Find Energy Ltd.
TSX : FE

Find Energy Ltd.

August 10, 2006 17:35 ET

Find Energy Ltd. Announces 2006 Second Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Find Energy Ltd. ("Find" or the "Company") (TSX:FE) today announced its financial and operating results for the six months ended June 30, 2006. This message should be read in conjunction with the unaudited financial statements and the Management's Discussion and Analysis, which form part of this press release. For additional information, these documents, along with other statutory filings, are available on SEDAR at www.sedar.com and the Company's website at www.findenergy.ca.

Find's excellent results continued through the second quarter of 2006 with substantial growth in production and cash flow despite considerably lower natural gas prices. Wells that established reserves in 2005 and the first three months of 2006 commenced production through the Company's Blue Rapids gas plant driving growth throughout the quarter.

On July 13, 2006, Find announced that the Company entered into an agreement with Shiningbank Energy Income Fund ("Shiningbank" or the "Fund"), pursuant to which Find will be acquired by Shiningbank by way of a take-over bid on the basis of 0.465 of a trust unit of the Fund for each Find share, subject to certain conditions to be set forth in an offer which was finalized and dated July 31, 2006 and has been mailed to Find shareholders. The Board of Directors of Find unanimously recommends that shareholders tender to the offer. The offer represents an excellent opportunity for Find shareholders to broaden their reserve base exposure and to increase liquidity as Shiningbank's market capitalization will approach $2 billion after the transaction. As well, following completion of the offer, Find shareholders, whose shares are taken up and paid for by Shiningbank, will be entitled to distributions paid by Shiningbank to its unitholders currently set at $0.23 per unit per month or the equivalent of $0.107 per Find share.



Highlights

Q2 Q1 %
2006 2006 Change
------ ------ -------

Production Volumes
Natural gas (mcf/day) 23,720 21,754 9
Oil and NGL (bbls/day) 1,296 1,222 6
------ ------ -------
Total (boe/day) 5,249 4,848 8
Product Prices
Natural gas ($/mcf) 6.38 7.96 (20)
Crude oil and natural gas liquids ($/bbl) 65.57 51.34 28
------ ------ -------
Total ($/boe) 45.00 48.68 (8)
Financial Results
Revenue ($000) 21,537 21,239 1
Cash flow ($000) 13,688 12,321 11
Per share ($) 0.39 0.36 8
Net income ($000) 5,195 3,455 50
Per share ($) 0.15 0.10 50
Cash flow netback ($/boe) 28.65 28.24 1
Royalties ($/boe) 9.30 13.17 (29)
Operating expense ($/boe) 5.63 6.09 (8)
General and administrative costs ($/boe) 0.27 0.27 -
Capital expenditures ($000) 19,622 37,176 (47)
Debt plus working capital deficiency ($000) 73,653 65,646 12
Shares outstanding (000) 35,108 35,051 -


Production and Operations

Production

Find's production grew by eight percent averaging 5,249 boe per day comprised of 23.7 mmcf per day of natural gas and 1,296 bbls per day of oil and natural gas liquids. This compares to the 4,848 boe per day achieved in the first quarter, made up of 21.8 mmcf per day of natural gas and 1,222 bbls per day of oil and natural gas liquids.

During the second quarter, Find sold all of its assets in southwest Saskatchewan. These assets were producing approximately 276 bbls per day of heavy gravity crude oil at the time they were sold. The price received for these assets was $12.5 million.

During the month of April, at Bigstone, another operator shut in the Company's production due to lack of processing capacity at their gas plant. Unfortunately, the curtailment is likely to continue into Q3 of 2006. This situation is reducing the Company's production by approximately 200 boe per day.

Find estimates that its production averaged approximately 5,380 boe per day comprised of 25.1 mmcf per day of natural gas and 1,190 bbls per day of oil and natural gas liquids during the month of July 2006.

Drilling

All of Find's drilling in the first six months of the year was in the West Central Alberta operating area with the exception of one well that was drilled in East Central Alberta. A total of 30 (21.2 net) wells were drilled, resulting in 27 (20.4 net) gas wells, 1 (0.3 net) oil well and 2 (0.5 net) dry holes.

Land

Find had an active quarter at Crown land sales, investing a total of $1.7 million to expand its Pembina West land holdings by 4,783 net acres. Since the end of the quarter the Company has added an additional 14,400 net undeveloped acres of land for a total cost of $1.5 million.

Currently Find holds rights to explore 137,233 net acres of undeveloped land.

Financial

Petroleum and natural gas sales

Revenue grew by one percent in the quarter to $21.5 million from $21.2 million in Q1. Although production grew by eight percent on a boe basis in the quarter, natural gas prices fell by 20 percent to largely offset the increase in production.

Operating costs

Field operating costs fell by eight percent in the quarter to $5.63 per boe compared to the $6.09 achieved during the first quarter. This decrease is due to higher volumes being processed at the Company's Pembina West Blue Rapids gas plant.

General and administrative expense

General and administrative expenses were $0.27 per boe in the quarter which is the same as the previous quarter. Find has achieved low costs in this category primarily because the active drilling and capital program produced substantial overhead recoveries.

Cash flow

Cash flow of $13.7 million or $0.39 per share in Q2 was up from cash flow of $12.3 million and $0.36 per share in the first quarter of 2006. Increases in production (up 8 percent) were offset by decreases in prices (down 8 percent on a boe basis). Lower operating costs along with reduced royalty rates served to improve cash flow per boe to $28.65 compared with the cash flow netback achieved in the previous quarter of $28.24 per boe.

Capital expenditures

Find invested a total of $19.6 million in capital expenditures in the second quarter compared to 37.2 million in the first quarter. The majority of this was spent drilling and completing 13 wells (9.5 net) during the quarter. The Company also spent $1.7 million at Crown land sales.

