November 15, 2005 09:00 ET

Tempest Energy Corp. Announces Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 15, 2005) - Tempest Energy Corp. (TSX:TMY.A) (TSX:TMY.B):


For the nine months ended September 30, 2005

Operating and Financial Highlights
Three Months Nine Months
Ended Ended
September 30, 2005 September 30, 2005
Financial Results
($ except share data) $ $
Petroleum and natural gas sales 14,532,808 40,923,691

Funds flow from operations 7,463,382 19,071,437
Per basic share 0.36 0.93
Per diluted share 0.36 0.92

Net income 1,737,089 2,472,073
Per basic share 0.08 0.12
Per diluted share 0.08 0.12

Working capital (deficit) (40,313,655) (40,313,655)

Capital expenditures (net) 1,010,349 28,455,243

Shareholders' equity 62,031,553 62,031,553

Shares outstanding
Class A 19,405,480 19,405,480
Class B 653,476 653,476
Options 1,745,667 1,745,667

Weighted shares outstanding
Class A 19,397,871 19,313,966
Class B 653,476 653,476
Options 1,771,935 1,702,205

Basic Shares (weighted) 20,548,357 20,464,452
Diluted Shares (weighted) 20,637,248 20,769,743

Operating Results
Crude oil and NGLs (bbls/d) 1,246 1,412
Natural gas (mcf/d) 7,562 8,175
Combined (boe/d @ 6:1) 2,506 2,774

Realized Product Prices $ $
Crude oil and NGLs ($/bbl) 69.11 60.33
Natural gas ($/mcf) 9.50 7.92
Combined average ($/boe @ 6:1) 63.03 54.03


The Daylight Energy Trust Transaction

On September 26, 2005 the respective boards of directors of Daylight Energy Trust (Daylight) and Tempest Energy Corp. announced they had entered into an agreement providing for the acquisition of Tempest by Daylight and the creation of Open Range Energy Corp. ("Open Range") by way of a Plan of Arrangement (the Arrangement"). Open Range will be a growth-oriented junior exploration company created for the benefit of both Daylight security-holders and Tempest's shareholders. An information circular containing details of the transaction was mailed on October 31, 2005.

Acquisition of Tempest Shares

Tempest shares will be exchanged for Daylight Trust Units and shares and warrants of a new ExploreCo named Open Range Energy Corp.

Under the terms of the arrangement, one Daylight trust unit will be issued for every 2.35 Class 'A' shares of Tempest. Based on the 20-day weighted average trading price for Daylight, the exchange ratio reflects a price of $5.01 per diluted Tempest Class 'A' share outstanding on the date of the announcement, excluding the value of Open Range. This represented a 24 percent premium over Tempest's then 20-day weighted average trading price of $4.04 per share. Tempest's shareholders will also receive 0.1344 common shares and 0.02688 arrangement warrants in Open Range, which is being formed from certain assets contributed by Daylight and Tempest. The Class 'B' shares of Tempest will be converted into Class 'A' shares in accordance with their terms prior to completion of the arrangement.

Security-holder Meetings and Approvals

Completion of the various transactions is subject to final court approval, regulatory approval, the requisite approval of the Tempest shareholders and the requisite approval of the security-holders of Daylight. The special meeting of Tempest shareholders is scheduled for November 28, 2005 with closing scheduled for November 30, 2005, which should allow Tempest shareholders to receive the November 30, 2005 record date trust unit distribution for the Daylight trust units they will receive.

Open Range Energy Corp. - an ExploreCo Created by Daylight and Tempest Highlights:

- Current production of 400 boe per day, 95 percent of which is natural gas;

- Focused in concentrated areas located in West 5;

- High-working interest and Company-operated production;

- Proved plus probable reserves of more than 1 million boe;

- Undeveloped land of more than 35,000 gross (20,800 net) acres;

- An additional 88,000 gross (72,000 net) undeveloped acres under seismic review option;

- Anticipated production adds of 300 boe per day by year-end at Ansell/Sundance;

- Additional drill-ready high-impact prospects; and

- Open Range will be led by Scott Dawson, C.E.O. of Tempest to date, and the existing Tempest management team.

Open Range will be an exploration based company focused in the higher-impact West 5 region of Alberta. Open Range will be created for the benefit of security-holders of both Tempest and Daylight. Daylight security-holders will receive 65 percent of the initial equity and Tempest shareholders will receive the remaining 35 percent. Under the arrangement agreement, Daylight security-holders and Tempest shareholders will also receive pro-rata arrangement warrants to purchase an additional 20 percent interest in Open Range beyond the initial equity received, at net asset value.

The combined assets in Open Range will be contributed from current Daylight and Tempest assets. Daylight will contribute West 5 production, reserves and undeveloped land from its Big Bend, Ferrier, Garrington and Pembina areas. Tempest will contribute its high-impact Ansell/Sundance asset in West Central Alberta, where Tempest has recently been very active. In addition, Daylight has agreed to grant Open Range seismic review options in several non-core areas of West Central Alberta.

