Orleans Energy Ltd.
TSX VENTURE : OEX

Orleans Energy Ltd.

August 24, 2005 16:30 ET

Orleans Energy Announces Quarterly Results, Achieves Year-End Production Target

CALGARY, ALBERTA--(CCNMatthews - Aug. 24, 2005) - Orleans Energy Ltd. (TSX VENTURE:OEX) ("Orleans" or the "Company") is pleased to announce its financial and operating results for the three month period ended June 30, 2005. The Company's strong business results for this interim period is attributable to the successful execution of Orleans' acquire and exploit strategy. A summary of the Company's achievements are highlighted as follows:



------------------------------------------------------------------------
Six Month
Financial Three Month Period Ended, Period Ended
Highlights(1) June 30, 2005 March 31, 2005 %Change June 30, 2005
------------------------------------------------------------------------
(all amounts in
Canadian $ except
share data)
Petroleum and natural
gas revenue 3,982,385 2,595,920 53% 6,578,305
Cash flow from
operations(2) 2,342,140 1,303,584 80% 3,645,724
Per share - basic 0.16 0.12 33% 0.28
- diluted 0.15 0.11 36% 0.26
Operating netback(3)
($/boe)(4) 34.21 30.10 14% 32.57
Corporate netback(5)
($/boe) 30.92 25.87 20% 28.91
Net earnings 855,785 69,456 1132% 925,241
Per share - basic 0.06 0.01 500% 0.07
- diluted 0.05 0.01 400% 0.07
Weighted average
basic shares 15,054,047 11,335,241 33% 13,204,917
Weighted average
diluted shares 15,749,603 11,859,756 33% 13,798,681
Total issued and
outstanding shares 15,054,047 15,054,047 - 15,054,047
------------------------------------------------------------------------
Operating Highlights(1)
(6:1 boe conversion)
Average daily
production:
Natural gas (mcf/d) 2,385 1,404 70% 1,897
Liquids (oil and NGLs)
(bbls/d) 435 325 34% 380
Barrels of oil
equivalent (boe/d) 832 559 49% 696
Average sales price:
Natural gas ($/mcf) 7.71 7.73 - 7.70
Liquids ($/bbl) 58.33 55.40 5% 57.18
Oil equivalent ($/boe) 52.58 51.62 2% 52.20
Capital expenditures($) 8,262,787 4,840,148 71% 13,102,936
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes:

(1) No comparison with prior year periods are provided as Orleans
commenced active oil and gas operations in December 2004. Orleans
changed its year-end to December 31, 2005 from previous
March 31, 2005 and accordingly all reference to second quarter
activity within this news release pertains to the period from
April 1, 2005 to June 30, 2005.
(2) Cash flow from operations does not have any standardized meaning
prescribed by Canadian GAAP and represents net earnings before
depletion, depreciation and accretion, stock-based compensation,
future income taxes and other non-cash expenses.
(3) Operating netback represents average sales price less royalties,
operating costs and transportation expenses.
(4) Boe refers to barrel of oil equivalent, using a conversion factor
of 6 mcf to 1 barrel.
(5) Corporate netback represents operating netback less general and
administrative costs and interest expense (plus interest income).


Highlights of our successful second quarter are as follows:

- Production averaged 832 boe/day, an increase of 49% over our first quarter of 2005.

- Record cash flow of $2.3 million or $0.15 per share (diluted), representing an increase of 80% from the first quarter of 2005.

- Orleans drilled three 100% working interest horizontal wells in the Upper Mannville J oil pool ("J Pool") in our operated Halkirk area of Central Alberta. Additionally, two Coal Bed Methane wells were drilled on Company lands with a joint venture partner.

- Completed the acquisition of a private corporation for $3.0 million, providing 75 boe/day of sweet gas and liquids production from two wells (1.0 net) in the Edson area, immediately adjacent to Orleans existing undeveloped lands.

- Operating costs were reduced by 21% to $7.75 /boe, as a result of increased oil and gas production and improved operational efficiencies.

OPERATIONS UPDATE

The second quarter of 2005 was a very busy period for the Company. Capital expenditures in the second quarter were $8.26 million, with $5.10 million invested in land, drilling, completions and production facilities, and $3.01 million incurred on a corporate acquisition. The Company successfully drilled and completed three additional horizontal wells at Halkirk, participated in the drilling of two Coal Bed Methane wells in the Oberlin area just west of Halkirk, acquired a total of 3,520 acres of undeveloped land in Halkirk and in the Edson area of West Central Alberta, consolidated a partner working interest at Halkirk and acquired a private company on June 1, 2005.

In spite of a normally scheduled break-up period and unusually inclement weather throughout June, 2005, Orleans was still able to achieve positive growth and perform a number of planned operations during the period. Orleans is currently producing in excess of 1,100 boe/day, weighted approximately 50% to light gravity oil, representing an increase of 130% since the Company commenced active oil and gas operations in January, 2005.

In the second quarter, Orleans successfully drilled three 100% working interest horizontal wells in the J Pool on the Company's Halkirk property. To-date, we have drilled and placed on production six horizontal wells, with an additional two wells to drill prior to year-end.

In August, Orleans was granted approval by the Alberta Energy and Utilities Board to initiate a waterflood on the J Pool. Several analogous Mannville oil pools in the immediate vicinity have demonstrated high recoveries under waterflood, ranging from 20% to 45%. Waterflood of the J Pool will commence prior to year-end, subsequent to the re-completion and tie-in of two water injectors.

