OILEXCO INCORPORATED
LSE : OIL

OILEXCO INCORPORATED

August 14, 2008 02:30 ET

Half-yearly report

OILEXCO INCORPORATED

INTERIM REPORT

As at and for the three and six month periods ended June 30, 2008

OILEXCO INCORPORATED

MANAGEMENT DISCUSSION AND ANALYSIS

The following is management's discussion and analysis ("MD&A") of the operating and financial results of Oilexco
Incorporated ("Oilexco" or the "Company") for the three and six months ended June 30, 2008. The information is
provided as of August 11, 2008. The three and six month results have been compared to the same periods of 2007.
This discussion and analysis should be read in conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 2007, together with the accompanying notes, and the December 31, 2007
MD&A and Annual Information Form. These documents and additional information about Oilexco are available on SEDAR
at www.sedar.com.

This discussion and analysis contains forward-looking statements relating to future events or future performance.
In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should",
"expects", "projects", "plans", "anticipates" and similar expressions. These statements represent management's
expectations or beliefs concerning, among other things, future operating results and various components thereof or
the economic performance of Oilexco. The projections, estimates and beliefs contained in such forward-looking
statements necessarily involve known and unknown risks and uncertainties, including the business risks discussed
in the MD&A and Annual Information Form as at and for the years ended December 31, 2007 and 2006, which may cause
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. Operating conditions and weather
can have a significant effect on the timing of events. Accordingly, readers are cautioned that events or
circumstances could cause results to differ materially from those predicted.

Barrel of oil equivalent (BOE) volumes are reported at 6:1 with 6 MCF = 1 BOE. All amounts are presented in
thousands of United States of America ("US") dollars ("$") unless otherwise noted.

The Company has removed certain columns provided in previous MD&A containing percentage (%) of change figures for
comparing current to prior periods since 2008 operations, results and figures are significantly different than
2007. The Company has continued to present percentages only in those areas where it is considered to be
meaningful. The Company has included EBITDA, the terms for which are not identified by Canadian generally accepted
accounting principles. The Company defines EBITDA as earnings before interest, taxes, depletion and other non cash
charges. EBITDA has been included because the Company believes that this information may be used by certain
investors to assess financial performance and that EBITDA is used as a supplemental measure as it provides an
indication of results generated by the Company's principal activities prior to consideration of how these
activities are financed, are adjusted by non cash items, and how the results are taxed. Although the Company
believes that the EBITDA measure may be used by certain investors (and has included it for this reason), this
measure is unlikely to be comparable to similarly titled measures used by other companies.

BUSINESS OF THE COMPANY

Oilexco is an oil and gas exploration and production company headquartered in Calgary, Alberta, Canada active in
the United Kingdom ("UK"). All of the Company's producing, development and exploration properties are located in
the UK Central North Sea. The Company plans to remain focused on maintaining efficient production operations at
operated fields and an active exploration/development program on both its 100% owned and joint venture properties.

The Company has three wholly owned subsidiaries: Oilexco North Sea Limited, Oilexco N.S. Exploration Limited, and
Oilexco Technical Services Limited.

The Company's common shares are listed for trading on the London Stock Exchange ("LSE") and the Toronto Stock
Exchange ("TSX") under the symbol OIL. References to $ are to US$ unless otherwise stated.

OVERVIEW

Oilexco's results for the second quarter of 2008 demonstrate success in its business. The Company was able to take
advantage of record oil prices that led to another quarter of record revenues. Development activities included
completion and tie-in of a fifth production well in the Brenda field, production well drilling and subsea
installation at the Shelley field. Appraisal drilling occurred on a number of blocks in the vicinity of the
Balmoral FPV, and three exploration wells were drilled in the second quarter. Among the drilling highlights was
the success of the Moth exploration well and the strong flow rates achieved in the subsequent test. In order to
finance its many future developments, the Company announced that it was seeking to increase its total debt
capacity to US $1 billion.

FINANCIAL SUMMARY

Revenues for the second quarter 2008 reached $228.5 million compared to $40.7 million for the same period one year
earlier as a result of higher production and higher oil prices. For the six months ended 30 June, 2008 revenues
were $400.9 million, compared to $42.7 million in the first half of 2007. The Company showed a net loss for the
quarter of $27.3 million compared to net income of $25.7 million for the same period in 2007 due primarily because
of non-cash expenses for unrealized losses recognized on derivative contracts, put in place in as part of
obligations relating to the Company's bank facilities with the Royal Bank of Scotland ("RBS") and stemming from
increased oil prices as at June 30, 2008. Net profit for the first half of 2008 was $22.6 million. Cash from
operating activities increased to $151.3 million, or $0.68 per share for the second quarter 2008 compared to cash
outflow of $3.1 million for the second quarter 2007, and for the first half of 2008 cash from operating activities
totalled $280.5 million. EBITDA increased to $171.7 million, or $0.78 per share, for the second quarter 2008
compared to $26.7 million or $0.13 per share for the second quarter 2007. EBITDA for the first six months of 2008
was $318.3 million, or $1.44 per share. The Company realized the benefit of the increase in oil prices for the
quarter with an average price of $121.12 per barrel of oil and operating costs per barrel were $15.44, resulting
in netbacks of $105.68.

OVERALL PERFORMANCE

Oilexco's sales for the second quarter 2008 averaged 20,594 Bbl/d, and average daily production was approximately
17,073 Bbl/d reflecting a production overlift. The reservoirs in the Balmoral area continue to perform well and
are capable of sustained production at higher rates; however a number of operating issues reduced aggregate
production for the period. Early in the quarter, employees at the Grangemouth refinery in Scotland went on strike
for two days. The Forties Pipeline System, which transports oil from a number of fields in the UK North Sea
including those by Oilexco, receives power and steam from the refinery in order to operate. All producers feeding
into the Forties Pipeline System, including Oilexco, experienced production interruptions for up to six days
during periods of ramp down/ramp up before and after the strike. Production was halted several other times in the
second quarter as the Company performed maintenance activities on the Balmoral FPV, the Brenda subsea manifold;
and tied-in the fifth horizontal production well in the Brenda field. Such maintenance work interrupted production
for approximately 15 days in the quarter. In May, the Company realized combined production of approximately 710
Bbls/d from its interests in the Nelson field and the Janice&James fields as a result of Oilexco's purchase of
Svenska Petroleum Exploration UK.

At the Company's 100% owned Shelley development drilling operations commenced on the first of two production wells
in late June. In addition to the drilling, subsea installation of protective structures and mooring pilings for
the FPSO Sevan Voyageur commenced. Construction, in Rotterdam, of the FPSO Sevan Voyageur neared completion at the
end of the period. Float out from the dry dock occurred in late July.

Drilling activity in the quarter was higher than usual due to the addition of a third semi-submersible drilling
unit, the Transocean Sedco 704, operating under a short term contract until the end of August. Development wells
were drilled during the period at Brenda and Shelly. Appraisal wells were drilled at Balmoral and Blaydon located
in Block 16/21, and at Caledonia located 14 km south of the Balmoral FPV in Block 16/26. Exploration wells were
drilled at Moth (Block 23/21), Delta (Block 16/21) and Danica (Block 29/6).

The fifth development well in the Brenda field was drilled, completed and tied in during the second quarter.
Production from this well commenced at the end of June at approximately 7,800 Bbls of oil per day. Operations
commenced at Shelley on the first of two planned production wells which are scheduled to commence production in
the fourth quarter.

Appraisal drilling at Balmoral and Blaydon was designed to determine the present position of their respective oil
water contacts. At Balmoral drilling was successful in determining the oil/water contact in the northwest lobe of
the Field. This information will be used to design a program to deplete the "attic" area of the Field with
horizontal production wells. The drilling at Blaydon, located 11 km northwest of the Balmoral FPV, confirmed the
position of the oil/water contact and thus the remaining oil column. Based on the data collected during the
drilling program, the Company is currently evaluating the remaining reserves, redevelopment options and the
project economics.

Appraisal drilling commenced at Caledonia in late June after the Company executed a purchase and sale agreement to
acquire 100% of the Caledonia Field. The Caledonia field began production in 2003 and produced approximately 6
million barrels of 33 degrees API oil from a single horizontal well completed in the Paleocene Forties sand before
it was shut in. The Company has drilled 5 well bores subsequent to the end of the period to define the limits of
the Forties reservoir. All five well bores intersected oil, and were successful in further defining and extending
the limits of the reservoir. A new horizontal production well is planned to be drilled by the Company late in the
fourth quarter. Oil production from this well is expected to commence in the first quarter of 2009 through an
existing subsea pipeline to the Britannia production platform.

Exploration drilling at Moth (Block 23/21) resulted in a significant discovery of High Pressure High Temperature
(HPHT) gas-condensate in Upper Jurassic Fulmar sands, and oil and gas in Middle Jurassic Pentland sands. A drill-
stem test was conducted in the Upper Jurassic Fulmar zone through perforations from 12,982 feet to 13,026 feet in
115 feet of gas condensate bearing reservoir sands. The test flowed gas at an average rate of 20.3 Mmcf/d with
2,110 bbls/d of condensate through a 36/64 inch choke with a flowing tubing pressure of 4,478 psi during the main
flow period. Flow rates were severely restricted by the test equipment utilized for the test and for the working
temperatures and pressures encountered. No depletion was measured, nor was there any water or sand produced during
the test. Calculations of surface absolute open flow ("AOF") suggest that the Moth well could be capable of 44
Mmcf/d and 4,400 bbls/d of condensate (11,800 boe/d) with a properly sized production string. A drill-stem test of
the Pentland sands flowed oil and gas to the surface, but before this flow could be diverted to the test separator
to accurately determine flow rates a failure of the downhole test tools occurred. While the initial results of the
test prior to the tool failure appeared positive, definitive results were unable to be acquired. Further testing
will likely occur during the course of additional appraisal drilling in the future.

Exploration drilling at Delta, located 5 km northeast of the Balmoral FPV, was successful in encountering oil in
the targeted Paleocene Balmoral sands. The Company plans to return to the block to conduct additional drilling to
determine the best development solution. An exploration well was also drilled and abandoned on the Danica prospect
in Block 29/6a, as no commercial quantities of hydrocarbons were encountered.

Subsequent to the end of the second quarter 2008, the Company announced that it will seek to increase its total
debt capacity to US$ 1 billion. Oilexco signed an engagement letter with the Royal Bank of Scotland plc ("RBS") to
refinance its current debt obligations. The credit facility is intended to be underwritten by a group of banks led
by RBS, subject to standard internal credit approvals and due diligence, and will replace the existing facility
that has a total credit limit of approximately US$ 700 million. The new facility will be used for developing new
fields, purchasing production equipment, enabling protection against cost overruns and potential decommissioning
liabilities and general corporate purposes.

OUTLOOK

For the balance of the year the Company will focus its efforts on its development projects, its ongoing drilling
campaign, and on its operated facilities. The Company is on track to deliver first oil from its 100% owned Shelley
development in the fourth quarter, with tow out to the field area for the FPSO Sevan Voyageur currently scheduled
for late September to early October.

