NuLoch Resources Inc.
TSX VENTURE : NLR.A
TSX VENTURE : NLR.B

NuLoch Resources Inc.

August 23, 2007 21:29 ET

NuLoch Resources Announces Second Quarter Results and Management Transition

CALGARY, ALBERTA--(Marketwire - Aug. 23, 2007) - James McIndoe, President and Chief Executive Officer of NuLoch Resources Inc. (TSX VENTURE:NLR.A)(TSX VENTURE:NLR.B), today announced his decision, approved by NuLoch's board of directors, to transition out of his day-to-day management roles at NuLoch. Jim, a professional landman with 35 years experience, will remain a director of NuLoch and will continue to make a valuable contribution to the company's strategic direction and corporate governance. Mr. McIndoe will be succeeded by a senior member of NuLoch's management team.

Effective immediately, Glenn Dawson, currently Executive Vice-President, is promoted to President. Mr. Dawson is a geologist with 25 years of industry experience in various technical and management positions. Mr. McIndoe will continue as Chief Executive Officer until October 1, 2007, at which time Mr. Dawson will succeed him in that role.

Mr. Dawson, along with Jim McIndoe and Allan Spurgeon, was co-founder of TriLoch Resources Inc. in 2001 (the predecessor company to NuLoch Resources Inc.). Continuing to report to Mr. Dawson are Terry Schneider, Vice-President, Operations and Craig Jackson, Chief Geologist.

Brian Murray has been promoted to the position of Executive Vice-President of the Company and will continue as the Chief Financial Officer. Mr. Murray is a chartered accountant with over 24 years of industry experience and has worked as an executive with Mssrs. Dawson, McIndoe and Spurgeon at TriLoch Resources Inc. and PanAtlas Energy Inc.

Further, the Board of Directors is pleased to announce that Rod Findlater has joined the Company in the position of Vice-President, Land. Mr. Findlater brings over 30 years of experience in the oil and gas industry. His most recent executive position was Vice-President of Land & Acquisitions with Atlas Energy Ltd. from 1999 to 2006. Mr. Findlater will report directly to Mr. Dawson.

NuLoch's board of directors remains unchanged. Allan Spurgeon continues as chairman. The other directors are Mssrs. McIndoe and Dawson, Bruce Lawrence and Jack Perraton.

OPERATIONS REVIEW

NuLoch was incorporated on May 13, 2005 and commenced operations on July 1, 2005. Production averaged 249 boe/d in the second quarter of 2007. Wells recently placed on stream have boosted production to over 400 boe/d.



HIGHLIGHTS
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------
Three months Six months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
OPERATING
----------------------------------------------------------------------------
Production - daily average
Oil and NGL (bbls/d) 39 1 31 1
Natural gas (mcf/d) 1,261 1,766 1,435 1,740
Combined (boe/d)(1) 249 295 269 291
Average sales prices
Oil and NGL ($/bbl) 69.26 51.94 67.09 54.81
Natural gas ($/mcf) 6.94 5.76 7.13 6.43
Combined ($/boe) 45.98 34.64 45.51 38.63

FINANCIAL
($ thousands except per share amounts)
----------------------------------------------------------------------------
Gross petroleum and natural
gas revenue 1,043 931 2,220 2,032

Funds flow from operations(2) 333 142 753 569
Per share - basic 0.02 0.01 0.03 0.04
Per share - diluted 0.02 0.01 0.03 0.04

Net loss (54) (39) (156) (46)
Per share - basic - - (0.01) -
Per share - diluted - - (0.01) -
Working capital (deficiency) (4,313) 148 (4,313) 148
Line of credit 5,500 4,000 5,500 4,000

Capital expenditures 1,467 3,784 2,795 6,263

COMMON SHARES
(thousands)
----------------------------------------------------------------------------
Class A, end of period 15,197 13,466 15,197 13,466
Class B, end of period 653 653 653 653
Options, end of period 823 823 823 823
Basic, weighted average combined 21,722 14,672 21,722 13,766
----------------------------------------------------------------------------

(1) Six mcf of natural gas is considered equivalent to 1 barrel of oil.
(2) Cash flow from operations before changes in non-cash operating working
capital.


NuLoch's second quarter accomplishments included completion of two (1.4 net) Glauconitic natural gas wells drilled in Q1 and workovers to complete additional intervals in 7 (7.0 net) wells in the Enchant Second White Specks (SWS) shallow gas property.

The two Glauconitic wells commenced operation in July and have produced at a combined gross rate of 1,250 mcf/d (600 mcf/d net) in August.

At Balsam, the oil well drilled in 2006 has been a solid performer and, in July, its 33 degree API oil production rate averaged 180 b/d (57 b/d net) with virtually no associated water. A downspacing application was recently approved by the Alberta Energy and Utilities Board permitting two oil wells per quarter-section at Balsam. NuLoch has plans for a well in Q3 and, if successful, may result in a follow-up location this year.

