Orleans Energy Ltd.
TSX VENTURE : OEX

Orleans Energy Ltd.

August 28, 2007 17:00 ET

Orleans Energy Announces Second Quarter 2007 Results

CALGARY, ALBERTA--(Marketwire - Aug. 28, 2007) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX VENTURE:OEX) is pleased to announce its results for the three month period ended June 30, 2007. The Company's second quarter 2007 highlights include the following:

- Production Growth

Production in the second quarter averaged 2,460 barrels of oil equivalent ("boe") per day, an increase of 93% over the second quarter of 2006 (1,274 boe per day). A prolonged spring break-up followed by unseasonably wet weather delayed the Company's tie-in and drilling operations in the second quarter. Additionally, an extended third party-operated gas plant turnaround in June at Gilby, coupled with the curtailment of production at Gordondale for two months in the quarter, impaired any sequential production growth over the first quarter of 2007. The Company, with recent operational momentum resulting from drilling successes at both Kaybob and Leo, is presently on-track to achieve or exceed its forecasted year-end 2007 exit rate market guidance of 3,500 boe per day.

- Land and Drilling Inventory Expansion

Significantly expanded its land holdings at Kaybob in West Central Alberta through successful participation at a strategic Alberta Crown land sale held on June 13, 2007. Orleans acquired 11.5 sections (100% working interest) of land, essentially doubling the Company's ownership presence within its Kaybob asset base. Orleans has now amassed 27.5 (25.0 net) sections of key, concentrated lands on this rapidly developing, exciting Triassic Montney gas-prone fairway, providing exposure to a "deep basin" resource-style play with potential for long-life, natural gas reserves.

- Equity Financing

Subsequent to the second quarter, on July 12, 2007, Orleans closed a $20.22 million "bought-deal" equity financing, with proceeds used to fund the aforementioned Kaybob land purchase and the planned expansion of exploration and development activities at Kaybob in 2007 and into 2008.

- Drilling Success

This year, through to August 27, 2007, drilled 12 gross (11.0 net) wells with 100% success. Notwithstanding minimal drilling operations in the second quarter due to inclement weather, Orleans has subsequently drilled 7 gross (6.9 net) wells in July and August with 100% success, including four wells at Kaybob and three at Leo.

- Strong Revenue and Cash Flow Growth

Petroleum and natural gas sales of approximately $12 million in the second quarter of 2007, an increase of 103% over the corresponding quarter in 2006 ($5.91 million). Cash flow from operations increased by 53% to $5.14 million ($0.15 per fully diluted share).

- Increased Credit Facility

Increased its bank credit facility to $60 million, transitioning its lending requirements to a major Canadian chartered bank and further enhancing Orleans' financial flexibility necessary to withstand a potentially prolonged period of weak natural gas prices. Bank indebtedness at June 30, 2007 was $53.28 million. Current bank indebtedness, as at August 27, 2007, is $33.23 million.



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Financial Highlights Three Months Ended June 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2007 2006 Change
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Petroleum and natural gas revenue 11,989,236 5,911,434 103%
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Per share - basic 0.36 0.30 20%
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- diluted 0.35 0.29 21%
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Cash flow from operations (1) 5,143,032 3,361,986 53%
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Per share - basic 0.16 0.17 (6%)
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- diluted 0.15 0.16 (6%)
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Operating netback (2) ($/boe) 28.35 32.78 (14%)
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Corporate netback (2) ($/boe) 22.97 29.00 (21%)
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Net earnings / (loss) (128,025) (1,345,606) (90%)
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Per share - basic - (0.07) -
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- diluted - (0.07) -
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Net debt (3,6) - period end 53,181,270 36,218,786 47%
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Weighted average basic shares 33,209,828 19,708,637 69%
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Weighted average diluted shares 33,833,429 20,759,015 63%
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Issued and outstanding shares (4) 33,225,889 30,459,493 9%
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 10,673 4,334 146%
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Liquids (Oil & NGLs) (bbls/d) 681 552 23%
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Oil equivalent (boe/d) 2,460 1,274 93%
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Average sales price (net hedging)(5):
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Natural gas ($/mcf) 7.79 6.34 23%
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Liquids (Oil & NGLs) ($/bbl) 65.61 67.91 (3%)
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Oil equivalent ($/boe) 51.97 50.99 2%
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Total capital expenditures ($) 10,209,005 119,462,351 (91%)
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Financial Highlights Six Months Ended June 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2007 2006 Change
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Petroleum and natural gas revenue 24,370,374 11,631,113 110%
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Per share - basic 0.73 0.67 9%
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- diluted 0.72 0.64 13%
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Cash flow from operations (1) 11,209,466 6,539,080 71%
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Per share - basic 0.34 0.38 (11%)
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- diluted 0.33 0.36 (8%)
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Operating netback (2) ($/boe) 29.83 33.03 (10%)
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Corporate netback (2) ($/boe) 24.57 29.84 (18%)
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Net earnings / (loss) (1,040,792) (703,888) 48%
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Per share - basic (0.03) (0.04) (25%)
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- diluted (0.03) (0.04) (25%)
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Net debt (3,6) - period end 53,181,270 36,218,786 47%
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Weighted average basic shares 33,179,413 17,416,576 91%
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Weighted average diluted shares 33,769,735 18,291,678 85%
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Issued and outstanding shares (4) 33,225,889 30,459,493 9%
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 10,669 3,882 175%
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Liquids (Oil & NGLs) (bbls/d) 743 564 32%
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Oil equivalent (boe/d) 2,521 1,211 108%
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Average sales price (net hedging)(5):
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Natural gas ($/mcf) 7.90 7.20 10%
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Liquids (Oil & NGLs) ($/bbl) 63.70 64.43 (1%)
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Oil equivalent ($/boe) 52.21 53.07 (2%)
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Total capital expenditures ($) 21,626,673 127,112,176 (83%)
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Notes:

(1) Cash flow from operations does not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP"). Please refer to the enclosed MD&A for definition of cash
flow from operations.

(2) Operating netback represents average sales price less royalties,
operating costs and transportation expenses. Corporate netback
represents Operating netback less general and administrative costs and
net interest expense. Both measures are not recognized measures under
Canadian GAAP.

(3) Net debt refers to outstanding bank debt plus any working capital
deficit or minus any working capital surplus (excluding the non-cash
risk management current asset). Net debt is not a recognized measure
under Canadian GAAP.

(4) As of the date of this news release, Orleans' issued and outstanding
common shares are 37,525,889.

(5) Pricing is net of hedging results and excludes the positive revenue,
non-cash adjustment resulting from the prospective adoption of new
accounting standards effective January 1, 2007.

(6) Net debt at June 30, 2007 does not include the net cash proceeds of
$19.13 million received from the "bought-deal" equity financing closed
on July 12, 2007.


Operations Update

As a recap of the operating activities since the start of this year, in the first quarter of 2007, Orleans' drilling activities focused on two of its five core properties, with three successful natural gas wells (2.7 net) drilled in Kaybob and two successful oil wells (1.5 net) drilled in Gordondale. Prior to spring break-up, two wells at Kaybob and one well at Gordondale were tied-in, with the second (0.5 net) Gordondale well equipped for tie-in. Due to the earlier than anticipated spring break-up and unseasonably wet weather prolonging the break-up conditions, Orleans did not drill any wells in the second quarter and only tied-in one well at Pembina at the end of June. Production volumes in the second quarter were down slightly from the first quarter of 2007 primarily attributable to natural reservoir declines, the gas plant turnaround in Gilby and the production curtailment at Gordondale due to the main sales gas pipeline being offline for two months in the second quarter. During the second quarter, the Company estimates that approximately 140 boe per day was offline due to the aforementioned production disruptions at both Gilby and Gordondale, including the delay of new well tie-ins due to wet surface conditions. Production averaged 2,460 boe per day for the second quarter, an increase of 93% over the second quarter of 2006 and a marginal decrease of 5% over the first quarter of 2007.

Orleans is very pleased with the results of its post-spring break-up drilling activity, drilling seven (6.9 net) wells in July and August at 100% success. Four gas wells (3.9 net) were drilled in Kaybob and three horizontal oil wells (3.0 net) were drilled in Leo. All wells are currently in various stages of completion, testing and tie-in.

The Kaybob property, located in West Central Alberta, is rapidly becoming a major focus area for the Company. In June 2007, Orleans announced the successful acquisition of 11.5 sections of lands via a Crown land sale and the subsequent "bought-deal" equity financing of $20.22 million, specifically to fund the land purchase and to accelerate drilling projects on the existing and newly acquired lands. Subsequently, Orleans has added five (4.9 net) additional sections of land in Kaybob via Crown land sales and farm-ins. Orleans, at the present time, has expanded its interests in the area from the original six gross sections to 27.5 gross sections (25.0 net). Orleans is focused on developing a large aerially-extensive natural gas prospect in the Montney formation characterized as long-reserves life, with "sweet spots" that can deliver significant initial gas rates. Orleans has applied for and received approval to drill on reduced spacing of three wells per section across the majority of its lands, excluding the acreage acquired in the aforementioned June 2007 land sale. The Company intends to submit similar applications to down space the newly acquired lands. With initial drilling success on the newly acquired lands, there is the potential to significantly increase the drilling inventory on the property. Thus far in 2007, Orleans has drilled seven wells (6.5 net) at Kaybob with 100% success and intends to drill an additional three to four wells in Kaybob through the remainder of the year. Orleans has transformed its drilling plans from vertical wells to a combination of deviated and horizontal wells drilled from common lease pads, reducing pipelining and lease construction costs.

