E4 Energy Inc.
TSX VENTURE : EFE

E4 Energy Inc.

August 23, 2007 07:00 ET

E4 Energy Announces Second Quarter 2007 Results and Operational Update

CALGARY, ALBERTA--(Marketwire - Aug. 23, 2007) - E4 Energy Inc. ("E4" or the "Company") (TSX VENTURE:EFE) is pleased to report today its financial and operating results for the second quarter of 2007.

President's Letter to Shareholders

Corporate Highlights for Q2 and Q3 to Date

- Production in the second quarter of 2007 averaged 1,029 boe/d, relatively flat from the first quarter of 2007 production of 1,055 boe/d and an increase of 52% from 675 boe/d for the same period of 2006.

- Funds generated from operations for the second quarter of 2007 were $2.3 million an increase of 83 percent over 2006 second quarter funds generated from operations of $1.3 million.

- Field netbacks for the second quarter of 2007 were $32.07 per boe, an increase of 16 percent over the second quarter of 2006 field netbacks of $27.68 per boe.

- Net debt including working capital deficit at the end of the second quarter was approximately $13 million which is 1.2 times annualized second quarter 2007 funds generated from operations and below the $18 million demand revolving operating credit facility available.

- Drilled two (2.0 net) wells in Northeast British Columbia during the quarter resulting in one D&A and one well presently testing.

- Strong Q3 drilling results position the Company with a significant number of new, development follow up drilling locations in these areas.

- The Company's undeveloped land base continues to grow with over 81,000 net acres.

Second Quarter Operating Review and Third Quarter Update

During the second quarter of 2007, E4 drilled two (2.0 net) exploration wells resulting in one D&A and the second well currently being tested. The Company was originally scheduled to drill three (3.0 net) additional higher risk/higher reward wells in the second quarter but due to weather constraints these wells were rescheduled and drilled in the third quarter.

In the greater Fort St. John area of Northeast British Columbia, E4 recently drilled two (2.0 net) higher risk, exploration wells in the third quarter. Both wells have now been cased and are presently being tested. With favourable test results, production adds would be expected to be on by the fourth quarter and have additional follow up drilling locations. An additional well in the area that had been re-entered in the first quarter of 2007 and resulted in a new pool discovery was scheduled to be tied-in during the second quarter. Due to weather and approval delays the well is now expected to be on production by the end of the third quarter adding more than 100 boe/d.

In the Richdale area of Alberta, E4 recently drilled and cased one (1.0 net) exploration well in the third quarter. The well resulted in a new pool discovery and is expected to be tied-in at rates exceeding 150 boe/d during the fourth quarter. The Company has already identified additional drilling locations based upon this new discovery.

In the Chain/Mikwan area of Alberta, E4 has drilled 3 (1.6 net) successful wells during the third quarter for Horseshoe Canyon CBM gas potential. These wells will be tied-in and on stream by the fourth quarter adding approximately 50 boe/d net to E4.

In the Provost East area of Alberta, E4 is presently at the initial stages of constructing a new water handling facility for the Company's recent oil discovery. This facility is expected to be in place and operating by the fourth quarter of 2007 at which time E4 can progress to further develop the two oil pools with additional horizontal drilling.

Business Outlook

Presently the oil and gas industry and the overall equity markets are experiencing a significant investor downturn phase. During this time, it is essential that corporations maintain and execute a focused and strategic business plan. Although E4 has encountered delays in being able to tie-in successful exploration wells and build facilities, the Company has continued to hold the course as to its overall business plan. As a direct result, corporate cash flow and production adds have been delayed approximately one financial quarter. Based on rescheduled timing of drilling, well tie-ins and facility construction, E4 anticipates fourth quarter production to average 1,250 boe/d with an exit rate of approximately 1,350 boe/d.

Through the second quarter and into the third quarter, E4 has been able to execute on its exploration drilling program and presently has developed several new follow up locations in these areas. Hence, the Company now has a development risked drilling inventory of more than 50 locations. In addition, E4 continues to add to its undeveloped land base thereby, continuing to build on future exploration and development growth opportunities.



On behalf of the Board of Directors,

Paul Starnino
President and Chief Executive Officer
August 23, 2007


FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements concerning the Company's expectations of future production, cash flow, earnings and expansion of its oil and gas property interests and concerning the Company's exploration and development drilling, seismic operations, regulatory applications, payout estimates, capital expenditures, number and drilling locations, seismic acquisitions and facility upgrades. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), acquisitions, commodity price, price and exchange rate fluctuation and uncertainties resulting from competition from other producers and ability to access sufficient capital from internal and external sources. Additional information on these and other risk factors that could affect the Company's operations and/or financial results are included in the Company's reports on file with Canadian securities regulatory authorities.

The forward-looking statements or information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Oil and Gas Advisory

This press release contains disclosure expressed as "Boe/d". Boe means barrel of oil equivalent and Boe/d means Boe per day. All oil and natural gas equivalency volumes have been derived using the ratio of 6,000 cubic feet of natural gas to 1 barrel of oil. Boe equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of 6,000 cubic feet of natural gas to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

In this press release: (i) mmboe means million boe; (ii) boe/d means boe per day; (iii) bbls/d means barrels per day; (iv) mcf means thousand cubic feet; (v) mmcf means million cubic feet; (vi) mcf/d means thousand cubic feet per day; and (vii) mmcf/d means million cubic feet per day.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.



