Shiningbank Energy Income Fund
TSX : SHN.UN

Shiningbank Energy Income Fund

August 04, 2006 09:00 ET

Shiningbank Energy Announces Second Quarter 2006 Financial Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 4, 2006) - Shiningbank Energy Income Fund (TSX:SHN.UN) (the "Fund"), today announced its financial results for the three months ended June 30, 2006. Production for the second quarter was 22,386 barrels of oil equivalent per day (boe/d) where natural gas is converted to barrels of oil equivalent on the basis of 6 mcf per boe. Revenues, funds flow and net earnings all increased over the comparable period in 2005 due mainly to higher production. The accompanying table provides additional highlights.



------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Financial
($ thousands
except per Trust
Unit amounts)
Oil and natural
gas sales $ 93,011 $ 83,222 12 $ 199,054 $ 163,361 22
Earnings before
income taxes 9,797 17,015 (42) 30,346 29,904 1
Future income
tax recovery (14,099) (1,766) 698 (17,752) (3,252) 446
Net earnings 23,896 18,781 27 48,098 33,156 45
Funds flow from
operations 53,349 46,353 15 115,802 90,862 27
Funds flow from
operations per
weighted average
Trust Unit 0.78 0.85 (8) 1.69 1.66 2
Distributions to
unitholders 49,956 37,628 33 104,651 75,125 39
Distributions
per Trust Unit 0.73 0.69 6 1.53 1.38 11
Long term debt 279,343 207,432 35 279,343 207,432 35
Unitholders'
equity 687,633 482,289 43 687,633 482,289 43
------------------------------------------------------------------------
Operations
Daily production
Oil (bbl/d) 2,290 2,354 (3) 2,228 2,341 (5)
Natural gas
(mmcf/d) 103.7 81.7 27 102.5 84.2 22
Natural gas
liquids (bbl/d) 2,804 2,926 (4) 2,789 3,083 (10)
Oil equivalent
(boe/d) 22,386 18,891 19 22,108 19,458 14
Average prices
(including
hedging)
Oil ($/bbl) $ 71.34 $ 56.75 26 $ 65.59 $ 56.50 16
Natural gas
($/mcf) $ 6.66 $ 7.80 (15) $ 7.73 $ 7.41 4
Natural gas
liquids ($/bbl)$ 59.96 $ 45.29 32 $ 57.03 $ 45.61 25
Oil equivalent
($/boe) $ 45.67 $ 47.83 (5) $ 49.64 $ 46.08 8
------------------------------------------------------------------------
Unit Trading
Units traded
(thousands) 17,018 8,916 91 44,514 18,490 141
Value traded
($ thousands) $ 388,185 $ 186,959 108 $ 1,072,923 $ 398,888 169
Unit price
High $ 26.18 $ 22.19 $ 29.52 $ 23.35
Low $ 18.72 $ 19.60 $ 18.72 $ 19.60
Close $ 21.20 $ 21.55 $ 21.20 $ 21.55
Units
outstanding,
end of period
(thousands) 68,427 54,524 68,427 54,524
------------------------------------------------------------------------
------------------------------------------------------------------------


The following discussion and analysis of the operating and financial results of Shiningbank Energy Income Fund ("Shiningbank" or the "Fund") for the three and six month periods ended June 30, 2006. This information is provided as of August 3, 2006. The second quarter and half-year results have been compared with the corresponding periods in 2005. This discussion and analysis should be read in conjunction with the Fund's audited consolidated comparative financial statements for the years ended December 31, 2005 and 2004, together with the accompanying notes, and the Annual Information Form ("AIF") for the year ended December 31, 2005. These documents and additional information about the Fund are available on SEDAR at www.sedar.com.

Non-GAAP Measures

Management believes that funds flow and operating netbacks are useful supplemental measures. All references to funds flow throughout this discussion and analysis are based on funds flow from operations, which management uses to analyze operating performance and leverage. Funds flow as presented is not intended to represent operating cash flow or operating profits, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian generally accepted accounting principles ("GAAP"). The Fund considers funds flow a key measure of performance as it demonstrates the Fund's ability to generate the cash flow necessary to fund future distributions and capital investments and repay indebtedness. Operating netback, which is calculated as average unit sales price less royalties, transportation costs and operating costs, represents the cash margin for product sold, calculated on a boe basis. The Fund considers operating netback a key measure as it indicates the relative performance of crude oil and natural gas assets. Funds flow and operating netback as presented do not have any standardized meanings prescribed by Canadian GAAP and therefore may not be comparable with the calculations of similar measures for other entities.

Forward-Looking Statements

This discussion and analysis contains forward-looking statements relating to future events. In some cases, forward-looking statements can be identified by such words as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" or similar expressions. These statements represent management's best projections, but undue reliance should not be placed upon them as they are derived from numerous assumptions. These assumptions are subject to known and unknown risks and uncertainties, including the business risks discussed in both the Management Discussion and Analysis and the AIF for the year ended December 31, 2005, which may cause actual performance and financial results to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.

Barrel of Oil Equivalent

Barrel of oil equivalent (boe) volumes are reported at 6:1 with 6 mcf = 1 bbl. The 6:1 boe conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. While it is useful for comparative measures, it may not accurately reflect individual product values and may be misleading if used in isolation.

Reporting Currency

All figures are in Canadian dollars unless otherwise noted.

Recent Development

On July 13, 2006, Shiningbank and Find Energy Ltd. ("Find") jointly announced that Shiningbank Energy Ltd. (a wholly-owned subsidiary of Shiningbank) had made an offer to acquire all of the outstanding common shares of Find on the basis of 0.465 of a Trust Unit of the Fund for each common share of Find. The offer was mailed to shareholders of Find on July 31, 2006, is open for acceptance until September 6, 2006 and is conditional upon, among other things, there being validly deposited under the offer at least 66?% of the common shares of Find, calculated on a diluted basis.