At Leo/Halkirk, in Central Alberta, Orleans drilled three horizontal wells (3.0 net) in the Upper Mannville D&E oil pool in July 2007. The wells were recently tied-in to Orleans' operated battery installations. This is the first phase of development of the oil pool with up to three to four horizontal wells remaining to be drilled with the subsequent conversion of the pool to waterflood in 2008 for enhanced oil recovery.

In Pembina, on June 29, 2007, the Company brought on-stream a 100% interest Belly River gas well at an initial rate of two mmcf per day.

Outlook and Guidance

Thus far, 2007 is proving to be a challenging year in the oil and gas sector, due in part to weather-related factors, but primarily as a result of depressed natural gas prices. While the Company is confident that natural gas prices will rebound in the future, Orleans continues to remain committed to maintaining a strong balance sheet and ensuring capital expenditures are focused on relatively low risk, rapid return capital investment projects.

As a result of the July 2007 financing, and in consideration of the presently soft natural gas prices, Orleans intends to execute a 2007 exploration and development capital expenditures budget of approximately $42 million (net risked). The Company's drilling and completions expenditure component is projected at approximately $27 million, with the residual allocated towards investments in field facilities and well equipping of approximately $8 million, land acreage expansion in the amount of $6.4 million and seismic programs of $0.5 million. The Company has successfully "kicked-off" its second half 2007 operational activities and plans to drill up to 13 (11.8 net) wells on Company-lands, with particular emphasis on capital deployment directed towards its Kaybob asset base. Orleans is presently on track to achieve or exceed its projected year-end 2007 exit rate of 3,500 boe per day (weighted 80% natural gas). However, due to operational delays attributable to unfavourable surface conditions associated with the extended spring break-up, coupled with the presently off-lined Gordondale field anticipated to be back on-stream by mid-September 2007, the Company now expects average daily production for 2007 to range between 2,800 and 3,000 boe per day.

As a means to mitigate the volatility of commodity market prices and preserve valuable cash flow necessary for capital re-investment purposes, the Company has hedged approximately 30% of its corporate gas sales on a variety of costless collars and fixed price arrangements at an average minimum AECO floor price of $6.92 per gigajoule, between July 1 and December 31, 2007.

Orleans remains committed to growth on a per-share basis through acquisitions and internally-generated drilling prospects across the Company's five operated areas. Orleans's undeveloped land base offers a diverse array of Company-operated conventional light oil and natural gas prospects, all located within the Central, West Central and Peace River Arch corridor in Alberta. Orleans' inventory, in excess of 200 drilling locations and prospects, are characterized as low-to-moderate risk, offering long-reserves life (greater than ten years), year-round operations accessibility and processing to under-utilized Company-operated or mid-stream-owned processing facilities.

Management's Discussion & Analysis ("MD&A")

The following discussion is intended to assist the reader in understanding the business and results of operations and financial condition of Orleans Energy Ltd. (the "Company" or "Orleans"). This MD&A should be read in conjunction with the unaudited interim financial statements for the three month and six months periods ended June 30, 2007 and the audited consolidated financial statements for the year ended December 31, 2006.

Orleans Energy Ltd. is a Calgary, Alberta-based crude oil and natural gas company. Orleans is incorporated under the laws of Alberta and its common shares are publicly listed and traded on the TSX Venture Exchange under the trading symbol "OEX".

Unaudited financial and operating information for the three month interim period ended June 30, 2007 ("Q207") and the corresponding comparable quarterly period ended June 30, 2006 ("Q206"), is presented within this MD&A commentary. Additionally, unaudited financial and operating information for the six month period ended June 30, 2007 ("H107") and the comparable prior year six month period ended June 30, 2006 ("H106") is disclosed.

In this MD&A, production data is commonly stated in barrels of oil equivalent ("boe") using a six (6) to one (1) 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 six (6) mcf: one (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.

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, as disclosed within this MD&A, represents funds from operations before any asset retirement obligation cash expenditures and is expressed before changes in non-cash working capital. The Company presents cash flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share. Please refer to the table, Reconciliation of Non-GAAP Measures, contained within this MD&A.

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.

For additional information relating to Orleans, please refer to other filings as filed on SEDAR at www.sedar.com. All amounts are reported in Canadian dollars, unless otherwise stated. This MD&A includes information up to and including August 27, 2007.

Corporate Overview

Orleans is actively engaged in the exploration for, development and production of natural gas, crude oil and natural gas liquids reserves within the province of Alberta. As of August 27, 2007, Orleans' market capitalization is approximately $113 million. Current production is weighted approximately 75% natural gas and 25% light oil and NGLs. The Company's production base is generated from six principal producing areas throughout Central Alberta (Gilby and Halkirk/Leo), West Central Alberta (Pine Creek and Kaybob) and the Peace River Arch (Gordondale and Grimshaw). Orleans' asset base provides for a solid growth platform, including: (i) an extensive, operated drilling inventory providing exposure to both light oil and natural gas prospects within a West Central Alberta geographic corridor, (ii) access to approximately 67,000 acres of high working interest (78%) undeveloped acreage offering geologic play diversity, (iii) a long-life, proved plus probable reserves base at year-end 2006 of approximately 11.4 million barrels of oil equivalent with a reserve life index exceeding 10 years and (iv) an operated production base allowing for year-round access across six producing areas exclusively within the province of Alberta.



Selected Period End and Quarterly Financial Information

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2006 Quarterly 2007 Quarterly
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($000s) Q406 Q306 Q206 Q106 Q107 Q207
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Petroleum & natural gas
revenue 11,038 9,777 5,912 5,720 12,381 11,989
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Cash flow from operations 5,461 5,219 3,362 3,177 6,066 5,143
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Net earnings / (loss) (17,006) (128) (1,346) 642 (913) (128)
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Total assets - period end 188,325 192,609 180,598 55,109 191,627 194,076
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2005 Quarterly
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($000s) Q405 Q305 Q205 Q105
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Petroleum & natural gas revenue 8,453 6,980 3,982 2,596
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Cash flow from operations 4,973 4,442 2,342 1,304
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Net earnings 16,203 2,406 856 69
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Total assets - period end 50,684 32,196 28,795 24,216
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The following commentary will assist in providing the reader with factors that have caused variations over the aforementioned quarterly and period-end results.

Petroleum and Natural Gas Production

During the second quarter of 2007, the Company's production on an oil equivalent basis increased 93% to 2,460 boe per day, as compared to the 1,274 boe per day in Q206. Orleans' gas sales for Q207 averaged 10,673 mcf per day and crude oil and NGLs production averaged 682 bbls per day. A prolonged spring break-up followed by unseasonably wet weather delayed the Company's tie-in and drilling operations in the second quarter. Additionally, an extended third party-operated gas plant turnaround in June at Gilby, coupled with the curtailment of production at Gordondale due to the main sales gas pipeline being offline for two months in the quarter, impaired any sequential production growth over the first quarter of 2007. The Company, with recent operational momentum resulting from drilling successes at both Kaybob and Leo, is presently on-track to achieve or exceed its forecasted year-end 2007 exit rate market guidance of 3,500 boe per day.

During the first six months of this year, Orleans' natural gas production averaged 10,669 mcf per day and crude oil and NGLs production averaged 743 bbls per day. On a combined barrel of oil equivalent basis, average daily production for this six month 2007 period was 2,521 boe per day.



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Average Daily Production Natural Gas Crude Oil & NGLs Oil Equivalent
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(mcf/d) (bbls/d) (boe/d)
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Q105 1,404 325 559
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Q205 2,385 435 832
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Q305 3,231 662 1,200
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Q405 4,160 685 1,378
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Q106 3,426 576 1,147
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Q206 4,334 552 1,274
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Q306 8,349 789 2,181
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Q406 9,428 809 2,380
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Q107 10,665 805 2,583
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Q207 10,673 682 2,460
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Petroleum and Natural Gas Revenue and Commodity Pricing

The Company's total petroleum and natural gas revenue (before royalties and transportation costs) for the three month period ended June 30, 2007 amounted to $11.99 million (including the positive revenue, non-cash adjustment of $354 thousand resulting from the prospective adoption of new accounting standards effective January 1, 2007 as outlined in the notes to the financial statements for the three month period ended June 30, 2007). This realized revenue level represents a 103% increase from the corresponding Q206 sales amount of $5.91 million. Of this $6.08 million increase over Q206, 95% is due to increased production volumes and 5% is due to higher commodity prices in Q207 vis-a-vis Q206. Orleans' petroleum and natural gas revenue for the six months ended June 30, 2007 amounted to $24.37 million (including the positive revenue, non-cash adjustment of $547 thousand resulting from the prospective adoption of new accounting standards effective January 1, 2007), representing a 110% increase from the corresponding 2006 six month period.



