Endev Energy Inc.
TSX : ENE

Endev Energy Inc.

November 08, 2006 17:46 ET

Endev Energy Inc. Announces 2006 Third Quarter Results

All amounts are in Canadian dollars unless stated otherwise

CALGARY, ALBERTA--(CCNMatthews - Nov. 8, 2006) -

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

Endev Energy Inc. (TSX:ENE) is pleased to announce financial and operating results for the nine months ending September 30, 2006.

In the third quarter of 2006 Endev utilized its opportunity inventory to diversify its activity with strong performance in the Mannville program and initial drilling activity on two large farm-in areas, while continuing to add to our shallow gas production. Highlights of the quarter include:

- 98 percent success rate on the drilling of 53 gross (45.8 net) wells;

- Tie-in of 49 wells;

- 11 percent production increase over third quarter 2005 and a five percent increase over second quarter 2006;

- 38 percent increase in oil production over third quarter 2005, reflecting Mannville oil success;

- Increased bank revolving credit facility to $60 million.



HIGHLIGHTS

Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Financial
($thousands, except
per share amounts)
Gross revenue 13,972 17,644 (21) 43,981 50,015 (12)
Funds from operations 7,314 11,231 (35) 23,561 30,613 (23)
Basic per share 0.08 0.13 (39) 0.27 0.35 (23)
Diluted per share 0.08 0.12 (33) 0.26 0.34 (24)
Net income (loss) (275) 3,693 - 3,313 6,913 (52)
Basic per share - 0.04 - 0.04 0.08 (50)
Diluted per share - 0.04 - 0.04 0.08 (50)
Capital expenditures,
net 15,296 10,398 47 44,524 22,432 98
Net debt 48,932 23,832 105 48,932 23,832 105

Operations
Daily production
Crude oil (bbl) 714 519 38 648 576 13
Natural gas liquids
(bbl) 65 31 109 75 103 (27)
Natural gas (mcf) 17,803 16,957 5 17,493 18,852 (7)
Total production (boe
@ 6:1) 3,746 3,376 11 3,638 3,820 (5)
Average sales price
Crude oil ($/bbl) 70.16 65.50 7 66.23 57.26 16
Natural gas liquids
($/bbl) 62.04 81.09 (23) 57.20 42.38 35
Natural gas ($/mcf) 5.49 9.15 (40) 6.52 7.73 (16)
Netback per boe (6:1)
($)
Petroleum and natural
gas revenues 40.54 56.82 (29) 44.28 47.96 (8)
Royalties, net of ARTC 5.59 8.77 (36) 7.12 7.97 (11)
Operating expenses 9.08 5.95 53 8.74 6.12 43
Transportation 0.90 1.03 (13) 0.94 0.94 -
Operating netback 24.97 41.07 (39) 27.48 32.93 (17)


Endev Energy's activity level increased substantially in the third quarter of 2006 due to improved field conditions. The Company drilled 53 gross (45.8 net) wells, resulting in 47 gross (39.8 net) gas wells and five gross (5.0 net) oil wells for an overall success rate of 98 percent. In addition, operational activities included completing 31 wells and tying in 49 wells during the quarter. These efforts resulted in a steady increase in production through the third quarter to reach 3,900 boe/d by the end of the quarter. Average production for the third quarter was 3,746 boe/d, an 11 percent increase on a year-over-year basis and up five percent from the second quarter of 2006. We continued to diversify our operations base through our New Ventures drilling program with ongoing success. Greater revenues resulting from increased oil production helped to reduce the impact of lower natural gas prices on funds from operations in the third quarter. Funds from operations were $7.3 million, lower by two percent, while gas prices were nine percent lower than in the previous quarter. At the end of the quarter, Endev had an additional 40 wells scheduled for tie-in prior to the end of the year. Work is well underway on this program and we expect volumes to increase steadily throughout the fourth quarter.

New Ventures - Mannville Program Success

We continued the work on the Mannville drilling program for both oil and gas targets at Majorville. Endev maintained a high success rate and drilled five gross (5.0 net) Mannville wells in the third quarter, resulting in four gross (4.0 net) oil wells for a success rate of 80 percent. Since we began drilling the Mannville program at Majorville in the fourth quarter of last year, we have drilled a total of 13 wells resulting in eight oil and three gas wells for an overall success rate of 85 percent.

Under the oil program, we continued follow-up drilling on our light oil find with four new wells drilled, of which all were cased for oil. Two of these wells were completed and placed on production with initial average rates of approximately 50 boe/d of 34 degree light oil per well. Completion and testing of the remaining two wells is currently underway. The Company expects to drill and complete two additional follow-up wells early next year. Oil from all the wells in the area will be produced through single well batteries and processed at existing Company-owned processing facilities.

Under the gas program at Majorville, Endev tied-in the second of three Mannville gas wells drilled in prior quarters, leaving one well which we expect to bring on production shortly. Several gas well locations initially planned for the fourth quarter will be drilled in the first quarter of 2007. This deferral will allow us to shorten the time between drilling and the start of production. Lastly, one of the oil wells drilled in the third quarter at Majorville also encountered a productive Mannville gas zone. The Company is encouraged by the production test results on the gas zone. We will drill a new gas well adjacent to the original oil well which should be on production in the fourth quarter of 2006.

