Storm Exploration Inc.

Storm Exploration Inc.

February 28, 2005 05:00 ET

Storm Exploration Releases Quarterly Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: STORM EXPLORATION INC.

TSX SYMBOL: SEO

FEBRUARY 28, 2005 - 05:00 ET

Storm Exploration Releases Quarterly Results

CALGARY, ALBERTA--(CCNMatthews - Feb. 28, 2005) - STORM EXPLORATION INC.
(TSX:SEO) ("Storm", "the Company") is pleased to announce its financial
and operational highlights for the fourteen and two month periods ended
December 31, 2004.

During 2004 the Company changed its year end from October 31 to December
31. The fourteen months to December 31, 2004 represents the period from
the Company's last fiscal year end, and the two months to December 31,
2004 is the period since the last interim report to shareholders.
However, financial and operating information included in this press
release reflects only the results of operations since July 1, 2004, the
date when the Storm acquired oil and gas assets as an 'explorco' under a
Plan of Arrangement (the 'Plan') as described in the accompanying
financial statements. Concurrently Storm became a reporting issuer. The
Company's prior business, software development, was largely inactive
during the eight month period from November 1, 2003 until June 30, 2004.
Accordingly, no information is provided for that period as it is neither
material nor relevant to Storm's continuing oil and gas operations.

Achievements during the Six Months to December 31, 2004

- The Company completed the Plan of Arrangement involving predecessor
Storm and has built the structures necessary to generate rapid but
controlled growth. A cohesive and motivated staff has been assembled
with senior management and most other personnel coming from prior Storm
companies.

- At July 1, 2004 production transferred to the Company under the Plan
approximated 900 Boe per day. Production grew rapidly throughout the six
months with production at year end approximating 2,750 Boe per day.
Production for the six month period averaged 1,366 Boe per day.

- The Company completed a major acquisition in December, providing 1,200
Boe per day of production comprising approximately 200 Boe per day of
liquids and 6,000 Mcf per day of natural gas. Acquisition cost was $37.9
million. Proven plus probable reserves acquired amounted to 3.6 million
Boe, based on the reserve evaluation prepared by Paddock Lindstrom &
Associates effective December 31, 2004. The acquisition offers
considerable development and rework potential and the new properties are
largely located near areas where Storm is already active.

- In the Parkland area of north eastern British Columbia the Company
completed a gas gathering system, central dehydrator and sales pipeline
capable of handing 10 Mmcf per day and scaleable up to 20 Mmcf per day.
Storm's current net production from this area has increased to over 400
Boe per day The Company has a substantial land position in the area and
the facility will be a cornerstone for future growth.

- Year end proven and probable reserves amounted to 7.7 million Boe, an
increase of 90% over the reserve base transferred to the Company under
the Plan.

- The Company drilled 14 wells (9.9 net) resulting in three oil wells
(1.4 net), six gas wells (4.0 net) and five dry holes (4.5 net).

- Field netbacks averaged $23.73 for the six month period and $24.71 for
the two month period.

- Cash flow for the six month period amounted to $5.1 million or $0.14
per diluted share.

- Net earnings for the six month period amounted to $6.5 million or
$0.18 per diluted share. The high level of earnings relative to cash
flow is largely attributable to an anomalous non-cash tax recovery.

- Capital expenditures for the six month period amounted to $57.6
million, including $37.7 million on post Plan property acquisition
costs, net of dispositions. For the two month period capital
expenditures amounted to $43.0 million, including acquisition costs of
$35.0 million.

- Finding and development costs for proven reserves for the year
amounted to $18.88 per Boe, including net acquisition costs, and $18.36
per Boe excluding net acquisition costs. For proven plus probable
reserves, finding and development costs, including net acquisition
costs, amounted to $13.75 per Boe: excluding net acquisition costs,
finding and development costs amounted to $14.20 per Boe.

- Year end debt totaled $29.2 million made up of working capital
deficiency of $5.5 million and bank borrowings of $23.7 million,
including current bank debt. The Company's total bank credit facility is
$30 million.


Summarized financial information for the periods ended December 31, 2004
is attached as Schedule A.

Detailed and tabular reserve information at December 31, 2004 is
attached as Schedule B.

Management's Discussion and Analysis and financial statements for the
period ended December 31, 2004 are attached as Schedule C.




Fourteen
Two Months Months
Ended Ended
December 31, December 31,
HIGHLIGHTS 2004 2004
------------------------------------------------------------------------
Financial
Production income $ 5,537,295 11,414,471

Cash flow from operations 2,583,122 5,114,163
Per share - basic $ 0.08 $ 0.15
Per share - diluted $ 0.07 $ 0.14

Net income $ 5,115,978 $ 6,496,654
Per share - basic $ 0.15 $ 0.19
Per share - diluted $ 0.14 $ 0.18

Debt, including working capital deficiency $29,224,396 $29,224,396

Capital expenditures $43,993,993 $57,550,042

Weighted average common shares outstanding
Basic 35,300,214 34,375,746
Diluted 36,679,627 35,755,159

Common shares outstanding at period end
Basic 38,447,755 38,447,755
Fully diluted 41,356,505 41,356,505

------------------------------------------------------------------------
Operating
------------------------------------------------------------------------

Oil equivalent (6:1)
Barrels of oil equivalent 122,487 251,319
Barrels of oil equivalent per day 2,008 1,366

Oil and NGLs production
Barrels 27,105 61,922
Barrels per day 445 337
Average selling price ($CDN per barrel) $ 54.85 $ 56.21

Gas production
Thousand cubic feet 572,291 1,136,380
Thousand cubic feet per day 9,382 6,176
Average selling price
($CDN per thousand cubic feet) $ 6.77 $ 6.55


CASH FLOW AND NETBACKS

Discussion and analysis of operating and financial results includes
references to cash flow from operations, netbacks and netbacks per Boe.
These measures are not an alternative to, or more relevant, as
indicators of the Company's financial performance than cash flow from
operating activities as determined in accordance with generally accepted
accounting principles ("GAAP") in Canada. Cash flow from operations,
netbacks and netbacks per Boe are supplementary measurements only and
may not be comparable to similar measures reported by other companies.

FORWARD LOOKING INFORMATION

Certain information set forth in this press release, including
management's assessment of Storm's future plans and operations, contains
forward looking statements that involve substantial known and unknown
risks and uncertainties. These forward looking statements are subject to
numerous risks and uncertainties, certain of which are beyond Storm's
control, including the impact of general economic conditions, industry
conditions, volatility of commodity prices, currency fluctuations,
imprecision of reserve estimates, environmental risks, competition from
other producers, the lack of available qualified personnel or
management, stock market volatility and ability to access sufficient
capital from internal and external sources. Storm's actual results,
performance or achievement could differ materially from those expressed
in, or implied by, these forward looking statements and, accordingly, no
assurance can be given that any events anticipated by the forward
looking statements will transpire or occur, or if any of them do, what
benefits Storm can derive therefrom.

Final Two Months of 2004

The final two months of 2004 were characterized by high field activity
levels, continued production growth and strong commodity prices and
netbacks. The company drilled seven wells, of which four were in Red
Earth, and three in northeastern British Columbia. Average oil and
liquids production grew by 34% in comparison to the quarter ended
October 31, 2004 and average natural gas production grew by 86% when
compared to the same period. Production growth is in part due to an
acquisition of producing properties effective December 1, 2004 and a
contribution during the period from the Company's Parkland property. The
average realized price per Boe for the two month period per Boe was
$43.79, almost the same as the realized price for the quarter to October
31, 2004.

Results for 2004

Capital expenditures over the period to December 31, 2004 totaled $57.6
million of which $37.7 million was applied to property acquisitions. The
Company's field program for the six month resulted in the drilling of 14
wells (9.9 net), of which 12 were company operated. Drilling activity is
summarized as follows:



------------------------------------------------------------------------
Six Months to December 31, 2004 Exploration Development Total
------------------------------------------------------------------------
Gross Net Gross Net Gross Net
------------------------------------------------------------------------
Crude oil 1 0.26 2 1.15 3 1.41
------------------------------------------------------------------------
Natural gas 5 3.73 1 0.25 6 3.98
------------------------------------------------------------------------
Dry 4 4.00 1 0.50 5 4.50
------------------------------------------------------------------------
Total 10 7.99 4 1.90 14 9.89
------------------------------------------------------------------------
------------------------------------------------------------------------
Success ratio 60% 50% 75% 74% 64% 55%
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Two Months to December 31, 2004 Exploration Development Total
------------------------------------------------------------------------
Gross Net Gross Net Gross Net
------------------------------------------------------------------------
Crude oil - - - - - -
------------------------------------------------------------------------
Natural gas 3.0 3.0 1.0 0.25 4.0 3.25
------------------------------------------------------------------------
Dry 2.0 2.0 1.0 0.50 3.0 2.50
------------------------------------------------------------------------
Total 5.0 5.0 2.0 0.75 7.0 5.75
------------------------------------------------------------------------
------------------------------------------------------------------------
Success ratio 60% 60% 50% 33% 57.1% 56.5%
------------------------------------------------------------------------
------------------------------------------------------------------------

Gross wells drilled by area were as follows:

------------------------------------------------------------------------
Six Months to December 31, 2004 Oil Gas Dry Total
------------------------------------------------------------------------
Red Earth 2 2 4 8
------------------------------------------------------------------------
West Central Alberta 1 1 - 2
------------------------------------------------------------------------
North East BC - 2 1 3
------------------------------------------------------------------------
Other - 1 - 1
------------------------------------------------------------------------
Total 3 6 5 14
------------------------------------------------------------------------
------------------------------------------------------------------------
Two Months to December 31, 2004 Oil Gas Dry Total
------------------------------------------------------------------------
Red Earth - 2 2 4
------------------------------------------------------------------------
West Central Alberta - - - -
------------------------------------------------------------------------
North East BC - 2 1 3
------------------------------------------------------------------------
Total - 4 3 7
------------------------------------------------------------------------
------------------------------------------------------------------------


Production Income

The Company's production by volume for the six month period to December
31, 2004 was 94% natural gas and natural gas liquids. Pricing for
natural gas for the six month period was reasonably consistent, although
pricing for natural gas liquids tended to follow the same pricing curve
as crude oil. Average production for the period amounted to 1,366 Boe
per day with 37% coming from Brazeau-Pembina, 7% from Parkland and 35%
from Cabin - Kotcho. Production income also included royalty income of
$490,000.

