Open Range Energy Corp.
TSX : ONR

Open Range Energy Corp.

May 13, 2008 17:00 ET

Open Range Energy Corp. Achieves Record Quarterly Cash Flow and Production

CALGARY, ALBERTA--(Marketwire - May 13, 2008) - Open Range Energy Corp. ("Open Range" or the "Company") (TSX:ONR) is pleased to announce details of its financial and operating results for the three months ended March 31, 2008.



FINANCIAL AND OPERATING HIGHLIGHTS

----------------------------------------------------------------------------
Three months ended Three months ended
March 31, 2008 March 31, 2007 Change
----------------------------------------------------------------------------
Petroleum and natural gas
revenue(1) $ 9,166,898 $ 4,435,843 107%

Funds from operations 5,599,668 2,454,468 128%
Per basic and diluted
share 0.26 0.14 86%

Loss (1,913,618) (1,020,964) (87%)
Per basic and diluted
share (0.09) (0.06) (50%)

Working capital (net debt) (29,587,086) (3,273,675) n/a

Capital expenditures $ 19,624,637 $ 12,585,273 56%

Weighted average shares
outstanding - basic
and diluted 21,799,095 18,030,508 21%
----------------------------------------------------------------------------

Production

Natural gas (mcf per day) 9,746 5,460 78%

Oil and NGL (bbls per day) 216 115 88%
----------------------------------------------------------------------------
Total (@ 6:1) (boe per day) 1,840 1,025 80%


Realized average sales
prices

Natural gas ($ per mcf)(1) 8.58 7.87 9%

Oil and NGL ($ per bbl) 79.60 55.05 45%
----------------------------------------------------------------------------
Combined average ($ per
boe) 54.74 48.08 14%

Royalties ($ per boe) (8.71) (7.27) 20%

Operating costs, including
transportation ($ per boe) (7.45) (7.45) -
----------------------------------------------------------------------------
Operating netback ($ per
boe) 38.58 33.36 16%

General and administrative
costs ($ per boe) (3.98) (7.01) (43%)

Net interest expense ($
per boe) (1.17) (0.25) 368%
----------------------------------------------------------------------------
Corporate netback ($ per
boe) 33.43 26.10 28%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)Includes realized gains on commodity contracts.


CORPORATE HIGHLIGHTS

DURING THE THREE MONTHS ENDED MARCH 31, 2008, OPEN RANGE:

- Produced an average of 1,840 boe per day (88 percent natural gas), an 80 percent increase from the Q1 2007 average;

- Announced the successful drilling and casing of a 3,800-metre Foothills exploratory well at Rough, Alberta and the ensuing acquisition of 35 sections of surrounding land at the property;

- Commissioned a 20 mmcf per day gross Company-operated gas plant at Ansell/Sundance;

- Drilled five gross (2.6 net) wells successfully at Ansell/Sundance, encountering a total of 25 productive pay zones;

- Increased funds from operations by 128 percent and funds from operations per share by 86 percent over Q1 2007, to $5.6 million and $0.26 per share, respectively;

- Increased operating netbacks by 16 percent over Q1 2007, to $38.58 per boe;

- Reduced cash costs by 14 percent over Q1 2007, to $12.60 per boe; and

- Increased its bank lines to $40 million with the National Bank of Canada;

SUBSEQUENT TO MARCH 31, 2008, OPEN RANGE:

- Closed a $25 million equity financing with a syndicate of underwriters; and

- Announced an expansion of its 2008 capital investment program to $45 million.

EXPLORATION & OPERATIONS UPDATE

During the first quarter of 2008, Open Range drilled and cased five (2.6 net) wells at its Ansell/Sundance property. A total of 25 productive pay zones were encountered. Drilling plans for the remainder of 2008 include eight (four net) additional locations at Ansell/Sundance, the first of which will be drilled late in the second quarter. The Company has committed to bringing in a second drilling rig early in the third quarter to accelerate drilling of the remaining 2008 locations.

Open Range's production in the three months ended March 31, 2008 established a new quarterly record, averaging 1,840 boe per day, an 80 percent increase over the average for the comparative period in 2007 and a 12 percent increase over the average in the fourth quarter of 2007. The increase was entirely from the Ansell/Sundance property where five (3.1 net) new wells were brought on production in the quarter. Production from Open Range's Big Bend, Ferrier and Garrington properties averaged 491 boe per day in the first quarter, with minimal capital expenditures undertaken at those properties.

The Ansell/Sundance property is currently contributing approximately 1,600 boe per day or 75 percent of the Company's current production from 25 gross wells and 83 pay zones. Completion and tie-in operations were carried out on three (two net) of the wells drilled in the first quarter. The remaining two (0.6 net) wells will be completed and tied-in to existing infrastructure late in the second quarter. Anticipated production from these two wells plus one re-completion opportunity is scheduled to come on-stream early in the third quarter.

Open Range completed the construction and commissioning of its 20 mmcf per day Ansell/Sundance natural gas plant in the first quarter of 2008. The gas plant was built ahead of schedule and on-budget at a gross cost of $4.5 million and has eliminated third-party gas handling capacity constraints. Other key benefits of the gas plant include providing additional gas handling capacity to accommodate anticipated production from future drilling and significantly reducing area operating costs through the elimination of third-party processing fees.

Open Range is currently finalizing its completion program for the Rough discovery well. Completion operations are scheduled to commence following spring break-up and it is estimated that six to eight weeks will be required to complete and acquire preliminary test data from two potential natural gas horizons. Several tie-in options to third-party facilities are currently being evaluated, with the intention to bring-on production from the well in the fourth quarter of 2008. Planning is underway to drill a second well at Rough with the objective to delineate the discovery.

In the first quarter the Company spent $6.8 million at Rough to acquire 35 sections of mostly contiguous land at an average working interest of 97 percent as well as 29 square miles of 3-D seismic and 34 miles of 2-D seismic.

OUTLOOK

Open Range held a cautious outlook on natural gas market conditions throughout most of the previous eighteen months and in response prudently executed a natural gas hedging strategy. This approach was successful in mitigating the Company's exposure to the volatility in natural gas prices. Since implementation of the strategy, Open Range has received cash payments for gains on natural gas hedging contracts of $1.7 million through the end of the first quarter of 2008. With the recent strengthening in natural gas prices, the Company expects that it will incur some losses on its natural gas hedging contracts in the second quarter of 2008. The Company has an average of 6.3 mmcf per day hedged at a blended average ceiling/swap price of $7.34 per mcf throughout the second quarter of 2008. For 2009 the Company has currently hedged an average of only 1.4 mmcf per day of natural gas production at an average floor price of $6.90 per mcf and an average ceiling price of $11.31 per mcf.

As a result of drilling success at Ansell/Sundance and the emerging Rough property, strengthened natural gas prices and the Company's strong financial position, Open Range recently announced an expansion of its 2008 capital program to $45 million. The focus of the capital program will be to continue executing Open Range's proven exploration-based strategy.

From a collective financial, operational and exploration perspective, Open Range is now in its strongest position since inception. The Company continues to work on improving its operating and capital efficiencies and has the financial flexibility to accelerate its activities further. Ansell/Sundance continues to deliver strong production, reserves and cash flow growth on both an absolute and per share basis, momentum that is supported by the property's increasing inventory of future drilling locations. In addition, the Rough discovery and the follow-up potential it holds provide the Company with a potential high-impact play that could set up a new core operated area with significant drilling opportunities.

