Endev Energy Inc.
TSX : ENE

Endev Energy Inc.

August 12, 2005 17:20 ET

Endev Energy Inc. Announces 2005 Second Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 12, 2005) -

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

(All amounts are in Canadian dollars unless stated otherwise)

Endev Energy Inc. (TSX:ENE) is pleased to announce financial and operating results for the second quarter of 2005.

Endev Energy experienced a very successful second quarter of 2005, demonstrating solid growth over the same period of 2004. The Company drilled a number of successful wells and established a program for increasing production capacity, which should have a positive impact in subsequent quarters.

Highlights of this performance include a:

- 27 percent increase in production to 3,850 boe per day;

- 33 percent increase in gross revenue to $15.7 million;

- 89 percent increase in funds from operations to $10.4 million;

- 412 percent increase in net income;

- and a net drilling success rate of 94 percent with 42 gross (34.9 net) wells drilled.



HIGHLIGHTS Three months ended Six months ended
June 30 June 30 % June 30 June 30 %
2005 2004 change 2005 2004 change
------------------------------------------------------------------------
Financial
($000,
except per
share amounts)

Gross revenue 15,724 11,794 33 32,371 23,510 38
Funds from operations 10,426 5,520 89 19,382 11,783 64
Basic per share 0.12 0.06 100 0.22 0.14 57
Diluted per share 0.12 0.06 100 0.22 0.13 69
Net income 2,497 488 412 3,220 761 323
Basic per share 0.03 0.01 200 0.04 0.01 300
Diluted per share 0.03 0.01 200 0.04 0.01 300
Capital expenditures,
net 8,420 7,962 6 12,034 11,050 9
Net debt 24,665 25,649 (4) 24,665 25,649 (4)

Operations
Daily production
Crude oil (bbl) 568 916 (38) 605 897 (33)
Natural gas liquids
(bbl) 131 85 54 139 113 23
Natural gas (mcf) 18,907 12,169 55 19,816 13,309 49
Total production
(boe @ 6:1) 3,850 3,029 27 4,047 3,229 25
Average sales price
Crude oil ($/bbl) 56.58 44.65 27 53.66 41.07 31
Natural gas liquids
($/bbl) 38.63 38.73 - 38.02 37.86 -
Natural gas ($/mcf) 7.16 7.02 2 7.12 6.61 8
Netback per boe (6:1) ($)
Petroleum and
natural gas revenues 44.88 42.78 5 44.20 40.01 10
Royalties, net of ARTC 6.06 8.01 (24) 7.63 7.41 3
Operating expenses 5.23 7.09 (26) 6.19 6.95 (11)
Transportation 0.89 1.12 (21) 0.90 0.88 2
Operating netback 32.70 26.56 23 29.48 24.77 19


Daily production for the second quarter of 2005 averaged 3,850 boe per day, compared to 3,029 in the same period in 2004. Natural gas accounted for 82 percent of production on a boe basis. The increase in production over the same period in 2004 is the result of the 2004 Majorville drilling program that was brought on in the latter part of 2004. During the second quarter of 2005 accounting adjustments were made to reflect the payout of a group of 4 wells in a prior period that resulted in a reduction in production for the quarter of approximately 100 boe per day. After adjusting for the effects of the payout the decline in production from 4,245 in the first quarter of 2005 was 7 percent which is in line with our expectations.

Funds from operations were $10.4 million or $0.12 per share in the second quarter of 2005 compared to $9.0 million or $0.10 per share in the first quarter of 2005 and $5.5 million or $0.06 per share in the second quarter of 2004. The increase in funds from operations from the first quarter of 2005 was primarily attributable to a reduction in operating expenses and royalties on an absolute basis and a unit of production basis partially offset by a reduction in revenues due to lower production.

Operational Activities

During the second quarter of 2005, Endev continued to focus on its shallow gas drilling program in the Majorville area where the Company drilled and cased 42 gross (34.9 net) Endev wells. All wells have been completed resulting in 40 commercial wells. An additional 24 gross (24 net) wells have been drilled and cased as of August 12, 2005.

During the second quarter, Endev also completed 4 gross (3.725 net) recently acquired existing wellbores for commingled gas production from the Milk River/Medicine Hat and/or Belly River zones.

The Company has initiated the pipeline right of way surveying and acquisition process that will allow us to tie in approximately 100 wells for the Majorville 2005 drilling program. Tie-ins are being scheduled in phases due to the requirement to shut down facilities to tie-in wells and to minimize the tie-in costs. Incremental production will begin to be realized late in the third quarter.

As part of an ongoing infrastructure optimization project, Endev initiated the design and regulatory approval process for construction of an additional compression/dehydration facility in the Majorville area. The purpose of this facility is to reduce wellhead flowing pressure in this part of the field which will result in accelerated and incremental production. Operating costs will also be reduced as the gas is redirected from third-party facilities to Company owned facilities. Regulatory approval for this facility was received in early July. On site construction is scheduled to begin in late August with a late September on stream date.

Outlook

Endev's shallow gas drilling program was progressing ahead of schedule utilizing as many as three rigs until the unusually wet conditions brought drilling to a halt in early June. After almost six weeks we resumed drilling in mid July and now have two rigs operating. Assuming no other setbacks we expect to complete the approximately 100 well drilling program on schedule and on budget.

Endev is pursuing farmin, joint venture and acquisition opportunities. Endev was successful in purchasing two parcels of land at Alberta Crown land sales year to date - one in Drumheller and one in Majorville.

A key part of Endev's new venture work this year is building an inventory of drilling prospects in the deep rights (Mannville age rocks) beneath our Majorville shallow gas opportunities. Many new drilling prospects have been added to the 'opportunity inventory' and our first Mannville well will be drilled shortly. Endev expects to license two additional Mannville wells this year.