Bank debt and working capital

By the end of the second quarter, Find had bank debt of $70.7 million and a working capital deficiency of $2.9 million for a total debt position of $73.6 million. The Company has a $115 million credit facility in place.

Outlook

The offer to acquire Find by Shiningbank provides an opportunity for Find shareholders to participate in a large well established Canadian energy income trust. The Board of Directors of Find unanimously recommends Find shareholders tender their shares to the offer which was made at a significant premium to the price of the shares at that time.

Building Find is an accomplishment of all of the dedicated and capable employees at the Company who together made the decisions and took the decisive actions required. As well, the support of the Board of Directors of the strategy to establish an extensive gas field at Pembina West was instrumental.

The contribution of all those involved has been significant and is sincerely appreciated.

Investors are further cautioned that the preparation of financial statements in accordance with Canadian generally accepted accounting principles ("GAAP") requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.

Find has adopted the standard of 6 mcf of natural gas being equivalent to 1 barrel of oil when converting natural gas to barrels of oil equivalent (boe). This practice may be misleading, particularly if used in isolation. A 6:1 conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This news release contains certain forward-looking statements, which are based on Find's current internal expectations, estimates, projections, assumptions and beliefs. Some of the forward-looking statements may be identified by words such as "expects", "anticipates", "believes", "projects", "plans" and similar expressions. These statements are not guarantees of future performance and involve a number of risks and uncertainties, many of which are beyond Find's control. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause Find's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits Find will derive from them. The risks and uncertainties associated with the forward-looking statements included in this news release include, among other things, changes in general economic, market and business conditions; changes or fluctuations in production levels, unexpected drilling results, commodity prices, currency exchange rates, capital expenditures, reserves or reserves estimates and debt service requirements; changes to legislation, investment eligibility or investment criteria; Find's ability to comply with current and future environmental or other laws; Find's success at acquisition, exploration and development of reserves; actions by governmental or regulatory authorities including increasing taxes, changes in investment or other regulations; and the occurrence of unexpected events involved in the exploration for, and the operation and development of, oil and gas properties. Many of these risks and uncertainties are described in Find's Annual Information Form and Find's Management's Discussion and Analysis. Readers are also referred to risk factors described in other documents Find files with Canadian securities authorities. Copies of these documents are available without charge from Find. Except as required by applicable law, Find disclaims any responsibility to update these forward-looking statements.

FIND ENERGY LTD.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis ("MD&A") dated July 31, 2006, should be read in conjunction with the annual audited financial statements of Find Energy Ltd. ("Find" or the "Company") as well as the Annual Information Form and the Statement of Reserves Data and Other Information. These documents along with other statutory filings are available on SEDAR at www.sedar.com and at the Company's website at www.findenergy.ca.

On July 13, 2006, Find entered into a pre-acquisition agreement whereby Shiningbank Energy Income Fund ("Shiningbank") agreed to make an offer to acquire all of the outstanding common shares of Find on the basis of 0.465 of a trust unit of Shiningbank for each common share of Find. A takeover bid circular detailing the offer was mailed to shareholders of Find on July 31, 2006. Closing is anticipated to occur in early September. The Board of Directors of Find has concluded that the offer is in the best interests of its shareholders and is unanimously recommending that shareholders of Find tender their shares to the offer. Shareholders representing 31.6 percent of the outstanding shares (on a diluted basis) of Find including all directors and officers and certain insiders have entered into lock-up agreements with Shiningbank whereby they have agreed to tender their shares of Find to the offer. All documents pertaining to the offer are available on SEDAR at www.sedar.com.

In this MD&A, the calculation of boe is based on the conversion rate of six thousand cubic feet of natural gas for one barrel of oil. This conversion conforms to National Instrument 51-101 - Standards for Oil and Gas Activities of the Canadian Securities Administrators. Readers are cautioned that boe may be misleading if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This MD&A contains forward-looking statements. Forward-looking statements are based on current expectations that involve a number of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the MD&A. Forward-looking statements are based on the estimates and opinions of Find's management at the time the statements were made.

The MD&A contains the term cash flow from operations, which should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles as an indicator of the Company's performance. Find's calculation of cash flow from operations may not be comparable to that reported by other companies. Cash flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of income per share.

The terms "2006 H1", "2006 Q2" and "2006 Q1" and "2005 H1" refer to the six months ended June 30, 2006, the three months ended June 30, 2006, the three months ended March 31, 2006 and the six months ended June 30, 2005 respectively.



Volumes
2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Natural gas (mcf/day) 22,743 23,720 21,754 9,891
Oil and NGL (bbls/day) 1,260 1,296 1,222 1,633
-------- -------- -------- --------
Total (boe/day) 5,051 5,249 4,848 3,282
-------- -------- -------- --------
-------- -------- -------- --------


Find's gas production grew by 9 percent in the second quarter compared to the first quarter. New gas wells coming on stream at Pembina West contributed a total of 1.9 mmcf per day in the quarter. The winter's drilling and recompletion program at Aerial added 700 mcf per day of new production volumes to second quarter production.

When compared to the first half of 2005, Find's natural gas production grew by 130 percent.

Crude oil and natural gas liquids production grew by 6 percent in the second quarter compared to the first quarter. This was entirely due to increased natural gas liquids production from Pembina gas wells offset by natural declines in other wells.

On July 14, 2006, Find closed the sale of its Hazlet and Eyehill oil properties for proceeds of $12.5 million. During the second quarter, these properties contributed an average of 271 bbls per day of oil and natural gas liquids to Find's production. At the time of their sale, they were producing 276 bbls per day of oil and natural gas liquids.