The founders of Open Range believe that the new Company will be poised for significant growth from its multiple locations identified in the Ansell/Sundance area. This area is in the centre of a significant multi-zone production and exploration fairway. Open Range will be an active land acquirer and driller in this area. The Ansell/Sundance interest will be well-balanced with the current cash flow and production provided by the assets being contributed from Daylight.

Additional operating and financial information regarding Open Range:

- Reserves, based on an independent reserve report as at June 30, 2005, of 901,000 boe proved and 1,121,000 boe proved plus probable;

- Reserve value (PV10 percent before income tax) of $16.3 million proved and $18.9 million proved plus probable;

- An opening cash balance estimated at $6 million, with no debt; and

- Full tax pool coverage.

The Open Range management team will include the following:

- A. Scott Dawson, President and C.E.O

- Douglas N. Penner, Vice President Finance and C.F.O.

- Gerald R. Costigan, Executive Vice President

- James L. Beninger, Vice President Land

- James F. Bland, Vice President Exploration

- David M. Griffith, Vice President Geophysics

- John A. Mueller, Vice President Engineering & Operations

This seasoned and proven management team has been primarily responsible for growing Tempest from a start-up with no production or reserves to the current portfolio of high-quality producing properties. This was accomplished almost exclusively with the drill bit on internally generated opportunities.

The Open Range Board of Directors will include the following industry professionals:

- Harley L. Winger (Chairman)

- Kenneth J. Faircloth

- Dean R. Jensen

- Kenneth S. Woolner

- A. Scott Dawson

Open Range plans to conduct a capital expenditure program of approximately $5 million for the remainder of 2005. A private placement of shares to the Open Range management team, raising planned proceeds of $6.2 million at $3.10 per share (based on the independently engineered net asset value of the Open Range) will be undertaken. Arrangement warrants allocated to Daylight security-holders and Tempest shareholders, which are also exercisable at $3.10 per share, are expected to provide a further $5.2 million to Open Range. Combining the proposed initial private placement and arrangement warrants with internally generated cash flow, Open Range will be well-positioned to aggressively pursue and expand its asset base and certain exploratory initiatives that are currently underway.

Directors Recommendations and Tempest Fairness Opinion

The boards of directors of Daylight and Tempest have unanimously approved the transaction. GMP Securities Inc. has provided Tempest's Board of Directors with its opinion that the consideration to be received by Tempest's shareholders is fair from a financial point of view. Tempest's Board of Directors has concluded that the transaction is in the best interests of its shareholders, and has resolved to recommend that the Tempest shareholders vote their Tempest shares in favour of the proposed transaction. The management and Board of Directors of Tempest, who beneficial own 12 percent of the Class 'A' shares of Tempest, have agreed to vote their Tempest securities in favour of the proposed transaction.


Northern Area

In Q3 Tempest drilled five (4.5 net) wells and spudded a sixth well (100 percent W.I.) at Red Earth. All six (5.5 net) wells are now on production. These wells have set up an additional 10-15 winter locations which may commence drilling as early as December 2005.

Central Area Natural Gas

Throughout the first half of 2005 Tempest prepared an extensive, carefully selected natural gas exploration drilling program in the Central Area, supported by 213 square kilometres of new 3-D seismic. In Q3 Tempest has drilled two (1.9 net) wells on the new 3D-seismic, both of which led to natural gas discoveries. A third well drilled on an exploration lead was abandoned. One of the new wells commenced production in late August and is currently producing in excess of 2.0 mmcf per day.

Central Area Oil

Central Area oil production was stable in Q3, averaging 645 barrels per day. At the end of Q2 Tempest successfully drilled an additional two horizontal infill wells. These wells were completed in Q3 and are now currently on production. The Company is receiving very favourable pricing from this property, approximately midway between Edmonton light and Bow River heavy.

Emerging West Five Exploration Areas

During Q3 2005 the Company tested its third and fourth (1.4 net) wells at Cygnet in its West Five multi-zone exploration area. Three (2.7 net) wells are now on-stream with the other well expected to be tied in by November 30. The Company has more than 15 sections of contiguous land in the area for follow-up development and exploration.

West Central Farm-In - Ansell/Sundance

In Q1, Tempest negotiated a multi-section farm-in and option agreement with a large U.S. independent energy company to re-enter and re-complete a potential bypassed pay zone. This operation was successfully completed in Q2, earning Tempest the related exploration lands and establishing a new West Five core area. One (0.38 net) additional well was drilled in Q3, two (0.65 net) additional wells have been drilled to date in Q4 with two (0.76 net) more wells planned by year end.. Tempest also acquired additional lands in this area at the September Crown land sale. The first well within this multi-zone, high-impact natural gas area is expected to be on production by December 1st, 2005. This area will be a cornerstone asset for Open Range.


