Sabretooth Energy Ltd.
TSX : SAB

Sabretooth Energy Ltd.

August 30, 2007 19:59 ET

Sabretooth Energy Announces Second Quarter 2007 Results

Successful Acquisition and Promising Expansion in the Peace River Arch Completes Second Quarter

CALGARY, ALBERTA--(Marketwire - Aug. 30, 2007) - Sabretooth Energy Ltd. (TSX:SAB) ("Sabretooth" or "the company") is pleased to announce financial and operational highlights for the second quarter and first half of 2007.

Second Quarter Highlights:

- Net income increased by 23% to $141,000 compared to $115,000 in the second quarter of 2006.

- Gains from hedging in the second quarter of 2007 were $215,000 with 80% of total production volumes hedged.

- Drilled a material new discovery in the George, Alberta strike area. The well encountered 11 separate gas bearing reservoirs. The well went on production on August 19, 2007 and is producing at a restricted rate of 4 MMCF/d. Additional development locations are licensed and will be drilled in Q3 off of this discovery well.

- Drilled and cased 2 gross (2 net) wells resulting in 2 new pool discoveries and potential additional zones to test.

- By taking advantage of the industry wide slowdown, Sabretooth was able to renegotiate many of our services. Drilling costs were reduced by more than 30% from last winter on our initial summer drilling in June.

- Applied to the B.C. Oil and Gas Commission for GEP to allow Sabretooth unrestricted production on the company's oil discovery at Oak. The Company received an annual allowable in the interim to allow us to continue producing the well.

- Production averaged 995 boe/d for the quarter. At Fourth Creek, spring breakup hindered our ability to troubleshoot production. At Oak, oil production from the discovery well was shut in for April and June on extended pressure build ups to support our GEP application.

"With the majority of our gas hedged through 2007, we are able to maintain a strong balance sheet in light of the current weakness in gas pricing," said G. Marshall Abbott, Chairman and Chief Executive Officer, Sabretooth Energy Ltd. "This provides Sabretooth Energy with the opportunity to take advantage of the soft gas market to acquire assets with a strategic advantage to the Company, which are becoming readily available in the market at some of the lowest metrics we've seen in the last five years. We are focused on continuing to expand our presence in the Peace River Arch through increased drilling and new acquisitions, and have talented and experienced staff committed to the success of Sabretooth."

Subsequent Event

On August 21, 2007 Sabretooth closed a plan of arrangement to acquire Bear Ridge Resources Ltd. ("Bear Ridge") and on August 24th Sabretooth became a publicly traded company listed on the Toronto Stock Exchange under the symbol "SAB". The acquisition of Bear Ridge has created a combined company with the following attributes:

- Combined production of 3,300 boe/d (85% weighted to natural gas) with over 70% operated;

- 155,000 net acres of undeveloped land and a portfolio of low risk multi-zone drilling and completion opportunities in the Peace River Arch area in Alberta and British Columbia;

- A balance sheet with $16 million working capital deficiency and a $55 million bank line

- 41.1 million shares issued and outstanding on a fully diluted basis; and

- 16 MMCF/d of gas production protected for the remainder of 2007 with a weighted average floor of $6.37 per GJ and ceiling of $8.77 per GJ.

- Over $130 million in tax pools and losses

About Sabretooth Energy Ltd.

Sabretooth Energy Ltd. is an oil and gas company focused on the Peace River Arch area.

Sabretooth's balance sheet and experienced technical and management teams position the company to take advantage of emerging opportunities in the energy sector.



Highlights

Three Months Six Months Three Months Six months
Ended Ended Ended ended
June 30, June 30, June 30, June 30,
2007 2007 2006 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial ($)
----------------------------------------------------------------------------
Production revenue $ 4,299,000 $ 9,537,000 $ 6,887,000 $ 16,131,000
----------------------------------------------------------------------------
Realized gain (loss)
on hedge $ 215,000 $ 270,000 $ (83,000) $ (83,000)
----------------------------------------------------------------------------
Unrealized gain
(loss) on hedge $ 634,000 $ 17,000 - -
----------------------------------------------------------------------------
Net income $ 141,000 $ 4,055,000 $ 115,000 $ 2,259,000
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Cash flow from
operations $ 2,177,000 $ 4,664,000 $ 4,248,000 $ 9,636,000
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Production volumes
----------------------------------------------------------------------------
Natural gas (mcf/d) 5,140 5,781 10,602 11,193
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Crude oil (bbls/d) 114 108 3 3
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Natural gas liquids
(bbls/d) 24 28 148 159
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Total (boe/d) (6:1) 995 1,100 1,918 2,027
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Sales prices
----------------------------------------------------------------------------
Natural gas ($/mcf) $ 9.28 $ 7.87 $ 6.05 $ 6.85
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Natural gas, not
including hedges
($/mcf) $ 7.47 $ 7.60 $ 6.13 $ 6.89
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Crude oil ($/bbl) $ 63.55 $ 64.76 $ 66.21 $ 63.29
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Natural gas liquids
($/bbl) $ 65.86 $ 61.45 $ 70.94 $ 74.46
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Total ($/boe) $ 56.84 $ 49.33 $ 39.00 $ 43.73
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Netbacks, not including unrealized hedges ($/boe)
----------------------------------------------------------------------------
Price $ 49.84 $ 49.25 $ 39.00 $ 43.73
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Royalties, net
of ARTC $ (6.38) $ (7.90) $ (5.64) $ (9.88)
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Transportation $ (1.54) $ (1.57) $ (0.74) $ (0.72)
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Operating costs $ (13.09) $ (10.89) $ (4.49) $ (4.14)
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Total $ 28.83 $ 28.89 $ 28.13 $ 28.99
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Capital expenditures ($)
----------------------------------------------------------------------------
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Total capital
expenditures $ 6,142,000 $ 20,098,000 $ 6,066,000 $ 14,819,000
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Land (net acres)
----------------------------------------------------------------------------
Developed 10,656 10,656 20,105 20,105
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Undeveloped 49,927 49,927 31,456 31,456
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Total Land 60,583 60,583 51,561 51,561
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Management's Discussion and Analysis

For the Six Month Period Ended June 30, 2007

(Dated August 10, 2007)

Management's discussion and analysis of the financial and operating results for the Company should be read in conjunction with the Company's unaudited financial statements and related notes for the six month periods ended June 30, 2007 as well as with the audited financial statements for the year ended December 31, 2006 and December 31, 2005.

Basis of Presentation

The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated. The term barrels of oil equivalents (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio for gas of 6 mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Non-GAAP Measurements

Within the Management Discussion and Analysis references are made to terms commonly used in the oil and gas industry. Netback is not defined by GAAP in Canada and is referred to as a non-GAAP measure. Netbacks equal total revenue less royalties, operating costs and transportation costs calculated on a boe basis. Management utilizes this measure to analyze operating performance. Total boes are calculated by multiplying the daily production by the number of days in the period.

Cash flow from operations is a non-GAAP term that represents net earnings adjusted for non-cash items including depletion and depreciation, accretion, future income taxes, stock-based compensation, unrealized hedge gains (losses), asset write-downs and gains (losses) on sale of assets and before adjustments for changes in working capital. The Company evaluates its performance based on earnings and cash flow from operations. The Company considers cash flow from operations a key measure as it demonstrates the Company's ability to generate the cash flow necessary to fund future growth through capital investment and to repay debt. The Company's calculation of cash flow from operations may not be comparable to that reported by other companies. Cash flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of income per share.

Forward Looking Statements

Certain statements contained within the Management's Discussion and Analysis, and in certain documents incorporated by reference into this document, constitute forward-looking statements. These statements related to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. We believe the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, the Management's Discussion and Analysis should not be unduly relied upon. These statements speak only as of the date of the Management's Discussion and Analysis or as of the date specified in the documents incorporated by reference into this Management's Discussion and Analysis, as the case may be.

In particular, this Management's Discussion and Analysis, and the documents incorporated by reference, contain forward-looking statements pertaining to the following:

- the performance characteristics of our oil and natural gas properties;

- oil and natural gas production levels;

- the size of the oil and natural gas reserves;

- projections of market prices and costs;

- supply and demand for oil and natural gas;

- expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development;

- treatment under governmental regulatory regimes and tax laws; and

- capital expenditures programs.

The actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in the Management's Discussion and Analysis:

- volatility in market prices for oil and natural gas;

- liabilities inherent in oil and natural gas operations;

- uncertainties associated with estimating oil and natural gas reserves;

- competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;

- incorrect assessments of the value of acquisitions;

- geological, technical, drilling and processing problems;

- changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry and income trusts; and

- the other factors as discussed under "Risks and Uncertainties".

Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward looking statements contained in this Management's Discussion and Analysis and the documents incorporated by reference herein are expressly qualified by this cautionary statement. We do not undertake any obligation to publicly update or revise any forward-looking statements.



FINANCIAL RESULTS AND HIGHLIGHTS

Three Months Six Months Three Months Six months
Ended Ended Ended ended
June 30, June 30, June 30, June 30,
2007 2007 2006 2006
$('000s) $('000s) $('000s) $('000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue, net of
royalties $ 4,572 $ 8,264 $ 5,945 $ 12,572
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Cash flow from
operations (1) $ 2,177 $ 4,664 $ 4,248 $ 9,636
----------------------------------------------------------------------------
Net income $ 141 $ 4,055 $ 115 $ 2,259
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----------------------------------------------------------------------------

(1) Cash flow from operations is a non-GAAP term that represents net
earnings adjusted for non-cash items Including depletion and
depreciation, accretion, future income taxes, stock-based compensation,
unrealized hedge gains (losses), asset write-downs and gains (losses)
on sale of assets. Cash flow per share is calculated by dividing cash
flow from operations as previously described by the weighted average
number of common shares outstanding during the year. The Company
evaluates its performance based on earnings and cash flow from
operations. The Company considers cash flow from operations a key
measure as it demonstrates the Company's ability to generate the cash
flow necessary to fund future growth through capital investment and to
repay debt.


REVENUE

Production revenue for the six month period ended June 30, 2007 was $9,537,000. Production revenue for the three month period ended June 30, 2007 was $4,299,000. For the six months ended June 30, 2006 production revenue was $16,131,000 and for the three month period ended June 30, 2006 the production revenue was $6,887,000. Production revenue decreased due to the decrease in production volumes from natural declines.

Total production revenue is comprised of natural gas, crude oil and natural gas liquids for the six month and three month periods ended June 30, 2007 and 2006.

PRICING

Sabretooth's average natural gas price received during the second quarter of 2007 was $7.47 per mcf compared to the average AECO C posted price of $6.74 per mcf during the same period (2006 - $6.13 per mcf compared to the average AECO C posted price of $5.72 per mcf during the same period). The difference is due to the higher heat content the Company's gas contains. The Company received a second quarter average crude oil price of $63.55 per bbl as compared to the Edmonton Par price of $72.66 per bbl (2006 - $66.21 per bbl as compared to the Edmonton Par price of $79.06 per bbl during the same period). This variance is due to the quality differential of the oil produced versus Edmonton Par. NGL prices averaged $65.86 per bbl during the three-month period as compared to the Edmonton pentane reference price of $72.21 per bbl (2006 - $70.94 per bbl as compared to the Edmonton pentane price of $80.21 per bbl during the same period).

Sabretooth's average natural gas price received during the first six months of 2007 was $7.60 per mcf compared to the average AECO C posted price of $7.08 per mcf during the same period (2006 - $6.89 per mcf compared to the average AECO C posted price of $6.46 per mcf during the same period). The difference is due to the higher heat content the Company's gas contains. The Company received an average crude oil price of $64.76 per bbl as compared to the Edmonton Par price of $70.21 per bbl for the first six months of 2007 (2006 - $63.29 per bbl as compared to the Edmonton Par price of $74.23 per bbl during the same period). This variance is due to the quality differential of the oil produced versus Edmonton Par. NGL prices averaged $61.45 per bbl during the six months ending June 30, 2007 as compared to the Edmonton condensate reference price of $70.98 per bbl (2006 - $74.46 per bbl as compared to the Edmonton pentane price of $76.79 per bbl during the same period).

During the three month period and the six month period ended June 30, 2007, Sabretooth realized gains on hedges of $215,000 and $270,000 respectively. During the three month period and the six month period ended June 30, 2006, Sabretooth realized losses on hedges of $83,000. Sabretooth's net realized average natural gas price received during the second quarter of 2007 was $7.93 (2006 - $6.05) and for the six months period ended June 30, 2007 was $7.86 (2006 - $6.85).

PRODUCTION

Production volumes for the second quarter of 2007 were 90,557 boe and averaged 995 boe/d. Production volumes for the six months ended June 30, 2007 were 199,140 and averaged 1,100 boe/d. Production volumes for the second quarter of 2006 were 174,493 boe and averaged 1,918 boe/d. Production volumes for the six months ended June 30, 2006 were 366,954 and averaged 2,027 boe/d.

The decrease in production between 2007 and 2006 is due to natural declines.



For the three months For the six months
ending June 30, 2007 ending June 30, 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Per day Total Per day
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas 467,720 mcf 5,140 mcf/d 1,046,409 mcf 5,781 mcf/d
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Crude Oil 10,384 bbls 114 bbls/d 19,612 bbls 108 bbls/d
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NGLs 2,220 bbls 24 bbls/d 5,126 bbls 28 bbls/d
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Total 90,557 boe 995 boe/d 199,140 boe 1,100 boe/d
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For the three months For the six months
ending June 30, 2006 ending June 30, 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Per day Total Per day
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas 964,000 mcf 10,602 mcf/d 2,025,913 mcf 11,193 mcf/d
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Crude Oil 255 bbls 3 bbls/d 534 bbls 3 bbls/d
----------------------------------------------------------------------------
NGLs 13,443 bbls 148 bbls/d 28,768 bbls 159 bbls/d
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Total 174,493 boe 1,918 boe/d 366,954 boe 2,027 boe/d
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ROYALTY EXPENSE

Royalty expense for the second quarter of 2007 was $578,000. Royalty expense for the first six months of 2007 was $1,572,000. Royalty expense for the second quarter of 2006 was $983,000 net of accrued ARTC of $116,000. Royalty expense for the first six months of 2006 was $3,628,000 net of accrued ARTC of $241,000. The decrease in royalties during the three and six months ended June 30, 2007 as compared to the same of periods in 2006 was due to the decrease in production revenue. As well, certain wells in British Columbia were eligible for royalty holidays during 2007. These factors more than offset the elimination of ARTC effective January 1, 2007.

TRANSPORTATION

Transportation costs for the second quarter of 2007 were $140,000 or $1.54 per boe. For the six months ended June 30, 2007 transportation costs were $313,000 or $1.57 per boe. Transportation costs for the second quarter of 2006 were $130,000 or $0.74 per boe. For the six months ended June 30, 2006 transportation costs were $265,000 or $0.72 per boe. The increase in transportation costs in 2007 as compared to 2006 was mainly due to switching to a firm service contract from an interruptible service contract, which is more expensive but guarantees our natural gas transportation. The Company also began producing natural gas in British Columbia in the fourth quarter of 2006 which increased our transportation costs. In British Columbia, there is an infrastructure in place that enables natural gas producers to avoid facility construction in exchange for regulated gathering, processing and transmission fees. This all-in charge is included in transportation expense.

OPERATING COSTS

Operating costs were $1,186,000 or $13.09 per boe during the second quarter of 2007. For the first six months of 2007 operating costs were $2,168,000 or $10.89 per boe. Operating costs were $783,000 or $4.49 per boe during the second quarter of 2006. For the first six months of 2006 operating costs were $1,519,000 or $4.14 per boe. The increase in operating costs per boe during the three and six months ended June 30, 2007 compared to the same periods in 2006 was due to the decrease in production volumes and certain operating expenses, such as compressors and artificial lift, being fixed costs.

OPERATING NETBACKS

Sabretooth's netback for the second quarter of 2007 was $28.83 and $28.89 for the first six months of 2007. These netbacks per boe are comprised of the following:



Three months ended Six months ended
June 30, 2007 June 30, 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production revenue, including
realized hedge gains (losses) $ 49.84 $ 49.25
----------------------------------------------------------------------------
Royalty expense, net of ARTC (6.38) (7.90)
----------------------------------------------------------------------------
Transportation (1.54) (1.57)
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Operating Costs (13.09) (10.89)
----------------------------------------------------------------------------
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Netback, $/boe 6:1 $ 28.83 $ 28.89
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Sabretooth's netback for the second quarter of 2006 was $28.13 and $28.99 for the first six months of 2006. These netbacks per boe are comprised of the following:



Three months ended Six months ended
June 30, 2006 June 30, 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production revenue, including
realized hedge gains (losses) $ 39.00 $ 43.73
----------------------------------------------------------------------------
Royalty expense, net of ARTC (5.64) (9.88)
----------------------------------------------------------------------------
Transportation (0.74) (0.72)
----------------------------------------------------------------------------
Operating Costs (4.49) (4.14)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback, $/boe 6:1 $ 28.13 $ 28.99
----------------------------------------------------------------------------
----------------------------------------------------------------------------


GENERAL AND ADMINISTRATIVE EXPENSE

For the six months ending June 30, 2007, general and administrative expense, net of capitalized amounts and recoveries, was $1,078,000 or $5.41 per boe. For the second quarter of 2007, general and administrative expenses were $500,000 or $5.53 per boe. For the three and six months periods ending June 30, 2007 Sabretooth capitalized approximately $232,000 and $393,000 of general and administrative costs related to exploration and development respectively.