ANNUAL GENERAL MEETING (AGM)

The AGM for Open Range is scheduled to take place on Thursday, May 15th at 10:00 AM MDT in the Royal Room of the Metropolitan Conference Centre, located at 333 - 4th Avenue S.W., Calgary, AB. The Company's AGM presentation will be made available on the Company's website at www.openrangeenergy.com immediately prior to the commencement of the meeting.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following management's discussion and analysis (MD&A) is a review of operations, current financial position and outlook for Open Range Energy Corp. ("Open Range" or the "Corporation") for the three-month periods ended March 31, 2008 and 2007. This MD&A should be read in conjunction with the unaudited interim financial statements for the three months ended March 31, 2008 and 2007, and the audited annual financial statements for the year ended December 31, 2007. This MD&A is dated May 13, 2008.

BOE PRESENTATION

The use of barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead.

NON-GAAP MEASUREMENTS

The terms "funds from operations", "funds from operations per share" and "operating netback" in this discussion are not recognized measures under Canadian generally accepted accounting principles (GAAP). Open Range management believes that in addition to net earnings, funds from operations and operating netback are useful supplemental measurements. Open Range utilizes funds from operations to evaluate operating performance and assess leverage. The Corporation considers funds from operations to be an important measure of the results generated by its principal business activities before the consideration of how those activities are financed or how the results are taxed and before abandonment expenditures. Operating netback is a benchmark used in the oil and natural gas industry to measure the contribution of oil and natural gas sales following the deduction of royalties, operating expenses and transportation costs. Users are cautioned, however, that these measures should not be construed as an alternative to net earnings determined in accordance with GAAP as an indication of Open Range's performance.

RECONCILIATION OF CASH FLOW PER GAAP TO FUNDS FROM OPERATIONS

Open Range's method of calculating funds from operations may differ from that of other corporations and, accordingly, may not be comparable to measures used by other corporations. Open Range calculates funds from operations by taking cash flow from operating activities as determined under GAAP before the change in non-cash working capital related to operating activities and asset retirement expenditures incurred as the Corporation believes the uncertainty surrounding the timing of collection, payment or incurrence of these items makes them less useful in evaluating Open Range's operating performance. A summary of this reconciliation is as follows:



----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Cash flow from operating activities (per GAAP) $ 5,155,971 $ 2,371,073
Change in non-cash working capital 321,874 83,395
Asset retirement expenditures 121,823 -
----------------------------------------------------------------------------
Funds from operations $ 5,599,668 $ 2,454,468
----------------------------------------------------------------------------
----------------------------------------------------------------------------


FORWARD-LOOKING STATEMENTS

This MD&A contains certain forward-looking statements, which include assumptions with respect to (i) production; (ii) future capital expenditures; (iii) funds from operations; (iv) cash flow; and (v) debt levels. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Corporation's control. Such risks and uncertainties include, without limitation, risks associated with oil and natural gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, increased competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, changes in federal and provincial tax laws and legislation (including the adoption of new royalty regimes), the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Corporation's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, that the Corporation will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive and reference is made to the items under "Risk Factors" in the Corporation's Annual Information Form (AIF) for the year ended December 31, 2007. All subsequent forward-looking statements, whether written or oral, attributable to the Corporation or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this MD&A are made as at the date hereof and the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

DETAILED FINANCIAL ANALYSIS



PRODUCTION
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Production

Oil and NGL (bbls/d) 216 115

Natural gas (mcf/d) 9,746 5,460
----------------------------------------------------------------------------
Total (boe/d) 1,840 1,025
----------------------------------------------------------------------------
Total (boe) 167,448 92,251
----------------------------------------------------------------------------
% natural gas 88 89
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Open Range's production for the three months ended March 31, 2008 increased significantly from the comparative period in 2007. The increase resulted from the continued successful drilling activity in the second half of 2007 and the first quarter of 2008. Production in the three months ended March 31, 2008 averaged 1,840 boe per day. This represented an increase of 80 percent from the average production of 1,025 boe per day for the comparative three-month period in 2007. Natural gas production in the three months ended March 31, 2008 increased to 9,746 mcf per day from 5,460 mcf per day for the same period in 2007. Oil and natural gas liquids (NGL) production in the three months ended March 31, 2008 increased by 88 percent to 216 barrels per day from 115 barrels per day in the first quarter of 2007.

Open Range is forecasting average production of 2,000 boe per day in 2008 and expects to exit the year with production of approximately 2,500 boe per day.




OIL AND NATURAL GAS REVENUES

----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Revenue

Oil and NGL $ 1,562,670 $ 569,793

Natural gas 7,410,881 3,841,860

Realized gains on commodity contracts 193,347 24,190
----------------------------------------------------------------------------
Total $ 9,166,898 $ 4,435,843
----------------------------------------------------------------------------

Average realized price

Oil and NGL ($/bbl) 79.60 55.05

Natural gas ($/mcf) 8.36 7.82

Realized gains on commodity contracts ($/mcf) 0.22 0.05
----------------------------------------------------------------------------
Combined average ($/boe) 54.74 48.08
----------------------------------------------------------------------------

Benchmark pricing

Edmonton Par (Cdn$/bbl) 98.08 67.61

Alberta Spot (Cdn$/mcf) 7.77 7.26
----------------------------------------------------------------------------


Revenue, including realized gains on commodity contracts, for the three months ended March 31, 2008 increased by 107 percent to $9.2 million from $4.4 million in the comparative period in 2007. The increase in revenue was primarily a result of an 80 percent increase in daily average production volumes and a 14 percent increase in the combined average sales price from the first quarter of 2007. The changes in average sales prices for oil, NGL and natural gas realized by Open Range over the comparative reporting period in 2007 were consistent with the fluctuations in benchmark oil and natural gas prices over the same period. Open Range's average sales price for natural gas continued to be at a premium to the Alberta natural gas spot benchmark price due to the high energy content of the Corporation's natural gas production.

Open Range realized gains on commodity contracts of $0.2 million for the three months ended March 31, 2008. These realized gains related to natural gas commodity contracts and amounted to an additional $0.22 per mcf on the Corporation's natural gas production for the three months ended March 31, 2008.

UNREALIZED LOSSES ON COMMODITY CONTRACTS

Open Range's management utilizes commodity contracts as a risk management technique to protect exploration and development economics, reduce volatility in cash flows and mitigate the unpredictable commodity price environment. During the first quarter, the Corporation recorded an unrealized loss on commodity contracts of $3.9 million compared to an unrealized loss of $1.2 million for the comparable period in 2007. These amounts represented the change in the fair value of the commodity contracts held by the Corporation during the three-month periods ended March 31, 2008 and 2007, respectively.



Natural gas hedging contracts entered into as at March 31, 2008 are as
follows:

----------------------------------------------------------------------------
Unrealized
loss Unrealized
for the loss for
Average Average three the three
AECO AECO months months
Spot Spot ended ended
Volume Type of floor ceiling March 31, March 31,
Period (GJ/d) contract (Cdn$/GJ) (Cdn$/GJ) 2008 2007
----------------------------------------------------------------------------
Jan. to Costless
Dec. 2007 2,500 Collar $7.00 $10.20 $ - $ (689,661)

Jan. to Costless $8.00
Dec. 2007 1,250 Collar $7.00 -$9.90 - (366,474)

Apr. 2007
to Mar. Costless
2008 1,000 Collar $7.00 $10.16 (68,534) (43,158)

Nov. 2007
to Mar. Costless
2008 1,500 Collar $7.50 $10.67 (164,411) (57,204)

Jan. to Costless $7.50
Dec. 2008 3,000 Collar $6.75 -$9.12 (1,634,489) -

Apr. to
Oct. 2008 1,500 Swap $6.46 $6.46 (787,057) -

Nov. to
Dec. 2008 1,500 Swap $7.26 $7.26 (191,977) -

Apr. to
Oct. 2008 1,500 Swap $6.50 $6.50 (783,632) -

Nov. 2008
to Mar. Costless
2009 1,500 Collar $6.75 $11.09 (142,697) -

Jan. to Costless $9.00
Dec. 2009 1,000 Collar $6.50 -$13.00 (99,276) -

----------------------------------------------------------------------------
$(3,872,073) $(1,156,497)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


For more details on these contracts refer to note 8, Financial Instruments,
in the interim financial statements for the three months ended March 31,
2008.


