Duvernay Oil Corp.
TSX : DDV

Duvernay Oil Corp.

November 10, 2005 09:00 ET

Duvernay Posts Record Third Quarter and Will Exceed 2005 Exit Production Target

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - Duvernay Oil Corp. (TSX:DDV):

Highlights

- Record third quarter cash flow of $35.8 million ($0.71 per diluted share), an increase of 130% from the same period in 2004.

- Record quarterly earning of $15.5 million ($0.31 per diluted share), an increase of 164% from the same period in 2004. ($5.58 million)

- Record operating netbacks of $39.24 per boe, an increase of 42% from the same period in 2004.

- Record quarterly production of 10,212 boe/d, a 60% increase from the same period in 2004.

- The company is achieving the 2005 exit target of 15,500 boe/d ahead of schedule with the start-up of the Cecilia plant expansion and associated new well tie-ins during the next 7-10 days.

- Duvernay drilled 38 (29.5 net) wells in the third quarter with an overall success rate of 97%.

- Continued attractive cost structure with unit cash costs of $7.26 per boe (production, G&A, interest)

- The Duvernay Groundbirch gas plant expansion and Spirit River gas gathering system were successfully commissioned in September 2005.

- A further 25 % increase in land holdings in the Deep Basin operating area.

- Cased Exploration New Pool Wildcats at Fir and Puskwa Alberta.

Production Outlook

Third quarter production averaged 10,212 boe/d, a 60% increase from the same period in 2004. Third quarter average volumes were reduced by weather related and regulatory delays for the start-up of the Sunset B.C. plant expansion project from the originally scheduled early July target to September 15. Minor tie-in delays in the Alberta Deep Basin and unscheduled turnarounds at Bigstone and Sundown further reduced quarterly average volumes. Third quarter 2005 exit production volume of 13,200 boe/d was 32% higher than the second quarter 2005 average volume. Duvernay remains on track to achieve average quarter over quarter growth of 20% between mid 2005 and mid 2006. The company expects to average between 10,700 and 11,000 boe/d for 2005.

Duvernay will achieve the 2005 exit production target of 15,500 boe/d ahead of schedule with the start-up of the Cecilia Alberta plant expansion and associated new well tie-ins during the next 7-10 days. The company will exceed the original production exit target through further new production additions during the balance of the year. The company is expecting to average between 19,000 - 20,000 boe/d in 2006. The 2006 projection includes a provision for unscheduled downtime and does not include any volumes from the ongoing exploration program from Q4 2005 through the balance of 2006 (25 wells).

Financial Outlook

Third quarter cash flow of $35.8 million ($0.71 per diluted share) was a record and exceeded original estimates. Quarterly earnings were almost tripled year over year to $15.5 million from $5.6 million in 2004. Operating netbacks were increased in the quarter to $39.24/boe. The company has increased its 2005 cash flow estimate to $148.0 million ($2.98/share). The company is estimating 2006 cash flow of $359 million ($7.24/share) based on 2006 production of 19,600 boe/d (107 mmcf/d natural gas, 1700 bopd oil and liquids).

The 2006 capital budget program will be $350.0 million Canadian, including the drilling of approximately 150 wells. The company continues with its conservative debt philosophy of maintaining a debt to trailing cash flow ratio of less than one. Proceeds from the company's minor property disposition package will be received in the fourth quarter of 2005. A 2005 exit debt of between $110-120 million is anticipated. To provide added financial capability in 2006, the company is currently renegotiating its credit facility and is anticipating an expansion to $200 million from the existing $160 million facility.

EP Overview

Drilling

Duvernay drilled 38 (29.5 net) wells in the third quarter with an overall success rate of 97%. The company expects to drill or participate in a total of 125 wells in 2005 and 150 wells in 2006. Duvernay is currently operating 11 drilling rigs, including ten triple rigs and one double rig.

Sunset-Groundbirch

The company now has 45 wells delineating the 50 mile long Triassic Doig gas pool discovered by Duvernay in late 2002. During the third quarter several development locations were drilled and completed based on the new high resolution seismic mapping resulting in four of the six highest initial gas rate wells to date in the pool. The company will continue to operate three triple drilling rigs at Sunset-Groundbirch-Brassey-Sundown for the ongoing Doig development program. The Sunset 5-3 plant expansion project which added 8.0 mmcf/d of production was completed in mid-September, later than originally scheduled due to weather and regulatory related delays. Total Doig production volumes are now approximately 30 mmcf/d and are plant constrained. Additional Duvernay operated gas processing plant projects at Brassey and Sundown are underway, with a March 1 2006 start-up date scheduled. Each plant will add approximately 12.5 mmcf/d of additional gas volumes.

A double drilling rig has been contracted to initiate the Brassey Cretaceous Cadomin gas development program following up the significant sweet gas discovery made by Duvernay in the second quarter of 2005. The company expects to have 20 Cadomin wells drilled and tested by mid 2006.