Redevelopment of the Caledonia Field is also planned to commence in the fourth quarter. Work continues on the
Company's 2009 development projects at Huntington (Forties) and at Ptarmigan and in addition to these new
developments, the Company will continue in its efforts to maximize production in its Balmoral core area by
optimizing throughput at the Brenda manifold and the Balmoral FPV. This will include the drilling of a second
production well at Nicol, initializing an efficient gas lift system after the commissioning of a new gas
compressor on the Balmoral FPV and optimizing the operating efficiency of the Company's subsea multiphase pump at
the Brenda manifold.

The Company will continue with its aggressive drilling campaign by drilling production wells at Shelley (2), Nicol
(1), and Caledonia (1). Appraisal drilling will be conducted at Shelley North, Huntington Forties (Block 22/14a),
Huntington Fulmar (Block 22/14b) and Kildare.

Activities at the Company's operated facilities will be focused on the Balmoral FPV, the Brenda Manifold and the
Shelley FPSO. The Balmoral FPV will shut down for approximately 3 - 4 weeks in the month of August to perform its
annual maintenance turnaround and the 2008 facility upgrades. Among the tasks to be completed during the shutdown
will be installing a new gas compressor on the Balmoral FPV, which is expected to enhance production from the
Brenda/Nicol reservoirs via gas lift. At the Brenda manifold, the Company will replace the multiphase pump which
should alleviate operation issues experienced in the first and second quarters.

Previously the Company has provided guidance that its exit production for 2008 is expected to be approximately
45,000 Bbl oil per day. While the Company believes that this target is achievable and is working diligently to
make this happen, a number of potential issues, surrounding timing of delivery on certain projects rather than
geological and reservoir risk, may delay reaching this target prior to year end.

/T/

RESULTS OF OPERATIONS

REVENUES

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($ 000's)           Three Months ended June 30,   Six Months ended June 30,
                             2008         2007           2008         2007
                   ---------------------------------------------------------
Oil and Gas UK -
 North Sea              $ 227,114   $   39,170      $ 397,816   $   40,179
Inter-field
 Tariff                       576          372          1,223          681
Interest Income               760        1,194          1,823        1,874
                   ---------------------------------------------------------
                        $ 228,450   $   40,736      $ 400,862   $   42,734
                   ---------------------------------------------------------

/T/

Sales of oil and gas in the UK North Sea amounted to approximately $227.1 million for the three months and $397.8
million for the six months ended June 30, 2008, compared to approximately $39.2 million and $40.2 million for the
same periods in 2007. The increase relates to the sale of oil and natural gas from Brenda and Nicol fields which
commenced in June 2007 and from additional interests in the Balmoral, Glamis and Stirling fields ("Balmoral
Block") acquired in December 2007. Additionally, the period of three months ended June 30, 2008 includes the sale
of oil and natural gas from the Nelson and Janice&James fields acquired at the end of April 2008.

The Company also realized income from inter-field tariffs of approximately $0.6 million for the three months and
$1.2 million for the six months ended June 30, 2008, compared to approximately $0.4 million and $0.7 million for
the same period of 2007. These represent the Company's interest in tariffs on third-party oil processed on the
Balmoral floating production vessel and relates mainly to the partners 30% share in the Nicol field.

Interest income represents interest on bank accounts and short-term deposits and was lower for the three and six
month months ended June 30, 2008 compared to the same period of 2007 due to lower cash balances in 2008.

/T/

PRODUCTION AND PRICES

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                     Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Oil and Gas - UK
 North Sea
 BOE/day -
  production                17,073        6,274         18,893        3,250

Average Oil and Gas
 Price $/BOE
 UK North Sea               121.12        68.61         109.15        68.31

Crude Oil as % of
 Production
 UK North Sea                   96%          99%            97%          99%
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/T/

Average daily production of oil and gas in the UK North Sea increased significantly from 6,274 BOE/day for the
second quarter of 2007 to 17,073 BOE/day for the second quarter of 2008, and increased from 3,250 BOE/day for the
first six months of 2007 to 18,893 BOE/day for the first six months of 2008 due to the commencement of oil
production from the Brenda and Nicol fields in June 2007, the additional interests in the Balmoral Block acquired
in December 2007 and from production from the Nelson and Janice&James fields acquired at end of April 2008.

Average oil and natural gas prices in respect of the UK North Sea operations increased by 77% and 60% for the
three and six months ended June 30, 2008, compared with the same periods of 2007. The increase is attributable to
the increases in worldwide crude oil prices.

During the three months ended June 30, 2008 the Company produced 1,553,617 BOE and sold 1,875,174 BOE resulting in
an overlift of 321,557 BOE in the second quarter of 2008.

/T/

OPERATING COSTS

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($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Operating Costs
 ($ 000's)                $ 28,944     $  6,002       $ 42,735     $  7,252
Operating costs $/BOE        15.44        10.51          11.73        12.33
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/T/

In the first quarter of 2007 operating expenses were incurred only for the Balmoral and Glamis Fields as well as
the Company's share of the Balmoral floating production facility, which was operating below its capacity. In June
2007, production from Brenda and Nicol fields was launched and in December 2007 the additional interest was
acquired in Balmoral Block and Balmoral floating production facility. Accordingly, while total operating costs
increased significantly, operating costs per BOE have decreased for the six months ended June 30, 2008 as compared
to the same period of 2007. The increase in operating costs per BOE in a second quarter of 2008, compared to
second quarter of 2007, resulted mainly from significant maintenance work done to the Balmoral floating production
facility and a higher profile of operating costs per BOE from the Nelson and Janice&James fields acquired at the
end of April 2008.

/T/

GENERAL AND ADMINISTRATIVE

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($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
General and
 Administrative            $ 9,167     $  6,819       $ 15,314     $  9,304
Headcount as at June 30        109           36            109           36
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/T/

The increase in general and administrative expenses in 2008 compared with 2007 is largely due to the addition of
new employees and contractors at the Company's offices in Calgary, London and Oilexco North Sea Limited's office
in Aberdeen. This is the result of continued development of the Company's UK North Sea operation and taking over
operatorship of the Balmoral floating production vessel.

/T/

DEPLETION, DEPRECIATION AND ACCRETION

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----------------------------------------------------------------------------
($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Depletion,
 Depreciation and
 Accretion (DD&A)
 ($000's)                 $ 66,916    $  12,337      $ 124,538 $     12,783
DD&A $/BOE                   35.69        21.61          34.17        21.73
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/T/

The increase in DD&A for the three and six months of 2008, compared to the same periods in 2007, relates mainly to
the commencement of production from the Brenda/Nicol field, production from additional interests in the Balmoral
Block and to production from the Nelson and Janice&James fields.

Additionally, DD&A includes an accretion expense with respect to Asset Retirement Obligations ("ARO"), which for
the UK North Sea operation amounted to approximately $0.6 million and $81 thousand for the three months ended June
30, 2008 and 2007 and $1.1 million and $0.2 million for the six months ended June 30, 2008 and 2007, respectively.

/T/

FOREIGN EXCHANGE

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----------------------------------------------------------------------------
($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Foreign Exchange
 (Gain) Loss                $ (476) $   (20,151)        $  214    $ (19,489)
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/T/

The Company's foreign exchange gains and losses relate mainly to the fluctuation of the US dollar ("USD") compared
to the British pound Sterling ("pound") and the Canadian dollar. In the second quarter of 2008 and 2007 the
Company experienced foreign exchange gains of approximately $0.5 and $20.2 million, respectively, while the
cumulative six months results showed a foreign exchange loss of $0.2 million in 2008 and a foreign exchange gain
of $19.5 million in 2007. During the first six months of 2008, the USD weakened against the pound and strengthened
against the Canadian dollar while during the second quarter of 2008, the USD weakened against the pound and
weakened against the Canadian dollar. During both first six months and second quarter of 2007, the USD weakened
significantly against both the pound and against the Canadian dollar. Commencing October 1, 2007 the functional
currency for the Company was changed from Canadian to US dollars.

/T/

STOCK-BASED COMPENSATION
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($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Stock-Based
 Compensation Expense     $ 23,309    $   1,217       $ 31,500   $    3,810
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/T/

A compensation expense of $23.3 million and $31.5 million was recognized for the three and six months ended June
30, 2008, respectively. The cumulative expense relates to:

- 1,445,000 stock options granted on March 26, 2008 to employees to acquire common shares at an exercise price of
C$13.27 ($13.04) per share and

- 3,460,000 stock options granted on May 16, 2008 to employees and contractors to acquire common shares at an
exercise price of and C$15.97 ($15.99) per share.

Exercise prices for stock options granted are determined by the closing market price on the day before the date of
the grant or, if the Company is in a black-out period at the time of the grant, then the closing market price at
the end of the black out period.

All stock options vest immediately on the date of grant unless a probationary period is applicable. Fair value of
each option granted is estimated on the date of grant using the Black-Scholes option pricing model (assumptions
used for the model are discussed in the notes accompanying the Company's un-audited consolidated interim financial
statements as at and for the three and six month periods ended June 30, 2008).

/T/

LOSS ON DERIVATIVES

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----------------------------------------------------------------------------
($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Unrealized Loss on
 Derivatives             $ 141,175   $    4,504      $ 163,850 $      7,955
Realized Loss on
 Derivatives                17,923            -         22,702            -
                   ---------------------------------------------------------
                         $ 159,098   $    4,504      $ 186,552 $      7,955
                   ---------------------------------------------------------

/T/

The Company has a collar agreement with the Royal Bank of Scotland ("RBS") in order to secure its future cash flow
by limiting the Company's exposure to downward fluctuations in the price of crude oil. As a result of an increase
in oil prices as at June 30, 2008 and 2007 (as compared to January 25, 2007 when the collar was signed) a mark-to-
market valuation of respective puts and call options included in this collar resulted in an unrealized loss on
derivatives of approximately $163.9 million and $8.0 million for the six months ended June 30, 2008 and 2007,
respectively. This valuation loss is a non cash item.

During the three and six months ended June 30, 2008, the Company incurred $17.9 million and $22.7 million
respectively in realized losses as a result of the collar.

/T/

INTEREST AND BANK CHARGES

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($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------
Interest and Bank
 Charges                   $ 6,803   $    5,225       $ 13,358    $  11,011
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/T/

Interest and bank charges in the amount of $6.8 million and $5.2 million for the three months ended June 30, 2008
and 2007 and $13.4 million and $11.0 million for the six months ended June 30, 2008 and 2007, respectively relate
mainly to the Senior Facility utilized to finance Brenda and Nicol development costs.

/T/

TAXES (RECOVERY)

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($ 000's)           Three Months ended June 30,    Six Months ended June 30,
                              2008        2007            2008         2007
                   ---------------------------------------------------------

Current Income Taxes     $     227    $    317       $     227  $       519
Current PRT Taxes            1,269           -           1,269            -
Deferred PRT Tax Recovery     (463)          -            (463)           -
Future Income Tax
 Recovery                  (39,061)     (1,261)        (36,981)     (10,887)
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/T/

Current income tax of $0.2 million and $0.3 million for the three months ended June 30, 2008 and 2007 and $0.2
million and $0.5 million for the six months ended June 30, 2008 and 2007, respectively, relates to the 30% UK
income tax on non-ring fence activities, which, for the Company, includes interest on cash and bank deposits as
well as foreign exchange gains or losses on cash denominated in foreign currencies.

