E4 Energy Inc.
TSX VENTURE : EFE

E4 Energy Inc.

August 29, 2005 20:39 ET

E4 Energy / Southpoint Resources Report Second Quarter Interim for the Six Months Ended June 30, 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 29, 2005) - E4 Energy Inc. (TSX VENTURE:EFE) / Southpoint Resources Ltd. today announce second quarter 2005 results. Today's announced second quarter results are those as directed under the previous management team and directors of Southpoint Resources.



------------------------------------------------------------------------
Financial Highlights Three Six
Months Ended June 30 Months Ended June 30
2005 2004 2005 2004
$ $ $ $
----------------------- ------------------------------------------------
Production
Natural gas (mcf/day) 2,280 1,290 2,380 1,319
Oil and NGLs (bbls/day) 296 125 391 219
Boe/day 676 340 787 438
----------------------- ------------------------------------------------

Production revenue 3,271,255 1,251,244 7,763,827 3,253,079
Royalties (550,233) (143,254) (1,278,414) (315,238)
------------------------------------------------
Net Revenue 2,721,022 1,107,990 6,485,413 2,937,841

Cash flow from continuing
operations (1) 1,243,100 339,011 3,554,239 1,169,960

Per share - basic
and diluted 0.06 0.02 0.16 0.05

Net (loss) income from
continuing operations
(after tax) (421,977) (805,197) 205,374 (1,462,416)
Per share - basic
and diluted (0.02) (0.04) 0.01 (0.07)

Total assets 35,411,216 29,187,929 35,411,216 29,187,929

Shareholders' equity 15,304,310 14,141,008 15,304,310 14,181,008

----------------------- ------------------------------------------------
----------------------- ------------------------------------------------
Weighted average common
shares outstanding
- basic 22,577,404 21,624,405 22,577,404 21,624,405
- diluted 22,605,635 21,624,405 22,605,635 21,624,405
----------------------- ------------------------------------------------
Total shares
outstanding - end of
period 22,577,404 21,684,337 22,577,404 21,684,337

----------------------- ------------------------------------------------
----------------------- ------------------------------------------------

(1) Before changes in non-cash working capital.


President's Letter to Shareholders

On August 23, 2005 Southpoint Resources ("Southpoint") and P3 Energy Ltd. ("P3") completed the previously announced business combination between the two companies. The combination resulted in P3 amalgamating with a wholly owned subsidiary of Southpoint, with the shareholders of P3 receiving one (1) common share of Southpoint for each common share of P3 held by them for the issuance of 10,779,600 shares of Southpoint. Southpoint's corporate name has been changed to E4 Energy Inc. (E4) and has commenced trading on the TSX-Venture Exchange under its new name and new symbol EFE. As a result of the amalgamation, Southpoint acquired all of P3's existing producing and exploration assets.



Upon the restructuring of the company the new management team consists
of:

Paul Starnino Previously, President & Chief
President & Chief Executive Executive Officer of E3 Energy Inc.
Officer

Glenn Downey Previously, Senior Vice President of
Senior Vice President E3 Energy Inc.

Graham Cormack Previously, Vice President,
Vice President, Engineering & Engineering & Operations of E3 Energy
Operations Inc.

Franco Civitarese Previously, Controller of E3 Energy
Vice President, Finance & Chief Inc.
Financial Officer

Randy Bergmann Previously, Land Manager of Kinloch
Vice President, Land Resources Inc.


This team consists of the original founding management team of E3 Energy Inc., which was a TSX listed company that sold to StarPoint Energy in January 2005 and was the significant transaction by which StarPoint converted to an energy trust. From December 2002 to December 2004, E3 raised $15.25 million with three separate financings and sold in January 2005 for more than $80 million. This team created sustainable growth in reserves, production, cash flow and net earnings per share through the execution of an integrated growth strategy of focused acquisitions, exploration, exploitation and enhancement of high quality, long life, crude oil and natural gas within core geographic areas. Over that period of time E3 sustained continued growth every quarter on a per share basis and at closing, E3 had reserves of over 6.3mmboe and production of over 1,600 boe/d. E3 was a top decile performer in finding and development costs with a proved producing reserves cost of $7.04/boe and a total proved plus probable finding and development cost of less than $6.00/boe over the life of the company.



The new board of directors consists of:

Mr. Jim Brown Vice President and Chief Financial Officer
Fording Canadian Coal Trust
Elk Valley Coal Partnership

Mr. John Brussa Partner
Burnet Duckworth & Palmer, LLP

Mr. Glenn Downey Senior Vice President
E4 Energy Inc.

Mr. James Pasieka Partner
Heenan Blaikie, LLP

Mr. Scott Ratushny Chairman, Chief Executive Officer
Pilot Energy Ltd.

Mr. Scott Saxberg President & Chief Executive Officer
Crescent Point Energy Trust

Mr. Paul Starnino President & Chief Executive Officer
E4 Energy Inc.


Current E4 Energy Inc. Profile

- current production of approximately 630 boe/d split at 60% natural gas and 40% light oil and natural gas liquids

- reserves of approximately 2.1 mmboes proved plus probable. (Paddock Linstrom report July 1, 2005)

- 43,000 net acres of undeveloped land at a 61% average working interest

- current annualized cash flow of approximately $9.0 million and net debt including working capital deficiencies of $7.5 million

- expanded credit facilities with a major lending institution from $8.5 million to $10 million

- a full portfolio of exploration and development opportunities with more than 12 drilling locations and more than 10 re-completion opportunities on the combined B.C. and Alberta asset base

Business Outlook

The management of E4 believes the business combination of Southpoint and P3 makes good business sense. The two companies are complementary to each other, and together create the foundation for a strong exploration and production business from which to grow.

