Hawk Energy Corp.
TSX VENTURE : HK.B
TSX VENTURE : HK.A

Hawk Energy Corp.

August 18, 2005 14:55 ET

Hawk Announces Q2 2005 Results and Outlook

CALGARY, ALBERTA--(CCNMatthews - Aug. 18, 2005) - Hawk Energy Corp. (TSX VENTURE:HK.A) (TSX VENTURE:HK.B) ("Hawk" or "the Company") is pleased to announce its operating and financial results for the quarter ended June 30, 2005, and to provide guidance with respect to the Company's 2005 activities. Over the past quarter Hawk has accomplished the following:

- Averaged 1,650 boe/d of production comprised of 6,500 mcf/d of gas and 575 bbls/d of oil and Natural Gas Liquids;

- Generated cash flow of $3,428,671 ($0.22 per diluted share) and net income of $1,305,707 ($0.08 per diluted share);

- Drilled 7 (7.0 net) wells resulting in 7 (7.0 net) producers for an overall success rate of 100%;

- Discovered one new gas pool and one new oil pool;

- Assembled 30 high quality exploration and development prospects which are scheduled to be drilled over the next three quarters which will provide a strong platform for continued growth in 2005 and beyond.

2005 Operational Review

Hawk's business strategy is to profitably grow the Company on a per share basis by focusing on cash flow. We accomplish this by targeting high netback production in low-cost areas. These areas are characterized by year-round access, available existing infrastructure, moderate drilling depths, affordable land costs and in-house technical knowledge.

Hawk's exploration activities have been focused on generating a diverse and technically sound inventory of drilling opportunities with multi-zone potential. The Company has concentrated its exploration efforts in southern and central Alberta, where high-quality reserves and strong initial production rates can be attained at reasonable costs.

Since inception in Q2 2003, Hawk has had excellent success drilling high working interest exploration wells. Thus far the Company has drilled 73 (61.8 net) wells, 67% of which were classified as exploration, resulting in 56 (46.7 net) wells capable of production. This represents an overall success rate of 77%. Hawk has continued to focus its efforts in southern and central Alberta and in southeast Saskatchewan. The Company's activities to date have resulted in the creation of five core areas:

Retlaw, Alberta: The Company drilled two (2.0 net) wells in this area during the second quarter. The first well discovered a new oil accumulation in the Glauconitic formation and is currently producing 25 bbls/d. The second well encountered oil in the Madison formation and is currently being completed. Net production on June 30, 2005 was 1,500 mcf/d of gas and 50 bbl/d of oil. Hawk plans to drill an additional three (3.0 net) wells on this property in the third quarter of 2005.

Edmonton, Alberta: Hawk continues to be active in this long reserve life core area having drilled one (1.0 net) well during the second quarter of 2005. The Company has been busy tieing in two wells that were drilled in the first quarter of 2005. Net production at June 30, 2005, was 2,400 mcf/d. Hawk plans to drill seven (5.5 net) wells in this area during the balance of 2005.

Veteran, Alberta: Due to the unseasonably wet conditions in the second quarter, the two wells that had been scheduled to be drilled into Hawk's Ellerslie oil pool have been delayed until the third quarter of 2005. Net oil production from the existing discovery well is 40 bbls/d while the net natural gas production from the Company's Ellerslie gas pool remains strong at 1,400 mcf/d.

Chinook, Alberta: Hawk is continuing to add land in this multi-zone, increasingly competitive gas prone area and has identified a number of drilling locations based on its extensive seismic database. Five (5.0 net) wells are planned to be drilled in the third quarter targeting a number of Cretaceous zones. The well depths vary between 400 metres and 1,000 metres and can be brought on production quickly due to the extensive pipeline infrastructure in the area. Additional seismic is currently being shot which should lead to further drilling.

Southeast Saskatchewan: The Company drilled three (3.0 net) wells in the second quarter in this region, resulting in three oil producers. The Nottingham and Willmar wells added 50 bbls/d to base production in these core areas and a horizontal well in Wordsworth came on production June 20th at an initial rate of 100 bbls/d. Hawk also continued to act upon workover and recompletion opportunities in the second quarter of 2005. Production averaged 475 boepd in the month of June, 2005. One (0.8 net) vertical well and two (1.5 net) horizontal wells are currently planned for the remainder of 2005.

Undeveloped Land

At June 30, 2005, Hawk had a total of 82,553 (61,767 net) acres of land under title of which 55,028 (42,585 net) acres were undeveloped.