At Provost, Endev drilled an initial well as part of its drilling commitments to earn its position in the farm-in lands. The Company is encouraged by the results from this potential discovery well and drilling on the second earning well is currently underway. Provost is an oil prone area where Endev's exploration team has a track record of success and many years of exploration experience. This area has the potential to become a new core oil producing area for the Company.

The Company continues to enjoy success in the Mannville program and expects to direct more capital to this play, which will complement our shallow gas program. This program can provide several years of drilling opportunities at current activity levels and Endev will stay focused on expanding that opportunity inventory of Mannville drilling locations.

New Ventures - Shallow Gas

At Admiral, Saskatchewan, Endev began drilling its farm-in program for shallow gas. The Company has high graded the initial lands available and can earn a 50 percent interest in up to 50,000 acres of land, which includes rights in all zones. Our primary focus is on exploring for an aerially extensive shallow gas play. During the quarter, the Company drilled and tested three wells out of an initial program of up to 16 wells. The Company is encouraged by the initial well results and has selected the locations for the next group of earning wells. Drilling will be ongoing in the fourth quarter and may extend into the first quarter of next year.

Majorville - Shallow Gas

The Company finished this year's shallow gas drilling program with the drilling of 43 gross (36.5 net) wells during the third quarter. In addition, 49 wells were tied-in during the quarter, and as of the end of the third quarter, 40 wells are scheduled to be tied-in prior to the end of the year. We believe there is potential to increase overall production volumes through our infrastructure by the introduction of line looping, installation of booster compression and by the removal of restrictions to gas flow in the gathering system. Optimization can be a cost effective way of improving production and efforts are currently underway in the field and will continue over the balance of the year.

Community Support

Endev has been increasing efforts to build strong relationships with the communities in which we work. As an expression of our participation in those communities, we were pleased to provide a special form of community support by making a financial contribution to the villages of Milo and Lomond. At Milo, Endev provided a contribution towards funding for a new library, and at the village of Lomond, funding assistance was provided for a new recreation facility.

Industry Conditions

Our concern continues over the level of costs for services required for our operations. We are encouraged by early indications of a response by the service sector to address cost pressures, concerning shallow gas operations. We also are seeing some evidence of a strengthening in natural gas prices as we move into the winter heating months, more in line with the historical price relationship between natural gas prices and crude oil prices. The pressures on exploration and production economics, while improving, are still significant. Going forward, costs need to come down significantly from their present levels to stimulate a resurgence in shallow gas drilling in Western Canada. We will be selective in the amount and timing of shallow gas operations and will draw upon our inventory of shallow gas locations in line with improving economics.

Changes to Plans

The dramatic softening in natural gas prices over the third quarter has highlighted the value and the importance we enjoy in our broad opportunity inventory, which has allowed us to shift capital towards more economically attractive drilling prospects. Specifically, we reallocated capital away from shallow gas and towards the New Ventures oil and gas prospects. Our Mannville drilling success is confirmation of our strategy to develop the medium risk Mannville program as a complement to our lower risk shallow gas operations. We expect the primary emphasis will be on Mannville activities for the balance of the year. Our basic plan for the second half of the year remains intact, however, we have changed the amount and staging of capital. The changes to expenditures will help us manage the impact on cash flow of lower natural gas prices in the third quarter which may continue in the fourth quarter of the year. We have reduced capital by approximately $5 million while minimizing the impact on production. With this in mind, our total expenditures for the year are expected to be approximately $55 million.

Outlook

The contribution to production from the New Ventures program has continued into the third quarter and will continue to grow in the fourth quarter. We are determined to expand the Company's scope of opportunities to complement the shallow gas operations by adding medium risk, higher reward drilling prospects. Our New Ventures program is directed to that effort and includes the Mannville wells in our current core areas and prospects in new areas accessed through our farm-in and joint venture work. We anticipate the Provost and Admiral farm-in areas will add to the opportunity inventory and we look forward to the results of our wells in these areas. The New Ventures program will be a growing contributor to the Company's future plans and profitability.

We will be focused on completing our operational plans for the fourth quarter which allows for drilling up to eight new wells, placing 40 existing wells on production and field optimization work. Production is expected to grow through the fourth quarter and we estimate exit volumes will be in the lower part of the target range of 4,200 to 4,600 boe/d. The average yearly volume should be slightly lower than our prior estimate of 3,900 boe/d. We believe that the changes to the capital program that we made in the third quarter have improved the company's flexibility, and allow Endev to be more responsive to the realities of the changing economic climate while pursuing profitable production growth. We are excited by our early success in the New Ventures program and are determined to take advantage of the challenges and opportunities which lie ahead.



On behalf of the Board of Directors,


Cameron MacGillivray
President and CEO
November 8, 2006


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 nine months ended September 30, 2006 compared with the corresponding periods in the prior year is based on currently available information. This commentary should be read in conjunction with the 2005 annual report, the 2005 MD&A and the audited consolidated financial statements for the years ended December 31, 2005 and 2004 contained therein and the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2006. This commentary is based on information available to November 8, 2006.