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Second Quarter First Half
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($000s) Q207 Q206 % Change H107 H106 % Change
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Crude oil &
NGLs 4,422 3,410 30 8,920 6,575 36
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Natural gas 7,567 2,502 202 15,450 5,056 206
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Total Revenue 11,989 5,911 103 24,370 11,631 110
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The following highlights Orleans' corporate realized prices and benchmark
market prices:

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Second Quarter First Half
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Q207 Q206 % Change H107 H106 % Change
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Orleans'
prices (1):
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Natural gas
($/mcf) 7.79 6.34 23 7.90 7.20 10
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Crude oil and
NGLs ($/bbl) 65.61 67.91 (3) 63.70 64.43 (1)
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Oil equivalent
($/boe) 51.97 50.99 2 52.21 53.07 (2)
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Industry
benchmark
prices:
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WTI Cushing oil
(US$/bbl) 64.95 70.51 (8) 63.40 66.93 (5)
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Edmonton Par oil
($/bbl) 72.69 79.06 (8) 71.77 74.16 (3)
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Nymex Henry Hub
(US$/mmbtu) 7.65 6.65 15 7.27 7.16 2
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AECO gas ($/mcf) 6.94 5.87 18 6.84 6.66 3
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(1) Orleans' reported prices are net of realized hedging results and before
new accounting standards adjustment for hedging.


Orleans' commodity prices are driven by the prevailing worldwide price for crude oil, spot prices applicable to its gas production and many other factors beyond the Company's control. Historically, these prices have been volatile and unpredictable. Near the latter part of June 2007, current and forward market prices for natural gas began to erode significantly, primarily due to higher North American gas storage levels, as compared to levels of prior years, and a much stronger Canadian dollar vis-a-vis the U.S. dollar. As well, the buoyant W.T.I. crude oil price continues to be substantially tempered in Canadian dollars due to the stronger Canadian currency. Thus, commodity price volatility continues to persist within the industry. Consequently, the Company utilizes a commodity hedging program to partially mitigate the price volatility and facilitate the generation of more predictable cash flows to fund its capital expenditures. As such, from time-to-time, the Company may employ financial instruments to manage fluctuations in oil and gas market prices, which are generally put in-place with investment grade counter-parties, which the Company believes present minimal credit risks.

The following table outlines the commodity price risk management contracts that were outstanding during the quarter ended June 30, 2007. The total fair value of these outstanding contracts at June 30, 2007 is a gain of $644 thousand (June 30, 2006: nil) and is included on the Company's balance sheet as Risk Management Asset.



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Hedging Summary - As at June 30, 2007
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Daily Collar - Collar -
Commodity Volume Fixed Swap Floor Ceiling Term
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Aug '06 -
Oil - WTI 125 bbls US$ 77.25/bbl Jul '07
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Apr '07 -
Oil - WTI 150 bbls US$ 59.30/bbl US$ 70.00/bbl Dec '07
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Aug'07 -
Oil - WTI 125 bbls US$ 67.85/bbl Dec '07
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Gas - Feb '07 -
AECO-C 1,000 GJs C$ 6.50/GJ C$ 9.08/GJ Dec '07
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Gas - Apr '07 -
AECO-C 1,000 GJs C$ 6.50/GJ C$ 8.52/GJ Oct '07
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Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.00/GJ C$ 9.00/GJ Dec '07
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Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.00/GJ C$ 9.08/GJ Dec '07
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Gas - Apr '07 -
AECO-C 1,000 GJs C$ 7.70 /GJ Oct '07
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As a result of the Company's hedging activities, realized petroleum and natural gas sales are affected by the settlement of these transactions by way of an opportunity gain or loss depending on the hedged commodity price in comparison to the period market prices. The various hedge contracts in-place throughout Q207 resulted in a realized hedging opportunity gain of $353 thousand (Q206: nil), comprised of a $199 thousand increase in natural gas revenues ($0.21 per mcf) and a $154 thousand increase in crude oil and NGLs sales ($2.47 per bbl). The hedge contracts in-place throughout the first six months of 2007 resulted in a realized opportunity hedging gain of $638 thousand (H106: nil), comprised of a $234 thousand increase in natural gas revenues ($0.12 per mcf) and a $404 thousand increase in crude oil and NGLs sales ($3.00 per bbl).

On January 1, 2007 the Company adopted the new accounting standards regarding the accounting for financial instruments. In addition to the adoption of the new standards, Orleans has elected not to use hedge accounting and consequently records the fair value of its commodity hedge contracts at each reporting period with the change in the fair value being classified as unrealized gains and losses in the Statement of Operations and Comprehensive Income. The accounting for hedging relationships for prior fiscal periods are not retroactively changed, therefore, there was no restatement of the financial position or results of operation as at and for the six months ended June 30, 2006.

On adoption, the Company recognized a current asset of $606 thousand for the fair value of its commodity hedge contracts which were outstanding at January 1, 2007, with a corresponding increase to accumulated other comprehensive income of $425 thousand (net of tax of $181 thousand). The $425 thousand in accumulated other comprehensive income will be amortized through other comprehensive income and petroleum and natural gas revenue on the Statement of Operations and Comprehensive Income over the term of the hedge contracts. For Q207, $248 thousand was amortized through other comprehensive income with a corresponding pre-tax revenue recognition of $354 thousand and a charge to future income tax expense of $105 thousand.

Petroleum and Natural Gas Royalties

Orleans' petroleum and natural gas royalties for the three month period ended June 30, 2007 amounted to $1.97 million, resulting in a corporate effective royalty rate of 16.5%. Approximately 69% of the Company's total royalties for this period relate to Alberta Crown royalties with the remaining 31% pertaining to freehold and overriding royalties. During Q206 the Company's total royalties amounted to $983 thousand. The aggregate increase in Q207 of $991 thousand is primarily attributable to higher production volumes realized in Q207 vis-a-vis Q206, as the corporate effective royalty rate in both periods paralleled one another. This overall increase in royalties in Q207 was tempered somewhat by the year-end 2006 Crown capital cost credit recovery adjustment of $281 thousand received by the Company during Q207. As well, the Company's Pine Creek gas wells continue to be exempt from Crown royalties due to their deep gas Crown royalty holiday status, which results in a lower corporate effective royalty rate.

Orleans' petroleum and natural gas royalties for the six month period ended June 30, 2007 amounted to $4.26 million with a corporate effective royalty rate of 17.5%. In the corresponding six month period ended June 30, 2006, the Company's total royalties amounted to $2.19 million. Notwithstanding a relatively similar corporate effective royalty rate to that in H106, the aggregate $2.07 million increase in royalties in H107 is primarily the result of higher production volumes realized in H107 as compared to H106.



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Second Quarter First Half
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($000s) Q207 Q206 % Change H107 H106 % Change
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Crown 1,363 564 142 2,871 1,225 134
Freehold and
overrides 611 419 46 1,391 963 44
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Total Royalties 1,974 983 101 4,262 2,188 95
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Corporate
royalty rate (%) 17 17 18 19
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Operating Expenses

Orleans' field operating expenditures for the three month period ended June 30, 2007 amounted to $3.05 million. In the aggregate, this was a 197% increase over the $1.03 million reported in the same period last year. Orleans' field operating expenses are generally impacted by the level of well-bore maintenance activity, geographic location of the Company's properties, whether oil and gas is produced, and the underlying commodity price levels. Commodity prices directly affect operating cost elements such as power, fuel and chemicals. The remaining primary elements, which include among other things, field labour, services and equipment, are indirectly impacted by high price environments, which drive up activity and demand and therefore, increase costs. All components of operating expenses have been increasing throughout the oil and gas industry for several years in concert with historically strong commodity prices.

In Q207, in comparison to prior quarters since corporate inception, the Company was very active with well-bore maintenance activity, resulting in per-unit operating costs of $13.61 per boe in Q207. In addition to continued inflationary pressures exerted on the Company's operating cost profile, a higher level of well-bore production optimization activity and the off-lined production at Gordondale for two months in Q207 resulted in a sharp per-unit increase in field production costs vis-a-vis the first quarter of 2007 of $10.23 per boe. Orleans' well maintenance activities in Q207 encompassed: (i) downhole pump and rod changes on two wellbores at Halkirk, two wells at Gordondale and one well at Leo, (ii) tubing string replacement on a Gilby area well, and (iii) a perforation workover on a Killam well. Additionally, Orleans incurred fixed operating costs at Gordondale throughout Q207 despite the complete curtailment of production from this field for May and June of 2007 due to the main sales gas pipeline being offline. Shut-in production during Q207 at Gordondale contributed to the higher per-unit operating costs of approximately $1.30 per boe, thus placing upward pressure on Q207 operating costs. The Company's operating costs for the six month period ended June 30, 2007 amounted to $5.42 million, or $11.89 per boe.

On a go-forward basis, based on the projected core area breakdown of the Company's year-end 2007 exit rate production profile, Orleans anticipates realizing per-unit operating cost improvements in the fourth quarter of 2007 and into 2008, resulting in a per-unit field production cost range of $9.50 to $10.50 per boe.