Results of Operations



Production Volumes

------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Oil (bbl/d) 2,290 2,354 (3) 2,228 2,341 (5)
Natural gas
(mmcf/d) 103.7 81.7 27 102.5 84.2 22
Natural gas
liquids (bbl/d) 2,804 2,926 (4) 2,789 3,083 (10)
Oil equivalent
(boe/d) 22,386 18,891 19 22,108 19,458 14
------------------------------------------------------------------------
Natural gas %
of production 77% 72% 5 77% 72% 5
------------------------------------------------------------------------
------------------------------------------------------------------------


Daily production for the second quarter averaged 22,386 boe/d, up 19% from the same period last year. For the first half of the year, daily production volumes averaged 22,108 boe/d, 14% higher than 2005. The increase was primarily due to the acquisition of Blizzard Energy Inc. ("Blizzard"), which closed August 2, 2005. The Blizzard assets contributed 19% to second quarter 2006 production and 18% to production year to date. Production growth was partially offset by the natural declines of producing properties, which are estimated to average 15% per year, and by fourth quarter 2005 dispositions which averaged 300 boe/d. Oil and NGL production was lower than in the 2005 comparative periods due to natural declines. Production for the remainder of 2006 is anticipated to average 25,000 to 25,500 boe/d assuming that the proposed acquisition of Find closes in early September 2006.



Pricing - Including Hedging Activity

------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Average prices -
including hedging
Oil ($/bbl) $ 71.34 $ 56.75 26 $ 65.59 $ 56.50 16
Natural gas
($/mcf) $ 6.66 $ 7.80 (15) $ 7.73 $ 7.41 4
Natural gas
liquids ($/bbl) $ 59.96 $ 45.29 32 $ 57.03 $ 45.61 25
Oil equivalent
($/boe) $ 45.67 $ 47.83 (5) $ 49.64 $ 46.08 8
------------------------------------------------------------------------
Benchmark prices
WTI (US$/bbl) $ 70.70 $ 53.20 33 $ 67.09 $ 51.51 30
AECO natural gas
(Cdn$/mcf) $ 6.27 $ 7.37 (15) $ 7.77 $ 7.03 11
------------------------------------------------------------------------
------------------------------------------------------------------------


Natural Gas

Shiningbank's realized natural gas price averaged $6.66/mcf for the quarter, 15% lower than second quarter 2005. Year to date, the average price was 4% higher at $7.73. Hedging increased the realized gas price by $0.08/mcf for the quarter and $0.09/mcf year to date. This compares with a 2005 hedging loss of $0.05/mcf for the quarter and no significant impact on the year to date 2005 price. Shiningbank has historically received a premium gas price to AECO benchmark monthly prices, but this was reduced in first quarter 2006 due to a reduction in daily versus monthly index gas prices. This variation did not occur in the second quarter and is not expected in the remainder of 2006, but could occur again in periods of rapidly weakening daily prices.

Oil and Natural Gas Liquids

Realized oil prices for the quarter averaged $71.34/bbl, up 26% from second quarter 2005. Realized oil prices for the first half were $65.59/bbl, up 16% from first half 2005. Hedging had no effect on the price for the quarter, but added $0.01/bbl year to date. This compares with 2005 hedging losses of $0.83/bbl for the quarter and $0.61/bbl for the first six months.

The benchmark West Texas Intermediate ("WTI") price averaged 33% higher for the quarter and 30% year to date; however, the relative strength of the Canadian dollar moderated the impact of the higher US dollar prices. Oil prices are expected to remain high in US dollar terms, with futures prices currently averaging over US$75.00/bbl for the remainder of 2006.

NGL prices were also strong reflecting high oil prices. The quarterly average NGL price was 32% higher than in second quarter 2005 at $59.96/bbl, and 25% higher year to date at $57.03/bbl. Shiningbank's NGL prices typically average approximately 80% of Edmonton par oil prices. In second quarter 2006, the Fund's NGL prices averaged 84%, slightly higher than usual due to strong demand for NGL for use as diluent in the transportation of heavy oil.

Hedging

Shiningbank maintains an active hedging program designed to reduce the variability of funds flow and stabilize distributions. Under the Fund's hedging policy, not more than one-half of production volumes of any commodity can be hedged at any one time. Gains and losses from hedging activities are recorded when they are realized and are included in oil and natural gas sales unless a particular hedge is considered ineffective. Currently, Shiningbank has the following hedging contracts in place:



Period Commodity Volume Price
------------------------------------------------------------------------
April 1, 2006 -
October 31, 2006 Gas 5,000 GJ/d $7.50/GJ floor
$12.00/GJ ceiling

May 1, 2006 -
October 31, 2006 Gas 10,000 GJ/d $5.50/GJ floor
$9.75/GJ ceiling

July 1, 2006 -
March 31, 2007 Gas 5,000 GJ/d $6.00/GJ floor
$10.05/GJ ceiling

July 1, 2006 -
March 31, 2007 Gas 5,000 GJ/d $6.25/GJ floor
$10.50/GJ ceiling

July 1, 2006 -
October 31, 2006 Gas 5,000 GJ/d $6.47/GJ

September 1, 2006 -
December 31, 2006 Gas 10,000 GJ/d $6.65/GJ

July 1, 2006 -
December 31, 2006 Oil 500 bbl/d US$55.00/bbl floor
US$89.10/bbl ceiling
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenues
Three months ended June 30,
------------------------------------------------------------------------
% of % of
(000s) 2006 Revenue 2005 Revenue
------------------------------------------------------------------------
Oil $ 14,867 16 $ 12,335 15
Natural gas 62,090 67 58,364 70
Natural gas liquids 15,302 16 12,057 14
Other income (14) - 1,005 1
Gas hedging 766 1 (360) -
Oil hedging - - (179) -
------------------------------------------------------------------------
$ 93,011 100 $ 83,222 100
------------------------------------------------------------------------
------------------------------------------------------------------------

Six months ended June 30,
------------------------------------------------------------------------
% of % of
(000s) 2006 Revenue 2005 Revenue
------------------------------------------------------------------------
Oil $ 26,448 13 $ 24,193 15
Natural gas 141,790 71 112,931 69
Natural gas liquids 28,788 15 25,453 15
Other income 401 - 1,077 1
Gas hedging 1,627 1 (36) -
Oil hedging - - (257) -
------------------------------------------------------------------------
$ 199,054 100 $ 163,361 100
------------------------------------------------------------------------
------------------------------------------------------------------------

The accompanying table demonstrates the net effect of price and volume
variances on revenues.

