Fairquest Energy Limited
TSX : FQE

Fairquest Energy Limited

November 09, 2006 00:10 ET

Fairquest Energy Limited 2006 Third Quarter Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Fairquest Energy Limited (TSX:FQE)



HIGHLIGHTS

Three Months Nine Months June 1(1)
Ended Ended to
Financial ($ thousands, September 30, September 30, September 30,
except per share amounts) 2006 2005 2006 2005
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Petroleum and natural
gas revenue 6,337 5,599 18,740 7,059
Funds generated from
operations 2,509 2,993 7,173 3,732
Per share - basic $ 0.08 $ 0.12 $ 0.24 $ 0.15
Per share - diluted $ 0.08 $ 0.10 $ 0.22 $ 0.13
Net income (loss) (1,406) 467 (3,498) 586
Per share - basic $ (0.05)$ 0.02 $ (0.12) $ 0.02
Per share - diluted $ (0.05)$ 0.02 $ (0.12) $ 0.02
Exploration and
development expenditures 31,469 20,280 81,553 21,032
Acquisitions, net of
dispositions 5,559 - 5,559 40,955
Total assets 176,569 81,848 176,569 81,848
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Operations (Units as
noted)
Production
Natural gas (Mcf per day) 8,497 5,664 7,701 5,627
Natural gas liquids (bbls
per day) 99 112 123 113
Crude oil (bbls per day) 164 - 141 -
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Total (BOE per day) 1,679 1,056 1,548 1,051

Average sales price
Natural gas ($ per Mcf) 6.05 9.41 6.70 8.93
Natural gas liquids
($ per bbl) 42.98 67.28 49.23 67.21
Crude oil ($ per bbl) 80.56 - 78.11 -

Netback per BOE
($ per BOE)
Petroleum and natural
gas sales 41.03 57.62 44.35 55.07
Royalties (8.00) (12.74) (10.36) (12.14)
Transportation (1.46) (1.41) (1.51) (1.38)
Operating expenses (8.31) (7.78) (8.95) (7.84)
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Operating netback 23.26 35.69 23.53 33.71
Wells drilled (gross) 11 13 34 13
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(1) Commencement of operations on June 1, 2005.


Fairquest Energy Limited ("Fairquest" or the "Company") is pleased to present the results of its operations and an update on its capital expenditure program for the third quarter ended September 30, 2006. During the quarter the Company drilled nine (3.2 net) operated wells and two non-operated wells with minor interest. Of the nine operated wells, eight (2.5 net) have been cased as potential gas wells.

Current production is 2,200 BOE/d comprised of 11.6 MMcf/d of natural gas and 260 bbls/d of oil and NGLs, while production for the third quarter averaged 1,679 BOE/d comprised of 8.5 MMcf/d of natural gas and 263 bbls/d of oil and NGLs. Third quarter production was negatively impacted from early August until early October by intermittent shut-ins due to well site and pipeline restrictions on certain non-operated wells. Production curtailed during this period varied from 125 BOE/d to 240 BOE/d. The majority of this production currently is back on line. Cash flow for the quarter totaled $2.5 million ($0.08 per share).

The Company currently is drilling two (0.84 net) wells and plans to commence drilling four or five more wells prior to year end. All these wells are operated by the Company and mainly target natural gas in reservoirs from 2,900 meters to 3,400 meters. One well (0.35 net) currently drilling in the Lambert area will test a Nisku objective at 4,750 meters.

To maintain the Company's capital expenditure program for the balance of this year and the first half of 2007, Fairquest entered into an agreement, in late October, 2006, with a syndicate of underwriters to issue, on a "bought deal" basis by public offering, 6,500,000 common shares at a price of $3.80 per common share and 2,200,000 flow-through common shares at a price of $4.95 per flow-through common share, resulting in gross proceeds of $35.6 million. Flow-through expenditures on Canadian exploration expenses will be renounced to subscribers effective on or before December 31, 2006 and this issue is scheduled to close on November 14, 2006.

THIRD QUARTER 2006 HIGHLIGHTS

- The Company drilled nine operated wells (3.2 net) of which eight (2.5 net) were successful for natural gas. The average depth of these wells is 2,980 meters.

- Capital expenditures totaled $37.0 million bringing the total capital expended for the first three quarters of 2006 to $87.1 million. Fairquest estimates capital expenditures for the fourth quarter of approximately $15 million.

- Production averaged 8.5 MMcf/d of natural gas and 263 bbls/d of crude oil and NGLs for a total of 1,679 BOE/d despite shut-in volumes during the quarter as a result of non-operated well site and pipeline restrictions.

- Cash flow for the third quarter was $2.5 million ($0.08 per share).

- Current production is 2,200 BOE/d and the Company plans to tie in approximately 500 BOE/d in the next 30 to 45 days.

- Entered into a bought deal public offering to raise $35.6 million to enable the Company to explore and develop its extensive land base and maintain an active capital program during a low natural gas pricing environment.

- The Company's credit facilities with its bankers have been increased from $22 million to $33 million.

OPERATIONS

During the third quarter Fairquest conducted drilling operations on 11 wells (4.5 net) of which 9 (3.2 net) reached total depth during the quarter and two (1.0 net) in early October. Of these, seven (3.2 net) are in the West Pembina/Harlech Area, two (0.9 net) in the Deep Basin and Wild River area and two (0.2 net) in Westerose/Pigeon Lake. Capital expenditures in the third quarter totaled $37.0 million comprised of $14.4 million on drilling, $ 14.1 million on completions, $ 2.4 million on facilities and $6.1 million on undeveloped land and an acquisition increasing Fairquest's interest in an existing property.

West Pembina/Harlech

The West Pembina/Harlech area remains the most active drilling area for the Company and during the third quarter represented 61 percent of the capital expenditures. Fairquest's drilling and completions program in this area targets natural gas reservoirs ranging from 1,600 meters to 4,000 meters and these wells typically have been completed in three or more zones per well. To date we have tested commercial gas rates in eight different sweet gas reservoirs as well as sour gas in the Nisku Formation. Current production in this area is comprised of 7.4 MMcf/d and 240 bbls/d of which 86 percent is sweet gas. Currently there are four wells (2.0 net) awaiting tie-in to production facilities and we anticipate 500 BOE/d of new production net to Fairquest in this area within 30 to 45 days.