ROYALTIES
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Royalty expense - oil & NGL $ 113,440 $ 119,259

Royalty expense - natural gas 1,344,652 551,241
----------------------------------------------------------------------------
Total $ 1,458,092 $ 670,500

$ per boe 8.71 7.27

% of revenues(1) 16 15
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(1) Revenue before realized gains on commodity contracts.


Royalties totalled $1.5 million for the first quarter of 2008, compared to $0.7 million for the comparative period in 2007. Royalties as a percentage of revenue remained almost unchanged in the first quarter of 2008 from the comparative quarter in 2007 as the Corporation continued to receive deep well royalty holiday payments for wells at Ansell/Sundance. On a per unit of production basis, royalty costs for the three months ended March 31, 2008 were up by 20 percent from 2007, mainly due to higher commodity prices.

Open Range anticipates an average royalty rate for 2008 of approximately 15 percent to 20 percent of revenue. This increase in royalty rates from 2007 reflects the fact that as the Corporation continues to grow a smaller portion of its production base will receive the beneficial effects of the deep well royalty holiday program on royalty expenses.

On October 25, 2007 the Alberta government announced a New Royalty Framework (NRF) that will result in changes to royalties levied on natural gas and conventional oil produced in Alberta effective January 1, 2009. The Alberta government introduced several modifications to the NRF on April 10, 2008 which still require further clarification, and possibly additional public and industry consultation. Depending on further clarification of the NRF, the proposed changes to royalties could have an impact on the Corporation's net earnings, funds from operations, cash flow from operating activities, operating netbacks, and reserve values, which could create uncertainty as to the recoverability of the carrying value of the Corporation's petroleum and natural gas assets.



OPERATING COSTS AND NETBACK
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
($ per boe) 2008 2007
----------------------------------------------------------------------------
Average realized sales price 54.74 48.08

Royalty expenses (8.71) (7.27)

Operating costs (including transportation
costs) (7.45) (7.45)
----------------------------------------------------------------------------
Operating netback 38.58 33.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Corporation's operating netback for the period ended March 31, 2008 increased by 16 percent to $38.58 per boe from $33.36 per boe for the comparative period in 2007. This was mainly due to an increase in the realized average sales price, offset slightly by an increase in royalties.

Operating costs including transportation costs were $1.2 million for the three-month period ending March 31, 2008 compared to $0.7 million for the comparative period in 2007. On a per unit of production basis, operating costs for the first quarter 2008 were unchanged from the comparative period in 2007 at $7.45 per boe. With production continuing to grow and the commissioning of a new 20 mmcf per day Open Range-operated gas plant at Ansell/Sundance before the end of the first quarter, the Corporation expects significant operating efficiencies to be realized at Ansell/Sundance for the balance of 2008. Open Range expects operating costs, including transportation costs, per unit of production to come down significantly for the remainder of 2008 as a result. Of the Corporation's operating costs, transportation costs were $0.1 million or $0.57 per boe for the first quarter of 2008.



GENERAL AND ADMINISTRATIVE (G&A) COSTS
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Gross $ 1,363,466 $ 1,340,302

Partner recovery (121,304) (160,212)

Capitalized (575,854) (533,793)
----------------------------------------------------------------------------
Net G&A expense $ 666,308 $ 646,297

Per boe net ($) 3.98 7.01
----------------------------------------------------------------------------


G&A costs for the three months ended March 31, 2008 totalled $0.7 million or $3.98 per boe after overhead recoveries and capitalization of $0.7 million. On a per boe basis G&A costs in the first quarter of 2008 declined by 43 per cent from $7.01 per boe in the first quarter of 2007. The reduction per boe was mainly due to increased production in the first quarter combined with little increase in gross G&A costs. Capitalized G&A costs represented 42 percent of gross G&A costs for the quarter ended March 31, 2008 as the Corporation continued to focus on exploration activities and capitalized its exploration, geological and geophysical expenses.

Open Range expects to continue to reduce its net G&A costs per boe in 2008, reflecting the Corporation's continued forecast production growth combined with no significant planned increase in quarterly G&A spending.



INTEREST INCOME AND EXPENSE
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Interest income $ 4,460 $ 52,106

Interest expense (199,949) (29,286)
----------------------------------------------------------------------------
Net interest expense $ 195,489 $ 22,820

$ per boe net 1.17 0.25
----------------------------------------------------------------------------


Net interest expense for the three months ended March 31, 2008 was $0.2 million or $1.17 per boe. The interest paid on the Corporation's credit facility through the first quarter of 2008 was only slightly offset by the interest earned on available cash balances through short-term interest-bearing instruments. The Corporation had no exposure to the Canadian Asset-Backed Commercial Paper liquidity issue during the quarter ended March 31, 2008.

The Corporation had drawn $21.9 million on its extendable revolving credit facility at March 31, 2008. Open Range's continuing exploration activity will require incurring some debt during 2008. However, the Corporation continues to manage debt levels prudently and expects net interest expense to be relatively low for the year as a result of the closing of the equity financing for gross proceeds of $25 million on April 4, 2008.



STOCK-BASED COMPENSATION
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Total stock-based compensation $ 284,459 $ 241,407

Capitalized stock-based compensation (135,614) (115,496)
----------------------------------------------------------------------------
Stock-based compensation expense $ 148,845 $ 125,911
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the first quarter of 2008, stock-based compensation of $148,845 was expensed and $135,614 was capitalized. This compared to $125,911 expensed and $115,496 capitalized in the first quarter of 2007. The increases in stock-based compensation expense were due to the additional expense associated with the stock options granted in May 2007 and the first quarter of 2008. At March 31, 2008 there were 2,061,500 stock options outstanding compared to 1,693,000 outstanding at March 31, 2007.



DEPLETION, DEPRECIATION AND ACCRETION
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Depletion and depreciation $ 4,247,377 $ 2,543,273

Accretion 41,423 42,423
----------------------------------------------------------------------------
Total $ 4,288,800 $ 2,585,696
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depletion and depreciation ($/boe) 25.36 27.57

Accretion ($/boe) 0.25 0.46
----------------------------------------------------------------------------
Total ($/boe) 25.61 28.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Depletion and depreciation are calculated based upon cumulative capital expenditures, production rates and reserves. Open Range recorded $4.2 million or $25.36 per boe in depletion and depreciation for the three months ended March 31, 2008 compared to $2.5 million or $27.57 per boe for the comparative period in 2007. The per boe decrease is due to reserve additions in 2007 and the first quarter of 2008 being partially offset by higher average production and the increased capital expenditures associated with those reserves.

Open Range estimates depletion on a quarterly basis throughout the year using independent inputs such as reserve and land reports when available. Undeveloped land and seismic and salvage value of $23.3 million have been excluded in the calculation and future development costs of $6 million have been included in the capital base used in the calculation.

INCOME TAXES

Open Range did not incur any cash tax expense in 2007. Open Range does not expect to pay any cash taxes in 2008 based on current oil and natural gas prices, existing tax pools, planned capital expenditures and forecast taxable income. For the quarter ended March 31, 2008 the Corporation recorded a future income tax reduction of $0.8 million. This reduction was primarily due to the recording of a significant future tax asset relating to the unrealized loss on commodity contracts during the first quarter. The future income tax liability associated with the Corporation's $19 million in flow-through share issuances in 2007 was also recorded in the first quarter of 2008.