PRT tax represents Petroleum Revenue Tax payable in the UK in respect of the Nelson field acquired at the end of
April 2008. Current PRT charge of $1.3 million and deferred PRT recovery of $0.5 million was recognized for the
three and six months ended June 30, 2008.

The future income tax recovery of $39.1 million and $37.0 million for the three and six months ended June 30,
2008, respectively and future income tax recovery of $1.3 million and $10.9 million for the three and six months
ended June 30, 2007, respectively relates entirely to the UK operation.

/T/

NET INCOME (LOSS) AND CASH FLOWS FROM OPERATING ACTIVITIES

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($ 000's)            Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                   ---------------------------------------------------------

Net (Loss) Income        $ (27,283)   $  25,727      $  22,599   $   20,476
Cash derived from
 (Used in)
Operating Activities       151,337       (3,097)       280,523       (9,613)
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/T/

In the second quarter of 2008 the Company recognized a net loss of $27.3 million compared to net income of $25.7
million in the second quarter of 2007. The decrease in the Company's net income of $53.0 million resulted mainly
from:

- an increase in losses on derivative contracts of $154.6 million;

- an increase in DD&A expense of $54.6 million related mainly to production from Brenda/Nicol, from additional
interests in the Balmoral Block and from the Nelson and Janice&James fields;

- an increase in operating costs of $22.9 million, mainly due to increased production from Brenda/Nicol, increased
production from additional interests in Balmoral Field and production from the Nelson and Janice&James fields;

- an increase in stock-based compensation of $22.1 million;

- a decrease of $19.7 million in foreign exchange gains;

- an increase in general and administrative expenses and interest and bank charges of $3.9 million; and

- a PRT tax charge $0.8 million in respect of the Nelson field.

The decrease to income was partially offset by:

- an increase in revenues of $187.7 million mainly due to increase in oil and gas sales from Brenda/Nicol, from
additional interests in Balmoral Block and from the Nelson and Janice&James fields; and

- an increase in future income tax recovery of $37.8 million.

Cash from operating activities for the three and six month periods ended June 30, 2008 increased significantly
compared to the same period in 2007 mainly due to cash generated from Brenda/Nicol field and from additional
interests in Balmoral Block fields.

EBITDA

EBITDA is one of the primary measures used by decision makers to measure the Company's operating results and to
help measure profitability and performance. Management believes that the EBITDA is meaningful to investors because
it provides an analysis of operating results using the same measures utilized by the Company's chief decision
makers and external stakeholders, that EBITDA provides investors with a means to evaluate the financial results as
compared to other companies within the same industry and that it is common practice for institutional investors
and investment bankers to use various multiples of current or projected EBITDA for purposes of estimating current
and/or prospective enterprise value.

The Company defines EBITDA to be net earnings (loss) adjusted for depletion, depreciation and accretion (DD&A),
impairment of property, plant and equipment, interest and investment income, interest expense, stock based
compensation expense, discontinued operations, foreign exchange gains and losses, unrealized gains and losses on
derivatives, non operating income or expense, income tax expense and any cumulative effect of accounting changes.
The presentation of EBITDA may not be comparable to statistics with the same or similar name as reported by other
companies. Not all companies and analysts calculate EBITDA in the same manner.

EBITDA is not a Canadian GAAP measure of profit and loss or cash flow from operations and should not be considered
as an alternate to net income, cash flows or any other measure of performance or liquidity under generally
accepted accounting principles, or as an indicator of a company's operating performance.

The Company's net income/ (loss) reconciles to consolidated EBITDA as follows:

/T/

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(in $000's, except
 per share amounts)  Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                    --------------------------------------------------------
Net (Loss) Income        $ (27,283) $    25,727     $   22,599    $  20,476
Deduct Interest Income        (760)      (1,194)        (1,823)      (1,874)
Deduct Income Tax
 Recovery                  (38,028)        (944)       (35,948)     (10,368)
Add Back DD&A Expense       66,916       12,337        124,538       12,783
(Deduct) Add Back
 Foreign Exchange
 (Gain) Loss                  (476)     (20,151)           214      (19,489)
Add Back Stock-Based
 Compensation               23,309        1,217         31,500        3,810
Add Back Unrealized
 Loss on Derivatives       141,175        4,504        163,850        7,955
Add Back Interest
 Expense                     6,803        5,225         13,358       11,011
                    --------------------------------------------------------

EBITDA                   $ 171,656  $    26,721      $ 318,288    $  24,304
                    --------------------------------------------------------

EBITDA $ per share            0.78         0.13           1.44         0.12

/T/

The increase in EBITDA in 2008 is mainly due to the revenues from the Brenda/Nicol field, from additional
interests in Balmoral Block fields and from Nelson and Janice fields.


LIQUIDITY AND CAPITAL RESOURCES

Total net proceeds from financing activities for the three months ended June 30, 2008 amounted to approximately
$93.5 million including $90.0 million related to proceeds from bank loans and $3.5 million from stock options
exercised during the quarter.

The Company has the following bank facilities in place:

/T/

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                Interest rate
                       Total Outstanding as at            per       Maturity
($ 000's)           Facility     June 30, 2008          annum           Date
----------------------------------------------------------------------------

Senior Facility   $  500,000      $    391,264  LIBOR + 1.5 %   Dec.31, 2012
Pre-Development                                 LIBOR + 3.0 -
 Facility            199,300           129,531   5.5 %         Jan. 31, 2009
Overdraft              3,000                 -  LIBOR + 1.5 %      On demand
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

Proceeds from the bank facilities, cash available at the beginning of the period, and cash generated from
operations in the quarter were used to finance the Company's investing activities in the UK North Sea, which
amounted to approximately $193.1 million.

As at June 30, 2008, the Company had 221,616,827 outstanding common shares, as well as 500,000 outstanding common
share purchase warrants and 20,591,000 outstanding common share stock options. Assuming all warrants and stock
options outstanding as at June 30, 2008 are exercised, the Company would realise gross proceeds of approximately
$149.2 million.

As at June 30, 2008, the Company had cash of approximately $112.3 million, a net working capital deficit of
approximately $184.6 million which includes current portion of long term debt of $131.8 million and the current
portion of derivative contracts of $99.5 million. Long-term debt amounted to $391.3 million as at June 30, 2008.

/T/

COMPARATIVE BALANCE SHEET ITEMS

----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in $000's)             June 30,  March 31,  %    June 30, December 31,  %
                            2008      2008           2008         2007
----------------------------------------------------------------------------
Cash                     112,251    59,801  88%   112,251       81,865  37%
Current Assets           234,757   184,526  27%   234,757      181,299  29%
Property, Plant and
 Equipment             1,332,760 1,115,836  19% 1,332,760    1,016,106  31%
Current Liabilities      419,399   265,316  58%   419,399      152,326 175%
Long-term Debt /
 Capital Lease           394,135   334,561  18%   394,135      424,057  -7%
Other long term
 liabilities             170,597   120,860  41%   170,597       56,856 200%
Share Capital            434,088   428,828   1%   434,088      420,950   3%
Shareholders' Equity     586,123   586,548 - %    586,123      576,393   2%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

All balance sheet items, except for shareholders' equity increased in the second quarter compared to the first
quarter of 2008, as the Company continued to develop its operations in the UK North Sea. The $154.1million
increase to current liabilities as at June 30, 2008 compared to March 31, 2008 is related to higher drilling and
development activity in the quarter but also includes increases of $72.1 million for the current portion of
derivative contract obligations and $25.1 million for the current portion of long term debt.

LONG-TERM FINANCIAL LIABILITIES

As at June 30, 2008, the outstanding balance of long term bank loans amounted to $391.3 million and related
entirely to the Senior Facility agreements in place with RBS.

The Company has a capital lease agreement to purchase a pump and other manifold related sub-sea equipment for $4.7
million. The respective lease obligation amounted to approximately $4.0 million as at June 30, 2008 (including
approximately $1.1 million payable within one year).

In addition, the Company recognized the mark-to-market value of its remaining derivative contracts which resulted
in a liability of $204.2 million as at June 30, 2008 covering approximately 3.8 million barrels of oil summarized
as follows:

/T/

----------------------------------------------------------------------------
Calendar Year           Quantity bbls/Month           Strike Price / Collar
----------------------------------------------------------------------------
2008 (July-Dec)                     179,000      $40/bbl put - $88/bbl call
2009                                129,000      $40/bbl put - $88/bbl call
2010                                 98,000      $40/bbl put - $88/bbl call
----------------------------------------------------------------------------

/T/

As at June 30, 2008, the Company has letters of credit in place, subject to annual renewal, in the aggregate
amount of $63.0 million related to the Decommissioning Security Agreement in respect to the Balmoral floating
production vessel and associated fields.

/T/

CONTRACTUAL OBLIGATIONS

Payments due by period are summarized approximately as follows:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in $ 000's)            Total Less than 1 1-3 Years 4-5 Years After 5 Years
                                     Year
----------------------------------------------------------------------------
Bank Loans            520,795     129,531   242,700   148,564             -
Capital Lease           4,004       1,133     2,527       344             -
Derivative
 Contracts            204,195      99,495   104,700         -             -
Drilling Contracts    635,641     275,538   360,103         -             -
Floating Production
 Vessel               370,000      53,968   140,160   140,352        35,520
Contractors --
 Development            9,166       6,958     1,208     1,000             -
UKCS Licences          45,324       1,922     6,759     9,955        26,688
Interest in
 Aircraft               3,515         778     1,644     1,093             -
Office Leases           9,528       1,637     3,043     2,391         2,457
----------------------------------------------------------------------------
Total Obligations   1,802,168     570,960   862,844   303,699        64,665
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

Bank loans represent the balances outstanding as at June 30, 2008 of the Senior Facility and Pre-Development
facility, which the Company has in place with RBS.

Pursuant to the Senior Facility agreement, loan repayment obligations are required to reduce the amount borrowed
to an amount no greater than the borrowing base. The amount of the borrowing base may fluctuate over time due to
changes in oil prices and reserves booked by the Company. Accordingly, for each balance sheet date, the repayment
timing is estimated based on the most recent re-determination of the borrowing base, and thus may change in the
future.

The capital lease obligation relates to an agreement to purchase a pump and other manifold related subsea
equipment which the Company entered into in 2006.

The Company's derivative contract obligations relate to the mark-to-market valuation of the commodity collar
agreements as at June 30, 2008.

Included in drilling contracts are the Company's obligations with respect to three drilling units:

- Oilexco North Sea Limited has in place contracts with Transocean Offshore (North Sea) Ltd. ("Transocean") for
the provision of the Sedco 712 semi-submersible drilling unit until March 23, 2010. As at June 30, 2008, the
Company's obligations for the next 21 months under these contracts with Transocean amount to approximately $214.5
million.

- Oilexco North Sea Limited has in place a contract with Diamond Offshore Drilling ("Diamond") for the provision
of Ocean Guardian, a semi-submersible drilling unit until May 2009. As at June 30, 2008, the Company's obligations
for the next 11 months under this contract with Diamond amount to approximately $119.0 million. In April 2008, the
contract was extended until July 2011 which results in an increase in the Company's obligations by a further
$279.2 million.

- In April 2008, the Company signed a rig assignment agreement with AGR Peak Well Management Limited and
Transocean Offshore (North Sea) Limited for a provision of Sedco 704, a semi-submersible drilling unit for an
estimated period of 90 days until August 31, 2008. The Company's obligation is estimated to be $22.9 million.

