD&A is due to increases in production and DD&A per boe. DD&A expense per boe for the six months ended June 30, 2007 increased to $21.42 from $17.70 for the comparative period. For the three month period ended June 30, 2007 DD&A per boe increased to $21.59 from $18.02 in the prior year. The increase in both periods reflects the cost of adding proved reserves through drilling and acquisitions over the past twelve months. In determining the Company's depletion and depreciation, $25,986 (2006 - $18,720) of costs related to unproven properties and $19,004 (2006 - $13,711) of estimated salvage value was excluded from the costs subject to depletion. Future development costs required to complete wells for which proved reserves have been assigned of $9,739 (2006 - $6,657) were added to the Company's net book value in the depletion calculation.

Stock Based Compensation

During the second quarter of 2007, stock-based compensation expense related to the outstanding stock options and Class B performance shares increased to $972 from $817 in the quarter ended June 30, 2006. The increase in stock compensation in the second quarter is due to more stock options outstanding in the quarter. Stock-based compensation expense for the first six months of 2007 was $2,108 compared to $2,569 for the comparative period in 2006. The decrease in stock compensation expense for the six months ended June 30, 2007 is due to a reduction in options issued during the period. Twenty percent of the issued options to vest immediately resulting in the expense of 20 percent of the Black-Scholes option in the quarter it is issued. At June 30, 2007 there were 4,091 stock options outstanding compared to 3,072 at June 30, 2006.

Income Taxes

For the quarter ended June 30, 2007 the Company recorded a future income tax expense of $1,017 (2006 - recovery of $1,774) and current income tax expense of $223 (2006 - recovery of $1,004). The effective tax rate for the quarter ended June 30, 2007 was 36 percent. In the second quarter of 2006 income taxes were impacted by a change in Federal and Alberta tax rates that resulted in recoveries for future income tax of $3,050 and current income tax of $89. In addition, Cyries recognized an income tax recovery $958 for the quarter ended June 30, 2006 as the estimated liability for an income tax audit was reduced following the completion of the audit.

In the six month period ended June 30, 2007 the future income tax expense was $1,790 (2006 - recovery of $127) and the current income tax recovery was $869 (2006 - recovery of $843). The effective tax rate for the six months ended June 30, 2007 was 63 percent primarily due to an additional current tax expense of $632 for taxes owing as a result of prior period assessments of a subsidiary and companies acquired by Cyries in 2005 and 2006. The six month period in 2006 was impacted by the income tax rates changes and audit assessment as described above in the three month period.

On March 14, 2007, the Company issued 443 CEE flow-through shares and 524 CDE flow-through shares through a private placement. The CEE flow-through shares were issued at a price of $13.55 per share and the CDE flow-through shares were issued at $11.45 per share, for total proceeds of $12,000. The purchasers of CEE flow-through shares will be entitled to renunciations of Canadian exploration expenses in an amount equal to the subscription amount from the Company, while purchasers of the CDE flow-through shares will be entitled to renunciations of Canadian development expenses in an amount equal to the subscription amount from Cyries. A director of Cyries acquired 116 of the CDE flow-through shares for total proceeds of $1,328.

At June 30, 2007 the Company had an outstanding CEE flow-through share commitment of $10,874 and an outstanding CDE flow-through commitment of $3,304. The Company expects to incur the qualifying expenditures in the remainder of 2007.

The Company's estimated tax pools as at June 30, 2007 are included in the table below. Tax balances do not include a reduction for the outstanding flow-through commitments.



($ million)
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Canadian oil and gas property expense 87,157
Canadian development expense 77,862
Canadian exploration expense 3,124
Foreign exploration and development expense 717
Undepreciated capital costs 86,068
Share issue costs 6,852
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Total 261,780
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Capital Expenditures

Three months ended Six months ended
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($000s) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Land acquisitions 2,769 701 5,813 4,821
Property acquisitions
(net) 3,330 79 18,305 4,829
Geological and
geophysical 313 2,119 1,920 2,828
Drilling and
completions 2,696 10,438 20,637 44,071
Equipment and
facilities 1,078 6,766 13,161 22,266
Other 324 43 386 80
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Total capital
expenditures 10,510 20,146 60,222 78,895
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Overall, capital expenditures for the six months ended June 30, 2007 decreased to $60,222 from $78,895 in 2006. Drilling activity was down significantly in the six months ended June 30, 2007 as the Company drilled 15.0 gross wells (8.7 net) compared to 33.0 wells (25.9 net) in 2006. Drilling was reduced in 2007 in response to the uncertainty in short term natural gas prices. Property acquisitions increased to $18,305 from $4,829 in 2006 primarily due to the acquisition of Rainbow Lake assets in the first quarter of 2007.