Product Pricing

Natural Gas ($/mcf) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Price before hedging 7.13 6.38 7.96 7.48
Hedging gain - - - -
-------- -------- -------- --------
Net price 7.13 6.38 7.96 7.48
-------- -------- -------- --------
-------- -------- -------- --------
AECO daily index 6.78 6.04 7.53 7.11

NYMEX (US$/mcf) 7.28 6.68 7.89 6.72


Find's realized natural gas price fell by 20 percent or $1.58 per mcf in the quarter compared to the first quarter of 2006. Prices at the AECO storage hub and on the NYMEX market followed suit, declining by 20 percent and 15 percent respectively.

Natural gas storage remains at levels far in excess of the volumes reported last year, the three-year average and the five-year average. With so much gas around, traders are a little concerned about supply and prices have correspondingly fallen to levels more than 50 percent below what they were in December 2005. Weekly injections for the past number of weeks have been below historical injections for that week in the past few years. This lends hope that supply is falling and eventually the price decline will reverse itself. However, because of the large opening inventory of gas there is little doubt that storage will be completely full by the end of injection season.



Oil and Natural Gas
Liquids ($/bbl) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Price before hedging 58.70 65.57 51.34 48.52
Hedging gain (loss) - - - (1.58)
-------- -------- -------- --------
Net price 58.70 65.57 51.34 46.94
-------- -------- -------- --------
-------- -------- -------- --------
WTI (US$/bbl) 66.93 70.51 63.35 51.37
Edmonton Light ($/bbl) 73.47 77.54 69.36 64.22
CDN$/US$ 0.8785 0.8908 0.8661 0.8095


Find's realized crude oil and natural gas liquids price increased by over $14.00 per bbl or 28 percent over the price received in the first quarter. In the second quarter, West Texas Intermediate crude oil prices increased by 11 percent and Edmonton Light postings were up by 12 percent compared to the first quarter. The primary reason for the Company's increased crude oil and natural gas liquids price was a narrowing of differentials at Find's heavy oil properties at Hazlet and Eyehill. These differentials were $18.79 per bbl in the quarter, compared to $32.04 per bbl in the first quarter.



Income Statement

Revenue 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Oil & natural gas sales ($000) 42,734 21,495 21,238 27,736
Per boe ($) 46.75 45.00 48.68 46.69
Hedging loss ($000) - - - 468
Per boe ($) - - - 0.79


The following table reconciles oil and natural gas revenue between the
first quarter of 2006 and the second quarter of 2006:


Revenue for the three months ended March 31, 2006 ($000) 21,238
Decrease in commodity prices ($000) (1,544)
Increase in production volumes ($000) 1,801
--------
Revenue for the three months ended June 30, 2006 ($000) 21,495
--------
--------

Royalties 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Total royalties ($000) 10,187 4,441 5,746 6,278
% of revenue before hedging 23.8 20.7 27.1 22.6
Per boe ($) 11.15 9.30 13.17 10.57


Find's royalty rate was 20.7 percent in the second quarter, compared to 27.1 percent in the first quarter. This sharp reduction was due to gas cost allowance and custom processing credits received from the Crown for Pembina West which covered 2005 and the first quarter of 2006. These credits totalled $502 thousand. Without these credits, Find's second quarter royalty rate would have been 23 percent.



Operating Expenses 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Total lease operating ($000) 5,349 2,691 2,658 4,804
Per boe ($) 5.85 5.63 6.09 8.09


Find's operating expenses fell by $0.46 per boe or 8 percent compared to the first quarter. This reduction is due to increased volumes going through the Pembina West gas plant. Further corporate cost reductions will occur after the sale of Hazlet and Eyehill. However, further dramatic operating cost reductions are unlikely.



General & Administrative ($000) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Total G & A expense 2,583 1,313 1,270 2,348
Recoveries (1,493) (789) (704) (790)
Capitalized (843) (395) (448) (903)
-------- -------- -------- --------
Net 247 129 118 655

Per boe ($) 0.27 0.27 0.27 1.10


General and administrative costs were virtually unchanged in the second quarter from the first quarter. Recoveries remain high as the Company continued with an active drilling program and earned recoveries from operating the Pembina West gas plant.



Interest Expense ($000) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Total interest expense ($000) 1,048 748 299 332

Per boe ($) 1.15 1.57 0.69 0.56


Interest expense increased to $1.57 per boe in the quarter compared to $0.69 per boe in the first quarter of 2006. Loan balances during the second quarter were on average 70 percent higher than in the first quarter, leading to interest expense of $748,000. The prime lending rate was also 51 basis points higher during the quarter, averaging 5.8 percent, thereby also contributing to higher interest costs.



Provision for Taxes ($000) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Future income taxes 3,430 1,097 2,333 2,727
Current tax expense - - - -
Capital tax expense (recovery) (65) (161) 96 331
-------- -------- -------- --------
Total tax expense 3,365 936 2,429 3,058
-------- -------- -------- --------
-------- -------- -------- --------


Find had negative federal capital tax expense in the second quarter and zero for the first half due to the elimination of Corporate Capital Tax in the recent Federal budget.

Future income taxes fell as Federal and Provincial governments reduced their corporate tax rate.



Stock-based Compensation ($000) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Total stock-based compensation 2,170 1,175 995 734
Capitalized (873) (457) (416) (285)
-------- -------- -------- --------
Net 1,297 718 579 449

Per boe ($) 1.42 1.50 1.33 0.76


Stock-based compensation was slightly higher in the second quarter. The increase was due to the exercise of stock options and their subsequent re-granting.



Depletion, Depreciation and
Accretion 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- -------
Total DD&A ($000) 12,632 6,678 5,954 8,186

Per boe ($) 13.82 13.98 13.65 13.78


The depletion, depreciation and accretion rate remained consistent in the second quarter of 2006 as the Company continues to add proved reserves at its historical depletion rate.



