SignalEnergy Inc.
TSX : SGI

November 14, 2005 23:59 ET

SignalEnergy announces third quarter results, updated reserves summary and increased capital budget

TORONTO--(CCNMatthews - Nov. 14) - SignalEnergy Inc. (Signal" or the "Company") is pleased to present its results for the third quarter of 2005 and to report on Management's expectations on the changes to its reserves evaluation report effective December 31, 2004, as a result of the acquisition of Goose River Resources Ltd. ("Goose River") and operations to date. Management's expectations as to its reserves are based on an update to its reserves evaluation report completed by Gilbert Lausten Jung Associates Ltd. and Sproule Associates Limited effective September 30, 2005. During the quarter, Signal has established a record level of cash flow and production, and drilled the largest number of wells in the Company's history.

The highlights of the third quarter results and the Company's reserves are summarized as follows and compared to the Company's reserves estimates as at December 31, 2004.

Highlights for the three months ended September 30, 2005:

- Effective August 9th the Company acquired all of the outstanding common shares of Goose River for $35.3 million and the assumption of $6.6 million of debt and working capital deficiency.

- Total Proven Reserves increased by 45% to 4,335 mboe from 2,993 mboe as at December 31, 2004.

- Total Proven and Probable Reserves increased by 68% to 6,789 mboe from 4,045 mboe as at December 31, 2004.

- Present worth values of Total Proven Reserve using a 10% discount rate increased 99% to $91.1 million from $45.8 million.

- Present worth values of Total Proven and Probable Reserves using a 10% discount rate increased 125% to $128.1 million from $56.5 million.

- Participated in drilling 16 wells (8.2 net wells) with a success rate of 100%.

- Increased average production by 197% to 1,240 boe/d for three months ended September 30, 2005 from 417 boe/d for the third quarter 2004 and increased production 22% from the average production of 1,020 boe/d in the second quarter 2005. Approximately 30 boe/d of production was shut-in due to scheduled compressor maintenance at third party facilities.

- Tied-in 7 wells (3.13 net wells) which were drilled during the second and third quarters.

- Reduced operating costs to $7.20/boe in the third quarter from $7.78/boe in the second quarter of 2005. Operating costs will continue to trend downward in the fourth quarter with the recent completion of an oil emulsion line in the Redwater area which significantly reduces trucking costs experienced in the third quarter.

- Increased capital expenditure budget from $14.8 million to $25.8 million reflecting the Company's expanding project inventory.

- Acquired additional land interests of 480 gross (192 net) acres in the Redwater area adjacent to the Company's existing lands and operated facilities. The acquisition includes one producing well and the Company participated in the recent drilling of an additional well in which it owns a 35% working interest. In addition, the Company has identified an additional seven drilling locations on the acquired lands.

Reserves

The following is Management's compilation of the updated reserves evaluation reports completed by Gilbert Lausten Jung Associates Ltd. and Sproule Associates Limited, effective September 30, 2005, using escalated pricing forecasts:



Reserves as at September 30, 2005
-------------------------------------------------------------------------
Oil Equivalent
Crude Oil Natural Gas NGL at 6:1
(MSTB) (MMCF) (MSTB) (Mboe)
--------------- --------------- --------------- ---------------
Gross Net Gross Net Gross Net Gross Net
------- ------- ------- ------- ------- ------- ------- -------

Proved:
Developed
Producing 611 507 12,405 9,930 270 195 2,949 2,357
Developed
Non-
Producing 75 62 2,144 1,676 82 57 514 398
Undevel-
oped 309 230 3,304 2,661 12 9 872 682
-------------------------------------------------------------------------
Total
Proved 995 799 17,853 14,267 364 261 4,335 3,437
Probable 880 727 8,533 6,796 151 110 2,454 1,970
-------------------------------------------------------------------------
Total Proved
plus
Probable 1,875 1,526 26,386 21,063 515 371 6,789 5,407
-------------------------------------------------------------------------


Share of Present Worth Values
-------------------------------------------------------------------------
Before Income Tax
Discounted At
0% 5% 10% 15%
(M$) (M$) (M$) (M$)
---------------------------------------------
Proved:
Developed Producing $89,784 $74,620 $64,815 $57,882
Developed Non-Producing $15,119 $12,487 $10,773 $9,559
Undeveloped $20,660 $17,788 $15,542 $13,744
---------------------------------------------
Total Proved $125,563 $104,895 $91,130 $81,185
---------------------------------------------
Probable $65,095 $47,193 $37,018 $30,451
---------------------------------------------
Total Proved plus Probable $190,658 $152,088 $128,148 $111,636
---------------------------------------------


Asset Value

Based on Management's expectations as to its reserves and Share of Present Worth Values, the following is Management's calculation of the Company's Net Asset Value:



Millions
Present value of Proved and Probable reserves at 10% DCF $128.1
Add: Value of undeveloped land 10.2
Less: Total Debt and Net of Working Capital 23.7
-------------------------------------------------------------------------
Net Asset Value $114.6
-------------------------------------------------------------------------
Basic number of shares outstanding 68.5
-------------------------------------------------------------------------
Pre-tax Net Asset Value per share $1.67
-------------------------------------------------------------------------
Note:
1. An independent evaluation of the Company's 84,155 gross acres
(48,662 net acres) undeveloped land was conducted by Total Petroleum
Land Services Ltd., effective October 1, 2005. The estimated value of
undeveloped land is approximately $10,231,399.


Increase in Capital Expenditures

The Company has increased its planned capital expenditure in the fourth quarter by $3.2 million over the budget approval of $22.4 million of capital expenditures for the year. The increased capital expenditure reflects Signal's ability to continue to expand its project inventory and favorable weather conditions in the field. Signal's original plans involved drilling 10.2 net wells during the fourth quarter which has been increased by an additional 3.9 net wells.

