Sierra Vista Energy Ltd.
TSX VENTURE : SVR.A
TSX VENTURE : SVR.B

Sierra Vista Energy Ltd.

November 29, 2006 12:39 ET

Sierra Vista Announces Q3 2006 Financial and Operational Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 29, 2006) -

NOT FOR DISTRIBUTION IN THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Sierra Vista Energy Ltd. (TSX VENTURE:SVR.A) (TSX VENTURE:SVR.B) ("Sierra Vista" or the "Company") is pleased to announce its financial and operating results and the filing of its interim financial statements and related management discussion and analysis ("MD&A") for the three and nine months ended September 30, 2006. Select operational and financial results are outlined below and should be read in conjunction with the Company's unaudited interim financial statements and related MD&A which can be found on Sedar at www.sedar.com.

Highlights

- drilled 4 (2.2 net) wells with 100% success rate resulting in 2 oil wells (1.2 net) and 2 gas wells (1.0 net); through the nine months of 2006, Sierra Vista has drilled a total of 12 wells (7.9 net) with an overall success rate of 75%;

- generated cash flow of $929,058 or $0.04 per diluted share for the nine months ended September 30, 2006;

- increased land holdings to 31,440 gross (23,106 net) acres with a further 14,240 gross (9,123 net) under options and commitments through several farm-in agreements;

- lowered operating costs to $6.58 per Boe for the quarter ended September 30, 2006; for the nine months ended September 30, 2006, operating costs were $6.98 per Boe;

- achieved high field netbacks of $32.94 per Boe for the quarter ended September 30, 2006; for the nine months ended September 30, 2006, field netbacks were $34.98 per Boe;

- subsequent to September 30, 2006, closed a $5,003,750 short form prospectus equity offering.



Financial and Operations Highlights

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Financial
Petroleum and
natural gas
revenue $ 594,130 - $ 1,924,457 -
Cash flow from
operations $ 279,917 $ (42,552) $ 929,058 $ (42,552)
Per share
- basic $ 0.01 $ (0.03) $ 0.04 $ (0.04)
Per share
- diluted $ 0.01 $ (0.03) $ 0.04 $ (0.04)
Net income (loss) $ (105,355) $ (103,592) $ 562,641 $ (103,592)
Per share
- basic $ 0.00 $ (0.08) $ 0.03 $ (0.09)
Per share
- diluted $ 0.00 $ (0.08) $ 0.03 $ (0.09)
Capital
expenditures $ 6,483,386 $ 576,229 $ 19,008,878 $ 576,229
Working capital
(deficiency),
including debt $ (3,204,067) $ 399,217 $ (3,204,067) $ 399,217
Total assets $ 27,433,823 $ 2,491,859 $ 27,433,823 $ 2,491,859

Operating
Crude oil and
natural gas
liquids (bbl/d) 53 - 56 -
Natural gas
(mcf/d) 490 - 492 -
Barrels of oil
equivalent (boe/d)
(6:1) 135 - 138 -


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Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------

Average Prices
Crude oil and
natural gas
liquids ($/bbl) $ 67.56 - $ 65.55 -
Natural gas
($/mcf) $ 5.95 - $ 6.93 -
Barrels of oil
equivalent
($/boe) $ 48.19 - $ 51.29 -

Field operating
netback per boe $ 32.94 - $ 34.98 -
Operating costs
per boe $ 6.58 - $ 6.98 -

Weighted average
shares outstanding 26,107,270 1,378,261 21,874,312 1,182,609
Actual Class A
Shares outstanding
at end of period 17,487,950 4,150,000 17,487,950 4,150,000
Actual Class B
Shares outstanding
at end of period 1,170,000 - 1,170,000 -
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(1) Management uses cash flow from operations (before changes in non-cash
working capital) to analyze operating performance and leverage. Cash
flow from operations as presented does not have any standardized
meaning prescribed by Canadian GAAP and therefore it may not be
comparable with the calculation of similar measures for other
entities.

(2) To calculate weighted average basic shares outstanding, the Class B
shares were converted at $10 divided by the 30 day weighted average
price of Class A shares ending on September 30, 2006 of $1.28.