Cyries drilled 1.0 well (0.41 net) in the second quarter of 2007 compared with 5.0 gross wells (2.9 net) in the comparative period. Historically, Cyries' drilling activity is low in the second quarter as winter break-up impairs drilling operations on most of the Company's land.

The Company expects to spend approximately $150,000 in 2007 of which $90,000 will be incurred in the second half of the year drilling an additional 30-40 gross wells. Fluctuations in crude oil and natural gas prices will have a large impact on the Company's capital program. The Company will monitor the capital program with the current price outlook and adjust it accordingly.



Three months ended Six months ended
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($000s) June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Gross Net Gross Net Gross Net Gross Net
wells wells wells wells wells wells wells wells
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Gas 1.0 0.41 5.0 2.9 8.0 4.0 28.0 22.3
Oil - - - - 3.0 2.5 2.0 2.0
Dry - - - - 4.0 2.2 3.0 1.6
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Total 1.0 0.41 5.0 2.9 15.0 8.7 33.0 25.9
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Success (%) 100% 100% 75% 94%
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Share Capital

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(000s)
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Weighted average common shares outstanding for the six months ended June 30,
2007
Basic 50,091
Diluted 53,972

Outstanding Securities at August 13, 2007
Common shares 50,513
Warrants 3,942
Performance shares 534
Stock options 4,129
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Total outstanding securities at August 13, 2007 59,118
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During the six month period ended June 30, 2007, the company issued 430 stock options to employees. The options vest over four years and are exercisable into common shares at an average price of $11.33. At June 30, 2007 the Company had 4,091 options outstanding with an average exercise price of $12.00.

Liquidity and Capital Resources

At June 30, 2007 the Company had bank debt of $116,251 and working capital of $2,048. In the second quarter, the Company's bank lines were increased to $160,000 from $145,000 following the completion of the bank's semi-annual review. The Company's bank line is subject to semi-annual review with the next review occurring in the fall of 2007.

The 2007 capital program is anticipated to be $150 million and will be funded through a combination of funds generated from operations, proceeds from the March 2007 flow-through share offering and bank debt. Fluctuations in crude oil and natural gas prices will have a large impact on the Company's capital program and working capital position. The Company will monitor the capital program with the current price outlook and adjust it accordingly.

Commodity prices and production volumes have the largest impact on the ability for Cyries to generate adequate cash flow to meet all of its obligations. A prolonged decrease in commodity prices would negatively affect funds generated from operations and would also likely result in a reduction in the amount of bank loan available. If the capital expenditure program does not result in sufficient additional reserves and/or production it would likely have a negative impact on the Company's ability to carry out its planned capital program.



Quarterly Financial and Operational Information

Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
2007 2007 2006 2006 2006 2006 2005 2005
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Average
gas
price
($/mcf) 7.58 7.97 7.41 6.06 6.49 8.02 12.14 9.92
Average
liquids
price
($/boe) 65.55 58.43 56.64 70.85 71.90 62.41 63.61 66.77
Average
sales
price
($/boe) 51.91 50.55 47.42 44.42 45.76 50.98 70.69 61.26
Average
production
(boe/d) 10,570 9,519 8,613 7,917 8,172 7,675 6,522 5,525

Petroleum
and natural
gas sales 49,933 43,309 37,571 32,351 34,027 35,212 42,419 31,140
Royalties 10,404 10,105 7,933 7,384 7,943 9,411 11,394 7,125
Operating
expenses 9,569 8,589 7,130 6,024 5,644 5,564 4,804 3,992
G&A expenses 1,985 1,604 1,080 909 1,079 704 1,115 648

Funds
generated
from
operations 24,920 19,537 18,046 15,711 18,337 17,632 20,861 17,650
Per share
basic 0.49 0.39 0.41 0.38 0.47 0.45 0.53 0.47
Per share
diluted 0.46 0.36 0.37 0.35 0.42 0.41 0.48 0.42