The Corporation estimates that at March 31, 2008 tax pools of $79.1 million are available for deduction against future taxable income.



LOSS
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Loss $ (1,913,618) $ (1,020,964)

Loss per basic and diluted share $ (0.09) $ (0.06)
----------------------------------------------------------------------------


The Corporation recorded a loss of $1.9 million or $0.09 per basic and diluted share for the three months ended March 31, 2008, compared to a loss of $1.0 million or $0.06 per basic and diluted share for 2007. The loss for the three months ended March 31, 2008 is attributable to the recording of a $3.9 million unrealized loss on commodity contracts.



FUNDS FROM OPERATIONS AND CASH FLOW FROM OPERATING ACTIVITIES
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Funds from operations $ 5,599,668 $ 2,454,468

Funds from operations per boe 33.44 26.61

Funds from operations per basic and diluted
share 0.26 0.14
----------------------------------------------------------------------------
Cash flow from operating activities (per GAAP) $ 5,155,971 $ 2,371,073
----------------------------------------------------------------------------


In the three months ended March 31, 2008 Open Range generated funds from operations of $5.6 million or $0.26 per basic and diluted share. First quarter 2008 funds from operations increased by 128 percent, and funds from operations per basic and diluted share increased by 86 percent, from $2.5 million and $0.14, respectively, in the comparative period of 2007. In the first quarter of 2008 Open Range recorded cash flow from operating activities of $5.2 million, compared to $2.4 million for the comparative period in 2007. The significant increases in funds from operations and cash flow from operating activities were due to stronger operating results, primarily driven by higher average production, as well as stronger netbacks which in turn were caused mainly by higher average realized sales prices.



CAPITAL EXPENDITURES
----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Drilling and completions $ 9,999,264 $ 8,319,999

Equipment and facilities 1,980,192 3,515,000

Land 6,387,478 21,961

Capitalized G&A 575,854 533,793

Geological and geophysical 681,849 194,520
----------------------------------------------------------------------------
Total capital expenditures $ 19,624,637 $ 12,585,273

Capital items not involving cash:

Stock-based compensation 183,262 164,871

Asset retirement obligations 44,546 110,352
----------------------------------------------------------------------------
Total capital expenditures including non-cash
items $ 19,852,445 $ 12,860,496
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Open Range's capital budget during both the current and previous reporting periods was focused heavily on drilling and completing wells. During the three months ended March 31, 2008, Open Range drilled five gross natural gas wells (2.6 net) at its core Ansell/Sundance property, all of which were successful. Facilities and equipment expenditures for the three months ended March 31, 2008 relate mainly to the costs associated with the construction of the new 20 mmcf per day gross operated gas plant at Ansell/Sundance and connecting successful wells to existing infrastructure. The Corporation's average working interest on new wells during the first quarter of 2008 was 52 percent. In addition, expenditures on land increased significantly period-over-period as the Corporation assembled land surrounding the deep exploration farm-in well drilled at Rough, Alberta in the fourth quarter of 2007.



----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Wells drilled Gross Net Gross Net
----------------------------------------------------------------------------
Exploration 5 2.6 4 1.80
Development - - 5 0.35
----------------------------------------------------------------------------
Total 5 2.6 9 2.15
----------------------------------------------------------------------------
Average working interest 52% 23.9%
Success rate 100% 100%
----------------------------------------------------------------------------

SHARE CAPITAL
----------------------------------------------------------------------------
Three months Three months
Weighted average common shares ended ended
outstanding March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Basic and diluted 21,799,095 18,030,508
----------------------------------------------------------------------------


Options to purchase 2,061,500 common shares for the three months ended March 31, 2008 were not included in the computation of weighted average diluted shares outstanding because they were anti-dilutive.



----------------------------------------------------------------------------
Outstanding securities March 31, 2008 May 13, 2008
----------------------------------------------------------------------------
Common shares 21,812,941 27,308,241
Stock options 2,061,500 2,061,500
----------------------------------------------------------------------------
Total outstanding securities 23,874,441 29,369,741
----------------------------------------------------------------------------
Proportion of outstanding securities held by
officers and directors 17% 14%
----------------------------------------------------------------------------


On April 4, 2008 Open Range closed an equity financing for gross proceeds of $25 million. Pursuant to this financing, the Corporation issued 3,095,300 common shares at a price of $4.20 per share and 2,400,000 flow-through common shares at a price of $5.00 per share. This equity issuance, combined with cash flows from ongoing operations and the Corporation's credit facilities, will allow the Corporation to pursue its capital investment program for the year and have positioned it with financial flexibility for 2008.

During the first quarter of 2008 the Corporation issued 135,000 stock options to employees of the Corporation. The options vest over three years and are exercisable into common shares at an average price of $3.61. At March 31, 2008 the Corporation had 2,061,500 options outstanding with an average exercise price of $4.05.

RELATED-PARTY AND OFF-BALANCE-SHEET TRANSACTIONS

During the period ended March 31, 2008, the Corporation incurred $49,551 in legal costs to a law firm in which the Chairman of the Board of Directors and the Corporate Secretary of the Corporation are partners. Of the legal costs incurred in the quarter ended March 31, 2008, the entire $49,551 was included in accounts payable at March 31, 2008.

Certain officers of Open Range purchased 5,000 shares as part of the equity offering that closed on April 4, 2008, for total gross proceeds of $21,000.

Open Range was not involved in any off-balance-sheet transactions during the period ended March 31, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Open Range had a working capital deficiency of $29.6 million at March 31, 2008. As at March 31, 2008, Open Range had available a $32 million extendable revolving-credit facility and an $8 million acquisition and development facility with the National Bank of Canada. The interest rates on the facilities are calculated using the bank's prime rate plus an applicable facility margin based on the Corporation's net debt to cash flow ratio for the previous trailing calendar quarter. As at March 31, 2008, $21.9 million had been drawn on this facility. The facilities are open for review semi-annually with the next review occurring in August 2008. The facility is a borrowing base facility that is determined based on, among other things, the Corporation's reserve report, production and operating results, and current and forecast commodity prices. Pursuant to the terms of the credit facilities, the Corporation has provided the covenant that at all times its working capital ratio shall be not less than 1 to 1. The working capital ratio is defined under the terms of the facilities as current assets, including the undrawn portion of the revolving credit facility, to current liabilities, excluding any current bank indebtedness. The Corporation is in compliance with this covenant as at March 31, 2008.



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

As at March 31, 2008
----------------------------------------------------------------------------
Bank lines available $ 40,000,000

Working capital deficiency (29,587,086)
----------------------------------------------------------------------------
Capital resources available $ 10,412,914
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Corporation's capital expenditure budget for 2008 is $45 million. The capital program will be funded through a combination of funds from operations, the Corporation's credit facility and the $25 million equity financing agreement that closed on April 4, 2008. The Corporation will closely monitor the capital program in conjunction with the commodity price outlook and adjust it accordingly.