The following discussion and analysis is a review of operations, current financial position and outlook for Tempest Energy Corp. for the three- and nine-month periods ended September 30, 2005. It should be read in conjunction with the first and second quarter 2005 reports, the 2004 Annual Report and the audited financial statements and related notes for the year ended December 31, 2004. These discussions are on a consolidated basis and are referred to as "Tempest" or "the Company", reflecting the combined totals of Tempest Energy Corp. and its wholly-owned subsidiaries 951554 Alberta Ltd. and Point Bar Petroleums Ltd., as well as their combined partnership arrangement, the Tempest Energy Production Partnership.

Statements in this document may contain forward-looking information. Estimates provided for 2005 and beyond are based on assumptions of future events, and actual results could vary significantly from these estimates. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. The reader is cautioned not to place undue reliance on this forward-looking information. Additional information relating to Tempest is available at www.sedar.com and on the Company's website www.tempestenergy.com.


Success Average
Exploration Development Total Rate W.I.
Gross Net Gross Net Gross Net
Q1 5.0 4.0 7.0 5.2 12.0 9.2 75% 77%
Q3 0.0 0.0 2.0 2.0 2.0 2.0 100% 98%
Q3 5.0 4.4 5.0 4.1 10.0 8.5 90% 85%
Total 10.0 8.4 14.0 11.3 24.0 19.7 85% 82%


Production in Q3 averaged 2,506 boe per day, of which 50 percent or 1,246 barrels per day was crude oil. Production decreased by 37 percent from the same period last year, and was down by 11 percent from 2,804 boe per day in Q2 2005. The decrease from Q2 was mainly as a result of the sale of certain working interests in the Looma/Joarcam areas effective July 1, 2005, regulatory restrictions on high-rate oil wells at Red Earth in July and August, and planned maintenance at the Chipman oil battery. On a year-to-date basis higher production from light oil at Red Earth was more than offset with declines from Otter as Tempest produced 2,774 boe per day down from last years year to date production of 3,600 boe per day.

By operating region, Northern Area production reached 819 boe per day in Q3 2005 (consisting of 602 barrels per day of crude oil and 1,302 mmcf per day of natural gas) down from 1,457 boe per day (28 percent oil-weighted) in Q3 2004. Central Area production during Q3 2005 averaged 1,686 boe per day (of which 62 percent was natural gas), down from 2,543 boe per day (59 percent natural gas-weighted) in Q3, 2004.


All of Tempest's oil production and the majority of its natural gas production was sold into the spot market during Q3 and the year to date. Combined realized average prices were up by 52 percent to $63.03 per boe in Q3 2005 from $41.74 per boe in Q3 2004. Realized oil prices increased by 40 percent while natural gas prices rose by 54 percent over Q3 2005.

The increase in oil price reflects the strength of benchmark WTI, which gained 42 percent on a year-over-year basis to average US$55.46 per bbl. In addition Bow River heavy was up by 17 percent to average Cdn$44.20 bbl in Q3 2005 and Alberta spot natural gas rose by 21 percent to $7.75 per mcf in the same period. There was also an increase in the Canada/U.S. dollar exchange rate, which rose to a value of US$0.8174 from US$0.7532 in Q3 2004, which had a slightly negative impact to Tempest.


Tempest's revenues in Q3 were driven by decreased production volumes offset by oil and natural gas price gains. Revenues of $14.5 million were generated 46 percent by natural gas sales and 54 percent by crude oil sales. Q3 revenues were up by 8 percent from $13.5 million in Q2 2005 but down by 5 percent from $15.4 million in Q3 2004. On a year to date basis, Tempest revenues of $40.9 million were almost identical to last years $40.8 million, as price gains offset production declines.

In Q3 Tempest realized a loss of $2,542 (Q3 2004 - $60,840 gain) on natural gas hedging. This was based on 5,000 GJs gas contract remaining in place for July, the contract included a floor price of $6.21 per GJ, the sale of a $7.00 per GJ call and the purchase of an $8.68 per GJ call. The gas contract expired in July 2005. The Company has no financial instruments in place at this date.


Royalties for Q3 were $2.5 million compared to $4.0 million in the same period last year. The average royalty rate in the quarter was 18 percent of revenues, versus 26 percent in the same period last year. On a year to date basis royalties were $6.8 million compared to last years $9.4 million. Both periods declined as a result of lower per well production rates and royalty holidays on some new Northern Area oil wells.

Operating Costs

Operating costs in Q3 were $3.1 million or $13.51 per boe, up moderately from the $12.86 per boe in Q2 and up from $4.60 per boe in Q3 2004. Operating costs on a year to date basis were up to $9.4 million from $4.5 million in 2004. These costs were higher as a result of reduced production at Otter, the abnormally wet spring in Alberta, the increase in Tempest's oil weighting, higher equipment rentals, and due to generally higher costs arising from the intense levels of industry activity.

Transportation Costs

Transportation costs are comprised of services related to moving production to sales points, including emulsion hauling, pipeline tolls and Third-party or custom processing charges. Tempest's transportation costs per unit of production averaged $1.51 per boe in Q3, down from $1.72 per boe in Q3 2004 due to the disposition of certain properties in the Looma/Joarcam area and the related reduction in custom processing charges. 2005 year to date costs were $1.82 up from $1.47 in the same period last year, attributable to Tempest's production weighting shifting towards crude oil, incurring correspondingly higher emulsion-hauling charges.