Average royalties amounted to 30% for the six month period.
Transportation and operating costs averaged $2.48 and $6.20
respectively, lower than the Company's initial expectations.

For the two month period to December 31, 2004, volumes averaged 2,000
Boe per day, including the acquisition of producing properties effective
December 1, 2004 which contributed an average of 1,200 Boe per day.
Royalties during the period averaged 28% and production and
transportation costs per Boe averaged $5.81 and $2.42 respectively.
Royalty income amounted to $174,000.

Other Costs

Net general and administrative costs after recoveries for the six month
period amounted to $3.35 per Boe or $2.85 per Boe, excluding non-cash
compensation costs. For the two month period to December 31, 2004
general and administrative costs amounted to $2.86 per Boe or $2.40 per
Boe, excluding non-cash compensation costs, a reduction indicative of
the effect increased production has on a largely fixed cost base.
Interest paid during the six month period to December 31, 2004 amounted
to $0.58 per Boe, all of which was incurred in the two month period.
Interest charges reflect debt incurred to fund acquisition of producing
properties in December.



Field netbacks from oil and gas operations, excluding royalty income,
per Boe are as follows:

Six Months to Two Months to
December 21, 2004 December 31, 2004
------------------------------------------------------------------------
Field price $43.47 $43.79
Royalties, net (13.01) (12.27)
Production expenses (6.20) (5.81)
Transportation (2.48) (2.42)
--------------------------------------
Field netback $21.78 $23.29
--------------------------------------


Net Income

Net income is operating cash flow after adjustment for non-cash
provisions for depletion, depreciation and accretion, and taxes. Net
income for the six months to December 31, 2004 amounted to $0.18 per
diluted share and $0.14 per diluted share for the two month period. Net
income for both periods benefited from the inclusion in income of a
non-cash tax recovery in the amount of $4.3 million related to the
recovery of prior tax losses.

Depletion, depreciation and accretion amounted to $11.08 per Boe for the
six months to December 31, 2004 and $ 13.78 per Boe for the two month
period.

Cash Flow

Cash flow from operations represents total income less production and
transportation costs, net general and administrative expenses, interest
and capital taxes. Cash flow for the six months to December 31, 2004
amounted to $5.1 million or $0.14 per diluted share and for the two
month period amounted to $2.6 million or $0.07 per diluted share.

Debt and working capital

Debt at December 31, 2004 amounted to $29.2 million of which $23.7
million represents drawings under the Company's bank facilities with the
difference of $5.5 million being working capital deficiency. The
company's working capital deficiency at December 31, 2004 reflects the
Company's active operated field program which results in a high level of
accounts payable. With respect to banking arrangements, at December 31,
2004, the company had a revolving line of credit in the amount of $24
million and a term loan of $6 million. The revolving line of credit is
renewable on June 30, 2005; however the term loan must be retired by
June 30, 2005 or converted into a revolving line of credit. Except in
circumstances involving a major acquisition, the company prefers to
operate with total debt to cash flow ratios of less than 1.5:1.0.

Investment in Storm Ventures International Inc.

Under the Plan the Company received a 26% interest in Storm Ventures
International Inc., ('SVI'), a private company involved in the
identification and exploitation of oil and gas opportunities outside of
the Western Canadian Sedimentary Basin. SVI currently operates and holds
a 100% interest in a 1.2 million acre exploratory permit in the Ghadames
basin in south east Tunisia and is completing a 225 kilometre seismic
program in the area with a view to drilling a well in the fourth quarter
of 2005. Additional opportunities in Tunisia are being evaluated. SVI
also has a 50% interest in a 110,000 acre block in the United Kingdom
sector of the North Sea, prospective for both oil and natural gas with
excellent step out potential into adjacent blocks. Although the cost of
participation in the North Sea is considerable, fiscal terms are highly
attractive and the basin offers SVI the best near term opportunity to
generate cash flow. SVI will shortly open a website to provide
shareholders and others with information about the company's progress.

Outlook for 2005

The Company's business plan for 2005 provides for the drilling of 20
gross or 14 net wells, with total capital expenditures approximating $26
million. Two wells will be drilled at Cabin/Kotcho, two wells in the
Brazeau - Pembina area, eight wells in the Peace River Arch, and eight
wells at Red Earth. Production for the year is expected to average 3,600
- 3,800 Boe per day. Estimated cash flow, using an average WTI price of
US$38 per barrel, an average gas price of Cdn$5.75 and a US$ exchange
rate of $0.82, should approximate to $25 million.

With respect to costs the Company is forecasting average production
costs of $6.50 per Boe. General and administrative costs are estimated
at approximately $1.50, excluding non-cash compensation costs and
interest charges should amount to $0.70 per Boe. Total cash costs,
excluding transportation costs which are usually deducted from revenue,
will thus amount to $8.70, compared to $9.65 for 2004. Year end debt
should approximate $29,000,000 with a debt to cash flow ratio of
approximately 1.2:1.

Reserves at December 31, 2004

Storm Energy's year-end reserve evaluation effective January 1, 2005 was
prepared by Paddock Lindstrom and Associates Limited ('PLA'). PLA has
evaluated 100% of Storm's reserves. The PLA January 1, 2005 future price
forecast was used to determine all estimates of future net revenue (also
referred to as net present value or NPV). Storm's reserves committee,
comprised of independent and appropriately qualified directors, has
reviewed and approved the evaluation prepared by PLA.

Highlights

- Proved reserves totaled 5.713 million Boe (mmboe) at December 31,
2004, an increase of 77% over proven reserves acquired by the Company
under the Plan.

- Proved plus probable reserves totaled 7.725 mmboe at December 31,
2004, an increase of 91% over proven plus probable reserves acquired
under the Plan.

- Total proved plus probable finding and development costs, excluding
acquisition costs, for the six months to December 31, 2004 amounted to
$14.20 per Boe. Changes to future development costs of properties
transferred under the Plan have been included in the calculation

- Total proved plus probable finding, development and acquisition costs
for the six months to December 31, 2004 amounted to $13.75 per Boe
excluding reserves transferred under the Plan. Future development costs
of properties have been included in the calculation.

- Total proved plus probable 10% NPV amounts to $92 million.

- Proved developed producing reserves represent 78% of total proved
reserves and 58% of total proved plus probable reserves.

- Total proved plus probable reserves transferred under the Plan were
revised down by 0.934 million Boe. This revision was in large part due
to unexpected and rapid production declines at wells in the
Brazeau-Pembina area.

Tabular reserve information is attached as Schedule B.

The following cautionary statements are specifically required by
National Instrument 51-101:

1. Estimates of future net revenue used in calculating discounted and
undiscounted net present values do not represent fair market value.

2. Due to the effects of aggregation, estimates of reserves and future
net revenues for individual properties may not reflect the same
confidence level as estimates of reserves and future net revenues for
all properties.

3. A Boe conversion ratio of 6 mcf = 1 barrel has been used. Boe may be
misleading, particularly if used in isolation. A Boe conversion ratio of
6 mcf = 1 barrel is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.

4. The aggregate of the exploration and development costs incurred in
the most recent financial year and the change during that year in
estimated future development costs generally will not reflect total
finding and development costs related to reserves additions for that
year.

Storm Exploration Inc. is a Calgary based light oil and natural gas
producer with its main areas of activity located in the Peace River Arch
area of Alberta and British Columbia, Red Earth in north central Alberta
and at Kotcho/Cabin/Junior in north eastern British Columbia. Storm's
shares are traded on the Toronto Stock Exchange under the trading symbol
"SEO".

A conference call to review these results will be held on Monday,
February 28, 2005 at 2:00 pm Mountain Time. The call in number is
1-403-232-6311 for Calgary participants and 1-888-458-1598 for Canada
and USA. The Participant Pass Code is 15569#.

Webcast: www.stormexploration.com


Summarized financial information for the periods ended December 31, 2004
is attached as Schedule A.

Detailed and tabular reserve information as December 31, 2004 is
attached as Schedule B.

Management's Discussion and Analysis and financial statements for the
period ended December 31, 2004 are attached as Schedule C.




SCHEDULE A

STORM EXPLORATION INC.

Balance Sheet

December 31, October 31,
2004 2004
(unaudited)
------------------------------------------------------------------------

ASSETS

Current
Cash $ - $ 4,425,760
Accounts receivable 7,636,178 3,396,727
Prepaid expenses 441,215 129,638
-----------------------------
8,077,393 7,952,125

Property and equipment 88,202,556 45,356,745

Investment 2,700,000 2,700,000

Future Income Taxes 8,968,441 5,609,891
-----------------------------

$ 107,948,390 $ 61,618,761
-----------------------------
-----------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY

Current
Bank Indebtedness $ 6,000,000 $ -
Accounts payable and accrued liabilities 13,636,933 10,342,704
-----------------------------
19,636,933 10,342,704

Bank Indebtedness 17,664,856 -
Asset Retirement Obligation 2,193,321 653,613
-----------------------------
39,495,110 10,996,317
-----------------------------
Shareholders' equity
Share capital 61,830,555 49,188,371
Contributed surplus 126,071 53,397
Retained earnings 6,496,654 1,380,676
-----------------------------
68,453,280 50,622,444
-----------------------------

$ 107,948,390 $ 61,618,761
-----------------------------
-----------------------------



Statements of Income and Retained Earnings

Fourteen Months Two Months
ended ended
December 31, December 31,
2004 2004
(unaudited)
------------------------------------------------------------------------

Revenue
Production income $ 11,414,471 $ 5,537,295
Royalties (3,269,847) (1,503,776)
Other income 30,712 (1,303)
-----------------------------
8,175,336 4,032,216
-----------------------------

Expenses
Production 1,559,062 712,009
Transportation 622,586 295,493
General and administrative 842,205 350,875
Interest on long-term debt 146,156 146,156
Depletion, depreciation and accretion 2,784,858 1,687,890
-----------------------------
5,954,867 3,192,423
-----------------------------

Income before income and other taxes 2,220,469 839,793

Income and other taxes
Future income tax recovery (4,293,420) (4,293,420)
Capital taxes 17,235 17,235
-----------------------------
(4,276,185) (4,276,185)
-----------------------------

