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

Hawk Energy Corp.

November 09, 2005 15:56 ET

Hawk Announces Q3 2005 Results and Outlook

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 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 September 30, 2005, and to provide guidance with respect to the Company's 2005 activities. Over the past quarter Hawk has accomplished the following:

- Averaged 1,656 boe/d of production comprised of 6,074 mcf/d of gas and 644 bbls/d of oil and natural gas liquids;

- Generated cash flow of $4,787,387 ($0.31 per diluted share) and net income of $2,115,720 ($0.14 per diluted share). Over the first nine months of 2005, the Company has generated cash flow of $11,965,978 ($0.78 per diluted share) and net income of $4,948,653 ($0.32 per diluted share);

- Drilled 17 (15.25 net) wells, 11 (9.75 net) of which were deemed exploration, resulting in 15 (13.5 net) producers for an overall success rate of 88%;

- Discovered nine new gas pools;

- Generated a drilling prospect inventory of over 100 locations that are scheduled to be drilled over the next two years and 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.

Since inception in Q2 2003, Hawk has had excellent success drilling high working interest exploration wells. To November 9, 2005, the Company has drilled 90 (76.3 net) wells, 63% of which were classified as exploration, resulting in 72 (60.7 net) wells capable of production. This represents an overall success rate of 80%. 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: Since the beginning of the third quarter Hawk has drilled four (4.0 net) wells in this area. All were successful. Two new natural gas pools were discovered and two development oil wells were drilled which are being completed as Rundle Formation oil producers. The two potential gas producers have been successfully production tested and will be on stream in the fourth quarter. The first oil well is currently producing 65 bbl/d while the second is awaiting completion. Net production in this area on September 30, 2005 was 1,257 mcf/d of natural gas and 155 bbl/d of oil. Recent success has pointed the way to additional potential resulting in plans to drill another two (2.0 net) wells on this property in the fourth quarter of 2005.

Edmonton, Alberta: The Company continues to be active in this core area with the drilling of four (2.0 net) wells during the third quarter. Three (1.5 net) wells were cased for natural gas production resulting in three new pool discoveries. Net production at September 30, 2005 was 2,430 mcf/d of gas and 25 bbl/d of oil. Additional drilling and the pipelining of new discoveries is planned for early 2006.

Birch, Alberta: Hawk is developing a new core area in the Birch Lake region of east central Alberta. To date, the Company has drilled five (3.85 net) wells. All were cased as potential natural gas producers and resulted in the discovery of six new natural gas pools. The first (0.35 net) well is on production at a net 530 mcf/d. Two (2.0 net) wells have been tested and are being tied in and will be on production during the fourth quarter of 2005. The fourth (1.0 net) well is being tested and results to date indicate the discovery of a new shallow gas pool which may have regional extent. The fifth and last well was recently cased and is awaiting completion. Hawk is pleased with these results and is going forward with the drilling of an additional two (2.0 net) wells in the fourth quarter.

Veteran/ Chinook, Alberta: The Company drilled five (5.0 net) wells during the third quarter resulting in one oil producer and three potential natural gas wells. One gas well has been placed on production and one is being production tested. A third well remains to be production tested. Initial indications are that Hawk's entire land base in the Chinook area (5,760 acres) is prospective for Milk River Formation gas. Net production in this area at September 30, 2005 was 1,512 mcf/d of gas and 67 bbl/d of oil. Additional drilling is planned for the coming winter.

Southeast Saskatchewan: At September 30, 2005 Hawk's production in this region was 530 boe/d. This increase in production was the result of continued re-activations, re-completions and workovers. Thirteen (12.1 net) new drilling locations have been identified. The 13 locations are comprised of 9 grass-roots horizontals; 3 horizontal re-entries and one vertical well. Early in the fourth quarter Hawk drilled and completed the first horizontal (0.5 net) well of this program. A second horizontal (1.0 net) well is currently drilling. The next 2 (1.8 net) locations are now drill-ready, having been built and licensed. Hawk will continue to drill through its inventory of opportunities in the upcoming quarters.