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Total ($000s) 3,046 1,025 197 5,424 1,995 172
----------------------------------------------------------------------------
Per unit ($/boe) 13.61 8.84 54 11.89 9.10 31
----------------------------------------------------------------------------


Transportation Expenses

In Q207, Orleans' cost of transporting and distributing its crude oil and natural gas production to market delivery points amounted to $269 thousand, as compared to Q206 transportation expenses of $103 thousand. Increased production volumes, supplemented with increased clean oil trucking rates and Nova gas pipeline fuel surcharges resulted in transportation cost increases, both on an aggregate and per-unit basis. On a unit-of-production basis, transportation costs in Q207 were $1.20 per boe as compared to the $0.89 per boe realized in Q206. For the six month period ended June 30, 2007, the Company's transportation expenses amounted to $524 thousand, as compared to H106 transportation expenses of $209 thousand. On a unit-of-production basis, transportation costs in H107 were $1.15 per boe as compared to the $0.96 per boe realized in H106.



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Total ($000s) 269 103 161 524 209 151
----------------------------------------------------------------------------
Per unit ($/boe) 1.20 0.89 35 1.15 0.96 20
----------------------------------------------------------------------------


General & Administrative Expenses

The Company's general and administrative ("G&A") expenses related to its Calgary-based, head office operations (excluding the non-cash stock-based compensation provision), amounted to $516 thousand during the three month period ended June 30, 2007, or $2.30 on an oil-equivalent per-unit basis. Orleans' aggregate G&A costs in Q207 increased $189 thousand or 58% as compared to Q206. The higher G&A expenses in Q207 are related to costs incurred for: additional head office staff necessary to manage a significantly larger asset base, the Company's annual meeting of shareholders held on June 6, 2007 and related shareholder reporting information, and additional bank fees pursuant to the Company's expanded bank credit facility. The Company's per-unit G&A costs are anticipated to marginally decrease as production levels increase over the balance of this year and into 2008.

The Company presently employs 15 head office personnel, including eight geological and engineering technical personnel, and engages the services of four consultants on a part-time basis. The Company applies the full cost method of accounting for its oil and gas operations. Accordingly, it capitalized employee compensation and associated direct overhead costs of its technical personnel in the amount of $241 thousand during the three month period ended June 30, 2007. In Q206, capitalized G&A amounted to $172 thousand.



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Gross, net
recoveries 757 499 52 1,500 852 76
Capitalized (241) (172) 40 (445) (312) 43
----------------------------------------------------------------------------
Expensed 516 327 58 1,055 540 95
----------------------------------------------------------------------------
Per unit ($/boe) 2.30 2.82 (18) 2.31 2.46 (6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
% Capitalized 32 34 30 37
----------------------------------------------------------------------------


Stock-Based Compensation

Orleans utilizes the fair value method for measuring stock-based compensation expenses. The Company's stock-based compensation relates entirely to the granting of stock options. During the three month period ended June 30, 2007, the Company recorded non-cash stock-based compensation expense of $199 thousand, as compared to $202 thousand recognized in the corresponding 2006 quarter. In Q207, the Company capitalized $175 thousand of its stock-based compensation charges, as compared to Q206 whereby no stock-based compensation was capitalized.



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Stock-based
compensation 199 202 (1) 349 331 5
----------------------------------------------------------------------------


Interest Charges

In Q207, Orleans incurred $610 thousand in interest expenses relating to the debt servicing of its outstanding bank indebtedness. As at June 30, 2007, the Company had $53.28 million of outstanding bank debt, as compared to $38.78 million of bank indebtedness at December 31, 2006 and $34.21 million at June 30, 2006. In comparison to December 31, 2006, Orleans' bank debt increased in H107 primarily as a result of exploration and development capital investments exceeding operating cash flow for the period. As at August 27, 2007, the Company had $33.23 million of bank debt outstanding.

Additionally, the Company accrued for the federal government's levied interest charges related to Orleans' November 2006 flow-through share financing, specifically the unspent portion of previously renounced exploration expenditure deductions. In Q207, this interest charge was accrued in the amount of $78 thousand and $149 thousand for H107 and will be disbursed by the end of February 2008.



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Interest charges 688 111 520 1,348 161 737
----------------------------------------------------------------------------


Depletion, Depreciation and Accretion

Orleans' depletion and depreciation expense for the three month period ended June 30, 2007 amounted to $6.60 million. This provision for the depletion and depreciation of the Company's asset base, in absolute dollars, was $3.05 million higher than Q206 due to increased production volumes. On a unit-of-production rate basis, the depletion and depreciation provision for Q207 was $29.49 per boe (excluding the accretion on the Company's asset retirement obligation), as compared to $30.65 per boe for the comparable Q206 period. The Company's depletion and depreciation expense for the six month period ended June 30, 2007 amounted to $13.27 million or $29.08 per boe, as compared to $5.42 million or $25.31 per boe in H106.

The Company's accretion expense relating to its asset retirement obligations ("ARO") amounted to $118 thousand for the three month period ended June 30, 2007, as compared to $73 thousand for the comparable Q206. Higher accretion has been reported as a result of the additional ARO recognized pursuant to the acquisitions of both Morpheus and Mercury in June 2006.



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Depletion &
depreciation 6,602 3,553 86 13,268 5,416 145
Accretion on ARO 118 73 62 234 131 79
----------------------------------------------------------------------------
Total 6,720 3,626 85 13,502 5,547 143
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Per unit ($/boe) 30.02 31.28 (4) 29.59 25.31 17
----------------------------------------------------------------------------


Income and Capital Taxes

Orleans follows the liability method of accounting for income taxes whereby future income taxes are calculated based on temporary differences arising from the variance between the tax basis of an asset or liability and its property, plant and equipment carrying value. For the three-month period ended June 30, 2007, the Company recorded a future income tax reduction of $849 thousand, as compared to an $879 thousand future tax expense provision in Q206. During the quarter ended June 30, 2007, Orleans was not subject to any corporate income tax due to the Company's significant tax pool balances, which aggregate to approximately $154 million. As a result of Orleans' sizeable tax pool position, the Company does not expect to be subject to corporate cash income tax in the foreseeable future. Additionally, during Q207, the Company was not liable for the payment of the large corporation capital tax as this tax was retroactively eliminated at January 1, 2006 by the Federal government.

The following table outlines the Company's projected tax pools available for deduction against future taxable income (net of anticipated pool usage necessary to eliminate estimated H107 taxable income).



----------------------------------------------------------------------------
Access Rate Balance
----------------------------------------------------------------------------
($ millions)
----------------------------------------------------------------------------
Canadian exploration expense (CEE) 100% $ 4.70
----------------------------------------------------------------------------
Canadian development expense (CDE) 30% 64.94
----------------------------------------------------------------------------
Canadian oil and gas property expense (COGPE) 10% 36.09
----------------------------------------------------------------------------
Undepreciated capital cost (UCC) 25% 39.34
----------------------------------------------------------------------------
Non-capital losses (NCL) 100% 9.48
----------------------------------------------------------------------------
Share issue costs 20% 3.07
----------------------------------------------------------------------------
Total $ 157.62
----------------------------------------------------------------------------


Reconciliation of Non-GAAP Measures

----------------------------------------------------------------------------
Second Quarter
----------------------------------------------------------------------------
($000s except share data) Q207 Q206
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net earnings (loss) (128) (1,346)
----------------------------------------------------------------------------
Non-cash items:
----------------------------------------------------------------------------
Depletion & Depreciation 6,602 3,553
----------------------------------------------------------------------------
ARO accretion 118 73
----------------------------------------------------------------------------
Stock-based compensation 199 202
----------------------------------------------------------------------------
Reclassification to net earnings on gains from
cash flow hedges (353) -
----------------------------------------------------------------------------
Unrealized gain on commodity contracts (445) -
----------------------------------------------------------------------------
Future income taxes (reduction) (849) 879
----------------------------------------------------------------------------
Change in non-cash working capital 675 2,720
----------------------------------------------------------------------------
Cash flow from operating activities 5,818 6,082
----------------------------------------------------------------------------

----------------------------------------------------------------------------
First Half
----------------------------------------------------------------------------
($000s except share data) 1H07 1H06
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net earnings (loss) (1,041) (704)
----------------------------------------------------------------------------
Non-cash items:
----------------------------------------------------------------------------
Depletion & Depreciation 13,268 5,416
----------------------------------------------------------------------------
ARO accretion 234 131
----------------------------------------------------------------------------
Stock-based compensation 349 331
----------------------------------------------------------------------------
Reclassification to net earnings on gains from
cash flow hedges (547) -
----------------------------------------------------------------------------
Unrealized gain on commodity contracts (38) -
----------------------------------------------------------------------------
Future income taxes (reduction) (1,016) 1,365
----------------------------------------------------------------------------
Change in non-cash working capital (823) 2,724
----------------------------------------------------------------------------
Cash flow from operating activities 10,386 9,263
----------------------------------------------------------------------------


Operating Cash Flow and Net Earnings

Orleans' profitability and cash flow generation is primarily a function of commodity prices, the cost to add reserves through drilling and acquisitions and the cost to produce the Company's reserves. In the three month period ended June 30, 2007, Orleans recorded $5.14 million in cash flow from operations ($0.16 per basic share) and posted a net loss of $128 thousand ($nil per basic share). For the corresponding period in Q206, the Company generated $3.36 million in cash flow from operations ($0.15 per basic share) and a $1.35 million loss ($0.07 per basic share). Higher depletion and depreciation non-cash charges in the period negatively impacted the Company's earnings recognition.