Outlook

The fourth quarter will prove to be the most active quarter in the Company's history. The Company plans on drilling 22 wells (14.1 net wells) and is conducting operations for the tie-in of 10 wells (3.51 net wells) in the fourth quarter. Some of the tie-in work planned to be completed before the end of the third quarter was delayed due to wet weather and limited surface access in the field. The Company's current production is approximately 1,700- 1,800 boe/d (based on field receipts) with an additional 250-300 boe/d of production expected to come on-stream in the fourth quarter from increasing capacity of existing production facilities and the tie-in of approximately 12 recently drilled wells. Signal anticipates additional increases in production in the fourth quarter from the drilling of up to seven additional wells in the Redwater area and pending results of 10 wells in other areas of the Company's operations.

The Company is pleased to announce the spudding of its high impact play in the Elmworth area. Signal has a 45% carried working interest in the well which it is operating and is expected to be at total depth in early December.

The Company is anticipating significant production gains in the fourth quarter from the very active program being pursued. In addition, the Company continues to build its prospect inventory and reviewing potential acquisition targets and business combination.



Highlights
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-------------------------------------------------------------------------

Sales volume:
Natural gas (mcf/d) 5,990 1,762 5,344 1,469
Oil and NGLs (bbl/d) 242 123 186 121
Equivalence at 6:1 (boe/d) 1,240 417 1,076 366

Sales price:
Natural gas ($/mcf) 9.22 6.50 7.93 6.87
Oil and NGLs ($/bbl) 62.88 46.58 57.10 43.38
Equivalence at 6:1 ($/boe) 56.82 41.30 49.07 41.99

Financial: (000's)
Petroleum and natural gas
sales 6,483 1,586 14,420 4,211
Net income (loss) 536 (500) 1,134 (520)
Net income (loss) per share -
basic and diluted 0.01 (0.02) 0.02 (0.02)
Capital expenditures 5,081 5,637 12,811 21,903
Corporate acquisitions
(dispositions), net 11,718 - 15,799 (1,776)
Weighted average shares
outstanding - basic 59,086 32,660 50,319 27,470
Weighted average shares
outstanding - diluted 61,240 32,660 52,737 27,470
-------------------------------------------------------------------------


Management's Discussion and Analysis

For the three and nine months ended September 30, 2005 and 2004

Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements for SignalEnergy Inc. ("Signal" or the "Company") for the three and nine months ended September 30, 2005, and the audited consolidated financial statements and MD&A for the year ended December 31, 2004. The unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). This MD&A is dated November 10, 2005.

Management uses the term "funds from operations" to analyze operating performance and leverage, determined as net income (loss) adjusted for certain non-cash items. Funds from operations as presented does not have any standardized meaning prescribed by GAAP and therefore it may not be comparable to the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net income (loss), or other measures of financial performance calculated in accordance with GAAP.

Management uses certain key performance indicators ("KPI's") and industry benchmarks such as "operating netbacks" to analyze financial and operating performance. These KPI's and benchmarks as presented do not have any standard meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures for other entities.

All amounts are presented in Canadian dollars unless otherwise noted. Natural gas reserves and volumes recorded in thousand cubic feet are converted to barrels of oil equivalent ("boe") on the basis of six thousand cubic feet ("mcf") of gas to one barrel ("bbl") of oil. The term "barrels of oil equivalent" may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 1 bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead.

Statements throughout this MD&A that are not historical facts may be considered to be "forward looking statements". These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company's objectives, goals, or future plans are forward looking statements. Since forward looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to any number of factors, including such variables as new information regarding recoverable reserves, changes in demand for and commodity prices of crude oil and natural gas, legislative, environmental and other regulatory or political changes, competition in areas where the Company operates and other factors discussed in this MD&A.

Summary of Quarterly Results

The Company commenced operations as an oil and gas company on January 1, 2004. Accordingly, only the seven most recently completed quarters show the results of Signal's oil and gas operations.



($000's except per 2005 2004
share amounts) Q3 Q2 Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Petroleum and
natural gas
sales 6,483 4,238 3,699 1,708 1,586 1,671 954
Net income (loss) 536 85 513 (548) (500) 93 (113)
Net income (loss)
per share
- basic and
diluted 0.01 - 0.01 (0.02) (0.02) - -
Funds from
operations 3,141 2,208 1,361 486 526 775 298
-------------------------------------------------------------------------


Petroleum and Natural Gas Sales

Sales increased to $6,483,000 in Q3 of 2005 from $4,238,000 in the previous quarter due to the addition of three companies in 2005: Predator Exploration Ltd. ("Predator") on January 20, 2005; a private oil and gas company ("Privateco") on January 26, 2005; and Goose River Resources Ltd. ("Goose River") on August 9, 2005. In addition to increased production rates resulting from these acquisitions, the Company also realized improved commodity prices in the third quarter of 2005 over prior quarters.

Sales for Q1 of 2005 increased by $1,991,000 from Q4 of 2004 as a result of strong commodity prices and increased production resulting from the acquisition of Predator and Privateco in January 2005.

Q1 of 2004 recorded sales from producing properties that were acquired early in that quarter. Quarter-over-quarter growth in sales in 2004 is attributable to the increased production resulting from the Company's drilling program and increased commodity prices.

Net Income (Loss)

The net income for Q3 of 2005 was $536,000 compared to $85,000 for the prior quarter - an increase of $451,000 as a result of improved commodity prices and incremental production from the acquisition of Goose River.

The net income for Q1 of 2005 was attributed to a future income tax recovery recorded in that period of $1,195,000 that resulted from a flow- through share financing in 2004.

With the exception of Q2, the Company recorded net losses throughout 2004. These losses were attributable to the high general and administrative expenses associated with the start-up of Signal's oil and gas operations and the impact of high depletion and depreciation expenses.

Funds from Operations

Funds from operations increased in Q3 of 2005 to $3,141,000 from $2,208,000 in Q2 of 2005 as a result of increased production and improved commodity prices realized by the Company.

Funds from operations increased in Q2 of 2005 to $2,208,000 from $1,361,000 in the prior quarter primarily as a result of improved commodity prices in Q2.

Funds from operations throughout 2004 remained consistent quarter-over- quarter with an increase of $875,000 in Q1 of 2005 from Q4 of 2004 as a result of additional profit margins realized on increased production volumes.