For the six months ending June 30, 2006, general and administrative expense, net of capitalized amounts and recoveries, was $820,000 or $2.24 per boe. For the second quarter of 2006, general and administrative expenses were $452,000 or $2.58 per boe. For the three and six months periods ending June 30, 2006 Sabretooth capitalized approximately $160,000 and $283,000 of general and administrative costs related to exploration and development respectively.

The increase in general and administrative expense on a per boe basis in 2007, as compared to the same periods in 2006, is due to the reduction in production volumes as a result of natural declines.

INTEREST EXPENSE

Interest expense for the three month period ended June 30, 2007 was $125,000 as compared with $32,000 for the three months ended June 30, 2006. Interest expense for the six month period ended June 30, 2007 was $214,000 as compared with $32,000 for the six months ended June 30, 2006. The increase in interest expense was a result of increased bank debt in 2007 as well as Part XII.6 tax the company incurs on unexpended flow-through share renouncements.

DEPLETION, DEPRECIATION AND ACCRETION ("DD&A")

DD&A expense for the three month period ended June 30, 2007 was $2,579,000. DD&A expense for the six month period ended June 30, 2007 was $5,886,000. On a unit of production basis, depletion expense on oil and gas assets was $28.48 and $29.56 per boe for the three and six month periods respectively.

DD&A expense for the three month period ended June 30, 2006 was $3,350,000. DD&A expense for the six month period ended June 30, 2006 was $7,002,000. On a unit of production basis, depletion expense on oil and gas assets was $19.10 and $19.00 per boe for the three and six month periods respectively.

The per boe increase in three and six months period ended 2007 as compared to the same periods in 2006 is mainly due to significant investment in capital projects without a corresponding increase in proven reserves.

The depletion rate is impacted by the costs to acquire, explore and develop reserves of crude oil and natural gas, known as finding, development and acquisition costs. In the early stages of exploration, capital costs may be recognized before proven reserves are fully booked leading to higher initial depletion rates. In addition higher depletion rates also result as new production often receives lower reserves assignments under NI 51-101 due to the naturally unpredictable nature of newer production.

ASSET RETIREMENT OBLIGATIONS

The Company acquired ten new assets subject to retirement obligations during the six months ending June 30, 2007. $14,000 was recognized as an accretion expense for the second quarter of 2007 and $28,000 for the six months period ended June 30, 2007, along with an increase in asset retirement obligations of $177,000 for the six month period.

The Company acquired five new assets subject to retirement obligations during the six months ending June 30, 2006. $8,000 was recognized as an accretion expense for the second quarter of 2006 and $16,000 for the six months period ended June 30, 2006, along with an increase in asset retirement obligations of $85,000 for the six month period.

STOCK BASED COMPENSATION

The Company recognizes stock based compensation expense for all stock options granted. For the three and six month periods ended June 30, 2007, Sabretooth recorded $76,000 and $145,000 respectively in stock based compensation expense, with a corresponding increase to contributed surplus, for stock options issued during this period.

For the three and six month periods ended June 30, 2006, Sabretooth recorded $124,000 and $140,000 respectively in stock based compensation expense, with a corresponding increase to contributed surplus, for stock and performance options issued during this period.

COMMON SHARES OUTSTANDING

On November 9, 2006, the Company completed a private placement of 8,000,000 common voting shares at an issue price of $2.00 for gross proceeds of $16,000,000 on a flow through basis. In accordance with the terms of the offering and pursuant to certain provisions of the Income Tax Act (Canada), the Company renounced, for income tax purposes, exploration expenditures of $16,000,000 to the holders of the flow-through common shares effective December 31, 2006. Future tax cost of approximately $5,000,000 associated with renouncing the expenditures was recorded on the date of renunciation in the first quarter of 2007. As at June 30, 2007, the Company has incurred the full $16,000,000 of qualifying expenditures. Transaction costs were $1,041,000 including fees paid to underwriters.

On March 9, 2007, the shareholders approved the exchange of Common non-voting shares for Common voting shares on a 1- for -1 basis and then to consolidate the Common voting shares on a 4-for-1 basis.

INCOME TAXES

The Company has non-capital loss carry-forwards, investment tax credit carry-forwards and Scientific and Experimental Development expenses available to reduce future years' income for tax purposes. The Scientific Research and Development expenses of approximately $22,704,000 available for carry-forward do not expire. The non-capital loss and investment tax credit carry-forwards expire as follows:



Non-capital losses Investment tax credits
Year of expiry $('000s) $('000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 $ - $ -
----------------------------------------------------------------------------
2008 2,698 -
----------------------------------------------------------------------------
2009 8,224 -
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2010 - 930
----------------------------------------------------------------------------
2011 - 1,280
----------------------------------------------------------------------------
2012 - 672
----------------------------------------------------------------------------
2013 6,812 761
----------------------------------------------------------------------------
2014 2,791 338
----------------------------------------------------------------------------
2015 8,957 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$29,482 $ 3,981
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----------------------------------------------------------------------------


In addition, the Company has UCC pools of approximately $21,609,000, COGPE pools of approximately $7,956,000, CEE pools of approximately $7,399,000, CDE pools of approximately $13,237,000, and share issuance costs of approximately $1,558,000 which can be used to reduce taxable income in the future.

As at June 30, 2007, $6,327,000 has been recognized as a future income tax asset.



CAPITAL EXPENDITURES

Three months ending Six months ending
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
($'000s) ($'000s) ($'000s) ($'000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Land acquisition costs $ 172 $ 1,506 $ 2,337 $ 4,417
----------------------------------------------------------------------------
Geological & geophysical 634 508 1,557 1,754
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Drilling, completions
& workovers 3,262 2,445 11,890 4,597
----------------------------------------------------------------------------
Tangible equipment 1,842 1,447 3,921 3,721
----------------------------------------------------------------------------
Capitalized overhead 232 160 393 283
----------------------------------------------------------------------------
Office furniture
& equipment - - - 47
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capital
expenditures $ 6,142 $ 6,066 $ 20,098 $ 14,819
----------------------------------------------------------------------------
----------------------------------------------------------------------------


LIQUIDITY AND CAPITAL RESOURCES

The Company has established two credit facilities with a Canadian chartered bank. Credit facility A is a $50,000,000 revolving operating demand loan restricted to $19,000,000 pending the merger with Bear Ridge Resources Ltd., which bears interest at the bank prime rate plus 0% to 1.5%, depending on the Company's debt to cash flow ratio. Credit facility B is a $5,000,000 non-revolving acquisition/development demand loan, which bears interest at the bank prime rate plus 0.50%. Both Credit Facilities A and B are subject to periodic review by the bank and are secured by a general assignment of book debts and a $100,000,000 demand debenture with a first floating charge over all assets of the Company. The Company is authorized to access the credit facilities with prior approval of the Board. The Company is required to meet certain financial based covenants under the terms of this facility. As at June 30, 2007, the Company has drawn $14,393,000 on Facility A and $Nil on Facility B.

As at June 30, 2007, the Company's working capital deficit was approximately $15,331,000, (December 31, 2006 working capital $87,000) reflecting the first six months activity level of the Company.

CONTRACTUAL OBLIGATIONS

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

1) Office Leases - The minimum annual net lease payments, exclusive of operating costs are as follows:



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2007 $ 55,000
----------------------------------------------------------------------------
2008 164,000
----------------------------------------------------------------------------
2009 164,000
----------------------------------------------------------------------------
2010 167,000
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2011 139,000
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Thereafter 104,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 793,000
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----------------------------------------------------------------------------


2) Asset Retirement Obligations - Sabretooth is the owner of oil and natural gas wells and related surface equipment and facilities. These assets will have to be abandoned and the surface returned to its natural state. As at June 30, 2007, total estimated undiscounted future cash flows required to settle these obligations is approximately $3,039,000, which is exclusive of salvage values and adjusted for expected 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. Sabretooth estimates that the salvage value of its field equipment would offset a portion of its estimated future asset retirement obligation. Sabretooth does not expect to incur significant asset retirement cost obligations within the next five years.

3) Flow-through Qualifying Expenditures - At December 31, 2006, Sabretooth had an obligation related to the issuance of flow-through common shares to incur approximately $16,000,000 of qualifying expenditures before December 31, 2007. The Company has incurred the full $16,000,000 of qualifying expenditures to June 30, 2007.