Net earnings/
(loss) 2,161 (579) (14) 1,230 5,891 2,249 5,682 6,101
Per share
basic 0.04 (0.01) - 0.03 0.15 0.06 0.14 0.16
Per share
diluted 0.04 (0.01) - 0.03 0.14 0.05 0.13 0.15

Total
assets 567,437 575,539 542,053 437,508 413,143 411,463 364,230 326,177
Bank debt
and
working
capital
deficiency 114,203 128,718 111,934 114,765 116,074 114,338 73,220 56,238
----------------------------------------------------------------------------


Production

Second quarter oil and natural gas production increased 11 percent to 10,570 boe/d compared to 9,519 boe/d in the first quarter. The increase in production is primarily from Gold Creek oil production that increased in the second quarter once Cyries was granted regulatory approval to produce the wells at higher production rates.

Petroleum and Natural Gas Sales

Oil and natural gas revenues increased 15 percent in the second quarter of 2007 as the average oil and natural gas price increased by three percent and production volumes increased by 11 percent.

Royalties

Royalties, net of ARTC, increased to $10,404 from $10,105 the first quarter of 2007 as a result of increased revenue. As a percentage of sales, royalty rates decreased to 21 percent in the second quarter of 2007 compared to 23 percent in the first quarter of 2007 primarily due to an increase in gas cost allowance.

Operating Expenses

Operating expenses increased 11 percent from the first quarter due to increased production volumes. On a per boe basis, operating expenses were $9.95 compared to $10.03 per boe in the previous quarter.

General and Administrative Expenses

Net G&A expense increased 24 percent to $1,985 from $1,604 in the first quarter of 2007. The increase in net G&A in the second quarter is due primarily to a decrease in overhead recoveries caused by a decrease in capital expenditures. G&A per boe was $2.06 in the second quarter of 2007 compared to $1.87 per boe in the first quarter.

Net Earnings and Funds Generated from Operations

Funds generated from operations increased 28 percent in the second quarter to $24,920 from $19,537 in the first quarter of 2007. Net earnings increased to $2,161 compared to a loss of $579 in the first quarter of 2007. The increase in both earnings and funds generated from operations was a result of higher revenue, lower average royalties and stable production costs.

Total Assets

Total assets decreased slightly to $567,437 as DD&A exceeded capital expenditures in the second quarter. Capital expenditures included $2,769 in land acquisitions, $3,330 of net property acquisitions, $313 of geological and geophysical activities, $2,696 in drilling and completions $1,078 in equipment and facilities and $324 in corporate capital.

Working Capital Deficiency

The bank and working capital deficiency decreased by $14,516 in the second quarter to $114,203 as funds generated from operations of $24,920 was in excess of capital expenditures of $10,510. Current bank lines are $160,000 and the Company estimates that the 2007 capital program will be funded through a combination of funds generated from operations, proceeds of the March flow-through share offering and additional bank borrowings.

Accounting Standards Changes

Financial Instruments

The Company adopted the following new Handbook Sections effective January 1, 2007:

1) Section 1506, Accounting Changes;

2) Section 1530, Comprehensive Income;

3) Section 3251, Equity

4) Section 3855, Financial Instruments - Recognition and Measurement; and

5) Section 3861, Financial Instruments - Disclosure and Presentation

These new accounting standards provide requirements for the recognition and measurement of financial instruments. These standards have been adopted prospectively with no restatement of the comparative interim consolidated financial statements.

Disclosure Controls and Internal Control Over Financial Reporting

The Chief Executive Officer and Chief Financial Officer evaluated the design and implementation of the Company's internal control over financial reporting and have concluded that the design of internal control over financial reporting is sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. It should be recognized that while the Chief Executive Officer and Chief Financial Officer believe the Company's internal controls over financial reporting provide reasonable level of assurance, they do not expect that these controls will prevent all errors and fraud. A control system can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

The preparation of disclosure documents is supported by a set of disclosure controls and procedures under management's responsibility. This control structure was reviewed and the effectiveness of its design and operation was evaluated. The evaluation confirmed the effectiveness of the design and operations of disclosure controls and procedures. The evaluation was conducted in accordance with the requirements of Multilateral Instrument 52-109 of the Canadian Securities Administrators.