The E4 management team has demonstrated the technical ability to effectively explore, exploit and enhance properties through a focused and disciplined business strategy. E4 will continue to look for growth through both acquisitions and asset development.

The new company has an established production platform and an extensive inventory of drilling and engineering opportunities by which management believes have excellent growth potential.

E4 is well positioned for continued growth for the remainder of the year and through 2006.

Management's Discussion and Analysis

Management's Discussion and Analysis ("MD&A") of financial and operational results, dated August 29, 2005, should be read in conjunction with the audited consolidated financial statements as at and for the twelve months ended December 31, 2004 and the consolidated financial statements and Management Discussion and Analysis for the six month period ended June 30, 2005. Our audited financial statements and other disclosure documents are filed on SEDAR @ www.sedar.com.

Barrels of oil equivalent ("boe") amounts mentioned herein have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel ("bbl") of oil. This conversion conforms to National Instrument 51-101 - Standards for Oil and Gas Activities of the Canadian Securities Administrators (NI 51-101). The term "boe" may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All comparisons refer to the period ended June 30, 2005 compared with the period ended June 30, 2004, unless otherwise indicated. Estimates of future operating and financial performance are based on information currently available.

The MD&A contains certain terms such as "cash flow from operations", "cash flow per share", "cash flow", "netbacks per boe". These measurements should not be considered an alternative to, or more meaningful than, net income or cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles ("GAAP") as an indicator of the Company's performance or liquidity. Southpoint believes that in addition to net income, cash flow from operations and operating netback are useful supplemental measures as they demonstrate Southpoint's ability to generate the cash necessary to repay debt or fund future growth through capital investment. Investors are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with GAAP as an indication of Southpoint's performance. Southpoint's method of calculating these measures may differ from other companies and accordingly, may not be comparable to measures used by other companies. For these purposes, Southpoint defines cash flow from operations as funds provided by operations before changes in non-cash operating working capital and defines operating netback as revenue less royalties and operating expenses.

Certain statements in this MD&A are forward-looking statements. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by Southpoint at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors, many of which are beyond the control of Southpoint. There is no representation by Southpoint that actual results achieved during the forecast period will be the same, in whole or in part, as forecast.

The interim reporting period for the Company will cover a six month period ending June 30, 2005, and comparative figures will reflect the six month period ending June 30, 2004. Due to the change in business activities from mining to oil and gas activities, all mining activities are considered discontinued operations.



When used in this MD&A, the following abbreviations have the meanings
set forth below:

Oil and natural gas liquids Natural gas
------------------------------------------------------------------------

bbl barrel of oil mcf thousand cubic feet
boe barrels of oil equivalent mcf/d thousand cubic feet per day
boe/d barrels of oil equivalent
per day
bopd barrels of oil per day
NGLs natural gas liquids


On August 23, 2005, Southpoint completed a business combination with P3 Energy Ltd. (P3), whereby the management of P3 replaced the management of Southpoint and changed the name of the Company to E4 Energy Inc. As such, these statements reflect results prior to the business combination.

Production

Southpoint's production in the six month period ended June 30, 2005 averaged 787 boe per day resulting in an increase of 80 percent over the same period of 2004 and an 99 percent increase from the three month quarter ended June 30, 2004 compared to the same three month period of 2005. This increase is due to new production being brought on in the Airport area.

The commodity mix for the six month period ended June 30, 2005 consisted of 50 percent light crude oil and NGLs and 50 percent natural gas. For the three month quarter ended June 30, 2005 the mix consisted of 44 percent light crude oil and NGL's and 56 percent natural gas.



------------------------------------------------------------------------
Operating Highlights Three Six
(6 mcf = 1 bbl) Months Ended June 30 Months Ended June 30
2005 2004 2005 2004
----------------------- ------------------------------------------------

Natural gas (mcf/day) 2,280 1,290 2,380 1,319

Operating netback
($ per mcf)
Sales price 7.47 7.36 7.84 6.97
Royalties (excludes
royalty tax credits) 1.47 1.56 1.50 1.49
Operating costs - field 1.83 1.50 2.01 1.51
Transportation costs 0.20 0.23 0.22 0.21
------------------------------------------------

Netback ($ per mcf) 3.97 4.07 4.11 3.76

Oil and NGLs (bbls/day) 296 125 391 219

Operating netback
($ per bbl)
Sales price 63.01 47.68 61.51 44.60
Royalties (excludes
royalty tax credits) 9.56 1.96 9.64 2.08
Operating costs - field 13.32 4.54 8.59 5.87
Transportation costs 4.09 4.52 5.30 4.11
------------------------------------------------

Netback ($ per bbl) 36.04 36.66 37.98 32.54

----------------------- ------------------------------------------------
Daily Average Production
(boe/day) 676 340 787 438
----------------------- ------------------------------------------------
----------------------- ------------------------------------------------


Revenues

The Company's petroleum and natural gas revenues increased by 161 percent to $3,271,255 for the second quarter of 2005 from $1,251,244 for the same three month quarter of 2004. For the first six months of 2005 petroleum and natural gas sales increased 139 percent to $7,763,827 from $3,253,079 for the six month period ended June 30, 2004. The average oil and NGL price for the second quarter of 2005 increased 32 percent to $63.01 per bbl as compared to $47.68 recorded for the same three month quarter of 2004. For the six month period ended June 30, 2005 average oil and NGL prices increased 38 percent to $61.51 from $44.60 for the same period of 2004. The Company also experienced a 1 percent and 12 percent increase in natural gas pricing for the three and six month period ended June 30, 2005 respectively from the same periods of 2004. The increase in revenues quarter over quarter and period over period for June 30, 2005 is due to the increase in average daily production coupled with the noted increase in commodity pricing.