OUTSTANDING SHARE DATA

As of the date of this MD&A, Sabretooth had the following securities outstanding:

1) 20,587,850 common voting shares; and

2) 1,885,251 stock options.

On March 9, 2007, the shareholders approved the exchange of Common non-voting shares for Common voting shares on a 1- for -1 basis and then to consolidate the Common voting shares on a 4-for-1 basis. During the six months ended June 30, 2007, the Company granted 182,500 options (post share consolidation) with an exercise price of $6.40 exercisable into common voting shares and cancelled 12,500 options (post consolidation) with an exercise price of $6.40.

BUSINESS ACQUISITION

On June 11, 2007, the Company entered into an arrangement agreement with Bear Ridge Resources Ltd. ("Bear Ridge"), an Alberta-based oil & gas company whose shares are listed on the TSX , pursuant to a plan of arrangement (the "Arrangement"). The combined entity ("New Sabretooth") will continue to operate under the name Sabretooth Energy Ltd.

Under the terms of the Arrangement, each Bear Ridge share will be exchanged for 0.5250 of a Sabretooth common share, up to a maximum of 19.1 million Sabretooth shares, or $2.10 in cash, to a maximum of $57 million in cash, subject to prorating. Bear Ridge shareholders will own approximately 48% of New Sabretooth. The Arrangement is subject to approval by the shareholders of Bear Ridge as well as court and regulatory approvals. Both the Company and Bear Ridge have agreed to a reciprocal non-completion fee, under defined circumstances, of $2,000,000.

If all approvals are received, the Arrangement is expected to close in August 2007, and the transaction would be accounted for as a business combination, with the Company being the acquirer and the continuing entity for financial reporting purposes.

The merger of Bear Ridge and Sabretooth will create a natural gas leveraged company with high working interests and an extensive suite of drillable locations on a large prospective undeveloped land base. The merged entity will have a strong presence in its core area in the Peace River Arch and will provide significant economies of scale with its existing infrastructure and compatible land base. Upon closing of the Arrangement, the merged entity will have:

- Approximately 7 million boe of Proven and Probable (company interest) reserves based on December 31, 2006 NI 51-101 compliant reserve reports;

- Estimated production at closing of 3,000 boe/d comprised of 450 bbls/d of oil and natural gas liquids and 15.3 mmcf/d of natural gas (85% weighted to natural gas);

- At closing, the merged entity expects to have approximately $16 million of debt on a bank line of $55 million;

- A land base of approximately 155,000 net undeveloped acres; and

- Approximately 42.9 million shares outstanding on a fully diluted basis.



QUARTERLY INFORMATION

Financial 2007 2006 2005
($ thousands except
per share data) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Revenues (including
gains (losses) on
financial commodity
contract) 5,150 4,686 5,369 7,485 6,928 9,272 7,596 -
---------------------------------- --------------------------- -------------
Royalties, net of
ARTC 578 994 1,290 1,249 983 2,645 1,756 -
---------------------------------- --------------------------- -------------
Operating expenses 1,186 982 945 965 783 736 572 -
---------------------------------- --------------------------- -------------
Transportation
expenses 140 173 198 223 130 135 39 -
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Net income (loss) 141 3,914 (646) 699 115 2,144 860 -
---------------------------------- --------------------------- -------------
Per Share - basic 0.01 0.19 (0.03) 0.04 0.01 0.12 0.06 (0.02)
---------------------------------- --------------------------- -------------
Per share - diluted 0.01 0.18 (0.03) 0.03 0.01 0.11 0.06 (0.02)
---------------------------------- --------------------------- -------------
Cash flow 2,177 2,487 3,094 3,192 4,248 5,388 4,732 (90)
---------------------------------- --------------------------- -------------
Per Share - basic 0.11 0.12 0.16 0.17 0.23 0.29 0.34 (0.02)
---------------------------------- --------------------------- -------------
Per share - diluted 0.10 0.12 0.15 0.15 0.21 0.27 0.31 (0.02)
---------------------------------- --------------------------- -------------
Capital
expenditures, net 6,142 13,956 12,281 8,633 6,066 8,753 2,193 129
---------------------------------- --------------------------- -------------
Acquisition
expenditures - - - - - - 1,435 -
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Total expenditures 6,142 13,956 12,281 8,633 6,066 8,753 3,628 129
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------


Operations 2007 2006 2005
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Production Volumes
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Natural gas (mcf/day) 5,140 6,429 8,308 9,418 10,602 11,776 10,782 -
---------------------------------- --------------------------- -------------
Oil (bbl/day) 114 103 49 10 3 3 3 -
---------------------------------- --------------------------- -------------
NGLs (bbl/day) 24 32 21 80 148 178 33 -
---------------------------------- --------------------------- -------------
Total boe/day 995 1,206 1,454 1,659 1,918 2,144 1,833 -
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Average selling price
---------------------------------- --------------------------- -------------
Natural gas($per mcf) 7.47 7.71 7.09 5.90 6.13 7.58 11.32 -
---------------------------------- --------------------------- -------------
Oil ($per bbl) 63.55 66.14 60.42 69.71 66.21 60.83 58.64 -
---------------------------------- --------------------------- -------------
NGLs ($per bbl) 65.86 57.93 67.11 65.71 70.94 74.25 68.75 -
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------
Combined ($per boe) 49.84 43.07 43.96 39.29 39.00 47.91 67.94 -
---------------------------------- --------------------------- -------------
Royalties ($per boe) 6.38 9.16 9.64 8.18 5.64 13.71 15.71 -
---------------------------------- --------------------------- -------------
Operation expense
($per boe) 13.09 9.05 7.07 6.32 4.49 3.83 5.11 -
---------------------------------- --------------------------- -------------
Transportation ($per
boe) 1.54 1.6 1.48 1.46 0.74 0.7 0.35 -
---------------------------------- --------------------------- -------------
Netback ($per boe) 28.83 23.26 25.77 23.33 28.13 29.67 46.77 -
---------------------------------- --------------------------- -------------
---------------------------------- --------------------------- -------------


FINANCIAL INSTRUMENTS

The nature of Sabretooth's operations results in exposure to fluctuations in commodity prices. Management continuously monitors commodity prices and initiates instruments to manage exposure to these risks when it deems appropriate. As a means of managing commodity price volatility, the Company enters into various derivative financial instrument agreements and physical contracts. Collars ensure that the commodity prices realized will fall into a contracted range for a contracted sale volume based on the monthly index price. Monthly gains and losses are determined based on the differential between the AECO daily index and the AECO monthly index when the monthly index price falls in between the floor and the ceiling. The following information presents all positions for the derivative financial instruments outstanding as at June 30, 2007.



Start Date Term Volume Price Basis
----------------------------------------------------------------------------
----------------------------------------------------------------------------
August 1, 2006 August 1, 2006 8,000 GJ/day $6.00 floor AECO
to July 31, 2007 $10.50 ceiling
----------------------------------------------------------------------------
August 1, 2007 August 1, 2007 9,000 GJ/day $6.50 floor AECO
to December 31, 2007 $9.60 ceiling
----------------------------------------------------------------------------
January 1, 2008 January 1, 2008 3,150 GJ/day $6.50 floor AECO
to December 31, 2008 $10.00 ceiling
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Realized gains (losses) totalling $215,000 for the three month period ending and $270,000 (June 30, 2006 - ($83,000)) for the six month period ending June 30, 2007 from the derivatives was recognized in income and the fair value of the costless collars outstanding at June 30, 2007 was approximately $966,000.

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 period ended June 30, 2007, Sabretooth Energy Ltd. did not enter into any off-balance sheet transactions.

RELATED PARTY TRANSACTIONS

During 2007, Sabretooth entered into commercial business transactions with the following related parties:

a) A director of the Company is a partner of a law firm that provides legal services to the Company. During the six month period ended June 30, 2007, the Company paid approximately $15,000 (June 30, 2006 - $12,000) to this firm for legal fees and disbursements. Additionally, $11,000 is included in accounts payable and accrued liabilities at June 30, 2007 (December 31, 2006 - $2,000) for this firm. These expenses have been included as general and administrative expense.

b) A director of the Company is the Chairman of a corporation that provided drilling services to the Company. During the six month period ended June 30, 2007, the Company paid approximately $2,231,000 (December 31, 2006 - $1,682,000 June30, 2006 - $562,000) for drilling and services, which has been included in property and equipment. Additionally, $Nil is included in accounts payable and accrued liabilities at June 30, 2007 (December 31, 2006 - $250,000) for this corporation.

c) A director of the Company is the owner of a corporation that provides drilling services to the Company. During the six month period ended June 30, 2007, the Company paid approximately $688,000 (December 31, 2006 - $Nil; June 30, 2006 - $Nil) for drilling and services, which has been included in property and equipment.

