E4 Energy Inc.
TSX VENTURE : EFE

E4 Energy Inc.

November 23, 2006 18:56 ET

E4 Energy Announces Third Quarter 2006 Results and Operational Update

CALGARY, ALBERTA--(CCNMatthews - Nov. 23, 2006) - E4 Energy Inc. ("E4" or the "Company") (TSX VENTURE:EFE) is pleased to report its financial and operating results for the third quarter of 2006.

President's Letter to Shareholders

Having drilled 16 wells in Q2 and Q3 the third quarter of 2006 was E4's most operationally active quarter to date. Now into Q4, the Company has recently drilled and cased 2 wells and expects to drill an additional 4 to 5 wells before year-end.

Corporate Highlights for Q3

- Production growth to 905 boe/d in the third quarter of 2006, representing a 35 percent increase over Q2, 2006 at 675 boe/d.

- Cash flow increased to $2.22 million from the third quarter from $1.25 million in the second quarter, a quarter over quarter increase of 78 percent.

- Cash flow per share doubled to $0.06 per share in the third quarter from $0.03 per share in the second quarter.

- E4 continued to grow the exploration and development land base by adding 4,717 net acres in Alberta and 652 net acres in N.E. British Columbia.

- Subsequent to the quarter, E4 entered into a "bought deal" flow-through share equity financing for $7.0 million. Closing of the private placement is scheduled for on or about November 30, 2006.

- Subsequent to the quarter, E4 has increased the Company's credit facilities to $18 million from $16 million.

- Subsequent to the quarter, E4 signed a joint venture agreement with a private oil and gas producer in the Company's Southern Alberta shallow gas exploration area. This will allow E4 exposure to offsetting adjacent lands and existing completed gas wells with the ability to tie-in present and future production in a more timely manner.

Some of E4's achievements for the third quarter of 2006 include:



Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
(all amounts in Cdn $ ---------------------- ----------------------
except common share data) 2006 2005 2006 2005
---- ---- ---- ----
Petroleum and natural gas
revenue 4,116,933 3,670,124 10,820,397 11,433,952
Per share - basic 0.106 0.135 0.279 0.473
- diluted 0.106 0.134 0.279 0.473
Funds flow from operations 2,220,687 1,500,119 5,310,568 5,054,358
Per share - basic 0.057 0.055 0.006 0.205
- diluted 0.057 0.055 0.006 0.205
Net income (loss) 172,374 (310,577) 226,923 (105,203)
Per share - basic 0.004 (0.011) 0.006 (0.004)
- diluted 0.004 (0.011) 0.006 (0.004)
Capital expenditures 3,616,545 2,309,627 19,061,107 6,453,824
Net debt 13,952,513 9,288,521 13,952,513 9,288,521
Shareholders' equity 40,543,582 29,066,877 40,543,582 29,066,877
Total assets 66,919,365 50,187,264 66,919,365 50,187,264
Common share data:
Weighted average basic 38,754,672 27,278,629 38,753,939 24,161,700
Weighted average diluted 38,754,672 27,308,062 38,753,939 24,195,388
Issued and outstanding 38,754,672 33,623,671 38,754,672 33,623,671


Operating Highlights Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(6:1 boe conversion) 2006 2005 2006 2005
---- ---- ---- ----
Average daily production
Natural gas (mcf/d) 3,352 2,248 3,097 2,335
Liquids (Oil & NGLs) (bbls/d) 346 249 279 343
Oil equivalent (boe/d) 905 624 795 733
Production (boe/d) per million
shares 23 19 21 22
Average sales price (after
hedging):
Natural gas ($/mcf) 6.09 9.79 6.66 8.46
Liquids (Oil & NGLs) ($/bbl) 70.19 71.78 68.05 64.07
Oil equivalent ($/boe) 49.43 63.95 49.82 57.00
Wells drilled - gross (net):
Gas - - 6 (5.02) -
Oil 1 (0.60) - 8 (4.26) -
Suspended - - 4 (3.55) -
D & A - - 1 (1.00) 1 (1.00)
Total 1 (0.60) - 19 (13.83) 1 (1.00)


Third Quarter Operating Review and Fourth Quarter Update

During the third quarter of 2006, E4 pursued an active testing, completion and tie-in program to bring on new production. An active drilling program through the second quarter and into Q3 resulted in 16 (11.7 net) wells. By late August, production had quickly grown to approximately 1,100 boe/d from a Q2 average of 675 boe/d.

In the Provost West and East areas of Alberta, E4 has purchased additional development land and expects to drill 3 - 4 (3.1 net) wells in December, 2006. The Company will continue to actively drill in both areas and has several follow up development locations.

