Endev Energy Inc.
TSX : ENE

Endev Energy Inc.

May 08, 2008 18:26 ET

Endev Energy Inc. Announces 2008 First Quarter Results

CALGARY, ALBERTA--(Marketwire - May 8, 2008) -

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 three months ending March 31, 2008.

In the first quarter, Endev made substantial progress in its strategy to add higher risk wells and lands to its opportunity inventory.

Highlights of the first quarter of 2008 include:

- Drilled nine wells (6.5 net) with a success rate of 78 percent, including five deep gas wells along the W5M fairway, four of which were cased for gas and three successful Mannville gas wells in Majorville, two of which are now on-stream;

- Brought two other Majorville gas wells that had been drilled in the fourth quarter of 2007 on-stream in mid-February;

- Acquired 3,300 net acres of land, including 900 acres along the fairway west of the fifth meridian (W5M) with deeper gas potential;

- As previously forecasted, production during the first quarter declined to an average of 3,503 boe per day but has since rebounded to average 3,850 boe per day in April;

- Strong commodity prices and a netback of $35.01 per boe increased cash flow and further strengthened the balance sheet.



HIGHLIGHTS Three months ended March 31
2008 2007 % change
----------------------------------------------------------------------------
Financial
($000s, except per share amounts)
Gross revenue 18,051 18,659 (3)
Funds from operations 9,468 10,030 (6)
Basic per share 0.11 0.11 -
Diluted per share 0.11 0.11 -
Net income (loss) (685) (911) (25)
Basic per share (0.01) (0.01) -
Diluted per share (0.01) (0.01) -
Capital expenditures, net 7,990 7,441 7
Net debt (1) 43,873 52,157 (16)

Operations
Daily production
Natural gas (mcf) 16,283 20,411 (20)
Natural gas liquids (bbl) 46 73 (37)
Crude oil (bbl) 743 861 (14)
Total production (boe @ 6:1) 3,503 4,337 (19)
Average sales price (2)
Natural gas ($/mcf) 7.87 7.31 8
Natural gas liquids ($/bbl) 77.57 63.44 22
Crude oil ($/bbl) 85.34 62.22 37
Netback per boe (6:1) ($)
Petroleum and natural gas revenues 55.80 47.80 17
Royalties 8.46 8.54 (1)
Operating expenses 10.96 8.27 33
Transportation 1.37 1.04 32
Operating netback 35.01 29.95 17

(1) Excluding unrealized gains and losses on commodity contracts.
(2) Including realized gains and losses on commodity contracts.


PRESIDENT'S MESSAGE

OVERVIEW

Strategy

The Company's key strategy, which is to add a higher risk/reward component to our drilling program, made significant progress in the first quarter with over half of our new wells located W5M. In addition our land position W5M grew with the acquisition of a further 900 net acres to add to the 9,000 net acres acquired in the fourth quarter of 2007.

Drilling Program

Endev's drilling program in the first quarter consisted of nine wells, yielding seven cased gas wells for an overall success rate of 78 percent. Of those nine wells, five were drilled along the W5M fairway as part of our higher risk strategy component. Four of those five wells were cased for gas and one was a dry hole. We completed one well at Pine Creek which was non-commercial in the primary zone but has potential in a secondary uphole zone which is currently being analyzed. We have yet to complete the other wells at Pine Creek, Goodwin and Furness, as that work is delayed by spring break-up.

In southern Alberta the Company drilled four wells, three of which were cased for gas and one of which was abandoned. Two of those new drills were recently placed on production at 1.5 mmcf per day each, while the third well is expected to come on production by early June.

Results of Operations

During the quarter, revenue and cash flow increased over the fourth quarter of 2007 due to higher commodity prices. Gross revenues were $18.1 million as compared to $16.0 million in the prior quarter, an increase of 13 percent. Funds from operations were $9.5 million, an increase of 28 percent over the prior quarter. Net income was a loss of $0.7 million as compared to a loss of $0.3 million during the prior quarter. As a result of strong cash flows our net debt at the end of the quarter was reduced by $1.3 million to $43.9 million, further strengthening our balance sheet and yielding a net debt to annualized funds from operations ratio of 1.2.

As forecasted, production declined from the fourth quarter of 2007 to 3,503 boe per day in the first quarter of 2008 due to a combination of natural declines and a delay in bringing on production from wells drilled in the fourth quarter of 2007 and the first quarter of 2008 that required additions to infrastructure in the Majorville area. Production additions from the Q4 and Q1 new wells began late in the quarter and by early May, total production had reached the 4,000 boe per day mark. We are currently reducing production to accommodate infrastructure changes over the balance of the quarter. Capital expenditures of $8.0 million were somewhat lower than budgeted in part due to deferred infrastructure costs which were delayed into the second quarter and in part by lower than expected well costs.

Outlook

Endev is having success in both its southern Alberta, Mannville drilling program and in the first wells drilled in the higher risk W5M program. We started the year with a capital budget of $38 million which approximated our cash flow projections for the year that was based on natural gas prices of CDN$6.50 AECO and oil at US$75.00 WTI. Since then the prices experienced to date and projected prices for the balance of the year are well in excess of those numbers which could yield a substantially higher cash flow in 2008 than was expected. While we have not at this point expanded our capital budget, we are evaluating new drilling in the Admiral area which is significantly more attractive in light of the higher price forecasts and lower costs, as well as evaluating the feasibility of drilling horizontal wells in both the Admiral and the Majorville areas. We are also in the process of licensing two horizontal wells for light oil on high working interest lands near Weyburn, Saskatchewan.

One well drilled at Carstairs in the fourth quarter of 2007 had a primary target in the Mississippian zone and a secondary Rock Creek zone. The well found gas in the primary zone but not in commercial quantities. The well also found gas in the secondary zone and we expect testing will confirm it to be commercial. The fact that we encountered gas in the primary zone together with other knowledge gained from that well has led us to plan a second well to be drilled late in the second quarter in the same area, targeting what we believe to be a better part of the zone. The wells in this area produce at rates of approximately six mmcf per day based on data from recently drilled third party wells.

