TRAFINA Energy Ltd.
TSX VENTURE : TFA.A

TRAFINA Energy Ltd.

April 27, 2007 22:15 ET

TRAFINA Energy Ltd. Announces 2006 Financial and Operational Results

CALGARY, ALBERTA--(CCNMatthews - April 27, 2007) - TRAFINA (TSX VENTURE:TFA.A) is pleased to announce its financial and operational results for the year ended December 31, 2006.

2006 FINANCIAL HIGHLIGHTS

- Net income increased 428% to $2.78 million from $0.53 in 2005. Net income per diluted share increased 327% to $0.47 from $0.11 in 2005. The significant increase in income was primarily the result of the gain on sale of property.

- Cash flow from operations increased 1% to $2.29 million from $2.26 million in 2005. Cash flow per diluted share decreased 17% to $0.39 from 0.47 in 2005, due to an increase of 24% in diluted shares.

- Gross revenue (excluding gain on sale of property) increased 14% to $6.54 million from $5.75 million in 2005.

- Completed a sale of the Mannville CBM and conventional rights in the Wetaskiwin area of Alberta for $7.35 million (after closing adjustments) at the end of the 2nd Quarter, resulting in a gain on sale of property of $3.61 million.

- Shareholders' equity increased 37% to $10.2 million from $7.4 million in 2005. Shareholders' equity per outstanding share increased 37% to $1.77 from $1.29 in 2005.

- TRAFINA has no outstanding debt and had working capital of $0.74 million at December 31, 2006.



FINANCIAL HIGHLIGHTS

4TH QUARTER ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
2006 2005 % 2006 2005 %
92 days 92 days Change 365 days 365 days Change
----------------------------------------------------------------------------
Gross Revenue ($) 1,417,387 1,824,904 -22 6,540,028 5,750,639 +14
Gain on sale of
property and
equipment 60,320 0 +100 3,608,885 0 +100
Cash Flow from
operations ($) 471,892 823,044 -45 2,289,386 2,263,112 +1
Per share basic 0.08 0.17 -53 0.40 0.49 -18
Per share diluted 0.08 0.16 -50 0.39 0.47 -17
Income (loss) before
income taxes ($) 91,429 280,970 -67 3,863,674 801,084 +382
Net income
(loss) ($) (43,143) 197,670 -122 2,781,307 526,738 +428
Per share basic (0.01) 0.04 -125 0.48 0.11 +336
Per share diluted 0 0.04 -100 0.47 0.11 +327
Weighted average
shares
outstanding- basic 5,752,510 4,808,091 +20 5,752,342 4,647,818 +24
Outstanding shares
at year end 5,756,250 5,751,250 0 5,756,250 5,751,250 0
Capital
expenditures ($) 1,017,182 2,405,745 -54 8,366,433 5,291,840 +58
Working capital
(deficiency) ($) 739,694 (535,209) +238 739,694 (535,209) +238
Before tax rate of
return on
shareholders'
equity (%) 1 5 -80 44 15 +193
After tax rate of
return on
shareholders'
equity (%) 0 3 -100 32 10 +220
----------------------------------------------------------------------------


2006 OPERATIONAL HIGHLIGHTS

- Average daily production increased 5% to 320 BOE/d from 304 BOE/d in 2005. 88% of TRAFINA's total production was from natural gas.

- Drilled 8 gross (4.31 net) wells and recompleted 2 gross (1.375 net) wells in the Wetaskiwin area of Alberta in 2006.

- Currently, TRAFINA has five non-producing wells with an average before payout working interest of 72%, which are expected to be tied-in and on production before July 31, 2007. TRAFINA anticipates this will add between 80 and 130 BOE/d.



OPERATING HIGHLIGHTS

4TH QUARTER ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
2006 2005 % 2006 2005 %
92 days 92 days Change 365 days 365 days Change
----------------------------------------------------------------------------
AVERAGE OIL AND GAS
SALES
Natural gas (Mcf/d) 1,640.0 1,847.2 -11 1,691.0 1,700.9 -1
Natural gas liquids
(Bbls/d) 4.0 4.8 -17 4.2 4.9 -14
Heavy and light oil
(Bbls/d) 36.3 15.9 +128 34.1 15.7 +117
Total (BOE/d) (gas at
6:1) 313.7 328.7 -5 320.1 304.2 +5
AVERAGE SALES PRICE
Natural gas ($/Mcf) 7.81 10.13 -23 9.09 8.65 +5
Natural gas liquids
($/Bbl) 41.40 44.07 -6 55.78 46.69 +19
Heavy and light oil
($/Bbl) 40.22 37.39 +8 51.81 37.17 +39
Total ($/BOE) (gas at
6:1) 46.01 59.40 -23 54.29 51.04 +6
PROVEN AND PROBABLE
RESERVES
Natural gas (Mmcf) N/A N/A - 6,353 8,025 -21
Oil and natural gas
liquids (MBbls) N/A N/A - 125.6 88.3 +42
Total BOE (MBbls) (gas
at 6:1) N/A N/A - 1,184.4 1,425.8 -17
UNDEVELOPED LAND
Gross (acres) N/A N/A - 13,529 18,913 -28
Net (acres) N/A N/A - 6,362 8,918 -29
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BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily at the burner tip and does not represent a value equivalency at the wellhead.

Forward Looking Statements:

This press release may contain forward-looking statements, including statements relating to management's approach to operations, expectations relating to the number of wells, amount and timing of capital projects, interest rates, prices of oil and natural gas, Company production, cash flows and debt levels. The forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by TRAFINA at the time of preparation, may prove to be incorrect.

The following is a copy of TRAFINA's Financial Statements (excluding notes to the statements) and Management's Discussion and Analysis for year ended December 31, 2006. A full copy of the financial statements will be filed on SEDAR and can be obtained at www.sedar.com or on request by e-mail to TRAFINA at info@trafinaenergy.ca.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis (MD&A) is a review of TRAFINA Energy Ltd's (the "Corporation" or "TRAFINA") financial results for the three and twelve month periods ended December 31, 2006 and should be read in conjunction with the audited financials statements and accompanying notes for the years ended December 31, 2006 and 2005. The MD&A is dated April 25, 2007. All references to dollar values refer to Canadian dollars, unless otherwise stated.