Corporate Average Netbacks
($ per boe except production figures)
% Year to Year to %
Per boe Q3/2005 Q3/2004 Chg date 2005 date 2004 Chg
Daily 2,506 boe 4,001 boe 2,774 boe 3,600 boe
production (50% oil) (36% oil) (37) (51% oil) (40% oil) (23)
Price $63.03 $41.74 51 $54.03 $41.35 31
Royalties 11.03 10.99 9 8.93 9.54 (6)
costs 13.51 4.60 194 12.47 4.58 172
Transportation 1.51 1.72 (12) 1.82 1.47 24
Netback $36.98 $24.43 51 $30.82 $25.76 20
Funds Flow $32.37 $22.22 46 $25.18 $22.60 11

Other Cash Items

General and administrative (G&A) costs were $569,288 after recoveries and capitalization of $349,369 in Q3, versus $441,302 after recoveries and capitalization of $311,397 in Q3 2004. The year-over-year increases, as well as the year to date costs of $3.0 million versus the 2004 year to date costs of $2.1 million, are due mainly to higher consulting fees as well as higher levels of overall activity. On a unit-of-production basis, G&A costs were $2.47 per boe in Q3, up from $1.20 per boe in Q3 2004.

Interest expense was $393,851 in Q3, up from $339,872 in Q3 2004 as a result of higher corporate debt. On a unit-of-production basis, interest expense was $1.71 per boe in Q3, compared to $0.92 per boe in Q3 2004. Year to date costs are also up to $1.1 million from $0.9 million due to higher debt levels.

Stock-based compensation was $408,658 in Q3, down from $461,768 in Q3 2004. The decrease, as well as the year to date decrease, was attributable to the reduction in average stock options outstanding during the period.

In Q2 Tempest realized a gain on the sale of 200,000 Class A shares of Rock Creek Resources Ltd. of $2.20 per share, having acquired these shares in 2002 at $0.25 per share.

Combined Cash Costs per Unit of Production

Tempest's combined cash costs; defined as transportation, operating, G&A and interest expenses, were $19.20 per boe in Q3, up from $8.45 per boe in Q3 2004. The increase was mainly as a result of higher operating costs and lower 2005 production volumes.

Funds Flow

Lower production volumes and higher operating costs, partially offset by strong commodity prices, reduced Tempest's funds from operations by 9 percent to $7.5 million in Q3 from $8.2 million in Q3 2004. These factors had the same impact on the year to date 2005 declining to $19.1 million from the 2004 year to date $22.3 million. Q3 funds from operations were up 28 percent from Q2 2005, and amounted to $0.36 per basic and diluted share.

Depletion, depreciation and accretion

Corporations calculate depreciation, depletion and asset retirement obligation based upon capital expenditures, production rates and reserves. Depletion, depreciation and accretion amounted to $4.3 million or $18.48 per boe of production during Q3 down from the $19.41 per boe incurred in Q2 2005 due to the sale of certain interests in properties in the Looma/Joarcam area. The unit cost was 21 percent higher than $15.25 per boe recorded in Q3 2004. Capital increasing relative to reserves also accounted for the year to date increase to $18.57 per boe over last years $14.78 per boe.

Costs associated with unproven properties excluded from costs subject to depletion for 2005 totaled $32 million.

Net Income

Future taxes amounted to $1.1 million during Q3, providing Tempest with net income of $1.7 million for the quarter. This was 64 percent higher than net income generated in Q3 2004 attributable mainly to commodity price increases offsetting production volume reductions. Operating costs increases were the largest negative factor in the year to date decline in net income to $2.5 million versus 2004's net income of $3.6 million.

Capital Expenditures

Tempest's net capital program totalled $1.0 million during Q3. The sale of certain interests in properties in the Looma/Joarcam area generated $11.4 million and expenditures totalled $12.4 million. The capital budget funded drilling and completions for one West five drilling location, 4 wells in the Central Area, and 5 wells in Northern Alberta, as well as a strategic land acquisition in Ansell/Sundance and tangible equipment and facilities.

Capital Expenditure Summary ($ millions)
Year to Year to
Q3/2005 Q3/2004 date 2005 date 2004
Land 2.1 1.0 4.3 4.9
Seismic - 0.6 7.3 2.7
Drilling and intangibles 9.0 2.8 21.3 14.5
Facilities and equipment 1.3 2.8 7.0 13.5
Dispositions (11.4) - (11.4) -
Acquisitions - 5.7 - 5.7
Total 1.0 12.9 28.5 41.3

Debt and Working Capital

Tempest's combined debt and working capital deficiency decreased to $40.3 million during Q3 from Q2, as the Company's natural gas property disposal and funds from operations exceeded capital expenditures during the quarter. Effective July 1 Tempest sold its Looma/Joarcam property for $11.4 million.

