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

NuLoch Resources Inc.

November 20, 2007 19:55 ET

NuLoch Resources Announces Third Quarter 2007 Results and Operational Update

CALGARY, ALBERTA--(Marketwire - Nov. 20, 2007) - NuLoch Resources Inc. (TSX VENTURE:NLR.A) (TSX VENTURE:NLR.B) provides its third quarter 2007 financial results and operational update.

NuLoch was incorporated on May 13, 2005 and commenced operations on July 1, 2005. Production averaged 328 boe/d in the third quarter of 2007 and October production averaged approximately 350 boe/d.



HIGHLIGHTS
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------------
Three months Nine months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
OPERATING
----------------------------------------------------------------------------
Production - daily average
Oil and NGL (bbls/d) 57 11 39 4
Natural gas (mcf/d) 1,627 1,590 1,500 1,689
Combined (boe/d) 328 276 289 286
Average sales prices
Oil and NGL ($/bbl) 75.32 65.25 71.12 64.06
Natural gas ($/mcf) 5.10 5.53 6.39 6.15
Combined ($/boe) 38.37 34.46 42.78 37.27

FINANCIAL
($ thousands except per share amounts)
----------------------------------------------------------------------------
Gross petroleum and natural
gas revenue 1,158 875 3,378 2,907

Funds flow from operations(2) 324 288 1,077 857
Per share - basic 0.01 0.02 0.05 0.06
Per share - diluted 0.01 0.02 0.05 0.06

Net loss (231) (156) (387) (202)
Per share - basic (0.01) (0.01) (0.02) (0.01)
Per share - diluted (0.01) (0.01) (0.02) (0.01)
Working capital deficiency (5,190) (4,345) (5,190) (4,345)
Line of credit 5,500 4,000 5,500 4,000

Capital expenditures 1,201 4,780 3,996 11,043

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 1,378 823 1,378 823
Basic, weighted average combined 21,722 17,708 21,722 15,354
----------------------------------------------------------------------------

(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.
(3) Line of credit increased to $6.5 million subsequent to September 30,
2007.


OPERATIONAL UPDATE

Production for NuLoch averaged 328 boe/d during the third quarter ended September 30, 2007 which is a 32 percent increase over Q2 production of 249 boe/d. Oil and natural gas liquids now provide 17 percent of the total. Average production for October is estimated at 350 boe/d with targeted exit production for 2007 of 450 boe/d (30 percent oil).

NuLoch drilled and cased a light-sweet oilwell at Balsam (0.3 net) in September that has now been completed and awaiting tie-in. Over the course of its two-day production test, the well's gas rate was declining as its oil rate increased. While the Company is confident that initial production capability will be strong, the test information is not definitive. The well is an offset to NuLoch's successful oilwell that averaged 170 boe/d (54 boe/d net) in Q3 2007. The new well is being equipped in conjunction with a facility upgrade to the existing producer. The upgrade will allow for higher daily oil rates and will produce a market-ready product for shipment to the sales point.

NuLoch is about to embark on its Q4 2007 drilling program with plans to spud at least four wells. Working interests will be high. Three of the locations are pursuant to farm-ins and the fourth is on 100% working interest land acquired at an Alberta Crown sale.

Each of these wells is prospective in a different geological formation. A Retlaw, Alberta location will be drilled to 1,100 m targeting natural gas in a lithic Mannville channel. At Enchant, a 1,100 m well will test the Mississipian formation for Banff natural gas. At Little Bow, a 1,100 m well will target oil in the Glauconite that may lead to follow-up locations. NuLoch will also drill its first well at Pembina, Alberta to a depth of 2,000 m. A Banff/Nordegg find at that depth may result in a prolific natural gas producer. The Company has options to drill two other earning wells in that area.

The Company has also obtained a rolling option farm-in arrangement at Little Bow targeting Glauconitic oil step-outs and in-fills to an existing pool. The first location should be spud in January 2008. Another farm-in location at Enchant is planned for Q1 2008 targeting Glauconite gas. This activity is in addition to NuLoch's prospect inventory of 4 (2.5 net) southern Alberta drilling locations on Company-owned lands.