Risks

The business of Cyries is subject to certain risks. Prior to making any investment decision regarding Cyries investors should carefully consider, among other things, the risks described under the heading "Risks and Uncertainties" set forth in Cyries Management's Discussion and Analysis (the "Annual MD&A") for the year ended December 31, 2006 and under the heading "Risk Factors" in the Annual Information Form of Cyries (the "AIF") for the year ended December 31, 2006. These risk factors are incorporated by reference herein.

Cyries' Annual MD&A and AIF can be located at www.sedar.com or www.cyries.com. To the extent investors do not have access to the internet, copies of the Annual MD&A can be obtained on request without charge by contacting Cyries at (403) 262-9609 at 3200, 500 - 4th Avenue S.W., Calgary, Alberta T2P 2V6.



Cyries Energy Inc.
Consolidated Balance Sheets
---------------------------------------------------------------------------
As at June 30, As at December 31,
(unaudited, $000) 2007 2006
---------------------------------------------------------------------------

Assets
Current assets
Accounts receivable 31,757 27,856
Deposits, prepaid expenses and other 3,184 3,100
---------------------------------------------------------------------------
34,941 30,956

Property and equipment, net (note 4) 443,444 420,704

Goodwill 89,052 90,393
---------------------------------------------------------------------------

567,437 542,053
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities 32,834 62,127
Income taxes payable 59 896
Revolving demand loan (note 5) 116,251 79,867
---------------------------------------------------------------------------
149,144 142,890

Future income tax liability (note 6) 47,983 37,710
Asset retirement obligations (note 10) 19,670 18,178
---------------------------------------------------------------------------
Total liabilities 216,797 198,778
---------------------------------------------------------------------------

Shareholders' Equity
Share capital (note 7) 313,959 310,186
Contributed surplus (note 8) 9,360 7,350
Retained earnings 27,321 25,739
---------------------------------------------------------------------------
350,640 343,275
---------------------------------------------------------------------------

567,437 542,053
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes



Cyries Energy Inc.
Consolidated Statements of Earnings, Comprehensive Income and Retained
Earnings
---------------------------------------------------------------------------
(unaudited, $000, except Three months ended Six months ended
per share amounts) June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------------------------------

Revenue
Petroleum and natural gas sales 49,933 34,027 93,242 69,239
Royalties (net of Alberta
Royalty Tax Credit) (10,404) (7,943) (20,509) (17,354)
---------------------------------------------------------------------------
39,529 26,084 72,733 51,885
Other income 63 25 108 76
---------------------------------------------------------------------------
39,592 26,109 72,841 51,961
---------------------------------------------------------------------------

Expenses
Production 9,569 5,644 18,158 11,209
Transportation 1,245 1,118 2,392 2,240
General and administrative 1,985 1,079 3,590 1,783
Interest 1,650 935 3,377 1,602
Stock compensation 972 817 2,108 2,569
Depletion, depreciation
and accretion 20,770 13,403 38,975 25,388
---------------------------------------------------------------------------
36,191 22,996 68,600 44,791
---------------------------------------------------------------------------

Earnings before taxes 3,401 3,113 4,241 7,170

Taxes
Current income taxes (recovery) 223 (1,004) 869 (843)
Future income taxes (recovery) 1,017 (1,774) 1,790 (127)
---------------------------------------------------------------------------
1,240 (2,778) 2,659 (970)

Net earnings 2,161 5,891 1,582 8,140
Other comprehensive income (note 2) - - - -
---------------------------------------------------------------------------
Comprehensive income 2,161 5,891 1,582 8,140

Retained earnings,
beginning of period 25,160 18,632 25,739 16,383
Retained earnings, end of period 27,321 24,523 27,321 24,523
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net Earnings Per Share (note 9)
Basic 0.04 0.15 0.03 0.21
Diluted 0.04 0.14 0.03 0.19
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted Average Common Shares
Outstanding (note 9)
Basic 50,486 39,268 50,091 39,266
Diluted 54,397 43,246 53,972 43,274
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes



Cyries Energy Inc.
Consolidated Statements of Cash Flows
---------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
(unaudited, $000) 2007 2006 2007 2006
---------------------------------------------------------------------------

Operating Activities
Net earnings 2,161 5,891 1,582 8,140
Items not affecting cash
Depletion, depreciation
and accretion 20,770 13,403 38,975 25,388
Future income taxes (recovery) 1,017 (1,774) 1,790 (127)
Stock compensation 972 817 2,108 2,569
---------------------------------------------------------------------------
24,920 18,337 44,455 35,970