One of these wells (0.23 net) was a Nisku test at 14-08-45-13W5. The initial open-hole flow test on this well produced at restricted rates ranging from 3 MMcf/d to 5.2 MMcf/d and approximately 85 to 120 barrels of condensate per day. The well is currently being equipped and tied in to Fairquest's existing sour gas gathering and processing facilities and it is expected that this well will be brought on production late in the fourth quarter of 2006 at an initial rate of approximately 3.5 MMcf/d (3.0 MMcf/d sales) and 90 barrels of condensate per day (136 BOE per day net to Fairquest). Fairquest has eight additional exploration prospects targeting the Nisku in the Brazeau area with two scheduled to be tested in the next six months.

At Harlech, the Company currently has drilling operations ongoing on one (0.5 net) Basal Mannville test with plans to drill two to three more wells before the end of the year. South of the Brazeau River in Harlech, the Company is participating in a new gas pipeline project that will tie-in three (1.9 net) wells allowing gas and natural gas liquids to be transported to the north side of the Brazeau River into the Company's centralized compression facilities. Construction on this project is anticipated to be completed in the fourth quarter of 2006. The Company's land base in this area includes approximately 120,000 gross acres (50,000 net) and to date less than 30 percent of this land has been developed.

Deep Basin

In the Marsh area of the Deep Basin, Fairquest drilled one (0.3 net) well during the quarter and placed two (0.5 net) wells on-stream in this area. At Wild River, the Company drilled a 3,865 meter Nisku Test at 6-9-57-22W5M. The well encountered 195 feet of porous dolomite in a Nisku reef, however this zone was salt water bearing. The 6-9 well has been cased, plugged back and will be completed in a shallower zone. The Company has a 55 percent working interest in this well. At Obed, the Company recently completed a Devonian sour gas reservoir at 4,180 meters and after the initial flow test, this well (0.6 net) is shut-in for a pressure buildup. At Lambert, a Nisku test (0.35 net) is currently drilling with a targeted total depth of 4,750 meters.

The Company's drilling program for the remainder of this year and the first quarter of 2007 in the Marsh area of the Deep Basin has been reduced significantly due to low natural gas prices. This situation will be reviewed in early 2007 and may change depending on natural gas prices and capital availability.

Westerose/Pigeon Lake

In the Westerose/Pigeon Lake area, two (0.2 net) wells were drilled and one was completed in August. This well tested at a rate of 165 BOE/d (16 BOE/d net) and was connected to production facilities in the month of September. In addition, one existing well was recompleted and tested at 150 BOE/d (15 net). The Company plans an additional three wells in this area in early 2007.

R.A. WALLS, President & CEO

November 8, 2006

Calgary, Alberta

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") was prepared at, and is dated, November 8, 2006. This MD&A is provided by the management of Fairquest Energy Ltd. ("Fairquest" or the "Company") to review third quarter 2006 activities. This MD&A should be read in conjunction with the audited financial statements including notes for the period from commencement of operations on June 1 to December 31, 2005 and the unaudited financial statements including notes for the three and nine month periods ended September 30, 2006. Additional information relating to Fairquest, including Fairquest's annual information form, is available on SEDAR at www.sedar.com.

NATURE OF BUSINESS: Fairquest was incorporated on March 7, 2005 and commenced commercial operations on June 1, 2005 under a Plan of Arrangement involving, among others, Fairborne Energy Ltd. ("Fairborne"), Fairborne Energy Trust, and Fairquest ("Plan of Arrangement"). Pursuant to the Plan of Arrangement, Fairquest acquired certain petroleum and natural gas properties of Fairborne.

Fairquest maintains its head office in Calgary and is engaged in the business of exploring for, developing, acquiring and producing crude oil and natural gas in Western Canada. Fairquest follows a strategy of balancing risk and reward by focusing on opportunities by geographic area and prospect type. Within these select areas, Fairquest develops a portfolio of exploration and development prospects in conjunction with an acquisition strategy.

FORWARD LOOKING STATEMENTS: This MD&A contains forward-looking statements. Management's assessment of future plans and operations, production estimates, wells to be drilled, timing of the drilling, tie in, and completion of wells and the production resulting therefrom, expected royalty rates, transportation costs and operating costs, and the taxability of the Company, may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, the timing and length of plant turnarounds and the impact of such turnarounds and the timing thereof, delays resulting from or inability to obtain required regulatory approvals and the ability to access sufficient capital from internal and external sources. As a consequence, the Company's actual results could differ materially from those expressed in, or implied by, the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Fairquest's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), or at the Company's website (www.fairquestenergy.com). Furthermore, the forward looking statements contained in this MD&A are made as at the date of this MD&A and the Company does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

NON-GAAP TERMS: This document contains the terms "funds generated from operations" and "netbacks" which are non-GAAP terms. The Company uses these measures to help evaluate its performance. The Company considers corporate netbacks a key measure as it demonstrates its profitability relative to current commodity prices. The Company considers funds generated from operations a key measure as it demonstrates Fairquest's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Funds generated from operations should not be considered as an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian GAAP as an indicator of Fairquest's performance. Fairquest's determination of funds generated from operations may not be comparable to that reported by other companies. The reconciliation between net income and funds generated from operations can be found in the statement of cash flows in the financial statements. Fairquest also presents funds generated from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of income per share.

BOE CONVERSIONS:Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and is based on an energy equivalent conversion method application at the burner tip and does not necessarily represent an economic value equivalency at the wellhead.