Net income for the period 6,496,654 5,115,978

Retained earnings, beginning of period - 1,380,676
-----------------------------

Retained earnings, end of period $ 6,496,654 $ 6,496,654
-----------------------------
-----------------------------


Statements of Cash Flows

Fourteen Months Two Months
ended ended
December 31, December 31,
2004 2004
(unaudited)
------------------------------------------------------------------------

Operating activities
Net income for the period $ 6,496,654 $ 5,115,978
Add non-cash items:
Depreciation, depletion and accretion 2,784,858 1,687,890
Stock based compensation 126,071 72,674
Future income tax recovery (4,293,420) (4,293,420)
-----------------------------
Cash flow from operations 5,114,163 2,583,122
Net change in non-cash working capital items (4,741,620) (4,536,534)
-----------------------------
372,543 (1,953,412)
-----------------------------

Financing activities
Issue of common shares - net of expenses 25,387,603 13,577,053
Paid to former shareholders of
Storm Energy Ltd. (3,939,084) -
Increase in bank indebtedness 23,664,856 23,664,856
-----------------------------
45,113,375 37,241,909
-----------------------------

Investing activities
Property and equipment additions, net (57,550,042) (42,993,993)
Net change in non-cash working capital items 9,994,124 3,279,736
-----------------------------
(47,555,918) (39,714,257)
-----------------------------

Change in cash during the period (2,070,000) (4,425,760)

Cash, transferred under Plan of Arrangement 2,070,000 4,425,760
-----------------------------

Cash, end of period $ - $ -
-----------------------------
-----------------------------



SCHEDULE B

STORM EXPLORATION INC.

Net Present Value Summary at December 31, 2004

Before tax net present value (NPV) of cash flow using Paddock Lindstrom
and Associates Ltd. ("PLA") January 1, 2005 escalating price forecast.
Benchmark oil and NGL prices are used which are adjusted for quality of
oil or NGL produced and for transportation costs. Benchmark gas prices
are used which are adjusted for heat content, the existence of any
marketing contracts, and for transportation costs. The calculated NPVs
include a deduction for estimated future well abandonment costs.



--------------------------------------------------------
DISCOUNTED DISCOUNTED DISCOUNTED DISCOUNTED
UNDISCOUNTED AT 5% AT 10% AT 15% AT 20%
$MM $MM $MM $MM $MM
--------------------------------------------------------

Proved Producing $ 86,024 $ 72,808 $ 63,882 $ 57,366 $ 52,354
Proved
Non-Producing $ 6,805 $ 5,493 $ 4,590 $ 3,931 $ 3,434
--------------------------------------------------------
Total Proved
Developed $ 92,829 $ 78,301 $ 68,472 $ 61,297 $ 55,788

Proved
Undeveloped $ 5,942 $ 4,564 $ 3,546 $ 2,778 $ 2,187
--------------------------------------------------------
Total Proved $ 98,771 $ 82,865 $ 72,018 $ 64,075 $ 57,975

Probable
Additional $ 36,034 $ 25,856 $ 19,987 $ 16,215 $ 13,602
--------------------------------------------------------
Total Proved
plus Probable $ 134,805 $108,721 $ 92,005 $ 80,290 $ 71,577
--------------------------------------------------------
--------------------------------------------------------


Finding, Development, and Acquisition Costs Excluding
Assets Acquired as Part of the Plan of Arrangement
Six Months Ended December 31, 2004
Excluding Assets Acquired as Part of the Plan

Total Proved Finding, Development, and Acquisition Costs
2004

Capital expenditures excluding assets acquired under
the Plan -$M $ 57,550
Future development capital - $M 8,904
----------
Total capital including the net change in future
capital - $M $ 66,454
----------

Reserve additions excluding assets acquired under
the Plan - MBOE 3,519

Total Proven Finding, Development, and Acquisition
Costs - $/BOE $ 18.88
----------

Total Proved + Probable Finding, Development, and
Acquisition Costs
2004

Capital expenditures excluding assets acquired under
the Plan -$M $ 57,550
Future development capital - $M 9,350
----------
Total capital including the net change in future
capital - $M $ 66,900
----------

Reserve additions excluding assets acquired under
the Plan - MBOE 4,864

Total Proven + Probable Finding, Development, and
Acquisition Costs - $/BOE $ 13.75
----------

There are no finding and development costs to report for 2003 and there
is no 3 year average to report since the Company began oil and gas
operations effective July 1, 2004.


Finding and Development Costs
Period Ended December 31, 2004

Total Proved Finding and Development Costs
Excluding Acquisitions and Dispositions 2004

Capital expenditures excluding acquisitions -$M $ 19,864
Net change from previously allocated future
development capital - $M (2,403)
----------
Total capital including the net change in future
capital - $M $ 17,461
----------

Reserve additions excluding acquisitions - MBOE 951

Total Proven Finding and Development Costs - $/BOE $ 18.36

Total Proved + Probable Finding and Development Costs
Excluding Acquisitions and Dispositions 2004

Capital Expenditures excluding Acquisitions -$M $ 19,864
Net change from previously allocated future
development capital - $M (2,463)
----------
Total Capital including the net change in future
capital - $M $ 17,401
----------

Reserve additions excluding acquisitions - MBOE 1,225

Total Proven + Probable Finding and Development
Costs - $/BOE $ 14.20
----------

There are no finding and development costs to report for 2003 and there
is no 3 year average to report since the Company began oil and gas
operations effective July 1, 2004.


PLA ESCALATING PRICE FORECAST JANUARY 1, 2005

EDMONTON NATURAL
WTI LIGHT HENRY HUB GAS
CRUDE OIL CRUDE OIL NATURAL GAS AT AECO PROPANE BUTANE
YEAR $US/BBL $CDN/BBL $US/MMBTU $CDN/MMBTU $CDN/BBL $CDN/BBL
2005 $42.00 $50.22 $6.30 $6.78 $30.13 $37.16
2006 $40.00 $47.76 $6.10 $6.52 $28.66 $34.87
2007 $37.50 $44.69 $5.90 $6.26 $26.81 $32.18
2008 $35.00 $41.62 $5.70 $6.00 $24.97 $29.14
2009 $33.00 $39.16 $5.50 $5.73 $23.50 $27.41


2004 Actual 2004 Actual 2004 Actual
and and and
PLA FORECAST PLA FORECAST PLA FORECAST
STORM WELLHEAD STORM WELLHEAD STORM WELLHEAD
NGL and
OIL PRICE GAS PRICE Condensate PRICE
YEAR $CDN/BBL $CDN/MMCF $CDN/BBL
2004 actual $56.22 $6.07 $54.64
2005 $47.34 $6.63 $45.73
2006 $44.97 $6.31 $43.43
2007 $42.09 $6.03 $40.52
2008 $39.21 $5.75 $37.60
2009 $37.00 $5.47 $35.38


2004 Company Interest Reserve Reconciliation
Gross company interest reserves are provided
(before deduction of royalties).
------------------------------------------------------------------------
6:1 Oil Equivalent (Mboe)
Proved
Total plus
Proved Probable Probable
----------------------------
June 30,2004 0 0 0
Reserves Acquired from Harvest as part of
Plan of Arrangement 3,220 826 4,046
Acquisitions 2,819 1,071 3,890
Revisions - to properties acquired from
Harvest as part of Plan of Arrangement (775) (159) (934)
Revisions - existing properties 0 0 0
Discoveries 391 197 588
Extensions 309 77 386
Dispositions 0 0 0
Production (251) 0 (251)
----------------------------
December 31, 2004 5,713 2,012 7,725
----------------------------
Light Crude Oil (Mbbls)
Proved
Total plus
Proved Probable Probable
----------------------------
June 30,2004 0 0 0
Reserves Acquired from Harvest as part of
Plan of Arrangement 0 0 0
Acquisitions 158 37 195
Revisions - to properties acquired from
Harvest as part of Plan of Arrangement 0 0 0
Revisions - existing properties 0 0 0
Discoveries 88 27 115
Extensions 62 38 100
Dispositions 0 0 0
Production (15) 0 (15)
----------------------------
December 31, 2004 293 102 395
----------------------------
Sales Gas (Mmcf)
Proved
Total plus
Proved Probable Probable
----------------------------
June 30,2004 0 0 0
Reserves Acquired from Harvest as part of
Plan of Arrangement 16,315 3,987 20,302
Acquisitions 14,971 5,943 20,914
Revisions - to properties acquired from
Harvest as part of Plan of Arrangement (3,837) (631) (4,468)
Revisions - existing properties 0 0 0
Discoveries 1,485 839 2,324
Extensions 1,323 203 1,526
Dispositions 0 0 0
Production (1,136) 0 (1,136)
----------------------------
December 31, 2004 29,121 10,341 39,462
----------------------------
NGLs (Mbbls)
Proved
Total plus
Proved Probable Probable
----------------------------
June 30,2004 0 0 0
Reserves Acquired from Harvest as part of
Plan of Arrangement 501 162 663
Acquisitions 166 43 209
Revisions - to properties acquired from
Harvest as part of Plan of Arrangement (136) (49) (190)
Revisions - existing properties 0 0 0
Discoveries 56 31 86
Extensions 27 0 32
Dispositions 0 0 0
Production (47) 0 (47)
----------------------------
December 31, 2004 567 187 753
----------------------------


Summary of Oil and Natural Gas Reserves as of December 31, 2004
- Forecast Prices and Costs

GROSS COMPANY INTEREST RESERVES
(before deduction of royalties payable, not including royalties
receivable)

Light Crude Sales NGLs 6:1 Oil
Oil Gas Equivalent
(Mbbls) (Mmcf) (Mbbls) (Mboe)

Proved Producing 293 21,928 535 4,483
Proved Non-Producing 0 2,166 30 391
-------------------------------------------
Total Proved Developed 293 24,094 565 4,874

Proved Undeveloped 0 5,027 1 839
-------------------------------------------
Total Proved 293 29,121 566 5,713

Probable Additional 102 10,341 187 2,013
-------------------------------------------
Total Proved plus Probable 395 39,462 753 7,725
-------------------------------------------


NET COMPANY INTEREST RESERVES
(after deduction of royalties payable, including royalties receivable)

Light Crude Sales NGLs 6:1 Oil
Oil Gas Equivalent
(Mbbls) (Mmcf) (Mbbls) (Mboe)

Proved Producing 251 16,771 370 3,416
Proved Non-Producing 0 1,723 24 311
-------------------------------------------
Total Proved Developed 251 18,494 394 3,727

Proved Undeveloped 0 3,720 0 620
-------------------------------------------
Total Proved 251 22,214 394 4,347

Probable Additional 93 7,892 131 1,539
-------------------------------------------
Total Proved plus Probable 344 30,106 525 5,887
-------------------------------------------


SCHEDULE C

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FOURTEEN MONTHS ENDED
DECEMBER 31, 2004

FEBRUARY 25, 2005

Set out below is management's discussion and analysis of financial and
operating results for the Company's oil and gas operations for the
fourteen month period ended December 31, 2004. It should be read in
conjunction with the audited financial statements for the same period
and other operating and financial information included in this press
release.