In E4's shallow gas exploration area of Southeast Alberta, the Company has purchased an additional 7,040 net acres at Crown sales since the start of Q3 and drilled 2 (2.0 net) successful gas wells in the fourth quarter. Also in Q4, the Company entered into a joint venture agreement with a private oil and gas producer whereby E4 increases its exposure to offsetting adjacent lands and existing shut-in gas wells. The agreement provides E4 the ability to tie-in future production into existing nearby infrastructure. Presently, E4 has 7 (5.5 net) shut-in gas wells in the area of which 5 (3.5 net) wells are expected to be tied-in during the first quarter of 2007.

In the Greater Fort St. John area, E4 continues to grow its undeveloped land base and has recently added 1,952 net acres of exploration land through Crown sales. Presently, the Company has licensed 4 high impact exploration well locations. E4 intends to drill the first of the four locations before year-end.

In the Chain/Mikwan area E4 has a 9 well development drilling program targeting Horseshoe Canyon formation CBM. This program which was postponed in the second quarter of 2006 is now expected to be drilled in the first quarter of 2007.

Business Outlook

The third quarter of 2006 has been the Company's largest production growth quarter to date. The Company continues to be a successful "full cycle" exploration and production company from the in-house generation of new exploration plays to the drilling and on-production new reserves adds. To date this year, the Company has drilled 21 wells and expects to drill an additional 4 - 5 more wells before year-end.

With the expected closing of the 'bought deal' flow through equity financing on or about November 30, 2006 E4 will be able to accelerate the Company's drilling program for the remaining 2006 and the 2007 budget year. Additionally with this financing, the Company's long term debt will be reduced to approximately 0.5 times annualized cash flow and thereby providing the Company with strong financial capabilities.

The Company remains on track to meet its previously announced expected exit rate of 1,200 boe/d. E4 expects to formalize and approve its capital budget and corresponding market guidance for 2007 in December, 2006.

On behalf of the Board of Directors,

Paul Starnino, President and Chief Executive Officer, November 23, 2006

This document contains forward looking statements, including statements relating to management's approach to the number of wells, amount and timing of capital projects, interest rates, worldwide and industry production, prices of oil and natural gas, Company production, cash flow and debt levels. These forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The reader is cautioned that assumptions used in preparation of such information, although considered reasonable by E4 Energy Inc. at the time of preparation, may prove to be incorrect.

Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

In this press release: (i) boe/d means boe per day; (ii) bbls/d means barrels per day; (iii) mcf means thousand cubic feet;.

Management's Discussion and Analysis ("MD&A")

The following discussion is intended to assist the reader in understanding the business of E4 Energy Inc. ("E4" or the "Company"), formerly known as Southpoint Resources Ltd. and the results of its operations 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, 2005 and E4's financial statements for the interim period ended September 30, 2006.

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 the provinces of Alberta and British Columbia, Canada. The Company is subject to the provisions of the Canada 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 flow from operations" and "funds flow from operations per share" and "netbacks" 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 flow from operations to analyze operating performance and considers funds flow 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 flow 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 flow generated from operations or funds flow from operations per share (basic and diluted) may not be comparable with the calculation of similar measures for other entities. The reconciliation between earnings and funds flow from operations can be found in the statements of cash flows in the annual and interim financial statements. Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period.

Boe presentation - Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet ("mcf") of natural gas to one barrel ("bbl") of crude oil. All amounts are reported in Canadian dollars, unless otherwise stated.

Forward-Looking Information - Certain sections of the MD&A include information regarding E4 that may constitute forward-looking statements within the meaning of applicable securities laws. These forward-looking statements typically contain words such as "anticipates", "believes", "estimates", "expects", "targets" or similar words indicating that future outcomes are uncertain. Although E4 believes these forward-looking statements are reasonable, it can give no assurance that they will prove to have been correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

This MD&A includes information up to and including November 23, 2006.



SELECTED QUARTERLY INFORMATION

The financial data presented below has been presented in accordance with
GAAP.

2006 2005 2004
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
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Operational
Results
Production
- Natural gas
(mcf/d) 3,352 2,766 3,171 2,848 2,248 2,280 2,481 1,694
- Crude oil
and NGLs
(bbls/d) 346 214 275 248 249 296 486 376
- Total
production
(boe/d) 905 675 804 723 624 676 900 658
Pricing
- Natural gas
($/mcf) 6.09 6.15 7.73 12.28 9.79 7.47 8.18 7.09
- Crude oil
($/bbl) 70.19 68.79 64.72 67.63 71.78 63.01 60.72 55.76
- Total
production
($/boe) 49.43 47.01 52.67 71.61 63.95 53.18 55.46 50.26
Selected
Financial
Results
($ thousands)
Petroleum and
natural gas
revenue 4,117 2,892 3,812 4,768 3,670 3,271 4,493 3,049
Royalties 656 521 840 880 592 550 728 270
Operating
expenses and
transportation 858 667 766 774 676 890 1,016 612
General and
administrative
expenses 462 714 752 775 968 523 419 436
Funds generated
from
operations 2,221 1,252 1,838 2,752 1,500 1,144 2,312 1,484
Depletion,
depreciation
and accretion
expense 2,433 1,875 2,287 2,254 1,563 1,506 2,040 1,336
Net earnings
(loss) 173 826 (771) 409 (311) (422) 627 818
- Basic per
share 0.00 0.02 (0.02) 0.01 (0.01) (0.02) 0.03 0.04
- Diluted per
share 0.00 0.02 (0.02) 0.01 (0.01) (0.02) 0.03 0.04
Capital
spending 3,617 7,848 7,596 4,458 2,310 871 3,273 4,837
Total debt and
working capital
deficiency
(surplus) 13,952 12,694 6,337 796 9,289 12,992 13,365 12,281
Shareholder's
equity 40,543 40,006 38,557 40,446 29,067 15,304 15,653 15,396
Common shares
outstanding
(000's) 38,755 38,755 38,755 38,671 33,624 22,577 22,577 22,577