Production is sold on month to month contracts and prices fluctuate with current market conditions. To date, the Company has not entered into any hedging contracts.

Royalties

Royalties (net of the Royalty Tax Credits) amounted to $1,278,414 or 16 percent of revenues and $550,233 or 17 percent of revenues for the six and three month periods ended June 30, 2005. This compares to $315,238 or 10 percent of revenues and $143,254 or 11 percent for the six and three month periods ended June 30, 2004. The percentage increase in royalties is directly related to increases in production volumes, increases in commodity prices and minimal B.C. Royalty Credits for Summer Drilling available to the Company in the first six months of 2005. As at June 30, 2005 the Company has exhausted all available royalty credits for the summer drilling program.

Expenses

Field Operating Costs

Southpoint's field operating costs in Q2 amounted to $12.01 per boe in 2005 compared to $7.36 per boe for the same period of 2004. For the six month period ending June 30, Southpoint recorded operating expenses of $10.35 per boe and $7.48 per boe in 2005 and 2004, respectively. This increase was due in large part to the start-up costs associated with new facilities at Airport.

Transportation Costs

Transportation costs to transfer oil and NGL's to market increased from $4.11 per bbl for the six months ended June 30, 2004 to $5.30 per bbl for the six months ended June 30, 2005. Q2 oil and NGL transportation costs were $4.09 per bbl in 2005, compared to $4.52 per bbl in 2004.

Transportation costs for natural gas increased from $0.21 per mcf for the six months ended June 30, 2004 to $0.22 per mcf for the six months ended June 30, 2005. The second quarter of 2005 resulted in Southpoint recording gas transportation costs of $0.20 per mcf, compared to $0.23 for the same period of 2004.

General and Administrative

The Company continues to monitor the general and administrative costs with all efforts being made to ensure such costs are appropriately reduced.

The Company's general and administrative expenses totaled $522,605 and $941,882 for three and six months ending June 30, 2005 as compared to $345,924 and $828,970 for the three and six months ended June 30, 2004. The overall increase is the result of a general increase in office and overhead costs along with additional technical staff being required for the increased production volumes.

The Company uses the full cost method of accounting for its oil and natural gas operations and capitalizes certain general and administrative expenses directly related to its exploration activities. In the first and second quarter of 2005, $103,250 was capitalized as compared to $107,963 for the first and second quarters of 2004.



------------------------------------------------------------------------
General and Three Six
Administrative Expense Months Ended June 30 Months Ended June 30
2005 2004 2005 2004
$ $ $ $
----------------------- ------------------------------------------------

Total G&A expense 583,726 417,200 1,074,080 953,235

Capitalized recovery (51,625) (57,300) (103,250) (107,963)

Overhead recovery (9,496) (13,976) (28,948) (16,302)

----------------------- ------------------------------------------------
G&A expense 522,605 345,924 941,882 828,970
----------------------- ------------------------------------------------
----------------------- ------------------------------------------------


Subordinated Notes and Interest Expense

In December 2004, the Company issued $2,000,000 of 11 percent subordinated notes. Directors and employees of the Company subscribed to $1,550,000 of these notes. These notes carry a half warrant for each $1.50 of principal with each whole warrant entitling the holder to acquire one common share of the Company at a price of $1.50 per share for a period of 18 months. An equity component of $272,133, representing the Black-Scholes value, was assigned to the warrants and included in shareholders' equity. In April, 2005 $75,000 of notes were repaid to a subscribing company having a director in common.

Interest expense for the second quarter ended June 30, 2005 totaled $138,088 as compared to $105,740 for the second quarter ended June 30, 2004. For the six months ended June 30, 2005, interest expense amounted to $264,724 compared to $195,945 for the six months ended June 30, 2003. The increase in interest paid is predominantly the result of increased bank debt.

Depletion, Depreciation & Accretion

The depletion, depreciation and accretion charges for the first six months of 2005 increased to $3,545,479 from $3,082,245 in the first six months of 2004. For the three month period ended June 30, 2005 this charge amounted to $1,505,723 compared to $1,159,443 for the same three month period of 2004.



------------------------------------------------------------------------
Depletion, Depreciation Three Six
and Accretion Months Ended June 30 Months Ended June 30
2005 2004 2005 2004
$ $ $ $
----------------------- ------------------------------------------------

Depletion, P&NG assets 1,454,301 1,118,905 3,416,144 2,995,283
Assets under capital
lease 17,274 30,346 56,571 66,689
Depreciation - other 18,047 4,481 42,052 8,963
------------------------------------------------
Depletion and
depreciation 1,489,622 1,153,732 3,514,767 3,070,935
Accretion 16,101 5,711 30,712 11,310
------------------------------------------------
1,505,723 1,159,443 3,545,479 3,082,245
------------------------------------------------
------------------------------------------------

Gross capital assets
before depletion,
depreciation and
accretion 31,246,177 25,227,737 34,031,812 26,189,724
----------------------- ------------------------------------------------
% of Gross Capital
Assets 4.8 4.6 10.4 11.8
----------------------- ------------------------------------------------
----------------------- ------------------------------------------------


Income and Capital Taxes

The Company has sufficient tax pools such that it does not expect any income taxes payable for 2005 and thus no income tax expense is being recognized. The Company has fulfilled its flow through share obligation as at February, 2005 on shares issued and renounced in December, 2004; hence, no Part XII.6 tax is payable.