Sales Variance Analysis (Including Hedging Activity)

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
(000s) 2006/2005 2006/2005
------------------------------------------------------------------------
Oil and natural gas liquids
Volume decrease $ (828) $ (3,579)
Price increase 6,784 9,426
------------------------------------------------------------------------
Net increase $ 5,956 $ 5,847
------------------------------------------------------------------------
------------------------------------------------------------------------
Natural gas
Volume increase $ 15,667 $ 24,601
Price increase (decrease) (10,815) 5,921
------------------------------------------------------------------------
Net increase $ 4,852 $ 30,522
------------------------------------------------------------------------
------------------------------------------------------------------------

Royalties

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Total royalties,
net (000s) $ 16,062 $ 17,063 (6) $ 36,435 $ 35,604 2
As a % of revenue 17.3% 20.5% (16) 18.3% 21.8%(16)
Per boe $ 7.88 $ 9.93 (21) $ 9.11 $ 10.11 (10)
------------------------------------------------------------------------
------------------------------------------------------------------------


Royalty expense consists of royalties paid to provincial governments, freehold landowners and overriding royalty owners. The royalty rate decreased by 16% in both the second quarter and year to date due to increasing production from the Sousa area where the Fund has lower royalty rates, combined with several one-time recoveries. The Fund expects royalty rates to average 20% for the remainder of 2006, including the effect of the Find properties which have slightly higher royalty rates.



Transportation Costs

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Transportation
costs (000s) $ 1,381 $ 1,075 28 $ 2,832 $ 2,242 26
Per boe $ 0.68 $ 0.63 8 $ 0.71 $ 0.64 11
------------------------------------------------------------------------
------------------------------------------------------------------------


Transportation costs increased 8% on a boe basis from second quarter 2005 and 11% year to date due to higher transportation costs related to the Blizzard properties. Transportation costs are expected to average $0.75/boe for the remainder of 2006.



Operating Costs

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Operating costs
(000s) $ 17,064 $ 13,949 22 $ 33,198 $ 25,721 29
Per boe $ 8.38 $ 8.11 3 $ 8.30 $ 7.30 14
------------------------------------------------------------------------
------------------------------------------------------------------------


Operating costs on a boe basis increased 3% from second quarter 2005 and 14% year over year due to industry cost pressures, higher fuel and power costs together with workover costs at Sousa in first quarter. The increases were partially offset by the incorporation of the Blizzard properties which have lower operating costs. Operating costs are expected to decline to $7.50/boe for the remainder of 2006 with the incorporation of lower operating cost properties from Find contributing to the stability of this rate later in the year.



Operating Netbacks
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
($/boe) 2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Oil and natural
gas sales $ 45.67 $ 47.83 (5) $ 49.64 $ 46.08 8
Other income (loss) (0.01) 0.58 (102) 0.10 0.31 (68)
Royalties (7.88) (9.93) (21) (9.11) (10.11)(10)
Transportation
costs (0.68) (0.63) 8 (0.71) (0.64) 11
Operating costs (8.38) (8.11) 3 (8.30) (7.30) 14
------------------------------------------------------------------------
Operating
netbacks $ 28.72 $ 29.74 (3) $ 31.62 $ 28.34 12
------------------------------------------------------------------------
------------------------------------------------------------------------


Total operating netbacks decreased 3% quarter over quarter due mainly to lower natural gas prices. Year to date total operating netbacks increased 12% over 2005 primarily as a result of higher commodity prices. This increase was partially offset by higher transportation and operating costs.



General and Administrative Costs

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
General and
administrative
costs (000s) $ 2,156 $ 1,750 23 $ 4,869 $ 3,927 24
Per boe $ 1.06 $ 1.02 4 $ 1.22 $ 1.12 9
Per average
Trust Unit $ 0.03 $ 0.03 - $ 0.07 $ 0.07 -
------------------------------------------------------------------------
------------------------------------------------------------------------


General and administrative costs increased 4% on a boe basis from second quarter 2005 and 9% year over year due to higher activity levels related to acquisitions and development activities, higher costs due to additional regulatory requirements and significant pressure on salaries and benefits in a very competitive environment for staff. General and administrative costs are expected to be approximately $1.45/boe for full year 2006, including incremental costs from the Find acquisition.



Interest on Long Term Debt

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Interest on long
term debt (000s) $ 3,276 $ 1,931 70 $ 5,939 $ 3,775 57
Per boe $ 1.61 $ 1.12 44 $ 1.48 $ 1.07 38
Per average
Trust Unit $ 0.05 $ 0.04 25 $ 0.09 $ 0.07 29
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense per average Trust Unit increased 25% from second quarter 2005 and 29% for the six month period. The increase was due to higher debt levels resulting from an active development program and higher interest rates. Shiningbank is currently in compliance with all external debt covenants. All of Shiningbank's debt is floating rate bank debt. Interest expense for the remainder of 2006 is expected to be approximately $1.75/boe.



Depletion, Depreciation and Accretion

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Depletion,
depreciation and
accretion (000s) $ 42,473 $ 29,367 45 $ 83,292 $ 60,004 39
Per boe $ 20.85 $ 17.08 22 $ 20.81 $ 17.04 22
------------------------------------------------------------------------
------------------------------------------------------------------------


Depletion, depreciation and accretion per boe rose 22% for both the second quarter and six month period. The increase was primarily related to the acquisition of Outlook Energy Corp. ("Outlook") in the second quarter of 2005 and the Blizzard acquisition in third quarter 2005.



Trust Unit Incentive Compensation

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Trust Unit
incentive
compensation
(000s) $ 955 $ 607 57 $ 1,916 $ 1,222 57
Per boe $ 0.47 $ 0.35 34 $ 0.48 $ 0.35 37
------------------------------------------------------------------------
------------------------------------------------------------------------


During second quarter 2006, three new issues aggregating 45,000 Trust Unit rights were granted (2005 - three issues totalling 50,000 Trust Unit rights). Five new issues of rights aggregating 901,000 (2005 - 767,500) have been granted during the year. The fair value of rights issued was determined using a Black-Scholes model and will be brought into income over the vesting period of the rights. The total second quarter 2006 expense of $955,000 (2005 - $607,000) represented the fair value of rights issued during 2003 through to mid-2006. During the first six months of 2006, the total expense was $1.9 million (2005 - $1.2 million). All of these costs are "non-cash" costs and are not deducted in determining distributions to unitholders.