Undeveloped Land

At September 30, 2005, Hawk had a total of 102,014 (79,699 net) acres of land under title of which 69,016 (55,272 net) acres were undeveloped. Seventy-six percent (76%) or 52,603 (40,013 net) acres of the undeveloped land was located in Alberta while 24% or 16,413 (15,259 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. Hawk has prudently invested $51.9 million to date creating a company which is currently producing 1,800 boe/d with approximately 750 boe/d behind pipe awaiting tie-in. The Company has also positioned itself with land and seismic to continue the momentum created thus far.

Previously, Hawk had set a capital budget for 2005 of $20 million. The vast majority ($18.9 million) of this budget has been spent during the first three quarters of 2005 resulting in the drilling of 29 (25.5 net) wells. Due to the success experienced with the drilling program to date, Hawk's Board of Directors has approved an increase in the 2005 capital budget to $27 million. The increased budget will facilitate the drilling of an additional 14 (13.5 net) wells in the fourth quarter of 2005. Thus far in the fourth quarter of 2005, Hawk has drilled 7 wells, all successfully. The Company currently has three drilling rigs under contract and expects to have all fourteen wells drilled by the end of November. The fourth quarter drilling will take place in Birch (3 wells), Retlaw (3 wells), Lashburn (4 wells), Chinook (1 well) and southeast Saskatchewan (3 wells).

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 (November 9, 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 September 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 including management's assessment of future plans and operations and expectations of future production, cash flow and earnings, which 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 Nine months ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Natural Gas (mcf/d) 6,074 4,400 6,806 2,934
------------------------------------------------------------------------
Oil and NGL's (bbls/d) 644 401 571 430
------------------------------------------------------------------------
Total (boe/d) 1,656 1,134 1,705 919
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company averaged production of 1,705 boe/d during the first nine months of 2005, an increase of 86% over the same period in 2004. In the first nine months of 2005, seven new gas wells and nine new oil wells were brought on production in the Retlaw, Edmonton, Veteran and southeast Saskatchewan areas. Hawk's third quarter production averaged 1,656 boe/d, an increase of 46% over the same period last year and a slight increase relative to the Company's second quarter production. In the third quarter the Company brought on production three new oil wells and four new gas wells, although the majority of this production came on-stream at the end of the third quarter. The Company is currently producing 1,800 boed with approximately 750 boe/d behind pipe awaiting tie-in.



Petroleum and Natural Gas Sales ($)

------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Oil sales 3,694,946 1,765,943 8,468,552 5,158,770
------------------------------------------------------------------------
Per barrel 64.53 50.14 56.71 44.63
------------------------------------------------------------------------
Natural gas sales 5,011,525 2,320,665 14,164,375 4,845,026
------------------------------------------------------------------------
Per mcf 8.97 5.73 7.62 6.03
------------------------------------------------------------------------
NGL sales 129,022 82,907 340,612 97,176
------------------------------------------------------------------------
Per barrel 64.71 50.42 52.23 43.89
------------------------------------------------------------------------
Total Sales 8,835,494 4,169,515 22,973,539 10,100,972
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first nine months of 2005, the Company received $56.71 per barrel for its oil production, a 27% increase over the oil prices received in 2004. Hawk's nine month year-to-date oil production was comprised of 73% light oil originating from southeast Saskatchewan, where the Company received an average price of $60.94 per barrel, 12% heavy oil originating from the Lloydminster area, where the Company received an average price of $34.51 per barrel and 15% medium oil from the southeast Alberta region where the Company received an average price of $55.45 per barrel. The Company received $7.62 per mcf for its gas production, a 26% increase over the gas prices received in 2004. Approximately 96% of Hawk's gas was produced from Alberta, while 4% was produced from western Saskatchewan and southeast Saskatchewan, primarily as associated gas from oil production. The Company received $52.23 per barrel for its NGL production.