Future income tax liability decreased by $173,231 during the six month period ended June 30, 2005 over the balance recorded at December 31, 2004. This decrease reflects the tax effect of the timing differences between the net book value of the assets and the related tax pools of $682,235 and the tax effect of the flow-through shares renounced of $478,888.

Cash Flow and Net Income

For the three and six months ended June 30, 2005, cash flows from continuing operations were $1,243,100 and $3,554,239 respectively or $0.06 and $0.16 per share on a fully diluted basis. For the three and six months ended June 30, 2004, cash flows from continuing operations were $339,011 and $1,169,960 respectively or $0.02 and $0.05 per share. The increased cash flows over the same period in 2004 are due to increased production and related increases in commodity pricing.

The Company recorded net income for the six month period ending June 30, 2005 of $205,374 or $0.01 per share on a basic and fully diluted basis as compared to a net loss for the six month period ending June 30, 2004 of $1,427,117 or $0.07 per share. For the three month period ended June 30, 2005 the Company recognized a net loss of $421,977 or $0.02 per share on a basic and fully diluted basis as compared to a net loss of $768,398 or $0.04 per share. The losses incurred in the second quarters of 2005 and 2004 are the result of reduced production from the prior quarter due to season road bans. The overall increase in earnings for the six month period of 2005 compared to the same six month period of 2004 is directly related to the increase in production volumes coupled with strong commodity prices.

Capital Expenditures

Capital expenditures for the six months ended June 30, 2005 were $4,144,130 as compared to $2,138,322 for the six months ended June 30, 2004. The increase in capital spending in the first six months of 2005 as compared to the first six months of 2004 is specifically attributable to the costs related to the finalization of the production facilities at Airport, the construction of the Laprise B Pool gas pipeline and compressor facility, the drilling and completion of a 100 percent exploration well in the Conroy, B.C. area and the completion of a 100 percent oil well in Lagarde, B.C. These capital expenditures were funded by cash flow from operations, proceeds of the December 2004 flow through private placement and funds from the Company's bank facility.



------------------------------------------------------------------------
Capital Expenditures Three Six
Months Ended June 30 Months Ended June 30
2005(1) 2004 2005 2004
$ $ $ $
----------------------- ------------------------------------------------

Land (44,014) 60,501 2,370 233,246
Drilling & completions 219,300 452,509 2,330,854 778,835
Facilities & pipelines 639,674 359,444 1,703,101 658,491
G & A capitalization 51,675 57,300 103,350 107,963
Other 4,455 176,281 4,455 359,787
------------------------------------------------

----------------------- ------------------------------------------------
Total capital
expenditures 871,090 1,106,035 4,144,130 2,138,322
----------------------- ------------------------------------------------
----------------------- ------------------------------------------------
(1) $48,321 of land costs were reclassified to drilling, completions,
facilities and pipelines during the three month period ended June
30, 2005


Liquidity and Capital Resources

As at June 30, 2005, the Company had a working capital deficiency of $3,191,047, excluding bank loans of $8,050,326 as compared to a working capital deficiency of $5,105,981, excluding bank loans of $6,478,887 as at March 31, 2005. As at December 31, 2004, the Company recorded a working capital deficiency of $5,457,467, excluding a bank loan of $5,087,100.

During the three months ended June 30, 2005 the Company renegotiated a $1,500,000 increase to the revolving term credit facility available from a major Canadian chartered bank. The cumulative advances cannot exceed $8,500,000 and will bear interest at the bank prime rate plus 0.5 percent.

As at June 30, 2005, the Company had not maintained the bank's required ratio of current assets to current liabilities of 1:1 or better. The bank has acknowledged that the Company has not met this requirement and no action will be taken by the bank at this time.

The Company will utilize cash flow and bank financing in order to reduce its working capital deficiency. Cash flow from operations continues to improve quarter over quarter, and will be instrumental in meeting the Company's financial requirements.

Commitments

The Company has office lease space commitments of $135,996 and $101,996 for the twelve and nine month periods ended June 30, 2006 and March 30, 2007, respectively at which time the lease will terminate. This commitment will be shared by other companies that currently share the office space.

Capital lease obligations are outlined in Note 7 to the unaudited consolidated interim financial statements for the six month period ended June 30, 2005.

Related Party Transactions

Southpoint charged a company, with which it has directors in common, $5,000 per month for the first six months of 2005. All other services are charged at cost. Total charges for office space and services for the six months ended June 30, 2005 were $91,553. As at June 30, 2005 the amount included in accounts payable and accrued liabilities was $50,281 (December 31, 2004 - $93,520).

Subsequent Events

On July 14, 2005, P3 Energy Ltd. ("P3") and the Company entered into an Acquisition Agreement (the "Agreement" whereby the Company will amalgamate with 1175251 Alberta Ltd., a wholly-owned subsidiary of the Company. Through the Agreement, shareholders of P3 will receive one (1) common share of the Company for each common share of P3 formerly held by them, for an issuance of up to 10,779,600 shares of the Company. See Note 14 of the June 30, 2005 unaudited interim financial statements for additional comments.

Seasonality

The Company's operations in northeastern B.C. are subject to seasonal interruptions. Typically, production during the second quarter is reduced due to spring break-up. During this period, melting conditions result in temporary road bans that prohibit the movement of petroleum and NGL products. The third and fourth quarters usually do not experience these fluctuations.

Discontinued Operations

The final property held for resale was disposed of during the year ended December 31, 2004 and all related expenses settled in 2004. No additional discontinued operations expenses have been recognized or are expected.