The Company now anticipates a $7 million to $8 million capital program in 2007 of which $2.8 million was invested in the first six months of the year. Plans for drilling in the fall of 2007 are still being firmed-up but the Company expects to be busy. Permitting is underway for acquisition of 3D seismic this fall and the Company is planning to drill 4 to 5 net wells prior to year-end. Priority is being given to the exploration for oil but natural gas reservoirs will also be targeted.

While the budgeted 2007 average production rate of 400 boe/d now appears approximately 70 boe/d too high, an exit rate of 450 boe/d is still within reach. Strong oil prices will help the Company towards its funds flow target for 2007 but uncertainty in the natural gas market persists. Given that more than three-quarters of the Company's daily production is natural gas, price developments will be closely monitored and cash flow for 2007 is now estimated at $1.8 million.

Today's lower natural gas prices are driven by reduced summer demand and high inventory levels. However, industry drilling for natural gas over the past year has been curtailed and deliverability may be less than needed to meet future demand. With its relatively large reserve base and long reserve life index, NuLoch is well positioned to capitalize on future strengthening in the natural gas market.

EXTRACTS OF MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis (MD&A) was prepared as of August 23, 2007 and should be read in conjunction with the interim financial statements of NuLoch Resources Inc. for the three- and six-months ended June 30, 2007 and 2006 and the audited financial statements for the year ended December 31, 2006.

NuLoch Resources Inc. (NuLoch or the Company) was incorporated under the laws of the Province of Alberta on May 13, 2005.

The unaudited interim financial statements as at June 30, 2007 and 2006 and for the three- and six-month periods then ended and extracts thereof provided within this MD&A were prepared in Canadian dollars using Canadian generally accepted accounting principles (GAAP). Certain other information with respect to the Company is available on SEDAR at www.sedar.com.

Tabular amounts are in thousands of dollars unless otherwise indicated.



Overview

Production History - Daily Average
----------------------------------------------------------------------------
2007 Q2 2007 Q1 2006 Q4 2006 Q3 2006 Q2
------- ------- ------- ------- -------
Oil and NGL (bbls/d) 39 22 9 11 1
Natural gas (mcf/d) 1,261 1,612 1,622 1,590 1,766
Combined oil equivalent (boe/d) 249 290 279 276 295


During the fourth quarter of 2005, the Company drilled 42 shallow gas wells at Enchant, Alberta and nine of them produced during December of that year. Completion operations and tie-ins continued through the first quarter of 2006 and all 38 wells capable of production were on-stream at March 31, 2006. These wells accounted for virtually all of the Company's production during the first half of 2006. During the second half of 2006, four (2.4 net) natural gas wells at Enchant and one (0.3 net) oil well at Balsam were placed on-stream. A second producing oil well (0.5 net) at Balsam was determined to have a limited reservoir and has since been abandoned. In the first quarter of 2007, one (0.6 net) gas well commenced production at Enchant and the Balsam well (0.3 net) achieved full GPP rates. The 38 shallow natural gas wells contributed 64 percent of the production on an oil-equivalent basis in the second quarter of 2007.

Revenue

The Company's production averaged 249 boe/d in the second quarter of 2007 compared to 290 boe/d in the first quarter and 295 boe/d one year ago. Virtually all of this production was natural gas and associated liquids although one (0.3 net) oil well at Balsam, Alberta commenced full production in Q1 2007 and contributed 37 barrels of oil per day to the Q2 average. The 41 boe/d decline in Q2 compared to Q1 is due, primarily, to a single natural gas well that was shut-in through spring break-up. It was returned to production in June and averaged 28 boe/d that month.



Production, Prices and Revenue
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------------
Three months Six months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Production - daily average
Oil and NGL (bbls/d) 39 1 - 31 1 -
Natural gas (mcf/d) 1,261 1,766 (29) 1,435 1,740 (18)
Combined (boe/d) 249 295 (16) 269 291 (8)
Average sales prices
Oil and NGL ($/bbl) 69.26 51.94 33 67.09 54.81 22
Natural gas ($/mcf) 6.94 5.76 20 7.13 6.43 11
Combined ($/boe) 45.98 34.64 33 45.51 38.63 22

Gross petroleum and natural
gas revenue 1,043 931 12 2,220 2,032 9


One year ago, virtually all the Company's production totalling 295 boe/d came from the 38 wells that comprise the Enchant, Alberta shallow gas property. The average rate for those wells was 159 boe/d in the second quarter of 2007 while the remaining 90 boe/d was attributable to five (3.0 net) natural gas wells at Enchant and 1 (0.3) net oil well at Balsam, Alberta. Two (1.4 net) wells that were drilled in the first quarter commenced production in July 2007. These natural gas wells are expected to contribute approximately 100 boe/d to the Company's average production during August.