In May, 2005 the Company participated with a proven industry partner to drill two Coal Bed Methane wells (0.7 net) on our Oberlin lands, immediately west of Halkirk. The wells were successfully completed and tested in July at very encouraging rates. Subsequent to an approved holding application, additional development wells are planned for early 2006.

On June 1, 2005, Orleans closed an acquisition of a private oil and gas company for cash consideration of $3.0 million. This acquisition has provided the Company with production of approximately 75 boe/day, working interests in two producing gas wells, and interests in two sections of land in the Edson area of West Central Alberta. These assets are directly complementary to Orleans' 2,400 net acres of undeveloped lands acquired via Crown land sales earlier in 2005. Orleans will be conducting a 3D seismic shoot in January, 2006, and intends to commence drilling operations soon thereafter, targeting primarily Cretaceous-aged, stacked sand prospects, characterized by low decline, liquids-rich gas production and long-life reserves.

OUTLOOK AND 2005 GUIDANCE

Since inception of the Company, via the restructuring of Orleans Resources Inc., Orleans growth has been rapid and profitable, nearly tripling production to 1,100 boe/day, while maintaining discipline in our capital expenditure programs and focus on keeping our operations optimized. Through to June 30, 2005, Orleans has drilled six (6.0 net) operated wells and two (0.7 net) joint venture wells, at a 100% success rate.

With respect to Orleans' news release dated April 28, 2005, which provided guidance for the upward revision of the Company's 2005 Capital Budget to $16 million and average calendar and year-end exit production targets of 850 boe/day and 1,100 boe/day, respectively, Orleans is on track to exceed these projected production targets. Accordingly, Orleans is now providing for a further increase in projected average calendar and year-end exit rates of 900 boe/day and 1,250 boe/day, respectively. As well, Orleans is expanding its 2005 Capital Budget to $19.5 million as a result of increased internally-generated projects, with funding primarily from existing cash flow and credit facilities.

Our outlook for the remainder of 2005 is to drill an additional six to seven wells, targeting multiple horizon oil and gas prospects on our Halkirk property. Orleans believes that the increased inventory of its drilling and completion opportunities on the Halkirk property, in addition to the potentially higher impact prospects from the Company's Edson property, will continue to provide solid growth throughout 2005 and well into 2006.

We are extremely pleased with our results to-date and will continue to focus on our core business of increasing shareholder value through a combination of acquiring and developing oil and gas assets in Alberta, providing exposure to high interest, multi-zone, medium-risk prospects.



On behalf of the Board of Directors



Barry E. Olson
President & Chief Executive Officer
August 24, 2005


MANAGEMENT'S DISCUSSION & ANALYSIS ("MD&A")

The Company's business was restructured to that of crude oil and natural gas exploration and production through a corporate plan of arrangement (the "Arrangement") approved by shareholders on January 25, 2005. Through the completion of the Arrangement: (i) former shareholders of Orleans Resources Inc. became shareholders of Orleans, (ii) Orleans Resources Inc. became a wholly-owned subsidiary of Orleans, (iii) Orleans Resources Inc. ceased to be a reporting issuer; (iv) Orleans became a reporting issuer in the place of Orleans Resources Inc. in each of the provinces of Alberta, British Columbia and Quebec.

Additionally, in conjunction with the Arrangement, the Company acquired all of the issued and outstanding shares of 1133069 Alberta Ltd. ("1133069") by way of a share exchange. The transaction was accounted for as a reverse take-over of Orleans by 1133069, resulting in 1133069 being the deemed acquirer of Orleans. 1133069 was incorporated on October 18, 2004 and commenced active oil and gas operations on December 22, 2004 through the acquisition of producing assets in the Halkirk area of Central Alberta. As such, within this MD&A there is no available comparison of the financial and operating results for the three-month period ended June 30, 2005 ("Cal Q2 2005") with the corresponding prior year 2004 interim period. The Company has presented certain financial and operating results for the fiscal period from October 18, 2004 to March 31, 2005, as a means of comparison to Cal Q2 2005. Additionally, where relevant, oil and gas operating results for the three month calendar period ended March 31, 2005 ("Cal Q1 2005") is provided for further comparative analysis.

The following discussion is intended to assist the reader in understanding Orleans' business and the results of its operations and financial condition. This MD&A should be read in conjunction with the audited consolidated financial statements for the fiscal period ended March 31, 2005 and the unaudited financial statements for the interim period ended June 30, 2005. For additional information relating to Orleans, please refer to other filings as filed on SEDAR at www.sedar.com. Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet ("mcf") of natural gas to one barrel ("bbl") of crude oil. All amounts are reported in Canadian dollars, unless otherwise stated.

As an indicator of the Company's performance, the term cash flow from operations or operating cash flow contained within the MD&A should not be considered as an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This term does not have a standardized meaning under GAAP and may not be comparable to other companies. Orleans believes that cash flow from operations is a useful supplementary measure as investors may use this information to analyze operating performance, leverage and liquidity. Cash flow from operations is expressed before changes in non-cash working capital and the Company presents cash flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share.

This MD&A includes information up to and including August 23, 2005.