The commitments for the Floating Production Vessel relate to an agreement signed with Sevan Production UK (a
wholly-owned subsidiary of Sevan Marine ASA) in April 2007 for charter of the floating production, storage and
offloading vessel "FPSO Sevan 3 (Voyageur)" to be installed in the third quarter of 2008 on the Shelley field. The
fixed term of the contract is five years with an option to extend for an additional five years. The commitments
under the fixed term amount to approximately $370.0 million and are payable over the next six years to 2013.

The Company's commitments in respect of contractors-development relate mainly to Shelley, Huntington and Ptarmigan
development work and equipment and amounted to approximately $9.2 million as at June 30, 2008.

Further to licenses granted to Oilexco North Sea, the Company is committed to pay UK license fees of approximately
$45.3 million over the next fourteen years in respect of its share in certain North Sea Blocks.

In January 2008, the Company purchased a 31.25% undivided interest in a Challenger 605 aircraft. The Company's
ownership is a fractional share managed by FlexJet of the Bombardier Aerospace Corporation and includes management
services related to its share of the aircraft's fixed costs for the next five years.

The Company is committed under operating lease agreements for the rental of office space for approximately $9.5
million that is payable over the next eight years.

The Company is currently pursuing projects/contracts that may require additional financing. The Company has
enjoyed a positive working relationship with its primary bankers and has access to capital as required. In the
future, in order to meet its ongoing obligations, the Company intends to rely on internally generated cash flow,
bank financing, farm-outs, exercise of existing warrants and stock options, and equity financing as needs arise.
However, delays and unexpected outcomes could affect the Company's ability to finance its operations on terms
acceptable to the Company.

/T/

SUMMARY OF QUARTERLY RESULTS

($ 000's except per share)
----------------------------------------------------------------------------
(Unaudited)     Q2/08    Q1/08   Q4/07   Q3/07  Q2/07  Q1/07   Q4/06  Q3/06
----------------------------------------------------------------------------
Gross Revenue
 - Operations 227,690  171,349 152,528 148,234 39,542  1,318   1,467  1,063
Gross Revenue
 - Discontinued
 Operations         -        -       -       -      -      -      80    140

Net Loss
 (Earnings)   (27,283)  49,882   1,153  54,630 25,727 (5,251) 25,126  4,667
Per Share ($)   (0.12)    0.23    0.02    0.25   0.12  (0.03)   0.13   0.02

Net Earnings
 (Loss)
 Discontinued
 Operations         -        -       -       -      -      -    (729)    83
Per Share ($)       -        -       -       -      -      -       -      -
----------------------------------------------------------------------------

/T/

Gross revenue from operations, as summarized in the table, excludes interest income in the periods.

The increase in revenues for the first and second quarters of 2008, compared to the last quarter of 2007, resulted
from additional interests in the Balmoral Field acquired in December 2007, as well as increases in oil prices. The
continued 2008 oil price increases are reflected in the second quarter 2008 revenues, while the quarterly net loss
is due mainly to a loss on derivatives in the amount of $159.1 million experienced in the second quarter, $141.2
million of which is unrealized and related to mark to market valuation of derivative obligation based on increased
oil prices as at June 30, 2008.

For quarters prior to March 31, 2007, operating revenues related to production from the Balmoral and Glamis fields
in the UK North Sea. In June 2007, production from the Brenda/Nicol fields commenced, resulting in an increases in
quarterly revenues up to the last quarter of 2007.

In 2007 the quarterly increases in revenues were followed by quarterly increases in net earnings except for last
quarter of 2007. The decrease in net earnings in the fourth quarter of 2007 compared to the prior quarter was
mainly due to:

- the recognition of $31.8 million in loss on derivatives contracts;

- DD&A expense of $59.7 million compared to $44.2 million expense in the third quarter;

- stock-based compensation totalled $10.1 million in the fourth quarter

In the first quarter of 2007 the Company experienced a net loss mainly due to stock-based compensation expenses
and an unrealized loss on derivative contracts. In the third quarter of 2006, the valuation of derivatives
resulted in a significant unrealized gain, which resulted in net earnings for this quarter. Net earnings in the
last quarter of 2006 relate mainly to the recognition of future income tax assets for the UK operation, partially
offset by foreign exchange losses and interest charges in the quarter.

Discontinued operations relate to Oilexco America, Inc. which was sold effective December 31, 2006.

CONTROLS ENVIRONMENT

Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining the
Company's disclosure controls and procedures. They are assisted in this responsibility by the Company's senior
management team. Disclosure controls and procedures have been designed to ensure that information required to be
disclosed by the Company is accumulated and communicated to our management as appropriate to allow timely
decisions regarding required disclosure.

It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe the
disclosure controls and procedures provide a reasonable level of assurance, they do not expect that the disclosure
controls and procedures would 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.

Internal Controls over Financial Reporting

The Chief Executive Officer and Chief Financial Officer of the Corporation are responsible for designing internal
controls over financial reporting or causing them to be designed under their supervision in order to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian GAAP. The Chief Executive Officer and Chief Financial Officer
have concluded, as of the date of the Management's Discussion and Analysis that the Company's internal controls
over financial reporting have been designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

Management does not expect that the internal controls over financial reporting would prevent all errors and fraud.
A controls system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.

Effective April 30, 2008 the Company acquired Svenska Petroleum Exploration UK Limited. ("Svenska") The acquired
subsidiary company has been re-named Oilexco N.S. Exploration Limited and is wholly owned by Oilexco North Sea
Limited (UK) with the acquired enterprise's results consolidated into financial statements and this report
commencing May 1, 2008. Management is in the process of integrating internal controls and business processes of
the newly acquired entity and expects to complete this process by the third quarter of 2008.

Otherwise, there have been no material changes in the design of the Company's internal controls over financial
reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting during the six month ending June 30, 2008. Management has undertaken a third
party review of internal controls for disclosure and financial reporting and the Company is addressing issues as
they arise, however, no material changes to such internal control systems have been identified to date.

CHANGE IN ACCOUNTING POLICIES

a) Financial Instruments Disclosure and Presentation

In December 2006, the CICA approved Handbook Section 3862 "Financial Instruments - Disclosures", and Handbook
Section 3863 "Financial Instruments Presentation". The objective of Section 3862 is to require entities to provide
disclosures in their financial statements that enable users to evaluate both the significance of financial
instruments for the entity's financial position and performance and the nature and extent of risks arising from
financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the
entity manages those risks. The purpose of Section 3863 is to enhance financial statement users' understanding of
the significance of financial instruments to an entity's financial position, performance and cash flows. These
sections apply to interim and annual financial statements relating to fiscal years beginning on or after October
1, 2007. The Company has adopted the new disclosure requirements effective January 1, 2008. The two sections
result in the additional disclosures set out below. There have been no significant changes from the previous year
to the Company on its exposure to risks and management's objectives, policies and process to manage the market
risks outlined below.

The Company has identified that it is exposed principally to these areas of market risk.

i) Commodity Risk

Commodity price risk related to crude oil prices is one of the Company's most significant market risk exposures.
Crude oil prices and quality differentials are influenced by worldwide factors such as OPEC actions, political
events and supply and demand fundamentals. To a lesser extent the Company is also exposed to natural gas price
movements. Natural gas prices are generally influenced by oil prices, North American supply and demand and local
market conditions. The Company's expenditures are subject to the effects of inflation and prices received for the
product sold are not readily adjustable to cover any increase in expenses from inflation. The Company may
periodically use different types of derivative instruments to manage its exposure to price volatility, thus
mitigating fluctuations in commodity-related cash flows and as well as a result of a requirement of the Company's
lenders as outlined in Note 5 included in the consolidated financial statements as at and for the three and six
months ended June 30, 2008.

The Company has derivative obligations that are subject to independent market valuations as at each balance sheet
date. The valuation results in unrealized gains and losses on contract derivatives that are segmented in the
balance sheet between current and long term portions beyond one year. The valuation is prepared based on forward
rates of expected prices of oil per barrel based on current market conditions and discounted for the time value of
money. The forward rates are compared to a contractual settlement rate of $88 per barrel for all outstanding call
options.

In addition, each month the Company may incur an actual realized loss that is payable on derivative contracts to
the extent that actual average Oil-Brent (DTD) index price in the month exceeds $88/barrel for the contract values
of barrels. The average oil price used for derivate settlements for the quarter ended June 30, 2008 was
$121.38/barrel resulting in a $17.9 million realized loss. The commodity risk and overall impact to net income is
partly mitigated since revenues are transacted at market rates and since the derivatives cover only approximately
30% of current monthly production levels.

To help gauge sensitivity of commodity prices on the valuation of its derivative obligations, upon considering the
recent trends in oil prices, the Company has assumed a possible fluctuation range of an increase or decrease of
10% in oil prices on derivative obligations. The overall approximate impact to the reported income before taxes
for the six months ended June 30, 2008, is summarized as follows:

/T/

----------------------------------------------------------------------------
Assumption on Prices      Derivatives (Gain) Loss   Net Income Before Tax
(in $ millions)                            Change      Increase (Decrease)
----------------------------------------------------------------------------
Oil Prices Increase by 10%            $      60.4          $        (60.4)
Oil Prices Decrease by 10%            $     (57.4)         $         57.4
----------------------------------------------------------------------------

/T/

Since outstanding derivatives are accounted for as an obligation at market values, a decrease in oil prices of 10%
would increase net income before tax and vice versa for a quarterly period. The estimated change in derivative
(gain) or loss includes realized portions estimated at $11.7 million at +10% and ($10.3) million at -10%.

ii) Interest Risk

The Company uses floating rate debt to finance its operations, particularly the Senior facility for the Brenda,
Nicol and Balmoral fields and the Pre-Development Facility in respect of the Shelley, Huntington and Ptarmigan
fields.

The Company is exposed to interest rate risk to the extent that LIBOR may fluctuate. The Company's debt is
substantially denominated in U.S. dollars ("USD"). Since December 31, 2007 US and GBP based LIBOR rates have been
decreasing. The Company evaluates its annual forward cash flow requirements on a rolling weekly and monthly basis.
Accordingly, individual facility amounts utilized and related interest terms vary from one month to six month
intervals.

The Company believes that current interest rates may fluctuate at a future date. For purposes of this sensitivity
analysis the Company has assumed a possible interest rate fluctuation of an increase or decrease of 75 basis
points. The overall approximate impact to reported net income before taxes for the six months ended June 30, 2008,
is summarized as follows:

/T/

----------------------------------------------------------------------------
Assumption on
 Interest Rates      Interest Expense    Capitalized                 Income
(in $ millions)              Increase       Interest           Before Taxes
                            (Decrease)      Increase     Increase (Decrease)
                                           (Decrease)
----------------------------------------------------------------------------
Interest Rates
 Increase by .75%           $     1.2      $     0.4           $       (1.2)
Interest Rates
 Decrease by .75%           $    (1.2)     $    (0.4)          $        1.2
----------------------------------------------------------------------------

/T/

The Company is evaluating its long term debt and financing requirements based on capital expenditure plans and
expected cash flows from operations. The table is based on facility arrangements that are in place as at June 30,
2008.