Tempest currently has a $37 million banking facility with the National Bank of Canada. This credit facility is secured by a first fixed and floating charge debenture in the minimum face amount of $100 million.

Share Capital

As at November 10, 2005 there were 19,405,480 Class A shares, 653,476 Class B shares and 1,745,667 stock options and no flow-through obligations outstanding.

Class A Shares
Closing December 31, 2004 19,060,810
Exercise of stock options 344,670
Closing September 30, 2005 19,405,480
Held by management and directors 12%

Weighted Shares September 30, 2005 December 31, 2004
Weighted Class A Shares 19,313,966 17,536,445
Weighted Class B Shares 653,476 653,476
Conversion of Class B shares 1,150,486 323,319
Basic shares outstanding (1) 20,464,452 18,513,240

Stock option dilution
(treasury method) 305,291 411,074
Weighted diluted shares outstanding 20,769,743 18,924,314
(1) The Class B shares are converted at the period-end Class A share
price of $5.68 for September 30, 2005 (December 31, 2004 - $6.69)
and added to the Class A shares to calculate basic shares

Q3 2005 Stock Option Activity
Opening Issued Exercised Cancelled Closing
1,809,000 nil 10,000 53,333 1,745,667
Average price Average price
of $4.41 of $4.38

There were no stock options exercised between October 1 and November 10, 2005 and no options were granted during that same period.

Other Items

Other than the Plan of Arrangement, the break fee of $4 million, that may be payable to Daylight in the event of a material breech of an arrangement covenant, new office lease and other items previously discussed there has been no change to commitments, off-balance-sheet transactions, related-party transactions, changes in policies or critical estimates from those outlined in the 2004 MD&A.

Class A Trading Information
2005 High Low Close Avg. Price Daily Volume
Q1, 2005 7.00 5.25 5.60 6.36 55,810
Q2, 2005 5.90 3.70 3.75 4.59 52,425
July 4.75 4.27 4.32 4.41 107,045
August 4.40 3.55 4.07 3.99 159,314
September 5.88 3.91 5.68 5.23 312,071
Q3, 2005 5.88 3.55 5.68 4.73 193,640

Risk, Liquidity and Capital Resources

The financial risks of commodity prices and interest rates are largely beyond Tempest's control. The Company's approach to managing these risks is to maintain a prudent level of debt and to employ conservative forecasting and budgeting projections. As a guideline for monitoring maximum debt leverage, Tempest uses a 1:1 debt-to-equity ratio and 1.5 times debt-to-forward funds flow.

On September 26, 2005 Tempest announced the acquisition of Tempest by Daylight Energy Trust by way of a Plan of Arrangement, as well as the creation of a publicly listed growth-oriented junior exploration company (Open Range Energy Corp.).

Following the Looma/Joarcam sale, the Company has a $37 million demand credit facility. At September 30, 2005 a balance of $33 million had been drawn on Tempest's credit facility, with an effective interest rate of prime plus 0.10 basis points. The current borrowing base is being held in place pending the sale of the Company.


Tempest's Board of Directors has approved an agreement providing for the acquisition of Tempest by Daylight and the creation of Open Range by way of a Plan of Arrangement (the "Arrangement"). Completion of the various transactions are subject to regulatory approval, the requisite approval of the Tempest shareholders and the requisite approval of the security-holders of Daylight. It is expected that the applicable security-holder meetings relating to such approvals will be held on November 28, 2005 with closing scheduled to occur on November 30, 2005.

Management's Report to Shareholders

The management of Tempest Energy Corp. is responsible for the integrity of the information contained in this quarterly report and for the consistency between the MD&A and the financial statements. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgements and have been properly reflected. The financial statements have been prepared using policies and procedures established by management and reflect fairly Tempest's financial position, results of operations and funds flow. Management has established and maintains a system of internal controls designed to ensure that financial information is reliable and accurate and to provide assurance that assets are safeguarded from loss or unauthorized use.

The Board of Directors and the Audit Committee have reviewed and approved the financial statements and the MD&A.

Results of last Eight quarters

Revenues Net Income Basic and Diluted
($ millions) ($ millions) Earnings per share ($)
Q3, 2005 14.5 1.7 0.08
Q2, 2005 13.5 0.4 0.02
Q1, 2005 12.9 0.3 0.01
Q4, 2004 14.6 0.5 0.03
Q3, 2004 15.4 1.1 0.06
Q2, 2004 15.4 1.6 0.09
Q1, 2004 10.0 1.0 0.05
Q4, 2003 7.3 (1.2) (0.06)
Q3, 2003 7.8 0.6 0.04

This Management's Discussion and Analysis is for the three- and six-
month periods ended September 30, 2005 and is dated November 10, 2005.

A. Scott Dawson, P. Eng. Douglas N. Penner, CFA, CA, CIA
President, Chief Executive Officer Vice President, Finance and
and Director Chief Financial Officer


Consolidated Balance Sheets


The terms "funds from operations", "funds from operations per share" and "debt-to-funds-flow ratio" in this discussion are not recognized measures under Canadian generally accepted accounting principles (GAAP). Company management believes that in addition to net earnings, funds flow is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities before the consideration of how those activities are financed or how the results are taxed. Investors are cautioned, however, that this measure should not be construed as an alternative to net earnings determined in accordance with GAAP, as an indication of Tempest's performance.