Net Income ($000) 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- -------
Net income 8,650 5,195 3,455 3,509
Per boe ($) 9.46 10.88 7.92 5.91
Per share ($) 0.25 0.15 0.10 0.10
Diluted per share ($) 0.24 0.14 0.10 -
Weighted average shares
outstanding (000) 34,768 35,238 34,201 33,550


Net income grew by 50 percent to 0.15 per share in the second quarter compared to the first quarter. One time recoveries in royalties and capital taxes were the primary reasons for the increase, as other revenue and cost measures were relatively unchanged. Future tax costs were also reduced by a reduction in both the Federal and Provincial corporate tax rate.

Net income for the six months ended June 30, 2006 was 147 percent higher than the year earlier six month period.



2006 Q2 2006 Q1
$000 $/boe $000 $/boe
--------------- ----------------
Revenue 21,537 45.09 21,238 48.68
--------------- ----------------

Royalties 4,441 9.30 5,746 13.17
Operating expenses 2,691 5.63 2,658 6.09
General and administrative 129 0.27 118 0.27
Interest 748 1.57 299 0.69
Capital taxes (recovery) (161) (0.33) 96 0.22
--------------- ----------------
7,848 16.44 8,917 20.44
--------------- ----------------
--------------- ----------------

Cash flow from operations 13,688 28.65 12,321 28.24
Depletion, depreciation and
accretion 6,678 13.98 5,954 13.65
Stock-based compensation 718 1.50 579 1.33
Future taxes 1,097 2.29 2,333 5.34
--------------- ----------------
Net income 5,195 10.88 3,455 7.92
--------------- ----------------


Liquidity and Capital Resources

Cash Flow from Operations 2006 2006 2006 2005
H1 Q2 Q1 H1
-------- -------- -------- --------
Cash flow from operations ($000) 26,009 13,688 12,321 15,244
Cash flow from operations,
per basic share ($) 0.75 0.39 0.36 0.45
Cash flow from operations,
per diluted share ($) 0.72 0.37 0.34 0.45
Cash flow netback, per boe ($) 28.46 28.65 28.24 25.66
Cash flow as a percentage of
revenue 60.9% 63.7% 58.0% 55.0%
Weighted average shares
outstanding - basic (000) 34,768 35,328 34,201 33,550


Cash flow from operations increased by 11 percent in the quarter. A slight increase in production volumes (up 8 percent) was offset by a slight decrease in commodity prices (down 8 percent). Cash costs for the quarter declined by 20 percent from the second quarter. Most of the decrease, however, was one time credits received for royalties and capital taxes.



Capital Expenditures ($000) 2006 2006 2005
Q2 Q1 Q4
-------- -------- --------

Land 1,666 9,635 421
Seismic 62 516 474
Drilling and completions 11,539 19,770 23,307
Pembina Blue Rapids gas plant 1,838 2,409 9,851
Well equipment and facilities 4,122 4,398 7,594
-------- -------- --------
19,227 36,728 41,647

Capitalized G & A 395 448 636
-------- -------- --------
Total capital expenditures 19,622 37,176 42,283
-------- -------- --------
-------- -------- --------

Funding of second quarter capital expenditures: $ Million
----------
Cash flow from operations 13.7
Draw on bank line of credit 17.1
Decrease in current assets (9.2)
Issue of shares 1.1
Purchase of shares under normal course issuer bid (3.1)
----------
Total capital expenditures 19.6
----------
----------


Capital Expenditures by Area
(Six Months Ended June 30, 2006)

Land/ Drilling/ Equipping/
Area ($000) Seismic Completions Facilities Total
-------- ------------ ----------- -------

West Central Alberta 11,736 29,392 11,876 53,004
East Central Alberta 143 1,917 891 2,951
-------- ------------ ----------- -------
11,879 31,309 12,767 55,955
-------- ------------ ----------- -------
-------- ------------ ----------- -------

Wells Drilled by Area
(Six Months Ended June 30, 2006)

Area Gas Oil D & A Total
----------- ----------- ----------- ----------- Success
Gross Net Gross Net Gross Net Gross Net Rate
----------- ----------- ----------- ----------- --------
West Central
Alberta 26 19.8 1 0.3 2 0.5 29 20.6 98%
East Central
Alberta 1 0.6 - - - - 1 0.6 100%
----------- ----------- ----------- ----------- --------
27 20.4 1 0.3 2 0.5 30 21.2 98%
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------


Sensitivities

A critical component in Find's growth plan is the Company's cash flow. Cash flow represents funds available for reinvestment in capital projects. Among the various components that affect cash flow, management has determined that the price of natural gas has the most impact on the Company's cash flow. Of course, adding production volumes with the highest possible netback also has a very meaningful impact on available cash flow. The CDN dollar exchange rate is the factor that has the next largest impact, while changes in interest rates have very little impact. The following table illustrates the sensitivity of Find's cash flow to changes in natural gas prices, oil prices and the CDN dollar.



Annual Cash Flow Cash Flow
($000) per Share
----------------- ---------
100 boe/day of production 976 $0.03
Crude oil - WTI price
change of $1.00 US/bbl 371 $0.01
Natural gas - AECO price
change of $0.25/mcf 1,711 $0.05
CDN$ - change of $0.01 US 297 $0.01



Selected Supplemental Information

($000) Dec. 31, Dec. 31, Dec. 31,
2005 2004 2003
-------- -------- --------
Petroleum and natural gas sales 63,931 34,681 8,931
Income (loss) for the year 11,963 2,905 (1,130)
Income (loss) per share - basic 0.36 0.10 (0.08)
Income (loss) per share - diluted 0.34 0.10 (0.08)
Total assets 171,865 116,054 79,269
Total current liabilities 60,509 31,966 26,787


Q2 Q1 Q4 Q3
2005 2005 2004 2004
-------- -------- -------- --------

Petroleum and natural gas sales 15,051 12,684 10,029 8,814
Income for the quarter 2,117 1,393 960 1,398
Income per share - basic and
diluted 0.06 0.04 0.03 0.05


Q2 Q1 Q4 Q3
2006 2006 2005 2005
-------- -------- -------- --------

Petroleum and natural gas sales 21,495 21,239 19,948 16,248
Income for the quarter 5,195 3,455 4,736 3,717
Income per share - basic 0.15 0.10 0.14 0.11
Income per share - diluted 0.14 0.10 0.13 0.11


Estimated Tax Pools

June 30,
($000) 2006
--------------
Canadian oil and gas property expense 10,634
Canadian development expense 54,099
Canadian exploration expense 17,473
Tangibles 43,976
Non-capital losses 2,061
Financing expenses 1,749
--------------
129,992
--------------
--------------


Off-Balance Sheet Arrangements

Find currently does not have any off-balance sheet arrangements with any party, and does not currently expect to enter into any such arrangements for the balance of 2006.