COMPARATIVE INFORMATION - COMMENCEMENT OF OPERATIONS

Since Fairquest commenced commercial operations on June 1, 2005, comparative information for the period ended September 30, 2005 is for only 122 days. While comparisons will be made between the third quarter of 2006 and the third quarter of 2005, no meaningful comparison can be made between the nine months ended September 30, 2006 and the 122 days ended September 30, 2005. The following MD&A will focus on the variance between the third quarter of 2006 and the third quarter of 2005.

RELATIONSHIP WITH FAIRBORNE ENERGY LTD.

As a result of the Plan of Arrangement, Fairquest and Fairborne have joint interests in certain properties and undeveloped land. In addition, the companies have entered into farm-in agreements whereby Fairquest received an option to farm-in on 83,000 net acres of Fairborne exploratory lands. Under this agreement, Fairquest also has a commitment to drill 25 exploration wells on Fairborne lands over 2 years. To date, 19 wells have been drilled with 100% success. It is anticipated that Fairquest will fulfill its commitment within the two year period.

In conjunction with the Plan of Arrangement, Fairborne and Fairquest entered into a Technical Services Agreement which provides for the shared services required to manage Fairquest's activities and governs the allocation of general and administrative expenses between the entities. For the period January 1 to September 30, 2006 Fairquest incurred technical services fees of $2.0 million under this agreement.



QUARTERLY FINANCIAL INFORMATION

The following is a summary of selected financial information for the
quarterly periods indicated:

Q3 Q2 Q1
2006 2006 2006
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Financial ($ thousands, except per share
amounts)
Petroleum and natural gas sales, before
royalties 6,337 6,706 5,697
Funds generated from operations 2,509 2,409 2,255
Per share - basic $ 0.08 $ 0.08 $ 0.08
Per share - diluted $ 0.08 $ 0.07 $ 0.07
Net income (loss) (1,406) (1,433) (659)
Per share - basic $ (0.05) $ (0.05) $ (0.02)
Per share - diluted $ (0.05) $ (0.05) $ (0.02)
Total assets 176,569 144,741 132,433
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Operations
Average production
Natural gas (Mcf per day) 8,497 8,122 6,461
Natural gas liquids (bbls per day) 99 179 91
Crude oil (bbls per day) 164 175 83
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Total (BOE per day) 1,679 1,708 1,252
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Q4 Q3 JUNE(1)
2005 2005 2005
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Financial ($ thousands, except per share
amounts)
Petroleum and natural gas sales, before
royalties 7,009 5,599 1,460
Funds generated from operations 3,865 2,993 739
Per share - basic $ 0.14 $ 0.12 $ 0.03
Per share - diluted $ 0.12 $ 0.10 $ 0.03
Net income (loss) 511 467 119
Per share - basic $ 0.01 $ 0.02 $ 0.01
Per share - diluted $ 0.01 $ 0.02 -
Total assets 133,021 81,848 71,041
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Operations
Average production
Natural gas (Mcf per day) 5,430 5,664 5,514
Natural gas liquids (bbls per day) 64 112 115
Crude oil (bbls per day) 80 - -
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Total (BOE per day) 1,049 1,056 1,034
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(1) Commencement of operations on June 1, 2005


THIRD QUARTER 2006 RESULTS

Production and Prices
THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
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Production
Natural gas (Mcf per day) 8,497 5,664 7,701 5,627
Oil and NGLs (bbls per day) 263 112 264 113
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Total (BOE per day) 1,679 1,056 1,548 1,051
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(1) Commencement of operations on June 1, 2005


Fairquest recorded average natural gas production of 8,497 Mcf per day and 263 bbls per day of crude oil and associated natural gas liquids during the three months ended September 30, 2006. Production increased by 59% during third quarter of 2006 compared to third quarter of 2005 primarily due to the results of a successful capital program. Current production, including new production from the Columbia/Harlech and West Pembina areas, is approximately 2,200 BOE per day.

Fairquest realized the following commodity prices for the three and nine months ended September 30, 2006 as compared to the three months ended September 30, 2005 and the period from commencement of operations on June 1 to September 30, 2005:



THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
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Prices
Natural gas ($ per Mcf) 6.05 9.41 6.70 8.93
Oil and NGLs ($ per bbl) 66.36 67.28 64.64 67.21
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Total ($ per BOE) 41.03 57.62 44.35 55.07
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(1) Commencement of operations on June 1, 2005


Fairquest realized a natural gas price of $6.05 per Mcf and an average price of $66.36 per barrel for oil and associated natural gas liquids during the three months ended September 30, 2006. The Company's natural gas price for the third quarter 2006 decreased 36% compared to the price received during the third quarter of 2005 reflecting the decline in AECO prices during 2006.

The following table summarizes the outstanding fixed price physical sales contracts for natural gas, including contracts entered into for periods after September 30, 2006:



SETTLEMENT
REMAINING TERM VOLUME PRICE INDEX
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NOV 1,2006 - MAR 31,2007 1,500 GJ/DAY CDN$8.11/GJ FLOOR
+ 50% PARTIC. AECO C DAILY
OCT 1,2006 - OCT 31,2006 1,500 GJ/DAY NYMEX LD LESS
US$0.81/MMBTU NYMEX LAST DAY
NOV 1,2006 - NOV 30,2006 3,000 GJ/DAY CDN$5.68/GJ SWAP N/A
DEC 1,2006 - DEC 31,2006 3,000 GJ/DAY CDN$7.37/GJ SWAP N/A
JAN 1,2007 - MAR 31,2007 3,500 GJ/DAY CDN$7.77/GJ SWAP N/A
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Revenue
THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
($ thousands) 2006 2005 2006 2005
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Revenues
Natural gas 4,732 4,905 14,078 6,134
Oil and NGLs 1,605 694 4,662 925
Other income 79 145 308 150
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Total 6,416 5,744 19,048 7,209
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(1) Commencement of operations on June 1, 2005


Fairquest recorded revenue of $6.4 million for the three months ended September 30, 2006 compared to $5.7 million for the three months ended September 30, 2005. Increased volumes during the three months ended September 30, 2006 more than offset the decrease in realized prices for natural gas as compared to the three months ended September 30, 2005. Despite reduced prices since the end of 2005, volumes have increased over 59% from September 30, 2005 levels, mainly due to the results of the successful capital program.