Selected Financial Information

------------------------------------------------------------------------
Cal Q2 2005 Fiscal Period
($000s) Ended June 30, 2005 March 31, 2005 (1)
------------------------------------------------------------------------
Petroleum and natural gas revenue $ 3,982 $ 2,856
Net earnings 856 78
------------------------------------------------------------------------
Total assets (at period end) 28,795 24,216
------------------------------------------------------------------------
------------------------------------------------------------------------

Note 1: The financial results for the Fiscal Period March 31, 2005
reflects Orleans' activities for the period between
October 18, 2004 (corporate inception) and March 31, 2005. The
reported petroleum and natural gas activities, included in the
results of this fiscal period, reflects oil and gas operating
activities since December 22, 2004. Prior to this date, the
Company was an inactive corporate entity. As such, the Company's
petroleum and natural gas results included in the Fiscal Period
March 31, 2005 information reflect operating activities over a
100 day period between December 22, 2004 and March 31, 2005.


Petroleum and Natural Gas Production

During the three month period ended June 30, 2005, Orleans' continued to expand its oil and gas asset base through favorable drilling results. Through to June 30, 2005, Orleans' successfully drilled six wells (100 percent working interest) in the Upper Mannville J oil pool on the Company's Halkirk, Central Alberta property. Orleans complemented this drill bit success with an acquisition of a private oil and gas company for approximately $3 million, which closed on June 1, 2005. The acquisition was funded through available cash-on-hand and provided the Company with production of approximately 75 boe per day, working interests in two producing gas wells, and interests in two sections of land in the Edson area of West Central Alberta. These acquired assets are directly complementary to Orleans' 2,400 net acres of undeveloped lands acquired via Crown land sales in March and April 2005. The acquired production has been recognized in the accounts of the Company from June 1, 2005 onwards.

In Cal Q2 2005, Orleans' petroleum and natural gas sales volumes, on a combined basis, increased sequentially by 49 percent as compared to the preceding Cal Q1 2005. During Cal Q2 2005, average daily oil equivalent production was 832 boe per day, weighted 52 percent towards light gravity crude oil (33 degree API) and natural gas liquids ("NGLs") and 48 percent natural gas. Natural gas sales production for Cal Q2 2005 averaged 2,385 mcf per day and liquids production, including both crude oil and NGLs, averaged 435 bbls per day.



Average Daily Production
------------------------------------------------------------------------
Crude Oil & Combined Oil
Natural Gas NGLs Equivalent
------------------------------------------------------------------------
(mcf/d) (bbls/d) (boe/d)
------------------------------------------------------------------------
Cal Q1 2005 1,404 325 559
Cal Q2 2005 2,385 435 832
------------------------------------------------------------------------
------------------------------------------------------------------------


Petroleum and Natural Gas Revenue and Commodity Pricing

The Company's petroleum and natural gas revenue for Cal Q2 2005 (before any royalties and transportation costs) amounted to $3.98 million, comprised of $2.32 million of oil and NGLs sales and $1.67 million of natural gas sales. The significantly higher realized revenue, vis-a-vis revenue in the fiscal period ended March 31, 2005, was primarily attributable to the higher aforementioned production volumes.

Additionally, the Company, along with the entire upstream oil and gas industry, continued to reap the benefits of very high commodity prices during this reporting quarter. Orleans' presently sells its commodity production under floating market price contracts. The Company may utilize derivative instruments to hedge future sales prices on a portion of its natural gas and crude oil production in order to achieve more predictable cash flows to fund capital expenditures and to reduce exposure to downward commodity price fluctuations. Orleans currently does not have any such contracts outstanding nor were there any outstanding during the three month period ended June 30, 2005.

The following table highlights Orleans' corporate realized wellhead prices and industry benchmark prices:



------------------------------------------------------------------------
Cal Q2 2005 Cal Q1 2005 % Change
------------------------------------------------------------------------
Orleans' prices:
Natural gas ($/mcf) 7.71 7.73 -
Crude oil and NGLs ($/bbl) 58.33 55.40 5
Oil equivalent ($/boe) 52.58 51.62 2
------------------------------------------------------------------------
WTI Cushing oil (US$/bbl) 53.22 50.03 6
Edmonton Par light oil ($/bbl) 65.66 61.67 6
Nymex Henry Hub (US$/mmbtu) 6.95 6.50 7
AECO gas ($/mcf) 7.37 6.91 7
------------------------------------------------------------------------
------------------------------------------------------------------------


Petroleum and Natural Gas Royalties

The Company's petroleum and natural gas royalties for Cal Q2 2005 amounted to $738 thousand. Orleans' total royalties for Cal Q2 2005 increased 22 percent from the royalties incurred in the fiscal period ended March 31, 2005. As a percentage of gross revenue, the Company's corporate effective royalty rate in Cal Q2 2005 was 18.5 percent. The realized year-end 2004 Crown capital cost and custom processing credit recovery adjustment, in addition to the deep gas Crown royalty holiday associated with the acquired Edson area gas production, resulted in a reduction to Orleans' corporate royalty rate in Cal Q2 2005. As for the Alberta Royalty Tax Credit ("ARTC"), Orleans was not eligible to receive the ARTC on crown royalties incurred on production from its Halkirk assets as this property was originally acquired from an "above-limit corporation" claiming the maximum ARTC entitlement.