While industry enthusiasm for high-impact conventional oil prospects has been blunted by Alberta's proposals for royalty reform effective in 2009 and beyond, it is still important for NuLoch to pursue such opportunities to achieve better corporate commodity balance. The Company is active at Crown land sales as it positions itself for future growth and is encouraged that deal flow for farm-ins has increased. The recent closing of NuLoch's $4.4 million equity financing and increase in its line of credit to $6.5 million has given the Company the flexibility needed to pursue these opportunities.

EXTRACTS OF MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis (MD&A) was prepared as of November 20, 2007 and should be read in conjunction with the interim financial statements of NuLoch Resources Inc. for the three-month and nine-month periods ended September 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 September 30, 2007 and 2006 and for the three-month and nine-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 Q3 2007 Q2 2007 Q1 2006 Q4 2006 Q3
------- ------- ------- ------- -------
Oil and NGL (bbls/d) 57 39 22 9 11
Natural gas (mcf/d) 1,627 1,261 1,612 1,622 1,590
Combined oil equivalent (boe/d) 328 249 290 279 276


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 rates pursuant to Good Production Practice. Two natural gas wells (1.4 net) drilled in Q1 2007 were placed on stream in Q3 2007 and contributed 65 boe/d to the Q3 average. The 38 shallow natural gas wells contributed 48 percent of the production on an oil-equivalent basis in the third quarter of 2007.

Alberta Royalty Review

On October 25, 2007, the Government of Alberta disclosed its proposal for a new royalty structure that, if enacted, will become effective on January 1, 2009. Royalties calculated pursuant to the proposal are sensitive to well production rates and commodity prices for oil and natural gas. Natural gas wells drilled deeper than 2,000 meters will qualify for a royalty reduction under certain conditions. All of the Company's properties are located in Alberta.

The Company's reserve report prepared effective December 31, 2006 included an estimate of future net revenue of $23.4 million associated with proved and probable reserves discounted at 10 percent per annum. Management estimates that there would have been no significant net effect on this value had the reserve report been prepared using the royalty proposal in effect for 2009 and beyond. Most of the discounted net revenue in the report is associated with relatively low-rate, shallow natural gas wells that can benefit from the royalty proposals and one relatively high-rate oil well that will pay higher royalties.

Revenue

The Company's production averaged 328 boe/d in the third quarter of 2007 compared to 249 boe/d in the second quarter and 276 boe/d one year ago. Most 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 54 boe/d to the Q3 average.



Production, Prices and Revenue
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------------------
Three months Nine months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Production - daily average
Oil and NGL (bbls/d) 57 11 418 39 4 875
Natural gas (mcf/d) 1,627 1,590 2 1,500 1,689 (11)
Combined (boe/d) 328 276 19 289 286 1
Average sales prices
Oil and NGL ($/bbl) 75.32 65.25 15 71.12 64.06 11
Natural gas ($/mcf) 5.10 5.53 (8) 6.39 6.15 4
Combined ($/boe) 38.37 34.46 11 42.78 37.27 15

Gross petroleum and natural
gas revenue 1,158 875 32 3,378 2,907 16


One year ago, virtually all the Company's production totalling 276 boe/d came from the 38 wells that comprise the Enchant, Alberta shallow gas property. In the third quarter of 2007, the average rate for those wells was 157 boe/d while the remaining 171 boe/d was attributable to seven (4.4 net) natural gas wells at Enchant and 1 (0.3) net oil well at Balsam, Alberta. In Q4 2007 the Company plans to increase oil production further with a new well (0.3 net) at Balsam being equipped in conjunction with a facility upgrade to the existing producer. The upgrade will allow for higher daily oil rates and will produce a market-ready product for shipment to the sales point.

Year-to-date average natural gas production rates were down 11 percent compared to the first nine months of 2006 but the addition of oil from Balsam and strong oil prices resulted in a 16 percent increase in gross revenue.

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 nine months of 2007 the AECO price has averaged approximately C$6.66 while oil has averaged US$66.14. The Company anticipates continuing strength in the market for oil through 2007 and recent prices have made headlines as record highs of nearly US$100.00 have been posted for December 2007 deliveries. However, the rapid rise in the Canadian dollar compared to the US dollar in recent months has negated the price benefit to the Company. 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 and fall prices have ebbed with trading at AECO averaging $4.75 per mcf in September and current prices available in the market for fourth quarter deliveries suggests that the average for the last quarter 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 producing oil well has a Crown royalty holiday that expired in September, 2007.