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

The following management discussion and analysis ("MD&A") is as of November 27, 2006 and should be read in conjunction with the unaudited interim financial statements of Sierra Vista Energy Ltd. ("Sierra Vista" or the "Company") for the three and nine months ended September 30, 2006, and Sierra Vista's audited financial statements and MD&A for the period ended December 31, 2005, together with accompanying notes. Additional information relating to the Company can be found on the SEDAR website at www.sedar.com.

Discussion with regard to Sierra Vista's remaining 2006 and 2007 outlook is based on currently available information. The financial data presented below has been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The reporting and operating currency is the Canadian dollar.

This MD&A contains the terms funds flow from operations, funds flow per share, operating netback and corporate netback which are not Canadian GAAP standards and therefore may not be comparable to performance measures presented by others. Funds flow from operations, as used by the Company, is comprised of cash flow from operating activities before changes in non-cash operating working capital. Operating netback represents revenue less royalties, operating expenses and transportations expenses. Corporate netback is operating netback plus interest revenue less general and administrative expenses and interest expense. These non-GAAP measures may not be comparable to the calculation of similar measures for other entities.

The term barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 thousand cubic feet (mcf) equals 1 barrel (bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in this report are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information regarding the Company set forth in this report includes forward looking statements. All statements other than statements of historical facts contained in this annual report, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect" and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described elsewhere in this report.

Other sections of this report may include additional factors, which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the Company's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking statements. Furthermore, the forward-looking statements contained in this report are made as of the date of this report, and we undertake no obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements in this report are expressly qualified by this cautionary statement.

SUBSEQUENT EVENT

On November 27, 2006 the Company closed a short form prospectus equity offering with a syndicate of agents for total gross proceeds of $5,003,750. The Company issued 4,475,000 Units at $0.80 per Unit and 1,675,000 Class A common shares on a Canadian development expenditure flow-through basis, at $0.85 per share. Each Unit consists of one class A common share and one share purchase warrant entitling the holder to acquire an additional class A common share until December 15, 2007 at $1.25 per share. Directors and management of the Company subscribed for 818,750 Units of the offering. As a result of the equity financing, the Company is committed to spend and renounce $1,423,750 of qualified Canadian development expenditures prior to December 31, 2006.

INCORPORATION AND COMMENCEMENT OF OPERATIONS

Sierra Vista Energy Ltd. was incorporated under the laws of the Province of Alberta on June 7, 2005 and commenced operation in September 2005. As a result, there are limited comparative figures for the three and nine months ended September 30, 2005 are presented.



SELECTED INFORMATION

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Petroleum and
natural gas
revenue $ 594,130 - $ 1,924,457 -
Funds flow from
operations $ 279,917 $ (42,552) $ 929,058 $ (42,552)
Funds flow from
operations per
share - basic $ 0.01 $ (0.03) $ 0.04 $ (0.04)
Funds flow from
operations per
share - diluted $ 0.01 $ (0.03) $ 0.04 $ (0.04)
Net income (loss) $ (105,355) $ (103,592) $ 562,641 $ (103,592)
Net income (loss)
per share - basic $ 0.00 $ (0.08) $ 0.03 $ (0.09)
Net income (loss)
per share
- diluted $ 0.00 (0.08) $ 0.03 $ (0.09)
Capital
expenditures $ 6,483,386 576,229 $ 19,008,878 $ 576,229
Working capital
(deficiency) $ (3,204,067) 399,217 $ (3,204,067) $ 399,217
Production (BOE/d) 135 - 138 -
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PRODUCTION

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Production
Crude oil and natural gas
liquids (bbl/d) 53 - 56 -
Natural gas (mcf/d) 490 - 492 -
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Oil equivalent production
(BOE/d) 135 - 138 -
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For the three months ended September 30, 2006, the Company averaged 135 BOE/d as compared to 141 BOE/d in the second quarter of 2006, a slight decrease of 4 percent. Production for the quarter was comprised of 53 bbls/d of crude oil and natural gas liquids and 490 Mcf/d of natural gas. Sierra Vista's production continues to be curtailed due to the shut-in of the Company's Bigstone well due to plant restrictions. Management expects that the Bigstone well will be back on production towards the end of the first quarter 2007. The Bigstone well would have contributed approximately 80 BOE/d to the third quarter average production. The Company's exit production rate at September 30, 2006 was approximately 235 BOE/d. The Company expects to exit 2006 with a production rate of approximately 500 BOE/d.