In the third quarter of 2005, the Company received $64.53 per barrel for its oil production, a 29% increase over the oil prices received during the same period in 2004. The Company received $8.97 per mcf for its gas production, a 57% increase over the gas prices received in the third quarter of 2004. The Company received $64.71 per barrel for its NGL production.

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



Royalties ($)

------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Crown 1,346,813 541,400 3,690,404 1,382,884
------------------------------------------------------------------------
Freehold 564,932 328,219 1,231,307 857,621
------------------------------------------------------------------------
Gross Overriding 355,210 189,381 958,841 464,279
------------------------------------------------------------------------
Royalty Income 2,000 (7,019) 0 (15,834)
------------------------------------------------------------------------
ARTC (125,000) (108,803) (373,288) (269,254)
------------------------------------------------------------------------
Total 2,143,955 943,178 5,507,264 2,419,696
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first nine months of 2005, the Company's gas royalties, which are predominately Crown and attract the ARTC, were 26.7%. During the comparable period in 2004, the Company's gas royalty was 27.6%. During the first nine months of 2005, Hawk's oil royalties, which are comprised of Crown, freehold and gross overriding royalties, were 18.7%. Over the same period in 2004, Hawk's oil royalties were 20.6%.

During the third quarter of 2005, the Company's gas royalties were 27.8%. The Company's oil royalties, which are comprised of Crown, freehold and gross overriding royalties, were 18.8%.



Operating Expenses ($)

------------------------------------------------------------------------
Three months ended Nine months ended
Sept. 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Production expense 1,338,831 867,571 3,896,995 2,082,243
------------------------------------------------------------------------
Processing income (19,767) (18,515) (36,553) (61,399)
------------------------------------------------------------------------
Operating expense 1,319,064 849,056 3,860,442 2,020,844
------------------------------------------------------------------------
Transportation expense 176,889 80,165 461,957 171,573
------------------------------------------------------------------------
Total production expense 1,495,953 929,221 4,322,399 2,192,417
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first nine months of 2005, Hawk's total unit operating cost was $9.28/boe. This compares with the Company's 2004 unit operating cost of $8.71/boe. During the first nine months of 2005, the Company's gas related production expense was $1.00/mcf or $6.00/boe and the Company's oil related production expense was $15.86/bbl. Hawk's oil related expense is further broken down to $16.83/bbl for its medium oil production in the southeast Alberta area, $34.58/bbl for its heavy oil production at Lloydminster and $12.68/bbl for its southeast Saskatchewan light oil production. Operating costs in southeast Alberta and Lloydminster are both impacted by trucking costs associated with single well batteries in those regions. Further sand production-related expenses resulted in higher operating costs in the Lloydminster area.

Hawk's experience in heavy oil suggests that its sand production-related operating costs will decrease after the well has been on production for about four to six months. Hawk's average heavy oil operating costs have remained high as additional wells have been brought on-stream. The heavy oil operating costs are expected to decrease once the area becomes more mature.

During the third quarter of 2005, the Company's total unit operating cost was $9.82/boe. The oil related production expense was $15.25/bbl and the gas related production expense was $1.06/mcf or $6.36/boe.



Field Netbacks

------------------------------------------------------------------------
Three months ended Nine months ended
September 30, 2005 September 30, 2005
Oil & NGL Gas Boe Oil & NGL Gas Boe
Netback Netback Netback Netback Netback Netback
($/bbl) ($/mcf) ($/bbl) ($/bbl) ($/mcf) ($/bbl)
------------------------------------------------------------------------
Sales price 64.53 8.97 57.98 56.52 7.62 49.35
------------------------------------------------------------------------
Royalties (12.69) (2.49) (14.07) (11.09) (2.03) (11.83)
------------------------------------------------------------------------
Production
expense (15.25) (1.06) (9.82) (15.86) (1.00) (9.28)
------------------------------------------------------------------------
Field
Netback 36.59 5.42 34.09 29.57 4.59 28.24
------------------------------------------------------------------------
------------------------------------------------------------------------