Royalties
THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
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Royalties, net ($thousands) 1,236 1,238 4,376 1,556
As a % of sales 19.5% 22.1% 23.4% 22.0%
Per BOE $ 8.00 $ 12.74 $ 10.36 $ 12.14
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(1) Commencement of operations on June 1, 2005


Fairquest recorded royalty expense of $1.2 million for the three months ended September 30, 2006 for an effective royalty rate of 19.5%. The rate is lower than the 22.1% realized during the three months ended September 30, 2005 primarily due to royalty free periods on new wells in 2006 and compensatory royalties paid on offset land during 2005 that ended during the first quarter of 2006. The Company expects royalties to average approximately 22% for the remainder of 2006.



Transportation costs

THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
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Transportation costs
($thousands) 225 137 636 177
Per BOE $ 1.46 $ 1.41 $ 1.51 $ 1.38
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(1) Commencement of operations on June 1, 2005


The majority of Fairquest's transportation costs are transportation and fuel costs associated with usage of the NOVA natural gas pipeline. Fairquest has a contract directly with a marketing company for transportation costs. Transportation costs during the third quarter of 2006 were comparable to the third quarter of 2005 on a cost per BOE basis. The Company expects transportation costs to be between $1.40 and $1.75 per BOE for the remainder of 2006.



Operating Expenses

THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
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Operating costs
($thousands) 1,284 756 3,779 1,005
Per BOE $ 8.31 $ 7.78 $ 8.95 $ 7.84
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(1) Commencement of operations on June 1, 2005


Fairquest recorded operating costs of $1.3 million or $8.31 per BOE for the three months ended September 30, 2006. Operating costs reflected continued upward pressure on industry service costs, increasing from $7.78 per BOE in the third quarter of 2005. All of Fairquest's properties are currently operated by Fairborne. The Company expects operating costs per BOE of approximately $8.00 to $8.50 for the remainder of 2006.



Operating Netbacks

THREE MONTHS ENDED SEPTEMBER 30,
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2006 2005
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NATURAL GAS CRUDE OIL NGL'S TOTAL TOTAL
($ PER MCF) ($ PER BBL) ($ PER BBL) ($ PER BOE) ($ PER BOE)
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Revenue 6.05 80.56 42.98 41.03 57.62
Royalties (1.03) (12.03) (27.27) (8.00) (12.74)
Transportation (0.29) (0.01) - (1.46) (1.41)
Operating costs (1.35) (8.50) (10.96) (8.31) (7.78)
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Operating netback 3.38 60.02 4.75 23.26 35.69
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NINE MONTHS JUNE 1(1) TO
ENDED SEPTEMBER 30, SEPTEMBER 30,
2006 2005
---------------------------------------------------------------------------
NATURAL GAS CRUDE OIL NGL'S TOTAL TOTAL
($ PER MCF) ($ PER BBL) ($ PER BBL) ($ PER BOE) ($ PER BOE)
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Revenue 6.70 78.11 49.23 44.35 55.07
Royalties (1.53) (14.05) (18.21) (10.36) (12.14)
Transportation (0.30) (0.01) - (1.51) (1.38)
Operating costs (1.51) (9.08) (7.80) (8.95) (7.84)
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Operating netback 3.36 54.97 23.22 23.53 33.71
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(1) Commencement of operations on June 1, 2005


General and Administrative ("G&A") Expenses

THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
($thousands except as noted) 2006 2005 2006 2005
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G & A expenses, net of
recoveries 927 585 2,849 699
Stock option compensation
costs 240 217 709 255
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Total G&A expenses 1,167 802 3,558 954
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G&A expenses, per BOE $ 6.00 $ 6.02 $ 6.74 $ 5.46
Compensation costs, per
BOE $ 1.55 $ 2.23 $ 1.68 $ 1.99
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(1) Commencement of operations on June 1, 2005


Fairquest recorded $1.2 million for G&A expenses during the third quarter of 2006 compared to $802,000 during the third quarter of 2005. The increase is primarily due to the amount payable to Fairborne under the Technical Services Agreement of $781,000 during the third quarter of 2006 compared to $395,000 during the third quarter of 2005. This increase is consistent with an increase in corporate compliance and staffing costs and Fairquest's increased capital program.

G&A expenses include non-cash compensation expense of $240,000 for the third quarter of 2006 (Q3 2005 - $217,000) for stock options issued under the Company's stock based compensation plan.



Depletion, Depreciation and Accretion

THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
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Depletion, depreciation
and accretion ($thousands) 4,134 1,770 11,241 2,250
Per BOE $ 26.77 $ 18.22 $ 26.61 $ 17.55
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(1) Commencement of operations on June 1, 2005


Depletion, depreciation and accretion expense for the three months ended September 30, 2006 was $4.1 million, or $26.77 per BOE, an increase of 47% from $18.22 per BOE for the three months ended September 30, 2005. The increase in DD&A is due to an increase in the Company's depletable base as a result of capital spending. Fairquest's depletion rate reflects the carrying value of properties transferred from Fairborne pursuant to the Plan of Arrangement as well as additions during the remainder of 2005 and the first nine months of 2006.

The Company estimates its total undiscounted future liability for asset retirement obligations to be approximately $3.4 million, the present value of which is $1.2 million at September 30, 2006. Accretion of asset retirement obligations in the third quarter of 2006 was $26,000 ($0.17 per BOE), compared to $17,000 ($0.17 per BOE) in the third quarter of 2005.

Taxes

Fairquest recorded a future tax recovery of $459,000 during the third quarter of 2006 compared to a future tax expense of $539,000 during the third quarter of 2005. The future tax recovery in 2006 results from the net loss before taxes for third quarter 2006 compared to net income before taxes for third quarter 2005. Based on available tax pools, expected capital expenditures and forecast net income for 2006, the Company does not anticipate paying cash income taxes in 2006.