Certain information set forth in this MD&A contains forward-looking statements. Readers are cautioned that assumptions used in the preparation of such statements 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 Corporation. These risks include, but are not limited to: the risks associated with the oil and natural gas industry, commodity prices, and exchange rate changes. Industry related risks include, but are not limited to: operational risks in exploration, development and production of oil and natural gas and production risks associated with sour hydrocarbons, dependence on third-party owned and operated production facilities, availability of skilled personnel and services, failure to obtain industry partners, regulatory and other third-party consents and approvals, delays or changes in plans, risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of reserves, production, costs and expenses. The risks outlined above should not be construed as exhaustive. Readers are cautioned not to place undue reliance on these statements. The Corporation undertakes no obligation to update or revise any forward-looking statements except as required by applicable securities laws.

The MD&A uses the term "cash flow from operations", which is not defined under Canadian GAAP and should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in accordance with Canadian GAAP as an indicator of the Corporation's performance. TRAFINA's determination of cash flow from operations may not be comparable to that reported by other companies. Cash flow from operations has been determined by TRAFINA based upon adding net income and deducting depletion, depreciation, accretion, stock based compensation and future income taxes (recovery) and gain on sale of property. The Corporation also presents cash flows from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net income per share.

In this MD&A, reserves and production are commonly stated in barrels of oil equivalent (BOEs) on the basis that six thousand cubic feet of natural gas is equivalent to one barrel of oil (Bbl). BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf to 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value of equivalency at the wellhead.

OVERVIEW

TRAFINA is an oil and gas exploration, development and production Corporation operating in the Province of Alberta, Canada. Its core operational activities are in the Wetaskiwin area, which provided 67.3% of the Corporation's production in 2006. In this area, TRAFINA pursues production from both conventional wells and unconventional CBM wells. TRAFINA also has other non-operated oil and gas interests in the Wetaskiwin area and three other areas in Alberta.

Production of oil and gas in 2006 increased approximately 6% over 2005, with gas sales representing approximately 88% of sales as compared to 93% in 2005.

In 2005, TRAFINA entered into a farm-out of CBM interests in the Wetaskiwin area to Nexen Inc. Following completion of its earning CBM wells in the Horseshoe Canyon and the Mannville coals, Nexen turned its focus to the deeper Mannville coals where it drilled, with TRAFINA's 40% participation, four additional wells in 2006. TRAFINA's share of the cost of these wells was expensive relative to TRAFINA's size and limited its ability to pursue other activities, and TRAFINA determined that the payout was too long term for its size and stage of development. TRAFINA completed the sale of its interests in the Mannville rights in the Wetaskiwin area in mid-2006 for $7.35 million (after closing adjustments) and a 1% non-convertible gross overriding royalty. This sale generated a gain of $3.61 million in 2006.

With the gain from the sale to Nexen, net income increased for 2006 to $2.78 million, as compared to $0.53 million in 2005.

TRAFINA's participation in the Nexen Mannville drilling program restricted the Corporation's other exploration and development activities in the first half of 2006. In addition to its capital expenditures of $2.17 million incurred on the Mannville interests sold to Nexen, in 2006, the Corporation incurred capital expenditures of $6.20 million. These expenditures include the drill, complete and equip costs associated with 4 gross (2.71 net) new wells, costs to build a gas compression station and water disposal facility and costs required to equip and tie-in both conventional and unconventional CBM wells drilled in prior years. These expenditures did not find sufficient additional reserves in 2006 to offset downward reserve revisions. These reserve revisions resulted from one conventional Ellerslie well watering-out sooner than expected, well performance issues associated with shallow Horseshoe Canyon CBM wells and some Horseshoe Canyon CBM wells not being tied into production facilities.



SELECTED FINANCIAL INFORMATION

----------------------------------------------------------------------------
2006 to 2005 to
For the year ended 2005 2004
December 31 2006-$ %Change 2005-$ %Change 2004-$
----------------------------------------------------------------------------
Gross revenue 6,540,028 +14 5,750,639 +32 4,368,391
Gain on sale of property
and equipment 3,608,885 +100 0 0 0
Royalties net of ARTC 831,266 -11 936,130 +40 668,363
Oil & gas sales net of
royalties and
ARTC 5,511,216 +16 4,730,672 +29 3,678,998
Operating expenses 1,656,820 +28 1,294,773 +21 1,070,319
Cash flow from operations 2,289,386 +1 2,263,112 +51 1,501,931
per basic common share 0.40 -18 0.49 +48 0.33
per diluted common share 0.39 -17 0.47 +42 0.33
Weighted average basic
shares 5,752,342 +24 4,647,818 +3 4,491,206
Weighted average diluted
shares 5,937,403 +24 4,772,748 +6 4,503,877
Income before income taxes 3,863,674 +382 801,084 +25 639,349
Net income (loss) 2,781,307 +428 526,738 +10 478,013
per basic common share 0.48 +336 0.11 0 0.11
per diluted common share 0.47 +327 0.11 0 0.11
Capital expenditures 8,366,433 +58 5,291,840 +185 1,856,975
Total assets 16,297,069 +15 14,163,598 +99 7,106,792
Bank Debt 0 0 0 0 899,665
Working capital
(deficiency) 739,694 +238 (535,209) -55 1,158,664


To view graph, click on link provided below.

http://www.ccnmatthews.com/docs/graphs.pdf

SALES REVENUE

TRAFINA's petroleum and natural gas sales revenue, net of royalties and ARTC, increased 16% to $5,511,216 in the year ended December 31, 2006 from $4,730,672 in 2005, due to a 5% increase in sales volume and a 6% increase in average products prices. Petroleum and natural gas sales revenue decreased 19% to $1,185,858 in the 4th quarter of 2006 from $1,470,771 in 2005, due to a 4% decrease in sales volume and a 20% decrease in average products prices.