Outside the Majorville area other opportunities on Endev lands have been identified and added to the opportunity inventory. Two such opportunities have culminated in the approval of two partner operated wells. One well is scheduled to be drilled in Alberta and one in Saskatchewan. The Saskatchewan well will be the first horizontal oil well Endev has participated in drilling.

Opportunities for coal bed methane (CBM) were identified in both Drumheller and Majorville. We have commenced a program to re-complete existing wellbores to evaluate the potential for CBM at Drumheller and Majorville. At Drumheller, a suspended well was recently re-completed for the first CBM evaluation. The CBM evaluation occurred mainly over the Belly River coals. Though gas was produced, preliminary results indicate limited CBM potential in this well. Future CBM wells will be evaluated west of this location where Endev will test Horseshoe Canyon coals which have greater gas potential than the Belly River coals. At Majorville, re-completion candidates for CBM evaluation have been identified and Endev will consider a joint venture partner to evaluate our extensive land holdings in the area.

Second quarter production of 3,850 boe per day was in line with our expectations. We expect production to begin to flatten during the third quarter as the new production comes on stream towards the end of the third quarter. Production is then expected to increase in the fourth quarter of 2005. As stated in our first quarter report, average production for the year is expected to exceed 4,200 boe per day, up 20 percent from the average production of 3,500 boe per day in 2004.

I would like to thank all of our employees for their continuing contributions, the Board of Directors for their stewardship and our shareholders for their investment in us.



On behalf of the Board of Directors,

Cameron MacGillivray
President and CEO
August 12, 2005


MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis (MD&A), as provided by the management of Endev Energy Inc. (Endev or the Company), of Endev's operating and financial results for the three and six month periods ended June 30, 2005 compared with the corresponding periods in the prior year is based on currently available information. This commentary should be read in conjunction with the 2004 annual report, the 2004 MD&A contained therein and the audited consolidated financial statements for the years ended December 31, 2004 and 2003 and the interim report for the quarter ended March 31, 2005. This commentary is based on information available to August 12, 2005. It is incremental to the MD&A for the year ended December 31, 2004 which is included in the 2004 annual report and the interim report for the quarter ended March 31, 2005.

The Company's audited consolidated financial statements, current annual information form and other documents are filed on SEDAR at www.sedar.com.

PRESENTATION OF FUNDS FROM OPERATIONS

The financial data presented has been prepared in accordance with Canadian generally accepted accounting principles (GAAP) except for the term funds from operations. Funds from operations has been presented for information purposes only and should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in accordance with GAAP. The determination of Endev's funds from operations may not be comparable to the same reported by other companies. The reconciliation of net income and funds from operations can be found in the statements of cash flows in the financial statements. The Company calculates funds from operations as funds from operations prior to the change in non-cash working capital related to operating activities. Funds from operations per share was calculated using the same weighted average shares outstanding used in calculating net income per share.

BASIS OF BARREL OF OIL EQUIVALENT

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Significant accounting policies used by Endev Energy Inc. are disclosed in note 2 to the December 31, 2004 consolidated financial statements. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in these judgments and estimates may have a material impact on the Company's financial results and condition. The following discusses such accounting policies and is included in Management's Discussion and Analysis to aid the reader in assessing the critical accounting policies and practices of the Company and the likelihood of materially different results being reported. Endev's management reviews its estimates regularly. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts, that differ materially from current estimates.

The following assessment of significant accounting policies is not meant to be exhaustive. The Company might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

Oil and Gas Reserves

Under NI 51-101, "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable (it is likely that the actual remaining quantities recovered will exceed the estimated Proved reserves). In accordance with this definition, the level of certainty targeted by the reporting company should result in at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated reserves. In the case of "Probable" reserves, which are less certain to be recovered than Proved reserves, NI 51-101 states that it must be equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable reserves. With respect to the consideration of certainty, in order to report reserves as Proved plus Probable, the reporting company must believe that there is at least a 50 percent probability that quantities actually recovered will equal or exceed the sum of the estimated Proved plus Probable reserves. Proved plus Probable reserves as defined in NI 51-101 are viewed by many industry participants as being comparable to the "Established" reserves definition that was used historically. Under the previous rules, the Established reserves category was generally calculated on the basis that Proved plus half of Probable reserves (as those terms were defined in NP 2B) represented the best estimate at the time.

Oil and gas reserves estimates are made using all available geological and reservoir data as well as historical production data. Estimates are reviewed and revised as appropriate. Revisions occur as a result of changes in prices, costs, fiscal regimes, reservoir performance or a change in the Company's plans. The reserve estimates are also used in determining the Company's borrowing base for its credit facilities and may impact the same upon revisions or changes to the reserves estimates. The effect of changes in Proved oil and gas reserves on the financial results and position of the Company is described under the heading "Full Cost Accounting for Oil and Gas Activities".

FULL COST ACCOUNTING FOR OIL AND GAS ACTIVITIES

Depletion Expense

The Company uses the full cost method of accounting for exploration and development activities. In accordance with this method of accounting, all costs associated with exploration and development are capitalized whether successful or not. The aggregate of net capitalized costs and estimated future development costs less estimated salvage values is amortized using the unit-of-production method based on estimated proved oil and gas reserves.

An increase in estimated proved oil and gas reserves would result in a corresponding reduction in depletion expense. A decrease in estimated future development costs would result in a corresponding reduction in depletion expense.

Withheld Costs

Certain costs related to unproved properties may be excluded from costs subject to depletion until proved reserves have been determined or their value is impaired. These properties are reviewed quarterly and any impairment is transferred to the costs being depleted or, if the properties are located in a cost centre where there is no reserve base, the impairment is charged directly to income.