Results of Operations

Production
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-------------------------------------------------------------------------
Sales volume:
Natural gas (mcf/d) 5,990 1,762 5,344 1,469
Oil and NGLs (bbl/d) 242 123 186 121
Equivalence at 6:1 (boe/d) 1,240 417 1,076 366
Sales price:
Natural gas ($/mcf) 9.22 6.50 7.93 6.87
Oil and NGLs ($/bbl) 62.88 46.58 57.10 43.38
Equivalence at 6:1 ($/boe) 56.82 41.30 49.07 41.99


The average sales volume increased from 366 boe/d for the nine months ended September 30, 2004 to 1,076 boe/d for the nine months ended September 30, 2005 - an increase of 710 boe/d or 194%, primarily as a result of the three corporate acquisitions that were completed in the first nine months of 2005. The major producing areas acquired were Kaybob, Buick Creek, Chigwell/Bashaw and Redwater. On August 9, 2005, the Company completed the acquisition of Goose River which, at the time of closing, had average production of approximately 437 boe/d. Through the completion of various operations since the closing date the average production from the Goose River assets has been increased in the third quarter of 2005 to approximately 579 boe/d. During the first nine months of 2005, the Company drilled 18 gross (8.5 net) wells and 6 gross (2 net) coal bed methane wells with a 100% success rate. Poor weather conditions in the second quarter of 2005 in the Carrot Creek, Kaybob and Buick Creek areas deferred the start of the Company's drilling program in those areas. Production increases were partially offset by the sale of the Twining assets on April 1, 2005 which were producing at an average rate of 170 boe/d at the time of the sale.

Sales volumes for the three months ended September 30, 2005 were 1,240 boe/d compared to 417 boe/d for the same period in 2004 - an increase of 823 boe/d. This increase is primarily the result of the corporate acquisitions completed in 2005.

Natural gas accounted for 83% of the Company's total production in the first nine months of 2005. Natural gas prices remained strong throughout the period with significant increases being realized in the third quarter of 2005 where the average price realized by the Company increased to $9.22/mcf from $7.25/mcf for the prior quarter - an increase of 27%. The average natural gas price received by the Company for the nine months ended September 30, 2005 was $7.93/mcf compared to $6.87/mcf for the nine months ended September 30, 2004. These prices are comparable to the average AECO benchmark price of $7.92/mcf for the nine months ended September 30, 2005, and $9.35/mcf for the three months ended September 30, 2005, compared to $6.60/mcf and $6.29/mcf for the same nine and three month periods ended in 2004.

The sales volume of oil and natural gas liquids increased in the nine month period ended September 30, 2005 to 186 bbl/d compared to 121 bbl/d for the nine months ended September 30, 2004. Although sales volumes of oil and natural gas liquids account for only 17% of total sales volumes for the nine months ended September 30, 2005, revenue from the sale of oil and natural gas liquids accounted for 20% of total revenues due to an increase in the average price received to $57.10/bbl from $43.38/bbl for the same nine month period in 2004. This increase is consistent with the change in the average Edmonton Par benchmark price which increased to $68.97/bbl for the nine months ended September 30, 2005 from $51.70/bbl for the nine months ended September 30, 2004. The Edmonton Par benchmark price increased in the third quarter of 2005 to $77.80/bbl compared to $56.97/bbl for the comparable quarter in 2004.

All of the Company's production is marketed in the Alberta spot market and is unhedged.



Revenues
Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Petroleum and natural gas sales 6,483 1,586 14,420 4,211
$/boe 56.82 41.30 49.07 41.99
-------------------------------------------------------------------------


Revenue from petroleum and natural gas sales for the nine months ended September 30, 2005 increased to $14,420,000 from $4,211,000 for the nine months ended September 30, 2004. Natural gas production increased from 1,469 mcf/d for the nine months ended September 30, 2004 to 5,344 mcf/d for the nine months ended September 30, 2005. Natural gas sales in the three months ended September 30, 2005 increased to 5,990 mcf/d from 1,762 mcf/d for the three months ended September 30, 2004. Production from the acquired companies and additional production from the Company's drilling program more than offset production lost from the sale of the Twining assets in April 2005.



Royalties
Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Royalties (net of ARTC) 1,626 439 3,226 1,064
$/boe 14.25 11.55 10.98 10.64
Percentage of petroleum and
natural gas sales 25.1 27.7 22.4 25.3
-------------------------------------------------------------------------


Royalties, which consists of crown, gross-overriding and freehold royalties, have increased in the nine months ended September 30, 2005 to $3,226,000 from $1,064,000 for the comparable period in 2004 due to an increase in production volumes and commodity prices realized by the Company. Royalties have decreased as a percentage of sales due to an increase in the ratio of oil production in the third quarter of 2005 which carries a lower royalty rate than natural gas. In addition, the Company sold its Twining assets in April 2005 which carried higher crown and freehold royalty rates than the Company's other properties. Also, for the nine months ended September 30, 2004, the Company had not accounted for Alberta Royalty Tax Credits that had been filed but not assessed resulting in higher royalties being reflected in that period.

Royalties have increased in the three months ended September 30, 2005 to $1,626,000 from $439,000 for the three months ended September 30, 2004 due to increases in production, commodity prices and other factors noted above.



Operating Expenses
Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Operating 822 278 2,175 549
$/boe 7.20 7.32 7.40 5.49
-------------------------------------------------------------------------


The Company's operating costs increased from $549,000 for the nine months ended September 30, 2004 to $2,175,000 for the nine months ended September 30, 2005. This increase of $1,626,000 is attributed to increased production volumes and higher costs for field services and materials directly related to increased industry activity. In addition, the Twining assets, which were sold on April 1, 2005, carried significantly higher gas compression rental costs than the Company's other properties. In effort to reduce operating costs, the Company recently completed the construction of an oil emulsion pipeline connecting its Redwater assets to the processing facility eliminating the need for expensive trucking costs.

Operating costs for the three months ended September 30, 2005 increased to $822,000 from $278,000 for the comparable three month period in 2004 as a result of increased production volumes.