Tempest's method of calculating funds from operations may differ from that of other companies, and accordingly it may not be comparable to measures used by other companies. Tempest calculates funds from operations as "funds from operating activities" before the change in non-cash working capital. The consolidated statements of cash flows in the audited consolidated financial statements present the reconciliation between earnings and cash flow. All boe figures are calculated by converting natural gas mcf to boe at 6:1.

Certain information set forth in this document, including management's assessment of Daylight's, Tempest's and ExploreCo's future plans and operations, contain forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond these parties' 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 industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Daylight's, Tempest's and ExploreCo's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Daylight, Tempest or ExploreCo will derive therefrom. Daylight and Tempest each disclaim any intention or obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.


Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The securities offered have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable states securities laws. This news release is not for distribution in the United States.

Consolidated Balance Sheets

September 30, December 31,
2005 2004


Current assets:
Cash and cash equivalents $ 2,306,717 $ -
Accounts receivable 11,778,742 6,847,540
Prepaid expenses and deposits 553,385 248,617
14,638,844 7,096,157

Petroleum and natural gas
properties (note 2) 130,828,168 116,261,646

$ 145,467,012 $ 123,357,803

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 21,952,499 $ 15,117,756
Bank debt (note 3) 33,000,000 24,145,439
54,952,499 39,263,195

Future income taxes 25,043,659 19,606,659

Asset retirement obligations (note 4) 3,439,301 3,384,304

Shareholders' equity:
Share capital (note 5) 49,081,173 51,215,640
Contributed surplus (note 5) 3,368,859 2,778,557
Retained earnings 9,581,521 7,109,448
62,031,553 61,103,645
Future operations (note 1)
Commitments (note 6)
Subsequent event (note 7)
$ 145,467,012 $ 123,357,803

See accompanying notes to the interim consolidated financial statements.

Consolidated Statements of Operations and Retained Earnings

Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004

Petroleum and
natural gas $ 14,532,808 $ 15,364,927 $ 40,923,691 $ 40,784,673
Royalties (net
of Alberta
Royalty Tax
Credit) (2,543,143) (4,046,629) (6,762,367) (9,405,981)
11,989,665 11,318,298 34,161,324 31,378,692

Operating 3,115,136 1,693,651 9,443,160 4,519,041
Transportation 348,919 633,849 1,381,328 1,448,731
Interest 393,851 339,872 1,055,633 894,803
General and
administrative 569,288 441,302 2,994,431 2,137,003
compensation 408,658 461,768 1,170,666 1,385,305
and accretion 4,261,724 5,614,760 14,069,053 14,574,315
Gain on sale
of investment - - (390,020) -
9,097,576 9,185,202 29,724,251 24,959,198

Earnings before
income taxes 2,892,089 2,133,096 4,437,073 6,419,494

Income taxes:
Current 30,000 30,000 90,000 90,000
Future 1,125,000 1,045,000 1,875,000 2,690,000
1,155,000 1,075,000 1,965,000 2,780,000

Net earnings 1,737,089 1,058,096 2,472,073 3,639,494

Retained earnings,
beginning of
period 7,844,432 5,520,011 7,109,448 2,938,613

Retained earnings,
end of period $ 9,581,521 $ 6,578,107 $ 9,581,521 $ 6,578,107

Earnings per share:
Basic $ 0.08 $ 0.06 $ 0.12 $ 0.20
Diluted $ 0.08 $ 0.06 $ 0.12 $ 0.19

See accompanying notes to the interim consolidated financial statements.

Consolidated Statements of Cash Flows

Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004

Cash provided by (used in):

Net earnings $ 1,737,089 $ 1,058,096 $ 2,472,073 $ 3,639,494
Items not
involving cash:
and accretion 4,261,724 5,614,760 14,069,053 14,574,315
Future income
tax expense 1,125,000 1,045,000 1,875,000 2,690,000
compensation 408,658 461,768 1,170,666 1,385,305
Reclamation costs (69,089) - (125,335) -
Gain on sale
of investment - - (390,020) -
Funds from
operations 7,463,382 8,179,624 19,071,437 22,289,114
Change in
working capital (2,960,937) 338,943 (6,276,997) 215,416
4,502,445 8,518,567 12,794,440 22,504,530

Issue of Class
A shares, net
of issue costs 37,000 2,680 847,169 129,823
Bank debt (2,000,000) 8,546,690 8,854,561 23,046,690
(1,963,000) 8,549,370 9,701,730 23,176,513

Petroleum and
natural gas
properties (12,395,146) (12,933,414) (39,840,040) (41,324,980)
dispositions 11,384,797 - 11,384,797 -
Change in
working capital 267,363 (4,195,685) 7,825,770 (3,728,515)
Proceeds from
sale of
investment - - 440,020 -
(742,986) (17,129,099) (20,189,453) (45,053,495)

Increase (decrease)
in cash 1,796,459 (61,162) 2,306,717 627,548

Cash (outstanding
beginning of
period 510,258 61,162 - (627,548)

Cash, end
of period $ 2,306,717 $ - $ 2,306,717 $ -

Interest paid $ 309,310 $ 399,367 $ 955,949 $ 854,003
Taxes paid $ - $ - $ 5,045 $ -

Cash is defined as cash and cash equivalents.