Transactions with Related Parties

During the first half of 2006, the Company had no transactions with any related parties.

Financial Reporting and Regulatory Update

The Company was not subjected to any new financial reporting or regulatory requirements in the first half of 2006 and is not aware of any impending changes over the balance of the year.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect assets, liabilities, revenues and expenses. Management is also required to adopt accounting policies that require the use of significant estimates. Find's management believes the most critical accounting estimates that may have an impact on the Company's results are in the non-cash areas of accounting for property, plant & equipment, asset retirement obligations, and stock-based compensation.

Property, Plant & Equipment

Find follows the full cost method of accounting for oil and natural gas properties. Under this method, all costs related to the acquisition of, exploration for and development of oil and natural gas reserves are capitalized. These costs are then systematically charged to income through a depletion, depreciation and amortization (DD&A) calculation. This calculation is based on the unit of production method which amortizes the cost of oil and gas assets over the Company's proved oil and gas reserve base. Proved reserves are determined by the Company using the guidelines of National Instrument 51-101. Changes to proved reserves in the future could increase or decrease the amount of the Company's DD&A.

A ceiling test calculation is required each time financial statements are prepared. The test limits the carrying value of the Company's property and equipment to the estimated net present value of future cash flows from the proved and probable reserves. At June 30, 2006, Find had a ceiling test cushion of approximately $280 million.

The full cost accounting guidelines allow for the cost of unproved properties to be excluded from the DD&A calculation. For the six months ended June 30, 2006, Find excluded $21.9 million from costs subject to DD&A. These costs are assessed quarterly for impairment. Should the judgement be made that these costs are impaired, an increase to DD&A will result.

Asset Retirement Obligations

Under the asset retirement obligations rules, the total fair value of the Company's retirement obligations are set up on the balance sheet at the discounted future value of the liability. The key areas of judgement are in determining the amount of the future liability, the appropriate discount rate and when the expenditures will be incurred. External factors influencing these obligations include commodity prices, interest rates and changes to regulatory requirements. Dramatic changes in any of these could result in an increase or decrease in net income.

Stock-based Compensation

Find is required to calculate the fair value of stock options at the time of grant and charge this to income in a systematic manner over the vesting period of the options. The calculation method that Find has adopted to calculate the fair value of options is the Black-Scholes model. The most critical estimate in the Black-Scholes model is the expected volatility of Find's shares. Management has determined that 45 to 50 percent is an appropriate volatility rate for Find. Actual volatility could be more or less than 50 percent which could have a material impact on net income.

Share Capital

As at July 31, 2006, the Company had outstanding 35,108,882 common shares, 3,545,969 stock options and 413,666 common shares issued under employee share purchase loans.

Disclosure Controls and Procedures

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure. The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by the 2006 second quarter, that the Company's disclosure controls and procedures are effective to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made known to them by others within those entities. It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures or internal controls over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Business Risks

Find Energy Ltd. is subject to business risks that impact the market in general and the oil and gas business in particular. These include, but are not limited to the following:

Market Risks

The primary risk factor impacting Find's future performance is the price of natural gas followed by currency fluctuations and interest rates. In addition, Find is impacted by the current industry demand for oilfield services which has driven up costs. Cash flow, as impacted by these risks, has a direct impact on Find's ability to finance its capital programs.

The Company has a hedging policy such that it can enter into commodity and currency hedges when it deems it appropriate. No hedges are currently in place.



Consolidated Financial Statements of

FIND ENERGY LTD.

June 30, 2006

FIND ENERGY LTD.
Consolidated Balance Sheets
June 30, 2006 and December 31, 2005

June 30, December 31,
($ thousands of dollars) 2006 2005
(unaudited) (audited)
-------------------------
ASSETS

CURRENT
Cash and cash equivalents - 11
Accounts receivable 15,563 16,662
Prepaid expenses 644 280
-------------------------

16,207 16,953
Deposits and other (Note 2) 479 350
Property and equipment (Note 3) 200,309 154,562
-------------------------

216,995 171,865
-------------------------
-------------------------
LIABILITIES

CURRENT
Accounts payable and accrued liabilities 19,091 35,128
Income taxes payable 59 89
Bank indebtedness (Note 5) 70,710 25,291
-------------------------
89,860 60,508
-------------------------
Asset retirement obligations (Note 4) 4,840 4,133
-------------------------
Future income taxes 19,914 13,915
-------------------------
SHAREHOLDERS' EQUITY

Share capital (Note 7) 81,576 79,168
Contributed surplus 3,102 2,793
Retained earnings 17,703 11,348
-------------------------
102,381 93,309
-------------------------
216,995 171,865
-------------------------
-------------------------
Commitments and contingencies (Note 9)


The accompanying notes are an integral part of these financial
statements.