General and Administrative Expenses

Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
General and administrative
expense (gross) 1,027 534 2,782 1,528
General and administrative
costs capitalized (318) (132) (867) (352)
-------------------------------------------------------------------------
General and administrative
expenses (net) 709 402 1,915 1,176
$/boe 6.21 9.74 6.51 11.78
-------------------------------------------------------------------------


General and administrative expenses increased in the nine months ended September 30, 2005 to $2,782,000 from $1,528,000 for the nine months ended September 30, 2004 as the Company transitioned from a start-up company to an oil and gas exploration and development company. The transition resulted in the hiring of additional administrative and technical staff, and additional corporate and infrastructure related costs required to support the Company's expanded operations.

The Company capitalized general and administrative costs of $867,000 in the nine months ended September 30, 2005 compared to $352,000 in the nine months ended September 30, 2004. In 2004, the Company was primarily focused on exploration activities and accordingly capitalized all of its geological and engineering costs. In 2005, with the increase in its development activities, the Company now only capitalizes a portion of it engineering costs.

General and administrative expenses for the three months ended September 30, 2005 increased to $709,000 from $402,000 for the same three month period in 2004. General and administrative expenses decreased on a $/boe basis to $6.21/boe for the three months ended September 30, 2005 from $9.74/boe for the three months ended September 30, 2004. This decrease is due to efficiencies realized with increased production volumes.

In the three month period ended September 30, 2005, the Company capitalized $318,000 of general and administrative expenses compared to $132,000 in the three month period ended September 30, 2004 - an increase of $186,000. This is the result of an increase in the number of technical staff in 2005 required to support the Company's increased production base and capital programs. The Company believes it is adequately staffed to execute on the remainder of its 2005 capital program.



Stock-based Compensation Expense

Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Stock-based compensation
expense 259 (32) 839 -
$/boe 2.27 (0.75) 2.86 -
-------------------------------------------------------------------------


Stock-based compensation expense reflects the value attributed to stock options granted to employees, directors and consultants to the Company. For the three and nine months ended September 30, 2005, stock-based compensation expense increased to $259,000 and $839,000, respectively, which reflects the significant stock options granted in the latter part of fiscal 2004 and into 2005.



Interest Expense
Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Interest expense 230 - 453 -
$/boe 2.02 - 1.54 -
-------------------------------------------------------------------------


Interest expense increased in the three and nine months ended September 30, 2005 to $230,000 and $453,000, respectively, as the Company drew significantly on its available credit facilities to fund its capital program and the acquisition of Goose River. These facilities were not utilized in 2004.



Depletion and Depreciation Expense

Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Depletion and depreciation
expense 2,297 995 5,797 2,051
$/boe 20.13 27.84 19.72 21.58
-------------------------------------------------------------------------


Depletion and depreciation expense for the nine months ended September 30, 2005 increased to $5,797,000 from $2,051,000 for the nine months ended September 30, 2004 due to higher property, plant and equipment balances over the period and increased production rates. On a per boe basis depletion and depreciation expense has decreased from $21.58/boe for the nine months ended September 30, 2004 to $19.72/boe for the nine months ended September 30, 2005 as a result of an increase in the depletable reserve base resulting from the acquisition of Goose River and low cost development initiatives undertaken in the third quarter of 2005 in the Redwater area.

Depletion and depreciation expense for the three months ended September 30, 2005 was $2,297,000 an increase of $1,302,000 from the same period in the prior year. Depletion and depreciation decreased on a per boe basis for the three months ended September 30, 2005 to $20.13/boe from $27.84/boe for the same three month period in 2004.



Accretion of Asset Retirement Obligation

Three months ended Nine months ended
September 30, September 30,
($000's) 2005 2004 2005 2004
-------------------------------------------------------------------------
Accretion of asset retirement
obligation 49 63 135 107
$/boe 0.43 1.18 0.46 0.71
-------------------------------------------------------------------------


Accretion expense increased for the nine months ended September 30, 2005 to $135,000 from $107,000 for the nine months ended September 30, 2004 as a result of an increase in the number of wells and facilities.

Income Tax

The current income tax expense for the three and nine month periods ended September 30, 2005 consists of Large Corporations Tax ("LCT"). As a result of the acquisitions completed in 2005, the Company's taxable capital has increased such that it is now required to pay LCT.

The Company recorded a future income tax recovery of $1,195,000 in the nine months ended September 30, 2005 as a result of a flow-through share issue in 2004. The full expenditure commitment of $3,553,000 was renounced to investors in the three months ended March 31, 2005.

As at September 30, 2005, the Company has approximately $90,000,000 of available tax pools that can be applied to reduce future income taxes. The future tax asset with respect to non-capital loss carry forwards has been recognized only to the extent that it reduces the future tax liability from acquired property and equipment.



Operating Netbacks
Three months ended Nine months ended
September 30, September 30,
($ per boe) 2005 2004 2005 2004
-------------------------------------------------------------------------
Petroleum and natural gas sales 56.82 41.30 49.07 41.99
Less: Royalties (net of ARTC) (14.25) (11.55) (10.98) (10.64)
Operating expenses (7.20) (7.32) (7.40) (5.49)
-------------------------------------------------------------------------
Operating netback 35.37 22.43 30.69 25.86
Add (less): General and
administrative expenses (6.21) (9.74) (6.51) (11.78)
Other income 0.45 1.03 0.19 1.34
Interest expense (2.02) - (1.54) -
Income tax (0.06) - - 0.59
-------------------------------------------------------------------------
Corporate netback 27.53 13.72 22.83 16.01
-------------------------------------------------------------------------
Funds from operations ($000's) 3,141 526 6,710 1,599
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The operating netback for the nine months ended September 30, 2005 increased by approximately 19% from the comparable period in 2004. The operating netback for the three months ended September 30, 2005 was $35.37/boe - an increase of 58% from the third quarter of 2004. These increases are attributable to the substantial increase in commodity prices during these periods.

Corporate netback increased in the three and nine month periods ended September 30, 2005 when compared to the same periods in 2004 as a result of significantly higher commodity prices realized in 2005.



Net Income (Loss)
Three months ended Nine months ended
($000's except per September 30, September 30,
share amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Net income (loss) 536 (500) 1,134 (520)
Net income (loss) per share -
basic and diluted 0.01 (0.02) 0.02 (0.02)
-------------------------------------------------------------------------


Net income for the nine months ended September 30, 2005 increased to $1,134,000 from a net loss of $520,000 for the nine months ended September 30, 2004. This translates into a basic and diluted per share amounts of $0.02 and $(0.02) respectively. Net income for the nine months ended September 30, 2005 is largely the result of the income tax effects of the 2004 flow-through share renouncement of $1,195,000 recognized in the first three months of 2005.