Alberta Deep Basin

Duvernay continued to grow the land base, production and facilities in the Alberta Deep Basin, the largest operating area for the company. The 100% owned and operated Duvernay Cecilia 15-4 plant has been expanded from a 25.0 mmcf/d capacity to 50.0 mmcf/d capacity. Tie-ins of wells already drilled and completed to the expanded plant will be completed throughout the balance of the year. A second expansion, from 50.0 to 100.0 mmcf/d is underway with a target start-up date of between March 15 and April 1, 2006. Significant new production start ups at Obed, Oldman and Sundance are also planned in November.

Duvernay has six operated drilling rigs, is participating in three outside operating drilling rigs, and has six operated service rigs currently active in the Deep Basin. The company has drilled 53 wells thus far in 2005 in the Deep Basin and expects a full year total of 71. Drilling and completion results in the third quarter were outstanding with high rate wells (initial deliverability greater than 4.0 mmcf/d) tested at Wroe, Sundance, Fir, Obed and Cecilia. These high rate wells are primarily the result of more advanced multiple frac completion technologies with subsequent co-mingled production. This technology will be increasingly applied to Duvernay's extensive drilling inventory of more than 400 development wells in the Alberta Deep Basin. The average production test gas rates for all the 2005 Duvernay Deep Basin wells are significantly higher than the 2004 Deep Basin wells.

The company has continued to expand its holdings in the Deep Basin, and now has an average 60% working interest in 257 sections, a 25% overall increase since this Spring.

Exploration Program

Duvernay continued with the expanding Exploration New Pool Wildcat program in third quarter, casing deep Devonian new pool exploration wells at Fir and Puskwa Alberta. Both wells will be production tested during the fourth quarter. An additional new pool wildcat is currently drilling at Puskwa and two wildcats are being drilled in the Marsh-Pedley area of Alberta. The 2005 Exploration program has already yielded significant discoveries at Brassey in NEBC as well as Pembina and Dawson in Alberta. In NEBC the company has cased one exploration new pool wildcat and plans several additional wildcats during the next six months. The company continues to pursue a critical sour license for the Edson 8-13 Devonian deepening.

Duvernay is planning to drill approximately 20 new pool wildcats in 2006 on prospects and plays already defined and controlled.

Management Discussion and Analysis

Certain information set forth in this management discussion and analysis contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Duvernay's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Duvernay's actual results, performance or achievement could differ materially from those expressed in or implied by these forward-looking statements, and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Duvernay will derive therefrom. Duvernay disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Funds from operations and operating netback are not recognized measures under GAAP. Management believes that in addition to net income, funds from operations and operating netback are useful supplemental measures as they demonstrate the Corporation's ability to generate the cash necessary to repay debt or fund future growth through capital investment. Investors are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with GAAP as an indication of Duvernay's performance. Duvernay's method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. For these purposes, Duvernay defines funds from operations as cash provided by operations before changes in non-cash operating working capital and defines operating netback as revenue less royalties and operating expenses.

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 equivalent (6:1). The term boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf: 1bbl of oil is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This management's discussion and analysis should be read in conjunction with Duvernay's unaudited financial statements for the period ended September 30, 2005 and comparative information included therein.

This management discussion and analysis is dated November 10, 2005.

Production

The Corporation achieved record production volumes and quarter over quarter production growth for the three months ended September 30, 2005 averaging 10,212 boe/d compared with 6,364 boe/d for the same period in 2004, an increase of 60%. When compared to the second quarter of 2005 production increased by 2%. September 2005 exit production of 13,200 boepd was 32% higher than the average for the second quarter of 2005. Production for the first nine months of 2005 averaged 9,414 boe/d including natural gas production of 44.4 mmcf/d and oil and liquids production of 2,017 bopd, an increase of 64 % from the 5,754 boe/d averaged in the first nine months of 2004. This growth in production is primarily the result of successful internally generated drilling projects. The Corporation did not participate in any significant property or corporate acquisitions during the quarter. Duvernay has constructed a new gas plant at Cecilia which started operation in April 2005 allowing Duvernay access to 25 mmcf/d of sales gas capacity. In the third quarter, new gas volumes were added in September with the startup of the Sunset-Groundbirch gas plant expansion (increasing sales gas from 2 mmcf/d to 10 mmcf/d). The delay in commissioning this facility expansion combined with weather related delays in pipelining reduced Duvernay's quarterly volume by approximately 1,000 boe/d. The following table summarizes production volumes by product:



Three Months Ended September 30
2005 2004 % Change
------------------------------------------------------------------------
Crude oil and liquids (bbls/d) 2,147 1,437 49%
Natural gas (mcf/d) 48,395 29,563 64%
Oil equivalent - boe's 939,547 585,482 60%
Oil equivalent -boe/d 10,212 6,364 60%
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Production increases occurred as a result of growth primarily from the Wild River, Fir-Bigstone and Wroe Creek areas of the Deep Basin where 17 new wells have been tied in during the third quarter. Duvernay's Deep Basin production for the quarter averaged 5,988 boe/d for an increase of 100% compared to the third quarter of 2004. In a like manner Groundbirch/Sunset Production improved to 2,997 boe/d for a production increase of 14% from the same quarter in 2004 as ten new wells were tied in during the quarter.