We are pleased to see some of our new production on stream and our productive capacity from existing wells significantly exceeds the first quarter production rates. We are excited about our early success in higher risk wells and look forward to completing the testing work on the existing wells, completing infrastructure additions and continuing the drilling program in the second quarter with four new wells. As part of that W5M strategy we are actively pursuing a larger land position through Crown sales, farm-ins and acquisitions. We are in a strong position to capture new opportunities and meet the challenges which lie ahead.

Endev's Annual General Meeting is scheduled for May 14, 2008 at 3:00 pm in the Viking Room of the Calgary Petroleum Club, 319 - 5 Avenue SW, Calgary, Alberta and we welcome all shareholders and interested parties.

On behalf of the Board of Directors,

Cameron MacGillivray, President & Chief Executive Officer

May 8, 2008

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 months ended March 31, 2008 compared to the corresponding period in the prior year is based on currently available information. This commentary should be read in conjunction with the 2007 annual report, the 2007 MD&A and the audited consolidated financial statements for the years ended December 31, 2007 and 2006 contained therein and the unaudited interim consolidated financial statements for the three months ended March 31, 2008. This commentary is based on information available to May 8, 2008.

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. Endev calculates funds from operations as follows:



Three months ended March 31
($000s) 2008 2007
----------------------------------------------------------------------------
Cash flow from operating activities 7,844 11,246
Changes in non-cash working capital 1,624 (1,216)
----------------------------------------------------------------------------
Funds from operations 9,468 10,030
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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. Netback represents the cash margin for every barrel of oil equivalent sold and is a common benchmark used in the oil and gas industry. There is no GAAP measure that is reasonably comparable to netback. See 'Operating Netbacks' for the calculation of operating netbacks.

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.

INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer have reviewed whether there were changes to the internal controls over financial reporting and have concluded that there have been no significant changes to the Company's internal control over financial reporting that occurred during the most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.



RESULTS OF OPERATIONS

Production

Endev achieved the following daily production rates:

Three months ended March 31
Daily production 2008 2007 % change
----------------------------------------------------------------------------
Natural gas (mcf/d) 16,283 20,411 (20)
Natural gas liquids (bbl/d) 46 73 (37)
Crude oil (bbl/d) 743 861 (14)
Total production (boe/d) 3,503 4,337 (19)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


First quarter 2008 production declined 19 percent from the first quarter of 2007 and declined nine percent from the fourth quarter of 2007 to average 3,503 boe per day. Natural gas accounted for 78 percent of the Company's production in the first quarter of 2008 as compared to 79 percent in 2007. Natural gas production in the first quarter of 2008 decreased 20 percent compared to the same period in 2007 to 16,283 mcf per day while crude oil production decreased 14 percent to 743 barrels per day. The decline in production from the fourth quarter of 2007 is due to the natural decline of wells, production problems related to cold weather and the fact that wells drilled in the fourth quarter of 2007 and the first quarter of 2008 were delayed in being brought on stream due to additions required to infrastructure in the Majorville area. Reported sales volumes were also negatively impacted by a prior period correction from a gas common stream operator that reduced sales volumes in the first quarter of 2008 by approximately 100 boe per day.



Production by Area

Three months ended March 31
Daily production (boe/d) 2008 2007 % change
----------------------------------------------------------------------------
Majorville Shallow Gas 1,595 2,148 (26)
Majorville Mannville 855 922 (7)
Drumheller 279 347 (20)
Other 774 920 (16)
----------------------------------------------------------------------------
Total 3,503 4,337 (19)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The table above illustrates the average production from each of the areas
of Company's principal operations.

Commodity Markets

Three months ended March 31
Average prices 2008 2007 % change
----------------------------------------------------------------------------
Natural gas AECO ($/mcf) 7.90 7.40 7
Natural gas NYMEX (US$/mmbtu) 8.07 6.92 17
Crude oil Edmonton light ($/bbl) 97.50 67.09 45
Crude oil WTI (US$/bbl) 97.90 58.27 68
----------------------------------------------------------------------------


Natural Gas

The AECO spot daily gas index increased $0.50 per mcf year-over-year to $7.90 per mcf in the first quarter of 2008 while NYMEX natural gas prices increased by US$1.15 per mmbtu to average US$8.07 per mmbtu over the same period in 2007. The AECO price increased seven percent while the NYMEX price increased 17 percent. Alberta spot prices at AECO increased less than NYMEX prices largely due to the appreciation of the Canadian dollar relative to the US dollar.

The first quarter 2008 AECO price average was $1.76 per mcf or 29 percent higher than fourth quarter 2007 when AECO prices were only $6.14 per mcf.

Crude Oil

World oil prices continued to trend higher in the first quarter of 2008 with West Texas Intermediate (WTI) averaging a record US$97.90 per barrel, up US$39.63 per barrel or 68 percent from the same period in 2007. On a quarter-over-quarter basis, WTI increased US$7.22 per barrel or eight percent from the fourth quarter of 2007. As with Canadian natural gas prices, Edmonton par crude prices were held back in the first quarter of 2008 by the strengthening Canadian dollar. Edmonton par prices rose 45 percent or $30.41 per barrel year-over-year to $97.50 per barrel. First quarter 2008 Edmonton par prices were up $11.08 per barrel or 13 percent from the prior quarter. During the first quarter of 2008, Canadian crude differentials to WTI generally tightened from the fourth quarter of 2007 as transport and refinery problems abated.

The Canadian dollar rose from an average of $0.85 against the US dollar in the first quarter of 2007 to an average of $1.00 in the first quarter of 2008.



Average Prices Received

Endev realized the following commodity prices including the effect of
realized gains and losses on commodity contracts:

Three months ended March 31
Average sales prices realized 2008 2007 % change
----------------------------------------------------------------------------
Natural gas ($/mcf) 7.87 7.31 8
Natural gas liquids ($/bbl) 77.57 63.44 22
Crude oil ($/bbl) 85.34 62.22 37
Weighted average ($/boe) (6:1) 55.80 47.80 17
----------------------------------------------------------------------------


The sales prices realized by the Company for natural gas are consistent with AECO pricing with both the Company's realized price and AECO increasing by seven to eight percent. The Company's realized price for oil is at a small discount relative to Edmonton par as a portion of our production is not as high a quality as Edmonton par. The Company's realized oil price, when excluding the impact of the realized derivative losses discussed next, increased by the similar 45 to 46 percent increase observed on Edmonton light prices.