------------------------------------------------------------------------
Fiscal Period %
($000s) Cal Q2 2005 March 31, 2005 Change
------------------------------------------------------------------------

Crown $ 405 $ 406 -
Freehold and overrides 333 201 66
----------------------------------------------------------------
Total 738 607 22
----------------------------------------------------------------

Effective royalty rate (%) 18.5% 21.3% (13)
------------------------------------------------------------------------
------------------------------------------------------------------------


Operating Expenses

Orleans' field operating costs for the 91 day period in Cal Q2 2005 amounted to $587 thousand, a 7 percent increase from the aggregate operating costs incurred during the 100 day operating period between December 22, 2004 and March 31, 2005. On a unit-of-production basis, the Company realized a significant decrease in operating costs. Orleans' per unit field costs decreased 21 percent to $7.75 per boe, thus resulting in increased field netback profit margins. Economies of scale resulting from increased oil and gas production was the primary catalyst to this per unit cost decrease.



------------------------------------------------------------------------
Fiscal Period %
Cal Q2 2005 March 31, 2005 Change
------------------------------------------------------------------------

Total ($000s) $ 587 $ 550 7
Per unit ($/boe) 7.75 9.81 (21)
------------------------------------------------------------------------
------------------------------------------------------------------------


Transportation Expenses

The Company's cost for transporting and distributing its crude oil and natural gas production to market delivery points in Cal Q2 2005 amounted to $66 thousand, as compared to $45 thousand for the operating period ended March 31, 2005. Increased sales volumes resulted in this aggregate increase from the preceding period. On a unit-of-production basis, transportation costs in Cal Q2 2005 were $0.87 per boe.



------------------------------------------------------------------------
Fiscal Period %
Cal Q2 2005 March 31, 2005 Change
------------------------------------------------------------------------

Total ($000s) $ 66 $ 45 47
Per unit ($/boe) 0.87 0.80 9
------------------------------------------------------------------------
------------------------------------------------------------------------


General & Administrative Expenses ("G&A")

The Company's reported general and administrative expenses totaled $257 thousand for Cal Q2 2005 or $3.39 per barrel of oil equivalent. In Cal Q2 2005, Orleans' expanded its oil and gas technical team with the addition of a senior reservoir engineer, hired an office manager to administer the Company's increased corporate activities and incurred annual charges related to the Company's Annual Meeting of Shareholders held on June 15, 2005 and its year-end accounting audit. The Company currently employs ten head office personnel, including six geological and engineering technical staff, and engages the services of three consultants on a part-time basis.

Orleans applies the full cost method of accounting for its oil and gas operations. Accordingly, the Company capitalized salary and associated direct overhead costs of its technical personnel in the amount of $150 thousand in Cal Q2 2005.



------------------------------------------------------------------------
Fiscal Period %
($000s) Cal Q2 2005 March 31, 2005 Change
------------------------------------------------------------------------

Cash, net recoveries $ 407 $ 283 44
Capitalized (150) (103) 46
-----------------------------------------------------------------
Total expensed 257 180 43
-----------------------------------------------------------------

Per unit ($/boe) 3.39 3.21 6
------------------------------------------------------------------------
------------------------------------------------------------------------


Prospectively, based on Orleans' current head office work force, the Company's G&A cost structure is expected to result in per unit-production costs below $3.00 per boe for the remainder of calendar 2005.

Interest Income and Charges

In the three month period ended June 30, 2005, the Company realized $8 thousand in aggregate net interest income. Through to June 1, 2005, the Company was debt-free and generated approximately $12 thousand in interest income through short-term fixed rate deposit investing with a commercial bank. With the acquisition of the aforementioned private corporation on June 1, 2005, available cash-on-hand was utilized to fund the acquisition and the Company began to draw on its bank credit facilities to fund its internal exploration and development program thereafter. As a result, the Company incurred $4 thousand in bank interest expense.

Depletion, Depreciation and Accretion

The Company's depletion and depreciation expense amounted to $1.29 million in Cal Q2 2005, including $104 thousand of charges specific to the depletion of Orleans' recognized asset retirement cost of $2.06 million. The increased depletion and depreciation provision in Cal Q2 2005 is a direct result of Orleans' increased production volumes generated during the respective period. On a unit-of-production rate basis, the depletion and depreciation provision decreased to $17.05 per boe, with $1.37 per boe attributable to the depletion of the asset retirement cost. The Company's accretion expense, relating to Orleans' asset retirement obligations of its tangible assets, amounted to $52 thousand for Cal Q2 2005.



------------------------------------------------------------------------
Fiscal Period %
($000s) Cal Q2 2005 March 31, 2005 Change
------------------------------------------------------------------------

Depletion & depreciation $ 1,291 $ 1,049 23
Accretion on asset
retirement obligations 52 50 4
-----------------------------------------------------------------
Total expense 1,343 1,099 22
-----------------------------------------------------------------

Per unit ($/boe) 17.73 19.62 (10)
------------------------------------------------------------------------
------------------------------------------------------------------------


Income and Capital Taxes

As a result of Orleans' significant tax pool balances, the Company does not expect to be subject to corporate cash income tax in the foreseeable future. Orleans has approximately $67 million in tax pools available for deduction against future taxable income (net of projected tax pool usage necessary to offset Cal Q2 2005 taxable income). Additionally, Orleans has sufficient tax pools in excess of the carrying value of its property, plant and equipment, reflecting unrecognized future income tax assets. As such, a future income tax expense provision was not recognized in Cal Q2 2005. In conjunction with the aforementioned acquisition of a private oil and gas company, the Company recognized a future tax benefit in Cal Q2 2005 to eliminate future income taxes of approximately $802 thousand resulting from the excess of the allocated fair values of the net assets acquired over the aggregate tax pools of the private company. The Company has deferred the recognition of additional unrecognized tax assets. Continued expansion of the Company's oil and gas operations and reserve base may result in partial recognition of such assets in future periods. During Cal Q2 2005, the Company was not liable for the payment of the federal large corporation capital tax since the stated book capitalization of Orleans was less than $50 million.