Asset retirement expenditures - - (221) (144)
Net changes in non-cash operating
working capital (note 11) (4,154) (1,650) (7,443) (2,617)
---------------------------------------------------------------------------
20,766 16,687 36,791 33,209
---------------------------------------------------------------------------

Financing Activities
Issue of common shares - - 12,000 -
Issue of common shares on
exercise of options 104 65 223 65
Issue of common shares on
exercise of warrants - 6 - 6
Share issue costs 3 - (65) -
Increase in bank debt 12,460 27,247 36,384 57,545
---------------------------------------------------------------------------
12,567 27,318 48,542 57,616
---------------------------------------------------------------------------

Investing Activities
Additions to property
and equipment (12,131) (20,146) (61,942) (78,902)
Disposition of property
and equipment 1,621 - 1,940 151
Net changes in non-cash investing
working capital (note 11) (22,823) (23,859) (25,331) (12,074)
---------------------------------------------------------------------------
(33,333) (44,005) (85,333) (90,825)
---------------------------------------------------------------------------

Change in cash - - - -
Cash, beginning of period - - - -
---------------------------------------------------------------------------

Cash, end of period - - - -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes


1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Cyries was incorporated under the Business Corporations Act (Alberta) on May 20, 2004 and commenced operations July 2, 2004. Cyries is engaged in the exploration, development and production of crude oil and natural gas in the province of Alberta. The Company is traded on the Toronto Stock Exchange under the symbol CYS.

These interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), using the same accounting policies as those set out in note 2 to the consolidated financial statements for the year ended December 31, 2006 except for the changes discussed in note 2 below. The disclosures in these interim consolidated financial statements are incremental to those included in the annual consolidated financial statements and certain disclosures which are required to be included in the notes to the annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006.

2. CHANGES IN ACCOUNTING POLICIES

The Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3855, Financial Instruments - Recognition and Measurement; Section 1530, Comprehensive Income, Section 3861 Financial Instruments - Disclosure and Presentation and Section 3251, Equity on January 1, 2007.

Under the new standards, financial assets and financial liabilities are initially recognized at fair value and are subsequently accounted for based on their classification. The classification depends on the purpose for which the financial instruments are acquired and their characteristics and is not changed subsequent to the initial recognition.

The Company's financial instruments recognized in the balance sheet consists of accounts receivable, accounts payable and accrued liabilities, income taxes payable, revolving demand loan and asset retirement obligation. The fair value of these instruments and approximate their carrying amounts due to their short terms to maturity or the indexed rate of interest on the bank debt. All financial instruments on the balance sheet are measured at amortized cost.

The Company does not have any derivative instruments as defined under Section 3855. The Company also conducted a review of contractual agreements for embedded derivatives of which the Company has none.

The Company also adopted Section 1506, Accounting Changes which is to provide disclosure of a new source of GAAP that has been issued but is not yet effective. This is the case with Section 3862, Financial Instrument Disclosures and Section 3863, Financial Instruments Presentations which are required to be adopted on fiscal years beginning on or after October 1, 2007. The Company will adopt these standards on January 1, 2008 with the only effect being incremental disclosures regarding the significance of financial instruments for the entity's financial position and performance; and the nature, extent and management of risks arising from financial instruments to which the entity is exposed.

The financial statements have been revised to include the newly required addition of comprehensive income.

3. CORPORATE ACQUISITIONS

Dual Exploration Inc.

Pursuant to a take-over bid, Cyries acquired Dual Exploration Inc. ("Dual") whereby Dual shareholders received 0.167 of a Cyries share for each Dual share outstanding for an aggregate of 5,767 Cyries shares. As of November 30, 2006, 89 percent of the outstanding shares of Dual had been tendered to the bid and the bid was extended to December 11, 2006. An additional 4 percent of the Dual shares were tendered to the bid as of December 11, 2006 and the bid was allowed to expire in accordance with its terms. As more than 90 percent of the Dual shares were tendered to the bid Cyries acquired the remaining Dual shares pursuant to the compulsory acquisition procedures under the Business Corporations Act (Alberta) on December 12, 2006.

The acquisition was funded by the issuance of common shares. The trading price ascribed to the common shares of $10.72 per share is based on the trading prices of Cyries common shares on the five day period surrounding the announcement of the acquisition.