Revenue and Royalties

Revenue includes all petroleum and natural gas sales and income from third party natural gas processing, reduced for field transportation costs and the effects of commodity hedging. Revenue from petroleum and natural gas sales for the three months ended September 30, 2005 was $52.1 million, a 109% increase over revenue of $24.9 million for the same period in 2004. The revenue increase attributed to volume growth was $15.2 million in addition to a revenue increase of $12.0 million attributed to product price improvement during the quarter. Wellhead oil and liquids prices for the third quarter of 2005 averaged $59.85 per barrel (including realized hedging losses of $3.84 per barrel) compared with $47.95 per barrel for the same period in 2004 (including realized hedging losses of $4.61 per barrel). When comparing Duvernay's third quarter 2005 oil and liquids price to the third quarter of 2004, wellhead prices improved 25%. World oil price benchmarks improved by $19.42 U.S. in the third quarter of 2005 when compared to the same time period in 2004, or 44%.

Duvernay's oil and liquids price improvement was muted by three factors; a higher percentage of the liquids volumes were natural gas liquids, the Canadian dollar strengthened relative to the U.S. dollar by 9%, and the Corporation's oil hedges. Duvernay's realized corporate gas price for the third quarter of 2005 underperformed the AECO spot price ($8.84 versus $9.39). AECO natural gas prices increased by 5% in the third quarter of 2005 compared to the third quarter of 2004. Approximately 29 % of Duvernay's gas production is from British Columbia, where natural gas sold for an average of 26 cents per GJ below the comparable AECO price during the quarter. Duvernay continues to have 300 bopd of oil hedged at prices below the current market price until the end of 2005. During 2006, the Corporation has small volumes of oil contracted with purchased put options which serve to provide a price floor. Duvernay's realized natural gas price increased by 33% when comparing these quarters partially due to strengthening AECO index prices and partially due to Duvernay's gas hedges yielding lower netbacks than indices. Transportation costs for the third quarter of 2005 were 2% of gross revenue or $1.11/boe, compared to 2.6% of gross revenue or $1.27/boe in the second quarter of 2005.

For the nine months ended September 30, 2005, revenues increased to $128.5 million or a 95% increase from the comparable period in 2004. This increase is due to the combined effect of the 63% increase in production with a 20% improvement in wellhead product prices.



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Three Months Ended September 30
Duvernay Wellhead Prices 2005 2004 % Change
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Crude oil and liquids ($/bbl) $ 59.85 $ 47.95 25%
Natural gas ($/mcf) $ 8.84 $ 6.65 33%
Oil equivalent ($/boe) $ 54.47 $ 41.74 30%
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Three Months Ended September 30
Benchmark Oil & Gas Prices 2005 2004 % Change
------------------------------------------------------------------------
Oil
NYMEX U.S. $ 63.31 $ 43.89 44%
Edmonton Par Cdn. $ 77.75 $ 56.99 36%

Natural Gas
NYMEX Henry Hub U.S. $ 9.69 $ 5.58 74%
AECO $ 9.39 $ 6.22 51%
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Three Months Ended September 30
Currency - Exchange Rates 2005 2004 % Change
------------------------------------------------------------------------
Cdn/U.S.$ $ 0.8319 $ 0.7647 9%
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Revenue is analyzed as follows:

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Three Months Ended September 30
Revenue 2005 2004 % Change
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Oil and NGL's $ 11,821 $ 6,339 86%
Natural gas 39,361 18,100 117%
Processing and other income 869 448 94%
Gross revenue $ 52,051 $ 24,887 109%
Interest -- 15
Total revenue $ 52,051 $ 24,902 109%
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Duvernay's royalties are summarized as follows:

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Three Months Ended September 30
Royalties 2005 2004 % Change
------------------------------------------------------------------------
Oil and liquids $ 2,255 $ 1,358 66%
Natural gas 7,023 4,276 64%
ARTC (125) (125) -
Total royalties $ 9,153 $ 5,509 66%
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For the three months ended September 30, 2005, the average effective royalty rate was 17%, compared to 22% from the same period in 2004. The effects of royalty holidays on new deep gas wells in Alberta are being recognized in the quarter. In addition, Duvernay continued to benefit from the new royalty relief programs put into place by the Ministry of Energy and Mines for British Columbia in May 2003, allowing explorers to access reduced royalty rates for low-productivity natural gas wells, royalty credits for deep gas wells and royalty credits for wells drilled in the summer months. The Corporation estimates the total impact of the above mentioned incentive program's to be approximately $2.2 million in the third quarter of 2005. For the nine months ended September 30, 2005, the average effective royalty rate was 19% compared to 21% for the same period in 2004.