During the six month period ended June 30, 2007, Orleans realized $11.21 million in cash flow from operations ($0.34 per basic share) and a net loss of $1.04 million ($0.03 per basic share). For the comparable period in H106, the Company generated $6.54 million in cash flow from operations ($0.38 per basic share) and a $704 thousand loss ($0.04 per basic share).



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s except
share data) Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Cash flow from
operations (1) 5,143 3,361 53 11,209 6,539 71
----------------------------------------------------------------------------
Per share -
basic ($) 0.16 0.17 (6) 0.34 0.38 (11)
----------------------------------------------------------------------------
Per share -
diluted ($) 0.15 0.16 (6) 0.34 0.36 (6)
----------------------------------------------------------------------------
Net Earnings /
(loss) (128) (1,346) (90) (1,041) (704) 48
----------------------------------------------------------------------------
Per share -
basic ($) - (0.07) - (0.03) (0.04) (25)
----------------------------------------------------------------------------
Per share -
diluted ($) - (0.07) - (0.03) (0.04) (25)
----------------------------------------------------------------------------
(1) Cash flow from operations does not have any standardized meaning
prescribed by Canadian GAAP and accordingly represents Funds from
Operations before any asset retirement obligation cash expenditures. As
an indicator of the Company's performance, the term cash flow from
operations or operating cash flow contained within should not be
considered as an alternative to, or more meaningful than, cash flow from
operating activities as determined in accordance with Canadian GAAP.


Capital Expenditures

The Company's capital investments encompass exploration, development and acquisition activities, which generally include the following:

- Drilling and completing new natural gas and oil wells;

- Constructing and installing new field production infrastructure;

- Acquiring and maintaining the Company's lease acreage position and its seismic resources;

- Enhancing existing natural gas and oil wells through well-bore re-completions;

- Acquiring additional natural gas and oil reserves and producing properties; and,

- General and administrative costs directly associated with exploration and development activities, including payroll and other overhead expenses attributable solely to the Company's technical employees.

During the three month period ended June 30, 2007, Orleans invested $10.84 million in oil and gas exploration and development capital expenditures. An unusually wet second quarter in Alberta resulted in an early and prolonged spring break-up, delaying the start-up of the Company's drilling and tie-in operations in Q207. As a result, Orleans commenced its Q207 drilling operations during the last week of June 2007 and did not "rig release" a well in the second quarter. The Company significantly expanded its land holdings at Kaybob in West Central Alberta through successful participation at a strategic Alberta Crown land sale held on June 13, 2007. Orleans acquired 11.5 sections (100% working interest) of land, essentially doubling the Company's ownership presence within its Kaybob asset base. The breakdown of Orleans' capital expenditures programs are outlined below:



----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q207 Q206 % Change H107 H106 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Land 5,691 3,011 89 5,729 5,478 5
----------------------------------------------------------------------------
Seismic (33) 14 - 227 201 13
----------------------------------------------------------------------------
Drilling &
completions 3,780 4,569 (17) 10,508 7,548 39
----------------------------------------------------------------------------
Facilities &
well equipment 1,398 1,108 26 5,362 1,787 200
----------------------------------------------------------------------------
Exploration &
development 10,836 8,702 25 21,826 15,014 45
----------------------------------------------------------------------------
Other 512 209 145 940 359 162
----------------------------------------------------------------------------
Property
purchases (1,139) (30) - (1,139) 1,157 -
----------------------------------------------------------------------------
Corporate
acquisitions(1) - 110,581 - - 110,581 -
----------------------------------------------------------------------------
Total capital
expenditures 10,209 119,462 - 21,627 127,111 -
----------------------------------------------------------------------------

(1) Includes total consideration paid (cash, shares issued and transactions
costs) for acquisitions and working capital and assumption of debt.


Liquidity and Capital Resources

At June 30, 2007, Orleans was capitalized with a working capital deficit of $53.18 million (including bank debt of $53.28 million and excluding the non-cash risk management current asset of $644 thousand), and 33.23 million common shares outstanding with a book capitalization of $118.33 million and a market capitalization of $132.2 million. In comparison, at June 30, 2006, the Company was capitalized with a working capital deficit of $36.22 million (including bank debt of $34.21 million), and 30.46 million common shares outstanding with a book capitalization of $109.72 million and a market capitalization of $178.19 million.



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

($000) June 30, 2007 December 31, 2006 % Change
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Bank debt 53,281 38,781 37
----------------------------------------------------------------------------
Working capital (surplus)
deficit (1) (99) 4,445 -
----------------------------------------------------------------------------
Net debt 53,182 43,226 23
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Book capitalization (2) 118,329 122,736 (4)
----------------------------------------------------------------------------
Market capitalization (3) 132,239 114,363 16
----------------------------------------------------------------------------

Note 1: Reflects current assets (excluding non-cash risk management asset)
less current liabilities (excluding outstanding bank debt).
Note 2: Reflects the book value of share capital, as reported on the
Company's respective balance sheets.
Note 3: Based on the market closing price of Orleans stock and the
outstanding number of common shares at period end.


At June 30, 2007, the Company had borrowings of $53.28 million (December 31, 2006: $38.78 million) under its bank facility with a Canadian chartered bank and was in compliance with all covenant terms of the credit agreement. The increase in the bank debt position of the Company at June 30, 2007, as compared to December 31, 2006, is directly attributable to capital investments incurred in the first six months of 2007 exceeding the cash generated through operating activities within that period. As at August 27, 2007, the Company had $33.23 million of bank debt outstanding.

On April 10, 2007, the Company entered into a new credit agreement with a major Canadian chartered bank. The new credit agreement increased the borrowing base of the revolving demand facility to $60 million. The borrowing base, which is re-determined semi-annually, represents the amount that can be borrowed from a credit standpoint based on, among other things, the Company's current reserve report, results of operations, current and forecasted commodity prices and the current economic environment, as confirmed by the bank.

In 2007, the Company expects its cash flow from operations and the recently closed equity financing to be its primary source of liquidity to meet operating, general and administrative and interest expenses, and fund planned spending on exploration and development capital projects and undeveloped acreage. The aforementioned $60 million revolving bank credit facility will provide another source of liquidity. The Company anticipates that public capital markets will serve as the principal source of funds to finance any future substantial corporate acquisitions and/or significant property purchases. Orleans has sold equity securities in the past, and the Company expects that this source of capital will be available in the future for acquisition purposes and/or any contemplated increase in its capital expenditures budget.

On July 12, 2007, the Company closed a bought-deal equity financing (the "Financing"). Pursuant to the Financing, Orleans issued 1.5 million flow-through common shares at a price of $5.45 per share and 2.8 million common shares at a price of $4.30 per share, for total gross proceeds of $20,215,000. Proceeds from the flow-through share component of the Financing, in the amount of $8,175,000, will be used to incur Canadian exploration expenditures prior to December 31, 2008, with such expenditures to be renounced to the subscribers of the flow-through common shares in the fiscal year ended December 31, 2007.

Common Share Information



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

----------------------------------------------------------------------------
2006 Quarterly
----------------------------------------------------------------------------
Q406 Q306 Q206 Q106
----------------------------------------------------------------------------
Share Price: High $ 4.52 $ 6.60 $ 6.50 $ 6.99
----------------------------------------------------------------------------
Low $ 3.37 $ 3.45 $ 5.11 $ 5.05
----------------------------------------------------------------------------
Close $ 3.45 $ 4.05 $ 5.85 $ 6.35
----------------------------------------------------------------------------
Avg. daily trading volume 48,200 51,083 25,109 25,560
----------------------------------------------------------------------------
Shares outstanding
- period end (1) 33,148,659 30,518,659 30,459,493 15,099,047
----------------------------------------------------------------------------
Weighted average basic 31,890,833 30,498,276 19,708,637 15,099,047
----------------------------------------------------------------------------
Weighted average diluted 32,533,845 31,293,929 20,759,015 16,047,634
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
2007 Quarterly
----------------------------------------------------------------------------
Q107 Q207
----------------------------------------------------------------------------
Share Price: High $ 4.05 $ 4.55
----------------------------------------------------------------------------
Low $ 2.75 $ 3.53
----------------------------------------------------------------------------
Close $ 3.70 $ 3.98
----------------------------------------------------------------------------
Avg. daily trading volume 64,247 89,663
----------------------------------------------------------------------------
Shares outstanding - period end (1) 33,148,659 33,225,889
----------------------------------------------------------------------------
Weighted average basic 33,148,659 33,209,828
----------------------------------------------------------------------------
Weighted average diluted 33,743,616 33,833,429
----------------------------------------------------------------------------

Note 1: As of the date of this MD&A, total common shares issued and
outstanding are 37,525,889.