Royalties
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------------------
Three months Nine months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Petroleum and natural gas revenue 1,158 875 32 3,378 2,907 16

Crown royalties 81 91 (12) 211 346 (39)
Freehold royalties - 5 (100) 3 15 (76)
Overriding royalties 21 96 (78) 257 348 (26)
------- ------- ----- ------- ------- -----
102 192 (47) 471 709 (34)
ARTC - (22) (100) - (86) (100)
------- ------- ----- ------- ------- -----
Royalties, net of ARTC 102 170 (39) 471 623 (24)
------- ------- ----- ------- ------- -----
------- ------- ----- ------- ------- -----

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

Crown royalties 6.9 10.4 6.2 11.9
Freehold royalties 0.1 0.5 0.1 0.5
Overriding royalties 1.8 11.0 7.6 12.0
------- ------- ------- -------
8.8 21.9 13.9 24.4
ARTC - (2.6) - (3.0)
------- ------- ------- -------
Royalties, net of ARTC 8.8 19.3 13.9 21.4
------- ------- ------- -------
------- ------- ------- -------


The average combined royalty rate for the Company was 13.9 percent in the nine months ended September 30, 2007 compared to 21.4 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 $86,000 in the first nine months 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 now expected to average approximately 18 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 September 30,
-------------------------------------------
Three months Nine months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Operating expense 476 249 91 1,023 685 49
Operating expense ($/boe) 15.77 9.82 61 12.96 8.79 47


NuLoch earned an interest in a suspended, high water-cut, natural gas well pursuant to a farm-in in 2006. This well was placed on-stream in December 2006 using water handling equipment provided by a third-party in exchange for a net-profits-interest royalty. Water-cuts have increased and natural gas production rates have decreased throughout 2007. As the well approaches its economic limit, its operating cost per boe is increasing significantly with shut-in expected in Q4. Excluding the effect of this well, the Company's operating costs were $13.90 per boe in Q3 and $12.45 for the nine months ended September 30, 2007.

Interest Expense

Interest expense totalled $293,000 in the nine months ended September 30, 2007 compared to $104,000 in the same period last year.



Interest Expense
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------------------
Three months Nine months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Bank interest 65 8 654 141 31 348
Part XII.6 tax 45 (1) - 152 73 108
------- ------- ----- ------- ------- -----
110 7 1319 293 104 181
------- ------- ----- ------- ------- -----
------- ------- ----- ------- ------- -----


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.

The balance outstanding under the credit facility at September 30, 2007 was $4,936,000 with interest payable at the bank's prime rate, currently 6.25 percent, plus 0.5 percent per annum. On October 23, 2007 the Company closed a private placement of Class A common shares for gross proceeds of approximately $4,400,000.

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 more rapid pace of capital investment in 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 September 30,
-------------------------------------------
Three months Nine months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Gross overhead costs 315 324 (3) 1,000 1,197 (16)
Overhead recoveries (7) (10) (35) (19) (12) 57
Stock-based compensation 19 13 46 45 39 15
Amounts capitalized (162) (147) 10 (467) (528) (12)
------- ------- ----- ------- ------- -----
165 180 (8) 559 696 (20)
------- ------- ----- ------- ------- -----
------- ------- ----- ------- ------- -----

G&A ($/boe)
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------
Three months Nine months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
Gross overhead costs 10.42 12.77 12.66 15.35
Overhead recoveries (0.22) (0.40) (0.24) (0.15)
Stock-based compensation 0.63 0.51 0.57 0.50
Amounts capitalized (5.36) (5.79) (5.91) (6.77)
------- ------- ------- -------
5.47 7.09 7.08 8.93
------- ------- ------- -------
------- ------- ------- -------


The average net rate for G&A in 2007 was $7.08 per boe produced. The combination of higher production rates, especially in Q3 2007, and lower G&A costs in absolute terms, have reduced G&A costs per boe. The Company may see significant increases in gross G&A in future periods as the scope of operations expands, but continue to achieve a decrease in G&A costs per unit of production as production continues to increase as planned.