ANALYSIS OF SALES REVENUE

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006-$ 2005-$ %Change 2006-$ 2005-$ %Change
----------------------------------------------------------------------------
Gross petroleum
and natural
gas revenue 1,327,861 1,796,091 -26 6,342,482 5,666,802 +12
Royalties net
of ARTC (142,003) (325,320) -56 (831,266) (936,130) -11
------------------------------------------------------------
Net petroleum
and natural
gas revenue 1,185,858 1,470,771 -19 5,511,216 4,730,672 +16
------------------------------------------------------------
------------------------------------------------------------


ROYALTIES

For the year ended December 31, 2006, total royalties, net of ARTC, decreased 11% to $831,266, or $7.12 per BOE from $936,130, or $8.43 in 2005 and TRAFINA was credited with an ARTC rebate of $108,317 compared to $185,429 for the same period in 2005. For the 4th quarter of 2006, total royalties, net of ARTC, decreased 56% to $142,003 from $325,320 in 2005. The overall decrease in crown royalties was primarily due to the shut-in of two crown producing wells during 2006. Effective January 1 2007, ARTC has been eliminated.



ANALYSIS OF ROYALTIES

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006-$ 2005-$ %Change 2006-$ 2005-$ %Change
----------------------------------------------------------------------------
Crown royalty 79,301 322,339 -75 508,638 875,269 -42
Freehold royalty 61,107 52,172 +17 340,120 180,342 +89
Overriding
royalty 17,115 22,973 -25 90,825 65,948 +38
Alberta Royalty
Tax Credit (15,520) (72,164) -78 (108,317) (185,429) -42
------------------------------------------------------------
Total royalties
net of ARTC 142,003 325,320 -56 831,266 936,130 -11
------------------------------------------------------------
------------------------------------------------------------


GAIN ON SALE OF PROPERTY

At the end of second quarter of 2006, TRAFINA sold its interest in its Mannville rights in the Wetaskiwin area for $7.35 million (after closing adjustments) and a 1% non-convertible gross overriding royalty. The sale generated a gain of $3.61 million in 2006.



ANALYSIS OF GAIN ON SALE OF PROPERTY

----------------------------------------------------------------------------
Year ended Year ended
2006 - $ 2005 - $ % Change
----------------------------------------------------------------------------
Gain on sale of property and equipment 3,608,885 0 +100
-------------------------------
-------------------------------


OPERATING EXPENSES

For the year ended December 31, 2006, total operating expenses increased 28% to $1,656,820, from $1,294,773 in 2005. The increase in the 2006 year was primarily due to a 42.7% increase in CBM operating costs in 2006 compared to 2005. For the 4th quarter of 2006, total operating expenses increased 14% to $474,974 from $416,436 in 2005 as a result of two new wells being put on production.



ANALYSIS OF OPERATING EXPENSES

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006-$ 2005-$ %Change 2006-$ 2005-$ %Change
----------------------------------------------------------------------------
Production
expenses 301,249 257,643 +17 1,027,782 772,720 +33
Processing and
transportation 148,255 136,968 +8 546,353 468,102 +17
Lease rental
expenses 25,470 21,825 +17 82,685 53,951 +53
------------------------------------------------------------
Total operating
expenses 474,974 416,436 +14 1,656,820 1,294,773 +28
------------------------------------------------------------
------------------------------------------------------------


NETBACKS

TRAFINA's average operating netback increased 7% to $32.99 per BOE for the year ended December 31, 2006, from $30.94 per BOE in 2005 and decreased 31% to $24.08 per BOE for the 4th quarter of 2006, from $34.87 per BOE in 2005. The increase in the netbacks for the 2006 year was the result of higher oil and gas prices and lower royalties due to shut-in wells on crown lands, partly offset by increased operating costs. The decrease in the netbacks for the 4th quarter was due to lower natural gas prices and higher operating costs.



ANALYSIS OF NETBACKS

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006- 2005- 2006- 2005-
$/BOE $/BOE %Change $/BOE $/BOE %Change
----------------------------------------------------------------------------
Sales price 46.01 59.40 -23 54.29 51.04 +6
Royalties (net of
ARTC) (4.92) (10.76) -54 (7.12) (8.43) -16
Operating expenses (16.10) (13.05) +23 (13.47) (11.18) +20
Lease Rental (0.91) (0.72) +26 (0.71) (0.49) +45
------------------------------------------------------------
Average operating
netback 24.08 34.87 -31 32.99 30.94 +7
------------------------------------------------------------
------------------------------------------------------------


GENERAL AND ADMINISTRATIVE (G & A) EXPENSES

Net general and administrative expenses increased 20% to $1,465,851 for the year ended December 31, 2006 compared to $1,224,786 in 2005 and increased 8% to $360,945 for the 4th quarter of 2006 compared to $333,347 in 2005. These increases resulted from increased salary and consulting fees due to an increase in exploration and development projects during the first six months of 2006.



ANALYSIS OF G & A EXPENSES

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006-$ 2005-$ %Change 2006-$ 2005-$ %Change
----------------------------------------------------------------------------
Gross G & A
Expense 403,784 387,959 +4 1,695,127 1,399,440 +21
Capitalized G & A
Expense (42,839) (54,612) -22 (229,276) (174,654) +31
------------------------------------------------------------
Net G & A Expense 360,945 333,347 +8 1,465,851 1,224,786 +20
------------------------------------------------------------
------------------------------------------------------------
Per BOE
Gross G & A
Expense 13.99 12.83 +9 14.51 12.61 +15
Capitalized G & A
Expense (1.48) (1.81) -18 (1.96) (1.58) +24
------------------------------------------------------------
Net G & A Expense 12.51 11.02 +14 12.55 11.03 +14
------------------------------------------------------------
------------------------------------------------------------


INTEREST EXPENSE

For the year ended December 31, 2006, interest expense decreased 20% to $24,338 compared to $30,492 in 2005, the weighted average interest rate was 0%, compared to 6.8% in 2005, and interest expense per BOE decreased 22% to $0.21 per BOE compared to $0.27 per BOE in 2005. For the 4th quarter of 2006, the weighted average interest rate was 0% compared to 2.9% in 2005. These changes resulted from bank debt being paid off in June 2006 from proceeds of sale of property and equipment, which caused average outstanding debt to become nil.