Contractual Obligations

Orleans is committed to various contractual obligations and commitments in
the normal course of operations and financing activities. These are outlined
as follows:

----------------------------------------------------------------------------
($000s) Less than Beyond 5
1 Year 1-3 Years 4-5 Years Years Total
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Bank debt (1) 53,280 - - - 53,280
----------------------------------------------------------------------------
Operating lease
obligations (2) 311 1,403 1,308 1,144 4,166
----------------------------------------------------------------------------
Asset retirement
obligations(3) 172 1,204 1,232 9,857 12,465
----------------------------------------------------------------------------
Total obligations 53,763 2,607 2,540 11,001 69,911
----------------------------------------------------------------------------

Note 1: Revolving credit facility with a Canadian chartered bank. Refer to
Note 5 to the unaudited financial statements for the six month
period ended June 30, 2007.

Note 2: Operating lease obligations pertain to the Company's Calgary,
Alberta-based office lease entered into on February 16, 2007.

Note 3: As at June 30, 2007, total undiscounted future asset retirement
obligation costs to be accrued over the life of the remaining
total proved are estimated at $12.46 million (adjusted for
inflation). This estimate is subject to change based on amendments
to environmental laws and as new information with respect to the
Company's operations become available. Refer to Note 6 to the
unaudited financial statements for the six month period ended June
30, 2007.


In 1996, a lawsuit was filed against the Company's predecessor, Orleans Resources Inc. and the "procureur general du Quebec". Since the Company is of the opinion that this lawsuit against Orleans Resources Inc. is unwarranted and will have no material adverse effect on the Company's financial position or on the results of operations, no provision has been recorded in this respect. If the Company has to pay any amount in this affair, this amount will be paid by issuing reserved common shares, at a price of $6.00 per share. The maximum number of common shares that would have to be issued would be 666,118 shares, representing the full lawsuit value amount of $3.996 million.

Additionally, refer to Note 7c) to the unaudited interim financial statements for the three month period ended June 30, 2007, which outlines the Company's requirements to incur by December 31, 2007 flow-through share eligible Canadian Exploration Expenditures, as defined in the Income tax Act (Canada).

Off-Balance Sheet Arrangements

The Company does not presently utilize any off-balance sheet arrangements to enhance its liquidity and capital resource positions, or for any other purpose. During the three month and six month periods ended June 30, 2007 Orleans did not enter into any off-balance sheet transactions.

Related Party Transactions

Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion of related party transactions. During the three month period ended June 30, 2007, the Company incurred $16 thousand of deemed "related party" transactions (June 30, 2006: $180 thousand).

New Accounting Standards in 2007

Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") handbook section 1530 "Comprehensive Income", section 3251 "Equity", section 3855 "Financial Instruments - Recognition and Measurement", section 3861 "Financial Instruments - Disclosure and Presentation", and section 3865 "Hedges". These standards result in changes in the accounting for financial instruments and hedges as well as introduce comprehensive income as a separate component of shareholders' equity. The Company has adopted these standards prospectively. See note 3 to the unaudited interim consolidated financial statements for the three month period ended March 31, 2007 and note 3 to the unaudited interim financial statements for the three month period ended June 30, 2007. The adoption of these standards had no material impact on the Company's net earnings or cash flows.

Disclosure Controls and Procedures and Internal Controls Over Financial Reporting

Orleans' President and Chief Executive Officer ("CEO") and Vice President, Finance and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in Multilateral Instrument 52-109. The Company's CEO and CFO have designed disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that information to be disclosed by Orleans is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. The CEO and CFO have also designed internal controls over financial reporting, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion of the Company's internal control weaknesses. During the quarter ended June 30, 2007, there have been no changes to Orleans' internal controls over financial reporting that have materially, or are reasonably likely to, materially affect the internal controls over financial reporting. Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, error or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute assurance, that the objectives of the control system are met.

Business Risks and Uncertainties

Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion of risks and uncertainties the Company is exposed to.

New Greenhouse Gas and Air Emissions Legislation

The Alberta Government has introduced legislation that will enable the Province of Alberta to regulate emissions of "greenhouse gases". The regulations require facilities that emit over 100,000 tonnes of greenhouse gases a year to reduce their emissions intensity by 12% starting July 1, 2007 or pay a fee based on emissions in excess of the targeted reductions. The Federal Government has also released its regulatory framework to reduce emissions of both greenhouse gases and four smog-forming pollutants with targets coming into force in 2010 and 2015, respectively. Clarification surrounding the regulations is expected in the next year with the regulations to be finalized by 2010. There are multiple compliance mechanisms under both the Alberta and Federal plans including making contributions to technology funds, emissions trading and offset credits. The Company is in the process of fully evaluating the impact of these regulations, but Orleans believes that the cost and impact on its operations will be minor.

Application of Critical Accounting Policies and Estimates

Management is required to make judgments and use estimates in the application of generally accepted accounting principals that have a significant impact on the financial results of the Company. Please refer to the Management's Discussion and Analysis for the year-ended 2006 for a discussion outlining these accounting policies and practices, which are critical in determining Orleans' financial results.

The Company's unaudited interim financial statements for the three and six month periods ended June 30, 2007 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, anticipations, expectations, intentions, 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, December 31,
2007 2006
------------- --------------
ASSETS (unaudited)

Current Assets
Cash and cash equivalents $ 893,741 $ 273,165
Accounts receivable 7,495,068 11,072,319
Prepaid expenses and deposits 595,004 749,873
Risk management asset (Note 11b) 643,781 -
------------- --------------
9,627,594 12,095,357

Property, plant and equipment (Note 4) 184,448,191 176,229,557
------------- --------------

$ 194,075,785 $ 188,324,914
------------- --------------
------------- --------------
LIABILITIES

Current Liabilities
Accounts payable and accrued liabilities $ 8,884,461 $ 16,539,909
Bank loan (Note 5) 53,280,623 38,781,291
------------- --------------
62,165,084 55,321,200

Asset retirement obligations (Note 6) 5,117,163 5,023,743

Future income tax liability 5,808,059 2,197,469
------------- --------------

$ 73,090,306 $ 62,542,412
------------- --------------
------------- --------------
SHAREHOLDERS' EQUITY

Share capital (Note 7) 118,329,213 122,736,373
Contributed surplus (Note 8c) 2,112,526 1,502,963
Accumulated other comprehensive income (Note 7d) 41,366 -
Retained earnings 502,374 1,543,166
------------- --------------

120,985,479 125,782,502
------------- --------------

$ 194,075,785 $ 188,324,914
------------- --------------
------------- --------------

Description of Business and Basis of Presentation (Notes 1 & 2)
Subsequent Event (Note 12)

See accompanying notes to the financial statements.

---------------------------------------------------------------------------
Orleans Energy Ltd.
Statements of Operations and Comprehensive Income and Retained Earnings
(unaudited)
---------------------------------------------------------------------------

Three Months Ended, Six Months Ended,
--------------------------- -------------------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
-------------- ------------ ------------ ------------
Revenue
Petroleum and
natural gas sales $ 11,989,236 $ 5,911,434 $24,370,374 $ 11,631,113
Royalties (1,973,312) (983,414) (4,261,724) (2,187,596)
------------------------------------------------------
10,015,924 4,928,020 20,108,650 9,443,517
Unrealized gain on
commodity contracts
(Note 3) 445,156 - 37,877 -
------------------------------------------------------
10,461,080 4,928,020 20,146,527 9,443,517
------------------------------------------------------
Expenses
Operating 3,046,407 1,025,177 5,424,469 1,994,682
Transportation 269,200 102,898 524,404 209,386
General and
administrative 515,704 327,270 1,055,306 539,707
Interest 688,077 110,689 1,348,019 160,662
Stock-based
compensation (Note 8) 199,146 202,231 349,260 331,022
Depletion,
depreciation and
accretion 6,719,919 3,626,301 13,501,460 5,547,071
------------------------------------------------------
$ 11,438,453 $ 5,394,566 $22,202,918 $ 8,782,530
------------------------------------------------------

Earnings (loss)
before taxes (977,373) (466,546) (2,056,391) 660,987

Future income taxes
(reduction) (849,348) 879,060 (1,015,599) 1,364,875
------------------------------------------------------

Net earnings (loss) $ (128,025) $(1,345,606) $(1,040,792)$ (703,888)

Changes in
comprehensive
income, net of tax
(Notes 3, 7d) (248,195) - (384,039) -

------------------------------------------------------
Comprehensive income
(loss) $ (376,220) $(1,345,606) $(1,424,831)$ (703,888)
------------------------------------------------------
------------------------------------------------------

Retained earnings,
beginning of period 630,399 20,022,450 1,543,166 19,380,732

------------------------------------------------------
Retained earnings,
end of period $ 502,374 $18,676,844 $ 502,374 $18,676,844
------------------------------------------------------
------------------------------------------------------

Net earnings (loss)
per share (Note 9)
Basic $ - $ (0.07) $ (0.03) $ (0.04)
------------------------------------------------------
------------------------------------------------------

Diluted $ - $ (0.07) $ (0.03) $ (0.04)
------------------------------------------------------
------------------------------------------------------

See accompanying notes to the unaudited financial statements.