These transactions have been recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

DISCLOSURE CONTROLS AND PROCEDURES

The Corporation's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining the Corporation's disclosure controls and procedures, including adherence to the Disclosure Policy adopted by the Corporation. The Disclosure Policy requires all staff to keep the Corporation's Chief Executive Officer and Chief Financial Officer fully apprised of all material information affecting the Corporation so that they may evaluate and discuss this information and determine the appropriateness and timing for public release. Access to such material information by the Chief Executive Officer and Chief Financial Officer is facilitated by the fact that there are so few members of the Corporation's senior management and there is frequent and regular communication among all of them.

The Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporation's disclosure controls and procedures as of June 30, 2007, have concluded that the Corporations disclosure controls and procedures were adequate and effective to ensure that material information relating to the Corporation would have been known to them. It should be noted that while the Corporation's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures or internal control over financial reporting will prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer are also responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

Management has designed internal controls over financial reporting as of June 30, 2007. The relatively small size of the Corporation makes the identification and authorization process relatively efficient; however, during the review of the design of internal controls over financial reporting it was noted that, due to the limited number of staff at Sabretooth, it is not feasible to achieve complete segregation of incompatible duties nor does the Corporation have a sufficient number of finance personnel with all the technical accounting knowledge to address all complex and non-routine accounting transactions that may arise, which may lead to the possibility of inaccuracies in financial reporting. The Corporation has acquired knowledgeable and competent accounting staff to ensure that high-quality financial reporting and other internal controls over financial reporting have been designed which provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Management and the Board of Directors work to mitigate the risk of a material misstatement in financial reporting; however, a control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

CHANGES IN ACCOUNTING POLICIES

Financial Instruments

Effective January 1, 2007, the Company adopted a series of new standards released by the Canadian Institute of Chartered Accountants, which establish guidance for the recognition and measurement of financial instruments. Section 1530 "Comprehensive Income", Section 3855 "Financial Instruments - Recognition and Measurement", Section 3861 "Financial Instruments - Disclosure and Presentation" and Section 3865 "Hedges" were released in April 2005 and are effective for interim and annual financial statement years beginning on or after October 1, 2006. To accommodate these new sections, there have been a number of amendments to other existing accounting standards. These policies provide comprehensive requirements for the recognition and measurement of financial instruments, introduce a new component of equity referred to as accumulated other comprehensive income ("AOCI"), and a Statement of Comprehensive Income. In accordance with the transitional provision of these policies, comparative interim financial statements are not to be restated.

Under these new standards, all financial instruments, including derivatives, are to be recognized on the balance sheet. Derivatives are to be measured at fair value and unrealized gains and losses reported in the statement of operations unless the "normal sale and purchase" exemption is utilized or the derivatives are designated as cash flow or net investment hedges. All changes in fair value are included in earnings unless cash flow hedge or net investment accounting is used, in which case, changes in fair value are recorded in other comprehensive income to the extent the hedge is effective, and in earnings to the extent it is ineffective. The Company has not identified any material embedded derivatives in any of its financial instruments. The Company has elected to account for its commodity sales contracts and other non-financial contracts, held for the purpose of receipt or delivery of non-financial items in accordance with its expected purchase, sale or usage requirements on an accrual basis. The Company's other financial instruments (accounts receivable and accounts payable) are measured at amortized cost using the effective interest rate method. Transaction costs are added to the amount of the associated financial instrument and amortized accordingly.

Section 3865 established standards for when and how hedge accounting may be applied. Hedge accounting continues to be optional and the Company does not currently apply hedge accounting.

There has been no impact on the financial statements by adopting the new requirements.

Accounting Changes

Effective January 1, 2007 the Company adopted the revised recommendations of the CICA Handbook Section 1506, Accounting Changes. Under the revised standards, voluntary changes in accounting policies are permitted only if they result in financial statements which provide more reliable and relevant information. Accounting policy changes are applied retrospectively unless it is impractical to determine the period or cumulative impact of the change. Corrections of prior period errors are applied retrospectively and changes in accounting estimates are applied prospectively by including these changes in earnings. These standards are effective for all changes in accounting policies, changes in accounting estimates and corrections of prior period errors initiated in periods beginning on or after January 1, 2007.

In addition, the Company has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Company:

a) Financial Instruments - Disclosures and Presentation

As of January 1, 2008, the Company will be required to adopt two new CICA standards. Handbook Section 3862, Financial Instruments - Disclosures and Handbook Section 3863, Financial Instruments - Presentation. These Handbook Sections will replace existing Handbook Section 3861, Financial Instruments - Presentation and Disclosure. The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements.

b) Capital Disclosures

Also as of January 1, 2008, the Company will be required to adopt Handbook Section 1535, Capital Disclosures which will require companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements.

Both new standards were issued in December 2006, and the Company is assessing the impact on its financial statements.

CONVERGENCE OF CANADIAN GAAP WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

In 2006, Canada's Accounting Standards Board (AcSB) issued a strategic plan that will result in Canadian GAAP, as it applies to publicly accountable entities, being converged with International Financial Reporting Standards over a transitional period. The AcSB is expected to develop and release a detailed implementation plan with a transition period initially indicated to be five years. The Corporation will consider the effect that this implementation plan might have on the financial statements during the transition period.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The significant accounting policies used by Sabretooth are disclosed in note 2 to the Unaudited Interim Consolidated Financial Statements for the period ended June 30, 2007 and note 3 to the Audited Consolidated Financial Statements for the year ended December 31, 2006. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on a regular basis. The emergence of new information and changed circumstance may result in actual results or changes to estimated amounts that differ materially from current estimates. The following discussion identifies the critical accounting policies and practices of the Company and helps assess the likelihood of materially different results being reported.

Application of Critical Accounting Estimates Reserves

Under the National Instrument 51-101 (NI 51-101) "Proved" reserves are defined as those reserves that can be estimated with a high degree of certainty to be recoverable. The level of certainty should result in at least a 90% probability that the quantities actually recovered will equal or exceed the estimated Proved reserves. It does not mean that there is a 90% probability that the Proved reserves will be recovered; it means that there must be at least a 90% probability that the given amount or more will be recovered.

"Proved plus Probable" reserves are the most likely case and are based on a 50% certainty that they will equal or exceed the reserves estimated.

These oil and gas reserve estimates are made using all available geological and reservoir data, as well as historical production data. All of the Company's reserves were evaluated and reported on by an independent qualified reserves evaluator. However, revisions can occur as a result of various factors including: actual reservoir performance, change in price and cost forecasts or a change in the Company's plans. Reserve changes will impact the financial results as reserves are used in the calculation of depletion and are used to assess whether asset impairment occurs. Reserve changes also affect other Non-GAAP measurements such as finding and development costs; recycle ratios and net asset value calculations.

Depletion

The Company follows the full cost method of accounting for oil and natural gas properties. Under this method, all costs related to the acquisition of, exploration for and development of oil and natural gas reserves are capitalized whether successful or not. Depletion of the capitalized oil and natural gas properties and depreciation of production equipment which includes estimated future development costs less estimated salvage values are calculated using the unit-of-production method, based on production volumes in relation to estimated proven reserves.

An increase in estimated proved reserves would result in reduction in depletion expense. A decrease in estimated future development costs would also result in a reduction in depletion expense.

Unproved Properties

The cost of acquisition and evaluation of unproved properties are initially excluded from the depletion calculation. An impairment test is performed on these assets to determine whether the carrying value exceeds the fair value. Any excess in carrying value over fair value is an impairment. When proved reserves are assigned or a property is considered to be impaired, the cost of the property or the amount of the impairment will be added to the capitalized costs for the calculation of depletion.

Ceiling Test

The ceiling test is a cost recovery test intended to identify and measure potential impairment of assets. An impairment loss is recorded if the sum of the undiscounted cash flows expected from the production of the proved reserves and the lower of cost and market of unproved properties does not exceed the carrying values of the petroleum and natural gas assets. An impairment loss is recognized to the extent that the carrying value exceeds the sum of the discounted cash flows expected from the production of proved and probable reserves and the lower of cost and market of unproved properties. The cash flows are estimated using the future product prices and costs and are discounted using the risk free rate. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material. Any impairment as a result of this ceiling test will be charged to operation as additional depletion and depreciation expense.

Asset Retirement Obligations

The Company records a liability for the fair value of legal obligations associated with the retirement of petroleum and natural gas assets. The liability is equal to the discounted fair value of the obligation in the period in which the asset is recorded with an equal offset to the carrying amount of the asset. The liability then accretes to its fair value with the passage of time and the accretion is recognized as an expense in the financial statements. The total amount of the asset retirement obligation is an estimate based on the Company's net ownership interest in all wells and facilities, the estimated costs to abandon and reclaim the wells and facilities and the estimated timing of the costs to be incurred in future periods. The total amount of the estimated cash flows required to settle the asset retirement obligation, the timing of those cash flows and the discount rate used to calculate the present value of those cash flows are all estimates subject to measurement uncertainty. Any change in these estimated would impact the asset retirement liability and the accretion expense.