FIND ENERGY LTD.
Consolidated Statements of Operations and Retained Earnings
For the period ended June 30
Unaudited
($ thousands of dollars,
except per share data) Three Months Ended Six Months Ended
June 30 June 30
------------------------------------
2006 2005 2006 2005
------------------------------------
REVENUE
Petroleum and natural gas sales 21,495 15,051 42,734 27,268
Royalties 4,441 3,532 10,187 6,278
------------------------------------
17,054 11,519 32,547 20,990
Other income 41 71 41 72
Realized loss on financial
instruments (Note 9(a)) - - - (68)
------------------------------------
17,095 11,590 32,588 20,994
------------------------------------
EXPENSES
Operating 2,691 2,432 5,349 4,804
General and administrative 129 382 247 655
Interest 748 216 1,048 332
Depletion, depreciation and accretion 6,678 4,408 12,632 8,186
Stock-based compensation (Note 7(f)) 718 232 1,297 449
------------------------------------
10,964 7,670 20,573 14,426
------------------------------------

Income before taxes 6,131 3,920 12,015 6,568
------------------------------------
Provision for taxes (Note 6)
Capital (recoveries) (161) 189 (65) 331
Future 1,097 1,614 3,430 2,727
------------------------------------
936 1,803 3,365 3,058
------------------------------------
Income for the period 5,195 2,117 8,650 3,510
Retained earnings, beginning
of the period 14,803 2,840 11,348 1,447
Excess of cost of shares
acquired over stated value
(Note 7(d)) (2,295) (495) (2,295) (495)
------------------------------------
Retained earnings, end of period 17,703 4,462 17,703 4,462
------------------------------------
Income per share, basic 0.15 0.06 0.25 0.10
------------------------------------
Income per share, diluted 0.14 0.06 0.24 0.10
------------------------------------
Weighted average number of
shares - basic (000) (Note 8) 35,328 33,558 34,768 33,550
------------------------------------
Total number of shares
outstanding, end of period
(000) (Note 7(b)) 35,108 33,366 35,108 33,366
------------------------------------
------------------------------------

The accompanying notes are an integral part of these financial
statements.

Consolidated Statements of Cash Flows
For the period ended June 30
Unaudited

Three Months Ended Six Months Ended
($ thousands of dollars) June 30 June 30
------------------------------------
2006 2005 2006 2005
------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING
ACTIVITIES:

OPERATING
Income for the period 5,195 2,117 8,650 3,510
Adjustments for:
Unrealized gain on financial
instruments (Note 9(a)) - - - 372
Depletion, depreciation
and accretion 6,678 4,408 12,632 8,186
Stock-based compensation 718 232 1,297 449
Future income taxes 1,097 1,614 3,430 2,727
------------------------------------
13,688 8,371 26,009 15,244
Changes in non-cash working
capital (2,940) 3,546 (1,491) 1,634
------------------------------------
10,748 11,917 24,518 16,878
------------------------------------
FINANCING

Issue of shares, net of share
issue costs 1,068 178 3,893 179
Bank indebtedness 17,117 (14,173) 45,418 (583)
Redemption of share capital -
normal course issuer bid (3,071) (1,017) (3,071) (1,017)
Changes in non-cash working
capital - (179) - (179)
------------------------------------
15,114 (15,191) 46,240 (1,600)
------------------------------------
INVESTING

Property and equipment (19,622) (8,559) (56,849)(26,771)
Other deposits (71) (92) (129) (92)
Proceeds on sale of properties - 28,480 50 28,508
Changes in non-cash working
capital (6,169) (3,001) (13,841) (3,369)
------------------------------------
(25,862) 16,828 (70,769) (1,724)
------------------------------------
Net increase/(decrease) in cash
and cash equivalents - 13,554 (11) 13,554
Cash and cash equivalents,
beginning of period - - 11 -
------------------------------------
Cash and cash equivalents, end of
period - 13,554 - 13,554
------------------------------------
Taxes paid during the period 121 303 197 336
------------------------------------
Interest paid during the period 796 169 1,177 301
------------------------------------
------------------------------------

The accompanying notes are an integral part of these financial
statements.


FIND ENERGY LTD.
Notes to the Consolidated Financial Statements
June 30, 2006
Unaudited
(Amounts in thousands unless otherwise stated)


1. SIGNIFICANT ACCOUNTING POLICIES

The interim consolidated financial statements of Find Energy Ltd. (the "Corporation") have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting principles and methods of computation as those utilized in the consolidated financial statements for the year ended December 31, 2005. The disclosures provided below are incremental to those included with the annual consolidated financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2005.

2. DEPOSITS AND OTHER

Deposits and other is comprised of deposits required under Crown royalty regulations and operating lease obligations.



3. PROPERTY AND EQUIPMENT

Net Book
Accumulated Value
Depletion and June 30
Cost Depreciation 2006
------------------------------------
$ $ $
Petroleum and natural gas
properties and equipment 243,324 43,095 200,229
Furniture and equipment 156 76 80
------------------------------------
243,480 43,171 200,309
------------------------------------
------------------------------------



Unproved properties and proprietary seismic data of $21,917 have been excluded from costs subject to depletion. During the first six months of 2006, the Corporation capitalized $1,716 (2005 - $1,188) of general and administrative expenditures and stock-based compensation related to exploration and development activities.

4. ASSET RETIREMENT OBLIGATIONS

The change in asset retirement obligations for the year ended December 31, 2005 and six month periods ended June 30, 2005 and 2006 are as follows:



December
June 30, June 30, 31,
2006 2005 2005
(audited)
------------------------------------
$ $ $
Asset retirement obligation, 4,133 3,264 3,264
beginning of period
Liabilities incurred 562 263 1,198
Liabilities acquired - - 25
Liabilities settled - (554) (554)
Accretion expense 145 104 200
Revisions in estimated cash flows - - -
------------------------------------
Asset retirement obligation, end
of period 4,840 3,077 4,133
------------------------------------
------------------------------------



The total estimated, undiscounted cash flows required to settle the obligations at June 30, 2006 without including salvage, is $10,315 (June 30, 2005 - $5,658 and December 31, 2005 - $8,523). These amounts have been discounted using a credit-adjusted risk-free rate of 7.0 percent. The Corporation expects these obligations to be settled, on average, in 10.0 years. The majority is expected to be incurred between 2008 and 2025.