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

NON-GAAP MEASUREMENTS

The financial data presented has been prepared in accordance with Canadian generally accepted accounting principles (GAAP) except for the terms funds from operations and netback. 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. Netback equals total revenue less royalties, operating expenses and transportation expenses.

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.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President and Chief Executive Officer and the Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure.

As at September 30, 2006, Endev's management, including the President and Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of Endev's disclosure controls and procedures as defined under Multilateral Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings. Based on that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2006.



RESULTS OF OPERATIONS

Production

Endev's daily production rates were as follows:

Three months ended Nine months ended
September 30 September 30
Daily production 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Crude oil (bbl/d) 714 519 38 648 576 13
Natural gas liquids
(bbl/d) 65 31 109 75 103 (27)
Natural gas (mcf/d) 17,803 16,957 5 17,493 18,852 (7)
Total production
(boe/d) 3,746 3,376 11 3,638 3,820 (5)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Third quarter production in 2006 increased by 11 percent from the third quarter in 2005 and by five percent from the second quarter of 2006. Natural gas accounted for 79 percent of the Company's production in the third quarter of 2006 compared to 84 percent in 2005. Crude oil production for the third quarter increased 38 percent to 714 bbl/d, compared to 519 bbl/d for the same period in 2005 and 687 bbl/d in the second quarter of 2006. Natural gas production increased five percent to 17,803 mcf/d compared to 16,957 mcf/d for the same period in 2005 and 16,843 mcf/d in the second quarter of 2006 due to new wells being drilled and placed on production offset by the natural decline from existing wells. At September 30, 2006, 40 gas wells were awaiting tie-in. These will be tied-in prior to year end and will add to the fourth quarter production.

Production decreased five percent to 3,638 boe/d for the nine months ended September 30, 2006 compared to 3,820 boe/d for the same period in 2005. Crude oil production for the nine months ended September 30, 2006 increased 13 percent to 648 bbl/d, compared to 576 bbl/d for the same period in 2005. The increase was due to new oil production at Majorville offset by expected production declines in non-core areas. Natural gas production decreased seven percent to 17,493 mcf/d compared to 18,852 mcf/d for the same period in 2005.

Commodity Markets

Natural Gas

Natural gas prices were supported in July and early August by strong cooling demand in the United States and Eastern Canada but weakened after mid August. The AECO spot daily gas index in Alberta decreased $0.37/mcf or six percent in the third quarter of 2006 from the prior quarter to $5.64/mcf. On a year to date basis, AECO decreased $3.66/mcf or 39 percent. Alberta spot prices at AECO underperformed NYMEX on a year to date basis due to the appreciation of the Canadian dollar and weaker conditions in Alberta attributable to the warm winter experienced in the first quarter of 2006.

Crude Oil

West Texas Intermediate (WTI) was down $0.22 US/bbl in the third quarter of 2006 from the prior quarter, averaging $70.48 US/bbl. On a year to date basis, WTI increased by $7.29 US/bbl or 12 percent. Edmonton par averaged $79.08/bbl in the third quarter, up $0.54/bbl from the prior quarter and up $7.91/bbl or 11 percent from a year ago. Strong demand in Western Canada lead to a high correlation with US markets in the short and longer-term comparison.

The Canadian dollar rose against the US Dollar from an average of $0.83 in the third quarter of 2005 to an average of $0.89 in the third quarter of this year.



Average Prices Received

Endev realized the following commodity prices:

Three months ended Nine months ended
Average sales prices September 30 September 30
realized 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Crude oil ($/bbl) 70.16 65.50 7 66.23 57.26 16
Natural gas liquids
($/bbl) 62.04 81.09 (23) 57.20 42.38 35
Natural gas ($/mcf) 5.49 9.15 (40) 6.52 7.73 (16)
Weighted Average ($/boe)
(6:1) 40.54 56.82 (29) 44.28 47.96 (8)
---------------------------------------------------------------------------

The change in Company commodity prices was consistent with the market
trends discussed above.

The Company currently does not have any commodity price risk contracts in
place.

Operating Netbacks

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

Three months ended Nine months ended
Netback per boe September 30 September 30
(6:1) ($) 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Petroleum and natural
gas revenues 40.54 56.82 (29) 44.28 47.96 (8)
Royalties, net of ARTC 5.59 8.77 (36) 7.12 7.97 (11)
Operating expenses 9.08 5.95 53 8.74 6.12 43
Transportation 0.90 1.03 (13) 0.94 0.94 -
---------------------------------------------------------------------------
Operating netback 24.97 41.07 (39) 27.48 32.93 (17)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Production Revenue

Endev realized the following gross revenues:

Three months ended Nine months ended
September 30 September 30
($000s) 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Crude oil 4,610 3,125 48 11,713 8,999 30
Natural gas liquids 368 230 61 1,166 1,188 (2)
Natural gas 8,994 14,269 (37) 31,101 39,796 (22)
Sulphur - 20 (100) 1 32 (97)
---------------------------------------------------------------------------
Total 13,972 17,644 (21) 43,981 50,015 (12)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


For the third quarter, gross revenues decreased 21 percent to $14.0 million from $17.6 million for the same period in 2005 due to the decline in average commodity prices received. The average price received for natural gas has decreased from $9.15 per mcf in the third quarter of 2005 to $5.49 per mcf in the third quarter of 2006 resulting in a decline in natural gas revenue of 37 percent. This decline in natural gas revenue is despite a five percent increase in natural gas production. Crude oil revenue for the third quarter increased 48 percent compared to the same period in 2005. The average price received for crude oil was $70.16 per bbl in the third quarter of 2006 compared to $65.50 in 2005. The oil production from Majorville that has come on stream in 2006 is generally lighter than our other oil production and attracts a higher price. Crude oil revenue accounts for 33 percent of Endev's production revenue in the third quarter of 2006 compared to 18 percent in the same period in 2005. The increase is due to the relative change in the price of crude oil and natural gas and the increase in oil production.