Petroleum and Natural Gas Production

E4's daily combined production averaged 905 boe per day in the third quarter of 2006 ("Q3 2006"). This represents a 45 percent increase from the comparable quarterly period in 2005 ("Q3 2005") of 624 boe per day. Liquids production, including both crude oil and natural gas liquids ("NGLs"), averaged 346 bbls per day in Q3 2006 compared to 249 bbls per day in Q3 2005. Natural gas production for Q3 2006 was 3,352 mcf per day versus 2,248 mcf per day for the same period of 2005. On a percentage basis, Q3 2006 liquids and natural gas production increased 39 percent and 49 percent, respectively, from Q3 2005. The increase in production is entirely attributable to the Company's successful drilling program during the latter part of 2005 and first nine months of 2006.

For the nine months ended September 30, 2006, E4's average daily production was 795 boe per day versus 733 boe per day for the same period of 2005. The year-to-date production was comprised of 3,097 mcf per day of natural gas and 279 bbls per day of liquids in 2006, compared to 2,335 mcf per day of natural gas and 343 bbls per day of liquids in 2005. The increase in gas production was attributable to the successful drilling program described above while the decrease in oil production is attributable to volumes that were shut in by the British Columbia Oil and Gas Commission throughout 2006. On a combined production basis, the nine months ended September 30, 2006 saw E4 produce 795 boe per day versus 733 boe per day for the same period of 2005, which represents an 8 percent increase.



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Third Quarter First Nine Months
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2006 2005 % Change 2006 2005 % Change
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Natural Gas (mcf/d) 3,352 2,248 49 3,097 2,335 33
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Crude oil and NGLs
(bbls/d) 346 249 39 279 343 (19)
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Total production (boe/d) 905 624 45 795 733 8
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Revenue and Commodity Pricing

E4's petroleum and natural gas ("PNG") revenue for Q3 2006 (before royalties) totalled $4.1 million, comprised of $2.2 million of liquids sales and $1.9 million of natural gas sales. This represents a 12 percent increase to the total PNG sales of $3.7 million for Q3 2005, which consisted of $1.7 million of liquids sales and $2.0 million of natural gas sales.

For the nine months ended September 30, 2006, E4 reported liquids sales of $5.2 million and natural gas sales of $5.6 million, for total sales of $10.8 million. This compares to liquids sales of $6.0 million and natural gas sales of $5.4 million for total sales of $11.4 million for the same period of 2005.

With respect to commodity prices, liquids prices were relatively flat and natural gas prices considerably lower in Q3 2006 as compared to Q3 2005. E4's realized average liquids prices in Q3 2006 were $70.19 per bbl, as compared to the realized $71.78 per bbl in Q3 2005. Natural gas prices, meanwhile, were $6.09 per mcf in Q3 2006, versus $9.79 per mcf for Q3 2005. On a combined oil equivalent basis, Q3 2006 prices were $49.43 per boe, versus $63.93 per boe for the same period in 2005. For the nine months ended September 30, 2006, E4 realized liquids prices of $68.05 per bbl, natural gas prices of $6.66 per mcf and combined oil equivalent prices of $49.82 per boe. The same period of 2005 resulted in liquids prices of $64.07 per bbl, natural gas prices of $8.46 per mcf, and $57.00 per boe on a combined oil equivalent basis. The following table highlights the composition of E4's PNG revenue stream:



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Third Quarter First Nine Months
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($000s) 2006 2005 % Change 2006 2005 % Change
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Natural Gas 1,880 2,025 (7) 5,638 5,426 4
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Crude oil and NGLs 2,237 1,645 36 5,182 6,008 (14)
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Total 4,117 3,670 12 10,820 11,434 (5)
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The following table highlights E4's corporate realized wellhead prices and
select industry benchmark prices:

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Third Quarter First Nine Months
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2006 2005 % Change 2006 2005 % Change
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E4 prices before hedging:
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Natural gas ($/mcf) 6.09 9.79 (38) 6.66 8.46 (21)
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Crude oil and NGLs
($/bbl) 70.19 71.78 (2) 68.05 64.07 6
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Oil equivalent ($/boe) 49.43 63.93 (23) 49.82 57.00 (13)
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WTI Cushing oil (US$/bbl) 70.55 63.17 12 68.28 55.40 23
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Edmonton Par light oil
($/bbl) 79.17 75.62 5 75.59 67.65 12
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Bow River medium oil
($/bbl) 59.06 55.00 7 53.61 44.81 20
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WTI - Lloyd. differential 19.08 19.82 (4) 21.95 20.30 8
(US$/bbl)
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Nymex Henry Hub
(US$/mmbtu) 6.52 8.23 (21) 7.48 7.10 5
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AECO gas ($/mcf) 5.36 8.09 (34) 6.08 7.35 (17)
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Currency Exchange rate 0.892 0.832 7 0.883 0.817 8
(US$:Cdn$)
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Royalties

E4's petroleum and natural gas royalties for Q3 2006 amounted to $0.7 million, as compared to $0.6 million in 2005. This slight increase is attributable to higher sales volume. As a percentage of sales, the Q3 2006 royalty rate was 15.9 percent versus 16.1 percent for the same quarter of 2005. On a year-to-date 2006 basis, E4's petroleum natural gas royalties amounted to $2.0 million, or 18.6 percent versus $1.9 million or 16.4 percent in the same nine month period of 2005. The increase in the year-to-date royalty rates is due to prior period adjustments that were reported in the first quarter of 2006.



The following table outlines the composition of E4's royalty encumbrances:

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Third Quarter First Nine Months
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($000s) 2006 2005 % Change 2006 2005 % Change
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Crown, net ARTC 588 473 24 1,701 1,487 14
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Freehold and overrides 68 119 (43) 316 384 (18)
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Total 656 592 11 2,017 1,871 8
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Per unit ($/boe) 7.87 10.32 (24) 9.29 9.35 (1)
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Effective royalty rate (%) 15.9 16.1 (1) 18.6 16.4 13
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Operating Expenses

E4's field operating costs in Q3 2006 amounted to $0.7 million, as compared to $0.5 million reported in Q3 2005. On a per-unit-of-production basis, E4's production costs in Q3 2006 were $8.92 per boe versus $7.86 per boe for the same period of 2005. The Q3 2006 per boe production costs are higher than the same period of 2005, however included in the Q3 2006 figure is an adjustment for processing fees that amounts to approximately $0.05 million. This adjustment contributed $0.60 to the Q3 2006 per boe operating costs and the absence of this adjustment would have brought the Q3 2006 per boe operating expenses much more in line with the figures reported in the same period of 2005. For the nine-month period ended September 30, 2006, E4 reported operating expenses of $8.93 per boe compared to $9.44 per boe for the same period of 2005. The decrease is primarily attributable to E4's implementation of several programs initiated to lower operating expenses.



The following table highlights E4's operating expenses:

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Third Quarter First Nine Months
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2006 2005 % Change 2006 2005 % Change
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Total ($000s) 742 451 65 1,939 1,887 3
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Per unit ($/boe) 8.92 7.86 13 8.93 9.44 (5)
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Transportation Expenses

E4 reported transportation expenses of $1.39 per boe for Q3 2006. This compares with transportation expenses $3.93 per boe for Q3 2005. For the nine months ended September 30, 2006, E4 incurred transportation expenses $1.62 per boe compared to $3.47 per boe for the same period of 2005. The decrease from the respective periods 2006 compared to 2005 is a result of a new contract being in place at much more favourable rates throughout 2006 the trucking of E4's crude oil.



The following table highlights E4's transportation expenses:

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Third Quarter First Nine Months
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2006 2005 % Change 2006 2005 % Change
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Total ($000s) 116 226 (49) 352 694 (49)
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Per unit ($/boe) 1.39 3.93 (65) 1.62 3.47 (53)
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General & Administrative Expenses ("G&A")

E4's cash G&A expenses for Q3 2006 amounted to $0.2 million or $2.81 per boe of production. In Q3 2005, E4 reported an identical figure of $0.2 million in cash G&A expenses, or $3.69 per boe of production. For the nine months ended September 30, 2006, E4 reported total cash G&A expenses of $0.9 million or $4.14 per boe of production. This compares to $1.0 million in aggregate cash G&A expenses for the same period of 2005, or $4.87 per boe of production.

Non-cash G&A expenses, or stock based compensation, were $0.2 million for both Q3 2006 and Q3 2005. This amounted to $2.74 per boe in 2006 and $3.21 per boe in 2005. For the nine months ended September 30, 2006, non-cash G&A expenses were $4.75 per boe compared to $1.82 per boe for the same period of 2005.