Environment and Safety

The oil and gas industry is subject to environmental regulation under federal and provincial legislation. Some of our operations are in environmentally sensitive areas and we are committed to conducting our operations in a manner that minimizes environmental impact and the likelihood of environmental damage. Environmental reviews are completed as part of our due diligence when new property acquisitions are made. Additionally, we have implemented a program to review all of our producing properties on a rotating basis to assess and monitor the environmental impact of our operations. We estimate and provide for our liability in respect of the reclamation and restoration of lands upon which our operations are conducted.

We maintain a safety policy that is designed to comply with current government regulations for the oil and gas industry. Our employees and field contractors receive necessary training and follow our safety manual and the policies set out in occupational health and safety regulations. We monitor these standards to ensure compliance with any change to the policies or regulations. Regular safety audits are undertaken to ensure that all operations comply with government regulations and industry standards and to identify opportunities to reduce risks associated with field operations. We also maintain a formal emergency response plan detailing procedures that our employees and contractors must follow in the event of an emergency.

Business Risks

As a junior petroleum and natural gas explorer, developer and producer, Southpoint is faced with various risks inherent to the oil and gas industry that are outside of our control. These include: exploration uncertainty, production risk, access to processing and shipping facilities, commodity price fluctuation, interest and foreign exchange rate risks, conditions affecting the supply and demand for hydrocarbons, government regulations, royalty and tax structures and environmental protection.

The oil and gas industry in western Canada is highly competitive and we compete with other oil and gas companies that have greater resources. Southpoint's continued success will depend on our ability to find new hydrocarbon reserves at a low cost through exploration, development and acquisition and in conducting our operations in a cost-effective manner.

We attempt to mitigate the various forms of risk inherent in the industry in a number of ways, including by employing experienced and motivated staff, utilizing new technologies, controlling and reviewing ongoing costs, generating new economic projects in areas where we have a good understanding of the geological risks and potential diversification of commodity mix, use of financial hedging instruments and maintaining sufficient levels of business, comprehensive and property insurance to safeguard our assets.

Southpoint Resources Ltd.

Management's Report

The accompanying financial statements have been reviewed by management and have been prepared in accordance with Canadian generally accepted accounting principles. The Company's management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the period. These estimates and assumptions are based on management's best information and judgment and, in the near term, are not expected to materially change the recorded amount of assets, liabilities, revenues and expenses. The financial statements have been prepared using policies and procedures established by management and outlined in the notes to the June 30, 2005 consolidated interim financial statements along with the December 31, 2004 consolidated annual financial statements and reflect fairly the Company's financial condition and results of operations.

The Audit Committee of the Board of Directors has reviewed the first quarter ended June 30, 2005 financial statements with management. These financial statements have been approved by the Board of Directors on the recommendation of the Audit Committee.

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



(signed)
President and Chief
Executive Officer


Unaudited Consolidated Financial Statements of

SOUTHPOINT RESOURCES LTD.

Second Quarter Ended June 30, 2005 and 2004


SOUTHPOINT RESOURCES LTD.
Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
------------------------------------------------------------------------
June 30, December 31,
2005 2004
(Unaudited) (Audited)
$ $
----------------------------------
ASSETS
CURRENT
Accounts receivable 2,509,791 3,765,867
Prepaid expenses and deposits 103,559 90,054
----------------------------------
2,613,350 3,855,921

Petroleum and natural gas assets
(Note 7) 30,486,333 29,873,067

Goodwill 2,311,533 2,311,533
----------------------------------
35,411,216 36,040,521
----------------------------------
----------------------------------

LIABILITIES
CURRENT
Accounts payable and accrued
liabilities 5,702,087 9,016,315
Bank loan (Note 3) 8,050,326 5,087,100
Current portion of capital lease
obligations (Note 8) 102,310 297,073
----------------------------------
13,854,723 14,400,488

Capital lease obligation (Note 8) - 78,401
Subordinated notes (Note 4, 12, 14) 1,750,529 1,735,156
Future income taxes 3,599,346 3,772,577
Asset retirement liability (Note 9) 902,309 657,221
----------------------------------
20,106,907 20,643,843

SHAREHOLDERS' EQUITY
Share capital (Note 10) 18,606,172 19,085,060
Share purchase loan (Note 14) (48,000) (48,000)
Contributed surplus (Note 10) 622,422 441,277
Deficit (3,876,285) (4,081,659)
----------------------------------
15,304,309 15,396,678
----------------------------------
35,411,216 36,040,521
----------------------------------
----------------------------------


APPROVED BY THE BOARD

"M. Scott Ratushny"
M. Scott Ratushny, Director

"John Brussa"
John Brussa, Director

See accompanying notes to Consolidated Financial Statements


SOUTHPOINT RESOURCES LTD.
Consolidated Statements of Income and Deficit
------------------------------------------------------------------------
Three Six
Months ended Months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
$ $ $ $
------------------------------------------------------------------------
REVENUE
Petroleum and natural gas
sales 3,271,255 1,251,244 7,763,827 3,253,079
Royalties (net of Royalty
Tax Credits) (550,233) (143,254)(1,278,414) (315,238)
--------------------------------------------
2,721,022 1,107,990 6,485,413 2,937,841
--------------------------------------------

EXPENSES
Production 890,275 384,852 1,905,713 811,002
General and administrative 522,605 345,924 941,882 828,970
Interest 138,088 105,740 264,724 195,945
Finance charge 45,436 15,872 90,373 32,256
Deferred financing cost
amortization - 33,740 - 67,480
Depletion, depreciation
and accretion (Note 7) 1,505,723 1,159,443 3,545,479 3,082,245
Loss on asset retirement 97,175 140,986 97,175 140,986
--------------------------------------------
3,199,302 2,186,557 6,845,346 5,158,884