Seventy-five percent (75%) or 41,235 (29,925 net) acres of the undeveloped land was located in Alberta while 25% or 13,793 (12,660 net) acres, was located in Saskatchewan.

2005 Outlook

Since Hawk's inception in April 2003, the Company has been successful in adding value through both drilling and acquisitions. The Company has prudently invested $43.1 million to date creating a company which averaged production of 1,734 boe/d during the first half of 2005, with proved reserves of over 4.2 million boe. The Company has also positioned itself with land and seismic to continue the momentum created thus far.

The Company has set a capital budget for 2005 of $20 million. This budget will result in the drilling of 30 high working interest wells. The majority of these wells will be drilled in Hawk's core areas of Retlaw, Edmonton, Veteran, Chinook and Southeast Saskatchewan. To date in 2005, Hawk has drilled 12 (10.2 net) wells. Hawk plans on drilling an additional 18 wells over the balance of 2005.

Hawk is well positioned to take advantage of the many excellent opportunities available to grow the Company, given its strong balance sheet and prospect inventory. Having transformed from an emerging start-up into a junior oil and gas producer in 2004, Hawk is continuing its fast-paced growth in 2005.

Management's Discussion and Analysis (August 18, 2005)

Management's discussion and analysis ("MD&A") of the financial condition and the results of operations should be read in conjunction with the audited financial statements and related notes for the quarter ended June 30, 2005.

Production information is commonly reported in units of barrel of oil equivalent or boe. For the purposes of computing such units, natural gas is converted to equivalent barrels of oil using a conversion factor of six thousand cubic feet to one barrel of oil. The conversion ratio of 6:1 is based on an energy equivalency conversion method, which is primarily applicable at the burner tip. It does not represent equivalent wellhead value for the individual products. Such disclosure of boes may be misleading, particularly if used in isolation.

All amounts are in Canadian dollars unless otherwise stated.

This disclosure contains certain forward-looking estimates that involve substantial known and unknown risks and uncertainties, certain of which are beyond Hawk's control, including the impact of general economic conditions in Canada and the United States; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; increased competition; the lack of availability of qualified personnel or management; fluctuations in commodity prices; foreign exchange or interest rates; stock market volatility and obtaining required approvals of regulatory authorities. Hawk's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking estimates and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking estimates will transpire or occur, or if any of them do so, what benefits, including the amounts of proceeds, that Hawk will derive therefrom.

The term "cash flow from operating activities" or "cash flow", which is expressed before changes in non-cash working capital, is used by the Company to analyze operating performance, leverage and liquidity. The term "netback", which is calculated as the average unit sales price, less royalties and operating expenses, represents the cash margin for every barrel of oil equivalent sold. These terms do not have any standardized meaning prescribed by the Canadian Generally Accepted Accounting Principles (GAAP) and, therefore, might not be comparable with the calculation of a similar measure for other companies.



Production

------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Natural Gas (mcf/d) 6,452 2,616 7,173 2,218
------------------------------------------------------------------------
Oil and NGL's (bbls/d) 574 437 538 444
------------------------------------------------------------------------
Total (boe/d) 1,650 873 1,734 814
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company averaged production of 1,734 boe/d during the first six months of 2005, an increase of 113% over the same period in 2004. In the first six months of 2005, three new gas wells and five new oil wells were brought on production in the Retlaw, Edmonton, Veteran and Southeast Saskatchewan areas. Hawk's second quarter production averaged 1,650 boe/d, an increase of 89% over the same period last year but a decrease of 10% relative to the Company's first quarter production. This decrease is attributed to two factors. Firstly, extremely wet weather in the second quarter caused a portion of Hawk's oil production to be shut in because the tanked oil could not be trucked off of the well locations. The wet weather also delayed numerous workovers and pipeline construction which further hampered production. The second factor adversely affecting the Company's second quarter production was that two gas wells reached payout and reverted to a reduced, after payout working interest.