E4 utilizes 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 $0.2 million during Q3 2006 and an identical figure for the same period of 2005. E4 currently employs 11 office personnel, including six technical staff and engages the services of two consultants on a part-time basis.



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Third Quarter First Nine Months
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($000s) 2006 2005 % Change 2006 2005 % Change
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Cash costs $ 426 $ 334 28 $ 1,558 $1,198 30
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Severances - 572 (100) - 572 (100)
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Capitalized cash costs (192) (122) 57 (660) (225) 193
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Stock based compensation
(net of capitalization) 228 184 24 1,031 365 182
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Total 462 968 (52) 1,929 1,910 1
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Per unit ($/boe)
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Cash costs 5.12 5.82 (12) 7.18 5.99 20
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Severances - 9.96 (100) - 2.86 (100)
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Capitalized cash costs (2.31) (2.13) 8 (3.04) (1.12) 171
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Stock based compensation
(net of capitalization) 2.74 3.21 (15) 4.75 1.82 161
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Total 5.55 16.86 (67) 8.89 9.55 (7)
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Financing Charges

E4 incurred interest expenses of $0.1 million Q3 2006, relating almost entirely to borrowing interest charges on outstanding bank debt during the period. For Q3 2005, E4 also reported $0.1 million in interest expense. On a per boe basis, Q3 2006 interest expenses were $1.78 per boe, compared with $2.06 per boe in Q3 2005. On a year-to- date basis, E4 reported interest expense of $0.3 million in 2006 and $0.4 million in 2005. This equated to $1.25 per boe 2006 and $1.91 per boe in 2005. Financing charges associated with subordinated notes were not a factor in 2006 they were retired in 2005.



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Third Quarter First Nine Months
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2006 2005 % Change 2006 2005 % Change
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Interest expense,
including Part XII.6 tax $ 148 $ 118 (25) $ 270 $ 383 (30)
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Subordinated note
accretion - 27 (100) - 117 (100)
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Loss on early retirement
of subordinated note - 147 (100) - 147 (100)
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Total 148 292 (49) 270 647 (58)
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Per unit interest
expense ($/boe) 1.78 2.06 (14) 1.25 1.91 (35)
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Per unit total financing
charges ($/boe) 1.78 5.09 (65) 1.25 3.23 (61)
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Depletion, Depreciation and Accretion on Asset Retirement Obligation

E4's depletion, depreciation and accretion expense totaled $2.4 million for Q3 2006, compared with the Q3 2005 amount of $1.6 million. On a unit-of-production rate basis, the depletion, depreciation and accretion provision for Q3 2006 and Q3 2005 was $29.22 per boe and $27.24 per boe, respectively. For the nine months ended September 30, 2006, E4 reported depletion, depreciation and accretion of $6.6 million versus $5.1 million for the same period 2005. This resulted in a per boe figure of $30.38 in 2006 and $25.53 in 2005.



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Third Quarter First Nine Months
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($000s) 2006 2005 % Change 2006 2005 % Change
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Depletion & depreciation 2,405 1,547 55 6,513 5,062 29
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Accretion on ARO 28 16 75 82 47 74
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Total 2,433 1,563 56 6,595 5,109 29
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Per unit ($/boe) 29.22 27.24 7 30.38 25.53 19
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Income and Capital Taxes

E4 is presently not subject to any current income tax exposures. The Company currently has approximately $36 million in tax deductions available against future taxable income (net of any projected pool usage necessary to offset taxable income for the nine months ended September 30, 2006).

With respect to E4's future income tax accounting provision for 2006, the Company recorded a future tax recovery of $2.5 million. The bulk of this recovery includes the impact of a reduction in federal and provincial tax rates in respect of 2006 through 2010 of $0.5 million, a reduction of tax valuation allowance of $0.8 million and the change in opening tax deduction balances of $0.5 million.

Funds Flow from Operations and Net Earnings

The Company generated approximately $2.2 million in funds flow from operations in Q3 2006, an increase of 48 percent from the same period last year. E4's expanded production base was the main driver to this strong funds flow growth. For the nine months ended September 30, 2006, E4 generated $5.3 million in funds flow from operations, a 7 percent increase from the $5.0 million reported in the same period of 2005.

E4 reported net earnings of $0.2 million in Q3 of 2006 compared to a net loss of $0.3 million in Q3 of 2005. For the nine months ended September 30, 2006, E4 reported net earnings of $0.2 million as compared to a net loss of $0.1 million for the same period of 2005.