Operating Expenses

Operating expenses include all periodic lease and field level expenses and include no income recoveries for processing third party volumes. Operating expenses of $5.49/boe for the third quarter of 2005 compared to the third quarter of 2004 operating expenses of $4.85/boe increased slightly due to continued cost pressures on lease services being partly offset by a reduction in third party processing fees incurred. For the first nine months of 2005, unit lease operating costs were $5.53 per boe, essentially unchanged from the same period in 2004, when these costs averaged $5.25 per boe. New high pressure, high deliverability gas wells in the Wild Hay/Fir/Bigstone areas helped keep per unit operating costs down as did economies of scale related to growth in overall corporate gas production. Total operating expenses for the quarter were $5.2 million compared to $2.8 million in the third quarter of 2004. The Corporation's operating expenses include third party processing, gathering and compression fees of $937,000 or 18% of total operating costs for the third quarter of 2005. As the new 100% Duvernay gas plant has now become fully operational a large percentage of these fees will be eliminated having a beneficial impact on unit operating expenses through the balance of the year and into 2006.

General & Administrative Expenses

General and administrative expenses ("G&A") are summarized on the table below as follows:



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Three Months Ended September 30
2005 2004 % Change
------------------------------------------------------------------------
G&A expenses $2,634 $1,748 51%
Administrative and operating recovery (288) (167) 72%
Capital recovery (1,323) (503) 163%
Capitalized G&A (350) (377) 7%
Stock based compensation 853 287 197%
Total G&A $1,526 $ 988 54%
Oil equivalent ($/boe) $ 1.62 $ 1.69 (4%)
Oil equivalent cash costs ($/boe) $ 0.72 $ 1.20 (41%)
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G&A expenses for the three months ending September 30, 2005 increased to $1.5 million from $1.0 million for the same period in 2004. On a net basis, G&A for the third quarter of 2005 decreased to $1.62/boe from $1.69/boe in 2004 as stock based compensation, a non cash cost, more than tripled compared to the third quarter of 2004. When stock based compensation of $0.90/boe is removed, the Corporation's cash general and administrative costs improved to $0.72/boe from $1.20/boe for the same period in 2004 as fixed costs are spread over a larger production volume and a larger operated capital program has resulted in higher capital recoveries. The percentage of head office expenses capitalized as attributable to exploration activities was 35%, consistent with the third quarter of 2004.

For the first nine months ended September 30, 2005, G & A expenses increased to $4.6 million ($1.80/boe) from $2.9 million ($1.81/boe) for the same period in 2004. On a cash basis, G&A per unit of production improved to $0.86/boe in the first nine months of 2005 from $1.29/boe in the first nine months of 2004.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion expense ("DD&A") increased to $13.2 million during the third quarter of 2005 from $5.6 million during the same period in 2004. On a dollars per boe basis, DD&A increased to $14.00 from $9.58 in the third quarter of 2004. On a quarterly basis, the management updates reserve additions based on the latest available information. The percentage of the property, plant and equipment investment excluded from the Corporation's depletable base (8% in 2005; 12% in 2004) declined when comparing the third quarter of 2004 with 2005.

Income Taxes

The Corporation did not pay any cash taxes in the third quarter of 2005 other than Large Corporation Tax, a non-earnings based tax. Other than these taxes, the Corporation does not expect to pay any cash taxes in 2005 based on existing tax pools, planned capital expenditures and the most recent forecast of 2005 taxable income. Although current tax horizons depend on product prices, production levels, and the nature, magnitude and timing of capital spending, the Corporation currently believes that no cash income tax will be payable for two years. As a percentage of book pretax earnings, future income taxes for the third quarter of 2005 are 28.2% compared to 38.8% for the same period in 2004. This reduction is due to the overall reduction in the combined federal and provincial corporate tax rates, the recently introduced provincial rate reduction in British Columbia from 13.5 % to 12%, as well as the impact of earning more resource allowance than associated non deductible crown charges.

Funds From Operations and Earnings

Funds from operations increased to $35.8 million ($0.71 per diluted equity share) for the three months ending September 30, 2005, from $15.6 million ($0.35 per diluted equity share) for the comparable period in 2004. On a per share basis, funds from operations increased by 103% due to stronger operating results combined with increased commodity prices. For the nine months ending September 30, 2005, per share diluted funds from operations improved by 80% compared to the same period in 2004, while per share diluted earnings improved by 97%. The Corporation's full year 2005 forecast funds from operations has been revised up to $148 million or $2.98 on a per share basis. After tax earnings improved by 164% for the third quarter of 2005 when compared to the same period in 2004 to $15.5 million from $5.9 million. On a per share basis, diluted earnings increased to $0.31 from $0.13, a 139% improvement. The Corporation's full year earnings per share forecast is $1.21.



------------------------------------------------------------------------
Three Months Ended September 30
2005 2004 % Change
------------------------------------------------------------------------
Funds from operations per equity
share (1) $ 0.71 $ 0.35 103%
Earnings per equity share (1) $ 0.31 $ 0.13 139%
Operating netback per boe $39.24 $27.55 42%
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note:
(1) diluted


Liquidity and Capital Resources

The Corporation invested $117.9 million in the third quarter of 2005 compared to $38.3 million in the third quarter of 2004, as set out in the following table.