For the three month and six month periods ended June 30, 2008, interest and bank charge expense was $6.8 million
and $13.4 million respectively. The effective interest rate on the senior facility debt is approximately 6.8% for
the six months ended June 30, 2008.

iii) Foreign Exchange Rate Risk

The Company is exposed to foreign exchange risks to the extent it transacts in various currencies, while measuring
and reporting its results in USD. The exposure to foreign exchange risk is partly mitigated since debt financing
and receivables are mostly in either Pounds Sterling or USD. Since time passes between the recording of a
receivable or payable transaction and its collection or payment, the Company is exposed to gains or losses on non
USD amounts and on balance sheet translation of monetary accounts denominated in non-USD amounts upon spot rate
fluctuations from quarter to quarter.

The Company believes that its foreign exchange risk is mitigated in that revenues and interest expense and a
portion of its operating and exploration costs are largely transacted in USD. In addition, additions to plant
property and equipment are recorded and translated at historical cost. Based on recent trends in foreign exchange
rates, the Company has assumed a possible fluctuation range of an increase or decrease of 5% in non-USD currency
rates on financial instruments. Upon considering this rate of change, the impact on expenses and income before
taxes as reported for the period ended June 30, 2008, is summarized as follows:

/T/

----------------------------------------------------------------------------
Assumption on                             FX Expense                 Income
Foreign Exchange (FX) Rates                 Increase           Before Taxes
(in $ millions)                            (Decrease)    Increase (Decrease)
----------------------------------------------------------------------------
Non USD FX Rates Strengthen by 5%       $       12.4              $   (12.4)

Non USD FX Rates Weaken by 5%           $      (12.4)             $    12.4
----------------------------------------------------------------------------

/T/

The foreign exchange expense is unrealized and relates mainly to a net monetary liability position in Pounds
Sterling currency, and upon considering a varied spot rate assumption as at June 30, 2008.

iv) Credit Risk

The Company's accounts receivable with customers in the oil and gas industry are subject to normal industry credit
risks and are unsecured. A substantial portion of Company's revenues are derived from a large reputable multi-
national company. The carrying value of accounts receivable reflects management's assessment of the credit risk
associated with these customers. The Company assesses partners' credit worthiness before entering into farm-in or
joint venture agreements. In the past, the Company has not experienced credit loss in the collection of accounts
receivable. As the Company's exploration, drilling and development activities expand with existing and new joint
venture partners, the Company will assess and continuously update its management of associated credit risk and
related procedures.

The Company regularly monitors all customer receivable balances outstanding in excess of 90 days. As at June 30,
2008 substantially all accounts receivables are current, defined as less than 90 days. Accordingly, there is no
allowance for doubtful accounts on accounts receivable.

The Company is exposed to credit risk on its cash amounts held in individual banking institutions for balances
that are in excess of nominal guaranteed amounts. Cash balances are held by three different banking institutions
with the majority of cash as at June 30, 2008 held by one reputable financial institution in accordance with the
facility borrowing requirements in place with that institution. The Company periodically monitors published and
available credit information of all its banking institutions.

v)Liquidity Risk

Liquidity risk includes the risk that as a result of its operational liquidity requirements the Company will not
have sufficient funds to settle a transaction on the due date. The Company manages liquidity risk by maintaining
adequate cash reserves, banking facilities, and by considering medium and future requirements by continuously
monitoring forecast and actual cash flows. The Company considers the maturity profiles of its financial assets and
liabilities. As at June 30, 2008, substantially all accounts payable are current.

Included in Note 6 of the consolidated financial statements as at and for the three and six months ended June 30,
2008 is a table of bank facilities that are at the Company's disposal and subject to possible amendment as
outlined, to reduce liquidity risk. Included in Note 2 c) is additional disclosure on the capital policy and
related objectives and procedures. The Company's commitments are outlined in Note 7.

b) Inventory

Effective January 1, 2008 the Company prospectively adopted Section 3031, "Inventories" which stipulates that
major spare parts and standby equipment that are not in use should be included in property plant and equipment,
and also provides more guidance on the measurement and disclosure requirements for inventory that is at the lower
of cost and net realizable value. As a result of adopting this policy and additional disclosures, as at June 30,
2008 the Company reclassified $0.5 million related to spare parts and standby equipment not in use to property
plant and equipment.

c) Capital Disclosures

Effective January 1, 2008 the Company has adopted Handbook Section 1535, "Capital Disclosures" which requires
entities to disclose their objectives, policies and processes for managing capital, and in addition, whether the
entity has complied with any externally imposed capital requirements.

The Company's objectives when managing capital are:

- to safeguard the Company's ability to continue as a going concern;

- to maintain balance sheet strength and optimal capital structure, while ensuring the Company's strategic
objectives are met; and

- to provide an appropriate return to shareholders relative to the risk of the Company's underlying assets

In the management of capital, the Company includes shareholders' equity, and interest bearing debt defined as long
term debt, current portion debt, overdraft debt and capital lease obligations. Shareholders' equity includes share
capital, contributed surplus, retained earnings or deficit and other comprehensive income.

The Company maintains and adjusts its capital structure based on changes in economic conditions and the Company's
planned requirements. The Board of Directors reviews with Management the Company's capital structure and monitors
requirements on an ongoing basis. The Company may adjust its capital structure by issuing new equity and/or debt,
selling and/or acquiring assets, and controlling the capital expenditure program.

The Company monitors its capital structure using the debt-to-equity ratio and other benchmark measures at the
consolidated group level.

/T/

----------------------------------------------------------------------------
(in $ millions)                                     June 30,    December 31,
                                                       2008            2007
----------------------------------------------------------------------------
Debt                                             $    527.1  $        438.2
Equity                                                586.1           576.4

Debt-to-Equity                                           90%             76%
----------------------------------------------------------------------------

/T/

As at June 30, 2008, there were no externally imposed debt covenants with respect to the Company's capital
structure.

There have been no significant changes from the previous year to management's objectives, policies and processes
to manage capital or to the components defined as capital.

d) Status of Transition to International Financial Reporting Standards (IFRS)

On February 13, 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will
be required to adopt IFRS in place of Canadian Generally Accepted Accounting Principles (GAAP) for interim and
annual reporting purposes for fiscal years beginning on or after January 1, 2011. At this time, the impact on our
future financial position and results of operations is not reasonably determinable or estimable. To date, the
Company has supported initial staff training programs and has commenced communications with external advisors to
plan the IFRS initiative including an assessment of transitional requirements and to identify expected impacts on
the Company.

The Company plans to conduct an initial diagnostic phase commencing in the fourth quarter of 2008 after engaging
external expertise and upon organizing a cross functional steering committee for monitoring the IFRS project until
its completion. Regular reporting will occur to Management and to the Audit Committee.

RESPONSIBILITY STATEMENTS

Arthur S. Millholland, a director and the chief executive officer of Oilexco and Brian L. Ward, a director and the
chief financial officer of Oilexco, are responsible for preparing this Report and the related financial statements
in accordance with applicable UK law (including the Disclosure and Transparency Rules of the UK Financial Services
Authority ("DTR")) and Canadian generally accepted accounting principles.

Arthur S. Millholland and Brian L. Ward each confirm that, to the best of their respective knowledge,

(a) the set of financial statements accompanying this Report has been prepared in accordance with Canadian
generally accepted accounting principles and gives a true and fair view of the assets, liabilities, financial
position and profit or loss of Oilexco and the undertakings included in the consolidation as a whole, as required
by DTR 4.2.4;

(b) the interim Management Discussion and Analysis appearing in this Report includes a fair review of the
information required by DTR 4.2.7 and 4.2.8.


Signed "Arthur S. Millholland"             Signed "Brian L. Ward"
Director                                   Director

/T/

OILEXCO INCORPORATED
Consolidated Balance Sheets
(unaudited)
As at
(in thousands of United States dollars)
                                                     June 30,   December 31,
                                                        2008           2007
                                                ----------------------------
Assets
Current Assets
 Cash and Cash Equivalents                       $   112,251 $       81,865
 Accounts Receivable                                  99,141         87,130
 Prepaids and Deposits (Note 3)                       20,886          9,112
 Inventory                                             2,479          3,192
                                                ----------------------------
                                                     234,757        181,299
                                                ----------------------------

Deferred Financing Costs                               5,910          7,938
Future Income Taxes (Note 8)                               -          4,289
Property, Plant and Equipment (Note 4)             1,332,760      1,016,106
                                                ----------------------------
                                                   1,338,670      1,028,333
                                                ----------------------------

                                                 $ 1,573,427 $    1,209,632
                                                ----------------------------
                                                ----------------------------

Liabilities and Shareholders' Equity
Current Liabilities
 Accounts Payable and Accrued Liabilities        $   186,931 $      120,923
 Capital Lease Obligation                              1,133          1,023
 Current Portion of Long Term Bank Loans (Note 5)    131,840         13,070
 Current Portion of Derivative Contracts (Note 5)     99,495         17,310
                                                ----------------------------
                                                     419,399        152,326

Long Term Bank Loans (Note 5)                        391,264        420,937
Capital Lease Obligation                               2,871          3,120
Derivative Contracts (Note 5)                        104,700         23,035
Asset Retirement Obligations                          45,138         33,821
Future Income Taxes (Note 8)                          20,759              -
Deferred Petroleum Revenue Tax Liability
 (Note 8)                                              3,173              -
                                                ----------------------------
                                                     987,304        633,239
                                                ----------------------------

Commitments (Note 7)

Shareholders' Equity
 Share Capital (Note 6)                              434,088        420,950
 Contributed Surplus                                  63,746         36,531
 Retained Earnings                                    46,627         24,028
 Accumulated Other Comprehensive Income               41,662         94,884
                                                ----------------------------

                                                     586,123        576,393
                                                ----------------------------

                                                 $ 1,573,427 $    1,209,632
                                                ----------------------------
                                                ----------------------------

The accompanying notes form an integral part of these consolidated financial
statements.


OILEXCO INCORPORATED
Consolidated Statements of Income (Loss) and Retained Earnings (Deficit)
 For the Periods Ended
(unaudited)

(in thousands of United States dollars, except per share amounts)

                   Three months    Three months    Six months    Six months
                          Ended           Ended         Ended         Ended
                        June 30,        June 30,      June 30,      June 30,
                           2008            2007          2008          2007
                  ----------------------------------------------------------
Revenues
 Oil and Gas
  Sales          $      227,114  $       39,170  $    397,816  $     40,179
 Inter-Field
  Tariff                    576             372         1,223           681
 Interest Income            760           1,194         1,823         1,874
                  ----------------------------------------------------------
                        228,450          40,736       400,862        42,734
                  ----------------------------------------------------------
Expenses
 General and
  Administrative          9,167           6,819        15,314         9,304
 Operating               28,944           6,002        42,735         7,252
 Depletion,
  Depreciation and
  Accretion              66,916          12,337       124,538        12,783
 Foreign Exchange
  (Gain)/ Loss             (476)        (20,151)          214       (19,489)
 Stock-Based
  Compensation
  (Note 6 (b))           23,309           1,217        31,500         3,810
 Loss on
  Derivatives
  (Note 5)              159,098           4,504       186,552         7,955
 Interest and
  Bank Charges            6,803           5,225        13,358        11,011
                  ----------------------------------------------------------
                        293,761          15,953       414,211        32,626
                  ----------------------------------------------------------
Income (Loss)
 Before Income
 Taxes                  (65,311)         24,783       (13,349)       10,108

 Current Taxes
  (Note 8)               (1,496)           (317)       (1,496)         (519)
 Future Tax
  Recovery
  (Note 8)               39,524           1,261        37,444        10,887
                  ----------------------------------------------------------

Net (Loss)
 Income                 (27,283)         25,727        22,599        20,476

Retained
 Earnings
 (Deficit),
 Beginning of
 Period                  73,910         (57,482)       24,028       (52,231)
                  ----------------------------------------------------------

Retained
 Earnings
 (Deficit), End
 of Period       $       46,627  $      (31,755) $     46,627  $    (31,755)
                  ----------------------------------------------------------
                  ----------------------------------------------------------
Basic Net (Loss)
 Income per Share
 (Note 6(c))     $        (0.12) $         0.12  $       0.10  $       0.10
                  ----------------------------------------------------------
                  ----------------------------------------------------------
Diluted Net
 (Loss) Income
 per Share (Note
 6(c))           $        (0.12) $         0.11  $       0.10  $       0.09
                  ----------------------------------------------------------
                  ----------------------------------------------------------

The accompanying notes form an integral part of these consolidated financial
statements.