Year-to-date average natural gas production rates were down 18 percent compared to the first six months of 2006 but an 11 percent increase in average price mitigated the impact on revenue. Overall, petroleum and natural gas revenue increased 9 percent with a significant portion attributable to the addition of oil production from Balsam.

For 2007, the Company budgeted natural gas at AECO to average C$7.40 per mcf and oil to average US$65.00 per barrel WTI. In the first six months of 2007 the AECO price has averaged approximately C$7.32 while oil has managed US$61.61. The Company anticipates continuing strength in the market for oil through 2007 and recent prices have made headlines as record highs over US$70.00 have been posted for September 2007 deliveries. Natural gas is expected to be the primary focus of the Company's development program. Natural gas pricing was under pressure throughout 2006 as the market considered the historically high levels of product in storage, and declined sharply from its historical record highs in the fourth quarter of 2005. Prices began to improve with the new "gas year" commencing on November 1, 2006. A cold winter in North America and high draws from storage in February 2007 provided further support to the market. More recently, summer prices have ebbed with trading at AECO fluctuating around $5.50 per mcf and current prices available in the market for fourth quarter deliveries suggests that the average for the second half of 2007 may settle between $5.50 and $6.00 per mcf at AECO.

Royalties

NuLoch's Second White Specks (SWS) shallow natural gas program at Enchant is a farm-in project on Crown mineral leases that provides for the payment of overriding royalties to the farmors based on 15 percent of gross revenue and subject to deductions for processing the natural gas into marketable form. Most of the Company's other producing properties are subject to normal Crown royalties and small overrides. At Balsam, the oil well has a crown royalty holiday until September, 2007.



Royalties
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------------
Three months Six months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Petroleum and natural gas revenue 1,043 931 12 2,220 2,032 9

Crown royalties 28 112 (75) 130 255 (49)
Freehold royalties 2 4 (74) 3 10 (76)
Overriding royalties 88 116 (24) 236 252 (7)
------- ------- ----- ------- ------- -----
118 232 (49) 369 517 (29)
ARTC - (28) - - (64) -
------- ------- ----- ------- ------- -----
Royalties, net of ARTC 118 204 (42) 369 453 (19)
------- ------- ----- ------- ------- -----
------- ------- ----- ------- ------- -----

Royalties as Percentage of Revenue
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------
Three months Six months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
% % % %
------- ------- ------- -------
Petroleum and natural gas revenue 100.0 100.0 100.0 100.0

Crown royalties 2.7 12.1 5.9 12.5
Freehold royalties 0.1 0.5 0.1 0.5
Overriding royalties 8.5 12.4 10.6 12.4
------- ------- ------- -------
11.3 25.0 16.6 25.4
ARTC - (3.0) - (3.1)
------- ------- ------- -------
Royalties, net of ARTC 11.3 22.0 16.6 22.3
------- ------- ------- -------
------- ------- ------- -------


The average combined royalty rate for the Company was 16.6 percent in the six months ended June 30, 2007 compared to 22.3 percent for the same period in 2006. Contributing factors to the lower effective rates in 2007 include the addition of oil production at Balsam that is subject to royalty holiday and the application of higher deductions against natural gas royalties otherwise payable. ARTC totalled $64,000 in the first half of 2006, being 25 percent of eligible Crown royalties payable. The government of Alberta announced its plans to terminate the ARTC program effective January 1, 2007. The effective royalty rate excluding ARTC averaged 19.9 percent during 2006 and is expected to average approximately 20 percent in 2007.

Operating Expense

Operating expense can vary significantly depending on such factors as production rates, reservoir quality, water content and available infrastructure. In 2006 operating expenses including transportation averaged $9.18 per boe. The Company's target is to maintain average operating expenses below $10.00 per boe. As production has declined at the Enchant shallow gas field, fixed costs per boe have increased.



Operating Expense
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------------
Three months Six months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Operating expense 271 243 11 547 436 26
Operating expense ($/boe) 11.95 9.05 32 11.23 8.29 35


Interest Expense

Interest expense totalled $183,000 in the six months ended June 30, 2007
compared to $97,000 in the same period last year.

Interest Expense
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------------
Three months Six months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Bank interest 44 13 241 76 23 233
Part XII.6 tax 61 43 44 107 74 45
------- ------- ----- ------- ------- -----
105 56 90 183 97 89
------- ------- ----- ------- ------- -----
------- ------- ----- ------- ------- -----


Interest expense is comprised of amounts payable to the Company's primary lender and amounts payable pursuant to Federal Part XII.6 tax with respect to flow-through share renouncements made in advance of eligible expenditures incurred.

At times during 2006 the Company drew upon its credit facility with a Canadian chartered bank and incurred interest totalling $75,000 for the year. The balance outstanding under the credit facility at June 30, 2007 was $3,894,000 with interest payable at the bank's prime rate, currently 6.25 percent, plus 0.5 percent per annum.