The details of the current 2008 budget are provided in the following table:


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

2008
----------------------------------------------------------------------------
Drilling and completions $ 31,100,000

Equipment and facilities 3,200,000

Land and seismic 8,500,000

Capitalized G&A 2,200,000
----------------------------------------------------------------------------

Total $ 45,000,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


SELECTED QUARTERLY INFORMATION

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

2008 2007
----------------------------------------------------------------------------


Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Production

Natural gas (mcf/d) 9,746 8,862 9,545 7,009 5,460

Oil and NGL (bbls/d) 216 171 225 156 115

Total (boe/d) 1,840 1,648 1,815 1,324 1,025

Total (boe) 167,448 151,660 167,009 120,451 92,251

% natural gas 88 90 88 88 89
----------------------------------------------------------------------------


Financial
($000s except per share
amounts and share
numbers)

Revenue (1) 9,167 7,097 6,823 5,556 4,436

Net earnings (loss) (1,914) (345) 611 1,277 (1,020)

Net earnings (loss) per
basic and diluted share ($) (0.09) (0.02) 0.03 0.06 (0.06)

Funds from operations 5,600 4,583 4,413 3,709 2,454

Funds from operations
per basic and diluted
share ($) 0.26 0.23 0.22 0.19 0.14

Cash flow from
operating activities 5,156 2,867 3,728 4,624 2,371

Total assets (end of
period) 114,415 97,517 93,289 86,746 85,984

Capital expenditures 19,625 9,354 8,780 11,285 12,585

Weighted average
basic and diluted
shares (000s) 21,799 20,029 19,764 19,764 18,031
----------------------------------------------------------------------------


Per Unit

Oil and NGL ($/bbl) 79.60 73.10 61.32 57.68 55.05

Natural gas ($/mcf) (1) 8.58 7.29 6.33 7.43 7.87

Revenue ($/boe) (1) 54.74 46.80 40.85 46.13 48.08

Operating netback
($/boe) 38.58 35.75 30.43 35.58 33.36
----------------------------------------------------------------------------


----------------------------------------------------------------------------
2006
----------------------------------------------------------------------------


Q4 Q3 Q2
----------------------------------------------------------------------------
Production

Natural gas (mcf/d) 5,111 3,951 4,368

Oil and NGL (bbls/d) 81 74 109

Total (boe/d) 933 733 837

Total (boe) 85,795 67,420 76,132

% natural gas 91 90 87
----------------------------------------------------------------------------


Financial
($000s except per share
amounts and share
numbers)

Revenue (1) 3,747 2,550 3,132

Net earnings (loss) (160) 361 (721)

Net earnings (loss) per
basic and diluted share ($) (0.01) 0.03 (0.05)

Funds from operations 1,931 1,615 1,314

Funds from operations
per basic and diluted
share ($) 0.12 0.11 0.09

Cash flow from
operating activities 758 1,507 903

Total assets (end of
period) 78,656 64,303 62,759

Capital expenditures 6,985 6,277 7,405

Weighted average
basic and diluted
shares (000s) 15,779 14,410 14,085
----------------------------------------------------------------------------


Per Unit

Oil and NGL ($/bbl) 49.73 65.71 64.31

Natural gas ($/mcf) (1) 7.19 5.78 6.28

Revenue ($/boe) (1) 43.67 37.82 41.14

Operating netback
($/boe) 30.16 28.18 23.65
----------------------------------------------------------------------------
(1) Includes realized gains on commodity contracts.


Open Range's quarterly growth in production volumes, revenues, funds from operations, funds from operations per share and total assets is attributable to the active exploration and development drilling program at the Corporation's Deep Basin properties, particularly the Ansell/Sundance core area.



CONTRACTUAL OBLIGATIONS (1),(2)

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

Less than 1-3 4-5 After 5
As at March 31, 2008 Total 1 Year Years Years Years
----------------------------------------------------------------------------
Payments for office
lease $ 2,627,603 $ 998,126 $ 1,629,477 $ - $ -

Payments for office
equipment lease 38,323 12,775 25,548 - -
----------------------------------------------------------------------------
Total $ 2,665,926 $ 1,010,901 $ 1,655,025 $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) The Corporation has entered into farm-in agreements in the normal course
of its business which are not included in this table.

(2) The Corporation has entered into commodity contracts which are not
included in this table. For a complete listing refer to note 8,
Financial Instruments, in the interim financial statements for the three
months ended March 31, 2008.


ACCOUNTING POLICY UPDATES

On January 1, 2008, the Corporation adopted the following standards contained in the Handbook of the Canadian Institute of Chartered Accountants: Section 1535 - Capital Disclosures, Section 3862 - Financial Instruments Disclosures and Section 3863 - Financial Instruments Presentations. Section 1535 establishes standards for disclosing information about an entity's capital and how it is managed. This section specifies disclosure about objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital, whether the entity has complied with any capital requirements, and if it has not complied, the consequences of such non-compliance. Sections 3862 and 3863 establish standards for the presentation and disclosure of information that enable users to evaluate the significance of financial instruments to the entity's financial position, and the nature and extent of risks arising from financial instruments and how the entity manages those risks. The implementation of these new standards did not impact the Corporation's financial results, but did result in additional disclosures - refer to note 6 and note 8 in the interim financial statements for the three months ended March 31, 2008.

FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer of the Corporation are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The Corporation has assessed the design of its internal controls over financial reporting and has not identified any weaknesses other than those disclosed in the MD&A for the year ended December 31, 2007. No material changes in the Corporation's internal controls over financial reporting were identified during the three months ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Corporation's internal financial reporting processes.

The management of Open Range is responsible for the integrity of the information contained in this quarterly report and for the consistency between the MD&A and the financial statements. In the preparation of the financial statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected with all information available up to May 13, 2008. The financial statements have been prepared using policies and procedures established by management in accordance with Canadian GAAP and reflect fairly Open Range's financial position, results of operations and cash flow.

The Board of Directors and the Audit Committee have reviewed and approved the financial statements and the MD&A.



BALANCE SHEETS

----------------------------------------------------------------------------
As at March 31, As at December 31,
(Unaudited) 2008 2007
----------------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable $ 8,772,080 $ 7,891,264
Prepaid expenses and deposits 1,036,164 813,772
Fair value of commodity
contracts (note 8) - 713,075
Future income taxes 902,618 -
----------------------------------------------------------------------------
10,710,862 9,418,111
Property, plant and equipment (note 2) 103,704,236 88,099,168
----------------------------------------------------------------------------
$ 114,415,098 $ 97,517,279
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 3) $ 21,878,434 $ 12,855,623
Accounts payable and accrued
liabilities 15,359,792 9,184,239
Fair value of commodity
contracts (note 8) 3,059,722 -
Future income taxes - 210,356
----------------------------------------------------------------------------
40,297,948 22,250,218
Fair value of commodity
contracts (note 8) 99,276 -
Future income taxes 5,742,202 440,742
Asset retirement obligations (note 4) 2,306,906 2,342,760
Shareholders' equity:
Share capital (note 5) 65,998,866 70,884,500
Contributed surplus (note 5) 2,159,864 1,875,405
Deficit (2,189,964) (276,346)
----------------------------------------------------------------------------
65,968,766 72,483,559

Commitments (note 7)
Subsequent event (note 10)
----------------------------------------------------------------------------
$ 114,415,098 $ 97,517,279
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to financial statements.


STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT

----------------------------------------------------------------------------
Three months Three months
ended ended
(Unaudited) March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Revenues:
Petroleum and natural gas $ 8,973,551 $ 4,411,653
Royalties (1,458,092) (670,500)
Interest 4,460 52,106
Realized gain on commodity
contracts (note 8) 193,347 24,190
Unrealized loss on commodity
contracts (note 8) (3,872,073) (1,156,497)
----------------------------------------------------------------------------
3,841,193 2,660,952
Expenses:
Operating 1,247,341 687,398
General and administrative 666,308 646,297
Stock-based compensation 148,845 125,911
Interest 199,949 29,286
Depletion and depreciation 4,247,377 2,543,273
Accretion of asset retirement
obligations 41,423 42,423
----------------------------------------------------------------------------
6,551,243 4,074,588
----------------------------------------------------------------------------
Loss before income taxes (2,710,050) (1,413,636)
Future income tax reduction 796,432 392,672
----------------------------------------------------------------------------
Loss and comprehensive loss (1,913,618) (1,020,964)
Deficit, beginning of period (276,346) (799,485)
----------------------------------------------------------------------------
Deficit, end of period $ (2,189,964) $ (1,820,449)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss per share (note 5):
Basic $ (0.09) $ (0.06)
Diluted $ (0.09) $ (0.06)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to financial statements.