PRICING

Average Benchmark Prices
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Crude oil - WTI
(US$ per Bbl) $ 70.36 $ 63.19 $ 68.70 $ 55.40
Crude oil -
Edmonton Par
Price ($ per Bbl) $ 79.40 $ 77.05 $ 76.79 $ 68.51
Natural gas -
AECO ($/mcf daily
index) $ 5.67 $ 9.38 $ 6.44 $ 7.92
Natural gas -
AECO ($/mcf
monthly index) $ 6.09 $ 8.25 $ 7.26 $ 7.48
Exchange rate
(US$/Cdn$) 0.89 0.83 0.88 0.82
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Sierra Vista Realized Prices
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Average Prices
Crude oil and
natural gas
liquids ($/bbl) $ 67.56 - $ 65.55 -
Natural gas ($/mcf) $ 5.95 - $ 6.93 -
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Oil equivalent
($/BOE) $ 48.19 - $ 51.29 -
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Crude oil prices remained relatively high for most of the third quarter as the WTI averaged US$70.36 per Bbl and the Edmonton light sweet oil averaged $79.40 per Bbl. However, due to uncertainty over crude oil inventory stocks, the price of crude oil started to decline towards the end of September and continued to decline into October with October WTI averaging $59.14 per Bbl. Natural gas prices averaged $6.03 per Mcf for AECO daily spot and natural gas prices remain very volatile as natural gas storage levels remain a concern. The high Sierra Vista price realization compared to the benchmark prices reflects the higher heat content of Sierra Vista's natural gas stream coming from the Company's Ante Creek property.

Sierra Vista averaged realized prices for the three and nine months ended September 30, 2006, for crude oil and natural gas liquids, of $67.56 and $65.55 per Bbl, respectively. Natural gas realized prices for the same period were $5.95 and $6.93 per Mcf.



REVENUES

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Production Revenue
Crude oil and
natural gas
liquids $ 325,532 - $ 996,580 -
Natural gas $ 268,598 - $ 927,877 -
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Total production
revenue $ 594,130 - $ 1,924,457 -
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For the three months ended September 30, 2006, Sierra Vista recorded $325,532 in crude oil and natural gas liquids sales and $268,598 in natural gas sales, a 14 percent and 3 percent decrease, respectively, from the second quarter 2006. For the nine months ended September 30, 2006, Sierra Vista recorded $996,580 in crude oil and natural gas liquid sales and $927,877 in natural gas sales. The decrease in sales in the third quarter is due to a 9 percent decline in the realized natural gas prices in the quarter partially offset by a light increase in natural gas production.

Interest revenue of $25,583 and $59,666 relating to cash held on deposit was recorded for the three and nine months ended September 30, 2006, respectively.

The Company currently has no financial derivative or physical delivery contracts in place. All production volumes are currently sold into the Alberta spot market.



ROYALTIES

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Gross royalties $ 114,364 - $ 416,602 -
Alberta Royalty
Tax Credit $ (17,629) - $ (92,711) -
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Net royalties $ 96,735 - $ 323,891 -
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The net average royalty rate for the three and nine months ended September 30, 2006 was 16.3% and 16.8%, respectively. The reduction in the net royalty rate in the third quarter as compared with the second quarter reflects the 9 percent lower average natural gas prices received in the third quarter.

Currently, all of the Company's production from crown lands is ARTC eligible and the Company does not expect to reach the ARTC maximum allowable in 2006. On September 21, 2006, the Alberta government announced the elimination of the ARTC program effective January 1, 2007. The elimination of the ARTC program has the affect of increasing the royalties paid to the Alberta government by the Company. The Company expects royalties to increase in 2007 to approximately 22% of revenue from the current rate of approximately 17%.