Loss from disposal of
subsidiary (Note 13) 86,799 - 86,799 -

--------------------------------------------
NET LOSS FROM CONTINUING
OPERATIONS, BEFORE TAXES (565,079)(1,078,567) (446,732)(2,221,043)
--------------------------------------------

(PROVISION FOR) RECOVERY
OF INCOME TAXES
Future income taxes 143,102 300,870 652,106 813,627
Part XII.6 tax - (27,500) - (55,000)

NET INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
(Note 6) - 36,799 - 35,299
--------------------------------------------

NET (LOSS) INCOME (421,977) (768,398) 205,374 (1,427,117)
--------------------------------------------

DEFICIT, BEGINNING OF PERIOD 3,454,308 2,784,682 4,081,659 2,125,963
--------------------------------------------

DEFICIT, END OF PERIOD 3,876,285 3,553,080 3,876,285 3,553,080
--------------------------------------------
--------------------------------------------

INCOME (LOSS) PER SHARE
FROM CONTINUING OPERATIONS $ (0.02)$ (0.04)$ 0.01 $ (0.07)
--------------------------------------------
--------------------------------------------

INCOME (LOSS) PER SHARE
- basic and diluted $ (0.02)$ (0.04)$ 0.01 $ (0.07)
--------------------------------------------
--------------------------------------------

See accompanying notes to Consolidated Financial Statements


SOUTHPOINT RESOURCES LTD.
Consolidated Statements of Cash Flows
------------------------------------------------------------------------
Three Six
Months ended Months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
$ $ $ $
------------------------------------------------------------------------
OPERATING
Net loss from continuing
operations, before
income taxes (565,079)(1,078,567) (446,732)(2,221,043)
Adjustment for:
Finance Charge 45,436 15,873 90,373 32,256
Depletion, depreciation
and accretion (Note 7) 1,505,723 1,159,443 3,545,479 3,082,245
Deferred financing cost
amortization - 33,740 - 67,480
Loss on disposal of
subsidiary (Note 13) 86,799 - 86,799 -
Loss on settlement of
asset retirement 97,175 140,986 97,175 140,986
Stock option benefit 73,046 67,536 181,145 68,036
--------------------------------------------
CASH FLOWS RELATING TO
CONTINUING OPERATIONS 1,243,100 339,011 3,554,239 1,169,960

Asset retirement costs
incurred (99,007) - (99,007) -
--------------------------------------------
1,144,093 339,011 3,455,232 1,169,960
Changes in non-cash
working capital (2,777,500)(1,191,102)(2,520,570)(3,488,825)
--------------------------------------------
(1,633,407) (852,091) 934,662 (2,318,865)
--------------------------------------------
FINANCING
Proceeds from bank loan 1,571,370 640,735 2,963,157 2,572,054
Proceeds from exercise
of warrants,
net of expenses - - - 2,847
Repayment of subordinated
notes (75,000) - (75,000) -
Repayment to shareholder - (300,000) - -
Deferred financing cost - - - 226,183
Repayment of capital
leases (59,370) (68,507) (133,215) -
--------------------------------------------
1,437,000 272,228 2,754,942 2,801,084
--------------------------------------------
INVESTING
Purchase/development
of P&NG assets (871,090)(1,106,035)(4,144,130)(2,138,322)
Changes in non-cash
working capital 1,052,497 - 439,526 -
Proceeds from disposal
of subsidiary 15,000 - 15,000 -
Proceeds from sale of assets - 1,535,673 - 1,535,673
--------------------------------------------
196,407 429,638 (3,689,604) (602,649)
--------------------------------------------
- (150,225) - (120,430)

CASH FLOWS RELATING TO
DISCONTINUED OPERATIONS - 95,803 - 79,700
--------------------------------------------

NET (DECREASE) IN CASH - (54,422) - (40,730)

CASH, BEGINNING OF PERIOD - 54,422 - 40,730
--------------------------------------------

CASH, END OF PERIOD - - - -
--------------------------------------------
--------------------------------------------

SUPPLEMENTARY INFORMATION
Interest paid 138,088 105,740 264,724 195,945
--------------------------------------------
--------------------------------------------
Income taxes paid - - - -
--------------------------------------------
--------------------------------------------
Working capital of
subsidiary sold (Note 13) (9,389) - (9,389) -
--------------------------------------------
--------------------------------------------
Capital lease assumed
by purchaser (139,949) - (139,949) -
--------------------------------------------
--------------------------------------------

See accompanying notes to Consolidated Financial Statements


SOUTHPOINT RESOURCES LTD.
Notes to Consolidated Financial Statements
For the six months ended June 30, 2005 and 2004


1. INCORPORATION AND NATURE OF OPERATIONS

Naneco Minerals Ltd. ("Naneco") was continued under the laws of the Province of Alberta and changed its name to Southpoint Resources Ltd. ("Southpoint") on February 6, 2002. Southpoint has discontinued its mining operations and refocused its efforts to the exploration and development of petroleum and natural gas in Western Canada. It is a public company traded on the TSX Venture Exchange as a tier one issuer.

2. SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements have, in management's opinion, been properly prepared using careful judgement with reasonable limits of materiality. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto, for the year ended December 31, 2004 as filed on SEDAR (at www.sedar.com). These interim financial statements have been prepared following the same accounting policies and methods of computation as the year end financial statements.