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Third Quarter First Nine Months
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($000s) 2006 2005 % Change 2006 2005 % Change
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Funds flow from
operations (1) 2,221 1,500 48 5,311 4,955 7
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Per share - basic ($) 0.057 0.060 (5) 0.137 0.2051 (33)
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Per share - diluted ($) 0.057 0.060 (5) 0.137 0.2051 (33)
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Net earnings (loss) 173 (311) 156 228 (105) 317
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Per share - basic ($) 0.004 (0.010) 140 0.006 (0.004) 250
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Per share - diluted ($) 0.004 (0.010) 140 0.006 (0.004) 250
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(1) Funds flow from operations is a non-GAAP measure and represents net
earnings (loss) before depletion, deprecation, accretion on asset
retirement obligations, stock-based compensation, future income taxes
and after cash costs associated with the retirement of assets.


Capital Expenditures

E4 invested $3.6 million in total capital expenditures in Q3 2006, compared to $2.3 million for the same period of 2005. The capital expenditures incurred in Q3 2006 were primarily for drilling, completing and the tie-in of E4's Provost property. On a year-to-date basis, E4 incurred capital expenditures of $19.1 million in 2006 and $6.5 million in 2005. Outlined below, by category, is E4's capital program for the respective periods:



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Third Quarter First Nine Months
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($000s) 2006 2005 % Change 2006 2005 % Change
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Land 869 482 80 3,643 484 653
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Seismic - 57 (100) 1,121 90 1,146
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Drilling & completions 1,191 1,587 (25) 10,798 3,885 178
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Field facilities &
equipment 1,227 58 2,016 2,183 1,761 24
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Other (1) 193 126 53 662 234 183
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Total cash capital
expenditures 3,480 2,310 51 18,407 6,454 185
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Non-cash capitalized
stock based compensation 137 - n/a 654 - n/a
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Total capital
expenditures 3,617 2,310 57 19,061 6,454 195
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(1)Includes office equipment, computer hardware and direct G&A.


Liquidity and Capital Resources

As at September 30, 2006, E4 was capitalized with $13.9 million of bank debt, a working capital deficiency excluding bank debt of $0.1 million and 38.8 million common shares with a book capitalization of $40.8 million and a market capitalization of $48.1 million. In comparison, at September 30, 2005, the Company was capitalized with $9.8 million of bank debt, a working capital deficiency of $2.2 million, cash of $2.7 million and 33.6 million common shares with a book capitalization of $32.4 million and a market capitalization of $67.2 million. The increase in bank debt, including working capital deficiency, reflects E4's significant capital investment program.

The Company's cash capital program has been established at $20.0 million for 2006 and $18.4 million or 92 percent had been incurred to September 30, 2006. Cash provided by operating activities is budgeted to provide a significant portion of the funding. The Company is mindful of the current weakness in Canadian natural gas markets due to seasonal factors, historically high levels of natural gas in storage and the rising value of the Canadian dollar as compared to the US dollar.

In November 2006, the Company increased its available revolving term demand credit facility with a major bank to a maximum of $18,000,000 from $16,000,000. This facility bears an interest rate of prime plus 0.125% . This loan is secured by a demand debenture for $50 million secured by a first floating charge on all assets and a general assignment of book debts.

On November 9, 2006, E4 announced it had entered into a "bought deal" private placement of 3,889,000 flow-through common shares at $1.80 per share for gross proceeds of $7 million. Closing of this private placement is expected on or about November 30, 2006 and is subject to applicable regulatory and stock exchange approvals.

Both the expansion of the banking facility and the private placement described above will allow E4 to accelerate its drilling program for both Q4 2006 and the 2007 budget year.



---------------------------------------------------------------------------
($000s) Quarter-End (September 30)
---------------------------------------------------------------------------
2006 2005 % Change
---------------------------------------------------------------------------
Total assets 66,919 50,187 33
---------------------------------------------------------------------------
Cash 42 2,683 (98)
---------------------------------------------------------------------------
Working capital deficiency,
excluding cash 111 1,605 (93)
---------------------------------------------------------------------------
Bank debt 13,883 9,814 41
---------------------------------------------------------------------------
Shareholders' equity 40,543 29,067 39
---------------------------------------------------------------------------


Business Risks and Uncertainties

The Company's exploration and development activities are focused in the Western Canada Sedimentary Basin within the provinces of 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 gas business to address and prudently manage and mitigate these risks.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. The process of estimating reserves is also critical to several accounting estimates and requires judgments and decisions based on available geological, geophysical, engineering and economic data. These estimates may change, having either a positive or negative effect on net earnings as further data becomes available, and as the economic environment continues to change.

Off-Balance Sheet Arrangements and Related Party Transactions

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

A director of the Company is a partner at a law firm that provides legal services to the Company. During the nine-month period ended September 30, 2006, the Company paid and accrued approximately $41,000 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

For further information, please refer to www.sedar.com.

Certain information regarding the Company contained herein may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other similar statements that are not statements of fact. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.