OPERATING EXPENSES

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Operating expenses $ 81,261 - $ 262,216 -
---------------------------------------------------------------------------
Operating expenses
per boe $ 6.58 - $ 6.98 -
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Operating expenses per BOE declined marginally to $6.98 and $6.58 for the three and nine months ended September 30, 2006. The Company expects that operating costs per BOE for the remainder of 2006 and for 2007 will average approximately $7.00 to $8.00 per BOE, well within the current industry levels.

TRANSPORTATION EXPENSES

Transportation expenses were $10,338 and $26,722 or $0.84 and $0.71 per BOE for the three and nine months ended September 30, 2006, respectively.



GENERAL AND ADMINISTRATIVE EXPENSES

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Gross general and
administrative $ 288,220 $ 42,552 $ 775,358 $ 42,552
Overhead recoveries
and capitalized
general and
administrative $ (142,041) - $ (349,880) -
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Net general and
administrative
expenses $ 146,179 $ 42,552 $ 425,478 $ 42,552
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The Company capitalizes a portion of its general and administrative ("G&A") expenses that were directly related to exploration and development activities. During the three and nine months ended September 30, 2006, Sierra Vista capitalized $78,683 and $201,516, respectively, of its G&A expenses. Currently, Sierra Vista's per BOE G&A is relatively high compared with other industry companies. The high per BOE G&A is a result of the Company's early stage development and the relatively low production base. As production increases in the fourth quarter of 2006 and into 2007, management expects that the Company's G&A expenses, on a per BOE basis, will decline significantly and settle to within current industry levels.

STOCK-BASED COMPENSATION

During the three and nine months ended September 30, 2006, the Company issued 477,500 and 560,000 stock options, respectively. Stock-based compensation for the three and nine months ended September 30, 2006 was $67,525 and $84,822, respectively, utilizing the Black Scholes model. Assumptions used for the Black Scholes model in 2006 were a weighted average risk free interest rate of 4.93%, a 5 year life and a weighted average volatility of 81%.

INTEREST EXPENSE

Interest expense for the three and nine months ended September 30, 2006 was $5,283 or $0.43 per BOE and $16,758 or $0.45 per BOE, respectively.



DEPLETION, DEPRECIATION AND ACCRETION

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Depletion and
depreciation
expense $ 328,822 - $ 773,811 -
Accretion expense $ 2,961 - $ 7,320 -
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Total $ 331,783 - $ 781,131 -
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The Company follows the full cost method of accounting for its operations as described in the CICA's accounting guideline 16, "Oil and Gas Accounting - Full Cost". Accordingly, the cost of all wells, both successful and unsuccessful, are added to the Company's capital base and are depleted on the unit of production method based on estimated gross proved reserves at forecast prices and costs as determined by independent engineers and the Company's internal estimates. Costs of unproven properties, seismic and undeveloped land, net of impairments, are excluded from the depletion calculation and future capital costs associated with proved undeveloped reserves are included in the depletion calculation.

In recognizing an asset retirement obligation "ARO" associated with the retirement of a tangible long-lived asset, the Company records a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO is depleted such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value.

The provision for asset retirement obligations are determined by management in consultation with the Company's independent engineers and are based on prevailing regulations, costs, technology and industry standards. The Company estimates that the total future value of its asset retirement obligations at September 30, 2006 is $539,071. Current expenditures for actual abandonment and site restoration in the nine-months ended September 30, 2006 were nil.

TAXES

During the three and nine months ended September 30, 2006, Sierra Vista recorded a future income tax recovery of $14,036 and $499,536, respectively, and paid no cash income or capital taxes. The future income tax recovery is a result of a reduction in both federal and provincial corporate income tax rates which were substantively enacted during the second quarter of 2006.



NET INCOME

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Net income (loss) $ (105,355) $ (103,592) $ 562,641 $ (103,592)
Net income (loss)
- per basic share $ 0.00 $ (0.08) $ 0.03 $ (0.09)
Net income (loss)
- per diluted
share $ 0.00 $ (0.08) $ 0.03 $ (0.09)
Weighted average
shares outstanding
- basic (1) 26,107,270 1,378,261 21,152,077 1,182,609
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Weighted average
shares outstanding
- diluted (1) 26,107,270 1,378,261 21,874,312 1,182,609
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(1) Assumes conversion of Class B shares September 30, 2006 using the
30-day weighted average trading price of the Company's Class A shares
of $1.28.