Funds Generated from Operations and Net Income (Loss)

Three Months Nine Months June 1(1)
Ended Ended to
($ thousands, except September 30, September 30, September 30,
per share amounts) 2006 2005 2006 2005
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Funds generated from
operations 2,509 2,993 7,173 3,732
Per share - basic $ 0.08 $ 0.12 $ 0.24 $ 0.15
Per share - diluted $ 0.08 $ 0.10 $ 0.22 $ 0.13
Net income (loss) (1,406) 467 (3,498) 586
Per share - basic $ (0.05) $ 0.02 $ (0.12) $ 0.02
Per share - diluted $ (0.05) $ 0.02 $ (0.12) $ 0.02
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(1) Commencement of operations on June 1, 2005

Unit Analysis
Three months ended September 30, 2006 ($THOUSANDS) ($ PER BOE)
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Production revenue 6,337 41.03
Royalties 1,236 8.00
Transportation costs 225 1.46
Operating expenses 1,284 8.31
General & administrative (1) 927 6.00
Interest 156 1.01
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Funds generated from operations 2,509 16.25
Compensation expense 240 1.55
Depletion, depreciation and accretion 4,134 26.77
Future income taxes (reduction) (459) (2.97)
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Net Loss (1,406) (9.10)
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(1) net of compensation expense (non-cash)


Nine months ended September 30, 2006 ($THOUSANDS) ($ PER BOE)
---------------------------------------------------------------------------
Production revenue 18,740 44.35
Royalties 4,376 10.36
Transportation costs 636 1.51
Operating expenses 3,779 8.95
General & administrative (1) 2,849 6.74
Interest (income) (73) (0.17)

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Funds generated from operations 7,173 16.96
Compensation expense 709 1.68
Depletion, depreciation and accretion 11,241 26.61
Future income taxes (reduction) (1,279) (3.03)
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Net Loss (3,498) (8.30)
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(1) net of compensation expense (non-cash)


LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

At September 30, 2006, Fairquest had bank indebtedness of $18.9 million and a working capital deficit of $33.0 million. The increase in the working capital deficit from December 31, 2005 ($4.6 million) is consistent with the significant increase in spending on exploration and development projects during the first nine months of 2006.

On May 11, 2006, Fairquest entered into a bought deal agreement and issued 3.5 million flow-through common shares through a private placement at a price of $9.90 per flow-through common share, resulting in gross proceeds of $34.7 million. The proceeds of the financing are being utilized to fund Fairquest's exploration expenditures in 2006. Flow-through expenditures on Canadian exploration expenses will be renounced to subscribers effective on or before December 31, 2006. From May 12 to September 30, 2006, $24.6 million of exploration expenditures have been incurred.

On October 17, 2006, Fairquest announced that the Company had entered into an agreement to issue for resale to the public 6,500,000 common shares at $3.80 per share and 2,200,000 flow-through common shares at $4.95 per share, resulting in aggregate gross proceeds of $35.6 million (net proceeds of approximately $33.8 million). The common shares and flow-through common shares will be offered in certain provinces of Canada pursuant to a short form prospectus. The financing is scheduled to close on November 14, 2006. Proceeds of the offering will be used to fund a portion of Fairquest's ongoing development and exploration programs and for general corporate purposes. Gross proceeds from the sale of the flow-through shares will be used to fund ongoing exploration activities eligible for Canadian exploration expenses which will be renounced to the subscribers of the flow-through shares effective on or before December 31, 2006. As a result of this transaction, Fairquest will have a commitment to spend $10.9 million on qualifying Canadian exploration expenditures prior to December 31, 2007 which the Company anticipates incurring.

Capital Expenditures

Fairquest's exploration and development expenditures for the three months ended September 30, 2006 totaled $31.5 million, the majority of which ($28.5 million) was spent on an active drilling and completion program. This compares to $20.3 million that was spent during the three months ended September 30, 2005, with $18.8 million spent on drilling and completions. An additional $5.6 million was spent to acquire an increased working interest in Fairquest's Wild River property. During the third quarter, Fairquest drilled 9 (3.2 net) wells, resulting in 8 (2.5 net) gas wells, and one (0.7 net) suspended well.

Fairquest has committed to drill 25 wells on Fairborne lands over the two year term of the farm-in agreement entered into on June 1, 2005. As at September 30, 2006, 19 wells have been drilled.



THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
($thousands) 2006 2005 2006 2005
---------------------------------------------------------------------------
Exploration and development
Land and lease acquisitions 532 393 1,595 417
Geological and geophysical 53 58 295 58
Drilling, completions and
workovers 28,482 18,832 70,151 19,423
Well equipment and
facilities 2,402 997 9,512 1,134
---------------------------------------------------------------------------
31,469 20,280 81,553 21,032
Property acquisitions 5,559 - 5,559 40,955
---------------------------------------------------------------------------
Total 37,028 20,280 87,112 61,987
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Commencement of operations on June 1, 2005


The Company plans to utilize its cash balances, available line of credit and proceeds from issuance of additional equity, together with funds generated from operations to fund capital expenditures over the remainder of 2006. The capital budget for the fourth quarter of 2006 and the first half of 2007 is $35 million.

Bank Indebtedness

At September 30, 2006 the Company had available $22.0 million of demand operating credit facilities from a syndicate of Canadian chartered banks subject to the bank's valuation of the Company's petroleum and natural gas properties, of which $18.9 million was outstanding at September 30, 2006. The authorized bank lines were increased to $33.0 million subsequent to September 30, 2006. The facilities are secured by a first ranking floating charge on all real property of the Company and a general security agreement. The renewal date of the facilities is May 30, 2007.