STATEMENTS OF CASH FLOWS

----------------------------------------------------------------------------
Three months Three months
ended ended
(Unaudited) March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Cash provided by (used in):
Operating:
Loss $ (1,913,618) $ (1,020,964)
Items not involving cash:
Depletion and depreciation 4,247,377 2,543,273
Accretion of asset retirement
obligations 41,423 42,423
Future income tax reduction (796,432) (392,672)
Stock-based compensation 148,845 125,911
Unrealized loss on commodity contracts 3,872,073 1,156,497
Asset retirement expenditures (121,823) -
Change in non-cash working capital (321,874) (83,395)
----------------------------------------------------------------------------
5,155,971 2,371,073
Financing:
Issue of common shares,
net of issue costs 51,636 11,294,932
Bank indebtedness 9,022,811 (3,836,468)
----------------------------------------------------------------------------
9,074,447 7,458,464
Investing:
Acquisition of property,
plant and equipment (19,624,637) (12,585,273)
Change in non-cash working capital 5,394,219 7,142,308
----------------------------------------------------------------------------
(14,230,418) (5,442,965)
----------------------------------------------------------------------------
Change in cash - 4,386,572
Cash, beginning of period - -
----------------------------------------------------------------------------
Cash, end of period $ - $ 4,386,572
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest received $ 4,460 $ 52,106
----------------------------------------------------------------------------
Interest paid $ 192,838 $ 29,286
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash is defined as cash and cash equivalents.

See accompanying notes to financial statements.




NOTES TO FINANCIAL STATEMENTS

For the three months ended March 31, 2008

(Unaudited)

The interim financial statements of Open Range Energy Corp. ("Open Range" or the "Corporation") have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). The interim financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the year ended December 31, 2007, except as noted below. The following disclosure is incremental to the disclosure included with the annual financial statements. These interim financial statements should be read in conjunction with the financial statements and notes thereto in the Corporation's annual report for the year ended December 31, 2007. Certain comparative figures have been reclassified to conform to the current period's presentation.

1. CHANGE IN ACCOUNTING POLICIES

On January 1, 2008, the Corporation adopted the following standards contained in the Handbook of the Canadian Institute of Chartered Accountants: Section 1535 - Capital Disclosures, Section 3862 - Financial Instruments Disclosures and Section 3863 - Financial Instruments Presentations. Section 1535 establishes standards for disclosing information about an entity's capital and how it is managed. This section specifies disclosure about objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital, whether the entity has complied with any capital requirements, and if it has not complied, the consequences of such non-compliance. Sections 3862 and 3863 establish standards for the presentation and disclosure of information that enable users to evaluate the significance of financial instruments to the entity's financial position, and the nature and extent of risks arising from financial instruments and how the entity manages those risks. The implementation of these new standards did not impact the Corporation's financial results, but did result in additional disclosures - refer to note 6 and note 8.



2. PROPERTY, PLANT AND EQUIPMENT

----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Petroleum and natural gas properties $ 126,651,855 $ 106,799,108
Other assets 2,375,704 2,376,006
----------------------------------------------------------------------------
129,027,559 109,175,114
Accumulated depletion and depreciation (25,323,323) (21,075,946)
----------------------------------------------------------------------------
Net book value $ 103,704,236 $ 88,099,168
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three-month period ended March 31, 2008, the Corporation capitalized $711,468 (March 31, 2007 - $649,289) of overhead-related costs to petroleum and natural gas properties, of which $135,614 (March 31, 2007 - $115,496) related to stock-based compensation. During the three months ended March 31, 2008, the future tax liability of $47,648 (March 31, 2007 - $49,375) associated with the capitalized stock-based compensation has also been capitalized.

Costs associated with unproved properties excluded from costs subject to depletion for the period ended March 31, 2008 totalled $17,110,000 (March 31, 2007 - $9,735,000). Future development costs of proved reserves of $6,033,000 at March 31, 2008 (March 31, 2007 - $2,965,000) have been included in the depletion calculation.

3. BANK DEBT

The Corporation has a $32,000,000 extendable revolving credit facility and an $8,000,000 non-revolving acquisition/development demand facility. These facilities are with a Canadian chartered bank. The interest rates on the facilities are calculated using the bank's prime rate plus an applicable facility margin based on the Corporation's net debt to cash flow ratio for the previous trailing calendar quarter. The credit facilities are secured by a first fixed and floating charge debenture in the minimum face amount of $50,000,000 and a general security agreement. Pursuant to the terms of the credit facilities, the Corporation has provided the covenant that at all times its working capital ratio shall be not less than 1 to 1. The working capital ratio is defined under the terms of the facilities as current assets, including the undrawn portion of the revolving credit facility, to current liabilities, excluding any current bank indebtedness. The Corporation is in compliance with this covenant as at March 31, 2008. The facilities are open for review semi-annually with the next review occurring in August 2008.

As at March 31, 2008, $21,878,434 (December 31, 2007 - $12,855,623) has been drawn against the revolving credit facility and no amounts (December 31, 2007 - $nil) have been drawn against the non-revolving demand facility. The revolving facility had an effective interest rate of 5.375 percent at March 31, 2008 (December 31, 2007 - 6.125 percent).

4. ASSET RETIREMENT OBLIGATIONS

The Corporation's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Corporation estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations at March 31, 2008 to be approximately $6,750,000 (December 31, 2007 - $6,578,000), to be incurred between 2008 and 2040. The majority of the costs will be incurred between 2020 and 2040. A credit-adjusted, risk-free rate of 8 percent (December 31, 2007 - 8 percent) was used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 2,342,760 $ 1,994,891
Liabilities incurred 44,546 202,441
Liabilities settled (121,823) (16,869)
Accretion expense 41,423 162,297
----------------------------------------------------------------------------
Balance, end of period $ 2,306,906 $ 2,342,760
----------------------------------------------------------------------------
----------------------------------------------------------------------------

5. SHARE CAPITAL

(a) Common shares issued and outstanding
----------------------------------------------------------------------------
Number of
shares Amount
----------------------------------------------------------------------------
Balance, December 31, 2006 16,763,841 $ 54,526,892
Issued pursuant to flow-through share offerings 5,029,100 19,000,395
Share issue costs (net of tax of $334,898) - (811,947)
Tax effect of flow-through shares issued in 2006 - (1,830,840)
----------------------------------------------------------------------------
Balance, December 31, 2007 21,792,941 $ 70,884,500
Issued pursuant to private placement 20,000 62,000
Share issue costs (net of tax of $2,833) - (7,531)
Tax effect of flow-through shares issued in 2007 - (4,940,103)
----------------------------------------------------------------------------
Balance, March 31, 2008 21,812,941 $ 65,998,866
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On March 4, 2008 Open Range closed a private placement common share issuance with a new employee of the Corporation for 20,000 shares at a price of $3.10 per share for gross proceeds of $62,000.

(b) Share option plan

Under the Corporation's share option plan it may grant options to its employees for up to 2,181,294 shares, of which 2,061,500 had been granted as at March 31, 2008 (December 31, 2007 - 1,926,500). The exercise price of each option equals the market price of the Corporation's stock on the date of grant. Options have terms of five years and vest as to one-third on each of the first, second and third anniversaries from the date of grant.