3. BANK LOAN

The Company increased its available revolving term credit facility to a maximum of $8,500,000 from $7,000,000. This facility continues to bear an interest rate of bank prime plus 0.50%. As at June 30, 2005, $8,050,326 was drawn on this loan (December 31, 2004 - $5,087,100). The loan is secured by a demand debenture for $10 million secured by a first floating charge on all assets and a general assignment of book debts. The Company's debt has been classified as a current obligation due to the demand nature of this facility.

As at June 30, 2005 the Company had not maintained the bank's required ratio of current assets to current liabilities of 1:1 or better. The bank has acknowledged that the Company has not met this requirement. No action will be taken by the bank at this time.

Subsequent to June 30, 2005 the maximum amount of the facility was increased to $10 million.

4. SUBORDINATED NOTES

On December 17, 2004, the Company issued $2,000,000 of subordinated notes that bear interest at a rate of 11 percent per annum for a period of 18 months. The subordinated notes carry a half warrant for each $1.50 of principal with each whole warrant entitling the holder to acquire one common share of the Company at a price of $1.50 per share for a period of 18 months. During the second quarter ended June 30, 2005 $75,000 of notes had been repaid to a company with a director in common. (see Note 12 ,14).

The subordinated notes were segregated into debt and equity components based upon their respective fair values at the date of issuance. The $272,133 equity component represents the Black-Scholes value assigned to the warrants attached to the notes and included in shareholders' equity. The assumptions used in this calculation were the same as those used in calculating the fair value of the stock option plan (see Note 10).

5. CONVERTIBLE DEBENTURES

On December 17, 2004, the Company redeemed all of the outstanding convertible debentures at par plus accrued interest. The total payment was $3,494,092 comprised of the principal amount of $3,434,000 and accrued interest of $60,092.

6. DISCONTINUED OPERATIONS

During the year ended December 31, 2004 the Company disposed of its remaining mining properties held for resale.

Consolidated statement of operations and consolidated statement of cash flows

The following summarizes the consolidated statement of operations and consolidated statement of cash flows information for the Company's discontinued operations:



Six months ended
June 30
2005 2004
-----------------------------
Statement of Operations $ $
-----------------------------
Gain on sale of certain properties
held for resale - 50,379
Expenses - 15,080
-----------------------------

Net loss from discontinued operations - 35,299
-----------------------------
-----------------------------


Six months ended
June 30
2005 2004
-----------------------------
Statement of Cash Flows $ $
-----------------------------
Investing activities - 94,780
Operating activities - (15,080)
-----------------------------

Cash flows relating to discontinued
operations - (79,700)
-----------------------------
-----------------------------


7. CAPITAL ASSETS

------------------------------------------
June 30, 2005
------------------------------------------
Accumulated
Depletion and Net Book
Cost Depreciation Value
$ $ $
------------------------------------------
Petroleum and natural gas
properties and related
equipment 43,521,768 (13,350,572) 30,171,196
Assets under capital lease 380,000 (123,686) 256,314
Office furniture,
equipment and other 186,800 (127,977) 58,823
------------------------------------------
44,088,568 (13,602,235) 30,486,333
------------------------------------------
------------------------------------------


December 31, 2004
------------------------------------------
Accumulated
Depletion and Net Book
Cost Depreciation Value
$ $ $
------------------------------------------
Petroleum and natural gas
properties and related
equipment 39,165,832 (9,884,071) 29,281,761
Assets under capital lease 705,000 (177,031) 527,969
Office furniture,
equipment and other 182,345 (119,008) 63,337
------------------------------------------
40,053,177 (10,180,110) 29,873,067
------------------------------------------
------------------------------------------


The costs of unproven lands at June 30, 2005, of $1,714,084 (December 31, 2004 - $1,714,084) have been excluded from the depletion calculation.

The Company capitalized $103,250 (December 31, 2004 - $202,088) of general and administrative costs related to exploration and development activity for the period ended June 30, 2005.

8. CAPITAL LEASE OBLIGATION

The future minimum lease payments under the capital lease are as follows:



----------
Period ending June 30 $
----------

2006 105,209
Less: Amount representing interest 2,899
----------
Current portion 102,310
----------


Interest on the capital leases is calculated at 6.75 percent annually with monthly lease instalments of $11,690. The term of the lease expires in March 2006.

9. ASSET RETIREMENT OBLIGATION

At June 30, 2005, the Company's total estimated undiscounted costs to settle its asset retirement obligations with respect to crude oil and natural gas properties was $1,442,800 (December 31, 2004 - $1,353,950). These payments are expected to be made over the next twenty-five years at varying times and will be funded from general Company resources at the time of abandonment, restoration and reclamation. These costs have been discounted using a credit-adjusted, risk-free interest rate of 8.0 percent and inflation of 2.0 percent. A reconciliation of the discounted asset retirement obligation is provided below:



----------
Asset retirement obligation
Balance - December 31, 2004 $ 657,221
Retirement obligations acquired on acquisitions -
Increase in estimated retirement obligations 214,375
Accretion expense 30,713
----------
Balance - June 30, 2005 $ 902,309
----------
----------


10. SHARE CAPITAL

The Company is authorized to issue an unlimited number of common shares. Changes in the issued share capital are as follows:



Number of Amount
Shares $
--------------------------
Common Shares:
--------------------------
Balance, December 31, 2003 21,472,439 17,138,030
--------------------------
Issued for cash pursuant to:
Flow through common shares 800,000 1,240,000
Issued on exercise of warrant 1,898 2,847
Issued on exercise of options 76,400 86,600
Stock based compensation on exercised options - 10,690
Issued on conversion of debenture 226,667 334,760
--------------------------
22,577,404 18,812,927
--------------------------
--------------------------
Warrants:
Warrants issued with subordinated notes 666,667 272,133
--------------------------
--------------------------
Share capital as at December 31, 2004 19,085,060

Tax effect on flow-through shares renounced (478,888)
------------
Share capital as at June 30, 2005 18,606,172
------------
------------


Flow-through shares

On December 30, 2004, The Company issued 800,000 flow-through shares for proceeds of $1,240,000. The Company renounced $1,240,000 to shareholders effective in 2004 under the "look back" provision governing flow-through shares and will be renounced and accounted for in 2005. As at February 28, 2005, all flow-through expenditures had been made.