For the first nine months, gross revenues decreased 12 percent to $44.0 million from $50.0 million for the same period in 2005 due to the decrease in natural gas production volumes and lower average prices per boe, specifically natural gas price declines. Natural gas production revenues decreased 22 percent to $31.1 million while oil production revenue increased by 30 percent to $11.7 million in the first nine months of 2006.



Royalties

Three months ended Nine months ended
September 30 September 30
2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Royalties ($000s) 1,926 2,723 (29) 7,074 8,310 (15)
Average royalty rate (%) 14 15 (7) 16 17 (6)
$/boe 5.59 8.77 (36) 7.12 7.97 (11)
---------------------------------------------------------------------------


Royalties, net of the Alberta Royalty Tax Credit (ARTC), were $1.9 million in the third quarter of 2006 and $2.7 million in the third quarter of 2005, and averaged $5.59 per boe or 14 percent of revenue compared to $8.77 per boe or 15 percent of revenue for the same period in 2005.

Royalties, net of the Alberta Royalty Tax Credit (ARTC), were $7.1 million in the first nine months of 2006 and $8.3 million in 2005, and averaged $7.12 per boe or 16 percent of revenue compared to $7.97 per boe or 17 percent of revenue for the same period in 2005.

On September 21, 2006 the Alberta government announced the elimination of the ARTC for royalties paid in respect of production after January 1, 2007. In 2006 the Company qualified for the maximum ARTC of $500,000.



Expenses

Three months ended Nine months ended
September 30 September 30
($000s) 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Operating 3,130 1,847 69 8,680 6,380 36
Transportation 311 319 (2) 933 982 (5)
General and
administrative 705 578 22 2,004 1,978 1
Interest 552 257 115 1,406 922 53

Three months ended Nine months ended
September 30 September 30
Expenses per boe $ 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Operating 9.08 5.95 53 8.74 6.12 43
Transportation 0.90 1.03 (13) 0.94 0.94 -
General and
administrative 2.05 1.86 10 2.02 1.90 6
Interest 1.60 0.82 95 1.42 0.88 61


Operating

During the third quarter of 2006, operating expenses increased to $3.1 million compared to $1.8 million in the same period for 2005. On a per unit basis, operating costs increased 53 percent to $9.08 per producing boe during the quarter compared to $5.95 per producing boe in the same period for 2005. Operating costs on a per unit basis increased in the third quarter of 2006 over the third quarter of 2005 due to a significant increase in the price paid for field goods and services, additional annual repairs and maintenance being done and production per well being lower in 2006.

During the first nine months of 2006 operating expenses increased to $8.7 million compared to $6.4 million in the same period for 2005. On a per unit basis, operating costs increased to $8.74 per producing boe during the first nine months of 2006 compared to $6.12 per producing boe in the same period for 2005. The Company continues to pursue operating efficiencies to offset the rising field service costs. As additional gas is processed through Company owned facilities at Majorville, we anticipate that unit operating costs will decline marginally.

Transportation

Transportation costs averaged $0.90 per boe in the third quarter of 2006 compared to $1.03 per boe in the third quarter of 2005 and $0.94 per boe in the first nine months of 2006 compared to $0.94 per boe in the first nine months of 2005.

General and Administrative

General and administrative costs were $0.7 million in the third quarter of 2006 and $0.6 million in the same period in 2005. On a barrel of oil equivalent basis, general and administrative costs increased to $2.05 per boe from $1.86 per boe.

General and administrative costs were $2.0 million in the first nine months of 2006 and 2005. On a barrel of oil equivalent basis, general and administrative costs increased to $2.02 per boe from $1.90 per boe.

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 $0.3 million of general and administrative costs in the third quarter of 2006 and $0.2 million in the third quarter of 2005. On a year to date basis, $0.8 million of general and administrative costs were capitalized in the first nine months of 2006 and $0.6 million in 2005.

Interest and Financing Charges

Interest and financing charges for the third quarter of 2006 were $0.5 million or $1.60 per producing boe compared to $0.3 million or $0.82 per producing boe for the comparable period in 2005.

Interest and financing charges for the first nine months of 2006 were $1.4 million or $1.42 per producing boe compared to $0.9 million or $0.88 per producing boe for the comparable period in 2005. The increase in interest and financing charges is the result of higher average debt and higher interest rates.

Stock-Based Compensation

Stock-based compensation costs were $0.3 million in the third quarter of 2006 and 2005. Stock-based compensation costs were $1.3 million for the first nine months of 2006 compared to $1.0 million in 2005. As at September 30, 2006, the Company has $1.1 million of unamortized stock-based compensation costs that will be charged to income over the remaining vesting period of the options outstanding.