Petroleum and Natural Gas Sales ($)

------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Oil sales 2,615,155 1,784,665 4,773,606 3,392,827
------------------------------------------------------------------------
Per barrel 53.48 45.26 51.88 42.18
------------------------------------------------------------------------
Natural gas sales 4,229,534 1,547,628 9,152,850 2,524,361
------------------------------------------------------------------------
Per mcf 7.20 6.50 7.05 6.25
------------------------------------------------------------------------
NGL sales 124,265 13,092 211,589 14,269
------------------------------------------------------------------------
Per barrel 36.75 44.08 38.58 43.64
------------------------------------------------------------------------
Total Sales 6,968,954 3,345,385 14,138,045 5,931,457
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first six months of 2005, the Company received $51.88 per barrel for its oil production, a 23% increase over the oil prices received in 2004. Hawk's six month year-to-date oil production was comprised of 75% light oil originating from Southeast Saskatchewan, where the Company received an average price of $56.23 per barrel, 11% heavy oil originating from the Lloydminster area, where the Company received an average price of $27.23 per barrel and 14% light oil from the Southeast Alberta region where the Company received an average price of $49.30 per barrel. The Company received $7.05 per mcf for its gas production, a 13% increase over the gas prices received in 2004. Approximately 98% of Hawk's gas was produced from Alberta, while 2% was produced from Western Saskatchewan and Southeast Saskatchewan, primarily as associated gas from the oil production. The Company received $38.58 per barrel for its NGL production.

In the second quarter of 2005, the Company received $53.48 per barrel for its oil production. Hawk's second quarter oil production was comprised of 73% light oil originating from Southeast Saskatchewan, where the Company received an average price of $57.73 per barrel, 12% heavy oil originating from the Lloydminster region, where the Company received an average price of $29.55 per barrel and 15% light oil from the Southeast Alberta region where the Company received an average price of $50.91 per barrel. The Company received $7.20 per mcf for its gas production. The Company received $36.75 per barrel for its NGL production.

The Company had no hedging contracts during the first six months of 2005.



Royalties ($)

------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Crown 1,105,733 518,808 2,343,591 841,484
------------------------------------------------------------------------
Freehold 349,412 301,235 666,375 529,402
------------------------------------------------------------------------
Gross Overriding 286,825 166,268 603,631 274,898
------------------------------------------------------------------------
Royalty Income (2,000) (1,382) (2,000) (8,815)
------------------------------------------------------------------------
ARTC (125,000) (103,924) (248,288) (160,451)
------------------------------------------------------------------------
Total 1,614,970 881,005 3,363,309 1,476,518
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first six months of 2005, the Company's gas royalties, which are predominately Crown and attract the ARTC, were 26.1%. During the comparable period in 2004, the Company's gas royalty was 28.3%. During the first six months of 2005, Hawk's oil royalties, which are comprised of Crown, freehold and gross overriding royalties, were 18.9%. Over the same period in 2004, Hawk's oil royalties were 22.3%.

During the second quarter of 2005, the Company's gas royalties were 26.5%. The Company's oil royalties, which are comprised of Crown, freehold and gross overriding royalties, were 17.1%.



Operating Expenses ($)

------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Production expense 1,436,689 622,141 2,558,164 1,214,672
------------------------------------------------------------------------
Processing income (8,910) (17,094) (16,786) (42,884)
------------------------------------------------------------------------
Operating expense 1,427,779 605,047 2,541,378 1,171,788
------------------------------------------------------------------------
Transportation expense 141,979 37,348 285,068 91,408
------------------------------------------------------------------------
Total production expense 1,569,758 642,395 2,826,446 1,263,196
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first six months of 2005, Hawk's total unit operating cost was $9.00/boe. This compares with the Company's 2004 unit operating cost of $8.53/boe. During the six months of 2005, the Company's gas related production expense was $0.97/mcf or $5.82/boe and the Company's oil related production expense was $16.08/bbl. Hawk's oil related expense is further broken down to $20.33/bbl for its light oil production in the southeast Alberta area, $33.42/bbl for its heavy oil production at Lloydminster and $12.53/bbl for its southeast Saskatchewan light oil production. Operating costs in southeast Alberta and Lloydminster are both impacted by trucking costs associated with the single well batteries in those regions. Further sand-related expenses resulted in higher operating costs in the Lloydminster area. With dryer weather, these expenses are expected to be lower in the second half of 2005.

During the second quarter of 2005, the Company's total unit operating cost was $10.46/boe. The oil related production expense was $19.09/bbl and the gas related production expense was $0.97/mcf or $5.82/boe.



Field Netbacks

------------------------------------------------------------------------
Three Months ended Six Months ended
June 30, 2005 June 30, 2005
------------------------------------------------------------------------
Oil & NGL Gas Boe Oil & NGL Gas Boe
Netback Netback Netback Netback Netback Netback
($/bbl) ($/mcf) ($/bbl) ($/bbl) ($/mcf) ($/bbl)
------------------------------------------------------------------------
Sales price 52.40 7.20 46.42 51.13 7.05 45.04
------------------------------------------------------------------------
Royalties (9.43) (1.91) (9.04) (10.02) (1.84) (10.72)
------------------------------------------------------------------------
Production
expense (19.09) (0.97) (10.46) (16.08) (0.97) (9.00)
------------------------------------------------------------------------
Field Netback 23.88 4.32 26.92 25.03 4.24 25.32
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company's field netbacks are derived from subtracting royalties and production expense from the sales price.