Some of E4's achievements for the second quarter of 2007 include:

Three Months Six Months
Financial Highlights Ended June 30, Ended June 30,
------------------------- --------------------------
(all amounts in Cdn $
except common share
data) 2007 2006 2007 2006
----------- ------------ ------------ ------------
Petroleum and natural
gas revenue 4,966,786 2,891,654 9,664,073 6,703,464
Per share - basic 0.116 0.075 0.227 0.173
- diluted 0.116 0.075 0.226 0.173
Funds generated from
operations 1,886,166 1,251,754 4,814,218 3,089,881
Per share - basic 0.054 0.032 0.113 0.080
- diluted 0.054 0.032 0.113 0.080
Net earnings (loss) -231,471 826,320 -657,329 54,549
Per share - basic (0.005) 0.021 (0.015) 0.001
- diluted (0.005) 0.021 (0.015) 0.001
Capital expenditures 3,325,362 7,848,180 8,566,732 15,444,562
Net debt 12,967,183 12,693,344 12,967,183 12,693,344
Shareholders' equity 44,707,620 40,006,571 44,707,620 40,006,571
Total assets 69,445,621 64,048,624 69,445,621 64,048,624
Common share data:
Weighted average
basic 42,643,672 38,754,672 42,643,672 38,753,567
Weighted average
diluted 42,714,336 38,779,801 42,719,252 38,845,822
Issued and
outstanding 42,643,672 38,754,672 42,643,672 38,754,672

Three Months Six Months
Operating Highlights Ended June 30, Ended June 30,
------------------------- --------------------------
(6:1 boe conversion) 2007 2006 2007 2006
----------- ------------ ------------ ------------
Average daily production
Natural gas (mcf/d) 3,562 2,766 3,775 2,968
Liquids (Oil & NGLs)
(bbls/d) 435 214 413 245
Oil equivalent (boe/d) 1,029 675 1,042 739
Average sales price
(after hedging):
Natural gas ($/mcf) 7.80 6.15 7.61 6.99
Liquids (Oil & NGLs)
($/bbl) 61.56 68.94 59.73 66.52
Oil equivalent ($/boe) 53.04 47.08 51.25 50.07
Wells drilled - gross
(net):
Gas 2 (2.00) 4 (3.52) 10 (9.00) 6 (5.02)
Oil 0 (0.00) 6 (3.06) 1 (0.92) 7 (3.66)
Suspended 0 (0.00) 4 (3.55) 1 (1.00) 4 (3.55)
D & A 0 (0.00) 1 (1.00) 0 (0.00) 1 (1.00)
Total 2 (2.00) 15 (11.13) 12 (10.92) 18 (13.23)
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MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

The following discussion is intended to assist the reader in understanding E4's business and the results of operation and financial condition. The Company's interim MD&A should be read in conjunction with E4's audited consolidated financial statements for the year ended December 31, 2006 and E4's financial statements for the interim period ended June 30, 2007.

Description of Company - E4 Energy Inc. is an independent, emerging crude oil and natural gas company actively engaged in the exploration for, development and production of natural gas and crude oil reserves in Alberta and British Columbia, Canada. The Company is subject to the provisions of the Alberta Business Corporations Act and its common shares are publicly listed and traded on the TSX Venture Exchange under the symbol EFE.

Non-GAAP Measures- The MD&A contains the term "funds generated from operations", "funds generated from operations per share" and "netbacks", all of which are non-GAAP terms. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds generated from operations to analyze operating performance and leverage and considers funds generated from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds generated from operations should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Therefore references to funds generated from operations or funds generated from operations per share (basic and diluted) may not be comparable with the calculation of similar measures by other entities. All references to funds generated from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital. Funds generated from operations per share are calculated using the basic and diluted weighted average number of shares for the period.

Boe Presentation - Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) to one barrel (bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this report are derived by converting natural gas to oil in the ratio of 6 mcf of natural gas to 1 bbl of oil.

Forward-Looking Information - Statements throughout this MD&A that are not historical facts may be considered "forward-looking statements". These forward-looking statements sometimes include words to the effect that management believes or expects a stated condition or result. Forward-looking statements included in the MD&A concern anticipated production and capital expenditures.

Forward-looking statements and information are based on the Company's current beliefs as well as assumptions made by and information currently available to the Company concerning anticipated financial performance, business prospects, strategies and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their very nature forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: the volatility of oil and gas prices; production and development costs and capital expenditures; the imprecision of reserve estimates and estimates of recoverable quantities of oil and gas reserves; environmental claims and liabilities; incorrect assessments of value when making acquisitions; increases in debt service charges; the loss of key personnel; the marketability of production; defaults by third-party operators; fluctuations in foreign currency and exchange rates; inadequate insurance coverage; compliance with environmental laws and regulations; changes in tax laws; and the Company's ability to access external sources of debt and equity capital.

The Company cautions that the foregoing list of factors that may affect future results is not exhaustive. When relying on the Company's forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The forward-looking statements and information contained in this MD&A are as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

SELECTED QUARTERLY INFORMATION

The financial data presented below has been presented in accordance with GAAP, with the exception of funds generated from operations. The reporting and the measurement currency is the Canadian dollar.