The acquisition was accounted for using the purchase method. The purchase equation is based on management's best estimate of the fair values of the assets and liabilities of Dual as at November 30, 2006 and is subject to adjustment.



---------------------------------------------------------------------------
Amount
---------------------------------------------------------------------------
Consideration:
Common shares $ 61,826
Transaction costs 590
---------------------------------------------------------------------------
62,416
Allocated to:
Current assets 10,467
Current liabilities (8,584)
Bank debt (9,073)
---------------------------------------------------------------------------
(7,190)

Property, plant and equipment 55,448
Goodwill 20,618
Asset retirement obligations (2,869)
Future income taxes (3,591)
---------------------------------------------------------------------------
$ 62,416
---------------------------------------------------------------------------
---------------------------------------------------------------------------



4. PROPERTY, PLANT AND EQUIPMENT

---------------------------------------------------------------------------
June 30, 2007 December 31, 2006
---------------------------------------------------------------------------
Petroleum and natural gas
property and equipment $ 566,837 $ 506,193
Other 628 241
---------------------------------------------------------------------------
567,465 506,434
Accumulated depletion and depreciation (124,021) (85,730)
---------------------------------------------------------------------------
Net book value $ 443,444 $ 420,704
---------------------------------------------------------------------------
---------------------------------------------------------------------------


In determining the Company's depletion and depreciation, $25,986 of costs related to unproved properties (2006 - $18,720) and $19,004 of estimated salvage value (2006 - $13,711) was excluded from the costs subject to depletion. Future development costs required to complete wells for which proved reserves have been assigned of $9,739 (2006 - $6,657) were added to the Company's net book value for purposes of the depletion calculation.

5. REVOLVING DEMAND LOAN

The Company has a demand revolving operating credit facility provided by a syndicate of Canadian banks. The credit facility is limited to $160 million and provides that advances may be made by way of direct advances or bankers' acceptances. Direct advances bear interest at the bank's prime lending rate plus a variable rate and bankers' acceptances bear interest at the applicable bankers' acceptances rate plus a variable rate stamping fee. The variable
rate charged by the bank is dependent upon the Company's debt to trailing cash flow ratio. In the second quarter of 2007, the average interest rate on outstanding borrowings, including stamping fees, was 5.61 percent (June 2006 - 5.15 percent). The credit facility is subject to periodic review and is secured by a $250 million demand fixed and floating charge debenture over all of the Company's assets.

6. FUTURE INCOME TAXES

In February 2007 the Company renounced $21,048 relating to CEE flow-through shares issued in 2006 and $6,988 relating to CDE flow-through shares issued in 2006. The related future income tax liability of $8,503 was recognized in the six months ended June 30, 2007.

7. SHARE CAPITAL

Authorized

At June 30, 2007, the Company had authorized an unlimited number of common shares, an unlimited number of preferred shares, 3,988 warrants and 605 Class B performance shares.

Issued

The Company had the following shares outstanding at June 30, 2007:



---------------------------------------------------------------------------
Number of
Common Shares Shares Amount
---------------------------------------------------------------------------
Common shares December 31, 2006 49,497 $ 308,761
Exercise of stock options 33 321
Flow-through share issue 967 12,000
Share issue costs - (65)
Tax effect of share issue costs - 20
Tax effect of flow-through share issuance - (8,503)
---------------------------------------------------------------------------
Common shares June 30, 2007 50,497 $ 312,534
---------------------------------------------------------------------------
---------------------------------------------------------------------------


---------------------------------------------------------------------------
Number of
Warrants Warrants Amount
---------------------------------------------------------------------------
Balance - December 31, 2006 and June 30, 2007 3,944 $ 1,419
---------------------------------------------------------------------------
---------------------------------------------------------------------------


---------------------------------------------------------------------------
Number of
Performance
Performance Shares Shares Amount
---------------------------------------------------------------------------
Balance - December 31, 2006 and June 30, 2007 552 $ 6
---------------------------------------------------------------------------
---------------------------------------------------------------------------


On March 14, 2007, the Company issued 443 CEE flow-through shares and 524 CDE flow-through shares through a private placement. The CEE flow-through shares were issued at a price of $13.55 per share and the CDE flow-through shares were issued at $11.45 per share, for total proceeds of $12,000. The purchasers of CEE flow-through shares will be entitled to renunciations of Canadian exploration expenses in an amount equal to the subscription amount from the Company, while purchasers of the CDE flow-through shares will be entitled to renunciations of Canadian development expenses in an amount equal to the subscription amount from Cyries.