Operating Cash Flow and Net Earnings

Orleans' realized operating cash flow and net earnings in Cal Q2 2005 were positively impacted by an increase in the Company's oil and gas sales production and lower per unit operating costs. The Company generated $2.34 million in cash flow from operations and $856 thousand in net earnings during Cal Q2 2005.



------------------------------------------------------------------------
Fiscal Period %
($000s except per share date) Cal Q2 2005 March 31, 2005 Change
------------------------------------------------------------------------

Cash flow from operations (1) $ 2,342 $ 1,424 64
Per share - basic 0.16 0.15 7
Per share - diluted 0.15 0.15 -
Net Earnings 856 78 997
Per share - basic 0.06 0.01 5
Per share - diluted 0.05 0.01 4
------------------------------------------------------------------------
------------------------------------------------------------------------

Note 1: Cash flow from operations is a non-GAAP measure and represents
net earnings before the depletion, deprecation and asset
retirement accretion, stock-based compensation, future income
taxes and other non-cash expenses.


Capital Expenditures

In Cal Q2 2005, the Company was very active in executing its business plan for continued growth. Orleans invested $8.26 million in capital expenditures during this three month period. The Company successfully drilled and completed three additional horizontal wells at Halkirk, participated in the drilling of two Coal Bed Methane wells in the Oberlin area just west of Halkirk, acquired a total of 3,520 acres of undeveloped acreage in Halkirk and in the Edson area of West Central Alberta, consolidated a partner working interest at Halkirk and acquired a private company on June 1, 2005.

The breakdown of Orleans' capital program is outlined below:



------------------------------------------------------------------------
Fiscal Period
($000s) Cal Q2 2005 Cal Q1 2005 March 31, 2005
------------------------------------------------------------------------

Land $ 1,159 $ 527 $ 527
Seismic 7 34 34
Drilling & completions 3,084 2,480 2,480
Field facilities
& equipment 695 494 494
Other (1) 160 174 174
Exploration & development 5,105 3,709 3,709
Property purchases 142 559 13,474
Corporate acquisitions 3,016 572 572
Total capital expenditures 8,263 4,840 17,755
------------------------------------------------------------------------
------------------------------------------------------------------------

Note 1: Includes office equipment, computer hardware and capitalized
G&A.


Liquidity and Capital Resources

At June 30, 2005, Orleans was capitalized with a working capital deficit of $2.53 million (including $100 thousand of bank debt), and 15.05 million common shares outstanding with a book capitalization of $19.88 million and a market capitalization of $56.30 million. In comparison, at March 31, 2005, the Company was capitalized with zero bank debt, a working capital surplus of $3.42 million and 15.05 million common shares outstanding with a book capitalization of $19.88 million and a market capitalization of $54.20 million. The increase in bank debt and the working capital deficit position as at June 30, 2205, are directly attributable to Orleans' significant capital investments undertaken in Cal Q2 2005 necessary for efficient expansion of the Company's oil and gas reserves base.

As at June 30, 2005, the Company had a revolving demand credit facility with a total borrowing base of $8.0 million with a commercial lending institution. Primarily as a result of Orleans' expanded oil and gas reserves at March 31, 2005, the bank facility borrowing base increased in Cal Q2 2005 from the previous $4.4 million credit facility.

Orleans' main sources of liquidity are internally-generated cash flow from its oil and gas operations, undrawn bank credit facilities and access to equity capital markets. Because of the liquidity and capital resource alternatives available to the Company, including internally generated cash flow, Orleans believes its liquidity is sufficient to fund operating and general and administrative expenses, including planned spending on exploration and development projects and undeveloped acreage necessary for continued, profitable growth. The Company anticipates that public capital markets will serve as the principal source of capital to finance any future substantial corporate acquisitions and/or significant property purchases.



Common Share Information

------------------------------------------------------------------------
Fiscal Period
Cal Q2 2005 March 31, 2005 (1)
------------------------------------------------------------------------
Share price:
High $ 3.90 $ 4.20
Low $ 3.21 $ 3.00
Close $ 3.74 $ 3.65
Average daily trading volume 33,320 85,336
Common shares (3,4):
Voting - outstanding at period end 15,054,047 11,103,437
Non-voting - outstanding at
period end - 3,950,610
Total outstanding 15,054,047 15,054,047
Weighted average basic (2) 15,054,047 9,392,387
Weighted average diluted (2) 15,749,603 9,678,486
------------------------------------------------------------------------
------------------------------------------------------------------------

Note 1: The common shares of Orleans Energy Ltd. commenced trading on
the TSX Venture Exchange on January 31, 2005 under the symbol
"OEX".

Note 2: For the fiscal period ended March 31, 2005, the common shares
have been "weighted" for accounting purposes since corporate
inception on October 18, 2004.