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Three Months Ended September 30
($ thousands) 2005 2004 % Change
------------------------------------------------------------------------
Land and seismic $5,077 $2,719 87%
Drilling and completions 91,166 31,204 192%
Facilities 23,275 4,629 403%
Property Dispositions (2,032) (596) (241%)
Other 420 380 11%
Total $117,906 $38,336 208%
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There were no equity financings completed during the third quarter of 2005. On October 18, 2005, the Corporation issued 800,000 flow through common shares as a private placement with an underwriting syndicate at $52.00 per share. Gross proceeds of $41.6 million were dedicated to the expansion of the Corporation's 2005 Capital budget by $80 million to $310 million. This transaction was completed by an underwriting syndicate on a bought deal basis at approximately a 26% premium to the prevailing market price on the Toronto Stock Exchange on September 28, 2005. On October 7, 2005 the Corporation issued from treasury 600,000 common shares to a private exploration and production company to purchase a property in West Central Alberta. At September 30, 2005, Duvernay's net debt is $169.8 million or .53x the prospective 12 month cash flow forecast. Proforma, the flow through share issue on October 18, net debt is $130.0 million or .41x the prospective 12 month cash flow forecast. Duvernay is currently renegotiating its credit facility with a Canadian chartered bank, with the intention of finalizing a larger bank credit line. The Corporation has also been actively marketing a small (500 boe/d) non core asset package, the proceeds from which will be used to reduce bank debt.

As at September 30, 2005, the Corporation had 47,892,458 shares outstanding and 3,998,634 stock options outstanding. As at November 10, 2005, the Corporation has 49,292,458 shares outstanding and 4,616,134 stock options outstanding. During the period from September 30, 2005 until November 10, 2005, 62,967 common shares were issued on the conversion of employee stock options and 767,500 stock options were issued.

During the first nine months of 2005, The Corporation drilled 75 gross wells (54 net) of which 67 are gas wells, 4 are oil wells, one is abandoned and three are being evaluated for an overall commercial success rate of 95%. Facility expenditures for the 100% owned Cecilia gas plant (initially commissioned April 2005), an 8 MMCFPD expansion of the Sunset 5-3 gas plant starting up in September, 2005, and the 70% owned Spirit River sour gas gathering system (commissioned in September 2005) are included in the third quarter. During the first nine months of 2005, approximately $26 million was invested at crown land sales in N.E-B.C. ($20.5 million) and the Alberta Deep Basin ($5.5 million). During the first nine months of 2005, Duvernay has leased 32,000 new undeveloped net acres averaging $818/acre.

Financial Instruments

The Corporation makes use of specific commodity hedging instruments that serve two primary business objectives. The first objective is to reduce the variability in cash flows from fluctuations in product prices to ensure a source of funding for the 2005 and 2006 capital program. The second objective is to fix the rate of return on capital invested in the gas prone resource projects. The Board of Directors has approved a policy permitting management to hedge up to a fixed percentage of budgeted corporate production.

Duvernay has entered into all hedging transactions with the same party that the commodity is physically sold to, avoiding the need to provide credit in the event that the hedges are at prices below prevailing prices. Note 6 in the Corporation's third quarter 2005 interim financial statements include details of all Financial Instruments as at September 30, 2005.

The Corporation has adopted Accounting Guideline 13 "Hedging Relationships" that deals with the identification, designation, documentation and measurement of effectiveness of hedging relationships for the purpose of applying hedge accounting. The Corporation records the realized portion of each hedge in Petroleum and Natural Gas Sales and the unrealized portion is disclosed in the Financial Statement notes.



DUVERNAY OIL CORPORATION
SELECTED FINANCIAL INFORMATION

2005
Q3 Q2 Q1
--------------------------------

PRODUCTION
Crude oil and liquids (bbls) 197,497 205,527 147,723
Gas (mcf) 4,452,299 4,218,977 3,443,570

Oil equivalent (boe) 939,547 908,690 721,651

Crude oil and liquids (bbls/d) 2,147 2,259 1,641
Gas (mcf/d) 48,395 46,362 38,262

Oil equivalent (boe/d) 10,212 9,986 8,018

FINANCIAL
($ thousands, except as noted)
Revenue, net of royalties and
transportation 42,898 33,217 26,906

Funds from operations 35,758 26,495 21,372
Per share basic 0.75 0.58 0.48

Net earnings 15,532 8,537 7,719
Per share basic 0.32 0.19 0.17
Per share diluted 0.31 0.18 0.16

Total Assets 672,868 548,268 474,245

Bank Debt 141,792 79,190 68,859

Cash and Working capital (deficiency) (28,005) (8,602) (52,366)