OILEXCO INCORPORATED
Consolidated Statements of Comprehensive Income (Loss) and Accumulated Other
Comprehensive Income
For the Periods Ended
(unaudited)

(in thousands of United States dollars)

                    Three months    Three months   Six months    Six months
                           Ended           Ended        Ended         Ended
                         June 30,        June 30,     June 30,      June 30,
                            2008            2007         2008          2007
                  ----------------------------------------------------------

Net (Loss) Income   $    (27,283) $       25,727 $     22,599  $     20,476

Other comprehensive
 (loss) income
 Future income tax
  realized on
  translation of
  foreign currency
  denominated tax
  pools                        -               -      (53,222)            -

 Unrealized gains on
  translation of
  consolidated
  financial
  statements into
  reporting currency           -          34,516            -        38,514
                  ----------------------------------------------------------

Comprehensive
 (Loss) Income      $    (27,283) $       60,243 $    (30,623) $     58,990
                  ----------------------------------------------------------
                  ----------------------------------------------------------

Accumulated Other
 Comprehensive
 Income, Beginning
 of Period          $     41,662  $       20,156 $     94,884  $     16,158

Other Comprehensive
 Income                        -          34,516      (53,222)       38,514

Accumulated Other
 Comprehensive
 Income, End of
 Period             $     41,662  $       54,672 $     41,662  $     54,672
                  ----------------------------------------------------------
                  ----------------------------------------------------------

The accompanying notes form an integral part of these consolidated financial
statements.


OILEXCO INCORPORATED
Consolidated Statements of Cash Flows
For the Periods Ended
(unaudited)

(in thousands of United States dollars)

                    Three months    Three months   Six months    Six months
                           Ended           Ended        Ended         Ended
                         June 30,        June 30,     June 30,      June 30,
                            2008            2007         2008          2007
                  ----------------------------------------------------------

Cash Flows from Operating
 Activities

Net (Loss) Income     $  (27,283)      $  25,727   $   22,599    $   20,476
Items Not Affecting
 Cash
 Depletion,
  Depreciation and
  Accretion               66,916          12,337      124,538        12,783
 Unrealized Loss
  (Gain) on
  Foreign Exchange          (363)        (22,748)         566       (23,552)
 Non-cash Interest
  and Bank Charges           357             472          713         1,478
 Future Income Tax
  Recovery               (39,524)         (1,261)     (37,444)      (10,887)
 Stock-Based
  Compensation            23,309           1,217       31,500         3,810
 Unrealized Loss on
  Derivatives            141,175           4,504      163,850         7,955
                  ----------------------------------------------------------
                         164,587          20,248      306,322        12,063
Changes in Non-Cash
 Working Capital         (13,250)        (23,345)     (25,799)      (21,676)
                  ----------------------------------------------------------
                         151,337          (3,097)     280,523        (9,613)
                  ----------------------------------------------------------

Cash Flows from
 Financing Activities

 Proceeds from Issuance of
  Common Shares,
  net of Issue Costs       3,548          14,923        8,853       110,521
 Net Proceeds of Bank
  Loans                   89,987          49,886       89,987        83,517
 Changes in Non-Cash
  Working Capital              -             (97)           -             -
                  ----------------------------------------------------------
                          93,535          64,712       98,840       194,038
                  ----------------------------------------------------------

Cash Flows from Investing
  Activities
 Additions to Property,
  Plant and Equipment   (235,606)        (91,370)    (392,022)     (143,306)
 Acquisition of Svenska
  (Note 9)               (22,525)              -      (22,525)            -
 Changes in Non-Cash
  Working Capital         65,008          (6,429)      66,388       (59,285)
                  ----------------------------------------------------------
                        (193,123)        (97,799)    (348,159)     (202,591)
                  ----------------------------------------------------------

Net Increase (Decrease)
 in Cash                  51,749         (36,184)      31,204       (18,166)

Net Effect of Foreign
 Exchange on Cash Held in
 Foreign Currencies          701              49         (818)        1,688

Cash and Cash Equivalents,
 Beginning of Period      59,801         101,608       81,865        81,951

Cash and Cash
 Equivalents,
 End of Period        $  112,251       $  65,473   $  112,251    $   65,473
                  ----------------------------------------------------------
                  ----------------------------------------------------------

Supplemental
 Information:
 Interest Paid during
  the Period          $   14,389       $     896   $   17,474    $    4,934
                  ----------------------------------------------------------
                  ----------------------------------------------------------
 Income Taxes Paid
  during the
  Period              $      987       $       -   $    1,547    $      440
                  ----------------------------------------------------------
                  ----------------------------------------------------------
 Term Deposits as at
  June 30             $    6,054       $  16,270   $    6,054    $   16,270
                  ----------------------------------------------------------
                  ----------------------------------------------------------

The accompanying notes form an integral part of these consolidated financial statements.

/T/

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2008 (unaudited)

Tabular amounts are presented in thousands of United States dollars ("$") unless otherwise noted.

1. DESCRIPTION OF BUSINESS

Oilexco Incorporated and its wholly owned subsidiaries, Oilexco North Sea Limited and Oilexco Technical Services
Inc (together "the Company") are involved in the exploration, development and production of oil and gas in the UK
North Sea.

2. ACCOUNTING POLICIES

The unaudited interim consolidated financial statements follow the same accounting policies as the most recent
annual audited financial statement, except as noted below. The notes to these unaudited interim consolidated
financial statements do not conform in all respects to the note disclosure requirements of Canadian generally
accepted accounting principles ("GAAP") for annual financial statements. Accordingly, these unaudited interim
consolidated financial statements should be read in conjunction with the audited consolidated financial statements
as at and for the year ended December 31, 2007.

a) Financial Instruments Disclosure and Presentation

In December 2006, the CICA approved Handbook Section 3862 "Financial Instruments - Disclosures", and Handbook
Section 3863 "Financial Instruments Presentation". The objective of Section 3862 is to require entities to provide
disclosures in their financial statements that enable users to evaluate both the significance of financial
instruments for the entity's financial position and performance and the nature and extent of risks arising from
financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the
entity manages those risks. The purpose of Section 3863 is to enhance financial statement users' understanding of
the significance of financial instruments to an entity's financial position, performance and cash flows. These
sections apply to interim and annual financial statements relating to fiscal years beginning on or after October
1, 2007. The Company has adopted the new disclosure requirements effective January 1, 2008. The two sections
result in the additional disclosures set out below. There have been no significant changes from the previous year
to the Company on its exposure to risks and management's objectives, policies and process to manage the market
risks outlined below.

The Company has identified that it is exposed principally to these areas of market risk.

i) Commodity Risk

Commodity price risk related to crude oil prices is one of the Company's most significant market risk exposures.
Crude oil prices and quality differentials are influenced by worldwide factors such as OPEC actions, political
events and supply and demand fundamentals. To a lesser extent the Company is also exposed to natural gas price
movements. Natural gas prices are generally influenced by oil prices, North American supply and demand and local
market conditions. The Company's expenditures are subject to the effects of inflation and prices received for the
product sold are not readily adjustable to cover any increase in expenses from inflation. The Company may
periodically use different types of derivative instruments to manage its exposure to price volatility, thus
mitigating fluctuations in commodity-related cash flows and as well as a result of a requirement of the Company's
lenders as outlined in Note 5.

The Company has derivative obligations that are subject to independent market valuations as at each balance sheet
date. The valuation results in unrealized gains and losses on contract derivatives that are segmented in the
balance sheet between current and long term portions beyond one year. The valuation is prepared based on forward
rates of expected prices of oil per barrel based on current market conditions and discounted for the time value of
money. The forward rates are compared to a contractual settlement rate of $88 per barrel for all outstanding call
options.

In addition, each month the Company may incur an actual realized loss that is payable on derivative contracts to
the extent that actual average Oil-Brent (DTD) index price in the month exceeds $88/barrel for the contracted
volumes. The average oil price used for derivate settlements for the quarter ended June 30, 2008 was
$121.38/barrel resulting in a $17.9 million realized loss. The commodity risk and overall impact to net income is
partly mitigated since revenues are transacted at market rates and the derivatives cover only approximately 30% of
current monthly production levels.

To help gauge sensitivity of commodity prices on the valuation of its derivative obligations, upon considering the
recent trends in oil prices, the Company has assumed a possible fluctuation range of an increase or decrease of
10% in oil prices on derivative obligations. The overall approximate impact to the reported income before taxes
for the six months ended June 30, 2008, is summarized as follows:

/T/

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                 Net Income
                                                                 Before Tax
Assumption on Prices                 Derivatives (Gain) Loss       Increase
(in $ millions)                                       Change      (Decrease)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Oil Prices Increase by 10%                          $   60.4      $   (60.4)

Oil Prices Decrease by 10%                          $  (57.4)     $    57.4

----------------------------------------------------------------------------

/T/

Since all outstanding derivatives are accounted as an obligation at market values, a decrease in oil prices of 10%
would increase net income before tax and vice versa for a quarterly period. The estimated change in derivative
(gain) or loss includes realized portions estimated at $11.7 million at +10% and ($10.3) million at -10%.

ii) Interest Risk

The Company uses floating rate debt to finance its operations.

The Company is exposed to interest rate risk to the extent that LIBOR may fluctuate. The Company's debt is
substantially denominated in U.S. dollars ("USD"). Since December 31, 2007, US and GBP based LIBOR rates have been
decreasing. The Company evaluates its annual forward cash flow requirements on a rolling weekly and monthly basis.
Accordingly, individual facility amounts utilized and related interest terms vary from one month to six month
intervals.

The Company believes that current interest rates may fluctuate in the future. For purposes of this sensitivity
analysis the Company has assumed a possible interest rate fluctuation of an increase or decrease of 75 basis
points. The overall approximate impact to reported net income before taxes for the six months ended June 30, 2008,
is summarized as follows:

/T/

----------------------------------------------------------------------------
Assumption on
 Interest Rates      Interest Expense    Capitalized                 Income
(in $ millions)              Increase       Interest           Before Taxes
                            (Decrease)      Increase     Increase (Decrease)
                                           (Decrease)
----------------------------------------------------------------------------
Interest Rates
 Increase by .75%        $        1.2     $      0.4           $       (1.2)

Interest Rates
 Decrease by .75%        $       (1.2)    $     (0.4)          $        1.2
----------------------------------------------------------------------------

/T/

The Company is evaluating its long term debt and financing requirements based on capital expenditure plans and
expected cash flows from operations. The table is based on facility arrangements that are in place as at June 30,
2008.