Full Cost Accounting Ceiling Test

The Company is required to review the carrying value of all property, plant and equipment, including the carrying value of oil and gas assets, for potential impairment. Impairment is indicated if the carrying value of the long-lived asset or oil and gas cost centre is not recoverable by the future undiscounted cash flows. If impairment is indicated, the amount by which the carrying value exceeds the estimated fair value of the long-lived asset is charged to earnings.

The ceiling test is based on estimates of reserves, production rate, petroleum and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material.

Asset Retirement Obligations

The Company, under the current policy, is required to provide for future removal and site restoration costs. The Company must estimate these costs in accordance with existing laws, contracts or other policies. These estimated costs are charged to income and the appropriate liability account over the expected service life of the asset. When future removal and site restoration costs cannot be reasonably determined, a contingent liability may exist. Contingent liabilities are charged to earnings when management is able to determine the amount and the likelihood of the future obligation.

Income Tax Accounting

The determination of the Company's income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by management.

Goodwill

The process of accounting for the purchase of a company results in recognizing the fair value of the acquired company's assets on the balance sheet of the acquiring company. Any excess of the purchase price over fair value is recorded as goodwill. Since goodwill results from the culmination of a process that is inherently imprecise the determination of goodwill is also imprecise. In accordance with the issuance of CICA section 3062, "Goodwill and Other Intangible Assets" goodwill is not amortized but assessed periodically for impairment. The process of assessing goodwill for impairment necessarily requires Endev to determine the fair value of its assets and liabilities. Such a process involves considerable judgment.

Legal, Environmental Remediation and Other Contingent Matters

The Company is required to both determine whether a loss is probable based on judgment and interpretation of laws and regulations and determine that the loss can reasonably be estimated. When the loss is determined it is charged to earnings. The Company's management must continually monitor known and potential contingent matters and make appropriate provisions by charges to earnings when warranted by circumstance.

RESULTS OF OPERATIONS



Production

Endev achieved the following daily production rates:

Three months ended June 30 Six months ended June 30
Daily production 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Crude oil (bbl/d) 568 916 (38) 605 897 (33)
Natural gas liquids
(bbl/d) 131 85 54 139 113 23
Natural gas (mcf/d) 18,907 12,169 55 19,816 13,309 49
------------------------------------------------------------------------
Total production
(boe/d) 3,850 3,029 27 4,047 3,229 25
------------------------------------------------------------------------
------------------------------------------------------------------------


Production increased 27 percent to 3,850 boe/d for the three months ended June 30, 2005 compared to 3,029 boe/d for the same period in 2004. Natural gas accounted for 82 percent of the Company's production in the second quarter of 2005 compared to 67 percent in 2004. Crude oil and natural gas liquids (NGLs) production for the second quarter decreased 30 percent or 302 bbl/d to 699 bbl/d, compared to 1,001 bbl/d for the same period in 2004. The decrease was due to expected production declines and the payout of a group of four wells. Natural gas production increased 55 percent to 18,907 mcf/d compared to 12,169 mcf/d for the same period in 2004. The increase in natural gas production was the result of a very successful drilling program in the Majorville area in the latter part of 2004.

During the second quarter of 2005 accounting adjustments were made to reflect the payout of a group of four wells in a prior period that resulted in a reduction in production for the quarter of approximately 100 boe per day. After adjusting for the effects of the payout the decline in production from the first quarter of 2005 was in line with expectations at 7 percent.

Production increased 25 percent to 4,047 boe/d for the six months ended June 30, 2005 compared to 3,229 boe/d for the same period in 2004. Natural gas accounted for 82 percent of the Company's production in the six month period compared to 69 percent in 2004. Crude oil and NGL production for the six months ended June 30, 2005 decreased 26 percent or 266 bbl/d to 744 bbl/d, compared to 1,010 bbl/d for the same period in 2004. The decrease was due to expected production declines. Natural gas production increased 49 percent to 19,816 mcf/d compared to 13,309 mcf/d for the same period in 2004. The increase in natural gas production was the result of a very successful drilling program in the Majorville area in the latter part of 2004.

Commodity Markets

Natural Gas

Canadian spot gas prices at AECO for the second quarter of 2005 rose by $0.48/mcf or nearly 7 percent over the prior quarter to average $7.35/mcf. AECO prices were up $0.37/mcf or 5 percent year-over-year while NYMEX prices increased by $0.83 US/mcf, 14 percent, over the same period. Much of the lag in the performance of Canadian gas prices is attributable to the appreciation in the Canadian dollar. To date in the third quarter of 2005 AECO spot natural gas prices have averaged approximately $7.50 /mcf.

Crude Oil

International crude prices continued to strengthen with benchmark West Texas Intermediate (WTI) averaging $53.17 US/bbl for the second quarter of 2005, up $3.32 US/bbl over the prior quarter, and $14.85 US/bbl or 39 percent over the second quarter of 2004. Prices were up sharply in June and continued to rise in July based on strong demand for crude and refined products. The US refinery sector also experienced operating problems due to the high levels of demand. The Canadian par price for light sweet crude rose just 30 percent year-over-year due to strong appreciation of the Canadian dollar. To date in the third quarter of 2005 WTI has averaged approximately $59.50 US/bbl.