Share Capital

The Company is authorized to issue an unlimited number of common shares, an unlimited number of first preferred shares, issuable in series, and 1,000,000 performance shares. The following table provides a summary of outstanding common shares and other equity instruments as at the dates indicated:



OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
(thousands) 2006 2006 2005
---------------------------------------------------------------------------
Common shares 31,527 31,527 28,041
Warrants (1) 4,689 4,689 4,733
Performance shares (2) 968 968 997
Stock options 1,320 1,320 1,209
Weighted average common shares
Basic N/A 29,845 26,170
Diluted N/A 32,775 29,899
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Each warrant entitles the holder to acquire one common share at an
exercise price of $3.17 per share exercisable until May 31, 2010,
subject to certain conditions and to adjustments in certain events.
(2) Performance shares are convertible into the percentage of a common
share equal to the weighted average trading price of the common shares
for the five trading days immediately prior to such conversion (the
"Fairquest Price") less $2.11, if positive, divided by the Fairquest
Price.


BUSINESS ENVIRONMENT AND RISK

The business risks the Company is exposed to are those inherent in the oil and gas industry as well as those governed by the individual nature of Fairquest's operations. Geological and engineering risks, the uncertainty of discovering commercial quantities of new reserves, commodity prices, interest rate and foreign exchange risks, competition and government regulations - all of these govern the business and influence the controls and management at the Company. Fairquest manages these risks by:

- attracting and retaining a team of highly qualified and motivated professionals who have a vested interest in the success of the Company;

- operating properties in order to maximize opportunities;

- employing risk management instruments to minimize exposure to volatility of commodity prices, interest rate and foreign exchange rates;

- maintaining a strong financial position; and

- maintaining strict environmental, safety and health practices.



INTERIM BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
($ thousands) 2006 2005
---------------------------------------------------------------------------
(Unaudited)
Assets

Current assets
Cash and cash equivalents $ - $ 16
Short term investments 470 26,341
Accounts receivable 3,942 8,953
---------------------------------------------------------------------------
4,412 35,310
Capital assets (Note 1) 172,157 95,951
Future income taxes - 1,760
---------------------------------------------------------------------------
$ 176,569 $ 133,021
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities

Current liabilities
Accounts payable and accrued liabilities $ 37,371 $ 39,956
Bank indebtedness (Note 2) 18,894 -
---------------------------------------------------------------------------
56,265 39,956
Asset retirement obligations (Note 3) 1,220 885
Future income taxes 680 -

Shareholders' Equity

Capital stock and warrants (Note 4) 119,568 90,598
Contributed surplus (Note 4) 1,237 485
Retained earnings (deficit) (2,401) 1,097
---------------------------------------------------------------------------
118,404 92,180
---------------------------------------------------------------------------
Commitments (Notes 4 and 6)
Subsequent events (Note 7)
$ 176,569 $ 133,021
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to the interim financial statements


INTERIM STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Unaudited)
FOR THE FOR THE
THREE MONTHS NINE MONTHS JUNE 1 (1)
ENDED ENDED TO
($ thousands except per SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
share amounts) 2006 2005 2006 2005
---------------------------------------------------------------------------
Revenue
Petroleum and natural gas $ 6,337 $ 5,599 $ 18,740 $ 7,059
Royalties (1,236) (1,238) (4,376) (1,556)
Transportation (225) (137) (636) (177)
Interest 79 145 308 150
---------------------------------------------------------------------------
4,955 4,369 14,036 5,476
Expenses
Operating 1,284 756 3,779 1,005
General and administrative 1,167 802 3,558 954
Interest 235 - 235 -
Depletion, depreciation and
accretion 4,134 1,770 11,241 2,250
---------------------------------------------------------------------------
6,820 3,328 18,813 4,209
---------------------------------------------------------------------------
Income (loss) before taxes (1,865) 1,041 (4,777) 1,267
Taxes (reduction)
Future (459) 539 (1,279) 641
Capital - 35 - 40
---------------------------------------------------------------------------
(459) 574 (1,279) 681
---------------------------------------------------------------------------
Net Income (loss) (1,406) 467 (3,498) 586
Retained earnings (deficit),
beginning of period (995) 119 1,097 -
---------------------------------------------------------------------------
Retained earnings (deficit),
end of period $ (2,401) $ 586 $ (2,401) $ 586
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income (loss) per share
(Note 4)
Basic $ (0.05) $ 0.02 $ (0.12) $ 0.02
Diluted $ (0.05) $ 0.02 $ (0.12) $ 0.02
---------------------------------------------------------------------------
(1) Commencement of operations

See accompanying notes to the interim financial statements


INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE FOR THE
THREE MONTHS NINE MONTHS JUNE 1 (1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
($ thousands) 2006 2005 2006 2005
---------------------------------------------------------------------------
Cash provided by (used in):
Operating activities
Net income (loss) $ (1,406) $ 467 $ (3,498) $ 586
Items not involving cash
Depletion, depreciation and
accretion 4,134 1,770 11,241 2,250
Compensation expense 240 217 709 255
Future income taxes
(reduction) (459) 539 (1,279) 641
---------------------------------------------------------------------------
2,509 2,993 7,173 3,732
Change in non-cash working
capital 1,462 331 4,833 (341)
---------------------------------------------------------------------------
3,971 3,324 12,006 3,391
---------------------------------------------------------------------------
Financing activities
Issuance of common shares,
warrants and performance
shares, net of costs (5) - 32,798 35,158
Redemption of common shares,
warrants and performance
shares (7) - (66) -
Bank indebtedness 18,894 - 18,894 (10,000)
---------------------------------------------------------------------------
18,882 - 51,626 25,158
---------------------------------------------------------------------------
Investing activities
Capital expenditures (31,469) (20,280) (81,553) (21,032)
Property acquisitions (5,559) - (5,559) -
Short term investments 30 (8,000) 25,871 (8,000)
Change in non-cash working
capital 14,130 6,809 (2,407) 7,625
---------------------------------------------------------------------------
(22,868) (21,471) (63,648) (21,407)
---------------------------------------------------------------------------
Change in cash and cash
equivalents (15) (18,147) (16) 7,142
Cash and cash equivalents,
beginning of period 15 25,289 16 -
---------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ - $ 7,142 $ - $ 7,142
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Commencement of operations

See accompanying notes to the interim financial statements


SELECTED NOTES TO THE INTERIM FINANCIAL STATEMENTS
For the nine months ended September 30, 2006 (unaudited)
(tabular amounts are stated in thousands of dollars except per share
amounts)


NATURE OF OPERATIONS

The interim financial statements of Fairquest have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the period from commencement of operations on June 1 to December 31, 2005. The disclosure which follows is incremental to the disclosure included in the 2005 financial statements. These interim financial statements should be read in conjunction with the financial statements and notes thereto for the period from commencement of operations on June 1 to December 31, 2005.