5. BANK INDEBTEDNESS

Effective June 29, 2006, the Corporation entered into a credit agreement comprised of a $110 million Revolving Facility and a $10 million Operating Facility through a syndicate of lenders. These Facilities are available by way of prime rate loans, guaranteed notes and letters of credit. The credit facility bears interest as follows:

- Prime-based loans: Interest is payable at prime plus 0.0 percent per 365-day period;

- Guaranteed Notes: Interest is payable at various rates based upon the Corporation's debt to cash flow ratio. The rates range between 1.1 percent and 1.4 percent over the base rate.

The facility is subject to a review on or before April 30, 2007.

The facility is secured by a general security agreement providing a security interest over all present and after acquired personal property and a floating charge on all lands. Under the terms of the agreement, the Company is required to meet certain financial requirements and may not breach certain financial tests.



The balance as of June 30, 2006 is comprised of the following:

Revolving Facility $ 37,500
Operating Facility 13,438
Guaranteed Notes 19,000
Letter of Guarantee 772
---------
$ 70,710
---------
---------



The Letter of Guarantee has been issued to the Monitor appointed under the Corporation's Creditor Arrangement Act for Liberty Oil & Gas Ltd., a former subsidiary of Lexxor Energy Inc. ("Lexxor"). Lexxor was acquired by the Corporation in 2003. The Monitor is currently settling creditor claims and the Letter of Guarantee is periodically reduced as the claims are settled by the Corporation.

6. INCOME TAXES

The provision for capital taxes reflected in the consolidated statement of operations includes Large Corporation and Saskatchewan Capital Taxes and Saskatchewan Resource Surcharge. The recovery of capital tax in the second quarter of 2006 resulted from the elimination of Large Corporation Tax under the Income Tax Act (Canada). Reduction of future tax rates has also been incorporated into the provision for Future Tax.



7. SHARE CAPITAL

(a) Authorized

Unlimited number of common shares
Unlimited number of preferred shares,
issuable in series

Six Months Ended Year Ended
June 30, 2006 December 31, 2005
(audited)
------------------------------------
Number Number
(b) Issued common shares of Amount of Amount
Shares $ Shares $
------------------------------------
Balance January 1 34,026 79,168 33,542 72,076
Issued under Stock Option
Plan 1,417 3,896 66 179
Shares repurchased
(Note 7(d)) (335) (776) (710) (1,529)
Issued for cash pursuant to
private placements (Note 7(c)) - - 1,000 7,600
Issued for acquisition of
properties - - 128 1,100
Issued pursuant to employee
loan (Note 7(e)) 414 1,148 - -
Reclassification as a
stock option (Note 7(e)) (414) (1,148) - -
Transferred from Contributed
Surplus on stock option
exercise - 1,861 - 85
Future income taxes on
expenditures renounced for
flow-through shares - (2,571) - -
------------------------------------

35,108 81,578 34,026 79,511
Share issue costs
(net of tax - $1, 2005 net
of tax - $176) - (2) - (343)
------------------------------------
Balance, end of period 35,108 81,576 34,026 79,168
------------------------------------
------------------------------------


(c) On August 18, 2005, the Corporation completed a private placement of 1,000 flow-through common shares at a price of $7.60. Transaction costs were $517 including fees paid to underwriters. In accordance with the terms of the offering and pursuant to certain provisions of the Income Tax Act (Canada), the Corporation renounced, for income tax purposes, exploration expenditures of $7,600 to the holders of the flow-through common shares effective December 31, 2005, all of which had been incurred by December 31, 2005. Future tax cost of $2,571 associated with renouncing the expenditures was recorded in the first quarter of 2006.

7. SHARE CAPITAL (Continued)

(d) On June 2, 2005, the Corporation announced a normal course issuer bid that allowed the purchase and cancellation of up to 2,422 common shares. This normal course issuer bid expired on June 1, 2006. A total of 710 common shares were purchased during 2005 at a cost of $3,591. The excess of the cost to repurchase over the stated value of the shares of $2,062 was charged to retained earnings.

On May 30, 2006, the Corporation announced a normal course issuer bid that will allow the purchase and cancellation of up to 2,562 common shares. This normal course issuer bid is scheduled to expire on June 1, 2007. A total of 335 common shares were purchased up to June 30, 2006 at a cost of $3,071. The excess of the cost to repurchase over the stated value of the shares of $2,295 was charged to retained earnings.

(e) From time to time, the Corporation may loan funds to employees to assist in the purchase of the Corporation's own stock through exercising of stock options. These share purchase loans are presented as a reduction to shareholders' equity, rather than assets, unless there is substantial evidence that the borrower, and not the Corporation, is at risk for any decline in the price of the shares. When the loans are presented as reductions of shareholders' equity, the Corporation considers the loaned funds to be stock options in substance.

During the period ended June 30, 2006, 414 (June 30, 2005 - nil) common shares were issued at an average exercise price of $2.77 that were financed by share purchase loans. These loans are non-interest bearing, due on demand, and secured by share certificates held in possession of the Corporation, being an amount equal to fifty percent (50%) of the common shares purchased by the borrower. In substance, this transaction is accounted for as if the Corporation granted stock options. As the loans are repaid, proceeds will be credited to share capital.

(f) Stock Option Plan

On September 10, 2003, the shareholders approved a stock option plan (the "Plan") for the Corporation. The Plan authorizes the Board to grant stock options to directors, officers, employees and consultants of the Corporation. The Plan also provides for options to be granted at the defined market price, and that the term of the option must be no more than five years. Stock options issued vest over a three-year period commencing on the first anniversary of, and expire five years after the date of issue.