Internalization of Management Contract

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Internalization
of management
contract (000s) $ 124 $ 368 (66) $ 248 $ 736 (66)
Per boe $ 0.06 $ 0.21 (71) $ 0.06 $ 0.21 (71)
------------------------------------------------------------------------
------------------------------------------------------------------------


Effective October 9, 2002, the Fund internalized its management by acquiring all of the shares of Shiningbank Energy Management Inc., the former manager of the Fund. Prior to the acquisition, the Fund paid a fee equal to 3.25% of net operating income, a fee equal to 1.5% of the purchase price of acquisitions and a quarterly scheduled dividend in accordance with the terms of a management agreement. The acquisition eliminated all future fees and dividends.

Of the total purchase price of $20.6 million, $11.0 million was deferred, representing Exchangeable Shares subject to escrow provisions which are being amortized into income over specific vesting periods through 2007. During second quarter 2006, $124,000 (2005 - $368,000) was expensed, representing the amortization of these escrowed Exchangeable Shares. During the first six months of 2006, $248,000 was expensed (2005 - $736,000).



Taxes

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Capital and
large
corporation
taxes
(000s) $ (277) $ 97 (386) $ (21) $ 226 (109)
Future income
tax recovery
(000s) $ (14,099) $ (1,766) 698 $ (17,752) $ (3,252) 446
Per boe $ (7.06) $ (0.97) 628 $ (4.45) $ (0.86) 417
------------------------------------------------------------------------
------------------------------------------------------------------------


The Fund is obligated to pay provincial capital taxes in its operating entities. Under the Fund's structure, payments are made from Shiningbank Energy Ltd. to the Fund. These payments provide the mechanism for transferring income to unitholders along with tax benefits and future tax liabilities. Current income taxes are not presently payable by the Fund or its operating entities. First quarter 2006 provisions for federal large corporations tax were reversed in second quarter reflecting recently introduced changes to the Tax Act. Future income taxes were also lower mainly due to lower tax rates enacted in the second quarter of 2006.

Earnings



The following table sets out changes in earnings before and after income
taxes.

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Earnings before
income taxes
(000s) $ 9,797 $ 17,015 (42) $ 30,346 $ 29,904 1
Per Trust Unit
- basic $ 0.14 $ 0.31 (55) $ 0.44 $ 0.55 (20)
Per Trust Unit
- diluted $ 0.14 $ 0.31 (55) $ 0.44 $ 0.54 (19)
------------------------------------------------------------------------

------------------------------------------------------------------------
Net earnings
(000s) $ 23,896 $ 18,781 27 $ 48,098 $ 33,156 45
Per Trust Unit
- basic $ 0.35 $ 0.34 3 $ 0.70 $ 0.61 15
Per Trust Unit
- diluted $ 0.35 $ 0.34 3 $ 0.70 $ 0.60 17
------------------------------------------------------------------------
------------------------------------------------------------------------


Distributions to Unitholders

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
(000s except
per Trust Unit
amounts) 2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Funds flow from
operations $ 53,349 $ 46,353 15 $ 115,802 $ 90,862 27
Capital
expenditures (23,153) (11,270) 105 (76,827) (25,732) 199
Asset
retirement
expenditures (1,105) (437) 153 (1,383) (910) 52
Working
capital
adjustments 20,865 2,982 600 67,059 10,905 515
------------------------------------------------------------------------
Distributions
to unitholders $ 49,956 $ 37,628 33 $ 104,651 $ 75,125 39
------------------------------------------------------------------------
Distributions
per Trust Unit $ 0.73 $ 0.69 6 $ 1.53 $ 1.38 11
------------------------------------------------------------------------
Trust Units
outstanding,
end of period 68,427 54,524 25 68,427 54,524 25
------------------------------------------------------------------------
Payout ratio 94% 81% 90% 83%
------------------------------------------------------------------------
------------------------------------------------------------------------


Total distributions to unitholders increased 33% for the second quarter and 39% year to date over 2005. The increases were attributable to improved funds flow due mainly to higher production volumes. The increase in the number of Trust Units outstanding and larger deductions for planned capital expenditures partially offset the higher funds flow. The Fund paid out 94% of its funds flow for second quarter 2006 and 90% year to date (2005 - 81% second quarter, 83% first half). Accumulated Trust Unit distributions since inception total $794.9 million.

On a per Trust Unit basis, distributions increased 6% for second quarter 2006 and 11% year to date. Distributions in fourth quarter 2005 were increased to $0.30 per Trust Unit from $0.23 per Trust Unit which had been paid since June 2003. This increase reflected stable production performance and strength in natural gas prices. Due to the weakening in natural gas prices in 2006, distributions were decreased to $0.25 per Trust Unit for the distribution paid on April 15, 2006 with a further decrease to $0.23 per Trust Unit for the distribution payable on August 15, 2006. Future distributions are subject to change as dictated by commodity prices, operations and future business development.

Funds Flow from Operations

The following table reconciles a non-GAAP measure, funds flow from operations, to the nearest GAAP measure, cash flow from operating activities.



Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
(000s) 2006 2005 % 2006 2005 %
------------------------------------------------------------------------
Cash flow from
operating
activities $ 50,263 $ 50,516 (1) $ 114,499 $ 103,524 11
Change in
non-cash working
capital 1,981 (4,600) (143) (80) (13,572)(99)
Asset retirement
expenditures 1,105 437 153 1,383 910 52
------------------------------------------------------------------------
Funds flow from
operations $ 53,349 $ 46,353 15 $ 115,802 $ 90,862 27
------------------------------------------------------------------------
------------------------------------------------------------------------


Quarterly Financial Information
(000s except per June 30, March 31, December 31, September 30,
Trust Unit amounts) 2006 2006 2005 2005
------------------------------------------------------------------------
Oil and natural
gas sales $ 93,011 $ 106,043 $ 144,539 $ 111,763
Earnings before income
taxes 9,797 20,549 49,336 28,259
Per Trust Unit
- basic 0.14 0.30 0.72 0.46
- diluted 0.14 0.30 0.71 0.46
Net earnings 23,896 24,202 50,085 30,995
Per Trust Unit
- basic 0.35 0.35 0.73 0.51
- diluted 0.35 0.35 0.72 0.50
Funds flow from
operations 53,349 62,453 94,181 67,721
Per weighted average
Trust Unit 0.78 0.91 1.38 1.11
Distributions to
unitholders 49,956 54,695 61,391 45,750
Per Trust Unit 0.73 0.80 0.90 0.69
Payout ratio 94% 88% 65% 68%
------------------------------------------------------------------------