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

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

------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Gross G&A Expense 299,373 261,652 1,075,097 795,248
------------------------------------------------------------------------
Capitalized Salaries (110,015) (81,188) (339,162) (244,797)
------------------------------------------------------------------------
Net G&A Expense 189,358 180,464 735,935 550,451
------------------------------------------------------------------------
------------------------------------------------------------------------


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 nine months of 2005, the Company's net G&A was $735,935 or $1.58/boe. In the third quarter of 2005, Hawk's net G&A was $189,358 or $1.24/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 $181,894 during the first nine months of 2005 and an expense of $104,196 during the third quarter of 2005. There was 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 $360,944 or $0.78 per boe during the first nine months of 2005 compared to $430,992 or $1.71 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 $120,315 or $0.79 per boe during the third quarter of 2005 compared to $173,605 or $1.66 per boe during the similar period in 2004.



Depletion, Amortization and Accretion Expense ($)

------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Depletion Expense 1,118,653 646,291 2,963,864 1,462,154
------------------------------------------------------------------------
Amortization Expense 333,030 210,934 899,854 458,155
------------------------------------------------------------------------
Accretion Expense 65,204 19,517 99,030 80,213
------------------------------------------------------------------------
Total 1,516,887 876,742 3,962,748 2,000,522
------------------------------------------------------------------------
------------------------------------------------------------------------


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 GLJ Petroleum Consultants report plus additional proven reserves from major additions during the nine month period. During the first nine months of 2005, the Company's depletion, amortization and accretion expense was $3,962,748 or $8.51/boe versus $7.95/boe during the same period in 2004. In the third quarter of 2005, the Company's depletion, amortization and accretion expense was $1,516,887 or $9.95/boe versus $8.40/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 nine month period ending September 30, 2005, Hawk incurred current taxes of $260,069 and made a provision for future income taxes of $2,693,633. In the third quarter of 2005, the Company incurred current taxes of $114,645 and made a provision for future income taxes of $1,034,465. The current taxes are the result of the Saskatchewan tax and resource surcharge.



Cash Flow from Operations

------------------------------------------------------------------------
Three months ended Nine months ended
September 30, 2005 September 30, 2005
------------------------------------------------------------------------
$ $/boe $ $/boe
------------------------------------------------------------------------
Petroleum and
natural gas revenue 8,835,494 57.98 22,973,539 49.35
------------------------------------------------------------------------
Royalties, net of ARTC (2,143,955) (14.07) (5,507,264) (11.83)
------------------------------------------------------------------------
Interest (104,196) (0.68) (181,894) (0.39)
------------------------------------------------------------------------
Operating costs
and transportation (1,495,953) (9.82) (4,322,399) (9.28)
------------------------------------------------------------------------
General and
administrative (189,358) (1.24) (735,935) (1.58)
------------------------------------------------------------------------
Current taxes (114,645) (0.75) (260,069) (0.56)
------------------------------------------------------------------------
Cash flow from
Operations 4,787,387 31.42 11,965,978 25.71
------------------------------------------------------------------------
------------------------------------------------------------------------


In the first nine months of 2005, the Company generated cash flow from operating activities of $11,965,978 ($0.78 per diluted share). In the third quarter of 2005, Hawk generated cash flow from operating activities of $4,787,387 ($0.31 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 both production growth and an increase in the commodity prices.



------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow from
operating activities 4,787,387 2,062,756 11,965,978 4,769,692
------------------------------------------------------------------------
Less: Stock based
compensation 120,315 173,605 360,944 430,992
------------------------------------------------------------------------
Depletion,
amortization &
Accretion expense 1,516,887 876,742 3,962,748 2,000,522
------------------------------------------------------------------------
Future income taxes 1,034,465 380,052 2,693,633 847,259
------------------------------------------------------------------------
Net income 2,115,720 632,357 4,948,653 1,490,919
------------------------------------------------------------------------
------------------------------------------------------------------------


Capital Expenditures ($)

------------------------------------------------------------------------
Three months ended Nine months ended
September 30, 2005 September 30, 2005
------------------------------------------------------------------------
Land and lease retention 1,300,580 2,097,395
Seismic 344,027 1,504,037
Drilling and completions 5,137,998 11,020,630
Geological and geophysical
salaries capitalized 110,015 339,161
Facilities 1,750,889 3,963,951
Corporate assets(1) 0 4,129
Total 8,643,509 18,929,303
------------------------------------------------------------------------
------------------------------------------------------------------------
(1)Corporate assets include office improvements, equipment, computer
hardware and software.