Depletion and Depreciation

Depletion and Depreciation
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------------------
Three months Nine months
--------------------- ---------------------
Change Change
2007 2006 % 2007 2006 %
------- ------- ----- ------- ------- -----
Depletion and depreciation 615 489 26 1,612 1,354 19
Depletion and depreciation
($/boe) 20.36 19.27 6 20.42 17.37 18


The rate of depletion and depreciation in the third quarter of 2007 was $20.36 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 nine months 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 $324,000 and $1,077,000 in the three and nine months ended September 30, 2007 respectively. This compares to $288,000 and $857,000 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 nine months of 2007 was greater at $387,000 compared to $202,000 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 $3,996,000 was invested in property and equipment in the first nine months of 2007 compared to $11,043,000 in the corresponding period one year ago.



Capital Expenditures
----------------------------------------------------------------------------
Periods ended September 30,
-------------------------------
Three months Nine months
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
Land - (120) 234 551
Drilling and completions 633 3,957 2,410 7,835
Equipment 229 584 669 1,605
Geoscience 174 211 211 508
Capitalized G&A 162 147 467 528
Administrative assets 3 1 5 16
------- ------- ------- -------
1,201 4,780 3,996 11,043
------- ------- ------- -------
------- ------- ------- -------


The capital expenditures in the third quarter of 2007 included the completion, equipping and tie-in of two (1.4 net) Q1 natural gas wells at Enchant. During Q3, a well (0.3 net) was drilled, and completion operations were commenced, at Balsam. The Company plans to invest up to $4,000,000 in Q4 2007 including the drilling of 3 to 4 high working interest wells.



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

Gross 1 2 - 2 5
Net 0.3 1.4 - 1.4 3.1 55%


Liquidity and Capital Resources

Subsequent to September 30, 2007 the amount of credit available under the Company's demand revolving operating facility with a Canadian chartered bank was increased by $1,000,000 to $6,500,000. 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 with the next such review scheduled for not later than April 30, 2008.

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. The Company has plans to satisfy its remaining commitment of approximately $2,400,000 during Q4 2007.

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.

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 21,129,695 Class A common shares and 652,500 Class B common shares outstanding. There are 1,377,500 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 Q3 2007 Q2 2007 Q1 2006 Q4
------- ------- ------- -------
Petroleum and natural gas revenue 1,158 1,043 1,177 1,048
Funds flow from operations 324 333 420 500
Per share - basic 0.01 0.02 0.02 0.03
- diluted 0.01 0.02 0.02 0.03
Net earnings (loss) (231) (54) (102) (23)
Per share - basic (0.01) - - -
- diluted (0.01) - - -
Total assets, end of period 23,254 22,563 21,438 20,925
Working capital (deficiency), end of period (5,190)(4,313) (3,179) (2,271)

2006 Q3 2006 Q2 2006 Q1 2005 Q4
------- ------- ------- -------
Petroleum and natural gas revenue 875 931 1,101 320
Funds flow from operations 288 142 427 100
Per share - basic 0.02 0.01 0.03 0.01
- diluted 0.02 0.01 0.03 0.01
Net earnings (loss) (156) (39) (7) 421
Per share - basic (0.01) - - 0.04
- diluted (0.01) - - 0.03
Total assets, end of period 20,885 18,260 13,195 14,233
Working capital (deficiency), end of period (4,345) 148 (825) (3,407)


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
---------------------------------------
September 30, Dec. 31
------------------------------- -------
Three Nine Twelve
months months months
--------------- --------------- -------
2007 2006 2007 2006 2006
------- ------- ------- ------- -------
Revenue:
Gross petroleum and natural gas 38.37 34.46 42.78 37.27 38.14