June 30, March 31, December 31, September 30,
2005 2005 2004 2004
------------------------------------------------------------------------
Oil and natural
gas sales $ 83,222 $ 80,139 $ 82,453 $ 74,713
Earnings before income
taxes 17,015 12,889 13,974 12,297
Per Trust Unit
- basic 0.31 0.24 0.26 0.24
- diluted 0.31 0.23 0.25 0.23
Net earnings 18,781 14,375 88,038 15,900
Per Trust Unit
- basic 0.34 0.26 1.62 0.30
- diluted 0.34 0.26 1.60 0.29
Funds flow from
operations 46,353 44,509 47,220 42,924
Per weighted average
Trust Unit 0.85 0.81 0.87 0.80
Distributions to
unitholders 37,628 37,497 37,390 37,226
Per Trust Unit 0.69 0.69 0.69 0.69
Payout ratio 81% 84% 79% 87%
------------------------------------------------------------------------
------------------------------------------------------------------------


Quarterly fluctuations primarily result from production increases due to acquisitions, volumes added through the Fund's development drilling program, and changes in realized commodity prices which can be extremely volatile.

Volume increases occurred through the acquisition of Outlook in second quarter 2005 and again with the acquisition of Blizzard in third quarter 2005. The Fund's development drilling program strives to replace natural declines on the production base, with results affected by such factors as field conditions, availability of drilling and production equipment and drilling success. Shiningbank's drilling success rate in the first half of 2006 was 98%.

Natural gas prices remained strong through the past eight quarters with a sharp increase in third and fourth quarter 2005 followed by a return to more normal levels in first and second quarter 2006. Oil prices increased substantially in late 2004 and continued to rise in 2005 and 2006. Distributions per Trust Unit increased 6% in second quarter 2006 from the same period in 2005 based on overall production growth and the strength in pricing for oil and NGL. The increase in funds flow was used to fund capital expenditures and to pay distributions on a greater number of Trust Units outstanding.

Costs for Development Activities

A total of $23.2 million was spent on drilling and new facilities during second quarter 2006 and $76.8 million in first half 2006, compared with $11.3 million and $25.7 million, respectively, for the same periods in 2005. Funds flow contributed $3.4 million of the second quarter expenditures and $11.2 million of the year to date expenditures, with the balance funded by proceeds from the Fund's Distribution Reinvestment Plan, bank debt and working capital drawdown.

A total of 126 wells (88.3 net) were drilled in the first half of 2006, of which 109 (82.7 net) were successful gas wells, 14 (3.5 net) were successful oil wells, one (0.1 net) was a service well and two (2.0 net) were dry and abandoned.

In the remainder of 2006, the Fund plans to spend an additional $35 to $40 million, exclusive of potential spending relating to the Find acquisition, on drilling, tie-ins, new facilities and maintenance capital. This will be funded through a combination of funds flow, proceeds from the Fund's Distribution Reinvestment Plan and debt financing.

Liquidity and Capital Resources

Shiningbank's ability to grow depends on access to bank lines of credit and periodic issues of new equity to fund acquisitions. Smaller acquisitions through the course of a year may be funded by a combination of bank debt, funds flow and proceeds from the Fund's Distribution Reinvestment Plan. Equity is issued to fund single large acquisitions, or to pay down bank debt accumulated following a number of smaller acquisitions. When the proceeds of an equity issue are greater than acquisition costs, the excess is used to reduce bank debt.

Long Term Debt

The Fund has a $365 million revolving credit facility, which was increased from $330 million in April 2006, with a syndicate of Canadian chartered banks of which $279.3 million was drawn at June 30, 2006. The revolving period extends to April 25, 2007, at which time the facility, unless renewed, reverts to a two-year term with principal payments, if necessary, commencing on July 26, 2007. The facility is secured by a $600 million floating charge debenture on all assets of Shiningbank together with supporting debentures and guarantees from the Fund's material subsidiaries and affiliates. Borrowings under the facility bear interest at an annual rate ranging from the banks' prime rate to the banks' prime rate plus 0.95%, depending on the Fund's total debt to funds flow ratio or, at Shiningbank's option, the bankers' acceptance rate plus a stamping fee. At June 30, 2006, the debt to annualized funds flow ratio was 1.3:1.

Unitholders' Equity

A total of 48,482 Trust Units were issued during the second quarter (240,712 year to date) under the Trust Unit Rights Incentive Plan and the Distribution Reinvestment Plan.

When equity is raised in a public equity issue, the intended use of proceeds is specified in the related prospectus. Each major equity issue has been undertaken to acquire properties or to reduce debt incurred from prior acquisitions. In all cases, the proceeds were used according to the purpose specified.

As of August 3, 2006, the Fund had 68,442,682 Trust Units, 184,326 non-escrowed Exchangeable Shares and 151,549 escrowed Exchangeable Shares outstanding. Exchangeable Shares held in escrow will be released over the next two years under the terms of an escrow agreement. Exchangeable Shares are not eligible for distributions until they are exchanged for Trust Units at the discretion of the holder. The exchange rate was initially one Trust Unit for each Exchangeable Share. The exchange rate increases with each distribution by an amount equal to the per unit distribution divided by the 10-day weighted average trading price of the Trust Units preceding the record date for that distribution. As of June 30, 2006, the exchange rate was 1.51419 Trust Units for each Exchangeable Share.



Contractual Obligations
Payments Due by Period
------------------------------------------------------------------------
Less than 1 - 3 4 - 5 After
(000s) Total 1 Year Years Years 5 Years
------------------------------------------------------------------------

Long term debt
principal(1) $ 279,343 $ - $ 279,343 $ - $ -
Operating leases 10,294 2,060 5,220 3,014 -
Pipeline
transportation 2,859 1,139 1,720 - -
------------------------------------------------------------------------
Total obligations $ 292,496 $ 3,199 $ 286,283 $ 3,014 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Assumes that the revolving credit facility is not renew ed in April
2007.