General and Administrative Expense (G&A) ($)

------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Gross G&A Expense 348,098 290,932 775,724 533,596
------------------------------------------------------------------------
Capitalized Salaries (116,675) (79,810) (229,147) (163,609)
------------------------------------------------------------------------
Net G&A Expense 231,423 211,122 546,577 369,987
------------------------------------------------------------------------
------------------------------------------------------------------------


Hawk capitalized a portion of its G&A expense that was directly related to the geological and geophysical work performed to generate exploration prospects. During the first six months of 2005, the Company's net G&A was $546,577 or $1.74/boe. In the second quarter of 2005, Hawk's net G&A was $231,423 or $1.54/boe. The Company's G&A expenses are expected to continue to decrease on a per boe basis during the balance of 2005 as production is increased.

Interest and Stock Based Compensation Expense

The Company incurred a net interest expense of $78,998 during the first six months of 2005 and an expense of $46,499 during the second quarter of 2005. There were no interest expense incurred during the similar periods in 2004. The Company has incurred an interest expense in 2005 because Hawk has utilized its credit facility.

Hawk's stock based (non-cash) compensation expense was $240,629 or $0.77 per boe during the first six months of 2005 compared to $257,387 or $1.74 per boe during the similar period in 2004. These values were calculated using the Black-Scholes option-pricing model. The assumptions used in the Black-Scholes model were expected volatility of 150%, risk free interest rate of 4% and time to exercise of 3 years. The Company's stock based compensation expense was $120,314 or $0.80 per boe during the second quarter of 2005 compared to $129,451 or $1.63 per boe during the similar period in 2004.



Depletion, Amortization and Accretion Expense

------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Depletion Expense 941,454 446,038 1,845,211 815,863
------------------------------------------------------------------------
Amortization Expense 285,854 134,738 566,824 247,221
------------------------------------------------------------------------
Accretion Expense 10,832 36,186 33,826 60,696
------------------------------------------------------------------------
Total 1,238,140 616,962 2,445,861 1,123,780
------------------------------------------------------------------------
------------------------------------------------------------------------


Hawk follows the full cost method of accounting as described in the CICA's accounting guideline 16, "oil and gas accounting - Full Cost". Accordingly, the cost of all wells, both successful and unsuccessful, are added to the Company's capital base and are depleted at the rate of production over the remaining proven reserves as determined by the December 31, 2004 Gilbert Laustsen Jung report plus additional proven reserves from major additions during the six month period. During the first six months of 2005, the Company's Depletion, Amortization and Accretion Expense was $2,445,861 or $7.79/boe versus $7.59/boe during the same period in 2004. In the second quarter of 2005, the Company's Depletion, Amortization and Accretion Expense was $1,238,140 or $8.25/boe versus $7.77/boe during the same period in 2004.

Income Taxes

On June 9, 2003, the Canadian government substantially enacted federal income tax changes for the oil and natural gas sector as it had outlined in its 2003 budget. Resource tax rates will decline from the current 27 percent to 21 percent by 2007. Concurrently, the 100 percent deductibility of the resource allowance will be phased out and Crown charges will become 100 percent deductible.

Over the six month period ending June 30, 2005, Hawk incurred current taxes of $145,424 and made a provision for future income taxes of $1,659,168. In the second quarter of 2005, the Company incurred current taxes of $78,933 and made a provision for future income taxes of $764,510. The current taxes are the result of the Saskatchewan tax and resource surcharge.



Cash Flow from Operations

------------------------------------------------------------------------
Three months ended Six months ended
June 30, 2005 June 30, 2005
------------------------------------------------------------------------
$ $/boe $ $/boe
------------------------------------------------------------------------
Petroleum and natural gas revenue 6,968,954 46.41 14,138,045 45.05
------------------------------------------------------------------------
Royalties, net of ARTC (1,614,970) (10.76) (3,363,309) (10.72)
------------------------------------------------------------------------
Interest (45,199) (0.30) (77,698) (0.25)
------------------------------------------------------------------------
Operating costs and
transportation (1,569,758) (10.45) (2,826,446) (9.01)
------------------------------------------------------------------------
General and administrative (231,423) (1.54) (546,577) (1.74)
------------------------------------------------------------------------
Current taxes (78,933) (0.53) (145,424) (0.46)
------------------------------------------------------------------------
Cash flow from Operations 3,428,671 22.83 7,178,591 22.87
------------------------------------------------------------------------
------------------------------------------------------------------------


In the first six months of 2004, the Company generated cash flow from operating activities of $7,718,591 ($0.46 per diluted share). In the second quarter, Hawk generated cash flow from operating activities of $3,428,671 ($0.22 per diluted share).