Basic Outstanding Shares 47,856 45,844 44,436

PER UNIT
Gas, net of transportation ($/mcf) 8.84 7.58 7.59

Crude oil and liquids, net of
transportation ($/bbl) 59.85 51.48 48.76

Revenue, net of transportation ($/boe) 54.47 47.16 46.22

Operating netback ($/boe) 39.24 31.19 31.02
------------------------------------------------------------------------
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2004 2003
Q4 Q3 Q2 Q1 Q4
-------------------------------------------------------
(restated)
PRODUCTION
Crude oil and
liquids (bbls) 120,282 132,187 129,507 122,884 143,005
Gas (mcf) 3,293,899 2,719,770 2,589,721 1,842,678 1,420,988

Oil equivalent
(boe) 669,265 585,482 561,127 429,997 379,836

Crude oil and
liquids (bbls/d) 1,307 1,437 1,423 1,350 1,554
Gas (mcf/d) 35,803 29,563 28,458 20,249 15,446

Oil equivalent
(boe/d) 7,275 6,364 6,166 4,725 4,129

FINANCIAL
($ thousands,
except as noted)
Revenue, net of
royalties and
transportation 24,904 19,393 18,895 13,774 11,612

Funds from
operations 19,064 15,570 14,951 10,091 7,443
Per share basic 0.44 0.37 0.37 0.26 0.27

Net earnings 6,213 5,881 4,962 3,198 1,727
Per share basic 0.14 0.14 0.12 0.08 0.05
Per share diluted 0.14 0.13 0.11 0.08 0.04

Total Assets 393,440 327,031 287,471 266,207 220,546

Bank Debt 40,724 27,597 23,678 17,728 32,666

Cash and Working
capital
(deficiency) (13,439) (18,184) 443 (15,678) (15,942)

Basic Outstanding
Shares 42,857 41,671 39,992 38,096 34,895

PER UNIT
Gas, net of
transportation
($/mcf) 7.12 6.65 7.11 6.32 6.20

Crude oil and
liquids, net of
transportation
($/bbl) 42.81 47.95 43.71 39.55 35.80

Revenue, net of
transportation
($/boe) 42.74 41.74 42.92 38.38 37.47

Operating netback
($/boe) 30.89 27.55 28.62 24.86 22.64
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DUVERNAY OIL CORP.
Balance Sheets

(Thousands of Dollars)
------------------------------------------------------------------------
September 30 December 31
2005 2004
(Unaudited) (Audited)
------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ - $ 143
Accounts receivable 50,942 30,920
Prepaid expenses and deposits 940 962
------------------------------------------------------------------------
51,882 32,025

Capital assets (note 3) 620,986 361,415

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$ 672,868 $ 393,440
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 79,887 $ 45,464

Long term debt (note 4) 141,792 40,724

Asset retirement obligations (note 2) 9,514 5,849

Future income tax 42,747 20,553

Shareholders' equity:
Share capital (note 5) 332,778 248,651
Contributed surplus (note 5) 3,490 1,327
Retained earnings 62,660 30,872
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Subsequent event (note 7) 398,928 280,850

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$ 672,868 $ 393,440
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See accompanying notes to financial statements


DUVERNAY OIL CORP.
Statements of Earnings and Retained Earnings

(Unaudited)
(thousands of dollars, except per share data)
------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------------------------------------

Revenue:
Petroleum and natural
gas sales $ 53,095 $ 25,243 $131,533 $ 66,934

Royalties (9,153) (5,509) (25,485) (13,876)

Transportation (1,044) (356) (3,027) (1,052)
Interest income - 15 - 56
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42,898 19,393 103,021 52,062

Expenses:
Operating 5,160 2,800 14,208 8,271
General and administration 672 701 2,222 2,115
Stock based compensation 853 287 2,404 752
Interest 987 204 2,241 661
Depletion, depreciation
and accretion 13,158 5,606 35,289 16,886
------------------------------------------------------------------------
20,830 9,598 56,364 28,685

------------------------------------------------------------------------
Earnings before taxes 22,068 9,795 46,657 23,377

Taxes:
Capital 321 118 724 403
Future 6,215 3,796 14,145 8,933
------------------------------------------------------------------------
6,536 3,914 14,869 9,336

------------------------------------------------------------------------
Net earnings 15,532 5,881 31,788 14,041

Retained earnings,
beginning of period 47,128 18,777 30,872 10,617

------------------------------------------------------------------------
Retained earnings,
end of period $ 62,660 $ 24,658 $ 62,660 $ 24,658
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per share:
Basic $ 0.32 $ 0.14 $ 0.69 $ 0.35
Diluted $ 0.31 $ 0.13 $ 0.66 $ 0.33

See accompanying notes to financial statements


DUVERNAY OIL CORP.
Statements of Cash Flows

(Unaudited)
(Thousands of Dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------------------------------------

Cash provided by (used in):