------------------------------------------------------------
2007 2006 2005
------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Operational
Results
Production
- Natural gas
(mcf/d) 3,562 3,990 4,086 3,352 2,766 3,171 2,848 2,248
- Crude oil and
NGLs (bbls/d) 435 390 371 346 214 275 248 249
- Total
production
(boe/d) 1,029 1,055 1,052 905 675 804 723 624
Average
realized
pricing
- Natural gas
($/mcf) 7.80 7.44 7.38 6.10 6.15 7.74 12.28 9.79
- Crude oil
($/bbl) 61.56 57.67 55.36 70.30 68.94 64.74 67.63 71.78
- Combined
average
($/boe) 53.04 49.47 48.20 49.45 47.08 52.68 71.61 63.95
Selected
Financial
Results
($ thousands)
Petroleum and
natural gas
revenue 4,967 4,697 4,665 4,117 2,892 3,812 4,768 3,670
Royalties 851 793 852 656 521 840 880 592
Operating
expenses and
transportation 1,110 1,003 1,088 858 667 766 774 676
General and
administrative
expenses 549 271 505 462 714 752 775 968
Funds generated
from operations 2,296 2,518 2,191 2,221 1,252 1,838 2,752 1,500
Cash flow from
operating
activities 1,886 2,998 2,862 479 834 2,672 2,161 2,598
Depletion,
depreciation
and accretion
expense 3,053 2,897 2,838 2,433 1,875 2,287 2,254 1,563
Net earnings
(loss) (232) (426) (347) 173 826 (771) 409 (310)
- Basic per
share (0.01) (0.01) (0.01) 0.00 0.02 (0.02) 0.01 (0.01)
- Diluted per
share (0.01) (0.01) (0.01) 0.00 0.02 (0.02) 0.01 (0.01)
Capital
spending 3,325 5,241 4,482 3,617 7,848 7,596 4,458 2,310
Total debt and
working capital
deficiency
(surplus) 12,968 12,404 9,649 13,952 12,694 6,337 796 9,289
Shareholders'
Equity 44,707 44,751 47,103 40,543 40,006 38,557 40,446 29,067
Common shares
outstanding
(000's) 42,644 42,644 42,644 38,755 38,755 38,755 38,671 33,624
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Petroleum and Natural Gas Production

The following table highlights E4's production profile:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Natural Gas (mcf/d) 3,562 2,766 29 3,775 2,968 27
Crude oil and NGLs (bbls/d) 435 214 103 413 245 69
Total production (boe/d) 1,029 675 52 1,042 739 41
---------------------- ----------------------
---------------------- ----------------------


During the second quarter of 2007 ("Q2 2007"), E4's total daily production increased from the comparable quarterly period in 2006 ("Q2 2006") by 52 percent. On a year to date basis, the first six months of 2007 ("H1 2007") saw total production increase by 41 percent from the first six months of 2006 ("H1 2006"). The increases in both Q2 2007 and H1 2007 compared to the same periods of 2006 is mostly attributable to a successful drilling program throughout 2006 that brought new natural gas production in the Airport area and new crude oil and natural gas liquids ("NGLs") production in the Provost area.

Revenue and Commodity Pricing



The following table highlights the composition of E4's revenue stream:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Natural Gas 2,528 1,549 63 5,202 3,759 38
Crude oil and NGLs 2,439 1,343 82 4,462 2,944 52
Total 4,967 2,892 72 9,664 6,703 44
---------------------- ----------------------
---------------------- ----------------------


The following table highlights E4's corporate realized wellhead prices and
select industry benchmark prices:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
E4 prices:
Natural gas ($/mcf) 7.80 6.15 27 7.61 6.99 9
Crude oil and NGLs ($/bbl) 61.56 68.94 (11) 59.73 66.39 (10)
Oil equivalent ($/boe) 53.04 47.08 13 51.25 50.11 2

WTI Cushing oil (US$/bbl) 65.00 70.70 (8) 61.56 67.09 (8)
Edmonton Par light oil ($/bbl) 71.92 78.60 (8) 69.48 73.80 (6)
Bow River medium oil ($/bbl) 50.87 62.16 (18) 50.46 51.69 (2)
WTI - Lloyd. differential
(US$/bbl) 20.02 17.16 17 18.41 21.47 (14)

Nymex Henry Hub (US$/mmbtu) 7.56 6.83 11 7.26 7.95 (9)
AECO gas - monthly index ($/mcf) 7.31 6.22 18 7.03 7.73 (9)
Currency Exchange rate (US$:C$) .9106 .8909 2 .8811 .8783 -
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E4's petroleum and natural gas ("PNG") revenues for Q2 2007 and H1 2007 were 72 percent and 44 percent higher from the respective periods in 2006. This was due to slightly higher per boe average prices but higher production volumes played a much larger role in the revenue increases in both Q2 2007 and H1 2007.

Unrealized Gain on Commodity Contract

In January 2007, E4 entered into a fixed natural gas commodity contract as follows:



----------------------------------------------------------------------------
Daily Mark to
Fixed Forward Price Notional Market
Term Index Price at June 30, 2007 Volume ($000s)
----------------------------------------------------------------------------
April 1, 2007 to
October 31, 2007 AECO-C $7.40/GJ $5.87/GJ 1,500 $282
----------------------------------------------------------------------------

An unrealized gain of $0.3 million (nil - June 30, 2006) on the commodity
contract represents the fair value of the contract at June 30, 2007, as the
forward price is less then the contracted price.