Net Income and Cash Flow from Operating Activities ($)

Net Income is derived from cash flow from operating activities less stock based compensation, depletion, amortization & accretion expense and future income tax. There has been a substantial increase in net income due to production growth and to a lesser extent an increase in the commodity price.



------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow from
operating activities 3,428,671 1,540,429 7,178,591 2,706,936
------------------------------------------------------------------------
Less: Stock based
compensation 120,314 129,451 240,629 257,387
------------------------------------------------------------------------
Depletion,
amortization &
Accretion expense 1,238,140 616,962 2,445,861 1,123,780
------------------------------------------------------------------------
Future income taxes 764,510 344,295 1,659,168 467,207
------------------------------------------------------------------------
Net income (loss) 1,305,707 449,721 2,832,933 858,562
------------------------------------------------------------------------
------------------------------------------------------------------------


Capital Expenditures ($)

------------------------------------------------------------------------
Three months ended Six months ended
June 30, 2005 June 30, 2005
------------------------------------------------------------------------
Land and lease retention 560,697 796,814
------------------------------------------------------------------------
Seismic 198,875 1,160,010
------------------------------------------------------------------------
Drilling and completions 3,716,436 5,882,632
------------------------------------------------------------------------
Geological and geophysical
salaries capitalized 116,675 229,147
------------------------------------------------------------------------
Facilities 1,164,973 2,213,062
------------------------------------------------------------------------
Corporate assets(1) 1,354 4,129
------------------------------------------------------------------------
Total 5,759,010 10,285,794
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Corporate assets include office improvements, equipment, computer
hardware and software.


The Company incurred gross capital expenditures of $10,285,794 in the first six months of 2005 drilling a total of 12 (10.2 net) wells. During this period the Company also tied in three gas wells and equipped 7 new oil wells. Hawk plans to drill an additional 18 high working interest wells during the balance of 2005.

The Company incurred capital expenditures of $5,759,010 in the second quarter of 2005, drilling a total of 7 (7.0 net) wells.

Liquidity and Capital Resources

On August 9, 2005, the Company entered into a revolving, reducing demand credit facility agreement with a bank for $16,000,000 at an interest rate of prime plus one-quarter percent per year. On June 30, 2005, the Company had $4,050,000 drawn from this credit facility as well as a working capital deficit of $3,305,387.

2005 Capital Budget

Hawk's Board of Directors approved a $20.0 million 2005 capital budget which will result in the drilling of approximately 35 high working interest wells in 2005. The majority of these wells will be drilled in Hawk's core areas of Retlaw, Edmonton, Veteran, Chinook and Southeast Saskatchewan.

Contractual Obligations

Pursuant to the May 22, 2003, initial public offering, the Company issued flow-through shares, whereby the Company is required to incur $9,250,000 of qualifying flow-through expenditures. To the period ended March 31, 2005, Hawk has incurred sufficient qualifying expenditures to satisfy its flow-through obligation.

The Company is also committed to annual lease payments under a rental agreement for office space as follows:



2005 $34,452
2006 $89,955
2007 $68,580


Dividend Policy

Hawk pays no dividend as all cash generated from operations is used to finance the drilling and acquisition activities of the Company.

Outlook

Since Hawk's inception in April 2003, the Company has been successful in adding value through both drilling and acquisitions. The Company has prudently invested $43.1 million to date creating a company which averaged production of 1,734 boe/d during the first half of 2005, with proved reserves of over 4.2 million boe. The Company has also positioned itself with land and seismic to continue the momentum created thus far.

The Company has set a capital budget for 2005 of $20 million. This budget will result in the drilling of 30 high working interest wells. The majority of these wells will be drilled in Hawk's core areas of Retlaw, Edmonton, Veteran, Chinook and southeast Saskatchewan. To date in 2005, Hawk has drilled 12 (10.2 net) wells. Hawk plans on drilling an additional 18 wells over the balance of 2005.