Capital Expenditures

Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-------------------------------------------------------------------------
Land and rentals 864 522 1,787 1,450
Seismic - - 202 174
Drilling and completions 3,512 3,941 7,493 8,854
Equipment and tie-ins 387 1,042 2,263 2,662
Property acquisitions - - - 8,359
Capitalized overhead 318 132 867 352
Other - - 199 52
-------------------------------------------------------------------------
5,081 5,637 12,811 21,903
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Signal participated and was successful in three land sales in the nine months ended September 30, 2005, in the Chigwell, Buick Creek and Carrot Creek areas, for approximately $440,000. The Company also acquired additional interests in the Redwater area immediately offsetting company land and operated infrastructure in a private transaction for $840,000 in September 2005. The acquired asset consists of one producing well plus a location to be drilled in November 2005 at a 35% working interest.

In the first nine months of 2005 the Company drilled 18 gross (8.47 net) wells and 6 gross (2 net) CBM wells with a 100% success rate. Of the 18 wells drilled, 16 were drilled in the third quarter of 2005. As of September 30, 2005, 13 of these wells have been completed, evaluated and released for tie-in which is expected to be completed in the fourth quarter. Two gross (1 net) wells in the Redwater area were placed on production in September 2005. In September 2005, the Company's Board of Directors approved an increase in the Company's 2005 capital budget to $22,600,000 from the originally approved amount of $14,800,000.

The capital budget is exclusive of three corporate acquisitions that were completed in 2005. In October, the Board of Directors approved an additional increase of $3,200,000. The increased capital budget reflects the growing project inventory on Signal's current lands and strong commodity prices.

Liquidity and Capital Resources

Cash used in operating activities for the nine months ended September 30, 2005 was $304,000 compared to cash provided by operating activities of $2,021,000 for the nine months ended September 30, 2004. Funds from operations increased to $6,710,000 for the nine months ended September 30, 2005 from $1,599,000 for the same nine month period in 2004 as a result of a significant increase in operating activities in 2005 as the Company transitioned from the start-up stage. For the three months ended September 30, 2005, cash provided by operating activities was $1,749,000 compared to $941,000 for the three months ended September 30, 2004.

Cash provided by financing activities for the nine months ended September 30, 2005 amounted to $20,815,000 compared to $10,727,000 for the nine months ended September 30, 2004. The Company completed a flow-through share issuance in 2004 of 1,615,000 common shares and an additional issuance of 4,485,000 common shares for gross proceeds of $3,553,000 and $7,849,000 respectively, to fund its capital program. In the nine months ended September 30, 2005, the Company borrowed (net of repayments) $21,411,000 on its operating loan facility which was used to fund the cash portion of its corporate acquisition strategy and capital program. Cash provided by financing activities increased to $13,699,000 for the three months ended September 30, 2005 compared to cash used in financing activities of $102,000 for the same three month period in 2004. In April 2005, the Company used the proceeds from the sale of the Twining properties of $13,250,000 to repay the operating line of credit balance that existed at that time. In August 2005 the Company's bank agreed to increase the Company's operating line of credit to $24,000,000 from $15,000,000 to fund the acquisition of Goose River.

Cash used in investing activities increased to $23,061,000 in the nine months ended September 30, 2005 compared to $20,031,000 for the nine months ended September 30, 2004. In the first nine months of 2005 the Company had incurred expenditures related to its capital program of $12,811,000, incurred $15,799,000 related to corporate acquisitions, and sold its Twining property for $13,250,000. Cash used in investing activities for the three months ended September 30, 2005 was $18,197,000 compared to cash used in investing activities of $8,765,000 for the three months ended September 30, 2004. The Company is in the process of renegotiating its existing operating line of credit with its bank, the proceeds of which will be used to fund the Company's expanded capital program.

Subsequent Event

In October 2005, an additional 100,000 stock options were granted at an average exercise price of $1.18 per share.

Securities Outstanding

Securities outstanding as of the date of this MD&A consist of 68,520,948 issued and outstanding common shares, and 4,568,000 stock options.

Off-balance Sheet Arrangements

The Company has an operating lease commitment for office premises that expires in December 2006.

Related Party Transactions

The Company has no related party transactions.

Commitments and Contingencies

The Company has no commodity price, interest rate swaps or fixed price contracts in place as of September 30, 2005.

New Canadian Accounting Pronouncements

The Canadian Institute of Chartered Accountants (CICA) has issued a number of accounting pronouncements, some of which may impact the Company's reported results and financial position in future periods.

Comprehensive Income/Financial Instruments/Hedges

The CICA issued new standards in early 2005 for Comprehensive Income (CICA 1530), Financial Instruments (CICA 3855) and Hedges (CICA 3865), which will be effective for the reporting year-end 2007. The new standards will bring Canadian rules in line with current rules in the US. The standards will introduce the concept of "Comprehensive Income" to Canadian GAAP and will require that an enterprise (a) classify items of comprehensive income by their nature in a financial statement and (b) display the accumulated balance of comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Derivative contracts will be carried on the balance sheet at their mark-to-market value, with the change in value flowing to either net income or comprehensive income. Gains and losses on instruments that are identified as hedges will flow initially to comprehensive income and be brought into net income at the time the underlying hedged item is settled. It is expected that this standard will be effective for Signal's 2007 reporting. Any instruments that do not qualify for hedge accounting will be marked-to-market with the adjustment (tax effected) flowing through the income statement.

Signal does not currently have any hedges in place so the impact of these recommendations would not be significant.

Additional Information

Additional information regarding Signal and its operations is available on the Company's web site www.signalenergy.com and under the Company's SEDAR profile at www.sedar.com.