Stock Based Compensation

The Company uses fair value accounting for stock-based compensation. Under this method, all equity instruments awarded to employees and the cost of the service received as considerations are measured and recognized based on the fair value of the equity instruments issued. Compensation expense is recognized over the period of related employee service, usually the vesting period of the equity instrument awarded.

Income Taxes

The determination of income and other tax liabilities requires interpretation of complex laws and regulations. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by management.

Acquisition of Stratagem Energy Corp.

Management makes various assumptions in determining the fair values of any acquired company's assets and liabilities in a business combination. The most significant assumptions and judgments made relate to the estimation of the fair value of the oil and natural gas properties. To determine the fair value of these properties we estimated oil and natural gas reserves and future prices of oil and natural gas.

Other Estimates

The accrual method of accounting requires management to incorporate certain estimates including estimates of revenues, royalties and operating costs as at a specific reporting date, but for which actual revenues and costs have not yet been received. In addition, estimates are made on capital projects which are in progress or recently completed where actual costs have not been received by the reporting date. The Company obtains the estimates from the individuals with the most knowledge of the activity and from all project documentation received. The estimates are reviewed for reasonableness and compared to past performance to assess the reliability of the estimates. Past estimates are compared to actual results in order to make informed decisions on future estimates.

Risks and Uncertainties

The Company is engaged in the exploration, development, production and acquisition of crude oil and natural gas. This business is inherently risky and there is no assurance that hydrocarbon reserves will be discovered and economically produced. Financial risks associated with the petroleum industry include fluctuations in commodity prices, interest rates and currency exchange rates along with the credit risk of the Company's industry partners. Operational risks include reservoir performance uncertainties, the reliance on operators of our non-operated properties, competition, environmental and safety issues, and a complex and changing regulatory environment. Sabretooth is taking steps to reduce its business risks by increasing the number of core areas it has and increasing the number of areas it operates. This will spread the operational risks over several areas, reducing the potential impact on Sabretooth of unfavourable operational issues that may occur at any one area. It will also enable Sabretooth to control the timing, direction and costs related to exploration and development activities.

Environmental and safety risks are mitigated through compliance with provincial and federal environmental and safety regulations, by maintaining adequate insurance, and by adopting appropriate emergency response and safety procedures. The Company manages commodity pricing uncertainties with a risk management program that encompasses a variety of financial instruments. These include forward sales contracts on natural gas production and financial sales contracts.

Outlook

Sabretooth's current production is approximately 1,050 boe/d and production capacity is 1,850 boe/d.

In 2007, the Company has budgeted approximately $38 million for its proposed capital programs of which approximately $21 million has been spent as of July 31, 2007. These expenditures are expected to be funded by bank debt and cashflow. A substantial amount of the Company's spending is discretionary in nature. The Company generally has a high working interest and operational control of its major properties. Therefore, timing of expenditures can be matched to financial resources.

The Company has access to credit facilities of $19 million subject to periodic review. As at August 10, 2007, the Company has drawn approximately $14.7 million on its operating line of credit.



CONSOLIDATED BALANCE SHEETS
(expressed in thousands of Canadian dollars)

June 30, 2007 December 31, 2006
(Unaudited) (Audited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------
Current Assets
----------------------------------------------------------------------------
Cash and cash equivalents $ - $ 4,343
----------------------------------------------------------------------------
Accounts receivables 3,013 11,556
----------------------------------------------------------------------------
Deposits and prepaid expenses 246 277
----------------------------------------------------------------------------
Commodity contracts (note 8) 966 950
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4,225 17,126
----------------------------------------------------------------------------
Property and equipment (note 3) 59,435 45,017
----------------------------------------------------------------------------
Future income tax 6,327 5,922
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 69,987 $ 68,065
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
----------------------------------------------------------------------------
Current Liabilities
----------------------------------------------------------------------------
Bank indebtedness (note 4) $ 14,393 $ -
----------------------------------------------------------------------------
Accounts payables and accrued liabilities 5,163 17,039
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19,556 17,039
----------------------------------------------------------------------------
Asset retirement obligations (note 5) 1,084 879
----------------------------------------------------------------------------
----------------------------------------------------------------------------
20,640 17,918
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share capital (note 6) 143,088 148,088
----------------------------------------------------------------------------
Contributed Surplus 2,623 2,478
----------------------------------------------------------------------------
Deficit (96,364) (100,419)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
49,347 50,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 69,987 $ 68,065
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.


G. Marshall Abbott S. Wil VanLoh Jr.
Director Director



CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME AND DEFICIT
(expressed in thousands of Canadian dollars except per share amounts)
(Unaudited)

Three Months Period Ended Six Months Period Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenues
----------------------------------------------------------------------------
Production revenue $ 4,299 $ 6,887 $ 9,537 $ 16,131
----------------------------------------------------------------------------
Royalties, net of ARTC (578) (983) (1,572) (3,628)
----------------------------------------------------------------------------
Realized gain (loss)
on hedge contracts
(note 8) 215 (83) 270 (83)
----------------------------------------------------------------------------
Unrealized gain on
hedge contracts
(note 8) 634 - 17 -
----------------------------------------------------------------------------
Interest and other
income 2 124 12 152
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4,572 5,945 8,264 12,572
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses
----------------------------------------------------------------------------
Operating costs 1,186 783 2,168 1,519
----------------------------------------------------------------------------
Transportation 140 130 313 265
----------------------------------------------------------------------------
General and administrative,
net of recoveries 500 452 1,078 820
----------------------------------------------------------------------------
Depletion, depreciation,
and amortization 2,565 3,342 5,858 6,986
----------------------------------------------------------------------------
Accretion expense 14 8 28 16
----------------------------------------------------------------------------
Interest 125 32 214 32
----------------------------------------------------------------------------
Stock-based compensation
(note 6(d)) 76 124 145 140
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4,606 4,871 9,804 9,778
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income (loss) before
income taxes (34) 1,074 (1,540) 2,794
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income taxes (recovery)
Current (190) 300 (190) 300
Future 15 659 (5,405) 235
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(175) 959 (5,595) 535
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net Income and
Comprehensive Income 141 115 4,055 2,259
----------------------------------------------------------------------------
Deficit, beginning
of period (96,505) (98,099) (100,419) (100,243)
----------------------------------------------------------------------------
Excess of cost of shares
acquired over stated
value - (2,488) - (2,488)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Deficit, end of period $(96,364) $(100,472) $(96,364) $(100,472)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net income per share
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic $ 0.01 $ 0.01 $ 0.20 $ 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted $ 0.01 $ 0.01 $ 0.19 $ 0.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of Canadian dollars)
(Unaudited)

Three Months Period Ended Six Months Period Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from (used in)
----------------------------------------------------------------------------
Operating activities
----------------------------------------------------------------------------
Net income for the period $ 141 $ 115 $ 4,055 $ 2,259
----------------------------------------------------------------------------
Items not affecting cash
----------------------------------------------------------------------------
Depletion, depreciation,
and amortization 2,565 3,342 5,858 6,986
----------------------------------------------------------------------------
Accretion expense 14 8 28 16
----------------------------------------------------------------------------
Stock-based
compensation 76 124 145 140
----------------------------------------------------------------------------
Unrealized gain
on hedge contracts (634) - (17) -
----------------------------------------------------------------------------
Future income taxes 15 659 (5,405) 235
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2,177 4,248 4,664 9,636
----------------------------------------------------------------------------
Net change in non-cash
working capital (2,670) (2,532) (1,927) (3,002)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash from (used in)
operations (493) 1,716 2,737 6,634
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Investing activities
----------------------------------------------------------------------------
Purchase of property
and equipment, net (6,142) (6,066) (20,098) (14,819)
----------------------------------------------------------------------------
Proceeds from note
receivable - 115 - 115
----------------------------------------------------------------------------
Net change in non-cash
working capital 2,395 397 (1,375) 3,544
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash used in investing
activities (3,747) (5,554) (21,473) (11,160)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financing activities
----------------------------------------------------------------------------
Exercise of options
for common shares - 4,630 - 4,647
----------------------------------------------------------------------------
Repurchase of common
shares including
transaction costs - (19,296) - (19,296)
----------------------------------------------------------------------------
Proceeds from issuance
of common shares, net
of insurance costs - 9,461 - 9,461
----------------------------------------------------------------------------
Change in non-cash
working capital - 11,311 - 11,311
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash from financing
activities - 6,106 - 6,123
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease) in
cash and cash equivalents (4,240) 2,268 (18,736) 1,597
----------------------------------------------------------------------------
Cash and cash equivalents
(bank indebtedness)
beginning of period (10,153) 8,474 4,343 9,145
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents
(bank indebtedness)
end of period $ (14,393) $ 10,742 $ (14,393) $ 10,742
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash
flows disclosure:
----------------------------------------------------------------------------
Interest paid $ 70 $ 32 $ 159 $ 32
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income taxes paid
(recovered) $ (190) $ 300 $ (190) $ 300
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.