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

September 30, December 31,
2006 2005

ASSETS

Current
Cash $ 42 $ 809
Accounts receivable 5,397 3,617
Prepaid expenses and deposits 106 207
---------- ----------
5,545 4,633

Property, plant and equipment 52,865 39,599
Goodwill 8,509 8,509
---------- ----------
$ 66,919 $ 52,741
---------- ----------
---------- ----------
LIABILITIES

Current
Bank facility (Note 3) $ 13,883 $ -
Accounts payable and accrued liabilities 5,614 5,394
Current portion of capital lease obligation - 35
---------- ----------
19,497 5,429

Asset retirement obligations 1,524 1,079
Future income tax liability 5,355 5,787
---------- ----------

26,376 12,295
---------- ----------
SHAREHOLDERS' EQUITY

Share capital (Note 4) $ 40,808 $ 42,692
Contributed surplus (Note 4) 3,120 1,532
Deficit (3,385) (3,778)
---------- ----------
40,543 40,446
---------- ----------

$ 66,919 $ 52,741
---------- ----------
---------- ----------

See accompanying notes to the interim consolidated financial statements.


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

Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
------------------- -------------------

Revenue
Petroleum and natural gas $ 4,117 $ 3,670 $ 10,820 $ 11,434
Royalties (656) (592) (2,017) (1,871)
-------- -------- --------- ---------

3,461 3,078 8,803 9,563
Expenses
Operating 742 451 1,939 1,887
Transportation 116 226 352 694
General and administrative
(Note 4 (e)) 462 968 1,929 1,910
Financing charges 148 292 270 647
Depletion, depreciation and
accretion 2,433 1,563 6,595 5,109
Loss on asset retirement - - - 97
Loss on disposal of equipment
under capital lease - - - 87
-------- -------- --------- ---------
3,901 3,500 11,085 10,431
-------- -------- --------- ---------

Loss before taxes (440) (422) (2,282) (868)

Future income tax reduction (613) (111) (2,510) (763)
-------- -------- --------- ---------

Net earnings (loss) 173 (311) 228 (105)

Stock options settled for cash
(Note 4 (e)) - - 165 -

Deficit, beginning of period (3,558) (3,876) (3,778) (4,082)
-------- -------- --------- ---------

Deficit, end of period $(3,385) $(4,187) $ (3,385) $ (4,187)
-------- -------- --------- ---------
-------- -------- --------- ---------

Loss per share
Basic and diluted $ - $ (0.01) $ 0.01 $ -
-------- -------- --------- ---------

See accompanying notes to the interim consolidated financial statements.


---------------------------------------------------------------------------
E4 Energy Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
---------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
------- -------- --------- ---------

Cash provided from (used in):

Operating activities
Net earnings (loss) $ 173 $ (311) $ 228 $ (105)
Items not affecting cash:
Stock-based compensation 228 184 1,031 365
Finance charges - 175 - 264
Depletion, depreciation and
accretion 2,433 1,563 6,595 5,109
Loss on asset retirement - - - 97
Loss on disposal of equipment
under capital lease - - - 87
Future income tax reduction (613) (111) (2,510) (763)
Asset retirement costs - - (33) (99)
-------- -------- --------- ---------

Funds flow from operations 2,221 1,500 5,311 4,955

Change in non-cash working capital (1,742) 1,098 (1,328) (1,422)
-------- -------- --------- ---------
479 2,598 3,983 3,533
-------- -------- --------- ---------
Financing activities
Issuance of bank facility 4,247 1,764 13,883 4,727
Proceeds from stock options
exercised - 299 108 299
Settlement of stock options - - (168) -
Repayment of subordinated notes - (1,925) - (2,000)
Repayment of capital lease
obligation - (35) (35) (168)
-------- -------- --------- ---------

4,247 103 13,788 2,858
-------- -------- --------- ---------
Investing activities
Corporate acquisitions - 4,722 - 4,722
Property, plant and equipment
additions (3,480) (2,310) (18,407) (6,454)
Proceeds from disposal of
equipment under capital lease - - - 15
Change in non-cash working
capital (1,242) (2,430) (131) (1,991)
-------- -------- --------- ---------

(4,722) (18) (18,538) (3,708)
-------- -------- --------- --------

Decrease in cash 4 2,683 (767) 2,683

Cash, beginning of period 38 - 809 -
-------- -------- --------- ---------

Cash, end of period $ 42 $ 2,683 $ 42 $ 2,683
-------- -------- --------- ---------


Supplemental cash flow information (Note 5)

See accompanying notes to the interim consolidated financial statements.


E4 Energy Inc.
Notes to the Interim Consolidated Financial Statements
For the 9 month period ended September 30, 2006 and 2005
(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. On August 23, 2005, the Company changed its name from Southpoint Resources Ltd. to E4.

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, 2005. 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, 2005.