In 2007 the Company is incurring Federal Part XII.6 tax, currently calculated at 7 percent per annum, with respect to $4.9 million of renouncements pursuant to flow-through common shares issued in 2006. A similar commitment amount in respect of 2005 flow-through shares was outstanding at the beginning of 2006 but interest was less due to a lower prescribed rate of interest and a higher degree of capital investment in the first half of 2006.

General and Administrative (G&A) Expense

The Company has six employees at its leased head office in Calgary and uses external consultants on an as-needed basis to assist with the regular operation of the business. Office lease obligations are approximately $125,000 per annum with expiry in November 2008.



G&A
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------------
Three months Six months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Gross overhead costs 381 520 (27) 685 873 (21)
Overhead recoveries (7) - - (12) (2) 552
Stock-based compensation 13 13 - 26 26 -
Amounts capitalized (158) (233) (32) (305) (381) (20)
------- ------- ----- ------- ------- -----
229 300 (24) 394 516 (24)
------- ------- ----- ------- ------- -----
------- ------- ----- ------- ------- -----

G&A ($/boe)
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------
Three months Six months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
Gross overhead costs 16.84 19.35 14.06 16.60
Overhead recoveries (0.33) (0.01) (0.25) (0.04)
Stock-based compensation 0.57 0.48 0.53 0.49
Amounts capitalized (6.96) (8.66) (6.25) (7.24)
------- ------- ------- -------
10.12 11.16 8.09 9.81
------- ------- ------- -------
------- ------- ------- -------


The average net rate for G&A in 2006 was $8.26 per boe produced. The production rate in the three months ended June 30, 2007 was lower than the average for year ended December 31, 2006 and, consequently, the quarterly rate is higher at $10.12. The Company may see significant increases in gross G&A in 2007 as the scope of operations expands, but achieve a decrease in G&A costs per unit of production as production continues to increase as planned.



Depletion and Depreciation
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------------------
Three months Six months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Depletion and depreciation 459 448 2 997 865 15

Depletion and depreciation
($/boe) 20.24 16.67 21 20.44 16.44 24


The rate of depletion and depreciation in the second quarter of 2007 was $20.24 per boe produced. This rate is consistent with finding, development and acquisition costs of $19.83 per proved boe reported from the Company's inception to December 31, 2006. FD&A costs per proved boe added in 2006 were higher and resulted in higher rates of depletion per boe produced in 2007 compared to the first half of 2006.

Income Taxes

The Company does not expect to incur any current income or capital taxes in 2007.

Funds Flow and Net Loss

Funds flow from operations was $333,000 and $753,000 in the three and six months ended June 30, 2007 respectively. This compares to $142,000 and $569,000 in the corresponding periods of 2006. Higher revenues combined with lower royalty and G&A expenses were factors in the increased funds flow. However, the net loss in the first half of 2007 was greater at $156,000 compared to $46,000 in 2006 due mostly to higher levels of depletion and depreciation. Profitable operations may be achieved in the short term through increased commodity prices and, over the longer term, through lower finding, development and acquisition costs per proved boe added.

Capital Expenditures

A total of $2,795,000 was invested in property and equipment in the first six months of 2007 compared to $6,263,000 in the corresponding period one year ago.



Capital Expenditures
----------------------------------------------------------------------------
Periods ended June 30,
-------------------------------
Three months Six months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
Land 212 671 234 671
Drilling and completions 894 2,532 1,777 3,878
Equipment 165 208 440 1,021
Geoscience 37 129 37 297
Capitalized G&A 158 233 305 381
Administrative assets 1 11 2 15
------- ------- ------- -------
1,467 3,784 2,795 6,263
------- ------- ------- -------
------- ------- ------- -------


The capital expenditures in the second quarter of 2007 included the completion of two (1.4 net) Q1 natural gas wells and commencement of their tie-in and equipping operations, the drilling and completion of a suspended natural gas well and recompletion operations on seven SWS producers. Two productive intervals are present in the SWS formation at Enchant. Of the 38 SWS producing wells, 22 were originally completed in both of these intervals, eight were completed only in the lower interval and the remaining eight only in the upper interval. The seven recompletions late in Q2 targeted lower intervals in six wells and the upper interval in one. These wells were returned to production in early July.



Wells Drilled
Six months ended June 30, 2007
----------------------------------------------------------------------------
Natural Success
Oil gas Suspended Dry Total ratio
------- ------- ------- ------- ------- -------

Gross - 2 1 1 4
Net - 1.4 0.8 0.6 2.8 50%


The Company has increased its interest to 100 percent in one of the natural gas wells that had been previously reported with 60 percent working interest.