---------------------------------------------------------------------------
Orleans Energy Ltd.
Statements of Cash Flow
(unaudited)
---------------------------------------------------------------------------

Three Months Ended, Six Months Ended,
--------------------------- -------------------------
Cash provided from June 30, June 30, June 30, June 30,
(used in): 2007 2006 2007 2006
-------------- ------------ ------------ ------------
Operating
activities
Net earnings (loss) $ (128,025) $(1,345,606) $(1,040,792) $ (703,888)
Items not
affecting cash:
Depletion,
depreciation and
accretion 6,719,919 3,626,301 13,501,460 5,547,071
Stock-based
compensation 199,146 202,231 349,260 331,022
Reclassification
to earnings on
gains from cash
flow hedges (353,504) - (546,986) -
Unrealized
(gain) / loss on
commodity
contracts (445,156) (37,877)
Future income
taxes
(reduction) (849,348) 879,060 (1,015,599) 1,364,875
------------------------------------------------------
5,143,032 3,361,986 11,209,466 6,539,080
Change in
non-cash working
capital (Note 10) 674,674 2,719,881 (823,090) 2,723,680

------------------------------------------------------
5,817,706 6,081,867 10,386,376 9,262,760
------------------------------------------------------
Financing
activities
Increase in bank
loan 5,947,914 3,102,939 14,499,332 9,844,035
Exercise of
stock options 61,284 136,600 61,284 136,600
Share issue
proceeds, net
issue costs - 35,875,704 - 35,875,704
------------------------------------------------------
6,009,198 39,115,243 14,560,616 45,856,339
------------------------------------------------------
Investing
activities
Corporate
acquisitions - (39,352,980) - (39,352,980)
Property, plant
and equipment
additions (9,982,180) (8,881,052) (21,226,175) (16,530,877)
Change in
non-cash working
capital
(Note 10) (951,001) 3,036,208 (3,100,241) 765,274
------------------------------------------------------
(10,933,181) (45,197,824) (24,326,416) (55,118,583)
------------------------------------------------------
Increase
(decrease) in
cash and cash
equivalents 893,723 (714) 620,576 516

Cash and cash
equivalents,
beginning of
period 18 1,230 273,165 -

Cash and cash
equivalents, end
of period $ 893,741 $ 516 $ 893,741 $ 516
--------------------------------------------------------
--------------------------------------------------------


Supplemental Cash Flow Information (Note 10)

See accompanying notes to the unaudited financial statements.


----------------------------------------------------------------------------
Orleans Energy Ltd.
Notes to the Interim Financial Statements (unaudited)
For the six month period ended June 30, 2007
----------------------------------------------------------------------------


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 traded on the TSX Venture Exchange under the trading symbol "OEX".

2. Basis of Presentation

The interim financial statements included herein have been prepared by the Company without audit and include all adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company's interim results. With the exception of changes discussed in Note 3 hereafter, the interim financial statements have been prepared following the same accounting policies and methods of computation as the Company's audited consolidated financial statements for the year ended December 31, 2006, and are in accordance with Canadian generally accepted accounting principles ("GAAP"). The unaudited interim financial statements contain disclosures, which are incremental to the Company's audited consolidated financial statements for the year ended December 31, 2006. 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 year ended December 31, 2006.

On April 1, 2007, the Company completed an amalgamation with its wholly-owned subsidiaries, Morpheus Energy Corporation, Orleans Oil and Gas Ltd. and Orleans Petroleum Ltd. Effective April 1, 2007, these subsidiary entities 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, 2007 onwards.

3. Changes in Accounting Policies

On January 1, 2007 the Company adopted the new accounting standards regarding the recognition, measurement, disclosure and presentation of financial instruments. These standards result in changes in the accounting for financial instruments and hedges as well as introduce comprehensive income as a separate component of shareholders' equity. In conjunction with the adoption of these new standards, the Company elected not to use hedge accounting for its commodity price risk management contracts. The fair value of the commodity contracts is recognized at each reporting period with the change in the fair value being classified as an unrealized gain or loss on the statement of operations and comprehensive income. In accordance with the transitional provisions of the standards, the accounting for hedging relationships for prior periods is not retroactively adjusted, therefore, there has been no restatement of prior periods. At January 1, 2007, the following adjustments were made to the balance sheet to adopt the new standards:



At January 1, 2007
--------------------
Risk management asset $ 605,903
Future income taxes (180,498)
Accumulated other comprehensive income (425,405)


The $425 thousand of net derivative gains in accumulated other comprehensive income at January 1, 2007 will be reclassified to earnings in future periods as the original hedged transactions affect net earnings (see note 7d). From that date forward, the changes in fair value of such derivatives will be recognized in net earnings when incurred. Discontinuing hedge accounting will not affect the Company's reported financial position or cash flows.



4. Property, Plant and Equipment

June 30, 2007 December 31, 2006
----------------------------------
Petroleum and natural gas properties $ 220,606,558 $ 199,171,180
Accumulated depletion (36,313,717) (23,060,662)
----------------------------------
184,292,841 176,110,518
----------------------------------

Office equipment and other 210,329 158,769
Accumulated depreciation (54,979) (39,730)
----------------------------------
155,350 119,039
----------------------------------

Net property, plant and equipment $ 184,448,191 $ 176,229,557
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the six month period ended June 30, 2007, certain general and administrative overhead expenses of $846 thousand (June 30, 2006: $312 thousand) directly related to exploration and development activities were capitalized. Included in this amount is capitalized stock-based compensation of $401 thousand (June 30, 2006: nil), with such amount including the future income tax liability associated with the capitalized stock-based compensation of $104 thousand (June 30, 2006: nil).

At June 30, 2007, property, plant and equipment included $14.74 million (December 31, 2006: $13.23 million) relating to unproved properties, which have been excluded from the depletion calculation. Future development costs related to proved non-producing developed reserves of $17.88 million (December 31, 2006: $22.28 million) have been included in the depletion calculation.

5. Bank Facility

As at June 30, 2007, the Company had a demand revolving credit facility of $60 million with a Canadian chartered bank (the "Credit Facility"). The Credit Facility provides that advances may be made by way of direct advances, banker's acceptances, or standby letters of credit/guarantees. Direct advances bear interest at the bank's prime lending rate plus an applicable margin for Canadian dollar advances and at the bank's U.S. base rate plus an applicable margin for U.S. dollar advances. The applicable margin charged by the bank is dependent on the Company's debt-to-trailing cash flow ratio. The banker's acceptances bear interest at the applicable banker's acceptance rate plus a stamping fee, based on the Company's debt-to-trailing cash flow ratio. The Credit Facility is secured by a fixed and floating charge debenture on the assets of the Company. The borrowing base is subject to semi-annual review by the bank. At June 30, 2007, the Company had $53.28 million of bank debt outstanding (December 31, 2006: $38.78 million).

6. Asset Retirement Obligations

Orleans' asset retirement obligations are based on the Company's net ownership in wells and facilities and Management's estimate of the timing and expected future costs associated with site reclamation, facilities dismantlement, and the plugging and abandonment of wells.

At June 30, 2007, the estimated present value of the total amount required to settle the asset retirement obligations was $5.12 million (December 31, 2006: $5.02 million), based on a total undiscounted future liability amount of $12.46 million (inflation adjusted) (December 31, 2006: $12.48 million). These obligations are to be settled based on the economic lives of the underlying assets, which is currently projected to be from zero to 48 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, 2007 December 31, 2006
----------------------------------
Asset retirement obligations - opening $ 5,023,743 $ 2,484,234
Liabilities incurred 46,295 385,186
Liabilities acquired / (disposed) (186,031) 1,801,295
Liabilities settled - -
Accretion of discount 233,156 353,028
----------------------------------
Asset retirement obligations - ending $ 5,117,163 $ 5,023,743
----------------------------------------------------------------------------
----------------------------------------------------------------------------

7. Share Capital

a) Authorized

- Unlimited number of voting common shares.

b) Issued and outstanding

Total Number
of Common
Shares Amount
----------------------------------------------------------------------------
Balance, December 31, 2005 15,099,047 $ 19,937,717
Issued on flow-though private placements 3,300,000 20,147,500
Issued on equity private placement 5,600,000 33,040,000
Combined issue costs, net tax effect of
$1,036,737 - (2,137,253)
Issue on acquisition of Mercury (Note 3) 1,623,719 9,579,942
Issued on acquisition of Morpheus (Note 3) 7,351,727 43,375,189
Exercise of stock options 174,166 321,381
Flow through shares tax adjustment - (1,528,103)
----------------------------------------------------------------------------
Balance, December 31, 2006 33,148,659 $ 122,736,373
Exercise of stock options 77,230 97,833
Flow through shares tax adjustment - (4,504,993)
----------------------------------------------------------------------------
Balance, June 30, 2007 33,225,889 $ 118,329,213
----------------------------------------------------------------------------
----------------------------------------------------------------------------


c) Flow-Though shares

On November 14, 2006, the Company issued 2,630,000 flow-through common shares on a private placement basis at a price of $5.75 per share for gross proceeds of $15.123 million. Under the terms of the flow-through share agreement, the Company is committed to spend 100% of the gross proceeds on qualifying exploration expenditures prior to December 31, 2007. As at June 30, 2007, the Company had incurred approximately $10.24 million of qualifying expenditures associated with this private placement. The future income tax effect and reduction to share capital was recorded in the first quarter of 2007, the period in which the Company filed the renouncement documents with the tax authorities.