See accompanying notes to the interim consolidated financial statements.

Notes to Interim Consolidated Financial Statements

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

The interim consolidated financial statements of Tempest Energy Corp. (the "Corporation") have been prepared by management in accordance with Canadian generally accepted accounting principles. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the year ended December 31, 2004. The following disclosure is incremental to the disclosure included with the annual financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Corporation's annual report for the year ended December 31, 2004.

1. Future operations

The financial statements have been prepared on a basis applicable to a continuing entity. At September 30, 2005 the Corporation had $40.3 million in debt and a significant working capital deficiency. Continuing operations are dependent on the ability of the Corporation to secure sufficient funds through financings, borrowings and operations to be able to meet obligations as they become due. If the assumption regarding future operations were not appropriate, adjustments would be necessary to recorded assets and liabilities and reported revenues and expenses. On September 26, 2005 the Corporation announced they had entered into an agreement with Daylight Energy Trust as described in note 7.

2. Petroleum and natural gas properties:

Accumulated Net Book
September 30, 2005 Cost Depletion Value

Petroleum and
natural gas
properties $ 186,474,943 $ 55,646,775 $ 130,828,168

December 31, 2004

Petroleum and
natural gas
properties $ 158,044,274 $ 41,782,628 $ 116,261,646

Effective July 27, 2005 the Corporation disposed of certain petroleum and natural gas properties and related assets for net consideration of $11.4 million. The asset retirement obligations related to these properties was $0.4 million.

The Corporation capitalized for the nine month and three month periods ended September 30, 2005 $1,060,000 (2004 - $479,000) and $417,000 (2004 - $239,000), respectively, of overhead-related costs to petroleum and natural gas properties.

Costs associated with unproven properties excluded from costs subject to depletion for 2005 totaled $32,800,000 (2004 ? $27,700,000).

The Corporation performed a ceiling test calculation at September 30, 2005 to assess the recoverable value of the property, plant and equipment and other assets. The oil and gas future prices are based on the April 1, 2005 commodity price forecast of our independent reserve evaluators. The following table summarizes the benchmark prices used in the ceiling test calculation.

WTI Foreign WTI Tempest AECO Tempest
Oil Exchange Oil Price Gas Price
($US/bbl) Rate ($Cdn/bbl) Oil ($Cdn/mcf) Gas

2005 $ 54.00 0.82 $ 65.85 $ 56.56 $ 7.70 $ 7.48
2006 50.00 0.82 60.98 54.38 7.20 6.97
2007 47.50 0.82 57.93 52.25 6.95 6.72
2008 45.00 0.82 43.90 50.05 6.75 6.52
2009 42.00 0.82 54.88 47.07 6.50 6.27
2010 40.00 0.82 48.78 44.72 6.50 6.26
2011 40.00 0.82 48.78 44.66 6.50 6.26
2012 40.00 0.82 48.78 44.62 6.50 6.25
2013 40.50 0.82 49.39 45.22 6.65 6.40
2014 41.25 0.82 50.30 45.90 6.75 6.50
2015 41.75 0.82 50.91 46.66 6.85 6.60
2016 42.59 0.82 51.94 47.49 6.99 6.80

3. Bank debt:

The Corporation currently has a $37,000,000 revolving operating demand facility. The facility is with a Canadian chartered bank and bears interest at bank prime rates adjusted quarterly based on debt to cash flow ratios as defined in the agreement. The credit facilities are secured by a first fixed and floating charge debenture in the minimum face amount of $100,000,000 and a general security agreement with an annual re-determination of the borrowing base. Letters of credit amounting to $361,000 are held against the operating demand facility. As at September 30, 2005, a balance of $33,000,000 had been drawn on this facility with an effective rate of 4.6% at September 30, 2005.

4. Asset retirement obligations:

The Corporation's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Corporation estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $6,400,000 which will be incurred between 2005 and 2035. The majority of the costs will be incurred between 2006 and 2020. A credit-adjusted risk free rate of eight percent was used to calculate the fair value of the asset retirement obligations.