Royalties

The following table highlights the composition of E4's royalty type:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Crown, net ARTC 762 444 72 1,450 1,114 30
Freehold and overrides 89 77 16 194 247 (21)
Total 851 521 63 1,644 1,361 21
---------------------- ----------------------
---------------------- ----------------------

Per unit ($/boe) 9.09 8.48 7 8.72 10.17 (14)
Effective royalty rate (%) 17.1 18.0 (5) 17.0 20.0 (15)
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E4's petroleum and natural gas royalty rates for Q2 2007 were 5 percent lower than Q2 2006. Although the Q2 2007 figure does not include any Alberta Royalty Tax Credits, it does include credits relating to Gas Cost Allowance that brought the royalty rates for Q2 2007 very close to what was experienced in Q2 2006.

On a year to date basis, E4's petroleum and natural gas royalties were 15 percent lower in H1 2007 compared to H1 2006. The H1 2006 figure, however, was skewed due to royalty adjustments booked early on that year. On a go forward basis, E4 still expects an average royalty rate of 18 to 19 percent.



Operating Expenses

The following table highlights E4's operating expenses:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Total ($000s) 915 563 63 1,798 1,196 50

Per unit ($/boe) 9.78 9.16 7 9.53 8.94 7
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E4 had per unit of production field operating costs that were 7 percent
higher in both Q2 2007 and H1 2007 compared to the same periods of 2006.
This was due to the continued escalation of oil and gas service industry
costs.

Transportation Expenses

The following table highlights E4's transportation expenses by reporting
period:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Total ($000s) 195 104 88 315 237 33

Per unit ($/boe) 2.08 1.69 23 1.67 1.77 (6)
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E4 reported transportation costs that were 23 percent higher in Q2 2007 compared to Q2 2006. This was due to the higher costs associated with trucking oil out of the Boundary area during spring break up in Q2 2007. On a year to date basis, H1 2007 transportation costs were marginally lower than H1 2006 as the new oil production from the Provost area does not require to be trucked, thus lowering the average corporate per unit transportation costs.



General & Administrative Expenses ("G&A")

The following table highlights E4's G&A expenses:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
($000s) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Cash costs 758 605 25 1,218 1,131 8
Capitalized cash costs (303) (274) 11 (560) (467) 20
Stock based compensation
(net of capitalization) 94 383 (75) 162 802 (80)
--------------- ---------------
Total 549 714 (23) 820 1,466 (44)

Per unit G&A ($/boe)
Cash costs 8.08 9.84 (18) 6.46 8.45 (24)
Capitalized cash costs (3.23) (4.46) (28) (2.97) (3.49) (15)
Stock based compensation
(net of capitalization) 1.00 6.24 (84) 0.86 6.00 (86)
--------------- ---------------
Total 5.85 11.62 (50) 4.35 10.96 (60)
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E4's cash G&A expenses for Q2 2007 were 36 percent higher in Q2 2007 compared to Q2 2006. This was due in large part to bonuses that were paid out to all E4 employees in Q2 2007. On a year to date basis, the cash component of G&A costs were virtually unchanged from H1 2007 to H1 2006. On a per-unit of production basis, however, E4's G&A expenses were slightly lower in both Q2 2007 and H1 2007 compared to Q2 2006 and H1 2006 due to the higher production volumes discussed earlier.

The non-cash stock based compensation was also lower in both Q2 2007 and H1 2007 compared to Q2 2006 and H1 2006 as E4 amortizes more of its stock based compensation earlier in the expected life of the stock option. As most of the total stock options outstanding were issued some time ago, E4 expects its total stock based compensation to be lower than in the past, until a large number of new stock options are granted.

E4 uses the full cost method of accounting for its oil and gas operations. Accordingly, the Company capitalized employee and associated direct overhead costs of its technical personnel in the amount of $0.4 million during Q2 2007 and $0.3 million for Q2 2006. E4 currently employs 11 office personnel, including six technical staff and engages the services of two consultants on a part-time basis.



Financing Charges

The following table highlights E4's financing charges by reporting period:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
($000s) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Interest expense,
incl. Part XII.6 tax 255 88 190 435 123 254

Per unit ($/boe) 2.72 1.43 90 2.31 0.92 151
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E4 incurred interest expenses that were higher in both Q2 2007 and H1 2007 compared to the same periods of 2006. This was due to a higher bank loan outstanding at June 30, 2007 and interest associated with the federal government's interest charges associated with E4's 2006 flow-through share financing of November 30, 2006.



Depletion, Depreciation and Accretion on Asset Retirement Obligation

The following table highlights E4's depletion, depreciation and accretion on
asset retirement obligation by reporting period:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
($000s) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Depletion & depreciation 3,019 1,844 64 5,886 $4,107 43
Accretion on ARO 34 31 10 64 54 19
Total 3,053 1,875 63 5,950 4,161 43
---------------------- ----------------------
---------------------- ----------------------

Per unit ($/boe) $32.60 $30.50 7 $31.54 $31.10 1
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E4's depletion, depreciation and accretion expense was higher in both Q2 2007 and H1 2007 compared to Q2 2006 and H1 2006. This was due to decelerating E4's 2007 capital program until Q3 and Q4. The reserves added from this program should modestly lower the depletion, depreciation and accretion rates in the next few quarters.

Income and Capital Taxes

E4 is presently not subject to any current income tax exposures. The Company currently has approximately $35.7 million in tax pools available for deduction against future taxable income (net of any projected pool usage necessary to offset taxable income for the six months ended June 30, 2007).