Also refer to Note 12 - Subsequent Event.



d) Accumulated Other Comprehensive Income

June 30, 2007
---------------
Accumulated other comprehensive income - beginning $ -
Transition adjustment for discontinuance of hedge
accounting, net of tax of $180,498 425,405
Reclassification to net earnings during the period,
net of tax of $162,947 (384,039)
----------------------------------------------------------------------------
Accumulated other comprehensive income - ending $ 41,366
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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, 2007, 3,101,509 options with a weighted average exercise price of $3.34 were outstanding and exercisable at various dates through to May 22, 2012.



The following table summarizes outstanding stock options:

Weighted Avg.
Number Exercise Price
----------------------------------------------------------------------------
Outstanding - December 31, 2006 2,698,739 $ 3.40
Granted 745,000 3.48
Exercised (77,230) 0.80
Forfeited (265,000) 5.01
----------------------------------------------------------------------------
Outstanding - June 30, 2007 3,101,509 $ 3.34
----------------------------------------------------------------------------
----------------------------------------------------------------------------

b) Exercise price range for options outstanding as at June 30, 2007:

Outstanding Options Exercisable Options
--------------------------------------- ---------------------
Weighted Weighted Avg. Weighted
Price Range Number Avg. Price Remaining Life Number Avg. Price
----------------------------------------------------------------------------
$ 0.80 - 1.00 700,754 $ 0.80 2.58 years 700,754 $ 0.80
$ 3.00 - 3.74 1,433,255 $ 3.31 3.92 years 325,196 $ 3.09
$ 3.90 - 5.87 967,500 $ 5.23 3.99 years 302,500 $ 5.31
----------------------------------------------------------------------------
Total 3,101,509 $ 3.34 3.64 years 1,328,450 $ 2.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The Company determined the fair value of stock options granted in the six
month period ended June 30, 2007 using the modified Black-Scholes evaluation
stock option pricing model under the following assumptions:

Six Months Ended Six Months Ended
June 30, 2007 June 30, 2006
-------------------------------------
Weighted-average fair value ($/option) 1.70 2.59
Risk-free interest rate (%) 4.12 4.25
Estimated hold period prior to
exercise (years) 5 5
Volatility in the price of Orleans
shares (%) 50.2 50.9
Dividend yield (%) Nil Nil

c) Contributed surplus

The following table reconciles contributed surplus as at June 30, 2006:

Contributed surplus - December 31, 2006 $ 1,502,963
Stock-based compensation 645,959
Exercise of stock options (36,396)
----------------------------------------------------------------------------
Contributed surplus - June 30, 2007 $ 2,112,526
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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.



Three Months Ended, Six Months Ended,
----------------------------------------------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
----------------------------------------------------
Weighted average shares:
Basic 33,209,828 19,708,637 33,179,413 17,416,576
Diluted 33,833,429 20,759,015 33,769,735 18,291,678

10. Supplemental Cash Flow Information

a) Increase (decrease) in non-cash working capital items

Three Months Ended, Six Months Ended,
----------------------------------------------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
----------------------------------------------------
Change in non-cash
working capital:
Accounts receivable and
other current assets $ 2,311,172 $ 1,569,109 $ 3,732,117 $ 2,550,542
Accounts payable and
accrued liabilities (2,587,499) 4,186,980 (7,655,448) 938,412
----------------------------------------------------
$ (276,327) $ 5,756,089 $(3,923,331) $ 3,488,954
----------------------------------------------------
----------------------------------------------------
Changes in non-cash
working capital
related to:
Operating activities $ 674,674 $ 2,719,881 $ (823,090) $ 2,723,680
Investing activities (951,001) 3,036,208 (3,100,241) 765,274
----------------------------------------------------
$ (276,327) $ 5,756,089 $(3,923,331) $ 3,488,954
----------------------------------------------------
----------------------------------------------------

b) Other cash flow information

Three Months Ended, Six Months Ended,
----------------------------------------------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
----------------------------------------------------
Cash paid on:
Interest (net of
interest income) $ 593,575 $ 110,689 $ 1,182,848 $ 160,662
Income and other taxes - - - -


11. Financial Instrument Activities

a) Balance sheet financial instruments:

The Company's exposure under its financial instruments is limited to financial assets and liabilities, all of which are included in the interim financial statements. The Company's financial instruments recognized in the consolidated balance sheet consist of cash and cash equivalents, accounts receivable, derivative contracts and current liabilities. Unless otherwise noted, carrying values reflect the current fair value of the Company's financial instruments. The estimated fair values of recognized financial instruments have been determined based on the Company's assessment of available market information and appropriate methodologies, or through comparisons to similar instruments.

b) Commodity price risk management contracts:

The prices the Company receives for its crude oil and natural gas production may have a significant impact on its revenues and cash provided from operating activities. Any significant price decline in commodity prices would adversely affect the amount of funds available for capital reinvestment purposes. As such, the Company utilizes a risk management hedging program to partially mitigate that risk and to ensure adequate funds are available for planned capital activities and other commitments. From time-to-time, the Company may employ financial instruments to manage fluctuations in oil and gas market prices. The Company does not utilize derivative financial statements for speculative purposes. The Company has elected to not designate its commodity price risk management contracts as accounting hedges under Canadian GAAP, and accordingly will measure these financial instruments at fair value. Any fluctuations in the fair value measurements are recorded directly into earnings.



The following table outlines the commodity price risk management contracts
that were outstanding during the six month period ended June 30, 2007.

Daily
Contract notional
Commodity Date Type Term Volume Index Price
----------------------------------------------------------------------------

Crude Oil Jul. 6, Swap Aug'06 125 bbls W.T.I. US$77.25/bbl
2006 -Jul'07
NatGas Oct. 17, Collar Nov'06 2,000 GJs AECO-C C$6.50-8.50/GJ
2006 -Mar'07
NatGas Nov. 9, Collar Dec'06 2,000 GJs AECO-C C$7.00-8.75/GJ
2006 -Mar'07
NatGas Jan. 23, Collar Feb'07 1,000 GJs AECO-C C$6.50-9.08/GJ
2007 -Dec'07
NatGas Jan. 23, Collar Apr'07 1,000 GJs AECO-C C$6.50-8.52/GJ
2007 -Oct'07
NatGas Jan. 31, Collar Apr'07 1,000 GJs AECO-C C$7.00-9.00/GJ
2007 -Dec'07
NatGas Feb. 5, Collar Apr'07 1,000 GJs AECO-C C$7.00-9.08/GJ
2007 -Dec'07
NatGas Feb. 22, Swap Apr'07 1,000 GJs AECO-C C$7.70/GJ
2007 -Oct'07
Crude Oil Mar. 26, Collar Apr'07 150 bbls W.T.I. US$59.30-70.00/bbl
2007 -Dec'07
Crude Oil Apr. 23, Swap Aug'07 125 bbls W.T.I. US$67.85/bbl
2007 -Dec'07

As at June 30, 2007, the total fair value of these aforementioned contracts
is a gain of $644 thousand and is included on the Company's balance sheet as
Risk Management Asset.

Subsequent to June 30, 2007, the Company had the following hedge contracts
outstanding:

Daily
Contract notional
Commodity Date Type Term Volume Index Price
----------------------------------------------------------------------------

Crude Oil Jul. 6, Swap Aug'06 125 bbls W.T.I. US$77.25/bbl
2006 -Jul'07
Crude Oil Mar. 26, Collar Apr'07 150 bbls W.T.I. US$59.30-70.00/bbl
2007 -Dec'07
Crude Oil Apr. 23, Swap Aug'07 125 bbls W.T.I. US$67.85/bbl
2007 -Dec'07
NatGas Jan. 23, Collar Feb'07 1,000 GJs AECO-C C$6.50-9.08/GJ
2007 -Dec'07
NatGas Jan. 23, Collar Apr'07 1,000 GJs AECO-C C$6.50-8.52/GJ
2007 -Oct'07
NatGas Jan. 31, Collar Apr'07 1,000 GJs AECO-C C$7.00-9.00/GJ
2007 -Dec'07
NatGas Feb. 5, Collar Apr'07 1,000 GJs AECO-C C$7.00-9.08/GJ
2007 -Dec'07
NatGas Feb. 22, Swap Apr'07 1,000 GJs AECO-C C$7.70/GJ
2007 -Oct'07


12. Subsequent Event

On July 12, 2007, the Company closed a bought-deal equity financing (the "Financing"). Pursuant to the Financing, Orleans issued 1.5 million flow-through common shares at a price of $5.45 per share and 2.8 million common shares at a price of $4.30 per share, for total gross proceeds of $20,215,000. Proceeds from the flow-through share component of the Financing, in the amount of $8,175,000, will be used to incur Canadian exploration expenditures prior to December 31, 2008, with such expenditures to be renounced to the subscribers of the flow-through common shares in the fiscal year ended December 31, 2007.

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

Contact Information