For the three month and six month periods ended June 30, 2008, interest and bank charge expense was $6.8 million
and $13.4 million respectively. The effective interest rate on the senior facility debt is approximately 6.8% for
the six months ended June 30, 2008.

iii) Foreign Exchange Rate Risk

The Company is exposed to foreign exchange risks to the extent it transacts in various currencies, while measuring
and reporting its results in USD. The exposure to foreign exchange risk is partly mitigated since debt financing
and receivables are mostly in either Pounds Sterling or USD. Since time passes between the recording of a
receivable or payable transaction and its collection or payment, the Company is exposed to gains or losses on non-
USD amounts and on balance sheet translation of monetary accounts denominated in non-USD amounts upon spot rate
fluctuations from quarter to quarter.

The Company believes that its foreign exchange risk is mitigated in that revenues and interest expense and a
portion of its operating and exploration costs are largely transacted in USD. Based on recent trends in foreign
exchange rates, the Company has assumed a possible fluctuation range of an increase or decrease of 5% in non-USD
currency rates on financial instruments. Upon considering this rate of change, the impact on expenses and income
before taxes as reported for the period ended June 30, 2008, is summarized as follows:

/T/

----------------------------------------------------------------------------
Assumption on                             FX Expense                 Income
Foreign Exchange (FX) Rates                 Increase           Before Taxes
(in $ millions)                            (Decrease)    Increase (Decrease)
----------------------------------------------------------------------------
Non USD FX Rates Strengthen by 5%       $       12.4  $               (12.4)

Non USD FX Rates Weaken by 5%           $      (12.4) $                12.4
----------------------------------------------------------------------------

/T/

The foreign exchange expense is unrealized and relates mainly to a net monetary liability position in Pounds
Sterling currency, and upon considering a varied spot rate assumption as at June 30, 2008.

iv) Credit Risk

The majority of the Company's accounts receivable with customers in the oil and gas industry are subject to normal
industry credit risks and are unsecured. A substantial portion of Company's revenues are derived from a large
reputable multi-national company. The carrying value of accounts receivable reflects management's assessment of
the credit risk associated with these customers. The Company assesses partners' credit worthiness before entering
into farm-in or joint venture agreements. In the past, the Company has not experienced credit loss in the
collection of accounts receivable. As the Company's exploration, drilling and development activities expand with
existing and new joint venture partners, the Company will assess and continuously update its management of
associated credit risk and related procedures.

The Company regularly monitors all customer receivable balances outstanding in excess of 90 days. As at June 30,
2008 substantially all accounts receivables are current, defined as less than 90 days. Accordingly, there is no
allowance for doubtful accounts on accounts receivable.

The Company is exposed to credit risk on cash amounts held in individual banking institutions for balances that
are in excess of nominal guaranteed amounts. Cash balances are held by three different banking institutions with
the majority of cash as at June 30, 2008 held by one reputable financial institution in accordance with the
facility borrowing requirements in place with that institution. The Company periodically monitors published and
available credit information of all its banking institutions.

v)Liquidity Risk

Liquidity risk includes the risk that as a result of its operational liquidity requirements the Company will not
have sufficient funds to settle a transaction on the due date. The Company manages liquidity risk by maintaining
adequate cash reserves, banking facilities, and by considering medium and future requirements by continuously
monitoring forecast and actual cash flows. The Company considers the maturity profiles of its financial assets and
liabilities. As at June 30, 2008, substantially all accounts payable expect to be settled in 90 days.

Included in Note 6 is a table of bank facilities that are at the Company's disposal and subject to possible
amendment as outlined, to reduce liquidity risk. Included in Note 2 c) is additional disclosure on the Company's
capital policy and related objectives and procedures. The Company's commitments are outlined in Note 7.

b) Inventory

Effective January 1, 2008 the Company retrospectively adopted Section 3031, "Inventories" which stipulates that
major spare parts and standby equipment that are not in use should be included in property plant and equipment,
and also provides more guidance on the measurement and disclosure requirements for inventory that is at the lower
of cost and net realizable value. As a result of adopting this policy and additional disclosures, as at June 30,
2008 the Company reclassified $0.5 million related to spare parts and standby equipment not in use to property
plant and equipment. Prior periods have not been re-stated.

c) Capital Disclosures

Effective January 1, 2008 the Company has adopted Handbook Section 1535, "Capital Disclosures" which requires
entities to disclose their objectives, policies and processes for managing capital, and in addition, whether the
entity has complied with any externally imposed capital requirements.

The Company's objectives when managing capital are:

- to safeguard the Company's ability to continue as a going concern;

- to maintain balance sheet strength and optimal capital structure, while ensuring the Company's strategic
objectives are met; and

- to provide an appropriate return to shareholders relative to the risk of the Company's underlying assets

In the management of capital, the Company includes shareholders' equity and interest bearing debt defined as long
term debt, current portion debt, overdraft debt and capital lease obligations. Shareholders' equity includes share
capital, contributed surplus, retained earnings or deficit and other comprehensive income.

The Company maintains and adjusts its capital structure based on changes in economic conditions and the Company's
planned requirements. The Board of Directors reviews with Management the Company's capital structure and monitors
requirements. The Company may adjust its capital structure by issuing new equity and/or debt, selling and/or
acquiring assets, and controlling the capital expenditure program.

The Company monitors its capital structure using the debt-to-equity ratio and other benchmark measures at the
consolidated group level.

/T/

----------------------------------------------------------------------------
(in $ millions)                                     June 30,    December 31,
                                                       2008            2007
----------------------------------------------------------------------------

Debt                                             $    527.1  $        438.2
Equity                                                586.1           576.4

Debt-to-Equity                                           90%             76%
----------------------------------------------------------------------------

/T/

As at June 30, 2008, there were no externally imposed debt covenants with respect to the Company's capital
structure.

There have been no significant changes from the previous year to management's objectives, policies and processes
to manage capital or to the components defined as capital.

d) Status of Transition to International Financial Reporting Standards (IFRS)

On February 13, 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will
be required to adopt IFRS in place of Canadian Generally Accepted Accounting Principles (GAAP) for interim and
annual reporting purposes for fiscal years beginning on or after January 1, 2011. At this time, the impact on our
future financial position and results of operations is not reasonably determinable or estimable.

/T/

3. PREPAIDS AND DEPOSITS

Prepaids and deposits include mainly prepaid capital expenditures,
insurance and operating expenses summarized as follows:

                                                    June 30,    December 31,
                                                       2008            2007
                                                ----------------------------

Prepaid insurance                                $    3,619  $        3,962
Prepaid drilling equipment                            4,502           2,140
Prepaid development equipment                        11,362             839
Prepaid operations                                      616           1,136
Deposits                                                101             825
Other                                                   686             210
                                                ----------------------------

                                                 $   20,886  $        9,112
                                                ----------------------------
                                                ----------------------------

Prepaid development equipment as at June 30, 2008 relates to prepayments made for equipment purchases in respect
of the Shelley, Huntington and Ptarmigan development projects.

4. PROPERTY, PLANT AND EQUIPMENT

                                                    June 30,    December 31,
                                                       2008            2007
                                                ----------------------------

Oil and Natural Gas Properties and Equipment    $ 1,579,598  $    1,148,832
Accumulated Depletion and Impairment               (262,419)       (139,682)
                                                ----------------------------
                                                  1,317,179       1,009,150
                                                ----------------------------

Other Fixed Assets                                   17,209           7,852
Accumulated Depreciation                             (1,628)           (896)
                                                ----------------------------
                                                     15,581           6,956
                                                ----------------------------

                                                $ 1,332,760  $    1,016,106
                                                ----------------------------
                                                ----------------------------

/T/

To assess the impairment of oil and gas properties and equipment, the Company performs a ceiling test on a
quarterly basis. As at June 30, 2008, no impairment was required.

Undeveloped and unproved oil and natural gas properties excluded from the calculation of depletion and
depreciation amounted to $432.9 million as at June 30, 2008 ($205.6 million as at December 31, 2007).

5. BANK INDEBTEDNESS AND DERIVATIVE CONTRACTS

Debt Facilities

The Company has the following bank facilities in place:

/T/

                              Outstanding
                     Total          as at    Interest rate per      Maturity
                  Facility  June 30, 2008                annum          Date
----------------------------------------------------------------------------

Senior Facility $  500,000      $ 391,264        LIBOR + 1.5 %  Dec.31, 2012
Pre-Development
 Facility          199,300        129,531  LIBOR + 3.0 - 5.5 % Jan. 31, 2009
Overdraft            3,000              -        LIBOR + 1.5 %     On demand
----------------------------------------------------------------------------

/T/

In addition, as at June 30, 2008, the Company has letters of credit in place under the Senior Facility borrowing
base, subject to annual renewal, in the aggregate amount of $63.0 million related to the Decommissioning Security
Agreement in respect to the Balmoral floating production vessel and associated fields.

Repayment Schedule

As at June 30, 2008, aggregate maturities on total long term bank loans of $520.8 million and accrued interest
payable of $2.3 million were approximately as follows:

- within one year - $131.8 million

- 1-2 years - $107.0 million

- 2-3 years - $195.4 million

- 3-4 years - $88.9 million

- 5-6 years = $nil

Pursuant to the amended Senior Facility agreement, loan repayment obligations are required to reduce the amount
borrowed to an amount no greater than the borrowing base. The amount of the borrowing base may fluctuate over
time, particularly due to changes in oil prices and reserves booked by the Company. Accordingly, for each balance
sheet date, the timing of repayment is estimated based on the most recent re-determination of the borrowing base
and may change in future. The Senior Facility is secured by a first floating charge over the assets of Oilexco
North Sea Limited, a guarantee from Oilexco Incorporated, supported by charges against Oilexco Incorporated's
investment in Oilexco North Sea Limited, an assignment of insurance proceeds from the Brenda, Nicol and Balmoral
fields, and a first charge over Oilexco North Sea Limited's bank accounts.

Commodity Contracts

During 2006, as a requirement of the Senior Facility agreement, the Company entered into a collar agreement with
RBS in order to secure its future cash flow and to enhance the repayment of the loan facility with RBS by limiting
the Company's exposure to downward fluctuations in the price of oil.

As a result of a significant increase in oil prices, a mark-to-market valuation resulted in an unrealized loss on
the collar of approximately $141.2 million recognized in the Company's income statement for the three months ended
June 30, 2008. Additionally, the Company incurred $17.9 million in realized losses during the quarter on the
contracts.

As at June 30, 2008, based on the mark-to-market valuation, approximately $99.5 million of the derivative contract
obligations related to one year are included in current liabilities and $104.7 million that are related to the
remaining period to December 31, 2010 are reflected as long term liabilities.