In February 2007, E4 renounced $7.0 million of qualifying expenditures in relation to its November 30, 2006 flow-through common share financing. This caused the future income tax liability to increase by $2.1 million over the balance at December 31, 2006. In addition, for the six months ended June 30, 2007, E4 recorded a future income tax benefit of $0.4 million to reflect the temporary differences between the net book value of the assets and the related tax pools.



Cash Flow from Operating Activities, Funds Generated from Operations and Net
Earnings

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
(Except per share data) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Cash flow from operating
activities 1,886 834 126 4,885 3,506 39
Change in non-cash working
capital 410 418 (2) (71) (416) (83)
Funds generated from operations 2,296 1,252 83 4,814 3,090 56

Cash flow from operating
activities per share
- basic ($) 0.04 0.02 100 0.11 0.09 22
Cash flow from operating
activities per share
- diluted ($) 0.04 0.02 100 0.11 0.09 22

Funds generated from
operations per share
- basic ($) 0.05 0.03 67 0.11 0.08 38
Funds generated from
operations per share
- diluted ($) 0.05 0.03 67 0.11 0.08 38

Net earnings (loss) (232) 826 (128) (658) 55 (1,296)
Per share - basic ($) (0.01) 0.02 (150) (0.02) 0.00 n/a
Per share - diluted ($) (0.01) 0.02 (150) (0.02) 0.00 n/a
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The higher production volumes and commodity prices discussed above contributed to both higher cash flow from operating activities and funds generated from operations in Q2 2007 and H1 2007 compared to Q2 2006 and H1 2006.

The Company recorded net losses in Q2 2007 and H1 2007 as opposed to net earnings in the respective periods of 2006. This was in large part due to a higher future income tax recovery in the 2006 periods compared to the 2007 periods.



Capital Expenditures

Outlined below, by category, is E4's capital program for the respective
periods:

----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------

Land 327 1,003 (67) 335 2,774 (88)
Seismic 66 110 (40) 262 1,121 (77)
Drilling & completions 2,010 6,069 (67) 5,159 9,608 (46)
Field facilities & equipment 523 151 246 2,089 956 119
Other (1) 305 276 11 571 469 22
Total cash capital expenditures 3,231 7,609 (58) 8,416 14,928 (44)
Non-cash capitalized stock
based compensation 94 239 (61) 151 517 (71)
Total capital expenditures 3,325 7,848 (58) 8,567 15,445 (45)
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(1) Includes office equipment, computer hardware and direct G&A.


E4's Q2 2007 capital expenditure program consisted of drilling 2 wells in the Airport area of British Columbia and completing 1 of those wells. In addition, E4 finished the completion and tie-in of 6 CBM wells in the Chain area of Central Alberta. Completing 1 well in the greater Fincastle area of Southern Alberta and minor land purchases highlighted the remaining Q2 2007 capital expenditure program.

Liquidity and Capital Resources

E4's primary sources of liquidity to meet operating expenses and fund its exploration and development capital program are derived from the Company's internally generated funds flow from operations and E4's revolving operating bank credit facility. E4 utilizes this facility to fund daily operating activities and acquisitions as needed. Because of the liquidity and capital resource alternatives available to the Company, including internally generated funds flow, E4 believes that its liquidity is sufficient to fund operating, interest and general and administrative expenses, and planned spending on exploration and development projects and undeveloped acreage necessary for long-term, profitable growth. The Company anticipates that public capital markets will serve as the principal source of capital to finance any future corporate acquisitions and/or significant property purchases. E4 has issued equity in the past, and expects that these sources of capital will continue to be available to the Company in the future for potential acquisitions.

As at June 30, 2007, E4 was capitalized with $12.3 million of bank debt, a working capital deficiency of $0.7 million and 42.6 million common shares with a book capitalization of $45.4 million and a market capitalization of $47.8 million. In comparison, at June 30, 2006, the Company was capitalized with bank debt of $9.6 million, a working capital deficiency of $3.1 million and 38.8 million common shares with a book capitalization of $40.8 million and a market capitalization of $48.8 million.



----------------------------------------------------------------------------
($000s) Quarter-End (June 30)
-----------------------------
2007 2006 % Change
-----------------------------
Total assets $69,446 $64,049 8
Working capital deficiency (includes cash) 703 3,058 (77)
Bank debt 12,265 9,636 27
Shareholders' equity 44,707 40,006 9
----------------------------------------------------------------------------


Business Risks and Uncertainties

The Company's exploration and development activities are focused in the Western Canada Sedimentary Basin within Alberta and British Columbia, which is characterized as being highly competitive with competitors varying in size from small junior producers to significantly larger, fully-integrated energy companies possessing greater financial and personnel resources. The Company recognizes certain risks inherent in the crude oil and natural gas industry, such as finding and developing oil and natural gas reserves at economic costs, drilling risks, producing oil and natural gas in commercial quantities, environmental and safety risks, and commodity price and political risks and uncertainties. E4 has engaged professional management and technical personnel with many years of experience in the oil and natural gas business to address and prudently manage and mitigate these risks.

Changes in Accounting Policies

On January 1, 2007 E4 adopted the new accounting standards regarding the recognition, measurement, disclosure and presentation of financial instruments. The new standard requires all financial instruments to be recognized on the balance sheet initially at fair market value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income until the investment is de-recognized or impaired at which time the amounts would be recorded in net earnings. At June 30, 2007, the fair value of the Company's financial instruments approximate their carrying amounts due to their short-term maturities and, in the case of the derivative commodity contract, because it has been re-measured to its fair value using available market data.