At June 30, 2007 the Company had an outstanding CEE flow-through share commitment $10,874 and an outstanding CDE flow-through commitment of $3,304. The Company expects to incur the qualifying expenditures in the remainder of 2007.

Share capital includes common shares of $312,534, warrants of $1,419 and performance shares of $6 for a total of $313,959.

8. STOCK BASED COMPENSATION

The Company accounts for its stock based compensation plan (the "Plan") using the fair value method. Under this method, a compensation cost is charged over the vesting period for stock options and Class B performance shares with a corresponding increase to contributed surplus.



Stock option activity related to the Plan was as follows:


---------------------------------------------------------------------------
June 30, 2007 June 30, 2006
---------------------------------------------------------------------------
Weighted Weighted
Number of Average Number of Average
Options Price ($) Options Price ($)
---------------------------------------------------------------------------
Opening balance 3,799 $ 12.06 1,672 10.25
Granted 430 11.33 1,415 13.36
Exercised (33) 6.80 (5) 13.01
Cancelled (105) 12.97 (10) 13.42
---------------------------------------------------------------------------
Closing balance 4,091 $ 12.00 3,072 11.67
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Plan is for the benefit of employees, officers and directors. Stock options granted under the Plan vest over a four year period with 20 percent of the options vesting immediately upon grant and a further 20 percent vesting upon each anniversary date. The options expire, if unexercised, five years from the date of the initial grant.

The following table provides additional information on the stock options outstanding as at June 30, 2007:



---------------------------------------------------------------------------
Range of Weighted Weighted
Exercise Average Average
Prices Number of Exercise Contractual Options
($/ share) Options Price Life Exercisable
---------------------------------------------------------------------------
5.21 - 6.50 389 $ 5.42 2.2 205
10.40 - 13.76 3,334 12.47 3.9 1,145
14.51 - 16.60 368 14.72 3.6 135
---------------------------------------------------------------------------
5.21 - 16.60 4,091 $ 12.00 3.7 1,485
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The fair value of each stock option granted for the six months ended June 30, 2007 was estimated on the date of grant using the Black-Scholes model. The weighted average fair value of the stock options granted in the period was $4.24 per share, using an average risk-free interest rate of 3.01 percent, average volatility of 40 percent and an expected life of 4.5 years. The Company has not re-priced any stock options.

For the period ended June 30, 2007, $2,039 of expense related to the stock options and $69 of expense related to the performance shares is included in stock compensation expense (net of reversals due to cancellations).



The following table reconciles the Company's contributed surplus:

---------------------------------------------------------------------------
June 30, 2007 June 30, 2006
---------------------------------------------------------------------------
Contributed surplus, beginning of period $ 7,350 $ 2,512
Stock based compensation expense 2,341 2,579
Exercise of stock options (98) (28)
Cancellation of stock options (233) (10)
---------------------------------------------------------------------------
Carrying amount, end of period $ 9,360 $ 5,053
---------------------------------------------------------------------------
---------------------------------------------------------------------------



9. PER SHARE AMOUNTS

The following table details the components of diluted common shares
outstanding:

---------------------------------------------------------------------------
Three months ended Six months ended
Weighted average June 30, June 30, June 30, June 30,
common shares 2007 2006 2007 2006
---------------------------------------------------------------------------
Basic 50,486 39,268 50,091 39,266
Warrants 3,431 3,456 3,405 3,482
Performance shares 480 522 476 526
Diluted 54,397 43,246 53,972 43,274
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The calculation of diluted common shares excludes 4,091 (2006 - 3,072) of stock options that are anti-dilutive.

10. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligations were estimated by management based on the Company's net ownership interest in all wells and facilities, estimated costs to reclaim and abandon the wells and facilities and the estimated timing of the costs to be incurred in future periods. The Company has estimated the net present value of its asset retirement obligations to be $19,670 as at June 30, 2007 (2006 - $13,659) based on a total future liability of $46,221 (2006 - $34,514). Asset retirement expenditures are expected to be made over the next 25 years with the majority of costs to be incurred by 2020. The Company used a credit adjusted risk free rate of seven percent (2006 - seven percent) and an inflation rate of two percent (2006 - two percent) to calculate the present value of the asset retirement obligations. The following table reconciles the Company's total asset retirement obligations.