ANALYSIS OF INTEREST EXPENSE

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006 2005 %Change 2006 2005 %Change
----------------------------------------------------------------------------
Interest
expense ($) 0 7,457 -100 24,338 30,492 -20
Average long-term
debt
outstanding ($) 0 254,537 -100 0 449,833 -100
Average annual
interest
rate (%) 0 2.90 -100 0 6.80 -100
Interest expense
($/BOE) 0 0.25 -100 0.21 0.27 -22
------------------------------------------------------------


STOCK BASED COMPENSATION EXPENSES

Stock based compensation expenses totaled a negative of $30,500 and $93,500 for the three and twelve month periods ended December 31, 2006. In addition, the Corporation capitalized $27,500 of stock based compensation during the three and twelve month periods ended December 31, 2006. These figures represent the value of stock options granted and vested on September 24, 2004, using the Black-Scholes option pricing model.





----------------------------------------------------------------------------
4th 4th Year Year
Stock Based quarter quarter ended ended
Compensation 2006-$ 2005-$ %Change 2006-$ 2005-$ %Change
----------------------------------------------------------------------------
Gross costs (3,000) 42,000 -107 121,000 166,000 -27
Capitalized (27,500) 0 0 (27,500) 0 0
------------------------------------------------------------
Net costs (30,500) 42,000 -173 93,500 166,000 -44
------------------------------------------------------------
------------------------------------------------------------


DEPLETION, DEPRECIATION, AND ACCRETION

For the year ended December 31, 2006, depletion and depreciation increased 72% to $2,184,127 from $1,271,551 in 2005 and on a unit of production basis, depletion and depreciation increased to $18.69 per BOE, from $11.45 per BOE in 2005. TRAFINA recorded $29,337 in accretion, for the year ended December 31, 2006, compared to $25,823 in 2005. For the 4th quarter of 2006, depletion and depreciation increased 5% to $432,278 from $412,945 in 2005 and accretion increased 2% to $6,577 compared to $6,429 in 2005. The increase in depletion and depreciation in 2006 versus 2005 was due to a decrease in natural gas reserves as well as an increase in the overall depletable base.



ANALYSIS OF DEPLETION, DEPRECIATION, AND ACCRETION

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended
2006 2005 %Change 2006 2005 %Change
----------------------------------------------------------------------------
Depletion and
depreciation ($) 432,278 412,945 +5 2,184,127 1,271,551 +72
Accretion ($) 6,577 6,429 +2 29,337 25,823 +14
Depletion and
depreciation
($/BOE) (gas
at 6:1) 15.49 13.66 +13 18.69 11.45 +63
Accretion ($/BOE)
(gas at 6:1) 0.24 0.21 +14 0.25 0.23 +9
------------------------------------------------------------


INCOME TAXES

Available tax pools after December 31, 2006 were $4,171,000 compared to $5,500,000 in 2005. Current income taxes were $272,367 for 2006. The Corporation anticipates it will be taxable in 2007. During 2006, overall future income tax liability increased by $974,000 to $2,352,000 (increase of $810,000 in future tax expense with an increase of $164,000 due to the tax effect of flow through shares) compared to an increase of $166,000 to $1,378,000 (increase of $273,000 in future tax expense offset by a decrease of $107,000 due to the effect of share issue costs) in 2005. The increase is primarily related to the gain on sale of property in 2006.



SUMMARY OF INCOME TAX POOLS

----------------------------------------------------------------------------
Deduction Rate 2006 $ 2005 $
----------------------------------------------------------------------------
Canadian exploration expense 100% 0 1,080,000
Canadian development expense 30% 0 1,360,000
Canadian oil and gas property expense 10% 0 976,000
Undepreciated capital cost allowance 20% - 30% 3,876,000 1,604,000
Attributed Canadian royalty income 0 172,000
Shares issue cost 20% 295,000 308,000
------------------------------------
Available tax pools 4,171,000 5,500,000
------------------------------------
------------------------------------


CASH FLOW FROM OPERATIONS

Cash flow from operations for the year ended December 31, 2006 increased 1% to $2,289,386 from $2,263,112 in 2005. This translates to $0.39 per diluted common share, a 17% decrease over the $0.47 per diluted common share recorded in 2005, due to the issuance of 1,261,000 shares on December 22, 2005. Cash flow from operations for the 4th quarter of 2006 decreased 43% to $471,892 from $823,044 in 2005. Cash flow decreased in the 4th quarter as a result of a decrease in natural gas prices and production.

NET INCOME

TRAFINA's net income for the year ended December 31, 2006 was $2,781,307, a 428% increase over the $526,738 recorded in 2005. Net income on a diluted share basis for the year ended December 31, 2006 year was $0.47, from $0.11 in 2005. Net income for the 4th quarter of 2006 decreased 122% to a loss of $43,143, $0.00 per diluted share from net income of $197,670, $0.04 per share in 2005. The increase in net income in 2006 is a result of the gain on sale of property and equipment. Absent that gain, net income would have fallen as increased oil and gas revenue was not as great as increased expenses. The loss in the 4th quarter of 2006 resulted from lower natural gas prices and production and increased expenses as compared to 2005. Net income per share is affected by the increase of 1,261,000 shares issued on December 22, 2005.

RETURN ON EQUITY

Return on equity is calculated as net income after taxes divided by the average of shareholders' equity for the year. TRAFINA's after-tax return on shareholder's equity increased to 32% for the year ended December 31, 2006 compared to 10% in 2005, an increase of 220% primarily due to the gain on sale of property and equipment. For the 4th quarter of 2006, after-tax return on shareholders' equity decreased to 0% compared to 3% in 2005, a decrease of 100%.