The Company may utilize financial derivatives and non-financial derivatives, such as commodity sales contracts requiring physical delivery, to manage the price risk attributable to anticipated sale of petroleum and natural gas production as described in note 5. The Company has elected not to account for its sole natural gas sales contract, which was entered into in 2007 and is held for the purpose of receipt or delivery of the underlying natural gas in accordance with its expected sale requirements, as executory contract on an accrual basis. Accordingly, this natural gas sales contract has been treated as a non-financial derivative, which is measured at fair value at each balance sheet with changes in fair value recognized in earnings each period.

The new standards require a new statement of comprehensive income, which is comprised of net earnings and other comprehensive income. The Company had no components of "other comprehensive income (or loss)" during the three months ended June 30, 2007 and no opening or closing balances for the accumulated other comprehensive income (or loss).

Two new Canadian accounting standards have been issued which will require additional disclosure in the Company's financial statements commencing January 1, 2008 about the Company's financial instruments as well as its capital and how it is managed.

Changes in Internal Control Over Financial Reporting

During the most recent interim period, there have been no changes in E4's policies and procedures that compromise its internal controls over financial reporting, that have materially affected, or are reasonably likely to affect, E4's control over financial reporting. For further discussion of internal controls over financial reporting, refer to E4's 2006 Annual Report.

Off-Balance Sheet Arrangements and Related Party Transactions

The Company has not entered into any off-balance sheet transactions or into any related party transactions.

A director of the Company is a partner at a law firm that provides legal services to the Company. During the six month period ended June 30, 2007, the Company paid and accrued a total of $66,000 to this firm for legal fees and disbursements.

The Company files an Annual Information Form and certain related documentation applicable Canadian securities regulators, which provides additional information relating to the Company. This information can be retrieved electronically from the SEDAR system by accessing E4's public filings under "Search for Public Company Documents" at www.sedar.com



E4 Energy Inc.
Balance Sheets
(in thousands of Canadian dollars) (unaudited)

June 30, December 31,
2007 2006

ASSETS

Current
Cash $ 42 $ 42
Accounts receivable 2,839 4,863
Prepaid expenses and deposits 202 251
Derivative commodity contract 282 -
-------------------------
3,365 5,156

Property, plant and equipment 57,572 54,640
Goodwill 8,509 8,509
-------------------------

$ 69,446 $ 68,305
-------------------------
-------------------------

LIABILITIES

Current
Bank facility $ 12,265 $ 7,925
Accounts payable and accrued liabilities 4,068 6,880
-------------------------
16,333 14,805

Asset retirement obligations 1,866 1,613
Future income tax liability 6,540 4,784
-------------------------

24,739 21,202
-------------------------


SHAREHOLDERS' EQUITY

Share capital (Note 3 (b)) $ 45,413 $ 47,464
Contributed surplus (Note 3 (c)) 3,684 3,371
Deficit (4,390) (3,732)
-------------------------
44,707 47,103
-------------------------

$ 69,446 $ 68,305
-------------------------
-------------------------

Commitments (Note 3 (d))


See accompanying notes to the interim consolidated financial statements.


E4 Energy Inc.
Statements of Operations and Deficit
(in thousands of Canadian dollars, except per share amounts) (unaudited)

Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------
Revenue
Petroleum and natural gas $ 4,967 2,892 $ 9,664 $ 6,703
Royalties (851) (521) (1,644) (1,361)
Unrealized gain on commodity
contract 372 - 282 -
--------- ------- --------- ---------

4,488 2,371 8,302 5,342

Expenses
Operating 915 563 1,798 1,196
Transportation 195 104 315 237
General and administrative
(Note 3 (e)) 549 714 820 1,466
Financing charges 255 88 435 123
Depletion, depreciation and
accretion 3,053 1,875 5,950 4,161
--------- ------- --------- ---------
4,967 3,344 9,318 7,183


Loss before taxes (479) (973) (1,016) (1,841)

Future income tax reduction (247) (1,799) (358) (1,896)
--------- ------- --------- ---------

Net earnings (loss) and
comprehensive earnings (loss) (232) 826 (658) 55

Settlement of stock options - - - 165

Deficit, beginning of period (4,158) (4,384) (3,732) (3,778)
--------- ------- --------- ---------

Deficit, end of period $ (4,390) $(3,558) $ (4,390) $ (3,558)
--------- ------- --------- ---------
--------- ------- --------- ---------

Earnings (loss) per share
Basic and diluted $ (0.01) $ 0.02 $ (0.02) $ 0.00
--------- ------- --------- ---------

See accompanying notes to the interim consolidated financial statements.


E4 Energy Inc.
Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)

Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------

Cash provided from (used in):

Operating activities
Net earnings (loss) $ (232) $ 826 $ (658) $ 55
Items not affecting cash:
Unrealized gain on derivative
commodity contract (372) - (282) -
Stock-based compensation 94 383 162 803
Depletion, depreciation and
accretion 3,053 1,875 5,950 4,161
Future income tax reduction (247) (1,799) (358) (1,896)
Asset retirement costs - (33) - (33)
Change in non-cash working capital (410) (418) 71 416
--------- ------- --------- ---------

1,886 834 4,885 3,506
--------- ------- --------- ---------

Financing activities
Issuance of bank facility 2,053 5,071 4,340 9,636
Proceeds from stock options
exercised - - - 108
Settlement of stock options - - - (168)
Repayment of capital lease
obligation - - - (35)
--------- ------- --------- ---------

2,053 5,071 4,340 9,541
Investing activities
Property, plant and equipment
additions (3,231) (7,609) (8,416) (14,928)
Change in non-cash working capital (708) 716 (809) 1,110
--------- ------- --------- ---------

(3,939) (6,893) (9,225) (13,818)
--------- ------- --------- ---------

Decrease in cash - (988) - (771)

Cash, beginning of period 42 1,026 42 809
--------- ------- --------- ---------

Cash, end of period $ 42 $ 38 $ 42 $ 38
--------- ------- --------- ---------
--------- ------- --------- ---------

Supplemental cash flow information (Note 4)

See accompanying notes to the interim consolidated financial statements.