Note 3: At the Company's June 15, 2005 Shareholders Meeting, the
Company's articles were amended to reorganize its authorized
share capital. Specifically, a resolution was approved to change
the outstanding 3,950,610 non-voting common shares into voting
common shares on a 1 for 1 basis and to reduce the maximum
number of non-voting common shares that the Company is
authorized to issue to zero.

Note 4: As of the date of this MD&A (August 23, 2005), total common
shares issued and outstanding are 15,054,047.


Contractual Obligations

Orleans is committed to the following future payments under an operating lease for head office space, which includes an estimate of the Company's share of operating, utilities and property taxes for the duration of the office lease:



------------------------------------------------------------------------
2005 2006
------------------------------------------------------------------------
Office Rental $ 54,975 $ 73,300
------------------------------------------------------------------------
------------------------------------------------------------------------


Off-Balance Sheet Arrangements and Related Party Transactions

The Company has not entered into any off-balance sheet transactions during the three month period ended June 30, 2005.

The Company did not have any deemed related party transactions during the three month period ended June 30, 2005.

The Company's unaudited financial statements for the interim period ended June 30, 2005 are enclosed at the end of this news release.

Orleans Energy Ltd. is a Calgary, Alberta-based emerging crude oil and natural gas company, with common shares trading on the TSX Venture Exchange under the symbol "OEX". Orleans is a team of dedicated, experienced professionals focused on the creation of shareholder value via acquisition and development of crude oil and natural gas assets in Alberta.

Certain information regarding the Company contained herein may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other similar statements that are not statements of fact. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

In this news release, reserves and production data are commonly stated in barrels of oil equivalent ("boe") using a six to one conversion ratio when converting thousands of cubic feet of natural gas ("mcf") to barrels of oil ("bbl") and a one to one conversion ratio for natural gas liquids ("NGLs" or "ngls"). Such conversion may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.



------------------------------------------------------------------------
Orleans Energy Ltd.
Balance Sheets
------------------------------------------------------------------------

June 30, 2005 March 31, 2005
(unaudited) (audited)
ASSETS

Current Assets

Cash and cash equivalents $ 253,305 $ 3,352,589
Accounts receivable 2,614,599 1,966,979
Prepaid expenses and deposits 246,490 240,796
-----------------------------
3,114,394 5,560,364

Property, plant and equipment (Note 4) 25,681,016 18,656,038

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

$ 28,795,410 $ 24,216,402
-----------------------------
-----------------------------
LIABILITIES

Current Liabilities

Accounts payable and accrued liabilities $ 5,542,190 $ 2,144,882
Bank loan (Note 5) 100,000 -
-----------------------------
5,642,190 2,144,882

Asset retirement obligations (Note 6) 2,139,654 2,057,064
-----------------------------

7,781,844 4,201,946
-----------------------------

SHAREHOLDERS' EQUITY

Share capital (Note 7) 19,881,743 19,881,743
Contributed surplus (Note 8) 360,772 217,447
Retained earnings (deficit) 771,051 (84,734)
-----------------------------

21,013,566 20,014,456
-----------------------------

$ 28,795,410 $ 24,216,402
-----------------------------
-----------------------------

Nature of operations and organization (Note 1)


On behalf of the Board of Directors:

(signed) "Barry Olson" (signed) "James Saunders"
---------------------- -------------------------
Barry Olson James Saunders
Director Director

See accompanying notes to the financial statements.


------------------------------------------------------------------------
Orleans Energy Ltd.
Statement of Operations and Deficit
For the three month period ended June 30, 2005
(unaudited)
------------------------------------------------------------------------

Revenue
Petroleum and natural gas sales $ 3,982,385
Royalties (738,451)
---------------
3,243,934
Interest income 8,330
---------------

3,252,264
Expenses
Operating 586,963
Transportation 66,130
General and administrative 257,031
Stock-based compensation 143,325
Depletion, depreciation and accretion (Notes 4 & 6) 1,343,030
---------------

2,396,479
---------------

Net earnings 855,785

Deficit, beginning of period (84,734)

---------------
Retained earnings, end of period $ 771,051
---------------
---------------

Net earnings per share (Note 9)
Basic $ 0.06
---------------
---------------

Diluted $ 0.05
---------------
---------------

See accompanying notes to the financial statements.


------------------------------------------------------------------------
Orleans Energy Ltd.
Statement of Cash Flow
For the three month period ended June 30, 2005
(unaudited)
------------------------------------------------------------------------

Cash provided from (used in):

Operating activities
Net earnings $ 855,785
Items not affecting cash:
Depletion, depreciation and accretion 1,343,030
Stock-based compensation 143,325
---------------

Funds from operations 2,342,140
Change in non-cash operating working capital (60,011)
---------------
2,282,129
---------------

Financing activities
Increase in bank loan 100,000
---------------
100,000
---------------
---------------

Investing activities
Corporate acquisition (Note 3) (2,962,614)
Property, plant and equipment additions (5,300,173)
Asset retirement obligation discharge (22,631)
Change in non-cash investing working capital 2,804,005
---------------
(5,481,413)
---------------

Decrease in cash and cash equivalents (3,099,284)

Cash and cash equivalents, beginning of period 3,352,589
---------------

Cash and cash equivalents, end of period $ 253,305
---------------
---------------

See accompanying notes to the financial statements.