---------------------------------------------------------------------------
June 30, 2007 June 30, 2006
---------------------------------------------------------------------------
Balance, beginning of period $ 18,178 $ 12,440
Increase in liabilities 285 813
Liabilities settled (221) (144)
Acquisitions 2,019 85
Dispositions (1,351) -
Revisions 75 -
Accretion 685 465
---------------------------------------------------------------------------
Carrying amount, end of period $ 19,670 $ 13,659
---------------------------------------------------------------------------
---------------------------------------------------------------------------



11. SUPPLEMENTAL CASH FLOW INFORMATION

Three months ended Six months ended
Changes in non-cash June 30, June 30, June 30, June 30,
working capital 2007 2006 2007 2006
---------------------------------------------------------------------------
Accounts receivable $ (2,565) $ 6,169 $ (2,560) $ 6,682
Prepaid expenses and deposits (131) (802) (84) (868)
Accounts payable and
accrued liabilities (24,281) (30,876) (30,130) (20,505)
---------------------------------------------------------------------------
Net change in non-cash
working capital $ (26,977) $ (25,509) $ (32,774) $ (14,691)
Investing activities (22,823) (23,859) (25,331) (12,074)
---------------------------------------------------------------------------
Operating activities $ (4,154) $ (1,650) $ (7,443) $ (2,617)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Company made the following cash outlays in respect of interest expense
and current income taxes:


Three months ended Six months ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Interest $ 1,622 $ 1,184 $ 3,236 $ 1,729
Income taxes $ 1,320 $ 1,044 $ 1,787 $ 1,282
---------------------------------------------------------------------------
---------------------------------------------------------------------------


12. RELATED PARTY TRANSACTIONS

The Company was involved with the following related party transactions for the period ended June 30, 2007:

a) On March 14, 2007, the Company completed a flow-through share issuance whereby a director purchased 116 CDE flow-through shares at a price of $11.45 for total proceeds of $1,328.

b) The Company incurred $307 in legal costs to a law firm whereby the Corporate Secretary of the Company is a partner. Of the legal costs incurred in the period, $118 is included in accounts payable and accrued liabilities at June 30, 2007.

All related party transactions are in the normal course of operations and have been measured at the agreed exchange amounts, which is the amount of the consideration established and agreed to by the related parties and which is similar to those negotiated with third parties.

CONFERENCE CALL

A conference call is scheduled to review the second quarter 2007 results of Cyries Energy on Tuesday, August 14, 2007 at 9:00 a.m. (MT) / 11:00 a.m. (ET).

The conference call can be accessed by dialing in 15 minutes prior to the scheduled start to:

1 - 866 - 542 - 4238 or 1 - 416 - 641 - 6127

(A playback recording of the conference call will be available for seven days and can be access by calling 1-800-408-3053 or 1-416-695-5800 (password 3230213).)

A live webcast will be provided on www.cyries.com.

Cyries Energy is a publicly traded Canadian energy company involved in the exploration, development and production of natural gas and crude oil in western Canada. Its common shares trade on the TSX under the "CYS".

This news release shall not constitute an offer to sell or the solicitation of any offer to buy securities in any jurisdiction. The Cyries common shares have not been nor will be registered under the United States Securities Act of 1933, and they may not be offered or sold in the United States absent registration or an exemption from registration.

This news release contains forward-looking statements. Forward-looking statements are based on current expectations that involve a number of risks and uncertainties which could cause actual events or results to differ materially from those reflected in this news release. These risks and uncertainties include, among other things, changes in general economic, market and business conditions; changes or fluctuations in production levels, commodity prices, currency exchange rates, capital expenditures, reserves or reserves estimates and debt service requirements; changes in legislation; Cyries' ability to comply with current and future environmental or other laws; Cyries' success at the acquisition, exploitation and development of reserves; actions by governmental or regulatory authorities including increasing taxes or other regulations; and the occurrence of unexpected events involved in the operation and development of oil and gas properties. Forward-looking statements are based on the estimates and opinions of Cyries' management at the time the statements were made. Unless required by applicable law, Cyries assumes no obligation to update forward-looking statements should circumstances or management's estimates change.

The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Cyries Energy Inc.
    Donald F. Archibald
    Chairman & C.E.O.
    (403) 262-9609
    (403) 262-0055 (FAX)
    Website: www.cyries.com