During the first quarter of 2008 the Company realized a loss of $0.3 million or $3.91 per barrel on the oil contract. There were no realized gains or losses on gas commodity risk contracts in the first quarter of 2008 nor were there realized gains or losses on commodity price risk contracts in the first quarter of 2007.

Financial Instruments

The Company entered into a series of costless collar financial contracts to hedge the risk of lower natural gas prices in the summer and lower oil prices in the fall and winter. In 2008 the oil contracts entered into are for 250 barrels per day from January 2008 to March 2008 at a floor price of US$65.00 per barrel and a ceiling price of US$86.50 per barrel and for 200 barrels per day from April 2008 to June 2008 at a floor price of $75.00 per barrel and a ceiling price of $105.00 per barrel and represent approximately 30 percent of estimated oil production. For the period April 2008 through October 2008 the Company has in place total gas contracts for the sale of 8,000 GJ per day of natural gas at an average floor price of $5.99 per GJ and an average ceiling price of $7.63 per GJ, representing approximately 40 percent of estimated natural gas production. All contracts are marked to market with the corresponding valuation recorded on the balance sheet. The contracts are detailed further in note 7 to the consolidated financial statements.



Operating Netbacks

Endev realized the following operating netbacks from oil and gas operations
including the effect of realized gains and losses on commodity contracts:

Three months ended March 31
Netback per boe (6:1) ($) 2008 2007 % change
----------------------------------------------------------------------------
Petroleum and natural gas revenues 55.80 47.80 17
Royalties, net of ARTC 8.46 8.54 (1)
Operating expenses 10.96 8.27 33
Transportation 1.37 1.04 32
----------------------------------------------------------------------------
Operating netback 35.01 29.95 17
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Production Revenue

Endev realized the following gross revenues:

Three months ended March 31
($000s) 2008 2007 % change
----------------------------------------------------------------------------
Natural gas 11,691 13,416 (13)
Natural gas liquids 326 420 (22)
Crude oil 6,034 4,823 25
----------------------------------------------------------------------------
Total 18,051 18,659 (3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In the first quarter of 2008 gross revenues decreased three percent to $18.1 million from $18.7 million for the same period in 2007 due to a 19 percent decrease in production offset by a 17 percent increase in the weighted average price received. Crude oil revenue increased 25 percent in the first quarter of 2008 over the same period in 2007 due to a 46 percent increase in crude oil prices realized offset by a 14 percent decrease in crude production. Crude oil represents 34 percent of the Company's revenues, on 21 percent of production, in the first quarter of 2008 and 26 percent of revenue, on 20 percent of production, in 2007.



Royalties

Three months ended March 31
2008 2007 % change
----------------------------------------------------------------------------
Royalties ($000s) 2,696 3,332 (19)
Average royalty rate (%) 15 18 (17)
$/boe 8.46 8.54 (1)
----------------------------------------------------------------------------


Royalties were $2.7 million in the first quarter of 2008. The average royalty rate for the first quarter was 15 percent of revenue. On a per unit basis royalties were $8.46 per producing boe in the first quarter of 2008 compared to $8.54 in the same period in 2007. The decline in the royalty rate is due to the decline in production per well.

Approximately 50 percent of the royalties Endev pays are Crown royalties primarily in the province of Alberta. The Government of Alberta's announcement on October 25, 2007 will affect the rate of these Alberta Crown royalties beginning January 1, 2009. This change is expected to be marginally beneficial to Endev, as our shallow gas production will be charged a lower royalty rate in 2009.



Expenses

Three months ended March 31
($000s) 2008 2007 % change
----------------------------------------------------------------------------
Operating 3,495 3,228 8
Transportation 438 406 8
General and administrative 1,447 1,036 40
Interest 645 825 (22)
----------------------------------------------------------------------------


Three months ended March 31
Expenses per boe $ 2008 2007 % change
----------------------------------------------------------------------------
Operating 10.96 8.27 33
Transportation 1.37 1.04 32
General and administrative 4.54 2.65 72
Interest 2.02 2.11 (4)
----------------------------------------------------------------------------


Operating

Operating expenses increased eight percent to $3.4 million in the first quarter of 2008 compared to $3.2 million in the same period in 2007. The increase in year-over-year operating costs is the result of an increase in well repairs, maintenance and well servicing to optimize production along with a decrease in unit production. On a per unit basis, operating costs increased 33 percent to $10.96 per producing boe during the first quarter of 2008 compared to $8.27 per producing boe in the same period in 2007 primarily due to a lower production base.

The Company has, however, realized some operating efficiencies as additional gas is processed through Company-owned facilities at Majorville. We will continue to work with service providers and look at ways to increase operational effectiveness to manage operating costs in the future.

Transportation

Transportation costs averaged $1.37 per boe in the first quarter of 2008 compared to $1.04 per boe in the first quarter of 2007. This increase in transportation costs was the result of higher gas pipeline rates, higher oil transport rates per unit and unutilized gas pipeline charges, as new gas volumes were slower to come on stream than anticipated.



General and Administrative (G&A)

Three months ended March 31
($000s) 2008 2007 % change
----------------------------------------------------------------------------
Gross G&A costs 1,872 1,491 26
Capital and operating recoveries (506) (510) (1)
Capitalized overhead (337) (251) 34
----------------------------------------------------------------------------
Net G&A costs 1,029 730 41
Stock-based compensation 418 306 37
----------------------------------------------------------------------------
Total G&A costs 1,447 1,036 40
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Three months ended March 31
$ per boe 2008 2007 % change
----------------------------------------------------------------------------
Gross G&A costs 5.87 3.82 54
Capital and operating recoveries (1.58) (1.31) 21
Capitalized overhead (1.06) (0.64) 64
----------------------------------------------------------------------------
Net G&A costs 3.23 1.87 73
Stock-based compensation 1.31 0.78 67
----------------------------------------------------------------------------
Total G&A costs 4.54 2.65 71
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Net G&A costs, after capital and operating recoveries and capitalized overhead, increased to $1.0 million in the first quarter of 2008 compared to $0.7 million in the same period in 2007. The increase in net G&A costs in the first quarter of 2008 over the same period in 2007 is due primarily to an increase in staffing costs. On a barrel of oil equivalent basis, net G&A costs increased to $3.23 per boe from $1.87 per boe. The Company capitalizes the salaries and associated direct costs of professional staff directly associated with the Company's exploration and development activities.