For the three months ended September 30, 2006 and 2005, and the nine months ended September 30, 2005, all outstanding stock options and warrants were anti-dilutive and have been excluded in calculating the diluted weighted average shares outstanding.

For the nine months ended September 30, 2006, all outstanding stock options and warrants were "in-the-money" and have been included in the weighted average diluted shares outstanding.



NETBACKS

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
Netbacks ($/BOE) 2006 2005 2006 2005
---------------------------------------------------------------------------
Revenue $48.19 - $51.29 -
Royalties $ 7.83 - $ 8.62 -
Operating expenses $ 6.58 - $ 6.98 -
Transportation expenses $ 0.84 - $ 0.71 -
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Field operating netback $32.94 - $34.98 -
Interest revenue $ 2.07 - $ 1.59 -
General and administrative
expenses $11.83 - $11.30 -
Interest expense $ 0.43 - $ 0.45 -
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Corporate netback $22.75 - $24.82 -
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FUNDS FLOW FROM OPERATIONS

It is management's view that funds flow from operations is a useful measure of performance and a good benchmark when comparing results from year to year or quarter to quarter. Funds flow from operations is a non-GAAP measure, reconciled with GAAP net income in the table below:



---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Net income (loss) $(105,355) $(103,592) $ 562,641 $(103,592)
Add back (subtract)
items not effecting cash:
Depletion, depreciation
and accretion $ 331,783 - $ 781,131 -
Stock-based compensation $ 67,525 $ 61,040 $ 84,822 $ 61,040
Future income tax
recovery $ (14,036) - $(499,536) -
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Funds flow from
operations $ 279,917 $ (42,552) $ 929,058 $ (42,552)
Funds flow per share
- basic $ 0.01 $ (0.03) $ 0.04 $ (0.04)
Funds flow per share
- diluted $ 0.01 $ (0.03) $ 0.04 $ (0.04)
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OUTSTANDING SHARES
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Weighted Average Class A
and B shares outstanding
Basic - Class A 16,966,645 1,378,261 12,011,452 1,182,609
Basic - Class B (1) 9,140,625 - 9,140,625 -
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Weighted average shares
outstanding - basic 26,107,270 1,378,261 21,152,077 1,182,609
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Weighted average shares
outstanding - diluted 26,107,270 1,378,261 21,874,312 1,182,609
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Outstanding at
September 30
Outstanding Securities 2006 2005
---------------------------------------------------------------------------
Class A shares 17,487,950 4,150,000
Class B shares 1,170,000 -
Stock options 1,390,000 415,000
Warrants 333,000 -
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(1) Assumes conversion of Class B shares at September 30, 2006 using the
30-day weighted trading price of the Company's Class A shares of $1.28.


For the three months ended September 30, 2006 and 2005, and the nine months ended September 30, 2005, all outstanding stock options and warrants are anti-dilutive and have been excluded in calculating the diluted shares outstanding.

For the nine months ended September 30, 2006, all outstanding stock options and warrants were "in-the-money" and have been included in the weighted average diluted shares outstanding.

The Company's Class B shares are convertible, at the option of the Company, at any time after September 30, 2008 and before September 30, 2010, into Class A shares. The number of Class A shares obtained upon conversion of each Class B share will be equal to $10.00 divided by the greater of $1.00 and the then current market price of the Class A shares. If conversion has not occurred by the close of business September 30, 2010, then the Class B shares will be convertible, at the option of the shareholder, at any time after October 1, 2010 and before November 1, 2010 into Class A shares on the same basis. On November 1, 2010, all remaining Class B shares will be automatically converted to Class A shares on the same basis.