Average Prices Received

Endev realized the following commodity prices:

Average sales Three months ended June 30 Six months ended June 30
prices realized 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Crude oil ($/bbl) 56.58 44.65 27 53.66 41.07 31
Natural gas liquids
($/bbl) 38.63 38.73 - 38.02 37.86 -
Natural gas ($/mcf) 7.16 7.02 2 7.12 6.61 8
Weighted Average
($/boe) (6:1) 44.88 42.78 5 44.20 40.01 10



Operating Netbacks

Endev realized the following operating netbacks from oil and gas
operations:

Netback per Three months ended June 30 Six months ended June 30
boe (6:1)($) 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Petroleum and -
natural gas
revenues 44.88 42.78 5 44.20 40.01 10
Royalties,
net of ARTC 6.06 8.01 (24) 7.63 7.41 3
Operating expenses 5.23 7.09 (26) 6.19 6.95 (11)
Transportation 0.89 1.12 (21) 0.90 0.88 2
------------------------------------------------------------------------
Operating netback 32.70 26.56 23 29.48 24.77 19
------------------------------------------------------------------------
------------------------------------------------------------------------


Production Revenue

Endev realized the following gross revenues:

Three months ended June 30 Six months ended June 30
($000s) 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Crude oil 2,926 3,724 (21) 5,874 6,706 (12)
Natural gas liquids 460 299 54 957 782 22
Natural gas 12,327 7,770 59 25,529 16,016 59
Sulphur 11 1 1000 11 6 83
------------------------------------------------------------------------
Total 15,724 11,794 33 32,371 23,510 38
------------------------------------------------------------------------
------------------------------------------------------------------------



For the second quarter, gross revenues increased 33 percent to $15.7 million from $11.8 million for the same period in 2004 mainly due to the increase in natural gas production volume. Natural gas production increased 55 percent to 18,907 mcf/d in the second quarter of 2005 compared to 12,169 mcf/d for the same period in 2004. The average price received for natural gas increased 2 percent to $7.16 per mcf in the second quarter of 2005 compared to $7.02 per mcf in 2004.

Crude oil and NGL production for the second quarter decreased 30 percent or 302 bbl/d to 699 bbl/d, compared to 1,001 bbl/d for the same period in 2004. This decrease resulted from production declines. The average price received for crude oil increased 27 percent to $56.58 per bbl in the second quarter of 2005 compared to $44.65 in 2004.

For the first six months, gross revenues increased 38 percent to $32.4 million from $23.5 million for the same period in 2004 mainly due to the increase in natural gas production volume. Natural gas production increased 49 percent to 19,816 mcf/d in the first six months of 2005 compared to 13,309 mcf/d for the same period in 2004. The average price received for natural gas increased 8 percent to $7.12 per mcf in the first six months of 2005 compared to $6.61 per mcf in 2004.

Crude oil and NGL production for the first six months decreased 26 percent, or 266 bbl/d to 744 bbl/d, compared to 1,010 bbl/d for the same period in 2004. This decrease resulted from production declines. The average price received for crude oil increased 31 percent to $53.66 per bbl in the first half of 2005 compared to $41.07 in 2004.



Royalties
Three months ended June 30 Six months ended June 30
2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Royalties ($000s) 2,124 2,209 (4) 5,587 4,357 28
Average royalty rate (%) 14 19 (26) 17 19 (11)
$/boe 6.06 8.01 (24) 7.63 7.41 3
------------------------------------------------------------------------


Royalties, net of the Alberta Royalty Tax Credit (ARTC), were $2.1 million in the second quarter of 2005 and $2.2 million in the second quarter of 2004, and averaged $6.06 per boe or 14 percent of revenue compared to $8.01 per boe or 19 percent of revenue for the same period in 2004. The Company benefited from a recovery of Crown royalties as a result of higher Gas Cost Allowance for prior periods and from the recovery of royalties on the payout of wells from prior periods. After adjusting for these items, royalties averaged approximately 19 percent for the six months ended June 30, 2005.

Royalties, net of the Alberta Royalty Tax Credit (ARTC), were $5.6 million in the first six months of 2005 and $4.4 million in 2004, and averaged $7.63 per boe or 17 percent of revenue compared to $7.41 per boe or 19 percent of revenue for the same period in 2004.



Expenses
Three months ended June 30 Six months ended June 30
($000s) 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Operating 1,833 1,953 (6) 4,533 4,086 11
Transportation 314 308 2 663 520 28
General and
administrative 615 1,181 (48) 1,400 1,765 (21)
Interest 318 280 14 665 506 31



Three months ended June 30 Six months ended June 30
Expenses per boe $ 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Operating 5.23 7.09 (26) 6.19 6.95 (11)
Transportation 0.89 1.12 (21) 0.90 0.88 2
General and
administrative 1.75 4.28 (59) 1.91 3.00 (36)
Interest 0.91 1.01 (10) 0.91 0.86 6


Operating

During the second quarter of 2005, operating expenses decreased 6 percent to $1.8 million compared to $2.0 million in the same period for 2004. On a per unit basis, operating costs decreased to $5.23 per producing boe during the quarter compared to $7.09 per producing boe in the same period for 2004. As a result of increased gas production and by redirecting gas from third-party facilities to Company owned and operated facilities the Company is processing higher volumes of gas resulting in lower per unit costs. The Company also benefited from throughput adjustments realized in the second quarter of 2005 that related to prior years and from the recovery of operating costs on the payout of wells from prior periods. After adjusting for these items operating costs averaged approximately $6.75 per boe for the first six months of 2005.

During the first six months of 2005, operating expenses increased 11 percent to $4.5 million compared to $4.1 million in the same period for 2004. On a per unit basis, operating costs decreased to $6.19 per producing boe during the first half of 2005 compared to $6.95 per producing boe in the same period for 2004. The Company is processing higher volumes of gas through Company owned and operated facilities resulting in lower per unit costs.

Transportation

Transportation costs averaged $0.89 per boe in the second quarter of 2005 compared to $1.12 per boe in the second quarter of 2004.

Transportation costs averaged $0.90 per boe for the first six months of 2005 compared to $0.88 per boe in 2004.

General and Administrative

General and administrative costs decreased to $0.6 million in the second quarter of 2005 compared to $1.2 million for the same period in 2004. On a barrel of oil equivalent basis, general and administrative costs decreased 59 percent to $1.75 per boe from $4.28 per boe. The higher costs in 2004 were a direct result of severance obligations and executive search firm fees. The Company capitalizes the salaries and associated direct costs of professional staff directly associated with the Company's exploration and development activities. The Company capitalized $0.2 million of general and administrative costs in the second quarter of 2005 and $0.2 million in the second quarter of 2004.