E4 Energy Inc.
Notes to the Interim Consolidated Financial Statements
For the 6 month period ended June 30, 2007 and 2006
(Unaudited)


1. Incorporation and Nature of Operations

E4 Energy Inc. ("E4" or "the Company") is in the business of exploration and development of petroleum and natural gas in Western Canada.

2. Accounting Policies

The interim consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles and following the same accounting policies and methods of computation as the annual consolidated financial statements of the Company as at and for the year ended December 31, 2006. The interim consolidated financial statements contain disclosures, which are supplemental to the Company's annual consolidated financial statements. Certain disclosures, which are normally required to be included in the notes to the annual financial statements, have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 2006.

On January 1, 2007 E4 adopted new Canadian standards regarding the recognition, measurement, disclosure and presentation of financial instruments. The new standard requires all financial instruments to be recognized on the balance sheet initially at fair market value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income until the investment is de-recognized or impaired at which time the amounts would be recorded in net earnings. At June 30, 2007, the fair value of the Company's financial instruments approximate their carrying amounts due to their short-term maturities and, in the case of the derivative commodity contract, because it has been re-measured to its fair value using available market data.

The Company may utilize financial derivatives and non-financial derivatives, such as commodity sales contracts requiring physical delivery, to manage the price risk attributable to anticipated sale of petroleum and natural gas production as described in note 5. The Company has elected not to account for its sole natural gas sales contract, which was entered into in 2007 and is held for the purpose of receipt or delivery of the underlying natural gas in accordance with its expected sale requirements, as executory contract on an accrual basis. Accordingly, this natural gas sales contract has been treated as a non-financial derivative, which is measured at fair value at each balance sheet with changes in fair value recognized in earnings each period.

The new standards require a new statement of comprehensive income, which is comprised of net earnings and other comprehensive income. The Company had no components of "other comprehensive income (or loss)" during the six months ended June 30, 2007 and no opening or closing balances for the accumulated other comprehensive income (or loss).

Two new Canadian accounting standards have been issued which will require additional disclosure in the Company's financial statements commencing January 1, 2008 about the Company's financial instruments as well as its capital and how it is managed.



3. Share Capital

a) Authorized

Unlimited number of common shares.
Unlimited number of cumulative redeemable convertible non-voting
Class A preferred shares.
Unlimited number of non-cumulative redeemable convertible non-voting
Class B preferred shares.
Unlimited number of preferred shares issued in series.


b) Issued and outstanding

Common Shares Continuity:
($ thousands) # of shares Amount
Balance, December 31, 2006 42,643,672 $ 47,464
Tax effect on flow-through shares renounced (2,051)
------------ ---------
Balance, June 30, 2007 42,643,672 45,413
---------------------------------------------------------------------------


c) Contributed surplus

Contributed Surplus Continuity:
($ thousands) Amount
Balance, December 31, 2006 3,371
Stock based compensation 313
---------

Balance, June 30, 2007 3,684
---------------------------------------------------------------------------


d) Flow-through shares

On November 30, 2006, the Company issued 3,889,000 flow-through common shares at a price of $1.80 per share for gross proceeds of $7.0 million. These expenditures were renounced to investors of this financing in 2006. Under the terms of the flow-through share agreement, the Company is committed to spend the gross proceeds on qualifying exploration expenditures prior to December 31, 2007. As at June 30, 2007, the Company had incurred approximately $3.1 million of qualifying expenditures.

e) Stock options

Under the Company's stock option plan, the Company may grant options to its directors, officers, employees and consultants to purchase common shares from the Company at a fixed price not less than the fair market value of the stock on the day preceding the grant date. The options vest at a rate of one-third on the six-month anniversary of the date of grant and a further one-third on each of the one-year and two-year anniversaries from the date of grant. The option's maximum term is five years.

The following table summarizes the information about the Company's stock options:



------------------------------
Weighted Average
Options Exercise Price
------------------------------
$
Balance, December 31, 2006 3,209,000 1.58
Granted 738,000 1.13
Expired (40,000) 1.72
Forfeited (53,333) 1.39
------------------------------
Balance, June 30, 2007 3,853,667 1.50
------------------------------
------------------------------
Number of options currently exercisable 2,423,659 1.52
------------------------------
------------------------------

The following table summarizes stock options outstanding and exercisable
under the plan at June 30, 2007.