Hawk is well positioned to take advantage of the many excellent opportunities available to grow the Company, given its strong balance sheet and prospect inventory. Having transformed from an emerging start-up into a junior oil and gas producer in 2004, Hawk is continuing its fast-paced growth in 2005.



SHAREHOLDER INFORMATION

DIRECTORS OFFICE

Steve Fitzmaurice, P. Eng. Suite 490, 734 - 7th Avenue S.W.
President, Chief Executive Officer & Calgary, Alberta T2P 3P8
Chairman of the Board
Hawk Energy Corp. Telephone: (403) 262-1204
Fax: (403) 313-4295
Dave Bonnar, P. Geol.
Vice President, Corporate Development AUDITORS
Hawk Energy Corp.
PricewaterhouseCoopers LLP
Thomas Buchanan, CA(1)(2)(3) Calgary, Alberta
Chief Executive Officer
Provident Energy Ltd. BANKERS

John Wright, P. Eng., CFA(1)(2)(3) National Bank of Canada
President and Chief Executive Officer Calgary, Alberta
Petrobank Energy and Resources Ltd.
TRANSFER AGENT
Greg Turnbull, LLB(1)(2)
Partner Computershare Investor Services
McCarthy Tetrault LLP Calgary, Alberta

OFFICERS SOLICITORS

Steve Fitzmaurice, P. Eng. McCarthy Tetrault LLP
President & Chief Executive Officer Calgary, Alberta

Erik DeWiel, P. Land STOCK EXCHANGE LISTING
Vice President, Land and
Corporate Secretary The TSX Venture Exchange
Trading Symbol: HK.A & HK.B
Randy Deobald, P. Geol.
Vice President, Exploration
ENGINEERING CONSULTANTS
Dave Bonnar, P. Geol.
Vice President, Corporate Development Gilbert Laustsen Jung
Associates Ltd.
M.H.(Mike) Shaikh, C.A. Calgary, Alberta
Chief Financial Officer

(1) members of the audit committee
(2) members of the reserve committee
(3) members of the compensation committee


HAWK ENERGY CORP.

Financial Statements
As at June 30, 2005
(Unaudited)

SECOND QUARTER - 2005


HAWK ENERGY CORP.

Balance Sheet
(Unaudited)

ASSETS

June 30, December 31,
2005 2004
---------------------------

Current
Cash $ - $ 491,606
Accounts receivable 3,425,331 3,904,957
Prepaid expenses 122,195 81,669
---------------------------
3,547,526 4,478,232

Property, plant and equipment, net (Note 2) 39,110,586 31,093,025
---------------------------

$42,658,112 $35,571,257
---------------------------
---------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current
Cheques issued in excess of cash balance $ 1,437,926 $ -
Bank loan (Note 3) 4,050,000 -
Accounts payable and accrued liabilities 5,354,706 8,529,032
Taxes payable 60,281 197,384
---------------------------
10,902,913 8,726,416

Future income taxes 6,059,198 4,400,030
Asset retirement obligations (Note 4) 1,889,259 1,711,631
---------------------------
18,851,370 14,838,077
---------------------------
Shareholders' equity
Share capital 17,521,514 17,521,514
Contributed surplus 922,991 682,362
Retained earnings 5,362,237 2,529,304
---------------------------
23,806,742 20,733,180
---------------------------

$42,658,112 $35,571,257
---------------------------
---------------------------
Approved on behalf of the Board:

Director
------------------------------

Director
------------------------------

See Accompanying Notes


HAWK ENERGY CORP.

Statement of Operations and Retained Earnings
For The Period Ended June 30
(Unaudited)

Three Months Six Months
----------------------------------------------------
2005 2004 2005 2004
Revenue
Petroleum and
natural gas sales $ 6,968,954 $ 3,345,385 $14,138,045 $ 5,931,457
Royalties (1,614,970) (881,005) (3,363,309) (1,476,518)
----------------------------------------------------
5,353,984 2,464,380 10,774,736 4,454,939

Expenses
Operating 1,427,779 605,047 2,541,378 1,171,788
Transportation 141,979 37,348 285,068 91,408
General and
administrative 231,423 211,122 546,577 369,987
Interest 45,199 7,277 77,698 (2,853)
Stock based
compensation
(Note 5) 120,314 129,451 240,629 257,387
Depletion,
amortization and
accretion 1,238,140 616,962 2,445,861 1,123,780
----------------------------------------------------
3,204,834 1,607,207 6,137,211 3,011,497
----------------------------------------------------
----------------------------------------------------