/T/

6. SHARE CAPITAL

(a) Issued                                            Number         Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Balance December 31, 2007                        219,606,827      $ 420,950
Issued pursuant to exercise of stock
 options                                           2,010,000          8,853
Contributed surplus on stock options
 exercised                                                 -          4,285
----------------------------------------------------------------------------

Balance June 30, 2008                            221,616,827      $ 434,088
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

(b) Stock Options

On March 26, 2008, the Company granted 1,445,000 stock options to its employees to acquire common shares at an
exercise price of C$13.27 ($13.04) per share. These stock options vest immediately and expire on March 26, 2013.

On May 16, 2008, the Company granted 3,460,000 stock options to its employees to acquire common shares at an
exercise price of C$15.97 ($15.99) per share. These stock options vest immediately and expire on May 16, 2013.

Stock-based compensation expense of approximately $23.3 million and $31.5 million for the stock options granted
has been recognized for the three and six months ended June 30, 2008. The fair value of each option granted is
estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

/T/

                                                                       2008
----------------------------------------------------------------------------

Risk free interest rate                                                3.75%
Weighted average years                                                  4.0
Expected volatility                                                      49%
Expected dividend yield                                                   0%
----------------------------------------------------------------------------

/T/

Exercise prices for stock options granted are determined by the closing market price on the day before the date of
grant or, if the Company is in a black-out period at the time of the grant, then the closing market price 48 hours
after the dissemination of information which ends the black out period.

/T/

(c) Income Per Share Data

----------------------------------------------------------------------------
(in $ 000's, except per                          Three Months ended
 share amounts)                                       June 30, 2008
----------------------------------------------------------------------------
                                                Net        Weighted
                                           (Loss) /  Average Shares     Per
                                           Earnings     Outstanding   Share
----------------------------------------------------------------------------
Basic                                    $  (27,283)    221,400,827 $ (0.12)
Effect of dilutive stock options                  -               -       -
Effect of dilutive warrants                       -               -       -
----------------------------------------------------------------------------
Diluted                                  $  (27,283)    221,400,827 $ (0.12)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
(in $ 000's, except per                          Three Months ended
 share amounts)                                       June 30, 2007
----------------------------------------------------------------------------
                                                           Weighted
                                                  Net       Average     Per
                                             Earnings        Shares   Share
                                                        Outstanding
----------------------------------------------------------------------------
Basic                                      $   25,727   216,201,069 $  0.12
Effect of dilutive stock options                    -    12,778,839       -
Effect of dilutive warrants                         -             -       -
----------------------------------------------------------------------------
Diluted                                    $   25,727   228,979,908 $  0.11
----------------------------------------------------------------------------


----------------------------------------------------------------------------
(in $ 000's, except per                            Six Months ended
 share amounts)                                       June 30, 2008
----------------------------------------------------------------------------
                                                 Net       Weighted
                                          Earnings / Average Shares     Per
                                              (Loss)    Outstanding   Share
----------------------------------------------------------------------------

Basic                                   $     22,599    220,689,651 $  0.10
Effect of dilutive stock options                   -     11,512,567       -
Effect of dilutive warrants                        -        213,103       -
----------------------------------------------------------------------------
Diluted                                 $     22,599    232,415,321 $  0.10
----------------------------------------------------------------------------

----------------------------------------------------------------------------
(in $ 000's, except per                            Six Months ended
 share amounts)                                       June 30, 2007
----------------------------------------------------------------------------
                                                           Weighted
                                                  Net       Average     Per
                                             Earnings        Shares   Share
                                                        Outstanding
----------------------------------------------------------------------------
Basic                                      $   20,476   208,808,904 $  0.10
Effect of dilutive stock options                    -    10,928,834       -
Effect of dilutive warrants                         -        21,240       -

----------------------------------------------------------------------------
Diluted                                    $   20,476   219,758,978 $  0.09
----------------------------------------------------------------------------

7. COMMITMENTS

----------------------------------------------------------------------------
(in $ 000's)                      Total Less than 1     1-3     4-5   After
                                               Year   Years   Years 5 Years

Drilling Contracts              635,641     275,538 360,103       -       -
Floating Production Vessel      370,000      53,968 140,160 140,352  35,520
Contractors                       9,166       6,958   1,208   1,000       -
UKCS Licences                    45,324       1,922   6,759   9,955  26,688
Interest in Aircraft              3,515         778   1,644   1,093       -
Office Leases                     9,528       1,637   3,043   2,391   2,457
----------------------------------------------------------------------------
Total Obligations             1,073,174     340,801 512,917 154,791  64,665
----------------------------------------------------------------------------

/T/

Drilling Contracts

The Company has contracts with Transocean Offshore (North Sea) Ltd. ("Transocean") for the provision of the Sedco
712 semi-submersible drilling unit until March 23, 2010. As at June 30, 2008, the Company's obligations for the
next 21 months under these contracts with Transocean amount to approximately $214.5 million.

The Company has a contract with Diamond Offshore Drilling ("Diamond") for the provision of Ocean Guardian, a semi-
submersible drilling unit May 2009. As at June 30, 2008, the Company's obligations for the next 11 months under
this contract with Diamond amount to approximately $119.0 million. In April 2008, the contract was extended by two
years until May 2011 which results in increase in the Company's obligations by a further $279.2 million.

In April 2008, the Company signed a rig assignment agreement with AGR Peak Well Management Limited and Transocean
Offshore (North Sea) Limited for a provision of Sedco 704, a semi-submersible drilling unit for an estimated
period of 90 days until August 30, 2008. The Company's estimated obligation amounts to $22.9 million.

Floating production vessel

On April 27, 2007, the Company signed an agreement with Sevan Production UK (a wholly-owned subsidiary of Sevan
Marine ASA) for charter of the floating production, storage and offloading vessel "Sevan 3/Voyageur" to be
installed in mid 2008 on the Shelley field. The fixed term of the contract is five years with option to extend for
an additional five years. The commitments under the fixed term amount total approximately $370.0 million and are
payable over the next six years to 2013.

Contractors-Development Commitments

Contractual commitments related mainly to Shelley, Huntington and Ptarmigan development work and equipment
amounted to approximately $9.2 million as at June 30, 2008.

UKCS Licences

The Company is committed to pay UK license fees of approximately $45.3 million over the next fourteen years in
respect of its share in certain North Sea Blocks.

Interest in Aircraft

In January 2008, the Company purchased a 31.25% undivided interest in a Challenger 605 aircraft. The Company's
ownership is a fractional share managed by FlexJet of the Bombardier Aerospace Corporation and includes management
services related to its share of the aircraft's fixed costs for the next five years.

Office Leases

The Company is committed under operating lease agreements for the rental of office space for approximately $9.5
million that is payable over the next eight years.

/T/

8. TAXATION

----------------------------------------------------------------------------
(in $ 000's)         Three Months ended June 30,   Six Months ended June 30,
                              2008         2007           2008         2007
                     -------------------------------------------------------
Current Income Taxes           227          317            227          519
Current PRT Taxes            1,269            -          1,269            -
----------------------------------------------------------------------------
Total Current Taxes          1,496          317          1,496          519

Deferred PRT Tax Recovery     (463)           -           (463)           -
Future Income Tax Recovery (39,061)      (1,261)       (36,981)     (10,887)
----------------------------------------------------------------------------
Total Future Tax Recovery  (39,524)      (1,261)       (37,444)     (10,887)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

PRT tax represents Petroleum Revenue Tax payable in the UK in respect of Nelson field (part of Svenska assets). As
June 30, 2008, the company has a liability of $1.8 million due to current PRT payable and $3.2 million due to
deferred PRT. Current PRT charge of $1.3 million and deferred PRT recovery of $0.5 million were recognized for the
six months ended June 30, 2008

The future income tax recovery of $39.1 million and $37.0 million for the three and six months ended June 30,
2008, respectively relates to the UK operation. Included in the future income tax for the six months ended June
30, 2008 is an increase in previously estimated tax pools of $13.0 million due to a change in estimate.

The future income tax liability of $20.8 as at June 30, 2008 includes $53.2 million for future income tax
liabilities realized on the translation of foreign denominated tax pools relating to the Company's previously
denominated GBP tax pools being translated to $U.S. denominated tax pools as well as $8.8 million representing a
future income tax liability acquired on purchase of Svenska (Note 9).

9. ACQUISITION

On April 30, 2008, the Company acquired 100% of the voting shares of Svenska Petroleum Exploration UK Limited for
cash consideration of $30.6 million including working capital adjustments.

The acquisition provides the following interests:

- a 1.66% unitized equity interest in the Nelson Field and platform;

- a 6.45% working interest in the Janice and James fields and floating production vessel and

- a 40% working interest in Block 30/23b, south east of Janice

The purchase price is assigned to the estimated fair values of the acquired assets and liabilities as follows:

/T/

Current assets                                                $  10,921,000
Current liabilities                                              (6,102,000)
Property, Plant and Equipment                                    47,599,000
Asset Retirement Obligations                                     (9,384,000)
Future Income Taxes                                             (12,444,000)
----------------------------------------------------------------------------

Total                                                         $  30,590,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The operations of the acquired enterprise are included in the Company's consolidated results commencing April 30,
2008. Current assets acquired included $8.1 million in cash resulting in a net cash consideration price in the
amount of $22.5 million.

/T/

CORPORATE INFORMATION

Directors                                       Auditors
John F. Cowan                                   Deloitte & Touche LLP
London, Canada                                   Calgary, Canada
W. Fraser Grant                                  Aberdeen, Scotland
West Vancouver, Canada
William H. Smith QC
Calgary, Canada                                 Bankers
Kevin A. F Burke, FCA                           Royal Bank of Scotland
London, United Kingdom                           Aberdeen, Scotland
Arthur S. Millholland                            London, England
Calgary, Canada                                 Canadian Western Bank
Brian L. Ward                                    Calgary, Canada
Calgary, Canada
Anne Marie Cannon
London, United Kingdom
                                                Legal Counsel
Management                                      McCarthy Tetrault LLP
                                                 Calgary, Canada
Arthur Millholland                               London, United Kingdom
President and Chief Executive Officer           Field Law LLP
                                                Calgary, Canada
Brian Ward
Chief Financial Officer
William H. Smith
Executive Vice President and General Counsel
                                                Transfer Agent and Registrar
Aleksandra Owad                                 Computershare Trust Company of Canada
Chief Accounting Officer
                                                Head Office
Rod Christensen                                 Oilexco Incorporated
Senior Vice President Exploration & Development Suite 3200, 715 - 5th Avenue S.W.
                                                T2P 2X6
David Marshall                                  Calgary, Alberta, Canada
Senior Vice President Operations                Telephone: (403) 262-5441
                                                Facsimile: (403) 263-3251
Bob Chenery                                     Internet: www.oilexco.com
Vice President Corporate Development
                                                London Office
Kim Galavan                                     70 Jermyn Street
Vice President, Corporate Communications        St. James, London
                                                SW1Y 6NY
Adrian Jones
Vice President, Well Technology                 Aberdeen Office
                                                Oilexco North Sea Limited
Michael Coulthard                               Balmoral House
Vice President, Projects                        74 Carden Place
                                                Aberdeen, Scotland
Richard Mays                                    AB10 1UL
Vice President, Commercial Operations

Share Listings
The TSX
Symbol: 'OIL'
The London Stock Exchange
Symbol: 'OIL'

/T/

Contact Information

  • OILEXCO INCORPORATED