Liquidity and Capital Resources

The amount of credit available under the Company's demand revolving operating facility with a Canadian chartered bank is $5,500,000. The borrowing base is re-evaluated by the bank at least semi-annually based on forecasts of the Company's reserves, production and cash flows. The most recent such review was completed in May 2007.

In 2006, the Company issued flow-through Class A shares for gross proceeds of $7,252,000. Early in 2007, the Company renounced these amounts of tax deductions in the form of Canadian Exploration Expense to shareholders effective December 31, 2006 and has a commitment to incur these qualifying resource expenditures prior to December 31, 2007. As at June 30, 2007, the Company has a remaining commitment to incur expenditures of approximately $2,900,000.

The Company's capital program has been established at $7,000,000 to $10,000,000 for 2007 with current expectations that such investments will not exceed $8,000,000. Cash provided by operating activities is budgeted to provide a significant portion of the funding for the on-going capital program. For 2007, the Company budgeted natural gas at AECO to average C$7.40 per mcf and oil to average US$65.00 per barrel WTI. In the first six months of 2007 the AECO price has averaged approximately C$7.32 while oil has managed US$61.61. However, natural gas pricing has weakened in the third quarter and current prices available in the market for fourth quarter deliveries suggests that the average for the second half of 2007 may settle between $5.50 and $6.00 per mcf at AECO.

The Company's target exit production rate for 2007 is now set at 450 boe/d, with an average of 330 boe/d for the year (actual was 269 boe/d for the six months ended June 30, 2007), and, after reflecting the trends in natural gas pricing, has potential to yield funds flow from operations of approximately $1.8 million for 2007.

The Company will proceed with its capital program as financial resources allow. A shortfall in available funds may be satisfied with bank borrowings or further equity issues if appropriate. If these or other sources of funding are insufficient, or cannot be obtained with acceptable terms, then prudent reductions in the capital program may be warranted.

Off-Balance-Sheet Arrangements

The Company has not entered into any off-balance-sheet arrangements.

Outstanding Share Data

The Class A and Class B common shares of the Company trade on the TSX Venture Exchange under the symbol NLR.A and NLR.B, respectively. As of the date of this MD&A there are 15,196,995 Class A common shares and 652,500 Class B common shares outstanding. There are 822,500 options to purchase Class A common shares outstanding.

Selected Quarterly Information

The Company commenced operations on July 1, 2005.



Quarterly Financial Information
($ thousands, except per share information)
----------------------------------------------------------------------------
2007 Q2 2007 Q1 2006 Q4 2006 Q3
------- ------- ------- -------
Petroleum and natural gas revenue 1,043 1,177 1,048 875
Funds flow from operations 333 420 500 288
Per share - basic 0.02 0.02 0.03 0.02
- diluted 0.02 0.02 0.03 0.02
Net earnings (loss) (54) (102) (23) (156)
Per share - basic - - - (0.01)
- diluted - - - (0.01)
Total assets, end of period 22,563 21,438 20,925 20,885
Working capital (deficiency), end of period (4,313) (3,179) (2,271) (4,345)

2006 Q2 2006 Q1 2005 Q4 2005 Q3
------- ------- ------- -------
Petroleum and natural gas revenue 931 1,101 320 66
Funds flow from operations 142 427 100 (133)
Per share - basic 0.01 0.03 0.01 (0.01)
- diluted 0.01 0.03 0.01 (0.01)
Net earnings (loss) (39) (7) 421 (1,318)
Per share - basic - - 0.04 (0.12)
- diluted - - 0.03 (0.12)
Total assets, end of period 18,260 13,195 14,233 6,712
Working capital (deficiency), end of period 148 (825) (3,407) 5,975


2005 Activity

The Company obtained all of its third quarter 2005 production revenue from a single well at Shouldice, Alberta acquired through a plan of arrangement involving Enerplus Resources Fund, TriLoch Resources Inc. and NuLoch. Production from a second well, drilled in the third quarter, was on-stream in the fourth quarter but both of these producers were deemed to have limited reservoir size and additional depletion and depreciation was taken in the third quarter to reduce their carrying value, resulting in a large net loss for the quarter. The future tax effect of the third quarter loss was recognized in the fourth quarter of 2005. During the fourth quarter, the Company drilled 42 shallow natural gas wells at Enchant, Alberta and nine of them produced during December, enhancing fourth quarter average production rates. Capital expenditures totalled $11,089,000 in 2005. The average sales price for natural gas was relatively high in the last half of 2005 and the Company realized an average of $11.42 per mcf.

2006 Activity

Completion operations and tie-ins continued on the Enchant shallow natural gas project through the first quarter of 2006 and all 38 wells capable of production were on-stream at March 31, 2006. These wells accounted for virtually all of the Company's production during the first nine months of 2006. During the second half of 2006, four (2.4 net) natural gas wells at Enchant and two (0.8 net) oil wells at Balsam were placed on-stream that provided 21 percent of the Company's sales volumes in the fourth quarter. Capital expenditures totalled $11,511,000 in 2006. Realized natural gas prices declined in 2006 to $6.29 per mcf compared to $11.42 obtained in the last half of 2005.