Income before
income taxes 2,149,150 857,173 4,637,525 1,443,442

Provision for
income taxes
Current 78,933 63,157 145,424 117,673
Future 764,510 344,295 1,659,168 467,207
----------------------------------------------------
843,443 407,452 1,804,592 584,880
----------------------------------------------------

Net income 1,305,707 449,721 2,832,933 858,562

Retained earnings
(deficit),
beginning of
period 4,056,530 429,811 2,529,304 (12,753)
Adjustment for
change in
accounting policy - - - 33,723
----------------------------------------------------
4,056,530 429,811 2,529,304 20,970
----------------------------------------------------
----------------------------------------------------

Retained earnings,
end of period $ 5,362,237 $ 879,532 $ 5,362,237 $ 879,532
----------------------------------------------------
----------------------------------------------------

Income per share,
basic (Note 6) $ 0.09 $ 0.03 $ 0.19 $ 0.06
----------------------------------------------------
----------------------------------------------------
Income per share,
diluted (Note 6) $ 0.08 $ 0.03 $ 0.18 $ 0.06
----------------------------------------------------
----------------------------------------------------

See Accompanying Notes


HAWK ENERGY CORP.

Statement of Cash Flows
For The Period Ended June 30
(Unaudited)

Three Months Six Months
----------------------------------------------------
2005 2004 2005 2004
Cash provided by
operating
activities
Net income $ 1,305,707 $ 449,721 $ 2,832,933 $ 858,562
Add items not
affecting cash
Stock based
compensation 120,314 129,451 240,629 257,387
Depletion,
amortization
and accretion 1,238,140 616,962 2,445,861 1,123,780
Future income
taxes 764,510 344,295 1,659,168 467,207
----------------------------------------------------
Cash flow from
operating
activities before
changes in
non-cash working
capital 3,428,671 1,540,429 7,178,591 2,706,936
----------------------------------------------------

Changes in non-cash
working capital:
Accounts receivable 1,168,553 400,039 61,430 237,941
Prepaid expenses (19,180) 43,261 (40,526) 7,152
Accounts payable and
accrued liabilities (609,592) 417,843 (209,399) 420,488
Income taxes payable 16,703 11,536 (137,103) 66,052
----------------------------------------------------
556,484 872,679 (325,598) 731,633
----------------------------------------------------
3,985,155 2,413,108 6,852,993 3,438,569
----------------------------------------------------
Cash provided by
financing activities
Issuance of share
capital - 4,999,999 - 4,999,999
Share issue costs - (361,416) - (361,416)
Advance of bank
loan 1,550,000 - 4,050,000 -
----------------------------------------------------
1,550,000 4,638,583 4,050,000 4,638,583
----------------------------------------------------
Cash used by
investing activities
Additions to
property, plant
and equipment (5,759,010) (3,973,185) (10,285,794) (8,610,482)
Changes in non-cash
working capital
for investing
activities (714,716) (2,263,926) (2,546,731) (1,099,549)
----------------------------------------------------
(6,473,726) (6,237,111) (12,832,525) (9,710,031)
----------------------------------------------------

(Decrease) increase
in cash and cash
equivalents (938,571) 814,580 (1,929,532) (1,632,879)
Cash and cash
equivalents,
beginning of period (499,355) 2,173,072 491,606 4,620,531
----------------------------------------------------
Cash and cash
equivalents, end
of period $(1,437,926) $2,987,652 $(1,437,926) $2,987,652
----------------------------------------------------
----------------------------------------------------

Cash and cash
equivalents
consists of:
Cash $ - $ 2,987,652 $ - $ 2,987,652
Cheques issued in
excess of cash
balance (1,437,926) - (1,437,926) -
----------------------------------------------------
$(1,437,926) $ 2,987,652 $(1,437,926) $ 2,987,652
----------------------------------------------------
----------------------------------------------------
Supplementary
information
Interest paid $ 46,134 $ 7,541 $ 76,792 $ 13,144
----------------------------------------------------
----------------------------------------------------
Taxes paid $ 62,230 $ - $ 282,527 $ 51,621
----------------------------------------------------
----------------------------------------------------

See Accompanying Notes


HAWK ENERGY CORP.

Notes to Financial Statements
June 30, 2005
(Unaudited)


1. Accounting policies

The accounting policies used in the preparation of these interim financial statements conform with those used in the Company's December 31, 2004 audited financial statements. These interim financial statements do not include all of the disclosures in the December 31, 2004 financial statements. Accordingly, these interim financial statements should be read in conjunction with the December 31, 2004 financial statements.