Income and Capital Taxes

During the second quarter of 2006, the Canadian Federal Government eliminated the Federal Large Corporations Tax (LCT), effective January 1, 2006. Endev pays the Saskatchewan Capital Tax and Resource Surcharge, which is based on Saskatchewan oil and gas revenues and the Manitoba Capital Tax. The Company has no provision for current income taxes in the first nine months of 2006 and does not expect to have a current income tax liability for the remainder of 2006, as the Company has sufficient tax pools to offset income in the year.

Current capital taxes were $134 thousand for the first nine months of 2006 compared to $135 thousand in 2005.

Future income tax liabilities arise due to the difference between the tax basis of assets and their respective accounting carrying cost. During the second quarter of 2006, the Canadian Federal Government and certain provincial governments enacted reductions to their corporate income tax rates, resulting in a reduction of future income tax liabilities of approximately $2.8 million being recognized in that quarter. For the three months ended September 30, the provision for future taxes was $59 thousand in 2006 and $1.7 million in 2005. On a year to date basis there is a future income tax reduction of $1.4 million in 2006 and a charge of $2.8 million in 2005.

Depletion and Depreciation

Depletion is calculated using the unit-of-production method based on total estimated proved reserves. Depletion and depreciation expense for the third quarter was $7.0 million or $20.40 per boe, compared to $6.0 million or $19.29 per boe for the same period in 2005.

Depletion and depreciation expense for the first nine months of 2006 was $20.0 million or $20.19 per boe compared to $20.2 million or $19.32 per boe in 2005.

Asset Retirement Obligation Accretion

The provision for accretion of asset retirement costs for the third quarter was $0.2 million in 2006 and 2005 and $0.5 million year to date in both years.



Net Income and Funds from Operations

Three months ended Nine months ended
($thousands, except per Sept 30 Sept 30
share amounts) 2006 2005 % change 2006 2005 % change
---------------------------------------------------------------------------
Net income (loss) (275) 3,693 - 3.313 6,913 (52)
Basic per share - 0.04 - 0.04 0.08 (50)
Diluted per share - 0.04 - 0.04 0.08 (50)

Funds from operations 7,314 11,231 (35) 23,561 30,613 (23)
Basic per share 0.08 0.13 (39) 0.27 0.35 (23)
Diluted per share 0.08 0.12 (33) 0.26 0.34 (24)


The Company had a net loss of $0.3 million for the third quarter of 2006 compared to net income of $3.3 million in 2005 and a decrease in funds from operations from $11.2 million in the third quarter of 2005 to $7.3 million in the same period in 2006. Income and funds from operations decreased in the third quarter of 2006 from the third quarter of 2005 due to the increase in operating costs and interest and the decrease in production revenue. On a per share basis funds from operations in the third quarter was $0.08 per basic share in 2006 and $0.13 in 2005.

Net income decreased 52 percent in the first nine months of 2006 from 2005 while funds from operations declined 23 percent in the same period.



SUMMARY OF QUARTERLY FINANCIAL INFORMATION

Sept. 30 June 30 March 31 Dec. 31
($000s, except per share amounts) 2006 2006 2006 2005
---------------------------------------------------------------------------

Total daily production (boe/d) 3,746 3,555 3,612 3,651
Gross revenue 13,972 13,790 16,219 21,523
Funds from operations 7,314 7,456 8,791 13,634
Basic per share 0.08 0.08 0.10 0.15
Diluted per share 0.08 0.08 0.10 0.15
Net income (loss) (275) 2,474 1,114 5,131
Basic per share - 0.03 0.01 0.06
Diluted per share - 0.03 0.01 0.06
Capital expenditures, net 15,296 11,965 17,263 17,993
Net debt 48,932 40,851 36,496 28,190
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Sept. 30 June 30 March 31 Dec. 31
($000s, except per share amounts) 2005 2005 2005 2004
---------------------------------------------------------------------------

Total daily production (boe/d) 3,376 3,850 4,245 4,518
Gross revenue 17,644 15,724 16,647 17,616
Funds from operations 11,231 10,426 8,956 10,210
Basic per share 0.13 0.12 0.10 0.12
Diluted per share 0.12 0.12 0.10 0.12
Net income (loss) 3,693 2,497 723 305
Basic per share 0.04 0.03 0.01 -
Diluted per share 0.04 0.03 0.01 -
Capital expenditures, net 10,398 8,420 3,614 7,677
Net debt 23,832 24,665 26,780 32,234
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SELECTED ANNUAL INFORMATION
($000s, except per share amounts) 2005 2004 2003
---------------------------------------------------------------------------

Gross revenue 71,538 52,349 39,837
Net income 12,044 926 6,090
Basic per share 0.14 0.01 0.08
Diluted per share 0.14 0.01 0.08
Total assets 158,693 140,893 131,834
Total long term liabilities 68,581 64,285 57,448
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CAPITAL EXPENDITURES

The following table outlines Endev's capital expenditures:

Three months ended Nine months ended
September 30 September 30
($000s) 2006 2005 2006 2005
---------------------------------------------------------------------------
Acquisitions - - - 1,419
Dispositions - - - -
---------------------------------------------------------------------------
- - - 1,419
---------------------------------------------------------------------------
Land and seismic 758 379 3,412 1,243
Drilling and completions 12,328 9,194 30,073 17,172
Tie-ins and facilities 2,170 786 10,829 2,495
Other 40 39 210 103
---------------------------------------------------------------------------
Net property 15,296 10,398 44,524 21,013
---------------------------------------------------------------------------
Total net capital expenditures 15,296 10,398 44,524 22,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During the three months ended September 30, 2006, the Company incurred capital expenditures of $15.3 million. During the period, the Company spent $12.3 million on drilling and completions while drilling 53 gross (45.8 net) wells and completing wells that were drilled in prior periods. The Company also spent $2.2 million for tie-ins and facilities.

On a year to date basis, the Company spent $44.5 million while drilling 73.5 net wells.



THIRD QUARTER 2006 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
---------------------------------------------------------------------------
Majorville 43 4 1 48 36.5 4.0 1.0 41.5
Drumheller 1 0 0 1 0.3 0.0 0.0 0.3
Other 3 1 0 4 3.0 1.0 0.0 4.0
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Total 47 5 1 53 39.8 5.0 1.0 45.8
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YEAR-TO-DATE 2006 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
---------------------------------------------------------------------------
Majorville 71 6 1 78 60.4 6.0 1.0 67.4
Drumheller 4 0 0 4 1.1 0.0 0.0 1.1
Other 9 1 0 10 4.0 1.0 0.0 5.0
---------------------------------------------------------------------------
Total 84 7 1 92 65.5 7.0 1.0 73.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Endev enjoyed a 99 percent success rate in drilling 92 gross (73.5 net)
wells in the first nine months of 2006.

LAND SUMMARY

As at September 30,
2006 Developed Undeveloped Total
(acres) Gross Net Gross Net Gross Net
---------------------------------------------------------------------------
Alberta 178,115 112,299 133,970 83,731 312,085 196,030
British Columbia 316 43 316 43 632 86
Manitoba 439 170 - - 439 170
Saskatchewan 3,425 1,741 1,609 1,106 5,034 2,847
---------------------------------------------------------------------------
Total 182,295 114,253 135,895 84,880 318,190 199,133
---------------------------------------------------------------------------


During the first nine months of 2006 Endev acquired 35,250 gross acres (34,150 net) of land at Alberta and Saskatchewan Crown land sales.

LIQUIDITY AND CAPITAL RESOURCES

During the third quarter, Endev increased its revolving credit facility with the National Bank of Canada to $60 million. At September 30, 2006, the Company had approximately $42.6 million outstanding on its revolving credit facility and a working capital deficiency of $6.3 million for total net debt of approximately $48.9 million.

Total net capital expenditures of $15.3 million for the three months ended September 30, 2006 were funded from operations and an increase in debt. It is anticipated that future capital expenditures and operations will be funded with cash flow from operations and additional debt as required.

SHARE INFORMATION

The Company had 88,902,557 shares and 5,310,500 options to purchase shares outstanding as at September 30, 2006 and at November 8, 2006.

The Company issued a total of 215,000 shares pursuant to the exercise of stock options during the three months ended September 30, 2006 and settled and cancelled 400,000 outstanding vested stock options.



Three months ended Nine months ended
September 30 September 30
(000s) 2006 2005 2006 2005
---------------------------------------------------------------------------
Shares outstanding
- Basic 88,903 88,059 88,903 88,059
- Diluted 94,213 92,886 94,213 92,886
Weighted average
shares outstanding
- Basic 88,845 88,059 88,559 87,963
- Diluted 88,845 89,564 89,716 89,435


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. The recent volatility in commodity prices and the rise in service costs may require Endev to re-evaluate its capital spending and activity plans in the future. 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. A more detailed discussion of the business risks the Company is subject to is found in our current annual information form filed on SEDAR at www.sedar.com.

CONTRACTUAL OBLIGATIONS

The Company has committed to a lease for office premises terminating on March 31, 2012. The estimated obligation at September 30, 2006, including operating costs at current levels, is $2.9 million for approximately 13,600 square feet of office space.

CHANGES IN ACCOUNTING POLICIES

The Company did not adopt any new accounting policies during the period.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Significant accounting policies used by Endev Energy Inc. are disclosed in note 2 to the December 31, 2005 audited 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.

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 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.

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 from the future undiscounted cash flows from proved reserves. If impairment is indicated, the amount by which the carrying value exceeds the estimated fair value of the long-lived asset, based on proved plus probable reserves discounted at the Company's risk free rate, is charged to earnings.

The ceiling test is based on estimates of reserves, production rate, petroleum and natural gas prices, future prices and 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 is required to provide for future removal and site restoration costs. The Company must estimate these costs, using an estimate of future timing, discount and inflation rates, 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.