Stock-based compensation costs were $0.4 million in the first quarter of 2008 and $0.3 million in 2007. As at March 31, 2008, the Company has $0.7 million of unamortized stock-based compensation costs that will be charged to income over the remaining vesting period of the options outstanding.

Interest and Financing Charges

Interest and financing charges for the first quarter of 2008 were $0.6 million or $2.02 per producing boe compared to $0.8 million or $2.11 per producing boe for the comparable period in 2007. The decrease in interest and financing charges reflect lower average debt levels and interest rates in 2008 as compared to 2007. At March 31, 2008 bank indebtedness was $42.2 million compared to $51.8 million at March 31, 2007.

Income Taxes

The Company has no provision for current income taxes in the first quarter of 2008 and does not expect to have a current income tax liability for 2008 or 2009, as the Company has sufficient tax pools to offset income in the periods. At March 31, 2008 the Company has approximately $88 million in tax pools and non-capital loss carry forwards available for future use as deductions from taxable income.

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 March 31, 2008, the provision for future taxes was a reduction of $0.6 million and a reduction of $0.6 million in the same period in 2007.

Depletion and Depreciation

Depletion is calculated using the unit-of-production method based on total estimated proved reserves. Depletion and depreciation expense for the first quarter was $8.0 million or $25.21 per boe, compared to $10.2 million or $26.25 per boe for the same period in 2007. Depletion expense per boe in the first quarter of 2008 has increased from $24.55 in the fourth quarter of 2007 due to additional costs per unit of reserves subject to depletion.

Asset Retirement Obligation Accretion

The provision for accretion of asset retirement costs for the first quarter was $0.2 million in both 2008 and 2007.



Net Income and Funds from Operations

Three months ended March 31
($000s, except per share amounts) 2008 2007 % change
----------------------------------------------------------------------------
Net income (loss) (685) (911) (25)
Basic per share (0.01) (0.01) -
Diluted per share (0.01) (0.01) -
Funds from operations 9,468 10,030 (6)
Basic per share 0.11 0.11 -
Diluted per share 0.11 0.11 -
Cash flow from operations 7,844 11,246 (30)


The Company had a net loss of $0.7 million for the first quarter compared to a net loss of $0.9 million for the same period in 2007. The reduction in net loss was due to a decrease in depletion that was partially offset by the increased loss on commodity contracts, a decrease in petroleum and natural gas revenue, and an increase in operating costs and G&A. Funds from operations in the first quarter decreased to $9.5million in 2008 from $10.0 million for the same period in 2007 due to a decrease in petroleum and natural gas revenue and an increase in operating costs and G&A that was partially offset by a decrease in interest. On a per share basis, funds from operations were $0.11 per basic share in 2008 and in 2007. Funds from operations increased 28 percent in the first quarter of 2008 from the fourth quarter of 2007.



SUMMARY OF QUARTERLY FINANCIAL INFORMATION

March 31 Dec. 31 Sept. 30 June 30
($000s, except per share amounts) 2008 2007 2007 2007
----------------------------------------------------------------------------

Gross revenue 18,051 15,995 15,673 17,438
Funds from operations 9,468 7,388 7,525 9,165
Basic per share 0.11 0.08 0.09 0.10
Diluted per share 0.11 0.08 0.09 0.10
Cash flow from operations 7,844 7,078 7,389 10,465
Net income (loss) (685) (262) (9,991) 364
Basic per share (0.01) - (0.11) -
Diluted per share (0.01) - (0.11) -
Capital expenditures, net 7,990 5,069 6,791 5,123
Net debt (1) 43,874 45,172 47,144 47,878
Total daily production (boe/d) 3,503 3,859 3,896 4,000


March 31 Dec. 31 Sept. 30 June 30
($000s, except per share amounts) 2007 2006 2006 2006
----------------------------------------------------------------------------

Gross revenue 18,659 17,148 13,972 13,790
Funds from operations 10,030 9,134 7,314 7,456
Basic per share 0.11 0.10 0.08 0.08
Diluted per share 0.11 0.10 0.08 0.08
Cash flow from operations 11,246 11,130 5,274 7,717
Net income (loss) (911) (634) (275) 2,474
Basic per share (0.01) (0.01) - 0.03
Diluted per share (0.01) (0.01) - 0.03
Capital expenditures, net 7,441 14,948 15,296 11,965
Net debt (1) 52,157 54,746 48,932 40,851
Total daily production (boe/d) 4,337 4,138 3,746 3,555

(1) Excluding unrealized gains (losses) on commodity contracts.


SELECTED ANNUAL INFORMATION

($000s, except per share amounts) 2007 2006 2005
----------------------------------------------------------------------------
Gross revenue 67,768 61,129 71,538
Net income (loss) (10,800) 2,679 12,044
Basic per share (0.12) 0.03 0.14
Diluted per share (0.12) 0.03 0.14
Total assets 166,580 188,940 158,693
Total liabilities 81,527 94,030 68,581
Total daily production (boe/d) 4,021 3,764 3,778


CAPITAL EXPENDITURES

The following table outlines Endev's capital expenditures:

Three months ended March 31
($000s) 2008 2007
----------------------------------------------------------------------------
Land and seismic 906 653
Drilling and completions 5,146 5,232
Tie-ins and facilities 1,919 1,530
Other 19 26
----------------------------------------------------------------------------
Total capital expenditures 7,990 7,441
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three months ended March 31, 2008, the Company incurred capital
expenditures of $8.0 million. The Company drilled nine gross (6.5 net)
wells and spent $0.9 million on land and seismic.