Shiningbank has ongoing capital commitments in the ordinary course of business for development drilling, equipment and facilities. These are funded through a combination of funds flow, proceeds from the Fund's Distribution Reinvestment Plan, debt financing and periodic equity financing.

Critical Accounting Estimates

The Fund makes numerous accounting estimates in its financial statements in order to provide timely information to users. A critical accounting estimate is one that requires management to make assumptions about matters that are highly uncertain at the time the estimate is made and, if a different estimate was used, financial results would be materially different. The following estimates are considered critical:

Reserves

The Fund must estimate its oil and gas reserves. Reserves are evaluated and reported on annually by independent petroleum reserve evaluators who use various subjective factors and assumptions, including forecasts of costs based on geological and engineering data, projected future rates of production, and timing and amounts of future development costs. Although reserves are estimated, management believes the estimates are reasonable based on information available at the time the estimates were prepared. Management, the Fund's internal engineers, and the Environment, Health, Safety and Reserve Committee of the Board of Directors of Shiningbank Energy Ltd. all review the estimates reported by the independent reserve evaluators.

As new information becomes available, changes are made to the reserve estimates and future development cost estimates. Historically, the Fund has had no significant changes to these estimates, with the exception of adjusting reserves for acquisitions and divestitures and the results of new drilling. Future actual results could vary greatly from the estimates made, resulting in material changes to the depletion calculation and the asset impairment test.

Asset Retirement Obligation

The Fund's estimated asset retirement obligation is based on estimated timing and costs to abandon and restore properties.


Related Party Transactions

During the six months ended June 30, 2006, Shiningbank incurred $170,000 for legal services (2005 - $192,000) provided by a firm in which a current director is a partner, $64,000 of which was outstanding at June 30, 2006. These payments were made in the normal course of operations, on commercial terms, and therefore were recorded at cost.



Consolidated Balance Sheets

June 30, December 31,
(unaudited)($ thousands) 2006 2005
------------------------------------------------------------------------
Assets
Current assets
Accounts receivable $ 59,833 $ 76,945
Prepaid expenses 6,540 6,747
------------------------------------------------------------------------
66,373 83,692
Fixed assets
Petroleum and natural gas properties and
equipment 1,618,858 1,539,488
Accumulated depletion and depreciation (587,406) (505,150)
------------------------------------------------------------------------
1,031,452 1,034,338
Goodwill 51,124 51,124
Other assets 491 426
------------------------------------------------------------------------
$ 1,149,440 $ 1,169,580
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Unitholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 56,536 $ 78,332
Trust Unit distributions payable 32,849 40,950
------------------------------------------------------------------------
89,385 119,282
Long term debt (note 2) 279,343 199,129
Future income taxes 66,077 83,829
Asset retirement obligation 27,002 30,348
Unitholders' equity
Trust Units (note 3) 1,002,301 996,855
Exchangeable Shares (note 3) 4,496 4,248
Contributed surplus (note 3) 4,864 3,364
Deficit (324,028) (267,475)
------------------------------------------------------------------------
687,633 736,992
------------------------------------------------------------------------
Commitments and contingencies (note 6)
Subsequent event (note 8)
$ 1,149,440 $ 1,169,580
------------------------------------------------------------------------
------------------------------------------------------------------------

See selected accompanying notes to the interim financial statements


Consolidated Statements of Earnings and Deficit


(unaudited)($ thousands, Three months ended Six months ended
except per Trust Unit June 30, June 30,
amounts) 2006 2005 2006 2005
------------------------------------------------------------------------
Revenues
Oil and natural gas
sales $ 93,011 $ 83,222 $ 199,054 $ 163,361
Royalties 16,062 17,063 36,435 35,604
------------------------------------------------------------------------
76,949 66,159 162,619 127,757
Expenses
Transportation 1,381 1,075 2,832 2,242
Operating 17,064 13,949 33,198 25,721
General and
administrative 2,156 1,750 4,869 3,927
Interest on long term
debt 3,276 1,931 5,939 3,775
Depletion, depreciation
and accretion 42,473 29,367 83,292 60,004
Trust Unit incentive
compensation (note 3) 955 607 1,916 1,222
Internalization of
management contract 124 368 248 736
------------------------------------------------------------------------
67,429 49,047 132,294 97,627
------------------------------------------------------------------------
Earnings before taxes 9,520 17,112 30,325 30,130
Capital and large
corporation taxes (277) 97 (21) 226
Future income tax
recovery (14,099) (1,766) (17,752) (3,252)
------------------------------------------------------------------------
Net earnings $ 23,896 $ 18,781 $ 48,098 $ 33,156
Deficit, beginning of
period (297,968) (222,567) (267,475) (199,445)
Distributions to
unitholders (49,956) (37,628) (104,651) (75,125)
------------------------------------------------------------------------
------------------------------------------------------------------------

Deficit, end of period $(324,028) $(241,414) $(324,028) $(241,414)
------------------------------------------------------------------------
------------------------------------------------------------------------
Net earnings per Trust
Unit (note 3)
Basic $ 0.35 $ 0.34 $ 0.70 $ 0.61
Diluted $ 0.35 $ 0.34 $ 0.70 $ 0.60
------------------------------------------------------------------------
------------------------------------------------------------------------