Orleans Energy Ltd.
Notes to the Interim Financial Statements
For the three month period ended June 30, 2005


1. Nature of Operations and Organization

Orleans Energy Ltd. (the "Company" or "Orleans") is actively engaged in the exploration for, and development and production of, natural gas, natural gas liquids and crude oil in the Western Canadian Sedimentary Basin. Orleans is incorporated under the laws of Alberta and its common shares are publicly listed and traded on the TSX Venture Exchange.

Effective January 25, 2005, the Company's business was restructured to that of crude oil and natural gas exploration and production through a corporate plan of arrangement (the "Arrangement"). Through the completion of the Arrangement: (i) former shareholders of Orleans Resources Inc. became shareholders of Orleans, (ii) Orleans Resources Inc. became a wholly-owned subsidiary of Orleans, (iii) Orleans Resources Inc. ceased to be a reporting issuer; (iv) Orleans became a reporting issuer in the place of Orleans Resources Inc. in each of the provinces of Alberta, British Columbia and Quebec.

Additionally, in conjunction with the Arrangement, the Company acquired all of the issued and outstanding shares of a private oil and gas company, 1133069 Alberta Ltd. ("1133069"), by way of a share exchange whereby all of the issued and outstanding shares of 1133069 were exchanged for shares of Orleans on the basis of one (1) common share of Orleans for four (4) common shares of 1133069. 1133069 Alberta Ltd. was incorporated on October 18, 2004 and commenced active oil and gas operations on December 22, 2004. This transaction has been accounted for as a reverse take-over of Orleans by 1133069, resulting in 1133069 being the deemed acquirer of Orleans. While the balance sheet and share capital are of the Company as a legal entity, the assets, liabilities and dollar amounts attributed to share capital are those of 1133069 and the financial statements present a continuation of 1133069's business since its corporate inception, with no comparative period disclosure available. Prior to the Arrangement, Orleans did not constitute a business and consequently the reverse take-over has been accounted for as a capital transaction rather than a business combination.

On April 11, 2005, the Company filed notice under National Instrument 51-102 stating the Company's intention to change the date of its fiscal year-end to December 31 from March 31, with the next year-end occurring December 31, 2005. This change was effected in order for the Company to have a year-end consistent with that of other companies in the oil and gas industry.

2. Basis of Presentation

These unaudited interim financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and have been prepared following the same accounting policies and methods of computation as the Company's audited consolidated financial statements for the period ended March 31, 2005. These unaudited interim financial statements contain disclosures which are incremental to the Company's financial statements for the period ended March 31, 2005. Certain disclosures, which are normally required to be included in the notes to annual financial statements, have been condensed or omitted. The interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the fiscal period ended March 31, 2005.

On April 1, 2005, the Company completed an amalgamation with its wholly-owned subsidiaries, 1133069 Alberta Ltd. and Islay Energy Ltd. Effective April 1, 2005, both entities, 1133069 Alberta Ltd. and Islay Energy Ltd., ceased to exist as separate legal entities and the Company as the amalgamated entity assumed all operational and contractual obligations of the subsidiary companies from April 1, 2005 onwards.

3. Corporate Acquisition

On June 1, 2005 the Company acquired all of the issued and outstanding shares of Mojo Energy Inc., a private company ("Privateco") involved in the exploration and production of natural gas and natural gas liquids in West Central Alberta for total cash consideration of $3.0 million. The acquisition was funded through the Company's available cash-on-hand.

This business combination has been accounted for using the purchase method with the results of operations of Privateco included in Orleans' financial results June 1, 2005 thereafter. The purchase price allocation did not result in an excess purchase price over the fair value of net assets acquired.

The allocation of net assets acquired is based on the best available information at this time and could be subject to change. The allocation of the purchase price and consideration paid is as follows:



Consideration:
Cash $ 2,962,614
Transaction costs 15,000
--------------
Total consideration paid 2,977,614
--------------
--------------

Net Assets Acquired (allocated at estimated fair values):
Property, plant and equipment $ 3,027,121
Current assets 803,927
Current liabilities (842,658)
Asset retirement obligation (10,776)
--------------
Total net assets acquired 2,977,614
--------------
--------------


Future income taxes payable of approximately $802 thousand resulting from the temporary differences between the allocated fair values for Privateco's assets and liabilities and the associated tax basis were eliminated through the recognition of previously unrecognized future tax assets of Orleans.

4. Property, Plant and Equipment



June 30, March 31,
2005 2005
-------------------------------
Petroleum and natural gas properties $ 27,976,918 $ 19,663,483
Accumulated depletion (2,346,134) (1,058,380)
-------------------------------
25,630,784 18,605,103
-------------------------------

Office equipment and other 64,608 62,371
Accumulated depreciation (14,376) (11,436)
-------------------------------
50,232 50,935
-------------------------------

Net property, plant and equipment $ 25,681,016 $ 18,656,038
-------------------------------
-------------------------------


During the three month period ended June 30, 2005, the Company capitalized, as part of petroleum and natural gas properties, certain overhead expenses of $150 thousand directly related to exploration and development technical activities.

At June 30, 2005, petroleum and natural gas properties included $1.69 million relating to unproved properties, which have been excluded from the amount subject to depletion and depreciation. Estimated future development costs related to proved non-producing developed reserves of $407 thousand have been included in the amount subject to depletion and depreciation.