---------------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of Number remaining average Number average
exercise outstanding contractual exercise exercisable at exercise
price at period end life (years) price ($) period end price ($)
---------------------------------------------------------------------------
$1.00 to 1,641,000 3.58 1.11 928,000 1.10
$1.49
---------------------------------------------------------------------------
$1.50 to 2,212,667 3.31 1.78 1,495,659 1.78
$1.82
---------------------------------------------------------------------------
3,853,667 3.42 1.50 2,423,659 1.52
---------------------------------------------------------------------------


The fair-value of options granted during the period was estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions and resulting values for grants as follows:



---------------------------------------------------------------------------
Assumptions Three months Three and six
ended months ended
June 30, 2007 June 30, 2006
---------------------------------------------------------------------------
Risk free interest rate (%) 4.70 3.80
---------------------------------------------------------------------------
Expected life (years) 5.00 5.0
---------------------------------------------------------------------------
Expected volatility (%) 72 75
---------------------------------------------------------------------------
Weighted average fair value of
options granted $0.71 $1.01
---------------------------------------------------------------------------


The Company recognized in the first six months of 2007, $0.2 million of stock based compensation expense (2006 - $0.8 million). In addition, the Company capitalized $0.2 million of stock based compensation expense in the first six months of 2007 (2006 - $0.5 million). The expensed portion of stock based compensation is reflected on the Company's consolidated statement of operations.

In January of 2006, the Company settled and cancelled an aggregate of 550,001 outstanding vested stock options with a weighted average strike price of $1.44, with its former employees. Total proceeds of $168,167 were paid to the former employees with respect to this settlement. The excess of the grant date fair value over the cash settlement has been recorded as a decrease to the deficit.

f) Loss per share

The weighted average number of common shares outstanding used in computing basic and diluted loss per share during the three and six month period ended June 30, 2007 was 42,643,672. The weighted average number of common shares outstanding used in computing basic earnings per share was 38,754,672 for and 38,753,567, respectively, during the three-month and six-month period ended June 30, 2006. The weighted average number of common shares outstanding used in computing diluted earnings per share was 38,779,801 and 38,845,822, respectively, during the three-month and six-month period ended June 30, 2006.



4. Supplemental Cash Flow Information

a) Increase (decrease) in non-cash
working capital items Six Months Ended June 30,
($ thousands) 2007 2006
---------------------------------------------------------------------------
Change in non-cash working capital:
Accounts receivable and other current assets 2,074 (95)
Accounts payable and accrued liabilities (2,812) 1,621
------------------
(738) 1,526
------------------
------------------
Changes in non-cash working capital related to:
Operating activities 71 416
Investing activities (809) 1,110
------------------
(738) 1,526
------------------
------------------

b) Other cash flow information Six Months Ended June 30,
($ thousands) 2007 2006
---------------------------------------------------------------------------
Interest paid 285 85


5. Derivative Commodity Contracts

The Company has a price risk management program whereby the commodity price associated with a portion of its future production can be fixed. The Company is able to sell forward a portion of its future production through a combination of fixed price sale contracts with customers and commodity swap agreements with financial counter parties. The forward and future contracts are subject to market risk from fluctuating commodity prices and exchange rates; however, gains or losses on the contracts are offset by changes in the value of the Company's production and recognized in income in the same period and category as the derivative commodity contract item.

The Company uses derivative instruments to reduce its exposure to fluctuations in commodity prices. The following table outlines the derivative contract in-place as at June 30, 2007:



---------------------------------------------------------------------------
Physical / Daily notional
Product Financial Term volume Price received
---------------------------------------------------------------------------
Natural gas:
Fixed price Physical Jul 07 - Oct 07 1,500 GJ $7.40 per GJ
---------------------------------------------------------------------------


CORPORATE INFORMATION

E4 Energy Inc. is a junior oil and gas company engaged in the exploration for, and development and production of natural gas and crude oil reserves primarily in the provinces of Alberta and British Columbia. E4's common shares trade on the TSX Venture Exchange under the symbol "EFE".



DIRECTORS Transfer Agent and Registrar

Jim Brown Computershare Trust Company
Vice President, Finance and of Canada
Chief Financial Officer
Fording Canadian Coal Trust
Evaluation Engineers
John Brussa
Partner, Burnet Duckworth Paddock Lindstrom
& Palmer LLP & Associates Ltd.

Glenn Downey Legal Counsel
Senior Vice President
Heenan Blaikie LLP
James Pasieka
Partner, Heenan Blaikie LLP Banker

Scott Saxberg Scotiabank
President and Chief Executive Officer
Crescent Point Energy Trust Auditors

Paul Starnino KPMG LLP
President and Chief Executive Officer
Stock Exchange Listing

TSX Venture Exchange
Symbol: EFE
OFFICERS

Paul Starnino
President and Chief Executive Officer

Glenn Downey, P.Geol.
Senior Vice President HEAD OFFICE

Franco Civitarese, CMA Suite 540, 840 - 6th Avenue S.W.
Vice President, Finance and Calgary, Alberta T2P 3E5
Chief Financial Officer Tel: (403) 266-6747
Fax: (403) 266-6740
Graham Cormack, P.Eng. Website: www.e4energyinc.ca
Vice President, Engineering
and Operations

Randy Bergmann, B.Comm.
Vice President, Land

Felicia Bortolussi
Corporate Secretary,
Heenan Blaikie LLP


The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • E4 Energy Inc.
    Paul Starnino
    President and Chief Executive Officer
    (403) 266-6747
    Email: pstarnino@e4energy.ca
    or
    E4 Energy Inc.
    Franco Civitarese
    Vice President, Finance and Chief Financial Officer
    (403) 266-6747
    Email: fcivitarese@e4energy.ca
    or
    E4 Energy Inc.
    Head office:
    540, 840 - 6th Avenue S.W.
    Calgary, Alberta T2P 3E5
    Website: www.e4energyinc.ca