BASIS OF PRESENTATION

As more fully described in Note 1 to the accompanying audited financial
statements, Storm Exploration Inc. (the "Company" or "Storm"), began
business in 1998 as a developer of enterprise treasury management
systems and software under the name Alterna Technologies Group Inc. In
2003, the Company conducted a review of strategic alternatives and
concluded that an alternative business venture was in the best interests
of shareholders. Alterna's principal software product was sold and steps
were taken to align Alterna's remaining business with an entry into the
oil and gas exploration and production industry. This was achieved
through participation with, inter alia, Storm Energy Ltd. and Harvest
Energy Trust, in a Plan of Arrangement (the "Plan"), which resulted in
Alterna acquiring certain oil and gas assets formerly owned by Storm
Energy Ltd. Concurrently, Alterna changed its name to Storm Exploration
Inc. The acquisition by the Company of Storm Energy Ltd.'s assets was
effective June 30, 2004.

Business activity during the eight month period from Alterna's last year
end, October 31, 2003, to the implementation of the Plan on June 30,
2004, was limited to the disposition of substantially all of the
Company's software development business and preparation for the
acquisition of assets from Storm Energy Ltd. Information for this eight
month period is not presented as it is neither material nor relevant to
the Company's continuing operations. As a consequence, this management
discussion and analysis reviews only the Company's oil and gas
operations for the six month period to December 31, 2004.

All financial amounts are in Canadian dollars unless otherwise stated.

Non GAAP Measurements

The term cash flow from operations is used in the following discussion
and should not be considered an alternative to, or more meaningful than
cash flow from operating activities as determined in accordance with
Canadian generally accepted accounting principles ("GAAP") as an
indicator of the Company's performance. In addition, the Company's
determination of cash flow from operations may not be comparable to that
reported by other companies. The reconciliation between net earnings and
cash flow from operations is set out in the statement of cash flows in
the Company's financial statements. The Company also presents cash flow
from operations per share which is calculated using the same methodology
as earnings per share; however this measurement also does not correspond
to GAAP.

Boe Presentation

Barrels of oil equivalent ("Boe") may be misleading, particularly if
used in isolation. A Boe conversion ratio of six Mcf to one 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 natural gas to oil in the ratio of six thousand cubic feet of
gas to one barrel of oil. Certain financial values are presented on a
per Boe basis; such measurements may not be consistent with those used
by other companies.

Forward-Looking Information

Certain information regarding the Company set forth in this discussion,
including management's assessment of the Company's future plans and
operations, may constitute forward-looking statements under applicable
securities law and necessarily involve risks associated with oil and
gas, such as production loss, transportation disruptions, loss of
markets, volatility of commodity prices, currency fluctuations,
imprecision of reserve estimates, environmental risks, competition from
other producers and ability to access sufficient capital from internal
and external sources. As a result, actual results may differ materially
from those anticipated in the forward-looking statements.

OPERATIONS - Six Months ended December 31, 2004

Production and Revenue

Production at July 1, 2004 amounted to 900 Boe per day and, although a
pipeline failure reduced production to about 660 Boe per day for several
weeks thereafter, production grew steadily throughout the period,
exiting 2004 around 2,750 Boe per day. In late December 2004, the
Company completed a property acquisition providing an estimated
additional 1,200 Boe per day of production. Excluding this acquired
production, the 2004 year end exit rate approximated 1,550 Boe per day.
In the six months to December 31, 2004, production increased by 72%
excluding volumes acquired in December, and by 205% including these
acquired volumes. For the period, production totaled 251,319 Boe equal
to an average of 1,366 Boe per day, comprised of 82 barrels of oil per
day, 255 barrels of natural gas liquids per day and 6,176 Mcf of natural
gas per day. Production income for the period also included royalty
income of $490,221.



The Company's production profile by volume and average selling price per
unit for the period is as follows:

Average Selling
Percentage Price Before Average
of Total Transportation Benchmark
Production Costs Prices
------------------------------------------------------------------------

Natural gas 75.4% $ 6.55/Mcf AECO $6.45
Natural gas liquids 18.6% $ 55.76/Bbl
Crude oil 6.0% $ 57.61/Bbl Edmonton par $56.94

Per Boe $ 43.47/Boe


The Company is primarily a natural gas producer and Boe production
increases reported by the Company for the six month period to December
31, 2004 came principally from natural gas. The pricing volatility which
affected crude oil, and to a lesser extent natural gas liquids, during
the period had no equivalent effect on the market for natural gas, and,
in comparison, pricing was relatively consistent throughout the period.
The Company did benefit from strong natural gas liquids prices in the
period, with NGL production levels being generally steady throughout the
period. Crude oil is not a material contributor to the Company's
revenues and cash flow and, until the December acquisition, crude oil
production volumes were relatively constant. Revenue contribution from
each product for the period is as follows:


Revenue before
Product Transportation Costs

Natural gas $ 7,443,000
Natural gas liquids 2,612,000
Crude oil 869,000
-------------
Total $10,924,000
-------------


In the period to December 31, 2004, the Company did not enter into
hedges, or fixed price or volume commitments.

Royalties

Royalties paid for the period to December 31, 2004 amounted to 29.9%, or
$13.01 per Boe of production income before deduction of transportation
costs and inclusion of royalty income. Of total royalties paid, Crown
royalties amounted to 24%, with overriding royalties accounting for the
remainder. Of total royalties, 68% were paid in Alberta and 32% in
British Columbia.

Production Costs

Production costs for the period to December 31, 2004 amounted to 14.3%
of production income before royalty income or $6.20 per Boe. During the
period, production costs fluctuated but overall showed a downward trend.
The Company expects that production costs should approximate the same
amount in 2005, after giving due recognition to a possible upward trend
in the first part of the year, until the properties acquired in December
2004 are integrated with Storm's continuing operations. Natural gas
production in west central Alberta is subject to high processing fees.
As the production contribution to the Company from this area declines as
a percentage of total production in response to increasing production
from other areas, there is potential for additional cost reductions per
Boe.

Transportation Costs

Transportation costs for the period amounted to $2.48 per Boe. Due to
uncertainty regarding future production growth, for example commodity
type and location, as well as possible investment in transportation
infrastructure, it is not realistic to provide an estimate of
transportation costs for 2005.

Netbacks



Details of field netbacks per sales unit are as follows:

Six Months to December 31, 2004
------------------------------------------------------------------------
Natural Gas
Crude Oil Liquids Natural Gas Total
($ Bbl) ($ Bbl) ($ Mcf) ($ Boe)
------------------------------------------------------------------------
Production income $ 57.61 $ 55.76 $ 6.55 $ 43.47
Royalties (18.19) (21.36) (1.76) (13.01)
Production costs (6.25) - (1.29) (6.20)
Transportation (1.39) (1.12) (0.48) (2.48)
------------------------------------------------------------------------
Field netback $ 31.78 $ 33.28 $ 3.02 $ 21.78
------------------------------------------------------------------------


Not included in the above netback calculation is royalty income of
$490,221. Production costs for natural gas liquids are included with
natural gas costs.

Interest

The Company began to use its borrowing facilities only in December 2004,
largely to fund a major property acquisition. In prior months the
Company had sufficient cash resources to fund operations and capital
programs.

General and Administrative Costs

General and administrative costs for the period to December 31, 2004
amounted to $842,205 or $3.35 per Boe, including a non-cash charge
related to stock based compensation in the amount of $126,071 or $0.50
per Boe. The charge for the period is net of operating and capital
recoveries in the amount of $592,986 or $2.36 per Boe. The charge for
the period includes various one-time costs associated with the Company's
entry into the oil and gas industry and its listing on the Toronto Stock
Exchange. Growing production and the largely fixed nature of general and
administrative costs are expected to result in per Boe cost reductions
in future periods. No general and administrative costs are capitalized
as part of property, plant and equipment.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion associated with the Company's
asset retirement obligation for the period to December 31, 2004 amounted
to $2,784,858 or $11.08 per Boe. Assets received by the Company under
the Plan were transferred at the carrying amount in the accounts of
Storm Energy Ltd. and allocated to the Company pro rata to the reserves
transferred.

Income and Other Taxes

The Company has recorded a recovery of future income taxes in the amount
of $4,293,420. This amount represents the elimination, through
application of operating tax losses, of future income taxes which would
otherwise have become payable as a consequence of the renunciation of
Canadian Exploration Expense to subscribers of flow through shares.
Accordingly, this tax recovery is not based on income for the period.
This accounting treatment is mandated by generally accepted accounting
principles.

At December 31, 2004, the Company had operating tax losses carried
forward totaling $37 million, which will begin to expire in 2007. In
addition, the Company has a capital tax loss in the amount of $10
million available for application against future capital gains. Through
application of operating losses carried forward, the expected provision
for future income taxes on the Company's income for the six months ended
December 31, 2004 in the amount of $872,000 has been eliminated. The
Company's tax year end is October 31. No capital taxes are payable in
respect of the period to October 31, 2004; however, a provision of
$17,000 has been set up for the two months to December 31, 2004.

Net Income and Net Income per Share

Net income for the period to December 31, 2004 amounted to $6,497,000 or
$0.18 per diluted share.

Cash Flow from Operations and Cash Flow per Share

Cash flow from operations amounted to $5,114,000 for the period or $0.14
per diluted share.

INVESTMENT AND FINANCING

Working Capital

Receivables comprise production revenue receivable, GST receivable,
receivables in respect of operating and capital costs and net
receivables in respect of cash calls issued to partners regarding
capital projects. Prepaid costs include unamortized insurance premiums,
unamortized bank commitment fees and deposits.