The Company incurred gross capital expenditures of $18,929,303 in the first nine months of 2005 drilling a total of 29 (25.5 net) wells. During this period the Company also tied in seven gas wells and equipped eight new oil wells. Hawk plans to drill an additional 14 high working interest wells during the balance of 2005.

The Company incurred capital expenditures of $8,643,509 in the third quarter of 2005, drilling a total of 17 (15.25 net) wells.

Liquidity and Capital Resources

On August 9, 2005, the Company entered into a revolving demand credit facility agreement with a Canadian chartered bank for $16,000,000 at an interest rate of prime plus one-quarter percent per year. On September 30, 2005, the Company had $7,750,000 drawn from this credit facility as well as a working capital deficit of $3,461,510 to yield a total capital deficit of $11,211,510. The working capital deficit is higher than in previous quarters because of the high level of drilling activity that took place during the third quarter.

2005 Capital Budget

Previously, the Company had set a capital budget for 2005 of $20 million. The vast majority ($18.9 million) of this budget has been spent during the first three quarters of 2005 resulting in the drilling of 29 (25.5 net) wells. Due to the success experienced with the drilling program to date, Hawk's Board of Directors has approved an increase in the 2005 capital budget to $27 million. The increased budget will facilitate the drilling of an additional 14 (13.5 net) wells in the fourth quarter of 2005.

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 had 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 $23,140
2006 $93,058
2007 $70,912


Dividend Policy

Hawk pays no dividends 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. Hawk has prudently invested $51.9 million to date creating a company which is currently producing 1,800 boe/d with approximately 750 boe/d behind pipe awaiting tie-in. The Company has also positioned itself with land and seismic to continue the momentum created thus far.

Previously, Hawk had set a capital budget for 2005 of $20 million. The vast majority ($18.9 million) of this budget has been spent during the first three quarters of 2005 resulting in the drilling of 29 (25.5 net) wells. Due to the success experienced with the drilling program to date, Hawk's Board of Directors has approved an increase in the 2005 capital budget to $27 million. The increased budget will facilitate the drilling of an additional 14 (13.5 net) wells in the fourth quarter of 2005. Thus far in the fourth quarter of 2005, Hawk has drilled 7 wells and has been successful in all seven wells. The Company currently has three drilling rigs under contract and expects to have all fourteen wells drilled by the end of November. The fourth quarter drilling will take place in Birch (3 wells), Retlaw (3 wells), Lashburn (4 wells), Chinook (1 well) and southeast Saskatchewan (3 wells).

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 717, 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
TSX Venture Exchange
Randy Deobald, P. Geol. Trading Symbol: HK.A & HK.B
Vice President, Exploration
ENGINEERING CONSULTANTS
Dave Bonnar, P. Geol.
Vice President, Corporate Development GLJ Petroleum Consultants
Calgary, Alberta
M.H.(Mike) Shaikh, C.A.
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 September 30, 2005
(Unaudited)

THIRD QUARTER - 2005


Balance Sheet
(Unaudited)

ASSETS

September 30, December 31,
2005 2004
-------------- --------------

Current
Cash $ - $ 491,606
Accounts receivable 4,686,181 3,904,957
Prepaid expenses 161,497 81,669
-------------- --------------
4,847,678 4,478,232

Property, plant and equipment,
net (Note 2) 46,794,682 31,093,025
-------------- --------------