5. Bank Loan

As at June 30, 2005, the Company had a demand revolving credit facility of $8.0 million with a Canadian chartered bank. Amounts drawn on the bank facility bear interest at the lender's prime rate plus 0.25 percent per annum. At June 30, 2005, the Company had $100 thousand of bank debt outstanding. The bank facility is secured through a floating charge over all of the Company's assets and the lender reserves the right to require fixed charge security at its discretion.

6. Asset Retirement Obligations

The Company's asset retirement obligations are based on the Company's net ownership in wells and facilities and management's estimate of costs to abandon and reclaim those wells and facilities as a well as an estimate of the future timing of such costs to be incurred.

At June 30, 2005, the estimated present value of the total amount required to settle the asset retirement obligations was $2.14 million, based on a total undiscounted future liability amount of $5.29 million (inflation adjusted). These obligations are to be settled based on the economic lives of the underlying assets, which currently is projected to be from zero to 29 years. The Company used a credit-adjusted risk free rate of 10 percent and an inflation rate of 1.5 percent to calculate the present value of the asset retirement obligations.



June 30, 2005
-------------------------------
Asset retirement obligations,
beginning of period $ 2,057,064
Liabilities incurred during the period 42,108
Liabilities acquired during the period 10,776
Liabilities settled during the period (22,631)
Accretion of discount 52,337
-------------------------------
Asset retirement obligations,
end of period $ 2,139,654
-------------------------------
-------------------------------


7. Share Capital

a) Authorized

- Unlimited number of voting common shares.

At the Company's June 15, 2005 Shareholders Meeting, the Company's articles were amended to reorganize its authorized share capital. Specifically, a resolution was approved to change the outstanding 3,950,610 non-voting common shares into voting common shares on a 1 for 1 basis and to reduce the maximum number of non-voting common shares that the Company is authorized to issue to zero.

b) Issued and outstanding



------------------------------------------------------------------------
Total Number of
Common Shares Amount
-------------------------------
Balance, March 31, 2005 & June 30, 2005 15,054,047 $ 19,881,743
------------------------------------------------------------------------


c) Shares in escrow

Of the total common shares issued through to June 30, 2005, 935,097 shares are currently held in escrow and may not be released from escrow and traded without the written consent of the appropriate regulatory authorities.

8. Stock Based Compensation

a) Outstanding stock options

The Company has a stock option plan for the benefit of its directors, officers, employees and certain consultants. The Company has granted options to purchase common shares, whereby each option permits the holder to purchase one share of the Company at the stated exercise price. The options vest over a two-to-three year term and are exercisable on a cumulative basis over five years. At June 30, 2005, 1,492,817 options with a weighted average exercise price of $1.60 were outstanding and exercisable at various dates through to April 7, 2010.

The following table summarizes outstanding stock options as at June 30, 2005:



------------------------------------------------------------------------
Number Weighted Avg.
of Options Exercise Price
------------------------------------------------------------------------
Outstanding, beginning of period 1,435,317 $ 1.52
Granted 57,500 3.50
Exercised - -
-----------------------------
Outstanding, end of period 1,492,817 $ 1.60
-----------------------------
-----------------------------

Options exercisable, end of period 322,939 $ 0.80
------------------------------------------------------------------------
------------------------------------------------------------------------


b) Exercise price range for options outstanding as at June 30, 2005:


Outstanding Options Exercisable Options
------------------------------------------------------------------------
Weighted Weighted Avg. Weighted
Price Range Number Avg. Price Remaining Life Number Avg. Price
------------------------------------------------------------------------
$ 0.80 - 1.00 968,817 $ 0.80 4.58 years 322,939 $ 0.80
$ 3.00 - 3.50 524,000 $ 3.08 4.64 years - $ -
------------------------------------------------------------------------

Total 1,492,817 $ 1.60 4.60 years 322,939 $ 0.80
------------------------------------------------------------------------
------------------------------------------------------------------------


The Company determined the fair value of stock options granted during the three month period ended June 30, 2005 using the modified Black-Scholes evaluation stock option pricing model under the following assumptions:



Weighted-average fair value ($/option) 2.05
Risk-free interest rate (%) 3.72
Estimated hold period prior to exercise (years) 5
Volatility in the price of the Company's shares (%) 66.60
Dividend yield (%) nil


c) Contributed surplus

The following table reconciles contributed surplus at June 30, 2005:



------------------------------------------------------------------------
June 30, 2005
------------------------------------------------------------------------
Contributed surplus, beginning of period $ 217,447
Stock-based compensation period recognition 143,325
Exercise of stock options -
-------------------------------
Contributed surplus, end of period 360,772
-------------------------------
-------------------------------


9. Per Share Amounts

In the calculation of diluted per share amounts, options under the Company's stock option plan are assumed to have been converted or exercised on the later of the beginning of the year and the date granted. The treasury stock method is used to determine the dilutive effect of stock options. The treasury stock method assumes that proceeds received from the exercise of in-the-money stock options in addition to the unrecognised stock-based compensation expense are used to repurchase common shares at the average market price.



------------------------------------------------------------------------
2005
-------------------------------
Weighted average shares outstanding:
Basic 15,054,047
Diluted 15,749,603
------------------------------------------------------------------------
------------------------------------------------------------------------


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

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