See selected accompanying notes to the interim financial statements


Consolidated Statements of Cash Flows

Three months ended Six months ended
June 30, June 30,
(unaudited) ($ thousands) 2006 2005 2006 2005
------------------------------------------------------------------------
Operating activities
Net earnings $ 23,896 $ 18,781 $ 48,098 $ 33,156
Items not requiring
cash
Depletion, depreciation
and accretion 42,473 29,367 83,292 60,004
Internalization of
management contract 124 368 248 736
Trust Unit incentive
compensation 955 607 1,916 1,222
Gain on sale of other
assets - (1,004) - (1,004)
Future income tax
recovery (14,099) (1,766) (17,752) (3,252)
------------------------------------------------------------------------
Funds flow from
operations 53,349 46,353 115,802 90,862
Asset retirement
expenditures (1,105) (437) (1,383) (910)
Change in non-cash
working capital(note 4) (1,981) 4,600 80 13,572
------------------------------------------------------------------------
50,263 50,516 114,499 103,524
------------------------------------------------------------------------
Financing activities
Increase in long term
debt 46,984 28,686 80,214 25,285
Distributions to
unitholders (49,956) (37,628) (104,651) (75,125)
Issue of Trust Units 999 3,263 5,030 6,356
------------------------------------------------------------------------
(1,973) (5,679) (19,407) (43,484)
Change in non-cash
working capital(note 4) (1,342) 86 (8,101) 169
------------------------------------------------------------------------
(3,315) (5,593) (27,508) (43,315)
------------------------------------------------------------------------
Investing activities
Property acquisitions (4,829) (14) (5,607) (1,333)
Corporate acquisitions - (31,360) - (31,360)
Capital expenditures (23,153) (11,270) (76,827) (25,732)
Proceeds on sale of
properties - (66) - (56)
Proceeds on sale of
other assets - 1,004 - 1,336
------------------------------------------------------------------------
(27,982) (41,706) (82,434) (57,145)
Change in non-cash
working capital(note 4) (18,966) (3,217) (4,557) (3,064)
------------------------------------------------------------------------
(46,948) (44,923) (86,991) (60,209)
------------------------------------------------------------------------
Change in cash $ - $ - $ - $ -
Cash, beginning of
period - - - -
------------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

See selected accompanying notes to the interim financial statements


Notes to the Consolidated Financial Statements

For the periods ended June 30, 2006 and 2005

(Tabular amounts are in $ thousands, except Trust Units and per Trust Unit amounts)

1. Significant Accounting Policies

The interim consolidated financial statements of Shiningbank Energy Income Fund ("Shiningbank" or the "Fund") have been prepared by management using Canadian generally accepted accounting principles and follow the same accounting principles and methods of computation as the audited annual consolidated financial statements for the year ended December 31, 2005 unless otherwise disclosed. The disclosures provided below are incremental to those included with the audited annual consolidated financial statements. The interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto in the Fund's 2005 financial report.

2. Long Term Debt

Shiningbank Energy Ltd. (the "Corporation") maintains a $365 million revolving credit facility (increased from $330 million in April 2006) with a syndicate of Canadian chartered banks of which $279.3 million was drawn at June 30, 2006. Borrowings under the credit facility bear interest at an annual rate ranging from the banks' prime rate to the banks' prime rate plus 0.95%, depending on the total debt to funds flow ratio, or, at the Corporation's option, the bankers' acceptance rate plus a stamping fee. The credit facility is secured by a $600 million floating charge debenture on all assets of the Corporation together with supporting debentures and guarantees from the Fund's material subsidiaries and affiliates. The revolving period extends to April 25, 2007, at which time the credit facility, unless renewed, reverts to a two-year term with the principal payments, if necessary, commencing on July 26, 2007.



3. Trust Units

(a) Authorized

300,000,000 Trust Units

(b) Issued

Number Amount
------------------------------------------------------------------------
Balance, December 31, 2005 68,186,198 $ 996,855
Issued for cash under Distribution Reinvestment
Plan 134,314 3,369
Issued on exercise of rights 106,398 1,694
Less: Commissions and issue costs (33)
Transfer from contributed surplus on exercise
of rights 416
------------------------------------------------------------------------
Balance, June 30, 2006 68,426,910 $ 1,002,301
------------------------------------------------------------------------
------------------------------------------------------------------------


(c) Exchangeable Shares (1)

Number Amount
------------------------------------------------------------------------
Balance, December 31, 2005 184,326 $ 4,248
Amortization of deferred portion 248
------------------------------------------------------------------------
Balance, June 30, 2006 184,326 $ 4,496
------------------------------------------------------------------------
------------------------------------------------------------------------
Exchange ratio, June 30, 2006 1.51419
------------------------------------------------------------------------
Trust Units issuable upon conversion of
non-escrowed shares 279,105
Trust Units issuable upon conversion of 151,549
escrowed shares 229,474
------------------------------------------------------------------------
Total Trust Units issuable upon conversion of
all shares 508,579
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Exchangeable Shares are non-transferable.


(d) Trust Unit Rights Incentive Plan

At June 30, 2006, there were 2,616,269 (2005 - 1,937,734) rights
outstanding, of which 973,602 (2005 -- 620,234) were exercisable at a
weighted average exercise price of $13.75 (2005 - $13.29) .

Weighted
Average
Exercise
Rights Number Price
------------------------------------------------------------------------
Balance, December 31, 2005 1,855,000 $ 16.74
Granted 901,000 $ 28.78
Exercised (106,398) $ 15.92
Forfeited (33,333) $ 24.79
------------------------------------------------------------------------
Balance before reduction of exercise price 2,616,269 $ 20.82
Reduction of exercise price (0.84)
------------------------------------------------------------------------
Balance, June 30, 2006 2,616,269 $ 19.98
------------------------------------------------------------------------
------------------------------------------------------------------------


The following table summarizes information about Trust Unit rights
outstanding and exercisable at June 30, 2006:

Rights Outstanding Rights Exercisable
------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at June 30, Contractual Exercise at June 30, Exercise
Prices 2006 Life (Yrs) Price 2006 Price
------------------------------------------------------------------------
$8.00 to $15.99 899,501 6.6 $ 12.61 740,501 $ 12.08
$16.00 to $20.99 790,768 8.5 $ 19.13 233,101 $ 19.06
$21.00 to $28.99 926,000 9.5 $ 27.87 - $ -
------------------------------------------------------------------------
$8.00 to $28.99 2,616,269 8.2 $ 19.98 973,602 $ 13.75
------------------------------------------------------------------------
------------------------------------------------------------------------


Shiningbank recorded Trust Unit incentive compensation expense of
$1,916,000 for the six months ended June 30, 2006 (2005 - $1,222,000)
and $955,000 for the quarter (2005 - $607,000) for rights issued
between 2003 and 2006. This expense is related to costs reported in
general and administrative expenses on the statement of earnings and
deficit.