Notes to Unaudited Consolidated Statements

Six Months Ended June 30, 2007

(Unaudited)

1. INTERIM FINANCIAL STATEMENTS - BASIS OF PRESENTATION

The interim consolidated financial statements of Sabretooth Energy Ltd. (the "Company") have been prepared by management in accordance with Canadian generally accepted accounting principles and follow the same accounting policies as the most recent audited annual consolidated financial statements. Certain disclosures normally required to be included in the notes to the annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2006.

2. CHANGES IN ACCOUNTING POLICIES

Financial Instruments

Effective January 1, 2007, the Company adopted the following new Canadian Institute of Chartered Accountants ("CICA") Handbook sections: 3855 Financial Instruments - Recognition and Measurement, 1530 Comprehensive Income, 3861 Financial Instruments - Disclosure and Presentation and 3865 Hedges.

These policies provide comprehensive requirements for the recognition and measurement of financial instruments, introduce a new component of equity referred to as accumulated other comprehensive income ("AOCI"), and a Statement of Comprehensive Income. In accordance with the transitional provision of these policies, comparative interim financial statements are not to be restated.

Under these new standards, all financial instruments, including derivatives, are to be recognized on the balance sheet. Derivatives are to be measured at fair value and unrealized gains and losses reported in the statement of operations unless the "normal sale and purchase" exemption is utilized or the derivatives are designated as cash flow or net investment hedges. All changes in fair value are included in earnings unless cash flow hedge or net investment accounting is used, in which case, changes in fair value are recorded in other comprehensive income to the extent the hedge is effective, and in earnings to the extent it is ineffective. The Company has not identified any material embedded derivatives in any of its financial instruments. The Company has elected to account for its commodity sales contracts and other non-financial contracts, held for the purpose of receipt or delivery of non-financial items in accordance with its expected purchase, sale or usage requirements on an accrual basis. The Company's other financial instruments (accounts receivable and accounts payable) are measured at amortized cost using the effective interest rate method. Transaction costs are added to the amount of the associated financial instrument and amortized accordingly.

Section 3865 established standards for when and how hedge accounting may be applied. Hedge accounting continues to be optional and the Company does not currently apply hedge accounting.

There has been no impact on the financial statements by adopting the new policies. There were no items that needed to be recognized in AOCI for the six months ended June 30, 2007. The Company does not have any comprehensive income items requiring separate disclosure and therefore Statements of Comprehensive Income and Accumulated Other Comprehensive Income are not required.

Accounting changes

Effective January 1, 2007 the Company adopted the revised recommendations of the CICA Handbook Section 1506, Accounting Changes. Under the revised standards, voluntary changes in accounting policies are permitted only if they result in financial statements which provide more reliable and relevant information. Accounting policy changes are applied retrospectively unless it is impractical to determine the period or cumulative impact of the change. Corrections of prior period errors are applied retrospectively and changes in accounting estimates are applied prospectively by including these changes in earnings. These standards are effective for all changes in accounting policies, changes in accounting estimates and corrections of prior period errors initiated in periods beginning on or after January 1, 2007.

In addition, the Company has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Company:

i) Financial Instruments - Disclosures and Presentation

As of January 1, 2008, the Company will be required to adopt two new CICA standards. Handbook Section 3862, Financial Instruments - Disclosures and Handbook Section 3863, Financial Instruments - Presentation. These Handbook Sections will replace existing Handbook Section 3861, Financial Instruments - Presentation and Disclosure. The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements.

ii) Capital Disclosures

Also as of January 1, 2008, the Company will be required to adopt Handbook Section 1535, Capital Disclosures which will require companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements.

Both new standards were issued in December 2006 and the Company is assessing the impact on its financial statements.

3. PROPERTY AND EQUIPMENT



June 30, 2007
$ ('000s) (Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
Depletion,
Depreciation and
Cost Amortization Net Book Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum & natural gas
properties including
exploration and development
thereon and production
equipment $ 80,501 $ 21,161 $ 59,340
----------------------------------------------------------------------------
Office 171 76 95
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 80,672 $ 21,237 $ 59,435
----------------------------------------------------------------------------
----------------------------------------------------------------------------

December 31, 2006
$ ('000s) (Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
Depletion,
Depreciation and
Cost Amortization Net Book Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum & natural gas
properties including
exploration and development
thereon and production
equipment $ 60,225 $ 15,327 $ 44,898
----------------------------------------------------------------------------
Office 171 52 119
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 60,396 $ 15,379 $ 45,017
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Unproved properties not subject to depletion amounted to approximately $11,226,000 at June 30, 2007 (December 31, 2006 - $8,184,000, June 30, 2006 - $6,062,000).

The Company capitalized general and administrative costs related to exploration and development of approximately $393,000 for the period ended June 30, 2007 (June 30, 2006 - $283,000).

4. BANK INDEBTEDNESS

The Company has established two credit facilities with a Canadian chartered bank. Credit facility A is a $15,000,000 revolving operating demand loan, which bears interest at the bank prime rate plus 0.25%. Credit facility B is a $3,500,000 non-revolving acquisition/ development demand loan, which bears interest at the bank prime rate plus 0.75%. Both Credit Facilities A and B are subject to periodic review by the bank and are secured by a general assignment of book debts and a $30,000,000 demand debenture with a first floating charge over all assets of the Company. The Company is authorized to access the credit facilities with prior approval of the Board. The Company is required to meet certain financial based covenants under the terms of this facility.

5. ASSET RETIREMENT OBLIGATIONS

The following table summarizes the changes in asset retirement obligations for the period ended June 30, 2007 and December 31, 2006:



June 30, 2007 December 30, 2006
$ ('000s) $ ('000s)
(Unaudited) (Audited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - Beginning of period $ 879 $ 646
----------------------------------------------------------------------------
Liabilities incurred 177 276
----------------------------------------------------------------------------
Accretion expense 28 38
----------------------------------------------------------------------------
Revision in estimated cash flows - (81)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - End of period $ 1,084 $ 879
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The total estimated, inflated undiscounted cash flows required to settle the obligations, before considering salvage, is approximately $3,039,000 (December 31, 2006 - $2,394,000) which has been discounted using a weighted average credit-adjusted risk-free interest rate of 6.25% (December 31, 2006 - 6.25%). The Company expects these obligations to be settled in approximately 1 to 20 years. As at June 30, 2007, no funds have been set aside to settle these obligations.



6. CAPITAL STOCK
a) Authorized:
Unlimited Common voting shares
Unlimited Common non-voting shares
b) Issued:


June 30, 2007 December 31, 2006
$('000s)(Unaudited) $('000s)(Audited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stated Stated
Common voting shares Number Value Number Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period 16,067 $ 111,684 5,022 $ 98,164
----------------------------------------------------------------------------
Issued on private placement - - 3,590 5,026
----------------------------------------------------------------------------
Repurchase of shares - - (545) (6,444)
----------------------------------------------------------------------------
Issue of flow-through shares (ii) - - 8,000 16,000
----------------------------------------------------------------------------
Future income tax on renouncing
expenditures for flow-through
shares (ii) - (5,000) - (1,062)
----------------------------------------------------------------------------
Conversion of common non-voting to
common voting shares (i) 66,284 37,652 - -
----------------------------------------------------------------------------
Consolidation of common shares on a
4 for-1 basis (i) (61,763) - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
20,588 144,336 16,067 111,684
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common non-voting shares
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period 66,284 37,652 67,021 34,532
----------------------------------------------------------------------------
Issued on private placement - - 3,590 5,026
----------------------------------------------------------------------------
Exercise of stock options and
performance options - - 9,840 4,647
----------------------------------------------------------------------------
Repurchase of shares - - (14,167) (7,946)
----------------------------------------------------------------------------
Transfer from contributed surplus on
exercise of options - - - 1,393
----------------------------------------------------------------------------
Conversion of common non-voting to
common voting shares (i) (66,284) (37,652) - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
- - 66,284 37,652
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share issue costs net of taxes
(December 31, 2006 - $601) (1,248) (1,248)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance end of period $ 143,088 $ 148,088
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i) On March 9, 2007, the shareholders approved the exchange of the Common
non-voting shares for Common voting shares on a 1- for -1 basis and then
to consolidate the Common voting shares on a 4-for-1 basis.