$ 51,642,360 $ 35,571,257

LIABILITIES AND SHAREHOLDERS' EQUITY

Current
Cheques issued in excess of cash balance $ 216,604 $ -
Bank loan (Note 3) 7,750,000 -
Accounts payable and accrued liabilities 7,994,335 8,529,032
Income taxes payable 98,249 197,384
-------------- --------------
16,059,188 8,726,416

Future income taxes 7,093,663 4,400,030
Asset retirement obligations (Note 4) 2,446,732 1,711,631
-------------- --------------
25,599,583 14,838,077
-------------- --------------
-------------- --------------
Shareholders' equity
Share capital 17,521,514 17,521,514
Contributed surplus 1,043,306 682,362
Retained earnings 7,477,957 2,529,304
-------------- --------------
26,042,777 20,733,180
-------------- --------------

$ 51,642,360 $ 35,571,257
-------------- --------------
-------------- --------------

Approved on behalf of the Board:

____________ Director

____________ Director

See Accompanying Notes


HAWK ENERGY CORP.

Statement of Operations and Retained Earnings (Deficit)
For The Periods Ended September 30
(Unaudited)

Three Months Nine Months
------------------------- -------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue
Petroleum and
natural gas sales $ 8,835,494 $ 4,169,515 $22,973,539 $10,100,972
Royalties (2,143,955) (943,178) (5,507,264) (2,419,696)
------------ ------------ ------------ ------------
6,691,539 3,226,337 17,466,275 7,681,276

Expenses
Operating 1,319,064 849,056 3,860,442 2,020,844
Transportation 176,889 80,165 461,957 171,573
General and
administrative 189,358 180,464 735,935 550,451
Interest 104,196 (2,292) 181,894 (5,145)
Stock based
compensation
(Note 5) 120,315 173,605 360,944 430,992
Depletion,
amortization
and accretion 1,516,887 876,742 3,962,748 2,000,522
------------ ------------ ------------ ------------
3,426,709 2,157,740 9,563,920 5,169,237
------------ ------------ ------------ ------------

Income before income
taxes 3,264,830 1,068,597 7,902,355 2,512,039

Provision for income
taxes
Current 114,645 56,188 260,069 173,861
Future 1,034,465 380,052 2,693,633 847,259
------------ ------------ ------------ ------------
1,149,110 436,240 2,953,702 1,021,120
------------ ------------ ------------ ------------

Net income 2,115,720 632,357 4,948,653 1,490,919

Retained earnings
(Deficit), beginning
of period 5,362,237 879,532 2,529,304 (12,753)
Adjustment for change
in accounting policy - - - 33,723
------------ ------------ ------------ ------------
5,362,237 879,532 2,529,304 20,970
------------ ------------ ------------ ------------

Retained earnings,
end of period $ 7,477,957 $ 1,511,889 $ 7,477,957 $ 1,511,889
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Income per share,
basic (Note 6) $ 0.15 $ 0.04 $ 0.34 $ 0.10
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income per share,
diluted (Note 6) $ 0.14 $ 0.04 $ 0.32 $ 0.10
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

See Accompanying Notes


HAWK ENERGY CORP.

Statement of Cash Flows
For The Periods Ended September 30
(Unaudited)

Three Months Nine Months
------------------------- -------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Cash provided by
operating
activities
Net income $ 2,115,720 $ 632,357 $ 4,948,653 $ 1,490,919
Add items not
affecting cash
Stock based
compensation 120,315 173,605 360,944 430,992
Depletion,
amortization and
accretion 1,516,887 876,742 3,962,748 2,000,522
Future income
taxes 1,034,465 380,052 2,693,633 847,259
------------ ------------ ------------ ------------
Cash flow from
operating
activities before
changes in
non-cash working
capital 4,787,387 2,062,756 11,965,978 4,769,692
------------ ------------ ------------ ------------