General and administrative costs decreased to $1.4 million in the first half of 2005 compared to $1.8 million for the same period in 2004. On a barrel of oil equivalent basis general and administrative costs decreased 36 percent to $1.91 per boe from $3.00 per boe. The Company capitalized $0.4 million of general and administrative costs in the first half of 2005 and $0.4 million in 2004.

Interest and Financing Charges

Interest and financing charges for the second quarter of 2005 were $0.3 million or $0.91 per producing boe compared to $0.3 million or $1.01 per producing boe for the comparable period in 2004. The decrease in interest and financing charges on a per unit basis is a direct result of higher production volumes.

Interest and financing charges for the first six months of 2005 were $0.7 million or $0.91 per producing boe compared to $0.5 million or $0.86 per producing boe for the comparable period in 2004. The increase in interest and financing charges is the result of higher average debt.

Stock-Based Compensation

Stock-based compensation costs were $0.3 million in the second quarter of 2005 compared to $0.07 million for the same period of 2004, reflecting the options issued in the latter part of 2004 and the first half of 2005.

Stock-based compensation costs were $0.7 million for the first six months of 2005 compared to $0.1 million in 2004.

Income and Capital Taxes

Current taxes consists of Federal Large Corporations Tax (LCT), which is calculated based on the debt and equity balances of each legal entity comprising Endev Energy Inc. as the consolidated entity, and the Saskatchewan Capital Tax and Resource Surcharge, which is based on Saskatchewan oil and gas revenues and Manitoba Capital Tax. The 2003 Federal budget proposed that the LCT rate be reduced over a period of five years so that by 2008, the tax will be eliminated. The Company has no current income tax provision and does not anticipate a current income tax provision in the remainder of 2005.

Current taxes were $0.02 million for the second quarter of 2005 compared to $0.3 million in 2004. For the first half of 2005 current taxes are $0.06 million compared to $0.5 million in 2004.

Future income tax liabilities arise due to the difference between the tax basis of assets and their respective accounting carrying cost. For the three months ended June 30, the provision for future taxes was $0.9 million in 2005 and a reduction of $0.6 million in 2004. On a year-to-date basis, provision for future income taxes was $1.1 million compared to a reduction of $1.3 million for 2004.

Depletion and Depreciation

Depletion is calculated using the unit-of-production method based on total estimated proved reserves. Depletion and depreciation expense for the second quarter was $6.6 million or $18.83 per boe, compared to $5.4 million or $19.69 per boe for the same period in 2004. The increase in depletion during the second quarter of 2005 compared to 2004 was due to higher production volume.

Depletion expense for the first half of 2005 was $14.2 million or $19.34 per boe compared to $12.0 million or $20.41 per boe in 2004.

Asset Retirement Obligation Accretion

The provision for accretion of asset retirement costs for the second quarter was $0.15 million or $0.44 per boe, compared to $0.13 million or $0.50 per boe for the same period in 2004.

For the six months ended June 30, 2005, accretion of asset retirement obligation was $0.3 million or $0.42 per boe compared to $0.3 million or $0.46 per boe in 2004.



Net Income and Funds from Operations

($thousands,
except per Three months ended June 30 Six months ended June 30
share amounts) 2005 2004 % change 2005 2004 % change
------------------------------------------------------------------------
Net income 2,497 488 412 3,220 761 323
Basic per share 0.03 0.01 200 0.04 0.01 300
Diluted per share 0.03 0.01 200 0.04 0.01 300

Funds from operations 10,426 5,520 89 19,382 11,783 64
Basic per share 0.12 0.06 100 0.22 0.14 57
Diluted per share 0.12 0.06 100 0.22 0.13 69


The Company realized net income of $2.5 million for the second quarter, with earnings of $0.03 per share on a basic and diluted basis compared to $0.5 million for the same period in 2004, with earnings of $0.01 per share on a basic and diluted basis. The increase in net income was due mainly to the increase in natural gas production volumes and revenues. Funds from operations in the second quarter, before adjusting for the change in non-cash working capital, increased 89 percent to $10.4 million in 2005 compared to $5.5 million for the same period in 2004. On a per share basis funds from operations increased 100 percent to $0.12 per share on a basic and diluted basis compared to $0.06 per share on a basic and diluted basis for the same period in 2004.



SUMMARY OF QUARTERLY FINANCIAL INFORMATION

($000s, except per June 30 March 31 Dec. 31 Sept. 30
share amounts) 2004 2004 2003 2003
------------------------------------------------------------------------

Total daily production
(boe/d) 3,850 4,250 4,518 3,018
Gross revenue 15,724 16,647 17,616 11,224
Funds from operations 10,426 8,956 10,210 5,698
Basic per share 0.12 0.10 0.12 0.07
Diluted per share 0.12 0.10 0.12 0.06
Net income (loss) 2,497 723 305 (140)
Basic per share 0.03 0.01 - -
Diluted per share 0.03 0.01 - -
Capital expenditures, net 8,420 3,614 7,677 15,288
Net debt 24,665 26,780 32,234 35,218


($000s, except per June 30 March 31 Dec. 31 Sept. 30
share amounts) 2004 2004 2003 2003
------------------------------------------------------------------------

Total daily production
(boe/d) 3,029 3,428 2,830 3,066
Gross revenue 11,794 11,715 8,871 9,562
Funds from operations 5,520 6,263 4,047 4,513
Basic per share 0.06 0.07 0.05 0.06
Diluted per share 0.06 0.07 0.05 0.06
Net income (loss) 488 273 (231) 1,103
Basic per share 0.01 - - 0.01
Diluted per share 0.01 - - 0.01
Capital expenditures, net 7,962 3,088 14,717 40,962
Net debt 25,649 23,495 26,680 5,967