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
($000s) September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
(Unaudited)
ASSETS
Current
Cash and cash equivalents $ 104 $ -
Accounts receivable 8,157 11,292
Prepaid expenses and deposits 587 145
---------------------------------------------------------------------------
8,848 11,437
Property, plant and equipment (note 2) 164,216 139,456
Goodwill 7,800 7,800
---------------------------------------------------------------------------

$ 180,864 $ 158,693
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 4) $ 42,570 $ 26,965
Accounts payable and accrued liabilities 15,210 12,662
---------------------------------------------------------------------------
57,780 39,627
Asset retirement obligations (note 3) 8,433 7,866
Future income taxes (note 5) 19,688 21,088
---------------------------------------------------------------------------
85,901 68,581
---------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (note 6) 68,177 67,727
Contributed surplus (note 6) 2,940 1,785
Retained earnings 23,846 20,600
---------------------------------------------------------------------------

94,963 90,112
---------------------------------------------------------------------------

$ 180,864 $ 158,693
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Commitments (note 8)

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)(Unaudited)
Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2006 2005 2006 2005
---------------------------------------------------------------------------

REVENUES
Petroleum and natural gas $ 13,972 $ 17,644 $ 43,981 $ 50,015
Royalties (net of Alberta Royalty
Tax Credit) (1,926) (2,723) (7,074) (8,310)
---------------------------------------------------------------------------
12,046 14,921 36,907 41,705
---------------------------------------------------------------------------

EXPENSES
Operating 3,130 1,847 8,680 6,380
Transportation 311 319 933 982
General and administrative 705 578 2,004 1,978
Stock-based compensation 348 273 1,317 972
Interest 552 257 1,406 922
Depletion and depreciation 7,028 5,990 20,056 20,154
Accretion of asset retirement
obligations 159 157 464 462
---------------------------------------------------------------------------
12,233 9,421 34,860 31,850
---------------------------------------------------------------------------
Income (loss) before taxes (187) 5,500 2,047 9,855
---------------------------------------------------------------------------
TAXES
Current 29 74 134 135
Future income (reduction) (note 5) 59 1,733 (1,400) 2,807
---------------------------------------------------------------------------
88 1,807 (1,266) 2,942
---------------------------------------------------------------------------
NET INCOME (LOSS) (275) 3,693 3,313 6,913
Retained earnings, beginning of period 24,188 11,776 20,600 8,556
Settlement of stock options (note 6) (67) - (67) -
---------------------------------------------------------------------------
Retained earnings, end of period $ 23,846 $ 15,469 $ 23,846 $ 15,469
---------------------------------------------------------------------------
---------------------------------------------------------------------------

NET INCOME (LOSS) PER SHARE (note 6)
Basic $ - $ 0.04 $ 0.04 $ 0.08
Diluted $ - $ 0.04 $ 0.04 $ 0.08
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.


ENDEV ENERGY INC.
Consolidated Statements Of Cash Flows
($000s)(Unaudited)
Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2006 2005 2006 2005
---------------------------------------------------------------------------

Cash provided by (used in)

OPERATIONS
Net income (loss) $ (275) $ 3,693 $ 3,313 $ 6,913
Depletion and depreciation 7,028 5,990 20,056 20,154
Accretion of asset retirement
obligations 159 157 464 462
Future income taxes (reduction) 59 1,733 (1,400) 2,807
Actual abandonment costs (5) (615) (189) (695)
Stock-based compensation 348 273 1,317 972
---------------------------------------------------------------------------
Funds from operations 7,314 11,231 23,561 30,613
Changes in non-cash working capital
(note 7) (2,040) 5,143 (1,959) 1,611
---------------------------------------------------------------------------
5,274 16,374 21,602 32,224
---------------------------------------------------------------------------
FINANCING
Issue of common shares, net of
issue costs 115 - 435 221
Settlement of stock options (note 6) (214) - (214) -
Bank indebtedness 7,827 (2,142) 15,605 (8,289)
---------------------------------------------------------------------------
7,728 (2,142) 15,826 (8,068)
---------------------------------------------------------------------------
INVESTING
Property, plant and equipment
Additions (15,296) (10,398) (44,524) (21,013)
Acquisitions - - - (1,419)
Changes in non-cash working capital
(note 7) 2,398 (3,834) 7,200 (1,724)
---------------------------------------------------------------------------
(12,898) (14,232) (37,324) (24,156)
---------------------------------------------------------------------------
Change in cash 104 - 104 -
Cash, beginning of period - - - -
---------------------------------------------------------------------------
Cash, end of period $ 104 $ - $ 104 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Interest paid $ 552 $ 256 $ 1,406 $ 922
Taxes paid $ 83 $ 29 $ 213 $ 164
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash is defined as cash and cash equivalents.

The accompanying notes are integral to these consolidated financial
statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
(all tabular amounts in $000s, except share and 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, 2005. 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, 2005.



2. PROPERTY, PLANT AND EQUIPMENT

September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
Oil and gas properties $ 253,747 $ 209,141
Other assets 562 352
---------------------------------------------------------------------------
254,309 209,493
Accumulated depletion and depreciation (90,093) (70,037)
---------------------------------------------------------------------------
Net book value $ 164,216 $ 139,456
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During the period ended September 30, 2006, the Company capitalized $0.8 million (2005 - $0.6 million), of general and administrative expenses related to exploration and development activities. As at September 30, 2006, the depletion calculation excluded unproved properties of $6.4 million (2005 - $7.6 million) and included future development costs of proved reserves of $5.7 million (2005 - $1.9 million).