Transactions with Fairborne Energy Ltd. ("Fairborne")

Included in general and administrative costs are $0.8 million and $2.0 million relating to amounts charged under the Technical Services Agreement during the three and nine months ended September 30, 2006, respectively (June 1 to September 30, 2005 - $434,000). At September 30, 2006, accounts payable included $8.5 million (December 31, 2005 - $12.4 million) due to Fairborne, which includes joint venture amounts such as capital expenditures.



1. CAPITAL ASSETS

SEPTEMBER 30, DECEMBER 31,
2006 2005
---------------------------------------------------------------------------
Petroleum and natural gas properties
and equipment $ 188,200 $ 100,825
Accumulated depletion and depreciation (16,043) (4,874)
---------------------------------------------------------------------------
$ 172,157 $ 95,951
---------------------------------------------------------------------------
---------------------------------------------------------------------------


As at September 30, 2006, costs of unproved properties in the amount of $14.2 million (December 31, 2005 - $12.6 million) were excluded from the depletion calculation. In addition, costs of $18.0 million (December 31, 2005 - $8.9 million) were excluded related to wells that were not yet completed or evaluated at September 30, 2006. Included in the Company's petroleum and natural gas properties and equipment balance is $1.1 million (December 31, 2005 - $0.8 million) relating to asset retirement obligations, net of accumulated depletion.

2. BANK INDEBTEDNESS

At September 30, 2006 the Company had available $22.0 million of demand operating credit facilities from a syndicate of Canadian chartered banks based on the banks' valuation of the Company's petroleum and natural gas properties. The facilities bear interest at the banks' prime rate, banker's acceptance rates, or Libor rates plus margins ranging from 0.0% to 2.25% depending on financial statement ratios and the nature of the advance. The facilities are secured by a first ranking floating charge on all real property of the Company and a general security agreement. The renewal date of the facilities is May 30, 2007.

Subsequent to September 30, 2006, Fairquest also obtained an $11 million revolving credit facility which will be used for general corporate purposes. The new facility is payable on May 30, 2007 with security provided consistent with Fairquest's existing credit facilities. Interest payable on amounts drawn under this facility will be at the prevailing bankers' acceptance rates plus stamping fees, or lenders' prime rate plus margins ranging from 1.0% to 3.25% depending on financial statement ratios and the form of borrowing by the Company. While any amount of the facility is outstanding, drawn pricing under the existing credit facilities will increase by 0.50% at all levels.



3. ASSET RETIREMENT OBLIGATIONS

A reconciliation of the asset retirement obligations is provided below:

---------------------------------------------------------------------------
Balance, December 31, 2005 $ 885
Liabilities incurred 263
Accretion expense 72
---------------------------------------------------------------------------
Balance, September 30, 2006 $ 1,220
---------------------------------------------------------------------------
---------------------------------------------------------------------------


4. CAPITAL STOCK

a) Common Shares Issued and Outstanding

NUMBER OF
(thousands) SHARES AMOUNT
---------------------------------------------------------------------------
Balance, December 31, 2005 28,041 $ 89,517
Flow-through shares issued for cash 3,500 34,650
Issued on exercise of warrants 13 45
Issued on exercise of performance shares 4 3
Redemption (31) (105)
Share issue costs - (1,894)
Future tax benefit of issue costs - 652
Future tax impact of 2005 flow-through shares - (4,371)
---------------------------------------------------------------------------
Balance, September 30, 2006 31,527 $ 118,497
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Warrants
Balance, December 31, 2005 4,733 $ 1,071
Exercised (13) (3)
Redemption (31) (7)
---------------------------------------------------------------------------
Balance, September 30, 2006 4,689 $ 1,061
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Performance Shares
Balance, December 31, 2005 997 $ 10
Exercised (6) -
Redemption (23) -
---------------------------------------------------------------------------
Balance, September 30, 2006 968 $ 10
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The common shares issued on the initial private placement in June, 2005 and the performance shares may be repurchased or redeemed when the holder, who is either an officer, director, employee or service provider, ceases to be a Fairquest service provider. The common shares may be repurchased at the lesser of market value and $2.11 per share and the performance shares are redeemed at $0.01 per share. If a holder of warrants voluntarily ceases to be a Fairquest service provider or is terminated with cause, the warrants held by such person will not be exercisable thereafter.

Fairquest is required to spend $34.7 million on qualifying Canadian exploration expenditures pursuant to the flow-through share issue in May, 2006. The required expenditures will be renounced to subscribers on or before December 31, 2006. As at September 30, 2006 Fairquest has incurred $24.6 million of the required exploration expenditures.



b) Per Share Amounts

The following table summarizes the weighted average common shares used in
calculating net income (loss) per share:

THREE MONTHS NINE MONTHS JUNE 1(1)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(thousands) 2006 2005 2006 2005
---------------------------------------------------------------------------
Basic 31,527 26,049 29,845 24,950
Warrants 1,656 2,961 2,289 2,961
Performance shares 552 750 641 750
---------------------------------------------------------------------------
Diluted 33,735 29,760 32,775 28,661
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Commencement of operations


Excluded from the diluted number of common shares are 1,320,400 stock options which are not dilutive.

c) Stock Options

There are 1,320,400 stock options outstanding at September 30, 2006 with an average exercise price of $7.22 per share. Options vest evenly over a three year period and expire five years from the date of grant. The outstanding options expire between June 13, 2010 and September 18, 2011.