Changes in non-cash
working capital:
Accounts receivable (1,056,112) (349,555) (994,682) (111,614)
Prepaid expenses (39,302) (6,561) (79,828) 591
Accounts payable and
accrued liabilities 496,420 130,879 287,021 551,367
Income taxes payable 37,968 43,699 (99,135) 109,751
------------ ------------ ------------ ------------
(561,026) (181,538) (886,624) 550,095
------------ ------------ ------------ ------------
4,226,361 1,881,218 11,079,354 5,319,787
------------ ------------ ------------ ------------
Cash provided by
financing activities
Issuance of share
capital - - - 4,999,999
Share issue cost - (28,505) - (389,921)
Advance (repayment)
of bank loan 3,700,000 - 7,750,000 (50,000)
------------ ------------ ------------ ------------
3,700,000 (28,505) 7,750,000 4,560,078
------------ ------------ ------------ ------------
Cash used by
investing activities
Additions of
property, plant and
equipment (8,643,509) (4,268,882) (18,929,303) (12,879,364)
Proceeds on
disposition of
property, plant
and equipment - 1,255,581 - 1,255,581
Changes in non-cash
working capital
for investing
activities 1,938,470 (710,986) (608,261) (1,810,535)
------------ ------------ ------------ ------------
(6,705,039) (3,724,287) (19,537,564) (13,434,318)
------------ ------------ ------------ ------------

(Decrease) increase
in cash (cheques
issued in excess of
cash balance) 1,221,322 (1,871,574) (708,210) (3,554,453)
Cash (Cheques issued
in excess of cash
balance), beginning
of period (1,437,926) 2,987,652 491,606 4,670,531
------------ ------------ ------------ ------------
Cash (Cheques issued
in excess of cash
balance), end of
period $ (216,604) $ 1,116,078 $ (216,604) $ 1,116,078
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Supplementary information
Interest paid $ 105,102 $ 21,680 $ 181,894 $ 34,825
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income taxes paid $ 76,677 $ 12,489 $ 359,204 $ 64,110
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

See Accompanying Notes


HAWK ENERGY CORP.

Notes to Financial Statements
September 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

The Company has capitalized $339,162 (2004 - $244,794) general and administrative costs during the nine months period ended September 30, 2005.

Unproved property costs of $5,115,733 (2004 - $2,943,323) and estimated salvage value of $1,581,050 (2004 - $798,987) have been deducted from costs subject to depletion and amortization for the three months period ended September 30, 2005.

3. Bank loan

On August 5, 2005, the Company entered into a revolving demand credit facility agreement with a bank for $16,000,000 at an interest rate of prime plus one quarter percent per year. 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 September 30, 2005, $7,750,000 was drawn on the credit facility.



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 636,072
Accretion expense 99,029
-------------
Asset retirement obligation, September 30, 2005 $ 2,446,732
-------------
-------------


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 total approximately $5,531,502. The present value at September 30, 2005 is $2,446,732 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 based compensation

For the
Nine Month Period For the Year Ended
Ended September 30, 2005 December 31, 2004
--------------------------- ----------------------
Weighted Weighted
Average 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 677,500 $ 0.97 251,667 $ 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 the per share data calculation, it is assumed that the Class B shares are converted into Class A shares using the September 30, 2005 trading price of $5.90 (September 30, 2004 - $3.35). 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 Nine Month Period Ended
September 30, September 30,
2005 2004
---------------- ---------------

Weighted average number of Class
A shares 12,985,714 11,814,861

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/$5.95 (2004 - $832,500 x $10/$3.35) 1,411,017 2,485,075
---------------- ---------------

Equivalent Class A basic shares 14,396,731 14,299,936
---------------- ---------------
---------------- ---------------

Equivalent Class A diluted shares 15,320,037 15,000,409
---------------- ---------------
---------------- ---------------


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

Weighted average number of Class
A shares 12,985,714 12,985,714

Deemed conversion of Class B to
Class A shares 1,411,017 2,485,075
---------------- ---------------

Equivalent Class A basic shares 14,396,731 15,470,789
---------------- ---------------
---------------- ---------------

Equivalent Class A diluted shares 15,363,685 16,211,744
---------------- ---------------
---------------- ---------------



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