Crown royalties (2.66) (3.58) (2.66) (4.43) (3.44)
ARTC - 0.89 - 1.11 0.85
Freehold royalties (0.03) (0.16) (0.04) (0.19) (0.19)
Overriding royalties (0.70) (3.80) (3.25) (4.47) (3.95)
------- ------- ------- ------- -------
(3.39) (6.65) (5.95) (7.98) (6.73)
Interest and other - 0.23 - 0.25 0.19
------- ------- ------- ------- -------
34.98 28.04 36.83 29.54 31.60
Expenses:
Operating 15.77 9.82 12.96 8.79 9.18
General and administrative 5.47 7.09 7.08 8.93 8.26
Interest 3.64 0.31 3.71 1.34 1.38
Depletion and depreciation 20.36 19.27 20.42 17.37 18.22
Asset retirement accretion 0.33 0.35 0.37 0.32 0.35
Future income tax reduction (2.95) (2.64) (2.81) (4.60) (3.62)
------- ------- ------- ------- -------
Net loss (7.64) (6.16) (4.90) (2.61) (2.17)
------- ------- ------- ------- -------
------- ------- ------- ------- -------

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

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

Current assets:
Accounts receivable $ 771 $ 887
Prepaid expenses and other assets 149 143
--------- ---------
920 1,030

Property and equipment (note 3) 22,334 19,895
--------- ---------
$ 23,254 $ 20,925
--------- ---------
--------- ---------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 1,174 $ 980
Bank loan (note 4) 4,936 2,321
--------- ---------
6,110 3,301

Asset retirement obligations 536 452
Future income tax liability (note 7) 3,150 1,197

Shareholders' equity:
Share capital (note 6) 14,844 17,019
Contributed surplus (note 6(d)) 123 78
Deficit (1,509) (1,122)
--------- ---------
13,458 15,975

Commitment (note 8)
Subsequent event (note 9)
--------- ---------
$ 23,254 $ 20,925
--------- ---------
--------- ---------

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

Three months Nine months
Periods ended September 30, 2007 2006 2007 2006
--------- --------- --------- ---------
Revenue:
Petroleum and natural gas $ 1,158 $ 875 $ 3,378 $ 2,907
Royalties, net of
Alberta Royalty Tax Credit (102) (170) (471) (623)
Interest - 6 - 19
--------- --------- --------- ---------
1,056 711 2,907 2,303

Expenses:
Operating 476 249 1,023 685
General and
administrative (note 3) 165 180 559 696
Interest 110 7 293 104
Depletion and depreciation 615 489 1,612 1,354
Asset retirement accretion 10 9 29 25
--------- --------- --------- ---------
1,376 934 3,516 2,864

--------- --------- --------- ---------
Loss before income taxes (320) (223) (609) (561)

Future income
tax reduction (note 7) 89 67 222 359
--------- --------- --------- ---------
Net loss and
comprehensive income (231) (156) (387) (202)

Deficit, beginning of period (1,278) (943) (1,122) (897)
--------- --------- --------- ---------
Deficit, end of period $ (1,509) $ (1,099) $ (1,509) $ (1,099)
--------- --------- --------- ---------
--------- --------- --------- ---------

Net loss per share (note 6(e)):
Basic and diluted $ (0.01) $ (0.01) $ (0.02) $ (0.01)
--------- --------- --------- ---------
--------- --------- --------- ---------

Statements of Cash Flows
(Thousands, unaudited)

Three months Nine months
Periods ended September 30, 2007 2006 2007 2006
--------- --------- --------- ---------
Cash provided by (used in):

Operating:
Net loss $ (231) $ (156) $ (387) $ (202)
Items not involving cash:
Future income tax reduction (89) (67) (222) (359)
Depletion and depreciation 615 489 1,612 1,354
Asset retirement accretion 10 9 29 25
Stock-based compensation 19 13 45 39
--------- --------- --------- ---------
324 288 1,077 857
Change in non-cash
operating working capital 472 52 253 94
--------- --------- --------- ---------
796 340 1,330 951

Financing:
Issue of share capital, net
of issue costs - - - 9,249
Increase in bank loan 1,042 2,161 2,615 2,161
Change in non-cash
financing working capital - (23) (33) -
--------- --------- --------- ---------
1,042 2,138 2,582 11,410

Investing:
Property and equipment (1,201) (4,780) (3,996) (11,043)
Change in non-cash
investing working capital (637) 191 84 (4,023)
--------- --------- --------- ---------
(1,838) (4,589) (3,912) (15,066)

--------- --------- --------- ---------
Decrease in cash
and cash equivalents - (2,111) - (2,705)

Cash and cash equivalents,
beginning of period - 2,111 - 2,705
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ - $ - $ - $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplementary disclosure
Cash interest paid $ 58 $ 10 $ 117 $ 24


Notes to the Financial Statements
September 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.