Stock option plan

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. Two hundred thousand options are fully vested upon grant and the remainder vest at a rate of 33% on each of the two anniversary dates of the grant and 34% on the third anniversary date of the grant. The option's maximum term is five years.



------------------------------
Weighted Average
Exercise Price
Options $
------------------------------
Balance, December 31, 2004 1,831,400 1.34
Options cancelled (26,400) 1.50
Options granted 175,000 1.25
-----------
Balance, June 30, 2005 1,980,000 1.33
-----------
-----------
Number of options currently exercisable 801,664 1.31
-----------
-----------


As at June 30, 2005, the following stock options were outstanding:

------------------------------------------------------------------------
Remaining
Contractual Life
Number of Shares Exercise Price (Years) Expiry Date
------------------------------------------------------------------------

150,000 0.94 0.1 July 30, 2005
50,000 1.50 0.8 April 16, 2006
400,000 1.50 2.6 March 19,2008
1,005,000 1.30 4.1 April 21, 2009
200,000 1.50 4.2 October 1, 2009
175,000 1.25 4.5 January 14, 2010
-----------------
1,980,000
-----------------
-----------------


The following table summarizes information about the stock options
outstanding and exercisable at June 30, 2005:

------------------------------------------------------------------------
Options Outstanding Weighted Average
Range of and Exercisable at Remaining
Exercise Prices June 30, Contractual Life Exercise Price
$ 2005 (Years) $
------------------------------------------------------------------------
0.94 150,000 0.1 0.94
1.50 50,000 0.8 1.50
1.50 266,665 2.7 1.50
1.30 334,999 3.8 1.30
---------------------
0.94 - 1.50 801,664
---------------------
---------------------


The fair-value of options granted during the period was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for the period ended June 30, 2005: risk-free interest rate of 4.0%; dividend yield of 0%; volatility factor of the market price of the Company's common shares of 70%; and an average expected life of the options of 3 years. The same assumptions were used for the year ended December 31, 2004.

Warrants

On February 5, 2004 200,000 share purchase warrants expired. The value ascribed to these warrants upon issue remains in share capital in the amount of $106,989.

Earnings (Loss) per share

Basic and diluted earnings (loss) per share is calculated based on the weighted average number of shares outstanding during the period ended June 30, 2005 of 22,577,404 and 22,605,635 respectively (June 30, 2004 basic and diluted - 21,624,405).

11. COMMITMENTS

The Company has committed to future minimum payments under an operating lease for office facilities for each of the next two years as follows:



June 30, 2005 $
--------------------------------
2006 135,995
2007 101,996


In addition to these amounts, the Company is responsible for its proportionate share of operating costs pertaining to the noted office facilities. The lease terminates March 30, 2007.

12. RELATED PARTY TRANSACTIONS

Southpoint Resources Ltd. charged a company, with which it had directors in common, $5,000.00 per month for office space for the first three months of 2005. All other services are charged at cost. For the six month period ended June 30, 2005 charges for rent and services totalled $91,553 (December 31, 2004 - $93,520). The amount outstanding at June 30, 2005 totalled $50,281.

In December 2004, the Company issued $2,000,000 of 11 percent subordinated notes. $1,550,000 of the notes were subscribed to by directors or employees of the Company (see Note 4).

13. DISPOSAL OF SUBSIDIARY

Southpoint Resources Ltd. disposed of its subsidiary Southpoint Trucking Ltd. on June 1, 2005 for gross proceeds of $15,000. This resulted in a net loss to the Company of $86,799.

14. SUBSEQUENT EVENTS

On July 14, 2005, P3 Energy Ltd. ("P3") and the Company entered into an Acquisition Agreement (the "Agreement") whereby the Company will amalgamate with 1175251 Alberta Ltd., a wholly-owned subsidiary of the Company. Through the Agreement, shareholders of P3 will receive one (1) common share of the Company for each common share of P3 formerly held by them, for an issuance of up to 10,779,600 shares of the Company. In addition, as part of the Agreement, the vesting of options held by Company management and employees was accelerated by one year resulting in an additional 615,000 options being vested. Upon closing of this transaction on August 23, 2005, the subordinated notes were redeemed and repaid in full in the amount of $1,925,000 and the share purchase loan of $48,000 was settled. At the annual shareholders meeting, the name of the Company was changed to E4 Energy Inc. and the management team of P3 assumed the management of the Company. In addition, the Company and P3 have a director in common.

In July, 2005 options totalling 150,000 at an exercise price of $0.94 per share were exercised for proceeds of $141,000. Further, 35,000 options at an exercise price of $1.30 expired on August 16, 2005.

Contact Information

  • E4 Energy Inc.
    Paul Starnino
    President & Chief Executive Officer
    (403) 266-6747, ext. 27
    Email: pstarnino@e4energy.ca
    or
    E4 Energy Inc.
    Franco Civitarese
    Vice President, Finance & Chief Financial Officer
    (403) 266-6747, ext. 31
    Email: fcivitarese@e4energy.ca