(ii)On November 9, 2006, the Company completed a private placement of
8,000,000 common shares at an issue price of $2.00 for gross proceeds of
$16,000,000 on a flow through basis. In accordance with the terms of the
offering and pursuant to certain provisions of the Income Tax Act
(Canada), the Company renounced, for income tax purposes, exploration
expenditures of $16,000,000 to the holders of the flow-through common
shares effective December 31, 2006. Future tax cost of approximately
$5,000,000 associated with renouncing the expenditures was recorded on
the date of renunciation in the first quarter of 2007. The Company is
required to incur the qualifying exploration expenditures before
December 31, 2007. The Company has incurred the $16,000,000 of
qualifying expenditures as of June 30, 2007.


c) Stock Option Plan

The Company has a stock option plan for the purpose of developing the interest of directors, officers, employees and consultants of the Company and its subsidiaries in the growth and development of the Company by providing them with the opportunity, through share options, to acquire an increased proprietary interest in the Company.

In the first quarter of 2007 the company issued 450,000 stock options exercisable into voting common shares of the company (prior to the 4-for-1 share consolidation). These options vest 20% the first, second, third, fourth and fifth anniversaries of grant and have an exercise price of $1.60 (pre-consolidation) per share.

In the second quarter of 2007 the company issued 70,000 stock options (post-consolidation) exercisable into voting common shares of the company. These options vest 20% the first, second, third, fourth and fifth anniversaries of grant and have an exercise price of $6.40 per share.

All options vest immediately upon the occurrence of certain liquidity events or upon a change in control of the Company.

All unexercised options outstanding as at March 9, 2007 were adjusted for the 4-for-1 share consolidation (note 6(b)(i)).

A summary of the status of the Company's stock option plan and changes during the periods then ending are as follows:



June 30, 2007 December 31, 2006
(Unaudited) (Audited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted
Number Average Number Average
of Options Exercise of Options Exercise
('000s) Price ('000s) Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period 6,981 $ 1.008 10,950 $ 0.547
----------------------------------------------------------------------------
4-for-1 Consolidation (5,236) 3.024 - -
----------------------------------------------------------------------------
Granted 183 6.400 4,315 1.319
----------------------------------------------------------------------------
Exercised - - (8,184) 0.566
----------------------------------------------------------------------------
Cancelled (43) 5.55 (100) 1.180
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, end of period 1,885 $ 4.229 6,981 $ 1.008
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table summarizes information about stock options outstanding
at June 30, 2007 after the 4-for-1 share consolidation.


June 30, 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Average Average Number Number of
Exercise Price Number of Weighted of Contractual Options
per Share Options Outstanding Life (years) Exercisable
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$2.238 229 4.00 229
----------------------------------------------------------------------------
$2.061 462 8.20 231
----------------------------------------------------------------------------
$4.000 46 8.50 9
----------------------------------------------------------------------------
$5.200 728 8.90 146
----------------------------------------------------------------------------
$5.200 125 9.25 -
----------------------------------------------------------------------------
$6.400 112 9.35 -
----------------------------------------------------------------------------
$6.400 113 9.50 -
----------------------------------------------------------------------------
$6.400 70 9.85 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1,885 8.25 615
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at June 30, 2007, approximately 615,000 options are exercisable at a weighted average exercise price of $2.899.

d) Stock-based Compensation

Compensation expense for stock options and performance options is recognized using the fair value when the options are granted, and are amortized over the option's vesting period. During the period ended June 30, 2007, approximately $16,000 in compensation expense related to options granted in 2007 and approximately $129,000 in compensation expenses related to options granted in 2006 and 2005 has been recognized in the consolidated statement of operations. The fair value of stock options granted during the periods was estimated on the dates of grant using the Black-Scholes option-pricing model with the following weighted average assumptions.



June 30, 2007 June 30, 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Risk-free interest rate 3.75% to 4.0% 3.85% to 4.00%
----------------------------------------------------------------------------
Expected life of options 5 years 5 years
----------------------------------------------------------------------------
Expected volatility - as is allowed for
private companies 0% 0%
----------------------------------------------------------------------------
Expected dividend rate 0% 0%
----------------------------------------------------------------------------
Weighted average fair value $1.129 $1.333
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. RELATED PARTY TRANSACTIONS

a) A director of the Company is a partner of a law firm that provides legal services to the Company. During the six month period ended June 30, 2007, the Company paid approximately $15,000 (June 30, 2006 - $12,000) to this firm for legal fees and disbursements. Approximately $11,000 is included in accounts payable and accrued liabilities at June 30, 2007 (December 31, 2006 - $2,000) for this firm. These expenses have been included as general and administrative expense.

b) A director of the Company is the Chairman of a corporation that provided drilling services to the Company. During the six month period ended June 30, 2007, the Company paid approximately $2,231,000 (December 31, 2006 - $1,682,000; June 30, 2006 - $562,000) for drilling and services, which has been included in property and equipment. Approximately $Nil is included in accounts payable and accrued liabilities at June 30, 2007 (December 31, 2006 - $250,000) for this corporation.

c) A director of the Company is the owner of a corporation that provides drilling services to the Company. During the six month period ended June 30, 2007, the Company paid approximately $688,000 (December 31, 2006 - $Nil; June 30, 2006 - $Nil) for drilling and services, which has been included in property and equipment.

These transactions have been recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The nature of the Company's operations results in exposure to fluctuations in commodity prices. Management continuously monitors commodity prices and initiates instruments to manage exposure to these risks when it deems appropriate. As a means of managing commodity price volatility, the Company enters into various derivative financial instrument agreements and physical contracts. Collars ensure that the commodity prices realized will fall into a contracted range for a contracted sale volume based on the monthly index price. Monthly gains and losses are determined based on the differential between the AECO daily index and the AECO monthly index when the monthly index price falls in between the floor and the ceiling. Derivative financial instruments are accounted for using the mark-to-market method of accounting whereby these derivative instruments are recorded on the consolidated balance sheet as either an asset or liability with the change in fair value recognized in net earnings.

The following information presents all positions for the derivative financial instruments outstanding as at June 30, 2007.



Start Date Term Volume Price Basis
----------------------------------------------------------------------------
----------------------------------------------------------------------------
August 1, 2006 August 1, 2006 8,000 GJ/day $6.00 floor AECO
to July 31, 2007 $10.50 ceiling
----------------------------------------------------------------------------
August 1, 2007 August 1, 2007 9,000 GJ/day $6.50 floor AECO
to December 31, 2007 $9.60 ceiling
----------------------------------------------------------------------------
January 1, 2008 January 1, 2008 3,150 GJ/day $6.50 floor AECO
to December 31,2008 $10.00 ceiling
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Realized gains (losses) totalling approximately $270,000 for the six month
period ending June 30, 2007 (June 30, 2006 - ($83,000)) from the derivatives
was recognized in income and the fair value of the costless collars
outstanding at June 30, 2007 was $966,000.


9. SUBSEQUENT EVENTS

a) On June 11, 2007, the Company entered into an arrangement agreement with Bear Ridge Resources Ltd. ("Bear Ridge"), an Alberta-based oil & gas company whose shares are listed on the TSX , pursuant to a plan of arrangement (the "Arrangement"). The combined entity ("New Sabretooth") will continue to operate under the name Sabretooth Energy Ltd.

Under the terms of the Arrangement, each Bear Ridge share will be exchanged for 0.5250 of a Sabretooth common share, up to a maximum of 19.1 million Sabretooth shares, or $2.10 in cash, to a maximum of $57 million in cash, subject to prorating. Bear Ridge shareholders will own approximately 48% of New Sabretooth. The Arrangement is subject to approval by the shareholders of Bear Ridge as well as court and regulatory approvals. Both the Company and Bear Ridge have agreed to a reciprocal non-completion fee, under defined circumstances, of $2,000,000.

If all approvals are received, the Arrangement is expected to close in August, 2007 and the transaction would be accounted for as a business combination, with the Company being the acquirer and the continuing entity for financial reporting purposes.

b) On July 12, 2007, the Company increased its previous credit line to a $50 million revolving operating demand loan facility ("facility A") restricted to $19 million pending the merger with Bear Ridge, and a $5 million non-revolving demand development loan ("facility B"). Facility A bears interest at the bank's prime lending rate if the Company's debt to cash flow ratio is less than 1.5 to 1, with the rate increasing up to the bank's prime lending rate plus 1.5% if the Company's debt to cash flow ratio exceeds 3.0 to 1. Facility B bears interest at the bank's prime lending rate plus 0.5%. Prior to accessing the restricted portion of Facility A, security for both facilities will increase to a $100,000,000 floating charge debenture.

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