-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(unaudited)

As at September 30 December 31
(in thousands) 2005 2004
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents (note 3) $ 168 $ 2,718
Accounts receivable 7,214 4,143
Prepaid expenses 103 191
-------------------------------------------------------------------------
7,485 7,052

Goodwill 4,548 4,548

Deferred acquisition costs - 546

Property and equipment (notes 4 and 5) 91,903 22,930
-------------------------------------------------------------------------
$ 103,936 $ 35,076
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 9,693 $ 2,836
Income taxes payable 118 -
Revolving operating loan (note 6) 21,411 -
-------------------------------------------------------------------------
31,222 2,836
-------------------------------------------------------------------------

Asset retirement obligations (note 7) 3,699 1,633

Shareholders' Equity
Share capital (note 8) 133,882 97,914
Contributed surplus (note 8) 1,899 309
Deficit (66,766) (67,616)
-------------------------------------------------------------------------
69,015 30,607
-------------------------------------------------------------------------
$ 103,936 $ 35,076
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the interim consolidated financial statements



-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------------------------------
(unaudited)

Three months ended Nine months ended
(in thousands, except September 30 September 30
per share amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Petroleum and natural
gas sales $ 6,483 $ 1,586 $ 14,420 $ 4,211
Royalties (net of Alberta
Royalty Tax Credit) (1,626) (439) (3,226) (1,064)
-------------------------------------------------------------------------
4,857 1,147 11,194 3,147
Other income 52 59 59 153
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4,909 1,206 11,253 3,300
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Expenses
Operating 822 278 2,175 549
General and administrative 709 402 1,915 1,176
Stock-based compensation
(note 9) 259 (32) 839 -
Interest expense 230 - 453 -
Foreign exchange gain - - - (4)
Depletion and depreciation 2,297 995 5,797 2,051
Accretion expense (note 7) 49 63 135 107
-------------------------------------------------------------------------
4,366 1,706 11,314 3,879
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income (loss) before income
taxes 543 (500) (61) (579)
Income tax expense (recovery) 7 - - (59)
Future income tax recovery
(note 8) - - (1,195) -
-------------------------------------------------------------------------
Net income (loss) for the period 536 (500) 1,134 (520)

Deficit, beginning of period (67,018) (66,568) (67,616) (66,548)
Distribution to shareholders
(note 4(c)) (284) - (284) -
-------------------------------------------------------------------------
Deficit, end of period $ (66,766) $ (67,068) $ (66,766) $ (67,068)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Per share amounts (note 8)
Basic $ 0.01 $ (0.02) $ 0.02 $ (0.02)
Diluted $ 0.01 $ (0.02) $ 0.02 $ (0.02)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the interim consolidated financial statements



-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
(unaudited)


Three months ended Nine months ended
September 30 September 30
(in thousands) 2005 2004 2005 2004
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ 536 $ (500) $ 1,134 $ (520)
Items not affecting cash
flows:
Stock-based compensation
(note 9) 259 (32) 839 -
Non-cash general and
administrative costs - - - (39)
Depletion and depreciation 2,297 995 5,797 2,051
Accretion expense 49 63 135 107
Future income tax recovery - - (1,195) -
-------------------------------------------------------------------------
Funds from operations 3,141 526 6,710 1,599
Changes in non-cash working
capital related to operating
activities (note 10) (1,392) 415 (7,014) 422
-------------------------------------------------------------------------
Cash provided by (used in)
operating activities 1,749 941 (304) 2,021
-------------------------------------------------------------------------
Financing Activities
Increase in revolving operating
loan, net of repayments 13,736 - 21,411 -
Share buy back (note 8) (37) - (579) -
Issue of common shares - - - 7,849
Issue of flow-through common
shares - - - 3,553
Issue costs - (102) (17) (675)
-------------------------------------------------------------------------
Cash provided by (used in)
financing activities 13,699 (102) 20,815 10,727
-------------------------------------------------------------------------
Investing Activities
Expenditures on property and
equipment (4,447) (5,637) (12,177) (13,544)
Disposition of property and
equipment (note 5) - - 13,250 -
Expenditures on property
acquisitions - - - (8,359)
Acquisition of businesses,
net of cash acquired
(note 4) (11,718) - (15,799) 1,776
Changes in non-cash working
capital related to investing
activities (note 10) (2,032) (3,128) (8,335) 96
-------------------------------------------------------------------------
Cash used in investing
activities (18,197) (8,765) (23,061) (20,031)
-------------------------------------------------------------------------
Net change in cash position (2,749) (7,926) (2,550) (7,283)

Cash and cash equivalents -
beginning of period 2,917 14,067 2,718 13,424
-------------------------------------------------------------------------
Cash and cash equivalents -
end of period $ 168 $ 6,141 $ 168 $ 6,141
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the interim consolidated financial statements



Notes to the Consolidated Financial Statements

(unaudited)
September 30, 2005 and 2004 (Tabular figures are in thousands of dollars
unless otherwise indicated)

1 Nature of Operations

SignalEnergy Inc. (the "Company" or "Signal") is a full cycle oil and
natural gas enterprise with activities involving land acquisition,
geological assessment, drilling and completion, and production throughout
Western Canada.

2 Significant Accounting Policies

The unaudited interim consolidated financial statements of the Company
have been prepared by management in accordance with Canadian generally
accepted accounting principles using the same accounting policies as
those set out in the audited consolidated financial statements of the
Company for the year ended December 31, 2004. Certain information and
disclosures normally required to be included in notes to annual
consolidated financial statements have been condensed or omitted.
Accordingly, these interim consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements
for the year ended December 31, 2004, included in the Company's 2004
annual report.

Certain comparative figures have been reclassified to conform with the
current period's financial statement presentation.

3 Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and money market
instruments as follows:

September 30 December 31
2005 2004
$ $
-------------------------------------------------------------------------
Cash on hand 168 1,720
Short-term investment - 998
-------------------------------------------------------------------------
168 2,718
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Short-term investment at December 31,2004 consisted of $998,000 invested
in a 30-day term deposit at a rate of 2.45%, that expired
January 21, 2005.

4 Corporate Acquisitions

a) In November 2004, the Company entered into an agreement to acquire
all of the issued and outstanding common shares of Predator
Exploration Ltd. ("Predator"), a public oil and gas corporation. The
acquisition closed on January 20, 2005 with the Company providing
10,424,097 voting common shares valued at $13,030,121, and incurring
cash transaction costs of $438,322. The common shares were valued at
$1.25 per share, based upon the Company's trading price for its
common shares for the five day period prior to the announcement of
the transaction.