NUMBER OF WEIGHTED
OPTIONS AVERAGE
(THOUSANDS) EXERCISE PRICE
---------------------------------------------------------------------------
Balance, December 31, 2005 1,209 $ 7.32
Granted 127 6.43
Cancelled (16) 7.58
---------------------------------------------------------------------------
Balance, September 30, 2006 1,320 $ 7.22
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The weighted average fair value of stock options granted during the period from January 1 to September 30, 2006 was $1.65 per option using the Black-Scholes option pricing model with the following weighted average assumptions: risk free rate of 4 percent, expected volatility of 30 percent and an expected life of 3 years.



d) Contributed Surplus

---------------------------------------------------------------------------
Balance , December 31, 2005 $ 485
Stock-based compensation expense 717
Redemption of common shares and warrants 46
Exercise of performance shares (3)
Cancellation of options and performance shares (8)
---------------------------------------------------------------------------
Balance, September 30, 2006 $ 1,237
---------------------------------------------------------------------------
---------------------------------------------------------------------------


5. FINANCIAL INSTRUMENTS

The Company has a price risk management program whereby the Company sells forward a portion of its future production through fixed price physical sales contracts with customers. The following summarizes the natural gas fixed price sales contracts outstanding at September 30, 2006:



SETTLEMENT
REMAINING TERM VOLUME PRICE INDEX
---------------------------------------------------------------------------
AECO Participating Swap
NOV 1,2006 - MAR 31,2007 1,500 GJ/DAY CDN$8.11/GJ FLOOR
+ 50% PARTIC. AECO C DAILY
AECO Basis
OCT 1,2006 - OCT 31,2006 1,500 GJ/DAY NYMEX LD
LESS US$0.81
/MMBTU NYMEX LAST DAY
NOV 1,2006 - NOV 30,2006 3,000 GJ/DAY CDN$5.68/GJ SWAP N/A
DEC 1,2006 - DEC 31,2006 3,000 GJ/DAY CDN$7.37/GJ SWAP N/A
JAN 1,2007 - MAR 31,2007 3,500 GJ/DAY CDN$7.77/GJ SWAP N/A
---------------------------------------------------------------------------
---------------------------------------------------------------------------


6. COMMITMENTS

Fairquest has committed to drill 25 wells on Fairborne lands over the two year term of the farm-in agreement entered into on June 1, 2005. As at September 30, 2006, 19 wells have been drilled.

7. SUBSEQUENT EVENTS

On October 17, 2006, Fairquest announced that the Company had entered into an agreement to issue for resale to the public 6,500,000 common shares at $3.80 per share and 2,200,000 flow-through common shares at $4.95 per share, resulting in aggregate gross proceeds of $35.6 million (net proceeds of approximately $33.8 million). The common shares and flow-through common shares will be offered in certain provinces of Canada pursuant to a short form prospectus. The financing is scheduled to close on November 14, 2006. Proceeds of the offering will be used to fund a portion of Fairquest's ongoing development and exploration programs and for general corporate purposes. Gross proceeds from the sale of the flow-through shares will be used to fund ongoing exploration activities eligible for Canadian exploration expenses which will be renounced to the subscribers of the flow-through shares effective on or before December 31, 2006. As a result of this transaction, Fairquest will have a commitment to spend $10.9 million on qualifying Canadian exploration expenditures prior to December 31, 2007.

FORWARD LOOKING STATEMENTS: This document contains forward-looking statements. Management's assessment of future plans and operations, production estimates, timing of increases in production, wells to be drilled, timing of the drilling, tie in, completion and testing of wells and the production resulting therefrom, timing of completion of facilities, expected royalty rates, transportation costs and operating costs, the taxability of the Company, closing of the announced public offering and the use of proceeds therefrom and capital expenditures and the funding thereof may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, the timing and length of plant turnarounds and the impact of such turnarounds and the timing thereof, delays resulting from or inability to obtain required regulatory approvals and the ability to access sufficient capital from internal and external sources. As a consequence, the Company's actual results could differ materially from those expressed in, or implied by, the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Fairquest's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), or at the Company's website (www.fairquestenergy.com). Furthermore, the forward looking statements contained in this document are made as at the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOE CONVERSIONS:Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and is based on an energy equivalent conversion method application at the burner tip and does not necessarily represent an economic value equivalency at the wellhead.



FAIRQUEST ENERGY LIMITED

3400, 450 - First Street S.W.
Calgary, Alberta T2P 5H1
Telephone (403) 294-0798
Fax (403) 290-3216
Email: info@fairquestenergy.com
Website: www.fairquestenergy.com

DIRECTORS

Gary F. Aitken(1)(3)(4)
President,
Whitemountain Resource Properties Ltd.

Brian A. Felesky(2)(3)(4)
Counsel, Felesky Flynn LLP

David M. Fitzpatrick(1)(2)(3)(4)
President and CEO,
Shiningbank Energy Income Fund

Robert A. Maitland
Vice President,
Finance and CFO
Fairquest Energy Limited

Donald J. Nelson(1)(2)(4)
President,
Fairway Resources Inc.

Richard A. Walls
President and CEO
Fairquest Energy Limited

OFFICERS

Richard A. Walls
President and CEO

Robert A. Maitland
Vice President,
Finance and CFO

AUDITORS

KPMG LLP

RESERVE EVALUATORS
GLJ Petroleum
Consultants Ltd.

BANK
Bank of Nova Scotia
Alberta Treasury Branch

LEGAL COUNSEL
Burnet, Duckworth
& Palmer LLP
McCarthy Tetrault LLP

STOCK EXCHANGE LISTING

The Toronto Stock Exchange
Trading Symbol: FQE

GENERAL INFORMATION

Shareholders and interested investors are encouraged to visit our website:

www.fairquestenergy.com

Historical public documents, corporate information, latest presentation
material and press releases are all available. Filings also available at:
www.sedar.com

(1) Member of the Audit Committee
(2) Member of the Reserves Committee
(3) Member of the Compensation Committee
(4) Member of the Corporate Governance and Joint Operations Committee



Contact Information