2. Property, plant and equipment

As at June 30, 2005, the Company has capitalized $229,147 (2004 - $163,609) of salaries and benefits directly associated with exploration activities during the six months period ended June 30, 2005.

Unproved property costs of $4,240,221 (2004 - $1,982,886) and estimated salvage value of $1,467,950 (2004 - $1,099,018) have been deducted from costs subject to depletion and amortization for the three month period ended June 30, 2005.

3. Bank loan

On January 20, 2005, the Company entered into a revolving reducing demand credit facility agreement with a bank for $14,000,000 at an interest rate of prime plus one quarter percent per year. Starting February 28, 2005, the amount of the facility available was reduced by $450,000 per month. As of June 30, 2005, the amount available was $11,750,000. This credit facility is collateralised by a general assignment of book debts and a $25,000,000 debenture with a floating charge over all assets of the Company and will be reviewed periodically. As of June 30, 2005, $4,050,000 was withdrawn on the credit facility. Subsequent to the period end, the credit facility was renewed to $16,000,000.



4. Asset retirement obligation

Asset retirement obligation, December 31, 2003 $ 1,261,663
Liabilities incurred 328,329
Accretion expense 121,639
-------------
Asset retirement obligation, December 31, 2004 1,711,631
Liabilities incurred 143,803
Accretion expense 33,825
-------------
Asset retirement obligation, June 30, 2005 $ 1,889,259
-------------
-------------


The Company estimates the undiscounted cash flows related to asset retirement obligations, adjusted for inflation, to be incurred over the estimated reserve life of the underlying assets to be total approximately $4,299,906. The present value at June 30, 2005 is $1,889,259 using a discount rate of eight percent and an inflation rate of two percent. The expected period until settlement ranges from 2 years to 21 years.



5. Stock options

For the
Six Month Period For the Year Ended
Ended June 30, 2005 December 31, 2004
Weighted Average Weighted Average
---------------------- ----------------------
Number Exercise Number Exercise
of Options Price of Options Price
---------------------- ----------------------

Outstanding, beginning
of period 1,277,500 $1.34 770,000 $0.35
Granted - - 522,500 2.76
Cancelled - - (15,000) 0.35
---------------------- ----------------------

Outstanding, end of period 1,277,500 1.34 1,277,500 1.34
---------------------- ----------------------
---------------------- ----------------------
Exercisable, end of period 616,667 $0.76 251,667 $0.35
---------------------- ----------------------
---------------------- ----------------------


6. Per share data

Basic per share data per Class A and Class B shares is based upon the weighted average number of Class A shares and the weighted average number of Class B shares outstanding during the period. For the purpose of per share data calculation, it is assumed that the Class B shares are converted into Class A shares using the June 30, 2005 trading price of $5.15 (June 30, 2004 - $3.20). Diluted per share data is based upon the weighted average number of Class A and Class B shares outstanding during the period after giving effect to the exercise of the share options. The total weighted average number of Class A and Class B shares is as follows:



For the Six Month Period Ended
June 30, 2005 June 30, 2004
------------------------------

Weighted average number of Class A shares 12,985,714 11,219,732

Deemed conversion of Class B shares to
Class A shares (Weighted average number
of Class B shares times $10 divided by
period end trading price) 832,500 x
$10/$5.15 (2004 - $832,500 x $10/$3.20) 1,616,505 2,601,562
------------------------------

Equivalent Class A basic shares 14,602,219 13,821,294
------------------------------
------------------------------

Equivalent Class A diluted shares 15,498,752 14,515,270
------------------------------
------------------------------

For the Three Month Period Ended
June 30, 2005 June 30, 2004
------------------------------

Weighted average number of Class A shares 12,985,714 11,239,683

Deemed conversion of Class B to Class
A shares 1,616,505 2,601,562
------------------------------

Equivalent Class A basic shares 14,602,219 13,841,245
------------------------------
------------------------------

Equivalent Class A diluted shares 15,526,340 14,553,368
------------------------------
------------------------------



Contact Information

  • Hawk Energy Corp.
    Steve Fitzmaurice
    President and Chief Executive Officer
    (403) 262-1204 ext. 1
    (403) 313-4295 (FAX)
    Email: stevef@hawkenergy.ca
    or
    Hawk Energy Corp.
    Erik DeWiel
    Vice-President, Land
    (403) 262-1204 ext. 2
    (403) 313-4295 (FAX)
    Email: erikd@hawkenergy.ca