3. Bank Facility

In June 2006, the Company increased its available revolving term demand credit facility with a major bank to a maximum of $16,000,000 from $10,000,000. This facility bears an interest rate of bank prime plus 0.125% . This loan is secured by a demand debenture for $20 million secured by a first floating charge on all assets and a general assignment of book debts. This credit facility was increased further to a maximum of $18,000,000 in November 2006. This expanded loan is secured by a demand debenture for $50 million secured by a first floating charge on all assets and a general assignment of book debts.



4. 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 and Warrants Continuity:
--------------------------------------
($ thousands) # of shares Amount
Common shares at December 31, 2005 38,671,338 $ 42,420
Exercise of stock options 83,334 142
Tax effect on flow-through shares renounced (1,754)
----------- ----------
Common shares at September 30, 2006 38,754,672 40,808

Warrants at December 31, 2005 666,667 272
Warrants expired on June 17, 2006 (666,667) (272)
----------
Share Capital - Total at September 30, 2006 40,808
---------------------------------------------------------------------------


c) Contributed surplus

Contributed Surplus Continuity:
($ thousands) Amount
Balance at December 31, 2005 1,532
Stock based compensation expense 1,684
Cash settlement of stock options (334)
Stock options exercised (34)
Warrants expired 272
-------

Contributed surplus as at September 30, 2006 3,120
---------------------------------------------------------------------------


d) Flow-through shares

On October 20, 2005, the Company issued 2,129,000 flow-through common shares at a price of $2.45 per share for gross proceeds of $5.2 million. 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, 2006. These expenditures were renounced in February 2006.

Prior to the acquisition of P3 Energy Ltd. on August 23, 2005, P3 issued flow-through shares for gross proceeds of $3.6 million. As a result of the business acquisition, the Company had assumed the obligation to spend the gross proceeds on qualifying exploration and development expenditures prior to December 31, 2006.

As at September 30, 2006, the Company had remaining $0.1 million of qualifying expenditures for the combined obligations described above.

e) Stock options

Under the Company's stock option plan, the Company may grant options to its directors, officers and/or employees 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, 2005 2,748,335 1.48
Granted 1,125,000 1.75
Settled (550,001) 1.44
Cancelled and forfeited (31,000) 1.75
Exercised (83,334) 1.30
----------------------------
Balance, September 30, 2006 3,209,000 1.58
----------------------------
Number of options currently exercisable 1,756,330 1.54
----------------------------
----------------------------


The following table summarizes stock options outstanding and exercisable under the plan at September 30, 2006.



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 928,000 3.36 1.10 618,668 1.10
$ 1.49
---------------------------------------------------------------------------
$ 1.50 to 2,281,000 4.06 1.78 1,137,662 1.78
$ 1.82
---------------------------------------------------------------------------
3,209,000 3.86 1.58 1,756,330 1.54
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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 Nine months ended Nine months ended
September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Risk free interest rate (%) 3.8 3.63
---------------------------------------------------------------------------
Expected life (years) 5.0 4.8
---------------------------------------------------------------------------
Expected volatility (%) 75 75
---------------------------------------------------------------------------
Weighted average fair value of $ 1.01 $ 1.18
options granted
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Company recognized in the first nine months of 2006, $1.0 million of stock based compensation expense (2005 - $0.4 million). In addition, the Company capitalized $0.7 million of stock based compensation expense in the first nine months of 2006 (2005 - $nil). 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) Earnings (loss) per share

The weighted average number of common shares outstanding used in computing basic and diluted loss per share during the three-month and nine-month period ended September 30, 2006 was 38,754,672 and 38,753,939, respectively. For the three-month and nine-month period ended September 30, 2006, respectively, excluded in this calculation were stock options in the amount of 2,586,000 and 2,281,000 that were antidilutive, or out of the money.

The weighted average number of common shares outstanding during the three-month and nine-month period ended September 30, 2005 used in computing basic and diluted loss per share were 27,278,629 and 24,161,700, respectively. For the three-month and nine-month period ended September 30, 2005, respectively, excluded in this calculation were stock options in the amount of 2,555,002 and 2,905,002 that were antidilutive, or out of the money.



5) Supplemental Cash Flow Information

a) Increase (decrease) in non-cash
working capital items Nine Months Ended
($ thousands) September 30, 2006
---------------------------------------------------------------------------
Change in non-cash working capital:
Accounts receivable and other current assets 1,679
Accounts payable and accrued liabilities (220)
-------------------
1,459
-------------------
-------------------
Changes in non-cash working capital related to:
Operating activities 1,328
Investing activities 131
-------------------
1,459
-------------------
-------------------


b) Other cash flow information Nine Months Ended
($ thousands) September 30, 2006
---------------------------------------------------------------------------
Interest paid 229
-------------------
-------------------


6) Subsequent Events

On November 9, 2006, E4 announced it had entered into a "bought deal" private placement of 3,889,000 flow-through common shares at $1.80 per share for gross proceeds of $7 million. Closing of this private placement is expected on or about November 30, 2006 and is subject to applicable regulatory and stock exchange approvals.

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