FIRST QUARTER 2008 DRILLING RESULTS

Gross Net
Gas Oil Dry Total Gas Oil Dry Total
----------------------------------------------------------------------------
Furness 1 - - 1 0.5 - - 0.5
Greater Whitecourt 1 - 1 2 1.0 - 1.0 2.0
Majorville 3 - 1 4 2.6 - 0.6 3.2
Pine Creek 2 - - 2 0.8 - - 0.8
----------------------------------------------------------------------------
Total 7 - 2 9 4.9 - 1.6 6.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In the first quarter of 2008 Endev drilled nine gross (6.5 net) wells with
a success rate of 78 percent.


LAND SUMMARY

As at March 31, 2008 Developed Undeveloped Total
(acres) Gross Net Gross Net Gross Net
----------------------------------------------------------------------------
Alberta 187,087 119,713 128,365 82,639 315,452 202,352
British Columbia 316 43 316 43 632 86
Manitoba 316 115 - - 316 115
Saskatchewan 8,685 4,410 31,185 15,898 39,870 20,308
----------------------------------------------------------------------------
Total 196,404 124,281 159,866 98,580 356,270 222,861
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the first quarter of 2008 Endev acquired 5,120 gross (3,330 net) acres of land at Crown land sales and earned rights via farm-in activity.

LIQUIDITY AND CAPITAL RESOURCES

Endev has a revolving credit facility with the National Bank of Canada for $60 million that is reviewed periodically by the bank. The next review is scheduled for April 2009. At March 31, 2008, the Company had approximately $42.2 million outstanding on its revolving credit facility and a working capital deficit, excluding unrealized gains and losses on commodity contracts, of $1.7 million for total net debt of approximately $43.9 million, resulting in a net debt to annualized first quarter funds from operations ratio of 1.2.

Total net capital expenditures of $8.0 million for the first three months of 2008 were funded from operations. In the first quarter of 2008 funds from operations exceeded capital expenditures and the Company reduced bank indebtedness by $0.4 million. It is anticipated that future capital expenditures and operations will be funded with funds from operations and additional debt as required. In 2008 the Company's capital expenditures are expected to approximate funds from operations.

OUTLOOK

The Company's original capital budget of $38 million, which approximated our funds from operations projections for the year, was based on commodity prices at the time. Since then the actual prices realized and prices projected for the balance of the year are higher and would result in substantially higher funds from operations in 2008 than was originally projected. While we have not at this point expanded our capital budget, the improved gas pricing environment creates many additional opportunities including additional drilling in the Admiral area which is significantly more attractive in light of the higher price forecasts and lower costs. Additional cash flow will also reduce net debt, lower our net debt to funds from operations ratio and increase financial flexibility in the future.

SHARE INFORMATION

The Company had 88,757,557 shares and 8,115,200 options to purchase shares outstanding as at March 31, 2008. At May 8, 2008 the Company had 88,607,391 shares and 8,112,866 options outstanding.

In October 2007 the Company announced approval of its normal course issuer bid ("NCIB") program to purchase for cancellation, through the facilities of the Toronto Stock Exchange, up to 7.3 million of its outstanding shares during the period October 9, 2007 through to October 8, 2008. In the first quarter of 2008, 219,000 shares were purchased and cancelled at an average price of $0.81 per share for a total cost of $180 thousand. At May 8, 2008, 371,500 shares have been purchased and cancelled in 2008.



Three months ended March 31
(000s) 2008 2007
----------------------------------------------------------------------------
Shares outstanding
Basic 88,758 88,903
Diluted 96,873 95,684
Weighted average shares outstanding
Basic 88,974 88,903
Diluted 88,974 88,903


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.

NEW ALBERTA ROYALTY REGIME

On October 25, 2007 the Government of Alberta announced that it would be altering the royalty regime in the province effective January 1, 2009. While the government states that the royalty on some wells will go down, it also projects that overall the royalty collected will go up significantly. Based on a preliminary review of the available details, we anticipate the royalty on our lower productivity shallow gas wells may go down marginally while the royalty on higher productivity gas wells and oil wells will increase. Our independent reserve engineers have analyzed the effect of the changes in the royalty structure on our current reserve base and found that Endev will be marginally better off under the new regime based on the details now available.

CONTRACTUAL OBLIGATIONS

In the normal course of business the Company enters into various forms of contractual obligations including: royalty agreements, operating agreements, processing agreements, purchase of services and lease obligations for office space and office equipment. All contractual obligations reflect market conditions and do not involve related parties.

The only significant obligation of the Company with a fixed term is a lease for office premises terminating on March 31, 2012. The estimated obligation for the term of the lease at March 31, 2008, including operating costs is $2.4 million for approximately 13,600 square feet of office space.

CHANGES IN ACCOUNTING POLICIES

Capital Disclosures

On January 1, 2008 the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook section 1535, Capital Disclosures which requires companies to disclose their objectives, policies and processes for defining and managing its capital.

Financial Instruments Disclosure and Presentation

On January 1, 2008 the Company adopted CICA Handbook sections 3862 Financial Instruments - Disclosures and 3863 Financial Instruments - Disclosure and Presentation. These disclosure standards require entities to provide information that enables users to evaluate: 1) the significance of financial instruments for the entity's financial position and performance; and 2) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks.

There was no financial impact to previously reported financial statements as a result of the implementation of these new standards.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Significant accounting policies used by Endev Energy Inc. are disclosed in note 2 to the December 31, 2007 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, regardless of whether they are successful or not. The aggregate of net capitalized costs and estimated future development costs 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 properties, 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.

Financial Instruments

The Company recognizes the fair value for the unrealized portion of derivative contracts at each reporting date on the financial statements. The fair value is based on an estimate of the amounts that would have been paid to or received from counterparties to settle these instruments given future market prices and other relevant factors. As the fair value is based on a number of subjective estimates such as future prices and volatility in commodity markets, estimates could differ from actual results realized.