Accounts payable include operating, administrative and capital costs
payable. Estimates of amounts owing but not yet invoiced to the Company
have been included in accounts payable.

Excluding current bank debt, the Company had a working capital
deficiency of $5,560,000 at December 31, 2004, largely arising from
Company operated capital programs. This deficiency increases during
periods of high field activity and should decrease during periods when
field activity is lower.

Property, Plant and Equipment

Property and equipment represents the accounting amount of the reserves
transferred to the Company under the Plan, costs of field programs,
costs of acquisitions net of disposals, less depreciation and depletion.



Capital costs incurred were as follows:

$(000's)
---------------------------------------------

Land and lease 1,772
Drilling and completions 7,404
Facilities and equipment 10,620
Property acquisitions, net 37,686
Other 68
---------
Total capital $57,550
---------
---------


Bank Debt, Liquidity and Capital Resources

The Company has a total bank credit facility of $30 million, comprising
a revolving borrowing base loan of $24 million and a term bridge loan of
$6.0 million. At December 31, 2004, the Company had drawn $17.66 million
under the revolving facility and the full amount of the $6 million term
loan. The revolving facility is normally renewed annually, after review
by the Company's bankers of the borrowing base which is generally a
function of the Company's producing oil and gas reserves. Growth in the
Company's producing reserves, would in the ordinary course, result in an
increase in the bank facility available to the Company. However, other
factors, for example, commodity price declines, could result in a
reduction in the borrowing base. The next review is scheduled to take
place before May 2005. If the borrowing base is not renewed the bank
loan is payable one year later.

The Company funds its field capital programs through cash flow, bank
borrowings, and, from time to time, equity. Acquisitions are funded by a
combination of debt and equity. The Company endeavours to maintain a
debt to cash flow ratio of less than 1.5 times. The period to December
31, 2004 was unusual in this regard as the Company completed a major gas
delivery project in Parkland, British Columbia, as well as a significant
asset acquisition shortly before year end. Sources and uses of funds in
2004 were as follows:



$(000's)
---------------------------------------------

Field Programs 19,864
Acquisitions 37,686
---------
Total Capital $57,550
---------
---------

Funded by:

Cash Flow 5,114
Plan of Arrangement 2,070
Working Capital 5,252
Bank Debt 23,665
Equity 21,449
---------
Total Capital $57,550
---------
---------


The Company's inventory of operating tax losses and tax pools
facilitates the raising of funds through the issue of flow through
shares, which substantially reduces the Company's cost of capital.

In 2005 the Company expects to fund its capital programs largely through
cash flow. Capital programs tend to be concentrated in the winter
months, with the result that capital expenditures in the first and
fourth quarters of the year will exceed cash flow which is compensated
by lower capital expenditures in the second and third quarters.

Investment

The investment in Storm Ventures International Inc. ("SVI") represents a
26% ownership position. The carrying amount of the Company's investment
is largely supported by SVI's cash balance. The Company has no funding
or, other than the provision of certain administrative and technical
services, management obligations with respect to SVI.

Future Income Taxes

The future income tax asset is made up of the difference between the
accounting amounts and tax bases of property and equipment transferred
to the Company under the Plan, less the tax value of share issue costs.

Under the terms of the two flow through share issues completed in 2004,
the Company is obligated to allocate Canadian Exploration Expense to
subscribers in the amount of $12.2 million and to incur these costs
prior to December 31, 2005. By December 31, 2004, the Company had
incurred an estimated $5.4 million of qualifying expenditures. The
Company does not believe that any increase or reallocation of capital
programs in 2005 will be required to satisfy the obligations under the
flow-through agreements.

No accounting recognition has been given to any future value to be
obtained through use of prior tax years' losses, the benefit from which
is normally recognized only when they are used to reduce income for tax
purposes. In addition, the Company has substantial resource pools
available for application against future years' income. Details of the
Company's tax assets are as follows:



Maximum Amount
Deduction in $000's
------------------------------------------------------------------------

Canadian oil and gas property expense - COGPE 100% 76,076
Canadian exploration expense - CDE 30% 3,537
Canadian exploration expense - CEE 100% 262
Undepreciated capital cost - UCC 25% 25,660
Share issue costs 20% 1,207
------------------------------------------------------------------------

Total 106,742
------------------------------------------------------------------------
------------------------------------------------------------------------

Operating losses 37,000
Capital losses 10,000


Asset Retirement Obligation

The Company's asset retirement obligation represents the present value
of estimated future costs to be incurred to abandon and reclaim the
Company's wells and facilities. The discount rate used is 8%.

Share Capital

The Company had 38.4 million shares outstanding at December 31, 2004. A
total of 28.4 million shares were issued in exchange for assets
transferred under the Plan in addition to the 1.3 million shares then
outstanding and an additional 8.7 million shares were issued under
common share and flow through common share offerings.

Dilutive elements comprise warrants to purchase 2,100,000 common shares
at a price of $2.00 to be exercised prior to July 1, 2006, 512,500
performance warrants to acquire a number of common shares reflecting the
current market price on three annual vesting dates beginning July 1,
2005 and options to acquire 296,250 common shares which vest over four
years beginning September 2005.

Under the Plan shareholders in Storm Energy Ltd. had the option of
receiving one common share in the Company or cash in the amount of $2.00
for each share of Storm Energy Ltd. The obligation to shareholders who
opted for cash approximated $3.9 million. This obligation was assumed by
the Company as part of the consideration for assets transferred to it
under the Plan. This amount was paid on August 30, 2004.



Details of share capital and per share amounts are as follows:

Number of
Common Shares
------------------------------------------------------------------------

Weighted average outstanding shares
- basic 34,375,746
- diluted 35,755,159

Outstanding December 31, 2004
- basic 38,447,755
- fully diluted 41,356,505

Cash flow from operations
- per share - basic $0.15
- per share - diluted $0.14

Net income
- per share - basic $0.19
- per share - diluted $0.18

Guidance for 2005

The Company's initial guidance for 2005 is set out below. Additional
guidance will be provided as required during the year.

Average gas production 18,600-19,200 Mcf per day
Average crude oil and liquids production 550 Boe per day
Boe per day 3,600 - 3,800
Royalties 28%
Operating costs $6.50 per Boe
Cash general and administrative costs $1.50 per Boe
Cash flow from operations $24.6 million
Capital expenditures $26 million

Sensitivities

Effect of change to 2005 cash flow and earnings:

$ Per Share
($000's) Diluted
------------------------------------------------------------------------

Oil and Liquids US $1.00 per Bbl 180 0.00
Gas $0.25 per Mcf 1,270 0.03
Cdn $/US$ exchange rate 70 0.00
1% change in interest rate 560 0.01
Oil and Liquids - 100 Bbls/day 870 0.02
Natural gas - 1 Mmcf/day 1,090 0.03

Interim Information

Summarized interim information is set out below. Due to the change in
year ends (Note 1), interim reporting periods are as follows:

3 Months 3 Months 2 Months
ended ended ended
Financial July 31, October 31, December 31,
$(000's - except per share) 2004 2004 2004 Total
------------------------------------------------------------------------

Production income 900 4,977 5,537 11,414
Cash flow 388 2,143 2,583 5,114
Cash flow per share - diluted 0.01 0.06 0.07 0.14
Net income 192 1,188 5,117 6,497
Net income per share - diluted $0.01 0.03 0.14 0.18
Capital expenditures 1,658 12,898 42,994 57,550

Operations

Production - crude oil and
liquids (Bbls/d) 136 333 445 337
Average price ($Cdn/Bbl) 49.03 58.37 54.85 56.21
Production - natural gas
(Mmcf/d) 3,241 5,039 9,382 6,176
Average price ($/Mcf) 6.21 6.35 6.77 6.55
Field netback ($Boe) 23.04 19.82 24.71 23.73
Boe/d 676 1,173 2,008 1,366

CONTRACTUAL OBLIGATIONS

In the course of its business the Company enters into various
contractual obligations, including the following:

- purchase of services
- royalty agreements
- operating agreements
- processing agreements
- right of way agreements
- lease obligations for accommodation, office equipment and automotive
equipment.

All such contractual obligations reflect market conditions prevailing at
the time of contract and none is with related parties.

Obligations with a fixed term are as follows:

$(000's) 2005 2006 2007 2008 2009
------------------------------------------------------------------------

Bank indebtedness 6,000 - - - -
Lease of premises 240 340 343 351 351
Equipment leases 28 28 11 - -
-------------------------------
Total 6,268 368 354 351 351
-------------------------------


CRITICAL ACCOUNTING ESTIMATES

Depletion, Depreciation and Accretion

Storm uses the full cost method of accounting for exploration and
development activities whereby all costs associated with these
activities are capitalized. The aggregate of capitalized costs, less
unproved property costs, but including estimated future development
costs, is amortized using the unit-of-production method based on
estimated proven reserves. Certain costs related to unproved properties
and major development projects may be excluded from costs subject to
depletion until proved reserves have been determined or their value is
considered to be impaired. Unproved properties are reviewed quarterly to
determine if proved reserves have been established, at which point the
associated costs are included in the depletion calculation.

Ceiling Test

The Company's investment in oil and gas assets is evaluated at least
annually to consider whether the investment is recoverable and the
carrying amount does not exceed the value of the properties, as
determined by formula. Costs are deemed to be recoverable if
undiscounted cash flows expected from the production of proved reserves,
plus the lower of cost and market value of unproved properties, is
greater than the carrying amount on the Company's balance sheet. If the
carrying amount of the oil and gas assets is not determined to be
recoverable, a loss is recognized to the extent that it exceeds the sum
of the discounted cash flows expected from the production of proved and
probable reserves plus the lower of cost and market value of unproved
properties. Cash flows are estimated using future product prices and
costs and are discounted using a risk-free rate appropriate to the
Company. These estimates are subject to measurement uncertainty and the
effect of this uncertainty on the financial statements could be
material. Any impairment would form part of the charge for additional
depletion, depreciation and accretion expense.