A reconciliation of the asset retirement obligations is provided below:

September 30, December 31,
2005 2004

Balance, beginning of period $ 3,384,304 $ 2,105,719

Accretion expense 204,906 203,745
Liabilities incurred 382,411 1,335,207
Property dispositions (406,985) -
Reclamation costs (125,335) (260,367)

Balance, end of period $ 3,439,301 $ 3,384,304

5. Share capital:

(a) Issued and outstanding:

Number of
Shares Amount

Class A shares:

Balance, December 31, 2003 17,370,319 $ 35,535,715
For cash pursuant to flow-through
share offering 1,162,791 10,000,003
Share issue costs - (689,593)
Tax effect of share issue costs - 231,841
For cash on exercise of share options 527,700 1,546,578
Stock-based compensation on exercised
options - 970,839
Balance, December 31, 2004 19,060,810 $ 47,595,383
For cash on exercise of share options 344,670 847,169
Stock-based compensation on exercised options - 580,364
Tax effect of flow-through shares issued
in 2004 - (3,562,000)
Balance, September 30, 2005 19,405,480 $ 45,460,916

Class B shares:
Balance, December 31, 2004 and
September 30, 2005 653,476 $ 3,620,257

Total share capital on September 30, 2005 $ 49,081,173

(b) Share option plan:

Period ended Year ended
September 30, 2005 December 31, 2004
-------------------- -------------------
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
Stock options
outstanding, beginning
of period 1,499,004 $ 3.69 2,076,704 $ 3.45
Granted 925,000 5.22 40,000 6.45
Exercised (344,670) 2.46 (527,700) 2.93
Cancelled or expired (333,667) 5.61 (90,000) 3.77
Stock options outstanding,
end of period 1,745,667 $ 4.38 1,499,004 $ 3.69
Exercisable at
period-end 779,000 $ 3.94 817,337 $ 3.25

(c) Stock-based compensation:

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the period ended September 30, 2005: zero dividend yield; expected volatility of 103 - 107 percent; risk-free rate of 3.19 - 3.62 percent; and expected life of 5 years. The weighted average fair value of stock options granted during the nine month period ended September 30, 2005 was $4.07 per option. No options were granted during the nine months ended June 30, 2004.

(d) Contributed surplus:

Balance, December 31, 2003 $ 1,947,413
Compensation expense 1,856,210
Exercise of share options (970,839)
Cancellation of share options (54,227)
Balance, December 31, 2004 2,778,557
Compensation expense 1,333,950
Exercise of share options (580,364)
Cancellation of share options (163,284)
Balance, September 30, 2005 $ 3,368,859

(e) Per share amounts:

Per share amounts have been calculated using the weighted average number of class A shares outstanding and the conversion of the class B shares at the period-end class A share price of $5.68 for September 30, 2005. The basic weighted average shares outstanding for the nine month and three month periods ended September 30, 2005 were 20,464,452 (2004 - 18,556,618) and 20,548,357 (2004 - 18,579,057), respectively.

In computing diluted per share amounts, 305,291 (2004 - 334,384) and 88,891 (2004 - 393,928) shares were added to the weighted average number of shares outstanding during the nine and three month periods ended September 30, 2005, respectively, for the dilutive effect of employee stock options.

For the three months ended September 30, 2005, options to purchase 995,000 (2004 - 320,000) class A shares were not included in the computation because they were anti-dilutive.

6. Commitments:

(a) On December 13, 2004, the Corporation issued 1,162,791 flow-through Class A common shares for gross proceeds of $10,000,003. During the nine months ended September 30, 2005, the Corporation incurred the remaining $9,013,294 of eligible exploration expenditures to satisfy the terms of the flow-through share offering.

(b) During the nine months ended September 30, 2005 the Corporation entered into a lease for office space with the following future minimum lease payments:

2005 $ 201,885
2006 817,198
2007 827,147
2008 837,395
2009 847,951
2010 500,980
$ 4,032,556

7. Subsequent event:

On September 26, 2005 Daylight Energy Trust ("Daylight") and the Corporation announced it had entered into an agreement whereby Daylight will acquire all of the issued and outstanding shares of the Corporation. The transaction will be conducted by way of a Plan of Arrangement (the "Arrangement"). Pursuant to the Arrangement, Daylight and Tempest will each transfer interests in certain oil and natural gas properties to separate wholly owned subsidiaries in exchange for shares and arrangement warrants. The subsidiaries will then amalgamate with a third company created and financed by the former management of the Corporation to form Open Range Energy Corp. ("Open Range"). The shares and arrangement warrants will be distributed to Daylight security holders and shareholders of the Corporation. The Corporation, immediately prior to the acquisition by Daylight, will dispose of interests in certain oil and natural gas properties to Midnight Oil Exploration Ltd. for $46 million, subject to adjustments.

Under the Arrangement, one Daylight Trust unit is to be issued for every 2.35 Class A shares of the Corporation. Prior to the completion of the Arrangement all of the issued and outstanding Class B shares of the Corporation will be converted into Class A shares. Shareholders of the Corporation will also receive 0.1344 shares and 0.02688 arrangement warrants of Open Range for each Class A share held.

The Arrangement is subject to approval by the Corporation's shareholder's and Daylight's security holders at meetings set for November 28, 2005, as well as final court and regulatory approval.

In certain circumstances where the Corporation is determined to be in a material breach of an Arrangement covenant a break fee of up to $4 million may be payable to Daylight.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

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