Stock-Based Compensation

Endev uses the fair value method for valuing stock options. Under this method, as new options are granted, the fair value of these options will be expensed on a straight-line basis over the applicable vesting period, with an offsetting entry to contributed surplus. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions including expected stock price volatility.

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
(Unaudited)($000s) March 31, December 31,
2008 2007
----------------------------------------------------------------------------

ASSETS
Current
Accounts receivable $ 9,845 $ 9,002
Prepaid expenses and deposits 994 1,167
Future income taxes 738 -
----------------------------------------------------------------------------
11,577 10,169
Property, plant and equipment (note 3) 156,471 156,411
----------------------------------------------------------------------------
$ 168,048 $ 166,580
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 5) $ 42,218 $ 42,607
Accounts payable and accrued liabilities 12,494 12,733
Fair value of commodity contracts (note 7) 2,491 349
----------------------------------------------------------------------------
57,203 55,689
Asset retirement obligations (note 4) 9,444 9,169
Future income taxes 16,795 16,669
----------------------------------------------------------------------------
83,442 81,527
----------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (note 6) 67,940 68,108
Contributed surplus (note 6) 4,939 4,533
Retained earnings 11,727 12,412
----------------------------------------------------------------------------

84,606 85,053
----------------------------------------------------------------------------

$ 168,048 $ 166,580
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments (note 9)

The accompanying notes are integral to these consolidated financial
statements.


ENDEV ENERGY INC.
Consolidated Statements of Operations, Comprehensive Loss and Retained
Earnings

(Unaudited) ($000s, except per share amounts)
For the three months ended March 31 2008 2007
----------------------------------------------------------------------------

REVENUES
Petroleum and natural gas $ 18,051 $ 18,659
Royalties (2,696) (3,332)
Realized and unrealized loss on commodity
contracts (note 7) (2,406) (908)
----------------------------------------------------------------------------
12,949 14,419
----------------------------------------------------------------------------

EXPENSES
Operating 3,495 3,228
Transportation 438 406
General and administrative 1,447 1,036
Interest 645 825
Depletion and depreciation 8,038 10,245
Accretion of asset retirement obligations 183 172
----------------------------------------------------------------------------
14,246 15,912
----------------------------------------------------------------------------
Loss before taxes (1,297) (1,493)
Future income tax reduction (612) (582)
----------------------------------------------------------------------------
NET LOSS AND COMPREHENSIVE LOSS (685) (911)
Retained earnings , beginning of period 12,412 23,212
----------------------------------------------------------------------------
Retained earnings, end of period $ 11,727 $ 22,301
----------------------------------------------------------------------------
----------------------------------------------------------------------------

NET LOSS PER SHARE (note 6)
Basic $ (0.01) $ (0.01)
Diluted $ (0.01) $ (0.01)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.


ENDEV ENERGY INC.
Consolidated Statements of Cash Flows

(Unaudited) ($000s)
For the three months ended March 31 2008 2007
----------------------------------------------------------------------------

Cash provided by (used in)

OPERATIONS
Net loss $ (685) $ (911)
Depletion and depreciation 8,038 10,245
Accretion of asset retirement obligations 183 172
Future income tax reduction (612) (582)
Actual abandonment costs (16) (108)
Stock-based compensation (note 6) 418 306
Unrealized loss on commodity contracts (note 7) 2,142 908
----------------------------------------------------------------------------
9,468 10,030
Changes in non-cash working capital (note 8) (1,624) 1,216
----------------------------------------------------------------------------
7,844 11,246
----------------------------------------------------------------------------
FINANCING
Repurchase of shares under normal course issuer
bid (note 6) (180) -
Bank indebtedness (389) (173)
----------------------------------------------------------------------------
(569) (173)
----------------------------------------------------------------------------
INVESTING
Property, plant and equipment additions (7,990) (7,441)
Changes in non-cash working capital (note 8) 715 (3,635)
----------------------------------------------------------------------------
(7,275) (11,076)
----------------------------------------------------------------------------
Change in cash - (3)
Cash, beginning of period - 10
----------------------------------------------------------------------------
Cash, end of period $ - $ 7
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest paid $ 645 $ 825
----------------------------------------------------------------------------

The accompanying notes are integral to these consolidated financial
statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
March 31, 2008
(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, 2007 except as discussed below. 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, 2007.

2. CHANGES IN ACCOUNTING POLICIES

Capital Disclosures

On January 1, 2008 the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook section 1535, Capital Disclosures which requires companies to disclose their objectives, policies and processes for defining and managing its capital.

Financial Instruments Disclosure and Presentation

On January 1, 2008 the Company adopted CICA Handbook sections 3862 Financial Instruments - Disclosures and 3863 Financial Instruments - Disclosure and Presentation. These disclosure standards require entities to provide information that enables users to evaluate: 1) the significance of financial instruments for the entity's financial position and performance; and 2) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks.

There was no financial impact to previously reported financial statements as a result of the implementation of these new standards; however, additional disclosures have been provided as outlined in note 7.



3. PROPERTY, PLANT AND EQUIPMENT

March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Oil and gas properties $ 301,610 $ 293,531
Other assets 641 622
----------------------------------------------------------------------------
302,251 294,153
Accumulated depletion and depreciation (145,780) (137,742)
----------------------------------------------------------------------------
Net book value $ 156,471 $ 156,411
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the period ended March 31, 2008, the Company capitalized $0.3 million (2007 - $0.3 million) of general and administrative expenses related to exploration and development activities. As at March 31, 2008, the depletion calculation excluded unproved properties of $6.8 million (2007 - $5.3 million) and included future development costs of proved reserves of $15.5 million (2007 - $8.7 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 March 31, 2008, the Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $29.3 million (2007 - $29.1 million) which will be incurred from 2008 to 2033. The majority of the costs will be incurred between 2012 and 2030. A credit-adjusted risk-free rate of eight percent (2007 - eight percent) was used to calculate the fair value of the asset retirement obligations.