CAPITAL EXPENDITURES

The following table outlines Endev's capital expenditures:

Three months ended June 30 Six months ended June 30
($000s) 2005 2004 2005 2004
------------------------------------------------------------------------
Acquisitions - - 1,419 -
Dispositions - - - -
------------------------------------------------------------------------
- - 1,419 -
------------------------------------------------------------------------
Land and seismic 723 438 864 455
Drilling and completions 6,255 7,314 7,978 8,904
Tie-ins and facilities 1,412 210 1,709 1,688
Other 30 - 64 3
------------------------------------------------------------------------
Net property 8,420 7,962 10,615 11,050
------------------------------------------------------------------------
Total net capital
expenditures 8,420 7,962 12,034 11,050
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three months ended June 30, 2005, the Company incurred capital expenditures of $8.4 million. Endev spent $0.7 million for land and seismic primarily in southern Alberta, including additional deep rights and seismic in the Majorville area. During the period, the Company also spent $6.3 million for drilling and completions. In the Majorville area, the Company drilled and cased 42 gross (34.9 net) wells. All wells have subsequently been completed, resulting in 40 commercial wells. The Company also spent $1.4 million for tie-ins and facilities. In the Majorville area, the Company initiated pipeline right-of-way surveying and acquisition for the 2005 drilling program, and design and major equipment procurement for construction of an additional compression/dehydration facility.



SECOND QUARTER 2005 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
------------------------------------------------------------------------
Drumheller - - - - - - - -
Majorville 40 - 2 42 32.9 - 2.0 34.9
Other - - - - - - - -
------------------------------------------------------------------------
Total 40 - 2 42 32.9 - 2.0 34.9
------------------------------------------------------------------------

YEAR-TO-DATE 2005 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
------------------------------------------------------------------------
Drumheller 1 - 1 2 1.0 - 1.0 2.0
Majorville 40 - 2 42 32.9 - 2.0 34.9
Other - - 2 2 - - 1.5 1.5
------------------------------------------------------------------------
Total 41 - 5 46 33.9 - 4.5 38.4
------------------------------------------------------------------------


UNDEVELOPED LAND SUMMARY

As at June 30, 2005 (acres) Gross Net
------------------------------------------------------------------------
Alberta 123,411 73,739
Saskatchewan 750 242
British Columbia 320 44
------------------------------------------------------------------------
Total undeveloped 124,481 74,025
------------------------------------------------------------------------
------------------------------------------------------------------------


LIQUIDITY AND CAPITAL RESOURCES

Endev has a revolving credit facility with the National Bank of Canada for $38 million and an acquisition/development facility of $10 million. At June 30, 2005, the Company had approximately $23.3 million outstanding on its revolving credit facility and a working capital deficiency of $1.4 million for total net debt of approximately $24.7 million.

Total net capital expenditures of $8.4 million for the three months ended June 30, 2005 and $12.0 million for the six months ended June 30, 2005 were funded from operations. It is anticipated that future capital expenditures and operations will be funded with funds from operations and additional debt.


SHARE INFORMATION

The Company had 88,059,223 shares and 4,476,500 options to purchase shares outstanding as at June 30, 2005.

The Company issued a total of 256,669 shares pursuant to the exercise of stock options during the six months ended June 30, 2005.



Three months ended June 30 Six months ended June 30
($000s) 2005 2004 2005 2004
------------------------------------------------------------------------
Shares outstanding
- Basic 88,059 86,465 88,059 86,465
- Diluted 92,536 89,814 92,536 89,814
Weighted average
shares outstanding
- Basic 87,974 86,117 87,914 86,238
- Diluted 89,456 87,637 89,369 87,910


At August 12, 2005, the Company had 88,059,223 shares and 4,476,500 options to purchase shares outstanding.

BUSINESS RISKS

The oil and gas exploration and development sector has inherent risks that begin with the exploration process, which is capital intensive and may or may not encounter economic reserves of crude oil or natural gas, in addition to unforeseen production declines and as a consequence reduced reserves. Increasingly, readily available technology helps to mitigate the risk. Endev employs the most appropriate technology in all areas of its business. The intrinsic business and financial risks within the industry include volatility of commodity prices, fluctuation in supplier costs, inflation, changes in exchange rates, the cost of capital and other macro economic factors. Endev focuses on managing costs within its control and pursuing geographic areas and geologic targets that result in manageable capital risk. By focusing on core areas, Endev reduces risk by utilizing its experience in the area and reducing the administrative and logistical costs of its field activity. In order to minimize the risks to the community and to its field staff and suppliers, Endev demands the highest standards of safety on its leases.

CONTRACTUAL OBLIGATIONS

The Company entered into a lease for office premises commencing January 1, 2004 and terminating on March 29, 2007. The estimated annual obligation, including operating costs at current levels, is $242,000 or $20,100 per month for approximately 13,600 square feet of office space.

CHANGES IN ACCOUNTING POLICIES

The Company did not adopt any new accounting policies during the first half of 2005.

FORWARD-LOOKING STATEMENTS

Certain information regarding Endev Energy Inc. set forth in this entire document, including management's assessment of the Company's future plans and operations contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Company's and management's control including, but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of foreign exchange rates, imperfection of reserve estimates, environmental risks, industry competition, availability of qualified personnel and management, stock market volatility, and timely and cost-effective access to sufficient capital from internal and external sources. Endev's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated to occur or transpire from the forward-looking statements will provide what, if any, benefits to Endev Energy Inc.