Asset Retirement Obligations

The Company records as a liability the estimated fair value of
obligations associated with the retirement of field assets, such as
producing well sites and processing facilities. The carrying amount of
property, plant and equipment is increased by an amount equivalent to
the liability. The future asset retirement obligation is an estimate
based on the Company's ownership interest in wells and facilities, and
reflects estimated costs to complete the abandonment and reclamation as
well as the estimated timing of the costs to be incurred in future
periods. The liability accretes over the period expected before the
Company has to satisfy the retirement obligation and actual costs
incurred to reclaim the related assets are deducted from the liability
as incurred. The amount added to property, plant and equipment is
subject to depletion and depreciation using the unit of production
method. The amount of the liability does not recognize the salvage
value, if any, of tangible equipment.

Income Taxes

The measurement of the Company's income and other tax liabilities and
assets, including losses carried forward and asset pools, requires
interpretation of laws and regulations. All tax filings and compliance
with tax regulations are subject to audit and reassessment, potentially
several years after the initial filing. Accordingly, actual income tax
assets or liabilities may differ significantly from the amounts
initially estimated.

RISK ASSESSMENT

There are a number of risks facing participants in the Canadian oil and
gas industry. Some of the risks are common to all businesses while
others are specific to the sector. The following reviews the business
risks faced by Storm.

Exploration

Exploration requires sophisticated and scarce technical skills as well
as capital to generate and test exploration ideas and the drilling of an
exploratory prospect frequently does not result in the discovery of
economical reserves. Storm endeavors to minimize finding risk by
ensuring that:

- Where possible prospects have multi-zone potential.

- Activity is focused in core regions where expertise and experience can
be levered.

- Prospects are internally generated.

- The Company serves as operator where possible.

- Geophysical techniques such as seismic are utilized where appropriate.

Capital Programs

The Company's field investment program recognizes the need to ensure
capital expenditures accommodate two objectives, being immediate cash
flow from development activities and future cash flow from the discovery
of reserves through exploration. All investment has to recognize that
the Company faces constant production declines from existing wells which
have to be replaced by new production. The Company focuses its activity
in core areas, which allows it to leverage its experience and knowledge.
The Company attempts to use farmouts to minimize risk on plays it
considers higher risk or where total capital invested exceeds an
acceptable level.

The Company believes that acquisitions are necessary to support its
objective of rapid and controlled growth. Acquisitions have to be
reasonably priced and production should provide netbacks at least
equivalent to the Company's existing production. An acquisition should
provide near and medium term development opportunities and be in areas
where the Company can readily add to the acquired land position.
Processing and transportation infrastructure must also be in place, or
within the Company's financial capacity to construct.

Reserve Estimates

Estimates of economically recoverable oil and natural gas reserves and
natural gas liquids and related future net cash flows are based upon a
number of variable factors and assumptions, such as commodity prices,
production from the properties, future operating costs and potential
changes to the Company's operations arising from regulatory amendments.
All of these estimates may vary from actual results. Estimates of the
recoverable oil and natural gas reserves attributable to any property
vary. The Company's actual production, revenues, taxes, development and
operating expenditures with respect to its reserves may vary from such
estimates, and such variances may be material.

The Company's independent engineering firm, Paddock Lindstrom &
Associates Ltd. ("Paddock"), completes an evaluation of the Company's
reserves each year and reports to the Company's Reserves Committee.

Production

There is risk that the Company's oil and natural gas reserves cannot be
economically produced at prevailing prices. Storm attempts to mitigate
this risk by focusing on high net back commodities and tries to operate
where possible, which allows the Company to manage costs, timing, method
and marketing of production. Production risk is also addressed by
concentrating exploration efforts in regions where infrastructure is
readily accessible or Company owned.

Environmental and Safety Risks

Oil and gas exploration and extraction poses considerable environmental
risk and worksite practices must recognize the safety risks associated
with working with heavy equipment and potentially volatile liquids and
gases. Accordingly, Storm has developed and implemented policies and
procedures to mitigate environmental, health and safety risks. These
policies and procedures include the use of formal corporate policies,
emergency response plans, and other policies and procedures reflecting
best oil field practices. These policies and procedures are designed to
protect and maintain the environment and public and employee safety. The
Company mitigates environmental and safety risks by maintaining its
facilities to a high standard, complying with all provincial and federal
environmental and safety regulations and maintaining appropriate
insurance coverage.

Competitive Industry Conditions

The Canadian oil and gas industry is highly competitive. Demand for oil
and gas properties, undeveloped land, drillable prospects and qualified
staff is particularly strong at present due to high commodity prices.
The Company has a large undeveloped land base that provides an inventory
of exploration prospects. In addition, the Company attempts to mitigate
the risk of lack of drillable prospects by developing its own
exploration prospects, thus building an inventory of prospects that
supports future growth.

Availability of Services and Equipment

The availability of service and production equipment at competitive
prices is vital to the Company's ability to add reserves at a
competitive cost and profitably produce these reserves. In periods of
increased activity, such as at present, services and equipment can
become difficult to obtain. The Company attempts to mitigate this risk
by developing strong long term relationships with suppliers and
contractors.

Financial and Liquidity Risks

The Company relies on various sources of funding to support its growing
capital expenditure program:

- Internally generated cash flow provides the initial source of funding
on which the Company's annual capital expenditure program is based.

- Debt may be utilized to expand capital programs, including
acquisitions, when it is deemed appropriate.

- New equity, including flow-through, if available and if on favorable
terms, may be utilized to expand acquisition programs.

- Farmouts of projects may be arranged if management considers that a
project requires too much capital or where the project affects the
Company's risk profile.

Cash flow from operations is influenced by factors, which the Company
may not control, such as commodity prices, exchange rates, interest
rates and changes to existing government regulations and tax policies.

Marketing Risks

Crude oil prices are affected by worldwide supply and demand
fundamentals while natural gas prices are affected by North American
supply and demand fundamentals. The Company attempts to mitigate these
risks as follows:

- Natural gas properties are developed in areas where there is a
suitable pipeline infrastructure.

- Exploration efforts focus on light oil and liquids rich natural gas
reserves.

- Financial instruments are used where appropriate to manage commodity
price volatility where the Company has funded capital assets including
acquisitions, whose cost exceeds near term projected cash flows.

Risk Management

Storm's Board of Directors has established a formal risk management
policy to ensure cash flow is sufficient to protect the Company's
investment program by reducing the exposure to commodity price, foreign
exchange and interest rate volatility. These objectives may be achieved
through the use of financial instruments or through fixed price
contracts for the delivery of physical volumes. As at the date of this
report, the Company has not entered into any derivative financial
instruments.

ADDITIONAL INFORMATION

Additional information relating to the Company can be viewed at
www.sedar.com or on the Company's website at www.stormexploration.com.
Information can also be obtained by contacting the Company at Storm
Exploration Inc., 3300, 205 - 5th Avenue, SW, Calgary, Alberta, T2P 2V7.



Storm Exploration Inc.

For the Period Ended December 31, 2004

Fourteen Months Ended
Highlights - in $CDN except volumetric amounts December 31, 2004
------------------------------------------------------------------------

Financial

Gas sales 7,443,000
NGL sales 2,612,000
Oil sales 869,000
Royalty Income 490,000
-----------------------
Production Income (1) 11,414,000
-----------------------

Cash flow from operations (2) 5,141,000
Per share - basic 0.15
Per share - diluted 0.14

Net income 6,497,000
Per share - basic 0.19
Per share - diluted 0.18


Weighted average common shares outstanding
Basic 34,376,000
Diluted 35,755,000

Common shares outstanding
Basic 38,448,000
Fully Diluted 41,357,000


Operations

Oil Equivalent (6:1) (3)
Barrels of oil equivalent 251,319
Barrels of oil equivalent per day 1,366
Average selling price net of transportation 41.03
Royalties 30.14%

Gas production
Thousand cubic feet 1,136,380
Thousand cubic feet per day 6,176
Average selling price ($CDN per thousand cubic feet) 6.55


NGL Production
Barrels 46,838
Barrels per day 255
Average selling price ($CDN per barrel) 55.76

Oil Production
Barrels 15,084
Barrels per day 82
Average selling price ($CDN per barrel) 57.61


Wells drilled
Gross 14.0
Net 10.1

(1) Production income is before deduction of transportation costs.
(2) In part the Company evaluates its performance based on earnings and
cash flow from operations. Cash flow from operations is a non-GAAP
measure that represents cash generated from operating activities
before changes in non-cash working capital items and site resoration
costs paid during the period.
(3) The term BOE, or barrel of oil equivalent, can be misleading,
particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1
Bbl is based on an energy equivalent conversion method primarily
applicable at the burner tip and does not represent a value
equivalency at the well head.


Storm Exploration Inc.
Balance Sheet

As At
December 31, 2004
-----------------------

ASSETS

Current
Accounts receivable $ 7,636,178
Prepaid expenses 441,215
-----------------------
8,077,393

Property, Plant and Equipment - Net (Note 4) 88,202,556

Investment 2,700,000

Future Income Taxes (Note 5) 8,968,441
-----------------------

$ 107,948,390
-----------------------
-----------------------


LIABILITIES AND SHAREHOLDERS' EQUITY

Current
Bank Indebtedness (Note 6) $ 6,000,000
Accounts payable and accrued liabilities 13,636,933
-----------------------
19,636,933

Bank Indebtedness (Note 6) 17,664,856
Asset Retirement Obligation (Note 7) 2,193,321

-----------------------
39,495,110
-----------------------

Shareholders' Equity (Note 8)
Share capital 61,830,555
Contributed surplus 126,071
Retained earnings 6,496,654
-----------------------
68,453,280
-----------------------

$ 107,948,390
-----------------------
-----------------------


Storm Exploration Inc.
Statement of Income and Retained Earnings

Fourteen Months Ended
December 31, 2004
-----------------------
(Note 1)
Revenue
Production income $ 11,414,471
Royalties (3,269,847)
Interest income 30,712
-----------------------
8,175,336
-----------------------

Expenses
Production 1,559,062
Transportation 622,586
Interest 146,156
General and administrative 842,205
Depletion, depreciation and accretion 2,784,858
-----------------------
5,954,867
-----------------------

Income before income and other taxes 2,220,469

Income and other taxes
Future income tax recovery (4,293,420)
Capital taxes 17,235
-----------------------
(4,276,185)
-----------------------

Net income for the period 6,496,654

Retained earnings, beginning of period -

-----------------------
Retained earnings, end of period $ 6,496,654
-----------------------
-----------------------