A reconciliation of the asset retirement obligations is provided below:



March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 9,169 $ 8,587
Accretion expense 183 702
Obligations incurred 108 367
Actual abandonment cost (16) (487)
----------------------------------------------------------------------------
Balance, end of period $ 9,444 $ 9,169
----------------------------------------------------------------------------
----------------------------------------------------------------------------


5. BANK INDEBTEDNESS

As at March 31, 2008, the Company has a revolving demand credit facility with a maximum availability of $60.0 million. The interest rate at March 31, 2008 was prime plus 0.375 percent (5.625 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. The credit facility is reviewed periodically by the bank, with the next review scheduled for April 2009.

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, 2006 88,902,557 $ 68,177
Options exercised 486,500 246
Shares purchased and cancelled under normal
course issuer bid (412,500) (315)
----------------------------------------------------------------------------
Balance, December 31, 2007 88,976,557 $ 68,108
Shares purchased and cancelled under normal
course issuer bid (219,000) (168)
----------------------------------------------------------------------------
Balance, March 31, 2008 88,757,557 $ 67,940
----------------------------------------------------------------------------


In October 2007, the Company announced approval of its normal course issuer bid ("NCIB") program to purchase for cancellation up to 7.3 million of its outstanding shares during the period October 9, 2007 through to October 8, 2008, subject to certain conditions. In the first quarter of 2008, 219,000 shares were purchased and cancelled at a total cost of $180 thousand. The average carrying value of the shares repurchased was recorded as a charge against share capital with the balance charged to contributed surplus.

The weighted average number of shares outstanding is as follows:



Three months ended March 31
2008 2007
----------------------------------------------------------------------------
Basic 88,974,150 88,902,557
Diluted 88,974,150 88,902,557
----------------------------------------------------------------------------


For the period ended March 31, 2008, a total of 8,115,200 options (2007 - 6,781,600) were not included in the diluted earnings per share calculation because they were antidilutive.

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



March 31, 2008 December 31, 2007
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
----------------------------------------------------------------------------
Stock options outstanding,
beginning of period 6,477,100 $ 1.37 6,729,100 $ 1.32
Granted 1,638,100 0.81 261,500 1.13
Exercised - - (486,500) 0.50
Forfeited or expired - - (27,000) 1.17
----------------------------------------------------------------------------
Stock options outstanding, end
of period 8,115,200 $ 1.26 6,477,100 $ 1.37
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Stock options exercisable, end
of period 6,057,433 $ 1.35 5,081,566 $ 1.37
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Options Outstanding Options Exercisable
----------------------------------------------------------------------------
Weighted
Weighted Remaining Weighted
Range of Average Contractual Average
Exercise Number Exercise Life Number Exercise
Prices Outstanding Price (years) Exercisable Price
----------------------------------------------------------------------------
$ 0.75 - $0.90 1,975,100 $ 0.83 4.3 875,033 $ 0.84
$ 1.05 - $1.30 3,371,100 1.16 4.3 2,563,400 1.16
$ 1.32 - $1.74 2,184,000 1.63 2.8 2,034,000 1.64
$ 1.77 - $2.10 585,000 1.90 2.5 585,000 1.90
--------------------------------------------------------------
8,115,200 $ 1.26 3.8 6,057,433 $ 1.35
--------------------------------------------------------------
--------------------------------------------------------------


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:



March 31, December 31,
Assumptions 2008 2007
----------------------------------------------------------------------------
Risk free interest rate (%) 3.9 5.2
Expected life (years) 5 5
Expected volatility (%) 52 52
Weighted average fair value of each option
granted ($) 0.40 0.58
Dividend yield (%) - -


CONTRIBUTED SURPLUS
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 4,533 $ 3,521
Stock-based compensation expense 418 1,052
Shares purchased and cancelled under normal course
issuer bid (12) (40)
----------------------------------------------------------------------------
Balance, end of period $ 4,939 $ 4,533
----------------------------------------------------------------------------


7. FINANCIAL INSTRUMENTS

Overview

The Company has exposure to the following risks from its financial instruments:

- Credit risk;

- Liquidity risk; and

- Market risk.

The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company's activities.

Credit Risk

Credit risk is primarily related to the Company's receivables from joint venture partners and petroleum and natural gas marketers and the risk of financial loss if a customer, partner or counterparty to a financial instrument fails to meet its contractual obligations. A substantial portion of the Company's accounts receivable are with customers in the energy industry and are subject to normal industry credit risk. The Company generally grants unsecured credit but routinely assesses the financial strength of its customers.

Receivables from petroleum and natural gas marketers are normally collected on the 25th day of the month following production. The Company sells the majority of its production to two petroleum and natural gas marketers therefore is subject to concentration risk which is mitigated by management's policies and practices related to credit risk, as discussed above. The Company historically has not experienced any collection issues with its petroleum and natural gas marketers. Joint venture receivables are typically collected within one to three months of the joint venture billing being issued to the partner. However, the receivables are from participants in the petroleum and natural gas sector, and collection of the outstanding balances is dependent on industry factors such as commodity price fluctuations, escalating costs, the risk of unsuccessful drilling and occasional disagreements between parties. The Company attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to expenditure. The Company does not typically obtain collateral from petroleum and natural gas marketers or joint venture partners; however in certain circumstances, it may cash call a partner in advance of the work. As well, the Company does have the ability to withhold production from joint venture partners in the event of non-payment.

The Company does not have an allowance for doubtful accounts as at March 31, 2008 and the carrying amount of accounts receivable generally represents the maximum credit exposure. There were no receivables written off during the three months ended March 31, 2008 and the Company does not consider any of its accounts receivable to be past due.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking harm to the Company's reputation.

The Company prepares capital expenditure budgets which are regularly monitored and updated as considered necessary. As well, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. To facilitate the capital expenditure program, the Company has a revolving credit facility, outlined in note 5, that is reviewed annually by the lender.

The following is a table of financial liabilities as at March 31, 2008. All have contractual maturities of less than one year.



----------------------------------------------------------------------------
Accounts payable and accrued liabilities $ 12,494
Commodity contracts 2,491
Bank indebtedness (1) 42,218
----------------------------------------------------------------------------
Total $ 57,203
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Amount is drawn against the Company's extendible revolving credit
facility. As the facility is demand in nature, amounts outstanding are
classified as current liabilities implying they are due in one year or
less. Management fully expects the term of the facility to be extended.


Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the Company's net earnings or the value of financial instruments. The objective of market risk management is to mitigate exposures within acceptable limits, while maximizing returns.

The Company utilizes commodity price contracts to manage market risks relevant to commodity prices. All such transactions are conducted in accordance with the risk management policy that has been approved by the Board of Directors.

Foreign Currency Exchange Risk

Foreign currency exchange rate risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although substantially all of the Company's petroleum and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for petroleum and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar. The Company had no forward exchange rate contracts in place as at or during the three months ended March 31, 2008.

Commodity Price Risk

Commodity price risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by world economic events that dictate the levels of supply and demand. The Company has attempted to mitigate commodity price risk through the use of financial derivative sales contracts. The Company's contracts in place as of March 31, 2008 are as follows:



----------------------------------------------------------------------------
Unrealized
Loss
Remaining on
Product Volume Period Contract Price Contract
----------------------------------------------------------------------------
Natural gas 2,000 GJ April to Costless Floor $5.70/GJ
per day October 2008 Collar Ceiling $6.75/GJ $ 918
---------------------------------------------------------------
Natural gas 2,000 GJ April to Costless Floor $6.00/GJ
per day October 2008 Collar Ceiling $7.30/GJ 706
---------------------------------------------------------------
Natural gas 2,000 GJ April to Costless Floor $6.00/GJ
per day October 2008 Collar Ceiling $8.00/GJ 465
---------------------------------------------------------------
Natural gas 2,000 GJ April to Costless Floor $6.25/GJ
per day October 2008 Collar Ceiling $8.45/GJ 345
----------------------------------------------------------------------------
Total natural
gas 2,434
----------------------------------------------------------------------------
Floor Cdn
$75.00/bbl
Crude oil 200 bbl April to Costless Ceiling Cdn
WTI per day June 2008 Collar $105.00/bbl 57
----------------------------------------------------------------------------
Total
unrealized
loss $ 2,491
----------------------------------------------------------------------------
----------------------------------------------------------------------------


At December 31, 2007 the Company had an unrealized loss on commodity contracts of $0.3 million.

The financial price risk management program of the Company resulted in the following realized and unrealized losses:



Three months ended March 31
2008 2007
----------------------------------------------------------------------------
Realized loss on commodity contracts $ 264 $ -
Unrealized loss on commodity contracts 2,142 908
----------------------------------------------------------------------------
$ 2,406 $ 908
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table illustrates the quarterly impact, for the three months ended March 31, 2008, to net income relevant only to the Company's production dedicated to derivative financial instruments, based on the changes to commodity prices and the Canadian/U.S. dollar exchange rate as specified.



----------------------------------------------------------------------------
Increase (decrease)
in net income
----------------------------------------------------------------------------
$0.10/GJ increase in AECO gas price $ (121)
$0.10/GJ decrease in AECO gas price $ 121
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The impact of a $0.50 per barrel change in oil prices, as it relates to the impact on the fair value calculation of the oil derivative, would not be considered to significantly impact net income.

Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate fluctuations on its credit facility which bears a floating rate of interest. The Company had no interest rate swap or financial contracts in place as at or during the three months ended March 31, 2008. For the three months ended March 31, 2008, a difference in the interest rate of 100 basis points would change net income by an estimated $0.1 million (2007 - $0.1 million), assuming all other variables are constant. The sensitivity is higher for the three months ended March 31, 2007 as the average outstanding debt for that period was higher.

Capital Management

The Company's policy is to maintain a strong capital base for the objectives of maintaining financial flexibility, credit and market confidence and to sustain the future development of the business.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Company considers its capital structure to include shareholders' equity, bank debt and working capital. In order to maintain or adjust the capital structure, the Company may from time to time issue shares and adjust its capital spending to manage current and projected debt levels.

The Company monitors its capital based on the ratio of net debt and working capital deficiency divided by funds from operations from the most recent calendar quarter annualized (multiplied by four). The Company's strategy is to maintain a ratio of less than 2 to 1. The calculation of this ratio is detailed below and is within the range established by the Company.



----------------------------------------------------------------------------
As at As at
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Current assets $ 10,839 $ 10,169
Bank indebtedness (42,218) (42,607)
Accounts payable and accrued liabilities (12,494) (12,733)
----------------------------------------------------------------------------
Net debt and working capital deficiency $ (43,873) $ (45,171)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash flow from operating activities $ 7,844 $ 7,078
Changes in non-cash working capital 1,624 310
----------------------------------------------------------------------------
Funds from operations for the period 9,468 7,388
Annualized (multiplied by four) $ 37,872 $ 29,552
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ratio: Net debt and working capital deficiency
to annualized funds from operations 1.16 1.53
----------------------------------------------------------------------------


The net debt and working capital deficiency is a result of normal operating conditions in periods when the Company incurs significant capital expenditures relative to revenue.

The Company's share capital is not subject to external restrictions; however, the credit facility is based on petroleum and natural gas reserves. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.

Fair Value of Financial Instruments

The Company's financial instruments as at March 31, 2008 include accounts receivable, commodity contracts, accounts payable and accrued liabilities and the bank indebtedness. The fair value of accounts receivable and accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity. The fair value of commodity contracts is determined by calculating the difference between the contracted price and published forward price curves as at the balance sheet date, using the remaining contracted petroleum and natural gas volumes. The Company's bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.

8. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital



Three months ended March 31
2008 2007
----------------------------------------------------------------------------
Accounts receivable $ (843) $ 1,311
Prepaid expenses and deposits 173 (18)
Accounts payable and accrued liabilities (239) (3,712)
----------------------------------------------------------------------------
Change in non-cash working capital $ (909) $ (2,419)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Relating to:
Operating activities $ (1,624) $ 1,216
Investing activities $ 715 $ (3,635)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. COMMITMENTS

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



2008 $ 435
2009 588
2010 595
2011 602
2012 153
----------------------------------------------------------------------------
Total $ 2,373
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. COMPARATIVE FINANCIAL STATEMENTS

Certain prior years' 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.

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 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
    Website: www.endevenergy.com