Operations:
Net earnings $15,532 $ 5,881 $31,788 $14,041
Items not involving cash:
Depletion, depreciation
and accretion 13,158 5,606 35,289 16,886
Stock-based compensation 853 287 2,404 752
Future income taxes 6,215 3,796 14,145 8,933
------------------------------------------------------------------------
35,758 15,570 83,626 40,612
Change in non-cash
working capital (11,652) 14,272 (12,134) 985
------------------------------------------------------------------------
24,106 29,842 71,492 41,597

Financing:
Issue of common shares,
net of share issue costs 143 219 87,801 73,442
Increase (decrease)
in long-term debt 62,602 3,919 101,068 (5,069)
----------------------------------------------
62,745 4,138 188,869 68,373

Investments:
Additions to property,
plant and equipment (119,938) (38,933) (288,129) (111,883)
Property acquisitions
and dispositions 2,032 596 1,068 656
Change in non-cash
working capital 30,910 2,247 26,557 2,247
----------------------------------------------
(86,996) (36,090) (260,504) (108,980)

------------------------------------------------------------------------
Increase (decrease)
in cash (145) (2,110) (143) 990

Cash (bank indebtedness),
beginning of period 145 2,481 143 (619)

------------------------------------------------------------------------
Cash, end of period $ - $ 371 $ - $ 371
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash is defined as cash and cash equivalents

See accompanying notes to financial statements



DUVERNAY OIL CORP.
Notes to Financial Statements

Period ended September 30, 2005
(Unaudited)


1. Significant accounting policies:

The financial statements of the Corporation have been prepared by management in accordance with Canadian generally accepted accounting principles. These interim financial statements follow the same accounting policies and methods as the financial statements for the year ended December 31, 2004 and include all adjustments necessary to present fairly the results for the interim period. Certain information and footnote disclosure normally included in the annual financial statements has been omitted. These interim financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 2004.

2. Asset retirement obligations:

The Corporation's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Corporation estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations to be approximately $17.6 million (December 31, 2004 - $10.6 million) which will be incurred between 2010 and 2017. 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:

------------------------------------------------------------------------
------------------------------------------------------------------------
September 30, 2005 December 31, 2004
------------------------------------------------------------------------

Balance, beginning of period $ 5,848,599 $ 3,916,015
Accretion expense 445,232 382,619
Liabilities incurred 3,220,052 1,549,965

------------------------------------------------------------------------
Balance, end of period $ 9,513,883 $ 5,848,599
------------------------------------------------------------------------
------------------------------------------------------------------------


3. Capital assets:

The cost of unproven lands and seismic costs at September 30, 2005 of $57,850,000 (December 31, 2004 - $51,005,000) has been excluded from the depletion calculation.

General and administrative expenditures of $1,107,000 for nine months (2004 - $1,140,050) have been capitalized and included as costs of petroleum and natural gas properties. For the third quarter of 2005 $350,000 was capitalized (2004 - $377,000).

4. Long-term debt:

The Corporation has a financing arrangement with a Canadian chartered bank for an extendible revolving term loan in the amount of $160 million. As at September 30, 2005, $141,792,382 of this term loan was drawn. Cash interest paid during the nine months was $2,292,005 (2004 - $647,974).

5. Share capital:

(a) Authorized:

Unlimited number of common shares and Class A common shares

Unlimited number of first preferred shares and second preferred shares, each issuable in series

(b) Common shares issued:



------------------------------------------------------------------------
------------------------------------------------------------------------
Number of Shares Amount
------------------------------------------------------------------------
Balance, December 31, 2004 44,286,924 $ 248,650,892

For cash on exercise of stock options 545,534 2,127,948
For cash on private placement
of flow through shares 1,150,000 40,825,000
For cash on public share issue 1,800,000 49,950,000
For acquisition of property 110,000 2,915,000
Contributed surplus on exercise
of stock options - 241,355
Share issue costs - (5,101,817)
Tax effect on share issue costs - 1,751,000
Tax effect on flow through renunciation - (8,581,000)

------------------------------------------------------------------------
Balance, September 30, 2005 47,892,458 $ 332,778,378
------------------------------------------------------------------------
------------------------------------------------------------------------


During the second quarter the Corporation issued 110,000 common shares to a company controlled by a director of Duvernay to purchase a producing property from that company. The asset has been recorded at the fair value of $4.1 million including $1.2 million of future income tax liability.

The Corporation estimates that as at September 30, 2005 $19,000,000 of the $40,825,000 in flow through proceeds remains to be spent on exploration before December 31, 2006.



(c) Contributed surplus:

------------------------------------------------------------------------
September 30, 2005
------------------------------------------------------------------------

Contributed surplus, December 31, 2004 $ 1,327,450
Stock-based compensation 2,403,541
Exercise of stock options (241,355)

------------------------------------------------------------------------
Contributed surplus, September 30, 2005 $ 3,489,636
------------------------------------------------------------------------
------------------------------------------------------------------------


(d) Stock options:

The Corporation has a fixed stock option plan. Under the employee stock option plan, the Corporation may grant options to its employees for up to 4,789,246 shares of common stock. The exercise price of each option equals the market price of the Corporation's stock on the date of grant and an option's maximum term is five years. Options are granted throughout the year and vest 1/3 on each of the first, second and third anniversaries from the date of grant.