Statistical Review

Extracts from Statement of Operations - per BOE
----------------------------------------------------------------------------
$/boe
---------------------------------------
Periods ended
---------------------------------------
June 30, Dec. 31
------------------------------- -------
Three Six Twelve
months months months
--------------- --------------- -------
2007 2006 2007 2006 2006
------- ------- ------- ------- -------
Revenue:
Gross petroleum and natural gas 45.98 34.64 45.51 38.63 38.14

Crown royalties (1.24) (4.18) (2.67) (4.84) (3.44)
ARTC - 1.05 - 1.21 0.85
Freehold royalties (0.05) (0.17) (0.05) (0.21) (0.19)
Overriding royalties (3.90) (4.30) (4.83) (4.79) (3.95)
------- ------- ------- ------- -------
(5.19) (7.60) (7.55) (8.63) (6.73)
Interest and other - 0.04 - 0.26 0.19
------- ------- ------- ------- -------
40.79 27.08 37.96 30.26 31.60
Expenses:
Operating 11.95 9.05 11.23 8.29 9.18
General and administrative 10.12 11.16 8.09 9.81 8.26
Interest 4.64 2.07 3.75 1.83 1.38
Depletion and depreciation 20.24 16.67 20.44 16.44 18.22
Asset retirement accretion 0.44 0.30 0.39 0.30 0.35
Future income tax reduction (4.19) (10.71) (2.73) (5.55) (3.62)
------- ------- ------- ------- -------
Net loss (2.41) (1.46) (3.21) (0.86) (2.17)
------- ------- ------- ------- -------
------- ------- ------- ------- -------

EXTRACTS OF INTERIM FINANCIAL STATEMENTS
Balance Sheets
(Thousands, unaudited)

As at June December
30, 31,
2007 2006
--------- ---------
Assets

Current assets:
Accounts receivable $ 684 $ 887
Prepaid expenses and other assets 138 143
--------- ---------
822 1,030

Property and equipment (note 3) 21,741 19,895
--------- ---------
$ 22,563 $ 20,925
--------- ---------
--------- ---------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 1,241 $ 980
Bank loan (note 4) 3,894 2,321
--------- ---------
5,135 3,301

Asset retirement obligations 519 452
Future income tax liability (note 7) 3,239 1,197

Shareholders' equity:
Share capital (note 6) 14,844 17,019
Contributed surplus (note 6(d)) 104 78
Deficit (1,278) (1,122)
--------- ---------
13,670 15,975

Commitment (note 8)
--------- ---------
$ 22,563 $ 20,925
--------- ---------
--------- ---------

Statements of Operations and Deficit
(Thousands except per share amounts, unaudited)

Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Revenue:
Petroleum and natural gas $ 1,043 $ 931 $ 2,220 $ 2,032
Royalties, net of
Alberta Royalty Tax Credit (118) (204) (369) (453)
Interest - 1 - 13
--------- --------- --------- ---------
925 728 1,851 1,592

Expenses:
Operating 271 243 547 436
General and
administrative (note 3) 229 300 394 516
Interest 105 56 183 97
Depletion and depreciation 459 448 997 865
Asset retirement accretion 10 8 19 16
--------- --------- --------- ---------
1,074 1,055 2,140 1,930

--------- --------- --------- ---------
Loss before income taxes (149) (327) (289) (338)

Future income
tax reduction (note 7) 95 288 133 292
--------- --------- --------- ---------
Net loss and
comprehensive income (54) (39) (156) (46)

Deficit, beginning of period (1,224) (904) (1,122) (897)
--------- --------- --------- ---------
Deficit, end of period $ (1,278) $ (943) $ (1,278) $ (943)
--------- --------- --------- ---------
--------- --------- --------- ---------

Net loss per share (note 6(e)):
Basic and diluted $ - $ - $ (0.01) $ -
--------- --------- --------- ---------
--------- --------- --------- ---------

Statements of Cash Flows
(Thousands, unaudited)
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Cash provided by (used in):

Operating:
Net loss $ (54) $ (39) $ (156) $ (46)
Items not involving cash:
Future income tax reduction (95) (288) (133) (292)
Depletion and depreciation 459 448 997 865
Asset retirement accretion 10 8 19 16
Stock-based compensation 13 13 26 26
--------- --------- --------- ---------
333 142 753 569
Change in non-cash
operating working capital (340) 181 (219) 42
--------- --------- --------- ---------
(7) 323 534 611

Financing:
Issue of share capital, net
of issue costs - 4,614 - 9,249
Increase in bank loan 1,597 - 1,573 -
Change in non-cash
financing working capital - 23 (33) 23
--------- --------- --------- ---------
1,597 4,637 1,540 9,272