BANK DEBT AND LIABILITY

TRAFINA has a demand revolving operating credit facility with a Chartered bank under which it can borrow up to $6.80 million, of which none was drawn at December 31, 2006. The facility bears interest at the bank's prime rate plus 0.25 percent per annum. The loan is secured by a floating charge demand debenture in the amount of $10,000,000 over the Corporation's property and equipment and a general assignment of book debts. The revolving operating credit facility revolves until May 31, 2007 at which time the facility may be converted to a term facility with a term, at the bank's discretion, not to exceed five years.

Current assets plus the unused portion of the credit facility exceed current liabilities by 3.3 times. Cash flow of $2,289,385 exceeds 2006 annual interest payments by 94.1 times (2006 interest charges were $24,338). TRAFINA had no debt at December 31, 2006.

FLOW-THROUGH COMMON SHARES

On December 22, 2005, TRAFINA issued 150,000 Class A common shares at a price of $3.25 per share on a flow-through basis. TRAFINA spent more than the required $487,500 on eligible exploration and development expenditures during 2006.

CAPITAL EXPENDITURES

Capital expenditures for the year ended December 31, 2006 increased significantly to $8,366,433, a 58% increase from $5,291,840 in the comparable period of 2005. Included in the capital expenditures is $2,167,464 that was spent on drilling three Wetaskiwin Mannville CBM wells and the rights were later sold for $7,350,000. The Board of Directors have approved a capital budget of $3.1 million for 2007.



COMPARATIVE CAPITAL EXPENDITURES FOR 2006, 2005 AND 2004:
----------------------------------------------------------------------------
Year Ended December 31 2006 2005 2004
----------------------------------------------------------------------------
Land acquisitions $ (1) (33,000) $ 626,000 $ 807,000
Seismic 124,000 145,000 179,000
Drilling and completions 4,023,000 3,374,000 487,000
Production facilities 3,784,000 955,000 222,000
Other 468,000 192,000 162,000
---------------------------------------
Total capital expenditures $ 8,366,000 $ 5,292,000 $ 1,857,000
---------------------------------------
---------------------------------------

(1) During the 2006 year, the Corporation incurred land acquisition
expenditures of $170,000. One of TRAFINA's joint venture partners
elected to back in and participate in prior acquisitions made in 2005
and paid $203,000, resulting in negative land acquisition expenditures
of $33,000.


FINDING AND DEVELOPMENT COSTS ("F&D")

Finding and development costs are a measure of capital efficiency. In accordance with National Instrument 51-101 Disclosure of Oil and Gas Activities ("NI 51-101") finding and development costs are calculated by dividing the aggregate of the exploration and development costs incurred in the most recent financial year and the change during the year in estimated future development costs by the change in reserves (including revisions) for the same period.

The recycle ratio is a key indicator for evaluating the management of the Corporation and its ability to re-invest funds during the year. The ratio is determined by dividing the operating netback per barrel of oil equivalent by the current year's reserves finding and development costs per BOE.



F & D COSTS(1)(2)
----------------------------------------------------------------------------
For the year ended For the year ended
December 31, 2006 (4) December 31, 2005
Proved and Proved and
Proved Probable Proved Probable
Reserves Reserves Reserves Reserves
----------------------------------------------------------------------------
Exploration and development costs
($) 2,885,451 2,885,451 3,519,598 3,519,598
Change in estimated future
development costs ($) (3) 166,200 (796,000) 95,800 1,084,000
-------------------------------------------
Total Costs ($) 3,051,651 2,089,451 3,615,498 4,603,598
Reserves additions (BOE) (3) 18,286 0 259,551 401,550
-------------------------------------------
F&D costs per ($/BOE) 166.88 - 13.93 11.46
Operating netback per ($/BOE) 32.99 32.99 30.94 30.94
-------------------------------------------
Recycle ratio 0.20 - 2.22 2.70
Three-year rolling average F& D
cost per ($/BOE) 61.93 - 14.72 7.35
-------------------------------------------

(1) 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 relating to reserves additions for the year.
(2) BOEs may be misleading, particularly if used in isolation. A BOE
conversion ratio of 6 Mcf: 1Bbl is used and is based on an energy
equivalency method primarily applicable at the burner tip and does not
represent a value of equivalency at the wellhead.
(3) Based on Forecast Prices and Costs and including revisions to reserves.
(4) Exploration and development costs exclude costs not relating to reserves
additions, such as gas plant and water disposal facilities, seismic and
land acquisitions for general area and exploration and development costs
which were incurred and sold during the year.


Due to the nature and timing of the activities undertaken by TRAFINA in 2006 and the downward revisions to reserves in the year, its F & D Costs cannot be compared in a meaningful way with its F & D Costs in prior years.

In that regard, TRAFINA's participation in its industry partner's Mannville drilling program restricted the Corporation's other exploration and development activities in the first half of 2006. Reserves found in that program were then sold at the end of the second quarter and are not reflected in reserve additions for 2006.

In addition to its capital expenditures of $2.17 million incurred on the Mannville interests sold to its industry partner in 2006, the Corporation incurred capital expenditures of $6.20 million. These expenditures include drilling, completing and equipping costs associated with 4 gross (2.71 net) new wells ($1.81 million), costs to build a gas compression station and a water disposal facility ($1.39 million) and costs required to equip and tie-in both conventional and unconventional CBM wells drilled in prior years and other costs ($3.00 million). Some of these expenditures did not relate to finding or developing reserves in 2006 and the timing of other expenditures did not result in reserve additions in 2006.

In any event, the additional reserves that were found in 2006 did not offset the downward reserve revisions which were the primary reason for the increase in F&D Costs in 2006. The downward reserves revisions resulted from one conventional Ellerslie well watering-out sooner than expected, well performance issues associated with shallow Horseshoe Canyon CBM wells and some Horseshoe Canyon CBM wells not being tied into production facilities. TRAFINA expects that the drilling and recompletion activity that has taken place in the first quarter of 2007 and is planned to continue after spring breakup will mitigate the reserves revisions and result in significant improvement in calculated F&D Costs in 2007.