----------------------------------------------------------------------------
Three months ended Year ended
March 31, 2008 December 31, 2007
----------------------------------------------------------------------------
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
----------------------------------------------------------------------------
Granted and outstanding, beginning
of period 1,926,500 $ 4.08 1,673,000 $ 4.17
Granted 135,000 3.61 256,500 3.51
Forfeited - - (3,000) 3.53
----------------------------------------------------------------------------
Granted and outstanding, end of
period 2,061,500 4.05 1,926,500 4.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable at period-end 913,000 $ 4.33 859,667 $ 4.32
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table summarizes information about the fixed stock options
outstanding at March 31, 2008:

----------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------------------------------------
Weighted Weighted Weighted
Range of average average average
exercise Number exercise contractual Number exercise
prices outstanding price life (years) exercisable price
----------------------------------------------------------------------------
$ 2.40 - $ 3.60 719,500 $ 3.27 3.8 151,333 $ 3.12
$ 3.61 - $ 4.75 1,342,000 $ 4.47 2.9 761,667 $ 4.58
----------------------------------------------------------------------------
$ 2.40 - $ 4.75 2,061,500 $ 4.05 3.2 913,000 $ 4.33
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(c) Stock-based compensation

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in the period ended March 31, 2008: zero dividend yield, average expected volatility of 59 percent (December 31, 2007 - 52 percent), average risk-free interest rate of 3.15 percent (December 31, 2007 - 4.27 percent), and expected life of five years (December 31, 2007 - five years). The average fair value of stock options granted during the period was $1.89 (December 31, 2007 - $1.74) per option. The Corporation has not re-priced any stock options. The Corporation has not incorporated an estimated forfeiture rate for stock options that will not vest; rather, the Corporation accounts for actual forfeitures as they occur.



(d) Contributed surplus

----------------------------------------------------------------------------
Balance, December 31, 2006 $ 819,334
Stock-based compensation expense 1,056,071
----------------------------------------------------------------------------
Balance, December 31, 2007 $ 1,875,405
Stock-based compensation expense 284,459
----------------------------------------------------------------------------
Balance, March 31, 2008 $ 2,159,864
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(e) Per share amounts

Per share amounts have been calculated using the weighted average number of shares outstanding. The following table summarized basic and diluted common shares outstanding:



----------------------------------------------------------------------------
Three months Three months
ended ended
March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Weighted average basic and diluted common
shares outstanding 21,799,095 18,030,508
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Options to purchase 2,061,500 common shares for the three months ended March 31, 2008 (March 31, 2007 - 1,693,000) were not included in the computation because they were anti-dilutive.

6. CAPITAL MANAGEMENT

The Corporation's objectives when managing its capital are: maintain financial flexibility so as to preserve the ability to meet its financial obligations, and finance its growth, which may include accessing capital markets and credit facilities to fund the drilling of exploration and development wells as well as potential property or corporate acquisitions.

The Corporation manages its capital structure and adjusts it as a result of changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Corporation considers its capital structure to include shareholders' equity, bank debt and working capital. In order to maintain or adjust the capital structure, the Corporation may from time to time issue shares and adjust its capital spending to manage current and forecast debt levels.

The Corporation manages its capital and financing requirements using the non-GAAP financial metric of the net debt to annualized funds from operations ratio. This ratio is calculated as net debt, defined as outstanding bank debt plus or minus working capital, divided by annualized funds from operations, defined as the most recent calendar quarter's cash flow from operating activities, before the change in non-cash working capital and asset retirement expenditures incurred, multiplied by four. The Corporation's strategy is to maintain a ratio of no more than 2 to 1. This ratio may increase at certain times as a result of acquisitions. This ratio is calculated as follows:



----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Current liabilities $ 40,297,948 $ 22,250,218
Current assets (10,710,862) (9,418,111)
----------------------------------------------------------------------------
Net debt $ 29,587,086 $ 12,832,107
----------------------------------------------------------------------------
Cash flow from operating activities $ 5,155,971 $ 2,867,479
Change in non-cash working capital 321,874 1,698,137
Asset retirement expenditures 121,823 16,869
----------------------------------------------------------------------------
Quarterly funds from operations 5,599,668 4,582,485
----------------------------------------------------------------------------
Annualized funds from operations $ 22,398,672 $ 18,329,940
----------------------------------------------------------------------------
Net debt to annualized funds from
operations ratio 1.3 : 1 0.7 : 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at March 31, 2008 and December 31, 2007, the Corporation's ratio of net debt to annualized funds from operations was within the range established by the Corporation as acceptable. The increase in the ratio from December 31, 2007 is primarily due to expenditures under the 2008 capital program being incurred in the first quarter of 2008. The Corporation expects the ratio will decrease during the second quarter of 2008 as net debt levels will be reduced following the closing of an equity financing for gross proceeds of $25,000,260 on April 4, 2008.

The Corporation's share capital is not subject to external restrictions, however the bank debt facilities are based on petroleum and natural gas reserves (see note 3) and convenants. The Corporation has not paid or declared any dividends since the date of incorporation, nor are any contemplated at this time.

There were no changes in the Corporation's approach to capital management during the period.

7. COMMITMENTS



(a) Future minimum lease payments relating to operating leases for
office space and equipment are:

----------------------------------------------------------------------------
2008 $ 748,594
2009 998,125
2010 916,013
2011 3,194
----------------------------------------------------------------------------
$ 2,665,926
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(b) Flow-through common shares

On December 20, 2007 the Corporation issued 2,029,100 flow-through common shares for gross proceeds of $7,000,395. Under the terms of the flow-through share agreements, the Corporation renounced $7,000,395 of qualifying oil and natural gas expenditures in 2008 and has until December 31, 2008 to incur the expenditures. As at March 31, 2008 the Corporation had incurred $7,000,395 of qualifying expenditures and is not required to incur any additional expenditures.

8. FINANCIAL INSTRUMENTS

The Corporation has exposure to the following risks from its use of financial instruments: credit risk, liquidity risk, and market risk.
This note presents information about the Corporation's exposure to each of the above risks and the Corporation's objectives, policies and processes for measuring and managing risk. Further qualitative disclosures are included throughout these financial statements.

(a) Credit risk

Credit risk is the risk of financial loss to the Corporation if a customer or counter-party to a financial instrument fails to meet its contractual obligations, and arises principally from the Corporation's receivables from purchasers of the Corporation's natural gas, crude oil and natural gas liquids and from joint venture partners. As at March 31, 2008 the Corporation's receivables consisted of $4,699,237 (December 31, 2007 - $4,552,556) from joint venture partners, $3,393,999 (December 31, 2007 - $2,078,846) from purchasers of the Corporation's natural gas, crude oil and natural gas liquids and $678,844 (December 31, 2007 - $1,259,862) of other trade receivables.

Receivables from purchasers of the Corporation's natural gas, crude oil and natural gas liquids are normally collected on the 25th day of the month following production. The Corporation's policy to mitigate credit risk associated with these balances is to establish marketing relationships with large purchasers. The Corporation historically has not experienced any collection issues with its purchasers of natural gas, crude oil and natural gas liquids. Joint venture receivables are typically collected within one to three months of the joint venture bill being issued to the partner. The Corporation attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to commencement of the joint venture project. However, the receivables are from participants in the petroleum and natural gas sector, and collection of the outstanding balances is dependent on industry factors such as commodity price fluctuations, escalating costs and the risk of unsuccessful drilling. In addition, further risk exists with joint venture partners as disagreements occasionally arise that increase the potential for non-collection. The Corporation does not typically obtain collateral from joint venture partners; however, the Corporation does have the ability to withhold production from joint venture partners in the event of non-payment.

Cash and cash equivalents, when outstanding, consist of cash bank balances and short-term deposits maturing in less than 90 days. The Corporation manages the credit risk exposure related to short-term investments by selecting counter-parties based on credit ratings and monitors all investments to ensure a stable return, avoiding complex investment vehicles with higher risk such as asset-backed commercial paper.