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

September December
30, 31,
2007 2006
--------- ---------

Petroleum and natural gas properties $ 26,944 $ 22,898
Administrative assets 142 137
--------- ---------
27,086 23,035
Accumulated depletion and depreciation (4,752) (3,140)
--------- ---------
$ 22,334 $ 19,895
--------- ---------
--------- ---------


During the nine months ended September 30, 2007, general and administrative costs of $467,000 (2006 - $528,000) directly related to the acquisition, exploration and development of petroleum and natural gas reserves were capitalized.

At September 30, 2007, costs associated with unproved petroleum and natural gas properties totalling $575,000 have been excluded from the calculation of depletion and depreciation.

Future development and asset retirement costs in the amount of $8,603,000 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. Subsequent to September 30, 2007, the total amount of credit available under the facility was increased by $1,000,000 to $6,500,000. 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 September 30, 2007 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, September 30, 2007 15,197 10,914
--------- ---------

Class B common shares
Balance, December 31, 2006 and September 30, 2007 653 3,930
--------- ---------

Total share capital, September 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.



Nine months ended September 30, 2007 2006
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
---------- -------- ---------- --------
Balance, beginning of period 823 $0.35 823 $0.35
Granted 555 $0.70 - -
---------- -------- ---------- --------
Balance, end of period 1,378 $0.49 823 $0.35
---------- -------- ---------- --------
---------- -------- ---------- --------
Exercisable, end of period 548 $0.35 - -
---------- -------- ---------- --------
---------- -------- ---------- --------

Option balances at September 30, 2007
---------------------------------------------------------------------------
Outstanding Exercisable
-------------------------------------- ------------------
Weighted Weighted
Remaining average average
Exercise life exercise exercise
Options price (years) price Options price
-------------------------------------- ------------------
823 $0.35 2.8 $0.35 548 $0.35
555 $0.70 4.9 $0.70 - $0.70
-------------------------------------- ------------------
1,378 3.8 $0.49 548 $0.35
-------------------------------------- ------------------
-------------------------------------- ------------------

(d) Contributed surplus

Nine months ended September 30 2007 2006
--------- ---------

Balance, beginning of period $ 78 $ 26
Stock-based compensation cost 45 39
--------- ---------
Balance, end of period $ 123 $ 65
--------- ---------
--------- ---------


The Company estimated the weighted average fair value of options granted in the nine months ended September 30, 2007 at $0.39 per option using the Black-Scholes pricing model with a risk-free interest rate of 4.4 percent per annum, an expected option life of five years and expected volatility of 60 percent. Options were not granted in 2006.

(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 - 1:6.5) based on the average closing price of Class A shares of $0.69 in the 30 trading days prior to September 30, 2007 (2006 - $1.53). 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 Nine months
Periods ended September 30, 2007 2006 2007 2006
--------- --------- --------- ---------

Class A common shares 15,197 13,466 15,197 11,112
Class B common shares 653 653 653 653
Additional Class B
assumed converted 5,872 3,589 5,872 3,589
--------- --------- --------- ---------
Basic and diluted
shares outstanding 21,722 17,708 21,722 15,354
--------- --------- --------- ---------
--------- --------- --------- ---------

Excluded stock option dilution 369 589 375 592


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 that 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 amount of $7,252,000. In February 2007 the Company renounced this amount of tax deductions to shareholders effective December 31, 2006 and, at September 30, 2007, has a remaining commitment to incur qualifying resource expenditures prior to December 31, 2007 totalling approximately $2,400,000.

9. Subsequent event

On October 23, 2007 the Company issued, pursuant to a private placement, 5,932,700 Class A common shares for gross proceeds of approximately $4,400,000. Of this amount, 2,307,700 shares were issued at $0.65 and 3,625,000 shares were issued on a flow-through basis at $0.80. The Company has a commitment, in respect of this equity issuance, to incur qualifying resources expenditures prior to December 31, 2008 totalling $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.
    R. Glenn Dawson
    President and Chief Executive Officer
    (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