The acquisition was recorded using the purchase method as at the date
of the closing of the transaction on January 20, 2005 as follows:

$
---------------------------------------------------------------------
Cash received 422
Property and equipment 27,070
Non-cash working capital deficiency (12,461)
Asset retirement obligations (1,563)
---------------------------------------------------------------------
Total 13,468
---------------------------------------------------------------------
---------------------------------------------------------------------

The results of operations of Predator have been included in the
consolidated financial statements since January 20, 2005.

b) In November 2004, the Company entered into an agreement to acquire
all of the issued and outstanding common shares of a private oil and
gas corporation ("Privateco"). The acquisition closed on January 26,
2005 with the Company providing 1,000,000 voting common shares valued
at $1,250,000 and cash consideration of $3,970,380. Transaction costs
of $90,139 were incurred with this transaction. The common shares
were valued at $1.25 per share, based upon the Company's trading
price for its common shares for the five day period prior to the
announcement of the transaction.

The acquisition was recorded using the purchase method as at the date
of the closing of the transaction on January 26, 2005 as follows:

$
---------------------------------------------------------------------
Property and equipment 5,954
Non-cash working capital deficiency (325)
Asset retirement obligations (318)
---------------------------------------------------------------------
Total 5,311
---------------------------------------------------------------------
---------------------------------------------------------------------

The results of the operations of Privateco have been included in the
consolidated financial statements since January 26, 2005.

c) In May 2005, the Company entered into an agreement to acquire all of
the issued and outstanding common shares of Goose River Resources
Ltd. ("Goose River"), a public oil and gas corporation, for
$35.3 million. The acquisition closed on August 9, 2005 with the
Company providing 21,250,000 voting common shares valued at
$23,594,700, cash consideration of $9,930,678, additional cash of
$953,400 paid on the buy-out of the Goose River stock options, and
transaction and severance costs of $779,775. The common shares have
been valued at $1.11 per share, based upon the Company's trading
price for its common shares for the five day period prior to the
announcement of the transaction.

The acquisition has been recorded using the purchase method as at the
date of the closing of the transaction on August 9, 2005 as follows:

$
---------------------------------------------------------------------
Cash received 120
Property and equipment 42,489
Non-cash working capital deficiency (6,555)
Asset retirement obligations (795)
---------------------------------------------------------------------
Total 35,259
---------------------------------------------------------------------
---------------------------------------------------------------------

The results of the operations of Goose River have been included in
the consolidated financial statements since August 9, 2005.

The acquisition resulted in the shareholders of Goose River becoming
shareholders of two companies, Signal and G2 Resources Ltd. ("G2"), a
newly created corporation. Signal contributed cash of $179,000 and
its Sylvan Lake and Foam Lake properties with a fair market value of
$105,000 to G2 in exchange for common shares of G2. These shares were
distributed to the shareholders of Signal. Each shareholder of Signal
received 0.037537 of a G2 share for each share of Signal held.

5 Property and Equipment

Accumulated
Depletion and Net Book
Cost Depreciation Value
September 30, 2005 $ $ $
-------------------------------------------------------------------------
Oil and gas properties 100,493 8,655 91,838
Other 105 40 65
-------------------------------------------------------------------------
100,598 8,695 91,903
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Accumulated
Depletion and Net Book
Cost Depreciation Value
December 31, 2004 $ $ $
-------------------------------------------------------------------------
Oil and gas properties 25,750 2,876 22,874
Other 78 22 56
-------------------------------------------------------------------------
25,828 2,898 22,930
-------------------------------------------------------------------------

During the three and nine month periods ended September 30, 2005, the
Company capitalized $317,902 and $866,902, respectively (2004 - $132,000
and $351,369) related to overhead costs directly attributable to
exploration and development activities. Included in the oil and gas
properties value at September 30, 2005 was $10.0 million (2004 -
$1.8 million) for unproved properties, which has been excluded from the
depletion calculation.

In April 2005, the Company disposed of its Twining property for
consideration of $13.25 million. The proceeds of $13.25 million, as well
as the elimination of the related asset retirement amount of $949,047
have been accounted for as a reduction to the net book value of oil and
gas properties at September 30, 2005.

6 Revolving Operating Loan

At September 30, 2005, the Company had drawn $21.4 million against its
revolving operating demand loan facility. The facility was increased from
$15.0 million to $24.0 million in August 2005. The borrowing base of the
Company is subject to periodic reviews, the next review is scheduled on
or before April 30, 2006. The facility is secured by a $30,000,000
debenture with a floating charge over all assets of the Company with a
negative pledge and undertaking to provide fixed charges on the Company's
major producing oil and gas properties at the request of the Company's
bank.

7 Asset Retirement Obligations

The Company's asset retirement obligations result from net ownership
interests in petroleum and natural gas assets including well sites,
gathering systems and processing facilities. The Company estimates the
total undiscounted amount of cash flows required to settle its asset
retirement obligation is approximately $6.6 million as of September 30,
2005 (December 31, 2004 - $1.6 million) which will be primarily incurred
between 2015 and 2029. An inflation rate of 3.00% and a credit-adjusted
risk-free rate of 6.00% were used to calculate the fair value of the
asset retirement obligations.