ENDEV ENERGY INC.
Consolidated Balance Sheets
June 30 December 31
($000s) 2005 2004
------------------------------------------------------------------------
(Unaudited)
ASSETS
Current
Accounts receivable $ 10,346 $ 7,385
Prepaid expenses and deposits 115 226
------------------------------------------------------------------------
10,461 7,611
Property, plant and equipment (notes 2 and 3) 123,467 125,482
Goodwill 7,800 7,800
------------------------------------------------------------------------
$ 141,728 $ 140,893
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 5) $ 23,272 $ 29,419
Accounts payable and accrued liabilities 11,854 10,402
Current taxes payable - 24
------------------------------------------------------------------------
35,126 39,845
Asset retirement obligations (note 4) 7,857 7,517
Future income taxes 17,997 16,923
------------------------------------------------------------------------
60,980 64,285
------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (note 6) 67,727 67,425
Contributed surplus (note 6) 1,245 627
Retained earnings 11,776 8,556
------------------------------------------------------------------------

80,748 76,608
------------------------------------------------------------------------
$ 141,728 $ 140,893
------------------------------------------------------------------------
------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements

Signed on behalf of the Board:


John F. Driscoll, Director William D. Robertson, F.C.A., Director


ENDEV ENERGY INC.
Consolidated Statements of Operations and Retained Earnings

($000s except per Three months ended Six months ended
share amounts) June 30 June 30 June 30 June 30
(Unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

REVENUES
Petroleum and natural gas $ 15,724 $ 11,794 $ 32,371 $ 23,510
Royalties
(net of Alberta Royalty
Tax Credit) (2,124) (2,209) (5,587) (4,357)
------------------------------------------------------------------------
13,600 9,585 26,784 19,153
------------------------------------------------------------------------

EXPENSES
Operating 1,833 1,953 4,533 4,086
Transportation 314 308 663 520
General and administrative 615 1,181 1,400 1,765
Stock-based compensation 327 70 699 97
Interest 318 280 665 506
Depletion and depreciation 6,599 5,427 14,164 11,993
Accretion of asset retirement
obligations 155 137 305 271
------------------------------------------------------------------------
10,161 9,356 22,429 19,238
------------------------------------------------------------------------
Income (loss) before taxes 3,439 229 4,355 (85)
------------------------------------------------------------------------
TAXES
Current 21 340 61 476
Future income (reduction) 921 (599) 1,074 (1,322)
------------------------------------------------------------------------
942 (259) 1,135 (846)
------------------------------------------------------------------------
NET INCOME 2,497 488 3,220 761
Retained earnings,
beginning of period 9,279 7,903 8,556 7,630
------------------------------------------------------------------------
Retained earnings,
end of period $ 11,776 $ 8,391 $ 11,776 $ 8,391
------------------------------------------------------------------------
------------------------------------------------------------------------


NET INCOME PER SHARE (note 6)
Basic $ 0.03 $ 0.01 $ 0.04 $ 0.01
Diluted $ 0.03 $ 0.01 $ 0.04 $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------
The accompanying notes are integral to these consolidated financial
statements


ENDEV ENERGY INC.
Consolidated Statements Of Cash Flows

Three months ended Six months ended
June 30 June 30 June 30 June 30
($000s)(Unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

Cash provided by (used in)

OPERATIONS
Net income $ 2,497 $ 488 $ 3,220 $ 761
Depletion and depreciation 6,599 5,427 14,164 11,993
Accretion of asset retirement
obligations 155 137 305 271
Future income taxes (reduction) 921 (599) 1,074 (1,322)
Actual abandonment costs (73) (3) (80) (17)
Stock-based compensation 327 70 699 97
------------------------------------------------------------------------

Funds from operations 10,426 5,520 19,382 11,783
Changes in non-cash working
capital (note 7) (4,464) 3,670 (3,532) (3,222)
------------------------------------------------------------------------
5,962 9,190 15,850 8,561
------------------------------------------------------------------------
------------------------------------------------------------------------

FINANCING
Issue of common shares, net 109 288 221 298
Bank indebtedness (3,094) 1,240 (6,147) 2,526
------------------------------------------------------------------------
(2,985) 1,528 (5,926) 2,824
------------------------------------------------------------------------

INVESTING
Capital asset additions (8,420) (7,962) (10,615) (11,050)
Acquisitions - - (1,419) -
Changes in non-cash
working capital (note 7) 5,443 (2,756) 2,110 (2,756)
------------------------------------------------------------------------
(2,977) (10,718) (9,924) (13,806)
------------------------------------------------------------------------

Decrease in cash - - - (2,421)
Cash, beginning of period - - - 2,421
Cash, end of period $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

Interest paid $ 318 $ 280 $ 665 $ 506
------------------------------------------------------------------------
Taxes paid $ 67 $ 48 $ 135 $ 124
------------------------------------------------------------------------
------------------------------------------------------------------------
The accompanying notes are integral to these consolidated financial
statements




Notes to consolidated financial statements
June 30, 2005
(Unaudited) (all tabular amounts in $000s, except per share amounts)


1. BASIS OF PRESENTATION

Endev Energy Inc. (the "Company") is a Calgary-based company involved in the exploration, development and production of petroleum and natural gas in Alberta, Saskatchewan and Manitoba. These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the year ended December 31, 2004. The financial statements should be read in conjunction with the financial statements and notes thereto in the Company's annual report for the year ended December 31, 2004.

2. ACQUISITIONS

On March 4, 2005, Endev completed a property acquisition in the Majorville area for a total purchase price of $1.4 million, subject to adjustments. The purchase was effective February 1, 2005 and operating results were included in the accounts of the Company from March 4, 2005.



3. PROPERTY, PLANT AND EQUIPMENT

June 30 December 31
2005 2004
------------------------------------------------------------------------
Oil and gas properties $ 180,500 $ 168,414
Other assets 282 219
------------------------------------------------------------------------
180,782 168,633
Accumulated depletion and depreciation (57,315) (43,151)
------------------------------------------------------------------------
Net book value $ 123,467 $ 125,482
------------------------------------------------------------------------
------------------------------------------------------------------------


During the six months ended June 30, 2005, the Company capitalized $0.4 million (2004 - $0.4 million), of general and administrative expenses related to exploration and development activities. As at June 30, 2005, the depletion calculation excluded unproved properties of $9.3 million (2004 - $11.3 million).