NET ASSET VALUE

TRAFINA's net asset value as at December 31, 2006, using forecast prices and costs, discounted at 10%, for 2006 was $3.49 per diluted share compared to $5.52 per diluted share in 2005 and using constant prices and costs, also discounted at 10%, for 2006 was $2.64 per diluted share compared to $7.05 per diluted share in 2005. These values have been calculated using a third party independent reserve evaluation prepared by McDaniels and an independent land evaluation of TRAFINA's undeveloped land prepared by Seaton-Jordan & Associates, each effective December 31, 2006. The reduction in net asset value at the end of 2006, as calculated, is primarily due to lower reserves, lower prices and reduced undeveloped land values offset by improvement in working capital, in comparison to 2005. TRAFINA's decrease in reserves is primarily the result of downward revisions, in the Wetaskiwin area of Alberta, due to one conventional Ellerslie well watering-out sooner than expected, well performance issues associated with shallow Horseshoe Canyon CBM wells and some Horseshoe Canyon CBM wells not being tied into production facilities.



ANALYSIS OF NET ASSET VALUE BEFORE TAXES

Forecast Prices And Costs
----------------------------------------------------------------------------
2006 2005
($000) ($000) % Change
----------------------------------------------------------------------------
Proved reserves (Present Value discounted at
10%) 11,733 16,928 -31
Probable reserves (Present Value discounted
at 10%) 5,411 5,675 -5
Undeveloped land & other assets 2,832 4,260 -34
Working capital (deficiency) 740 (535) +238
----------------------------------------------------------------------------
Total net asset value 20,716 26,328 -21
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Asset value per weighted average outstanding
share $ 3.61 $ 5.66 -36
Asset value per weighted average diluted
share $ 3.49 $ 5.52 -37
----------------------------------------------------------------------------
Weighted average outstanding share
Weighted average diluted share
----------------------------------------------------------------------------


Constant Prices and Costs
----------------------------------------------------------------------------
2006 2005
($000) ($000) % Change
----------------------------------------------------------------------------
Proved reserves (Present Value discounted
at 10%) 8,459 21,127 -60
Probable reserves (Present Value
discounted at 10%) 3,649 8,819 -59
Undeveloped land & other assets 2,832 4,260 -34
Working capital (deficiency) 740 (535) +238
----------------------------------------------------------------------------
Total net asset value 15,680 33,670 -53
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Asset value per weighted average
outstanding share $ 2.73 $ 7.24 -62
Asset value per weighted average diluted
share $ 2.64 $ 7.05 -63
----------------------------------------------------------------------------

2006 2005
----------------------------------------------------------------------------
Weighted average outstanding share 5,752,342 4,647,818
Weighted average diluted share 5,937,403 4,772,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------


LIQUIDITY AND CAPITAL RESOURCES

TRAFINA historically has relied upon two sources of funding to support its 2007 capital expenditure programs.

These sources are as follows:

1. Internally generated cash flow; and

2. Bank debt to be used when deemed appropriate. TRAFINA has maintained a conservative policy concerning the use of bank debt.

In 2006, TRAFINA financed its gross capital expenditures of $8,366,433 from its cash flow of $2,289,386 and proceeds of disposition of capital assets. Working capital at December 31, 2006 was $739,694 and there were no outstanding drawdowns under its bank line of credit.

OUTLOOK AND 2007 BUDGET

The board of directors of TRAFINA have approved a budget to $3.1 million for 2007. The budget includes the intention to drill six wells and recomplete five wells in the greater Wetaskiwin area of Alberta. This includes both conventional and unconventional CBM wells, and will be funded from working capital, cash flow and available bank lines of credit. TRAFINA also plans to put two oil wells, presently shut-in due to landowners' objection, back on production as soon as possible, following resolution of outstanding issues. If successful, these activities will increase the Corporation's reserves and production volumes.

SENSITIVITIES

The following table sets out the annualized sensitivities of TRAFINA's cash flow per share to changes in the prices of oil and natural gas, and changes in the production of oil and natural gas. These estimated sensitivities do not take into account capital requirements and other costs to arrive at each estimated cash flow per share.



Cash Flow Per Share
Before Taxes
Change of Cash Flow Before Taxes ($) ($/share)
----------------------------------------------------------------------------
$1.00/Mcf natural gas 375,000 0.07
$1.00/Bbl 8,000 0.00
1 Mmcf/d natural gas 2,016,000 0.35
10 Bbl/d oil 115,000 0.02


CONTRACTUAL OBLIGATIONS

TRAFINA is committed to operating leases for office space of $63,000 for 2007 and $62,000 for 2008. As at December 31, 2006, TRAFINA had entered into a fixed price forward sale gas contract for the period of January 1, 2007 to October 31, 2007 for 500 GJ/d at $7.87 per GJ.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with Canadian GAAP requires management to make certain judgments and estimates. Estimates which are critical and/or significant for TRAFINA include the estimates of reserves, depletion and depreciation, asset retirement obligation, stock-based compensation and the ceiling test. Changes in these estimates could have a material impact on the Corporation's financial results and financial condition. A comprehensive discussion of the Corporation's significant accounting policies is contained in note 1 to TRAFINA's financial statements for the year ended December 31, 2006.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chairman and Chief Executive Officer and Chief Financial Officer of TRAFINA are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting and for designing such disclosure controls and procedures and internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance (i) that material information relating to TRAFINA, including its consolidated subsidiaries, is made known to them by others within TRAFINA, particularly during the period in which the annual filings are being prepared; and (ii) regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. In that regard, management evaluated the effectiveness of TRAFINA's disclosure controls and procedures and considered whether there were any changes in TRAFINA's internal controls over financial reporting that occurred during TRAFINA's most recent interim period that have materially affected, or are reasonably likely to materially affect TRAFINA's internal controls over financial reporting. During this process, management identified the following:

- Due to the limited number of staff at TRAFINA, it is not feasible to achieve complete segregation of incompatible duties.

- Due to the limited number of staff, the Corporation does not have a sufficient number of financial personnel with the technical accounting knowledge to address all complex and non-routine accounting transactions that may arise.

These weaknesses in TRAFINA's internal controls over financial reporting result in a more than remote likelihood that a material misstatement would not be prevented or detected. Management and the board of directors work to mitigate the risk of a material misstatement in financial reporting, however, there can be no assurance that this risk can be reduced to less than a remote likelihood of a material misstatement. TRAFINA does not intend to remediate these weaknesses due to the cost required to do so.