Investing:
Property and equipment (1,467) (3,784) (2,795) (6,263)
Change in non-cash
investing working capital (123) 475 721 (4,214)
--------- --------- --------- ---------
(1,590) (3,309) (2,074) (10,477)

--------- --------- --------- ---------
Increase (decrease) in cash
and cash equivalents - 1,651 - (594)

Cash and cash equivalents,
beginning of period - 460 - 2,705
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ - $ 2,111 $ - $ 2,111
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplementary disclosure
Cash interest paid $ 39 $ 4 $ 140 $ 14


Notes to the Financial Statements
June 30, 2007 and 2006
(Tabular amounts in thousands unless otherwise noted, unaudited)

1. Basis of presentation

Except as described below, these interim financial statements have been prepared by management of NuLoch Resources Inc. (the Company) in accordance with Canadian generally accepted accounting principles using the same accounting policies as the financial statements for the year ended December 31, 2006. The disclosures contained herein are incremental to, and should be read in conjunction with, those annual financial statements.

As of January 1, 2007 the Company adopted accounting standards pursuant to new pronouncements from the Canadian Institute of Chartered Accountants (CICA) in respect of comprehensive income and financial instruments. The application of these new standards did not result in any adjustments to the recognition or measurement of the Company's financial instruments at January 1, 2007 or subsequently. The statement of comprehensive income has been combined with the statement of operations.

The CICA has issued pronouncements in respect of Financial Instruments Disclosure and Capital Disclosure that will become effective for fiscal periods commencing after October 1, 2007. These pronouncements are concerned primarily with disclosure and the Company is assessing what impact, if any, they will have on amounts reported in its financial statements when adopted effective January 1, 2008.

2. Nature of business

The Company is incorporated under the laws of the Province of Alberta. The Company's activities are related to exploration for and development of petroleum and natural gas. The Company was incorporated on May 13, 2005 and commercial operations commenced on July 1, 2005.

3. Property and equipment



June December
30, 31,
2007 2006
--------- ---------

Petroleum and natural gas properties $ 25,739 $ 22,898
Administrative assets 139 137
--------- ---------
25,878 23,035
Accumulated depletion and depreciation (4,137) (3,140)
--------- ---------
$ 21,741 $ 19,895
--------- ---------
--------- ---------


During the six months ended June 30, 2007, general and administrative costs of $305,000 (2006 - $381,000) directly related to the acquisition, exploration and development of petroleum and natural gas reserves were capitalized.

At June 30, 2007, costs associated with unproved petroleum and natural gas properties totalling $464,000 have been excluded from the calculation of depletion and depreciation.

Future development and asset retirement costs in the amount of $8,452,000 associated with proved reserves have been included in the calculation of depletion and depreciation.

4. Bank loan

The Company maintains a demand revolving operating credit facility with a Canadian chartered bank. The total amount of credit available under the facility is $5,500,000. Borrowings under the facility bear interest at the bank's prime rate plus 0.5 percent and are secured by a demand fixed and floating charge debenture conveying a first charge on all of the assets of the Company. The facility is subject to regular review by the bank.

5. Financial instruments

At June 30, 2007 and 2006 the carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and bank loans included on the balance sheet approximate their fair values due to their short terms to maturity and the floating interest rate on the loan.

6. Share capital

(a) Authorized

An unlimited number of Class A, Class B and Class C shares have been authorized.

Class B shares are exchangeable for Class A shares. The number of Class A shares obtained upon conversion of each Class B share will be equal to $10.00 divided by the greater of $1.00 and the 30-day weighted average price for Class A common shares prior to the effective date of conversion. The 30-day period includes consecutive trading days on which no less than a board lot traded and includes any such period that commenced not more than 45 such trading days prior to the effective date of conversion. Conversion may be effected by the Company in 2009 or 2010 or, if not converted before 2011, then at the option of the Class B shareholder in January 2011 or otherwise automatically on February 1, 2011.



(b) Issued and outstanding
Common
shares Amount
--------- ---------
Class A common shares
Balance, December 31, 2006 15,197 $ 13,089

Tax effect of flow-through renunciation (2,175)
--------- ---------
Balance, June 30, 2007 15,197 10,914
--------- ---------

Class B common shares
Balance, June 30, 2007 653 3,930
--------- ---------

Total share capital, June 30, 2007 $ 14,844
---------
---------


(c) Stock option plan

Pursuant to its stock option plan and as authorized by the board of directors, the Company has issued stock options to directors, officers and employees. The options vest at the rate of one-third annually over three years and expire after five years. Options are issued at exercise prices equal to or greater than the market price of the Company's Class A shares on the date of grant.