Net Income per share (Note 9) - basic $ 0.19
- diluted $ 0.18


Storm Exploration Inc.
Statement of Cash Flows

Fourteen Months Ended
December 31, 2004
-----------------------
(Note 1)

Operating activities
Net income for the period $ 6,496,654
Add non-cash items:
Depreciation, depletion, and accretion 2,784,858
Future income tax recovery (4,293,420)
Stock based compensation 126,071
-----------------------
Cash flow from operations 5,114,163
Net change in non-cash working capital items (4,741,620)
-----------------------
372,543
-----------------------

Financing activities
Issue of common shares - net of expenses 25,387,603
Paid to former shareholders of Storm
Energy Ltd. (Note 1) (3,939,084)
Increase in bank indebtedness 23,664,856
-----------------------
45,113,375
-----------------------

Investing activities
Property, plant and equipment additions, net (57,550,042)
Net change in non-cash working capital items 9,994,124
-----------------------
(47,555,918)
-----------------------

Change in cash during the period (2,070,000)

Cash, transferred under Plan of Arrangement
(Notes 1 and 3) 2,070,000
-----------------------

Cash, end of period $ 0
-----------------------
-----------------------


STORM EXPLORATION INC.
NOTES TO FINANCIAL STATEMENTS
FOURTEEN MONTHS ENDED DECEMBER 31, 2004


1. BASIS OF PRESENTATION

Storm Exploration Inc., (the "Company"), formerly known as Alterna
Technologies Group Inc., is a junior oil and gas exploration and
development company listed on the Toronto Stock Exchange under the
symbol SEO.

The Company became a reporting issuer on July 2, 2004. The circumstances
that led to the Company becoming a reporting issuer are as follows:

- The Company, as Alterna Technologies Group Inc., was a private company
involved in the development of enterprise treasury management software.
No market ready products were developed and the Company had no operating
revenues. Late in 2003, the Board of Directors of the Company, as a
result of a review of strategic options, concluded that the Company
should seek alternative business opportunities, including, if
appropriate, a suitable acquisition.

- Subsequently the Company agreed to participate in a Plan of
Arrangement (the "Plan") involving, inter alia, Storm Energy Ltd., a
junior oil and gas company and Harvest Energy Trust, both of which were
listed on the Toronto Stock Exchange. The Plan involved the sale of
Storm Energy Ltd. to Harvest Energy Trust in exchange for various
elements of consideration. Part of the Plan included the purchase by the
Company of certain assets formerly belonging to Storm Energy Ltd. in
exchange for the issue of common shares, which were distributed to
former shareholders of Storm Energy Ltd. Former shareholders of Storm
Energy Ltd., who did not wish to receive shares in the Company elected
to receive cash.

- On June 30, 2004, after shareholder and court approval, the various
steps constituting the Plan were completed and the Company acquired, in
exchange for the issue of voting common shares, certain assets formerly
owned by Storm Energy Ltd., largely comprising exploration, development
and producing oil and gas properties. The Company changed its name to
Storm Exploration Inc.

- Note 3 to these financial statements provides information about assets
transferred and obligations assumed under the Plan.

The Company's prior fiscal year end was October 31, 2003. No audited
financial statements or unaudited financial statements prepared in
accordance with generally accepted accounting principles were prepared
effective that date and the ability to do so was compromised by the loss
of electronic data in December 2003. Business activity during the eight
month period prior to the implementation of the Plan on June 30, 2004,
involved transactions associated with the disposition of substantially
all of the Company's software development business and preparation for
the acquisition of assets from Storm Energy Ltd. Financial information
for this eight month period is not presented as it is neither material
nor relevant to the Company's continuing oil and gas operations. As a
consequence, financial information for the fourteen months ended
December 31, 2004 reflects only the results from the Company's oil and
gas operations for the six month period beginning July 1, 2004. Further,
the audit opinion accompanying these financial statements addresses the
balance sheet at December 31, 2004 and the statements of income and
retained earnings and cash flows for the six months then ended. For
greater certainty, these financial statements do not include any amounts
which relate to the eight month period from November 1, 2003 to June 30,
2004.

The Company has changed its fiscal year-end from October 31 to December
31, effective December 31, 2004. Quarterly reporting in 2004 corresponds
to an October 31 year-end: all future quarterly reports will be based on
a calendar year-end.

2. SIGNIFICANT ACCOUNTING POLICIES

The Company has adopted the accounting policies set out below:

Property and Equipment

a. Petroleum and Natural Gas Properties and Equipment

The Company follows the full-cost method of accounting for petroleum and
natural gas properties, whereby all costs associated with the
exploration for and development of petroleum and natural gas reserves,
whether productive or unproductive, are capitalized in a Canadian cost
centre. Such costs include land acquisition, drilling of both productive
and unproductive wells, geological and geophysical costs and the cost of
production equipment. General and administrative charges and overhead
costs directly related to field activities are not capitalized. Costs of
acquiring and evaluating unproved properties are excluded from depletion
calculations until it is determined whether or not proved reserves are
attributable to the properties.

Gains or losses are not recognized upon disposition of petroleum and
natural gas properties unless crediting the proceeds to accumulated
costs would result in a change in the rate of depletion of 20% or more.

Depletion of petroleum and natural gas properties and depreciation of
production equipment is provided using the unit-of-production method
based on estimated proved petroleum and natural gas reserves, before
royalties, as determined by independent engineers. Production and
reserves of natural gas are converted to equivalent barrels of crude oil
on the basis of six thousand cubic feet of gas to one barrel of oil.
Processing facilities are depreciated on a straight-line basis over the
estimated useful life of the facility.

The depletion and depreciation cost base includes total capitalized
costs, less prior depletion and depreciation charges, less costs of
unproved properties, plus provision for estimated future development
costs of proved undeveloped reserves.

Net capitalized costs of the Company's petroleum and natural gas
properties are subject at least annually to a ceiling test, to ensure
that capitalized costs do not exceed an estimate of future net revenues.
This latter amount is the aggregate of expected undiscounted future net
cash flows from proved reserves and the lower of cost or market value of
unproved properties. Future cash flows are estimated using expected
future prices and costs. If the carrying amount is not fully
recoverable, the amount of impairment is measured by comparing the
carrying amounts of the capital assets to an amount equal to the
estimated net present value of future cash flows from proved plus
probable reserves. This impairment in the carrying amount would be
recognized and charged to current operations as additional depletion. No
such charges have been incurred by the Company.

b. Office Furniture and Equipment

Office equipment is recorded at cost and is depreciated on a straight
line basis over its expected useful life of 10 years.

Joint Operations

Certain of the Company's exploration and production activities are
conducted jointly with others through unincorporated joint ventures. The
accounts of the Company reflect its proportionate interest in such
activities.

Investment

The Company's investment comprises a 26% interest in Storm Ventures
International Inc., and is accounted for using the equity method, under
which the Company's initial investment is adjusted for its pro rata
share of changes in the investee's equity. Storm Ventures International
Inc. is a development stage company involved in the identification of
international oil and gas exploration and development opportunities.

Asset Retirement Obligation

The Company recognizes the fair value of its retirement obligation
associated with tangible properties in the period in which this
liability arises and when reasonable estimates of this fair value can be
made. The fair value of this liability is calculated as the present
value of the expected future costs of abandonment. This liability is
recorded as a long term liability with a corresponding increase to the
carrying amount of the related asset. The liability is increased each
reporting period through the accretion of interest up to the future
amount of the liability. The accretion is recorded as an expense in the
Company's financial statements. The addition to the carrying amount of
the asset is amortized on the same basis as the corresponding asset.
Actual costs incurred upon settlement of the abandonment obligation are
charged against the liability.

Revenue Recognition

Revenues from the sale of crude oil, natural gas liquids, and natural
gas are recorded when title passes to a third party.

Income Taxes

Income taxes are calculated using the liability method of tax
accounting. Temporary differences arising from the difference between
the tax basis of an asset or liability and its carrying amount on the
balance sheet are used to calculate future income tax assets and
liabilities. Future income tax assets and liabilities are calculated
using tax rates anticipated to apply in the periods that the temporary
differences are expected to reverse.

Flow-Through Shares

Flow-through shares are issued at a fixed price and the proceeds are
used to fund qualifying exploration expenditures within a defined
period. The expenditures funded by flow-through arrangements are
renounced to investors in accordance with tax legislation. Share capital
is reduced and future tax liability is increased by the total estimated
future income tax cost of the renounced tax deductions in the period of
issue. As the Company has tax losses carried forward from prior years,
the future tax liability arising from the renunciation of exploration
expenditures has been eliminated, with the tax benefit thus realized
being included in net income.

Stock Based Compensation

The Company has issued warrants and options to employees to acquire
common shares. The warrants and options are accounted for using the fair
value method which estimates the value of the warrants and options at
the date of the grant using the Black-Scholes option pricing model. The
fair value thus established is recognized as an expense over the life of
the warrants and options with a corresponding increase to contributed
surplus.

Per Share Amounts

Net income per share is calculated using the weighted average number of
shares outstanding during the period. Diluted net income per share is
calculated using the treasury stock method to determine the dilutive
effect of performance warrants and stock options. The treasury stock
method assumes that the proceeds received from the exercise of "in the
money" performance warrants and stock options are used to purchase
common shares at the average market price during the period.

Measurement Uncertainty

The amounts recorded for depletion and depreciation of capital assets,
the provision for the asset retirement obligation and amounts used for
ceiling test calculations are based on estimates of reserves and future
costs. These estimates of reserves and related future cash flows are
subject to measurement uncertainty and the effect on the consolidated
financial statements of changes in such estimates in future periods
could be material.

3. TRANSFER OF ASSETS AND COMMENCEMENT OF OIL AND GAS OPERATIONS

Under the Plan of Arrangement referred to in Note 1 above, the Company
issued common shares to a subsidiary company of Harvest Energy Trust in
exchange for certain assets, being undeveloped and developed oil and gas
assets, administrative assets, an interest in Storm Ventures
International Inc. and cash. As there is substantial continuity of
ownership interest, assets were recorded on the accounts of the Company
at the book values of Storm Energy Ltd. Details are as follows:



Cash $ 2,070,000
Net investment in Storm Ventures International Inc. 2,392,964
Petroleum and natural gas assets and equipment 31,838,051
Office furniture and equipment 50,000
Future income tax asset 8,546,093
Asset retirement obligation (644,000)
-------------------
Net assets transferred and share capital issued $ 44,253,108
-------------------
-------------------

The above amounts are management's best estimates based on information
available at the time of completion of these financial statements and
may change as additional information becomes available.