3. 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 September 30, 2006, the Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $27.6 million which will be incurred from 2006 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:

September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
Balance, beginning of period $ 7,866 $ 7,517
Accretion expense 464 612
Revisions to estimates (351) -
Obligations incurred 643 436
Actual abandonment costs (189) (699)
---------------------------------------------------------------------------
Balance, end of period $ 8,433 $ 7,866
---------------------------------------------------------------------------
---------------------------------------------------------------------------


4. BANK INDEBTEDNESS

As at September 30, 2006, the Company has a revolving demand credit facility with a maximum availability of $60.0 million. The interest rate at September 30, 2006 was prime plus 0.25 percent (6.25 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.

5. INCOME TAXES

During the second quarter of 2006 the Canadian Federal Government and certain provincial governments enacted reductions to their corporate income tax rates, resulting in a reduction of future income tax liabilities of approximately $2.8 million.



6. SHARE CAPITAL

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

Issued and outstanding Common shares Amount
---------------------------------------------------------------------------
Balance, December 31, 2004 87,802,554 $ 67,425
Options exercised 256,669 221
Contributed surplus associated with options exercised - 81
---------------------------------------------------------------------------
Balance, December 31, 2005 88,059,223 $ 67,727
Options exercised 843,334 435
Contributed surplus associated with options exercised - 15
---------------------------------------------------------------------------
Balance, September 30, 2006 88,902,557 $ 68,177
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The weighted average number of shares outstanding is as follows:

Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Basic 88,845,274 88,059,223 88,559,367 87,962,904
Diluted 88,845,274 89,564,071 89,715,673 89,434,715
---------------------------------------------------------------------------


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 exercise price of each stock option equals the average market price of the Company's stock for the five trading days prior to the date of the grant. The following table summarizes information about the stock option transactions for the period.



September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
---------------------------------------------------------------------------
Stock options outstanding,
beginning of period 4,991,500 $1.08 3,771,500 $0.89
Granted 1,866,000 1.71 1,870,000 1.50
Exercised (843,334) 0.52 (256,669) 0.86
Settled and cancelled (400,000) 0.98 - -
Cancelled or expired (303,666) 1.75 (393,331) 1.45
---------------------------------------------------------------------------
Stock options outstanding,
end of period 5,310,500 $1.36 4,991,500 $1.08
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Exercisable, end of period 2,996,167 $1.23 3,001,503 $0.90
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Options Outstanding Options Exercisable
---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Remaining Average
Range of Number Exercise Contractual Number Exercise
Exercise Prices Outstanding Price Life (years) Exercisable Price
---------------------------------------------------------------------------
$0.50 - $0.90 811,500 $0.66 1.5 811,500 $0.66
$1.05 - $1.46 2,240,000 1.21 5.8 1,161,667 1.20
$1.51 - $2.10 2,259,000 1.75 4.1 1,023,000 1.72
---------------------------------------------------------------------------
5,310,500 $1.36 4.4 2,996,167 $1.23
---------------------------------------------------------------------------
---------------------------------------------------------------------------


All options granted vest as to one third upon date of grant and one third on each of the first two anniversaries and expire five years after the grant date, except for 1,000,000 options granted on December 17, 2004 which expire ten years after the grant, 500,000 of which vest on the stock reaching certain target prices.

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 grants as follows:



Assumptions September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
Risk free interest rate (%) 5.47 4.10
Expected life (years) 5 5
Expected volatility (%) 44 57
Weighted average fair value of each
option granted ($) 0.78 0.79
Dividend yield (%) - -

CONTRIBUTED SURPLUS

September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
Balance, beginning of period $ 1,785 $ 627
Stock-based compensation expense 1,317 1,239
Cash settlement of stock options (147) -
Options exercised (15) (81)
---------------------------------------------------------------------------
Balance, end of period $ 2,940 $ 1,785
---------------------------------------------------------------------------
---------------------------------------------------------------------------


In July 2006, the Company settled and cancelled an aggregate of 400,000 outstanding vested stock options with a weighted average exercise price of $0.975 with a former employee. The former employee was paid $214,000 with respect to this settlement. The excess of the cash settlement over the grant date fair value of the options has been charged to retained earnings.



7. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital

Three months ended Nine months ended
Sept 30 Sept 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Accounts receivable $ 335 $ (819) $ 3,135 $ (3,780)
Prepaid expenses and deposits 16 (1) (442) 110
Accounts payable and accrued
liabilities 7 2,129 2,548 3,557
---------------------------------------------------------------------------
Change in non-cash working capital $ 358 $ 1,309 $ 5,241 $ (113)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Relating to:
Operating activities $ (2,040) $ 5,143 $ (1,959) $ 1,611
Investing activities $ 2,398 $ (3,834) $ 7,200 $ (1,724)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

8. COMMITMENTS

The Company is committed to a lease agreement for office premises to March
31, 2012. The minimum rentals payable including estimated operating costs
are summarized in the following table:

2006 $ 60
2007 470
2008 551
2009 556
2010 562
2011 569
2012 144
---------------------------------------------------------------------------
Total $ 2,912
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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.

The Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.

Contact Information

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