Changes in the number of options, with their weighted average exercise
price, are summarized below:

------------------------------------------------------------------------
September 30, 2005
------------------------------------------------------------------------

Weighted
average
exercise Number of
price options
------------------------------------------------------------------------

Stock options outstanding, beginning of period $ 6.55 3,924,168
Granted 27.01 620,000
Exercised 3.90 (545,534)
Cancelled - -

------------------------------------------------------------------------
Stock options outstanding, end of period $10.08 3,998,634
------------------------------------------------------------------------
------------------------------------------------------------------------


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

Assumptions
Risk free rate 4.5%
Expected life (years) 3.5
Expected volatility 40%
Expected dividend $ -
Average fair value of options granted $8.48


(e) Per share amounts:

Per share amounts have been calculated on the weighted average number of shares outstanding. The weighted average shares outstanding for the quarter ended September 30, 2005 was 47,856,094 (46,065,188 nine months).

In computing diluted earnings per share for the quarter ended September 30, 2005, 2,600,241 (2,255,161 nine months) shares were added to the weighted average number of common shares outstanding for the dilution from the stock options.



6. Financial instruments:

Commodity price risk management:

As at September 30, 2005, the Corporation had fixed the price
applicable to future production as follows:

------------------------------------------------------------------------
Type of
Year Time Period Contract Quantity Contract Price
------------------------------------------------------------------------

2005 October Collar 200 bbls/day $31.00 U.S. W.T.I. Floor
-December $37.43 U.S. W.T.I. Ceiling

2005 October Physical 100 bbls/day $46.60 U.S. W.T.I.
-December (swap)
2005 October Put 100 bbls/day $50.00 U.S. W.T.I.
-December (floor)
2006 January Put 100 bbls/day $50.00 U.S. W.T.I.
-June (floor)
2006 January Put 100 bbls/day $50.00 U.S. W.T.I.
-March (floor)
2006 April Put 100 bbls/day $50.00 U.S. W.T.I.
-June (floor)
2006 July Put 100 bbls/day $50.00 U.S. W.T.I.
- September (floor)
2005 October Collar 2,000 gj's/day $5.87 Cdn/gj Floor
$7.92 Cdn/gj Ceiling
2005 October Physical 14,000 gj's/day $6.80 Cdn/gj average
(Swap)
2005 October Physical 6,000 gj's/day $7.73 Cdn/gj average
-December (swap)
2005 November Physical 15,000 gj's/day $9.05 Cdn/gj average
- 2006 March (Swap)
2005 November Put 5,000 gj's/day $9.00 Cdn/gj
- 2006 March (floor)
2006 April Collar 2,000 gj's/day $6.86 Cdn/gj Floor
-October $9.66 Cdn/gj Ceiling
2006 April Physical 2,000 gj's/day $8.14 Cdn/gj
-October (Swap)
2006 April Call 5,000 gj's/day $9.65 Cdn/gj
-October (Ceiling)
------------------------------------------------------------------------
------------------------------------------------------------------------


The estimated fair value of the fixed price contracts based on the amounts the Corporation would pay if the contracts were terminated as at September 30, 2005 is approximately $15,100,000.

7. Subsequent Events:

On October 18, 2005, the Corporation closed a flow through share financing with a syndicate of Canadian Investment Dealers on a private placement basis. Eight hundred thousand flow through common shares were issued at $52.00 per share for gross proceeds of $41,600,000.

On October 7, 2005 the Corporation closed a producing property acquisition by issuing 600,000 common shares to a private exploration and production company.

Forward Looking Statements

This press release contains certain forward-looking statements, including expectations of future production, operating and financial results. These statements are based on Duvernay's current expectations and assumptions that could prove to be incorrect. The forward-looking statements are not guarantees of future performance and undue reliance should not be placed on them. Actual results may differ materially as a result of risks, uncertainties and other factors, such as: changes in the general economic, market, regulatory, industry and business conditions; fluctuations in commodity prices and currency exchange rates; the successful and timely implementation of growth projects; imprecision of reserve estimates; environmental risks; competition from other industry participants; availability of capital; and uncertainties resulting from potential delays or changes in plans, among others. See Duvernay's recent prospectus and other documents Duvernay files with Canadian securities regulatory authorities for further details, copies of which are available from Duvernay directly or on its website; www.duvernayoil.com or on the SEDAR website www.sedar.com.

BOE Conversions

Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and is based on an energy equivalent conversion method application at the burner tip and does not necessarily represent an economic value equivalency at the well head.

Contact Information

  • Duvernay Oil Corp.
    Michael Rose
    President and C.E.O.
    (403) 571-3600
    or
    Duvernay Oil Corp.
    Brian Robinson
    Vice-President, Finance and C.F.O.
    (403) 571-3609
    or
    Duvernay Oil Corp.
    Scott Kirker
    Manager, Corporate Affairs
    (403) 571-3683