CAPITAL EXPENDITURES

During the three and nine months ended September 30, the breakdown of
capital expenditures were as follows:

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Land and seismic $ 147,618 - $ 659,145 -
Drilling and
completions $4,434,995 $558,222 $12,692,347 $558,222
Equipment and
facilities $1,804,318 - $ 3,323,917 -
Property acquisitions - - $ 2,086,456 -
Other $ 96,455 $ 18,007 $ 247,013 $ 18,007
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Total $6,483,386 $576,229 $19,008,878 $576,229
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DRILLING SUMMARY

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net
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Oil 2.0 1.2 1.0 0.75 4.0 3.2 1.0 0.75
Natural gas 2.0 1.0 - - 5.0 2.8 - -
Dry - - - - 3.0 1.9 - -
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Total 4.0 2.2 1.0 0.75 12.0 7.9 1.0 0.75
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During the three months ended September 30, 2006, the Company participated in the drilling of 4 gross (2.2 net before payout; 1.8 net after payout) with a 100% success rate. Two of the four wells drilled in the quarter were in the Ante Creek area.

For the nine months ended September 30, 2006, the Company has drilled 12 gross wells (7.9 net before payout; 6.5 net after payout) with a success rate of 75 percent. The three dry holes drilled in the first quarter were part of the Company's exploration program.

Due to the drilling commitments under the ARC Resources Ltd. farm-in agreement signed in Q2 of this year and the ability to earn a significant land position through this agreement, a significant portion of the 2007 capital budget will be spent in the Ante Creek area.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2006, the Company had a $2,500,000 revolving bank credit facility. The facility bears interest at prime plus 0.75% and is secured by a floating first charge over all of the Company's assets. While the credit facility is repayable on demand, the Company is not subject to scheduled repayments. Subsequent to September 30, 2006 the credit facility was increased to $3,250,000. At September 30, 2006, the Company had a working capital deficit of $2,913,767, including bank debt of $500,000.

On November 27, 2006, the Company closed a short form prospectus equity financing for gross proceeds of $5 million. As a result of the equity financing, the Company is committed to spend and renounce $1,423,750 of qualified Canadian development expenditures prior to December 31, 2006.

The Company has total capital commitments of approximately $15,300,000 relating to several farm-in and participation agreements signed with industry partners. These farm-in commitments require capital expenditures over the next 15 months. As discussed below, the Company will fund these capital requirements through internally generated cash flow from operations, bank and other forms of debt and further equity issues, where it is deemed appropriate.

On an ongoing basis, the Company will typically utilize three sources of funding to finance its capital expenditure program; internally generated cash flow from operations, debt where it is deemed appropriate and new equity issues, if available on favourable terms.

The Company's cash flow and earnings are highly sensitive to changes in commodity prices, exchange rates and other factors that are beyond the control of the Company.

Related Party Transactions

A director of the Company is also a partner in a law firm which is used extensively for legal work related to the Company's activities. Fees for the legal work are charged at the law firm's standard billing rates.

Contractual Obligations and Commitments

The Company has entered into a standard daywork contract with a drilling contractor to utilize a drilling rig for a period of three years. The terms of the contract call for a minimum requirement of 250 operating days per year for a total of 750 operating days over the three-year term of the contract. The Company took delivery of the drilling rig on November 4, 2006.

As a result of the Company issuing flow-through shares with the initial public offering, the Company has committed to spend $13,000,000 before December 31, 2006, on qualified Canadian Exploration Expenses. The Company has completed this commitment. In addition, as a result of the flow-through equity financing completed in July 2006, the Company is committed to spend an additional $5,000,000 before December 31, 2007 on qualified Canadian Exploration Expenses. As a result of the equity financing closed in November 2006, the Company is committed to spend and renounce $1,423,750 of qualified Canadian development expenditures prior to December 31, 2006.

The Company has entered into a five year office lease agreement commencing on April 1, 2006. The following table outlines the Company's estimated remaining lease commitments over the life of the agreement:



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2006 2007 2008 2009 Thereafter Total
---------------------------------------------------------------------------
Lease payments $ 37,060 $ 151,604 $ 156,088 $ 157,209 $ 200,995 $ 702,956
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SUMMARY OF QUARTERLY RESULTS

The following table summarizes certain quarterly financial information
relating to the Company since its' inception:

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2006
----------------------------------------
Q1 Q2 Q3
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Production revenue before
royalties $ 674,496 $ 655,831 594,130
Funds flow from operations (1)(2) $ 354,432 294,709 $ 279,917
Funds flow per share
- basic (1)(2) $ 0.02 $ 0.02 $ 0.01
Funds flow per share
- diluted (1)(2) $ 0.02 $ 0.02 $ 0.01
Net income (loss) $ 89,204 $ 578,792 $ (105,355)
Net income (loss) per share
- basic (2) $ 0.01 $ 0.03 $ 0.00
Net income (loss) per share
- diluted (2) $ 0.01 $ 0.03 $ 0.00
Total assets $ 17,386,000 $ 21,865,189 $ 27,433,823
Total debt - $ 2,506,446 $ 500,000
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2005
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Q3 Q4
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Production revenue before royalties - $ 331,611
Funds flow from operations (1)(2) $ (42,552) $ 179,576
Funds flow per share - basic (1)(2) $ (0.03) $ 0.01
Funds flow per share - diluted (1)(2) $ (0.03) $ 0.01
Net income (loss) $ (103,592) $ (158,933)
Net income (loss) per share - basic (2) $ (0.08) $ 0.01
Net income (loss) per share - diluted (2) $ (0.08) $ 0.01
Total assets $ 2,491,859 $ 14,171,866
Total debt $ 750,000 -
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(1) Funds flow from operations and funds flow from operations per share are
non-GAAP measures.
(2) As a result of the issuance of Class B shares as part of the Company's
initial public offering, the Class B share must be converted to Class A
shares to calculate net income per share and funds flow per share
numbers. Due to methodology of the Class B share conversion, the
addition of the quarter's net income per share and funds flow per share
numbers may not reconcile to the year to date, per share numbers.


OUTLOOK

Sierra Vista continues to focus and execute a drillbit growth strategy focused on drilling wells on lands where the Company has the ability to earn significant land acreage in the Company's core area of Ante Creek in the Peace River Arch area of Northwest Alberta. Sierra Vista has assembled a solid land inventory which now totals 23,016 net acres of land, of which is 18,739 undeveloped. The Company also has the availability to earn an additional 10,400 gross acres (6,760 net) under the ARC Resources Ltd. ("ARC") farm-in agreement. The first ARC well has now been drilled with 2 additional wells to be drilled prior to the end of the year. In addition, prior to year end, the Company will be drilling an exploratory well at Ante Creek and will earn and additional 1,024 net acres with an option to earn and additional 640 net acres.

At Ante Creek, the signing of the ARC farm-in agreement in the second quarter of 2006, set the stage for the Company to add a significant amount of high working interest prospective lands (65%) to its land portfolio. The Company has identified over 75 drilling locations on its Ante Creek lands which is in excess of 4 years drilling inventory with an average working interest of approximately 70% and operated 100% by Sierra Vista. Growth is expected to come from development drilling at Sierra Vista's Ante Creek property for several years to come.

Although the Company's production has been slow to build in 2006, Sierra Vista is confident that we have assembled a solid foundation of land inventory and drilling prospects that will allow the Company to develop a solid, long life reserve and production base for 2007 and beyond. The Company remains on track to meet its 2006 exit rate of approximately 500 Boe/d.

Disclosure Controls and Procedures

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure. The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by the annual filings, that the Company's disclosure controls and procedures as of the end of such period are effective to provide reasonable assurance that material information related to the Company is made known to them. It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe that the Company'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 will prevent all errors and 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.

ADDITIONAL INFORMATION

Additional information relating to the Company is filed on the SEDAR website at www.sedar.com. Also, information can also be obtained by contacting the Company at Sierra Vista Energy Ltd., 850, 101 - 6th Avenue S.W., Calgary, Alberta, T2P 3P4 or by email at info@sierravista.ca. Information is also accessible on the Company's website at www.sierravista.ca.

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

Contact Information

  • Sierra Vista Energy Ltd.
    Mr. Mark Malouin
    President & CEO
    (403) 265-9393 ext 201
    (403) 265-9224 (FAX)
    or
    Sierra Vista Energy Ltd.
    Mr. Bruce Stewart
    Chief Financial Officer
    (403) 265-9393 ext 205
    (403) 265-9224 (FAX)
    or
    Sierra Vista Energy Ltd.
    Suite 850, 101 - 6th Avenue SW
    Calgary, Alberta T2P 3P4
    Email: info@sierravista.ca
    Website: www.sierravista.ca