The following table reconciles the movement in the contributed surplus
balance:

Amount
------------------------------------------------------------------------
Contributed surplus
Balance, December 31, 2005 $ 3,364
Trust Unit incentive compensation 1,916
Net benefit on rights exercised (1) (416)
------------------------------------------------------------------------
Balance, June 30, 2006 $ 4,864
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Upon exercise, the net benefit is reflected as a reduction of
contributed surplus and an increase to unitholders' equity.


The $5.6 million fair value of the 901,000 rights issued during the first half of 2006 - $6.21 per right (2005 - $4.65 per right) was estimated using a Black-Scholes option-pricing model with the following assumptions: risk-free interest rates of 4.1% to 4.6% (2005 - 3.8% to 4.2%), volatility of 60%, life of 10 years, and a dividend yield rate of 10% representing the difference between the anticipated distribution and the anticipated reduction in the strike price. Users are cautioned that the assumptions made are estimates of future events and actual results could differ materially from those estimated.

(e) Per Trust Unit amounts

For the six months ended June 30, 2006, the weighted average number of Trust Units and non-escrowed Exchangeable Shares outstanding was 68,639,660 (2005 - 54,714,567) and for the three months ended June 30, 2006 was 68,682,173 (2005 - 54,813,864). In computing diluted net earnings per Trust Unit, the dilutive effect of unit rights and escrowed Exchangeable Shares added 510,930 Trust Units (2005 - 677,306) for the six months, and 427,322 (2005 - 596,453) for the quarter to the weighted average number of Trust Units outstanding.



4. Other Cash Flow Disclosures

Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------
2006 2005 2006 2005
------------------------------------------------------------------------
Change in non-cash operating
working capital
Accounts receivable $ 3,167 $ (1,193) $ 17,112 $ 6,242
Prepaid expenses 153 17 207 15
Accounts payable and accrued
liabilities (5,301) 5,776 (17,239) 7,315
------------------------------------------------------------------------
$ (1,981) $ 4,600 $ 80 $ 13,572
------------------------------------------------------------------------

Change in non-cash financing
working capital
Distributions payable to
unitholders $ (1,342) $ 86 $ (8,101) $ 169
------------------------------------------------------------------------

Change in non-cash investing
working capital
Accounts payable for capital
accruals $(18,966) $ (3,217) $ (4,557) $ (3,064)
------------------------------------------------------------------------

Cash payments
Cash payments made for taxes $ 198 $ 88 $ 596 $ 92
Cash payments made for interest $ 2,135 $ 1,751 $ 4,742 $ 3,701
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Financial Instruments

At June 30, 2006, Shiningbank held certain derivative financial instruments which are not recognized on the consolidated balance sheets. The estimated market value at June 30, 2006, had the contracts been settled at that time, would have been a gain of $2.6 million.




Period Commodity Volume Price
------------------------------------------------------------------------
April 1, 2006 Gas 5,000 GJ/d $7.50 /GJ floor
- October 31, 2006 $12.00/GJ ceiling
May 1, 2006 Gas 10,000 GJ/d $5.50 /GJ floor
- October 31, 2006 $9.75/GJ ceiling
July 1, 2006 Gas 5,000 GJ/d $6.00 /GJ floor
- March 31, 2007 $10.05/GJ ceiling
July 1, 2006 Gas 5,000 GJ/d $6.25 /GJ floor
- March 31, 2007 $10.50/GJ ceiling
July 1, 2006 Gas 5,000 GJ/d $6.47 /GJ
- October 31, 2006
July 1, 2006 Oil 500 bbl/d US$55.00/bbl floor
- December 31, 2006 US$89.10/bbl ceiling
------------------------------------------------------------------------
------------------------------------------------------------------------


Subsequent to June 30, 2006, Shiningbank entered into an additional
hedge contract.

Period Commodity Volume Price
------------------------------------------------------------------------
September 1, 2006 Gas 10,000 GJ/d $6.65 /GJ
- December 31, 2006
------------------------------------------------------------------------


6. Commitments and Contingencies

The following is a summary of the Fund's contractual obligations and
commitments as at June 30, 2006:

Payments Due by Period
------------------------------------------------------------------------
Less than 1 - 3 4 - 5 After
Total 1 Year Years Years 5 Years
------------------------------------------------------------------------

Operating leases $ 10,294 $ 2,060 $ 5,220 $ 3,014 $ -
Pipeline transportation 2,859 1,139 1,720 - -
------------------------------------------------------------------------
Total obligations $ 13,153 $ 3,199 $ 6,940 $ 3,014 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


The Fund is involved in litigation and claims arising in the normal course of operations. Management is of the opinion that any resulting settlements would not materially affect the Fund's financial position or reported results of operations.

7. Related Party Transactions

During the six months ended June 30, 2006, Shiningbank incurred $170,000 for legal services (2005 - $192,000) provided by a firm in which a current director is a partner, $64,000 of which was outstanding at June 30, 2006. These payments were made in the normal course of operations, on commercial terms, and therefore were recorded at cost.

8. Subsequent Event

On July 13, 2006, Shiningbank announced that it had entered into an agreement whereby the Corporation will offer to acquire, by way of a take-over bid, all of the issued and outstanding common shares of Find Energy Ltd. (the "Offer") in exchange for Trust Units of Shiningbank. Total consideration payable is approximately $411 million, including approximately $62 million of assumed net debt. The Offer is expected to close in September 2006.

Shiningbank Energy Income Fund is a natural gas focused energy trust founded in 1996. The Fund purchases, develops and operates producing properties for the direct benefit of its unitholders. Shiningbank has one of the highest weightings of natural gas production in the energy trust sector at 77%.

Shiningbank is listed on the Toronto Stock Exchange under the symbol SHN.UN.

Contact Information

  • Shiningbank Energy Income Fund
    David M. Fitzpatrick
    President and C.E.O.
    (403) 268-7477 or Toll Free 1-866-268-7477
    or
    Shiningbank Energy Income Fund
    Bruce K. Gibson
    Vice President, Finance and C.F.O.
    (403) 268-7477 or Toll Free 1-866-268-7477
    or
    Shiningbank Energy Income Fund
    Debbie Carver
    Investor Relations Coordinator
    (403) 268-7477 or Toll Free 1-866-268-7477
    (403) 268-7499 (FAX)
    Email: irinfo@shiningbank.com
    Website: www.shiningbank.com