CHANGE IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

The following standards regarding financial instruments are effective for January 1, 2007; 3855 - "Financial Instruments - Recognition and Measurement", 3861 - "Financial Instruments - Disclosure and Presentation", 1530 - "Comprehensive Income", and 3865 - "Hedges". The standards require all financial instruments other than held-to-maturity investments, loans and receivables, to be included on a corporation's balance sheet at their fair value. Held-to-maturity investments, loans and receivables would be measured at their amortized cost. The standards create a new statement for comprehensive income that will include changes in the fair value of certain derivative financial instruments. The Corporation is currently reviewing the standards and does not expect a significant impact on the Corporation.

CONTINGENT LIABILITIES

During the year ended December 31, 2005 a statement of claim was filed against the Corporation by an industry competitor, claiming title to coal bed methane produced from certain of the Corporation's lands underlying Section 31-45-23 W4M and related claims. During 2006, the Corporation settled the statement of claim effective January 1, 2006, in exchange for a 7.5% gross overriding royalties on such lands.

COMMITTEES

The Board of Directors has an Audit Committee to assist it in the discharge of its duties. The committee reports to the Board of Directors of TRAFINA Energy Ltd.

The Audit Committee is the committee to which the Board of Directors has delegated its responsibility for oversight of the nature and scope of the annual audit, management's reporting on internal accounting standards and practices, financial information and accounting systems procedures, financial reporting and statements and recommending, for Board of Directors approval, the audited financial statements and other mandatory disclosure releases containing financial information.

The Board of Directors is considering also establishing a Reserve Committee to review the independence of the engineering firm performing the annual reserve audit and their final reserve estimate. This function was handled this year by the members of the Audit Committee together with Mr. Anant Shah, an independent director who is not on the Audit Committee.

With a number of events being reported in the business sector in the past year with regards to ethical practices and reporting by corporations, many new proposals are under consideration by various governing bodies that deal with corporate disclosure. TRAFINA intends to comply with all applicable regulations that are appropriate to the Corporation with a goal of providing transparency in its corporate governance practices.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

TRAFINA has entered into or proposes to enter into employment contracts with the executive officers of TRAFINA on terms and conditions customary for a public company such as TRAFINA. In that regard, executive officers of TRAFINA are entitled to receive an annual salary and bonus as well as other compensation for services provided to TRAFINA.

Directors of TRAFINA are paid a fee of $300 for each board meeting attended, $300 for each audit committee meeting attended, $200 for each information meeting attended and an annual retainer of $2,000. The directors are also entitled to reimbursement for out-of-pocket expenses incurred in connection with attending board meetings, audit committee meetings or information meetings.

During the quarter ended December 31, 2006, $148,800 in aggregate was paid or payable by TRAFINA to executive officers and directors of TRAFINA pursuant to these arrangements. TRAFINA did not enter into any arrangement relating to severance payments or revised compensation payments to be paid to executive officers or directors of TRAFINA during the quarter ended December 31, 2006.

OUTSTANDING SHARE DATA

TRAFINA is authorized to issue an unlimited number of Class A voting common shares, an unlimited number of Class B non-voting common shares and an unlimited number of preferred shares. As at April 25, 2007, 5,782,472 Class A voting common shares, nil Class B non-voting common shares and nil preferred shares were issued and outstanding. TRAFINA has a stock option plan, pursuant to which options to acquire 344,000 Class A voting common shares were issued and outstanding as of April 25, 2007.

HISTORICAL QUARTERLY FINANCIAL INFORMATION

Outlined below is a table of the historical quarterly financial information based on past reported results over the last five years 2002 to 2006 inclusive. The treasury stock method has not been used in calculating the quarterly diluted earnings per share and the quarterly diluted cash flow per share shown immediately below.



QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

----------------------------------------------------------------------------
2006 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Gross Revenue $ 1,810,761 $ 1,732,284 $ 1,579,596 $ 1,417,387
Cash flow per basic common
share 0.13 0.09 0.10 0.08
per diluted common share 0.13 0.08 0.10 0.08
Net income per basic common
share 0.01 0.51 (0.03) (0.01)
per diluted common share 0.01 0.49 (0.03) 0.00

2005 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Gross Revenue $ 1,308,119 $ 1,143,870 $ 1,473,746 $ 1,824,904
Cash flow per basic common
share 0.09 0.08 0.15 0.17
per diluted common share 0.09 0.08 0.14 0.16
Net income per basic common
share 0.03 0.02 0.02 0.04
per diluted common share 0.03 0.02 0.02 0.04

2004 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Gross Revenue $ 1,029,621 $ 922,435 $ 935,303 $ 1,481,032
Cash flow per basic common
share 0.07 0.08 0.07 0.11
per diluted common share 0.07 0.08 0.07 0.11
Net income per basic common
share 0.02 0.02 0.02 0.05
per diluted common share 0.02 0.02 0.02 0.05

2003 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Gross Revenue $ 1,026,972 $ 967,002 $ 1,111,797 $ 1,139,758
Cash flow per basic common
share 0.10 0.11 0.08 0.12
per diluted common share 0.10 0.11 0.08 0.12
Net income per basic common
share 0.05 0.07 0.02 0.00
per diluted common share 0.05 0.07 0.02 0.00

2002 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Gross Revenue $ 560,982 $ 728,522 $ 677,802 $ 909,872
Cash flow per basic common
share 0.04 0.06 0.05 0.09
per diluted common share 0.04 0.06 0.05 0.09
Net income per basic common
share 0.01 0.02 0.03 0.05
per diluted common share 0.01 0.02 0.03 0.05
----------------------------------------------------------------------------


ADDITIONAL INFORMATION

Additional information relating to the Corporation is filed on SEDAR and can be viewed at www.sedar.com. Also, information can be obtained by contacting the Corporation at TRAFINA Energy Ltd. 688, 505 - 3rd Street S.W., Calgary, Alberta, Canada T2P 3E6 or by e-mail at info@trafinaenergy.ca.