4. ASSET RETIREMENT OBLIGATIONS

The Company's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. As at June 30, 2005, the Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $14.3 million which will be incurred from 2005 to 2030. The majority of the costs will be incurred between 2012 and 2030. A credit-adjusted risk-free rate of eight percent was used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

June 30 December 31
2005 2004
------------------------------------------------------------------------
Balance, beginning of period $ 7,517 $ 6,587
Accretion expense 305 563
Costs incurred 115 422
Actual abandonment cost (80) (55)
------------------------------------------------------------------------
Balance, end of period $ 7,857 $ 7,517
------------------------------------------------------------------------
------------------------------------------------------------------------


5. BANK INDEBTEDNESS

As at June 30, 2005, the Company has a revolving demand credit facility with a maximum availability of $38.0 million and an acquisition/development facility for $10.0 million. The interest rate at June 30, 2005, was prime (4.25 percent) and subject to quarterly adjustment from time to time based on certain debt to cash flow ratios. The limit of the credit facility is subject to adjustments from time to time to reflect changes in Endev's asset base. There are no principal repayments required on the loan. The credit facility is secured by a $75.0 million fixed and floating charge over all the assets of the Company.

6. SHARE CAPITAL

The authorized share capital of the Company consists of an unlimited number of common shares without nominal or par value.



Common shares Amount
Issued and outstanding
Balance, December 31, 2003 86,481,525 $ 66,617
Options exercised 1,417,501 768
Shares issued in satisfaction of
severance obligations 500,000 450
Contributed surplus associated with
options exercised - 49
Cancelled (596,472) (459)
------------------------------------------------------------------------
Balance, December 31, 2004 87,802,554 $ 67,425
Options exercised 256,669 221
Contributed surplus associated with
options exercised - 81
------------------------------------------------------------------------
Balance, June 30, 2005 88,059,223 $ 67,727
------------------------------------------------------------------------
------------------------------------------------------------------------


The weighted average number of shares outstanding is as follows:

Three months ended June 30 Six months ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Basic 87,974,387 86,117,058 87,913,946 86,238,054
Diluted 89,456,389 87,637,089 89,369,238 87,909,931
------------------------------------------------------------------------


The reconciling items between the basic and diluted weighted average common shares are outstanding stock options.

The Company has a stock option plan where the Company may grant options to its directors, officers, employees and consultants, for up to 10 percent of the issued common stock. The following table summarizes information about the stock option transactions for the period.



Six months ended Year ended
June 30, 2005 December 31, 2004
------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
------------------------------------------------------------------------
Stock options outstanding,
beginning of period 3,771,500 $ 0.89 3,414,000 $ 0.69
Granted 1,305,000 1.36 2,610,000 1.06
Exercised (256,669) 0.86 (1,417,501) 0.54
Cancelled or expired (343,331) 1.50 (834,999) 1.22
------------------------------------------
Stock options outstanding,
end of period 4,476,500 $ 0.98 3,771,500 $ 0.89
------------------------------------------
------------------------------------------

------------------------------------------
Exercisable, end of period 2,523,170 $ 0.81 2,231,505 $ 0.75
------------------------------------------
------------------------------------------


The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions and resulting values for options granted during the six months ended June 30, 2005 as shown in the table below.



Assumptions 2005
------------------------------------------------------------------------
Risk free interest rate (%) 4.00
Expected life (years) 5.00
Expected volatility (%) 60
Weighted average fair value of each option granted ($) 0.74
Dividend yield (%) -


Prior to January 1, 2003, the Company did not record compensation expense when stock options were issued to employees, officers or directors. Had the fair-value method been used for stock options issued prior to January 1, 2003 the Company's net income would approximate the following pro forma amounts:



Three months ended June 30 Six months ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Net income
As reported $ 2,497 $ 488 $ 3,220 $ 761
Pro forma $ 2,486 $ 472 $ 3,198 $ 728


There was no impact on basic and diluted net income per share figures.

June 30 December 31
2005 2004
Contributed Surplus
------------------------------------------------------------------------
Balance, beginning of period $ 627 $ 139
Stock-based compensation expense 699 537
Options exercised (81) (49)
------------------------------------------------------------------------
Balance, end of period $ 1,245 $ 627
------------------------------------------------------------------------


7. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital

Three months ended June 30 Six months ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Accounts receivable $ (749) $ (2,967) $ (2,961) $ (2,501)
Prepaid expenses
and deposits 75 59 111 141
Accounts payable
and accrued
liabilities 1,701 3,550 1,452 (3,916)
Current taxes
payable (48) 272 (24) 298
------------------------------------------------------------------------
Change in
non-cash working
capital $ 979 $ 914 $ (1,422) $ (5,978)
------------------------------------------------------------------------
------------------------------------------------------------------------
Relating to:
Operating
activities (4,464) 3,670 (3,532) (3,222)
Investing
activities 5,443 (2,756) 2,110 (2,756)
------------------------------------------------------------------------
------------------------------------------------------------------------


8. COMPARATIVE FINANCIAL STATEMENTS

Certain prior year's comparative figures have been restated to conform to the current year's presentation.

Endev Energy Inc. is a Canadian oil and gas exploration and production company based in Calgary, Alberta. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol ENE.


Contact Information

  • Endev Energy Inc.
    Cameron MacGillivray
    President and CEO
    (403) 750-2600 or Toll Free 1-888-750-2677
    or
    Endev Energy Inc.
    Scott Bonli, C.A.
    Vice President, Finance and CFO
    (403) 750-2600 or Toll Free 1-888-750-2677
    Email: info@endevenergy.com