The carrying amount of accounts receivable and cash and cash equivalents represents the maximum credit exposure. The Corporation does not have an allowance for doubtful accounts as at March 31, 2008 and did not provide for any doubtful accounts nor was it required to write-off any receivables during the period ended March 31, 2008.

As at March 31, 2008 the Corporation considers its receivables to be aged as follows:



----------------------------------------------------------------------------
Not past due (less than 120 days) $ 8,503,441
Past due (over 120 days) 268,639
----------------------------------------------------------------------------
Total $ 8,772,080
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(b) Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they are due. The Corporation utilizes prudent cash and debt management to mitigate the likelihood of encountering difficulties in meeting its financial obligations. As disclosed in note 6, the Corporation targets a net debt to annualized funds from operations ratio of no more than 2 to 1 to manage the Corporation's overall liquidity risk.

The Corporation prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Corporation utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. To facilitate the capital expenditure program, the Corporation has a revolving reserve-based credit facility, as disclosed in note 3, that is reviewed semi-annually by the lender. The Corporation also attempts to match its payment cycle with collection of petroleum and natural gas revenues on the 25th of each month.

The following are the contractual maturities of financial liabilities and associated interest payments as at March 31, 2008:



----------------------------------------------------------------------------
Less than
Financial Liability 1 year 1 to 2 years Total
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities $ 15,359,792 - $ 15,359,792
Commodity contracts 3,059,722 $ 99,276 3,158,998
Bank indebtedness -- principal
only(1) $ 21,878,434 - $ 21,878,434
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(1) Amount is drawn against the Corporation's extendable revolving demand
facility. As the facility is demand in nature amounts outstanding
are classified as current liabilities implying they are due in one year
or less. Management fully expects the term of the facility to be
extended.


(c) Market risk

Market risk is the risk that changes in market prices, such as commodity prices, foreign exchange rates and interest rates will affect the Corporation's net earnings or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by not only the relationship between the Canadian and United States dollar, but also world economic events that dictate the levels of supply and demand. The Corporation utilizes commodity contracts as a risk management technique to mitigate exposure to commodity price volatility. Because the large majority of the Corporation's production is natural gas, plus the associated natural gas liquids, all of the Corporation's current commodity contracts are for natural gas.

The following table indicates the fair value of natural gas hedging contracts outstanding as at March 31, 2008 and indicates the unrealized losses and realized gains on natural gas contracts for the period then ended:



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Average Average
AECO AECO Spot
Volume Type of Spot floor ceiling
Period (GJ/d) contract (Cdn$/GJ) (Cdn$/GJ)
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Costless
Apr. 2007 to Mar. 2008 1,000 Collar $ 7.00 $ 10.16
Costless
Nov. 2007 to Mar. 2008 1,500 Collar $ 7.50 $ 10.67
Costless $ 7.50-
Jan. to Dec. 2008 3,000 Collar $ 6.75 $ 9.12
Apr. to Oct. 2008 1,500 Swap $ 6.46 $ 6.46
Nov. to Dec. 2008 1,500 Swap $ 7.26 $ 7.26
Apr. to Oct. 2008 1,500 Swap $ 6.50 $ 6.50
Costless
Nov. 2008 to Mar. 2009 1,500 Collar $ 6.75 $ 11.09
Costless $ 9.00-
Jan. to Dec. 2009 1,000 Collar $ 6.50 $ 13.00
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Unrealized Realized gains
Fair value of losses for the for the period
contract as at period ended ended
Period March 31, 2008 March 31, 2008 March 31, 2008
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Apr. 2007 to Mar. 2008 - $ (68,534) $ 31,465
Nov. 2007 to Mar. 2008 - (164,411) 101,534
Jan. to Dec. 2008 $ (1,137,031) (1,634,489) 60,348
Apr. to Oct. 2008 (796,320) (787,057) -
Nov. to Dec. 2008 (200,042) (191,977) -
Apr. to Oct. 2008 (783,632) (783,632) -
Nov. 2008 to Mar. 2009 (142,697) (142,697) -
Jan. to Dec. 2009 (99,276) (99,276) -
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$ (3,158,998) $ (3,872,073) $ 193,347
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Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although substantially all of the Corporation's petroleum and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for petroleum and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar.

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Corporation is exposed to interest rate fluctuations on its bank debt which bears a floating rate of interest.

The Corporation had no forward exchange rate contracts or interest rate swap contracts in place as at or during the period ended March 31, 2008 and 2007.

The following table summarizes the sensitivity of the fair value of the Corporation's market risk management positions to fluctuations in natural gas prices and interest rates. Both such fluctuations were evaluated independently, with all other variables held constant. In assessing the potential impact of these fluctuations, the Corporation believes that the volatilities presented below are reasonable measures. Fluctuations in natural gas prices, which would impact the mark-to-market calculation of commodity contracts, and interest rates could have resulted in the following impact on the net loss:



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Net earnings (loss)
-----------------------------------

Three months ended March 31, 2008
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Increase Decrease
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Natural gas price - change of $0.10/mcf $ (124,073) $ 124,073

Interest rate - change of 10% (1) (13,281) 13,281
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(1) As at March 31, 2008, a 10 percent change to the Corporation's effective
interest rate would be equivalent to a change of 54 basis points or 0.54
percent in the rate charged by the Corporation's bank.


(d) Fair value of financial instruments

The Corporation's financial instruments as at March 31, 2008 and December 31, 2007 include cash and cash equivalents, accounts receivable, derivative contracts, accounts payable and accrued liabilities and bank debt. The fair value of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates their carrying amounts due to their short terms to maturity.

The fair value of derivative contracts is determined by discounting the difference between the contracted price and published forward price curves as at the balance sheet date, using the remaining contracted petroleum and natural gas volumes.

Bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.

9. RELATED-PARTY TRANSACTIONS

During the period ended March 31, 2008, the Corporation incurred $49,551 in legal costs (December 31, 2007 - $124,000) to a law firm in which the Chairman of the Board of Directors and the Corporate Secretary of the Corporation are partners. The legal costs incurred were in the normal course of operations and are based on the exchange value of the services provided. Of the legal costs incurred in the period ended March 31, 2008, the entire $49,551 is included in accounts payable at March 31, 2008 (December 31, 2007 - $43,000).

10. SUBSEQUENT EVENT

On April 4, 2008 the Corporation closed an equity financing for 3,095,300 common shares at a price of $4.20 per share and 2,400,000 flow-through common shares at a price of $5.00 per share, resulting in gross proceeds of $25,000,260. Pursuant to this equity issuance, the Corporation is required to renounce $12,000,000 of qualifying oil and natural gas expenditures effective December 31, 2008 and will have until December 31, 2009 to incur the expenditures.

OPEN RANGE ENERGY CORP. IS A PUBLICLY TRADED CANADIAN ENERGY COMPANY WITH FOCUSED OPERATIONS IN THE DEEP BASIN REGION OF ALBERTA.

OPEN RANGE HAS APPROXIMATELY 27.3 MILLION COMMON SHARES ISSUED AND OUTSTANDING WHICH TRADE ON THE TSX UNDER THE SYMBOL "ONR".

Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) production; (ii) future capital expenditures; (iii) funds from operations; (iv) cash flow; and (v) debt levels. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Open Range's control. Such risks and uncertainties include, without limitation, risks associated with oil and natural gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Open Range's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, Open Range will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Open Range or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Open Range does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

Contact Information

  • Open Range Energy Corp.
    A. Scott Dawson, P.Eng.
    President and Chief Executive Officer
    (403) 205-3704
    or
    Open Range Energy Corp.
    Lyle D. Michaluk, CA
    Vice President, Finance and Chief Financial Officer
    (403) 262-9280
    Website: www.openrangeenergy.com