During the nine months ended September 30, 2005, the Company's asset
retirement obligation changed as follows:

Asset Retirement Obligations $
-------------------------------------------------------------------------
Balance, December 31, 2004 1,633
Obligation incurred 204
Obligation acquired (note 4) 2,676
Obligation disposed (note 5) (949)
Accretion expense 135
-------------------------------------------------------------------------
Balance, September 30, 2005 3,699
-------------------------------------------------------------------------
-------------------------------------------------------------------------

8 Share Capital

Share capital is comprised of:

September 30 December 31
2005 2004
$ $
-------------------------------------------------------------------------
Common shares 133,162 97,194
Additional paid-in capital 720 720
-------------------------------------------------------------------------
133,882 97,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Common Shares Issued:

Number of
Class A Number of
Non-Voting Voting
Common Common
Shares Shares $
-------------------------------------------------------------------------
Balance, December 31, 2004 5,240,757 30,665,772 97,194
shares issued on corporate
acquisitions (note 4) 32,674,097 37,876
shares issued for freehold
land position (iv) 453,022 634
tax effect on 2004 flow-through
share renouncement (i) (1,195)
normal course issuer bid (ii) (512,700) (1,330)
conversion of class A,
non-voting shares to common
shares (iii) (5,240,757) 5,240,757 -
share issue costs (17)
-------------------------------------------------------------------------
Balance, September 30, 2005 - 68,520,948 133,162
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(i) On June 16, 2004, the Company closed a private placement of
4,485,000 common shares and 1,615,000 flow-through shares, with
values of $7,848,750 and $3,553,000, respectively. The tax effect
related to the flow-through offering was renounced at March 31,
2005 at a rate of 33.62% or $1,194,519, and has been reported as a
reduction to share capital with a corresponding offset to future
income taxes.

(ii) Commencing April 27, 2005, the Company initiated the normal course
issuer bid process whereby a maximum of 2,104,493 common shares can
be repurchased beginning April 21, 2005 and terminating April 20,
2006. As at September 30, 2005, the Company has purchased 512,700
common shares at an average price of $1.13 per share or $578,721.
The historical value of these shares reduced share capital by
$1,330,000 and the excess over the repurchase price has been
accounted for as an increase in contributed surplus of $751,279.

(iii) On August 4, 2005, the Company converted the class A, non-voting
common shares to common shares on a one-for-one basis.

(iv) On September 27, 2005, the Company issued 453,022 common shares at
$1.40 per share, being the market value of the Company's shares, to
acquire land interests.

Contributed Surplus:

$
-------------------------------------------------------------------------
Balance, December 31, 2004 309
Stock-based compensation expense (note 9) 839
Normal course issuer bid 751
-------------------------------------------------------------------------
Balance, September 30, 2005 1,899
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Per Share Amounts:

Per share amounts have been calculated using the weighted average number
of common shares outstanding for the three and nine months ended
September 30, 2005 of 59,085,830 and 50,319,001 (2004 - 32,659,537 and
27,470,247). The diluted per share amounts are calculated assuming the
exercise of outstanding, in the money dilutive securities, resulting in a
weighted average number of common shares for the three and nine months
ended September 30, 2005 of 61,240,355 and 52,736,731. For the three and
nine months ended September 30, 2004, the diluted per share amounts have
been calculated using the basic weighted average number of common shares
outstanding as all of the Company's issuable securities were anti-
dilutive, 32,659,537 and 27,470,247, respectively.

Stock Options:

The following is a continuity of stock options outstanding for which
shares have been reserved:

Weighted
Average
Exercise
Number of Price
Options $
-------------------------------------------------------------------------
Stock options outstanding, December 31, 2004 2,412,500 2.01
Granted 2,374,500 1.10
Cancelled (219,000) 1.38
-------------------------------------------------------------------------
Stock options outstanding, September 30, 2005 4,568,000 1.57
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Additional details on the Company's stock options outstanding as at
September 30, 2005 are as follows:

Outstanding Options Exercisable Options

Weighted Weighted
Range of Weighted Average Average
Exercise Average Exercise Exercise
Prices Number Years to Price Number Price
$ Outstanding Expiry $ Exercisable $
-------------------------------------------------------------------------
1.00 - 2.00 4,255,500 2.8 1.23 1,807,500 1.09
3.00 - 4.00 202,000 1.8 3.91 202,000 3.91
4.00 - 5.00 69,000 0.8 4.88 69,000 4.88
9.00 - 10.00 6,500 3.2 10.00 6,500 10.00
18.00 - 19.00 30,000 0.1 19.00 30,000 19.00
29.00 - 30.00 5,000 0.1 29.60 5,000 29.60
-------------------------------------------------------------------------
4,568,000 2.7 1.00 2,120,000 1.83
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Included in the outstanding options are 1,400,000 incentive options
having a strike price of $1.00 (exercisable - 928,219) that expire
March 1, 2006.

9 Stock-Based Compensation

The fair value of common share options granted for the nine months ended
September 30, 2005 is estimated to be $919,000 as at the date of grant
using the Black-Scholes option pricing model and the following weighted
average assumptions:

2005 2004
-------------------------------------------------------------------------
risk-free interest rate (%) 3.51 3.90
expected life (years) 5.00 5.00
expected volatility (%) 75.00 150.00
expected dividend yield (%) - -
-------------------------------------------------------------------------

The estimated fair value of the options of $0.72 per share is amortized
to expense over the options' vesting period on a straight-line basis. For
the three and nine months ended September 30,2005 $259,300 and $839,300
has been recognized as non-cash compensation expense and contributed
surplus. As of September 30, 2005, the Company has $2.1 million of stock-
based compensation not yet expensed.

10 Changes in Non-Cash Working Capital

Changes in non-cash working capital balances are comprised of the
following:

Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------------------
Accounts receivable (2,728) 131 (3,071) (1,003)
Prepaid expenses 54 (32) 88 (215)
Deposits - - - 975
Accounts payable and accrued
liabilities 5,940 (2,269) 6,857 1,758
Income taxes payable (7) - 118 (22)
-------------------------------------------------------------------------
Change per balance sheet items 3,259 (2,170) 3,992 1,493
Less: working capital acquired
on acquisitions (6,683) (543) (19,341) (975)
-------------------------------------------------------------------------
(3,424) (2,713) (15,349) 518
Attributable to investing
activities (2,032) (3,128) (8,335) 96
-------------------------------------------------------------------------
Attributable to operating
activities (1,392) 415 (7,014) 422
-------------------------------------------------------------------------
-------------------------------------------------------------------------

11 Subsequent Event

Subsequent to September 30, 2005, 100,000 common share stock options were
granted to employees at an average exercise price of $1.18 per common
share.


Caution to Reader

This news release contains forward-looking statements and the reader is cautioned not to place undue reliance on these 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 predications, forecasts, projections and other forward-looking statements will not occur.

This news release is not for dissemination in the United States or to any United States news services. The common shares of Signal have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States or to any U.S person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

Contact Information