A summary of the Corporation's stock option plan as at June 30, 2006 is
as follows:

Number Weighted
of Average
Continuity of stock Shares Exercise
options Price
-------------------
Outstanding, December 31,
2005 3,390 $ 2.89
Granted during the period 2,054 10.14
Exercised during the
period (1,417) 2.75
Cancelled during the
period (64) 3.22
-------------------
Outstanding, June 30, 2006 3,963 $ 6.70
-------------------
-------------------



The following table summarizes information about the Corporation's stock options outstanding and exercisable at June 30, 2006, including the share purchase loans described in Note 7(e).



Options Outstanding Exercisable Options
--------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
(Years)
--------------------------------------------------------------
$ 2.30 to
$ 2.80 1,213 1.9 $ 2.64 330 $ 2.57
$ 2.81 to
$ 3.30 295 2.9 $ 3.02 59 $ 3.01
$ 3.31 to
$ 3.68 329 2.9 $ 3.67 49 $ 3.68
$ 3.81 to
$ 4.30 15 2.6 $ 4.20 5 $ 4.20
$ 5.51 to
$ 6.00 60 4.1 $ 6.00 - -
$ 8.01 to
$ 8.50 45 4.2 $ 8.05 - -
$ 8.51 to
$ 8.90 13 5.0 $ 8.98 - -
$ 9.01 to
$ 9.50 9 4.5 $ 9.42 - -
$ 9.51 to
$ 10.00 114 4.9 $ 9.89 - -
$ 10.01 to
$ 10.50 1,855 4.8 $ 10.21 - -
$ 11.51 to
$ 12.00 15 4.8 $ 11.87 - -
--------------------------------------------------------------
3,963 3.6 $ 6.70 443 $ 2.77
--------------------------------------------------------------
--------------------------------------------------------------


Compensation cost recognized for the six months ended June 30, 2006 related to options granted in prior years was $767, of which $529 was charged to income and $238 was capitalized to property and equipment.

The fair value of stock options granted during the six months ended June 30, 2006 was estimated using the Black-Scholes option pricing model with the following assumptions: expected volatility (48 percent); risk-free interest rates (3.895 percent to 4.44 percent); expected life (five years); and expected future dividends (nil). Stock options granted during the period had an estimated fair value of $4.25 to $5.60 per share with a weighted average fair value of $4.78 per share.

Compensation cost recognized for the six months ended June 30, 2006 related to options granted in 2006 was $1,403, of which $768 was charged to income and $635 was capitalized to property and equipment.

8. WEIGHTED AVERAGE SHARES OUTSTANDING

The weighted average number of common shares issued and outstanding for the three and six month periods ended June 30, 2006 and June 30, 2005 are as follows:



Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------
2006 2005 2006 2005
-------------------------------------
Basic 35,328 33,558 34,768 33,550
Diluted 36,697 34,150 36,136 34,142


9. COMMITMENTS AND CONTINGENCIES

(a) Commodity marketing arrangement and foreign exchange contracts

The Corporation has a price risk management program whereby the commodity price associated with a portion of its future production is fixed. The forward and futures contracts are subject to market risk from fluctuating commodity prices and exchange rates; however, gains and losses on the contracts are offset by changes in the value of the Corporation's production and recognized in income in the same period and category as the hedged item. The Corporation also enters into foreign exchange contracts to manage foreign currency fluctuations.

As at June 30, 2006, the Corporation has no outstanding commodity marketing arrangements or foreign exchange contracts. The gain on settlement of foreign exchange contracts during the first six months of 2005 was $304. At December 31, 2004, $372 of this was marked-to-market, with a net realized loss in the first six months of 2005 of $68.

(b) Operating commitments

In order to ensure continued availability of, and access to, facilities and services to meet its operational requirements, the Corporation has entered into operating leases for office space and other property and equipment. Under contracts existing at June 30, 2006, future minimum amounts payable on a fiscal year basis, excluding operating costs, are as follows:




2006 $ 103
2007 410
2008 387
2009 381
2010 375
2011 374
2012 31
------------
$ 2,061
------------
------------


(c) Dispute with Industry Partner

On August 8, 2003, a joint-venture partner of the Corporation filed a statement of claim in the amount of $768 in respect of a dispute regarding working-interest participation. A statement of defense has been filed and it is the opinion of management that this claim is without merit.

10. SUBSEQUENT EVENTS

(a) On July 13, 2006, the Corporation entered into a pre-acquisition agreement whereby Shiningbank Energy Income Fund ("Shiningbank") agreed to make an offer to acquire all of the outstanding common shares of the Corporation on the basis of 0.465 of a trust unit of Shiningbank for each common share of the Corporation. A takeover bid circular detailing the offer was mailed to shareholders of the Corporation on July 31, 2006. Closing is anticipated to occur in early September.

As part of the offer, all stock options of the Corporation will become exercisable and fully vested for the purpose of tendering the common shares. Stock options which are exercisable at prices of $10.00 per common share or more, will have attached a share appreciation right ("SAR"). The valuation of the underlying SAR will be based on the five day weighted average trading price of the Corporation's shares for the five days immediately preceding the day the offer expires, September 6, 2006.

The Corporation has committed to pay its financial and other advisors approximately $2,000 on successful completion of this takeover.

Under certain circumstances, the Corporation has agreed to pay a non-completion fee of $12,000 to Shiningbank. Completion of the transaction is subject to certain regulatory and other conditions and the approval by the shareholders of the Corporation.

(b) On July 14, 2006, the Corporation closed the sale of certain Saskatchewan properties with an effective date of June 1, 2006. Total consideration received was $12,500 prior to adjustments. The credit facility will be reduced by $5,000 as a result of this sale.





Contact Information

  • Find Energy Ltd.
    William T. Davis
    CEO
    (403) 232-4802
    (403) 232-4824 (FAX)
    or
    Find Energy Ltd.
    Jeffrey P. Jongmans
    CFO
    (403) 232-4809
    (403) 232-4824 (FAX)