4. PROPERTY, PLANT AND EQUIPMENT

December 31, 2004
-------------------

Petroleum and natural gas properties $ 90,837,805
Furniture and equipment 110,084
-------------------
90,947,889
Accumulated depletion and depreciation (2,745,333)
-------------------
$ 88,202,556
-------------------
-------------------

At December 31, 2004 the depletion calculation excluded unproved
properties of $9,680,000.

The prices used in the ceiling test evaluation of the Company's natural
gas, crude oil and natural gas liquids reserves at December 31, 2004
were:

%
2005 2006 2007 2008 2009 increase to
2020

Natural Gas ($/mcf) $6.63 $6.31 $6.03 $5.75 $5.47 2.07%

Crude Oil ($/barrel) 47.34 44.97 42.09 39.21 37.00 2.16%

Natural Gas Liquids
($/barrel) 33.72 31.67 29.25 26.50 24.90 1.45%


5. FUTURE INCOME TAXES

The Company uses the liability method of tax allocation to record future
income taxes, whereby differences between the carrying amounts and the
tax bases of assets and liabilities are used to calculate future tax
liabilities or assets. At December 31, 2004 the future tax asset of the
Company represented the difference between the carrying and tax amounts
of property, plant and equipment, plus the tax amount of share issue
costs. The Company has operating tax losses approximating $37 million
which generally expire in the period 2007 to 2011 and capital losses of
approximately $10 million which are not subject to expiry. Given
uncertainty of realization, the future benefit from this potential tax
asset had not been recognized in these financial statements. In
addition, the Company has tax pools associated with property and
equipment approximating $107 million. In addition, increased future
income taxes associated with the allocation to flow-through share
subscribers of Canadian Exploration Expense have been eliminated through
application of tax losses, with the resulting benefit being included in
the determination of net income. In future periods accounting
recognition will be given to the benefit derived from tax losses as they
are used to reduce income taxes.

The provision for future income taxes is different from the amount
computed by applying the combined statutory Canadian federal and
provincial tax rates to pre-tax income for the period. The differences
are as follows:



December 31, 2004
-------------------

Statutory combined federal and provincial
income tax rate 39.26%

Expected income taxes $ 872,000
Add (deduct) the income tax effect of :
Non-deductible crown charges 775,000
Resource allowance (592,000)
Other non-deductible charges 54,000
Benefit of losses not previously recognized (5,402,420)
-------------------
(4,293,420)

Large corporations tax 17,235
-------------------

$ (4,276,185)
-------------------
-------------------


As more fully described in Note 8, the Company is obligated, under the
terms of flow-through share agreements, to incur Canadian Exploration
Expense in the amount of $12.2 million prior to December 31, 2005. The
Company estimates that by December 31, 2004 qualifying expenditures
totaled $5.4 million.

6. BANK INDEBTEDNESS

The Company has an extendible revolving bank facility based on the
Company's producing reserves in the amount of $24,000,000, and a term
bridge facility in the amount of $6,000,000. The revolving facility is
available to the Company until June 30, 2005, but may be extended at the
Company's request until July 1, 2006, subject to the bank's review of
the Company's reserve lending base. The bridge facility can be repaid at
any time but must be retired in full by June 30, 2005. Interest is
payable on the revolving facility at bank prime rate or banker's
acceptance rates plus a stamping fee. Interest on the bridge facility is
payable initially at banker's acceptance rates plus 250 basis points.
Security comprises a floating charge demand debenture on the assets of
the Company. Interest paid on the revolving facility in the period to
December 31, 2004 amounted to $34,064.

7. ASSET RETIREMENT OBLIGATION

The estimated future asset retirement obligation is based on the
Company's net ownership interest in wells and facilities, the estimated
costs to abandon and reclaim the wells and facilities and the estimated
timing of the costs to be incurred in future periods. The total
undiscounted amount of the estimated cash flows required to settle the
Company's asset retirement obligations is approximately $4.5 million,
which will be incurred over the next 20 years, with the majority of
costs incurred between 2015 and 2024. A credit adjusted risk-free rate
of eight percent was used to calculate the present value of the asset
retirement obligations, amounting to $2,193,321.



8. SHARE CAPITAL

Authorized

An unlimited number of non voting common shares
An unlimited number of voting common shares

Issued

Number of Shares Consideration
---------------------------------

Non voting common shares 1,275,000 $ 1
Common shares issued under the Plan
of Arrangement (Note3) 28,422,755 44,253,108
Common shares issued under Private
Placement (i) 2,500,000 4,320,000
Flow-through common shares issued (ii) 3,250,000 12,225,000
Common shares issued (iii) 3,000,000 10,050,000
Tax effect of flow-through share
renunciations (4,293,420)
Share issue costs, net of associated
future tax deductions (785,050)
---------------------------------
Balance as at December 31, 2004 38,447,755 65,769,639

Paid to shareholders of Storm
Energy Ltd. (Note 1) (3,939,084)
---------------------------------
38,447,755 $ 61,830,555
---------------------------------
---------------------------------

Except for voting rights, non-voting and voting common shares are
identical.


Issues of Common and Flow-Through Common Shares

(i) Concurrently with the completion of the Plan of Arrangement (Note 1)
the Company completed a private placement of 2,500,000 voting common
shares with officers and employees of the Company for total proceeds of
$4,320,000.

(ii) On July 29, 2004 the Company issued a total of 2,250,000
flow-through common shares at a price of $3.50 for total proceeds of
$7,875,000, before commission and expenses. The terms of the share issue
require the Company to renounce to subscribers Canadian Exploration
Expenditures in the amount of $7,875,000, to be incurred prior to
December 31, 2005.

On December 21, 2004 the Company issued an additional 1,000,000
flow-through common shares at a price of $4.35 for total proceeds of
$4,350,000, before commission and expenses. The terms of the share issue
require the Company to renounce to subscribers Canadian Exploration
Expense of $4,350,000, to be incurred prior to December 31, 2005.

(iii) On December 17, 2004, the Company issued a total of 3,000,000
common shares at a price of $3.35 for total proceeds of $10,050,000,
before commission and expenses.

Payment to former Shareholders of Storm Energy Ltd.

Under the Plan, former shareholders of Storm Energy Ltd. who had a right
to receive a total of 1,969,542 shares in the Company chose instead to
receive cash at $2.00 per share. This obligation was assumed by the
Company in partial consideration for the assets transferred under the
Plan and was paid on August 31, 2004 (Note 1).

Warrants

As part of the private placement of common shares, the Company issued
warrants to acquire 2,100,000 common shares at a price of $2.00. The
warrants must be exercised during the period from July 1, 2005 to June
30, 2006.

Stock Based Compensation Plans

(i) The Company has a performance warrant plan under which 512,500
warrants have been issued to employees to acquire common shares. The
number of common shares issuable upon exercise of the warrants is the
number of warrants held, multiplied by that percentage of a common share
represented by the closing price of the share on the day immediately
preceding the exercise date, less $2.00, divided by the closing price.
The warrants are exercisable in three equal annual amounts commencing
June 29, 2005.

Using the Black-Scholes pricing model, the fair value of each warrant
was estimated to be $0.51 using a risk free interest rate of 4.25%,
volatility of 40% and an expected average life of two years. The cost of
the warrant thus determined is amortized over its expected life, the
expense being included in general and administrative costs with an
equivalent allocation to contributed surplus.

(ii) The Company has a stock option plan under which it may grant, at
the Company's discretion, options to purchase common shares to
directors, officers and employees. Under the stock option plan a total
of 1,450,000 common shares have been reserved for issuance. Options to
purchase 296,250 common shares have been issued to directors and
employees of the Company as follows:



Outstanding at beginning of period -
Issued during period 296,250
Weighted average exercise price $3.01
Average remaining life 4.88 years
Number exercisable at December 31, 2004 -
Option prices $2.60 - $3.34


Using the Black-Scholes pricing model, the fair value of each option was
estimated to be $0.83 - $1.18, using a risk free interest rate of 4.25%,
volatility of 40% and an expected average life of thirty months. The
amortized cost of the option is included in general and administrative
costs with an equivalent allocation to contributed surplus.



9. PER SHARE AMOUNTS

Basic
Net income per share $0.19
Weighted average number of shares outstanding ('000) 34,376

Diluted
Net income per share $0.18
Weighted average number of shares outstanding ('000) 35,755

The reconciling items between the basic and diluted average common
shares are the warrants, performance warrants and stock options
described in Note 8.

10. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital

Period to
December 31, 2004
-------------------

Accounts receivable $ (7,636,178)
Prepaid expenses (441,215)
Accounts payable and accrued liabilities 13,329,897
-------------------
Change in non-cash working capital $ 5,252,504
-------------------
Relating to:
Financing activities $ -
Investing activities 9,994,124
Operating activities (4,741,620)
-------------------
$ 5,252,504
-------------------
-------------------


Interest paid during the period ended
December 31, 2004 $ 146,156
Income taxes paid during the period ended
December 31, 2004 $ -


11. FINANCIAL INSTRUMENTS

The Company's financial instruments recognized in the balance sheet
consist of cash and short-term investments, accounts receivable,
accounts payable and accrued liabilities. The fair value of these
financial instruments approximates their carrying amounts based on the
short term to maturity.

A substantial portion of the Company's accounts receivable are
concentrated with a limited number of purchasers of commodities and
joint venture partners in the oil and gas industry and are subject to
normal industry credit risk. Management considers these concentrations
of credit risk to be minimal, as commodity purchasers are considered to
be major industry participants, and receivables from partners are
protected by effective industry standard legal remedies.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Storm Exploration Inc.
    Brian L. Lavergne
    President and Chief Executive Officer
    (403) 264-3520
    (403) 264-3552 (FAX)
    or
    Storm Exploration Inc.
    Donald G. McLean
    Vice President and Chief Financial Officer
    (403) 264-3520
    (403) 264-3552 (FAX)
    Website: www.stormexploration.com