REPORTS ON FINANCIAL STATEMENTS

MANAGEMENT'S REPORT

The financial statements of TRAFINA Energy Ltd. were prepared by management in accordance with accounting principles generally accepted in Canada. The financial and operating information presented in this annual report is consistent with that shown in the financial statements.

Management has designed and maintains a system of internal controls to provide reasonable assurance that all assets are safeguarded and to facilitate the preparation of financial statements for reporting purposes. Timely release of all financial information necessitates the use of estimates. Such estimates are based on careful judgments made by management.

External auditors appointed by the shareholders have conducted an independent audit of the financial statements in order to express their opinion on the financial statements.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board exercises this responsibility through its Audit Committee. The Audit Committee, consisting of a majority of non-management directors has met with the external auditors and management in order to determine that management has fulfilled its responsibilities in the preparation of the financial statements. The Audit Committee has reported its findings to the Board of Directors who have approved the financial statements.

Roland T. Valentine Chairman & CEO

David C. Yu Vice President, Finance & CFO

April 25, 2007

AUDITORS' REPORT

TO THE SHAREHOLDERS OF TRAFINA ENERGY LTD.

We have audited the balance sheets of TRAFINA Energy Ltd. as at December 31, 2006 and 2005 and the statements of income and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

KPMG LLP

Chartered Accountants

Calgary, Canada

April 25, 2007




FINANCIAL STATEMENTS

BALANCE SHEETS

AS AT DECEMBER 31, 2006 AND 2005

----------------------------------------------------------------------------
ASSETS 2006 2005
----------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 2,677,545 $ 2,352,435
Accounts receivable 1,330,591 1,840,219
Income taxes receivable 0 182,348
Prepaid expenses 77,824 54,013
----------------------------------
4,085,960 4,429,015
Property and equipment (note 2) 12,211,109 9,734,583
----------------------------------

$ 16,297,069 $ 14,163,598
----------------------------------
----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 3,075,693 $ 4,964,224
Income taxes payable 270,573 0
----------------------------------
3,346,266 4,964,224
Asset retirement obligation (note 4) 431,900 394,728
Future income taxes (note 6) 2,351,703 1,378,000
----------------------------------
6,129,869 6,736,952
----------------------------------
Shareholders' equity
Share capital (note 5) 3,484,627 3,638,986
Contributed surplus (note 5) 324,606 211,000
Retained earnings 6,357,967 3,576,660
----------------------------------
10,167,200 7,426,646
----------------------------------

$ 16,297,069 $ 14,163,598
----------------------------------
----------------------------------
Commitments (note 9)
See notes to financial statements.

On behalf of the Board of Directors

Roland T. Valentine Donald J. Douglas
Director Director


STATEMENTS OF INCOME AND RETAINED EARNINGS

YEARS ENDED DECEMBER 31, 2006 AND 2005

----------------------------------------------------------------------------
REVENUES 2006 2005
----------------------------------------------------------------------------
Oil and gas sales $ 6,342,482 $ 5,666,802
Royalties, net of ARTC (831,266) (936,130)
----------------------------------
5,511,216 4,730,672
Gain on sale of property and equipment
(note 2) 3,608,885 0
Interest and other 197,546 83,837
----------------------------------
9,317,647 4,814,509
----------------------------------
EXPENSES
----------------------------------------------------------------------------
Operating 1,110,467 826,671
Processing and transportation 546,353 468,102
General and administration 1,465,851 1,224,786
Depletion and depreciation 2,184,127 1,271,551
Stock-based compensation (note 5) 93,500 166,000
Interest 24,338 30,492
Accretion (note 4) 29,337 25,823
----------------------------------
5,453,973 4,013,425
----------------------------------

Income before income taxes 3,863,674 801,084
----------------------------------

Provision for income taxes (note 6)
Current 272,367 1,346
Future 810,000 273,000
----------------------------------
1,082,367 274,346
----------------------------------

Net income for the year 2,781,307 526,738

Retained earnings, beginning of year 3,576,660 3,049,922
----------------------------------
Retained earnings, end of year $ 6,357,967 $ 3,576,660
----------------------------------
----------------------------------

Net income per share (note 5)
Basic $ 0.48 $ 0.11
----------------------------------
----------------------------------
Diluted $ 0.47 $ 0.11
----------------------------------
----------------------------------

See notes to financial statements.


STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2006 AND 2005

----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN): 2006 2005
----------------------------------------------------------------------------
OPERATIONS:
----------------------------------------------------------------------------
Net income for the year $ 2,781,307 $ 526,738
Items not involving cash:
Accretion 29,337 25,823
Depletion and depreciation 2,184,127 1,271,551
Stock-based compensation 93,500 166,000
Future income taxes 810,000 273,000
Gain on sale of property and equipment (3,608,885) 0
----------------------------------
2,289,386 2,263,112
Change in non-cash operating working
capital (note 7) (2,073,793) (298,295)
----------------------------------
215,593 1,964,817
----------------------------------
FINANCING:
----------------------------------------------------------------------------
Decrease in bank debt 0 (899,665)
Common shares issued, net of share issue
costs 1,950 3,179,123
----------------------------------
1,950 2,279,458
----------------------------------
INVESTING:
----------------------------------------------------------------------------
Proceeds on disposal of property and
equipment 7,350,000 500,000
Additions to property and equipment (8,366,433) (5,291,840)
Change in non-cash working capital
relating to investing activities (note 7) 1,124,000 2,900,000
----------------------------------
107,567 (1,891,840)
----------------------------------

Net change in cash and cash equivalents 325,110 2,352,435

Cash and cash equivalents, beginning of
year 2,352,435 0
----------------------------------
Cash and cash equivalents, end of year $ 2,677,545 $ 2,352,435
----------------------------------
----------------------------------

See notes to financial statements.


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

Contact Information

  • TRAFINA Energy Ltd.
    Roland T. Valentine
    Chairman & CEO
    (403) 263-0800
    (403) 263-0811 (FAX)
    Website: www.trafinaenergy.ca