Six months ended June 30, 2007 2006
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
---------- -------- ---------- --------
Balance, beginning of period 823 $0.35 823 $0.35
Granted - - - -
---------- -------- ---------- --------
Balance, end of period 823 $0.35 823 $0.35
---------- -------- ---------- --------
---------- -------- ---------- --------
Exercisable, end of period 274 $0.35 - -
---------- -------- ---------- --------
---------- -------- ---------- --------

At June 30, 2007 the outstanding options have a remaining life of 3.0 years
(2006 - 4.0 years).

(d) Contributed surplus

Six months ended June 30, 2007 2006
--------- ---------

Balance, beginning of period $ 78 $ 26
Stock-based compensation cost 26 26
--------- ---------
Balance, end of period $ 104 $ 52
--------- ---------
--------- ---------


The Company estimated the weighted average fair value of options granted at $0.19 per option using the Black-Scholes pricing model with a risk-free interest rate of 4 percent per annum, an expected option life of five years and expected volatility of 60 percent.

(e) Per share amounts

Per share amounts have been calculated on the weighted average number of shares outstanding after giving effect to the potential conversion of Class B shares into Class A shares at 1:10.0 (2006 - 1:5.9) based on the average closing price of Class A shares of $0.69 in the 30 trading days prior to June 30, 2007 (2006 - $1.69). Options, when the exercise price is less than the average market price of the underlying security, are dilutive to net earnings per share and notionally increase the weighted average number of Class A common shares outstanding.



Weighted average numbers of shares outstanding
---------------------------------------------------------------------------
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
--------- --------- --------- ---------

Class A common shares 15,197 10,822 15,197 9,916
Class B common shares 653 653 653 653
Additional Class B
assumed converted 5,872 3,197 5,872 3,197
--------- --------- --------- ---------
Basic and diluted
shares outstanding 21,722 14,672 21,722 13,766
--------- --------- --------- ---------
--------- --------- --------- ---------

Excluded stock option dilution 330 589 357 591


Stock options are anti-dilutive to net loss per share and their effect is excluded from that calculation.

7. Income taxes

A reduction in the federal income tax rate by 0.5 percent effective January 1, 2011 was substantively enacted during the three months ended June 30, 2007. Accordingly, a reduction in the Company's future tax liability in the amount of $55,000 was recorded in the period.

In February 2007 the Company renounced tax deductions to shareholders that totalled $7,252,000 in respect of flow-through shares issued in 2006. The income tax effect of the renouncement, being $2,175,000, was recorded as a reduction in share capital and increase in future income tax liability.

8. Commitment

In 2006 the Company issued flow-through Class A common shares in the amounts of $7,252,000. In February 2007 the Company renounced this amount of tax deductions to shareholders effective December 31, 2006 and, at June 30, 2007, has a remaining commitment to incur qualifying resource expenditures prior to December 31, 2007 totalling approximately $2,900,000.

----------------------------------------------------------------------------
Advisories

Use of Barrels of Oil Equivalent (boe)

Disclosure provided herein in respect of boe units may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf of natural gas to 1 bbl of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and may not represent a value equivalency at the wellhead.

Non-GAAP Measurement - Funds Flow

Funds flow from operations, calculated as cash flow from operating activities before changes in non-cash working capital, is used by the Company as a key measure of performance. Funds flow from operations does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures for other companies. Funds flow from operations as presented is not intended to represent operating profits for the period, nor should it be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Many of the Company's peers in the oil and natural gas industry use the same definition and, therefore, disclosure herein enhances comparability with those peers. Funds flow from operations per share is calculated using the same share bases which are used in the determination of earnings per share.

Calculation of Finding, Development and Acquisition Costs

Finding costs per boe of reserves added are a rough measure of the average per unit costs of finding and developing petroleum and natural gas reserves.

The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.

Forward-Looking Statements

Certain statements in this document or incorporated herein by reference constitute "forward-looking statements". These forward-looking statements can generally be identified as such because of the context of the statements, including words indicating that the Company "believes", "anticipates", "expects", "plans" or words of a similar nature. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions which will, among other things, impact demand for and market prices of the Company's products; industry capacity; the ability of the Company to implement its business strategy, including exploration and development activities; the ability of the Company to complete its capital programs; successful negotiations with bankers and other third parties; the success of exploration and development activities; production levels; government regulations and the expenditures required to comply with them (especially safety and environmental laws and regulations); asset retirement obligations; and other circumstances affecting revenues and expenses.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • NuLoch Resources Inc.
    James N. McIndoe
    CEO
    (403) 920-0455
    or
    NuLoch Resources Inc.
    R. Glenn Dawson
    President
    (403) 920-0455
    or
    NuLoch Resources Inc.
    2200, 444 - 5th Avenue SW
    Calgary, Alberta T2P 2T8
    (403) 920-0455
    (403) 920-0457 (FAX)
    Email: nuloch@nuloch.ca