TRAFINA Energy Ltd.
TSX VENTURE : TFA.A

TRAFINA Energy Ltd.

April 22, 2008 22:36 ET

TRAFINA Energy Ltd. Announces 2007 Financial and Operational Results

CALGARY, ALBERTA--(Marketwire - April 22, 2008) - TRAFINA (TSX VENTURE:TFA.A) is pleased to announce its financial and operational results for the year ended December 31, 2007.

2007 FINANCIAL HIGHLIGHTS

- TRAFINA's net loss for the year ended December 31, 2007 was $0.7 million, a 125% decrease from net income of $2.8 million recorded in 2006. Net loss on a diluted share basis for the year ended December 31, 2007 was $0.12, from net income of $0.47 in 2006. The decrease in net income in 2007 is a result of the gain on sale of property and equipment recorded in 2006 and lower natural gas prices and production in 2007.

- Funds from operations for the year ended December 31, 2007 decreased 50% to $1.14 million from $2.29 million in 2006. This translates to $0.20 per diluted common share, a 49% decrease over the $0.39 per diluted common share recorded in 2006 mainly due to a decrease in natural gas prices and production.

- Gross revenue (excluding gain on sale of property) decreased 30% to $4.60 million in 2007 from $6.54 million in 2006.

- Shareholders' equity decreased 6.8% to $9.5 million in 2007 from $10.2 million in 2006. Shareholders' equity per outstanding share decreased 7.2% to $1.64 in 2007 from $1.77 in 2006.



FINANCIAL HIGHLIGHTS

4TH QUARTER ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
2007 2006 % 2007 2006 %

92 days 92 days Change 365 days 365 days Change
----------------------------------------------------------------------------
Gross Revenue ($) 1,123,890 1,417,387 -21 4,598,057 6,540,028 -30
----------------------------------------------------------------------------
Gain on sale of
property and
equipment 0 60,320 -100 0 3,608,885 -100
Cash Flow from
operations ($) 340,948 471,892 -28 1,138,260 2,289,386 -50
Per share basic 0.06 0.08 -25 0.20 0.40 -50
Per share diluted 0.06 0.08 -25 0.20 0.39 -49
Income (loss)
before income
taxes ($) (548,244) 91,429 -700 (1,444,745) 3,863,674 -137
Net income
(loss) ($) (11,755) (43,143) +73 (705,256) 2,781,307 -125
Per share basic (0.00) (0.01) +100 (0.12) 0.48 -125
Per share diluted (0.00) (0.00) 0 (0.12) 0.47 -126
Weighted average
shares
outstanding-
basic 5,778,485 5,752,510 +0 5,778,465 5,752,342 +0
Outstanding
shares at year
end 5,782,472 5,756,250 +0 5,782,472 5,756,250 +0
Capital
expenditures ($) 613,802 1,107,182 -45 3,094,681 8,366,433 -63
Working capital
(deficiency) ($) (1,216,727) 739,694 -264 (1,216,727) 739,694 -264
Before tax rate
of return on
shareholders'
equity (%) -6 1 -700 -15 44 -134
After tax rate of
return on
shareholders'
equity (%) 0 0 0 -7 32 -122
----------------------------------------------------------------------------


2007 OPERATIONAL HIGHLIGHTS

Average daily production decreased 16% to 269 BOE/d IN 2007 from 320 BOE/d in 2006. TRAFINA's total production is 88% natural gas weighted. The decrease is due to natural decline which was not offset by successful results from drilling or recompletions.

During 2007, all of TRAFINA's drilling activity was in the Wetaskiwin area. The company participated in the drilling of seven (7) wells. Four (4) were successful non operated 40% interest CBM Horseshoe Canyon (HSC) wells. Three (3) were TRAFINA Energy operated; one (1) successful 60% interest CBM HSC, one (1) 100% CBM HSC well that requires further evaluation and one (1) 100% interest unsuccessful well drilled for Mannville oil.

During 2007, all of TRAFINA's recompletions (and completion) operations for wells drilled in prior years, were conducted at Wetaskiwin. Operations were conducted on six (6) working interest wells. TRAFINA operates three (3) of the wells, a successful 50% interest CBM HSC well, and two (2) unsuccessful Mannville gas wells, one 100% and one 50%. The three (3) outside operated completions were all successful 40% interest CBM HSC wells.

During 2007, a previously shut-in oil well, in which the Company holds a 50% working interest, recommenced production at Bittern Lake. An offsetting second oil well, namely 16-22, was drilled in 2006. It will commence production, hopefully during 2008, following approval from the ERCB for a multi-well facility, which awaits resolution of a surface rights landowner objection.



OPERATING HIGHLIGHTS

4TH QUARTER ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
2007 2006 % 2007 2006 %

92 days 92 days Change 365 days 365 days Change
----------------------------------------------------------------------------
AVERAGE OIL AND GAS SALES
Natural gas (Mcf/d) 1,250 1,640.0 -24 1,298.5 1,691.0 -23
Natural gas liquids (Bbl/d) 4.1 4.0 +2 3.1 4.2 -26
Heavy and light oil (Bbl/d) 78.0 36.3 +115 49.5 34.1 +45
Total (BOE/d) (gas at 6:1) 290.4 313.7 -7 269.0 320.1 -16

AVERAGE SALES PRICE
Natural gas ($/Mcf) 6.29 7.81 -19 7.46 9.09 -18
Natural gas liquids ($/Bbl) 44.39 41.40 +7 52.07 55.78 -7
Heavy and light oil ($/Bbl) 49.36 40.22 +23 48.48 51.81 -6
Total ($/BOE) (gas at 6:1) 40.94 46.01 -11 45.53 54.29 -16

PROVEN AND PROBABLE
RESERVES
Natural gas (Mmcf) 4,929 6,353 -22 4,929 6,353 -22
Oil and natural gas liquids
(MBbls) 110.9 125.6 -12 110.9 125.6 -12
Total BOE (MBbls) (gas at
6:1) 932.4 1,184.4 -21 932.4 1,184.4 -21

UNDEVELOPED LAND
Gross (acres) 12,276 13,529 -9 12,276 13,529 -9
Net (acres) 4,339 6,362 -32 4,339 6,362 -32
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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, 2007. 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, 2007 and should be read in conjunction with the audited financials statements and accompanying notes for the years ended December 31, 2007 and 2006 . The MD&A is dated April 22, 2008. 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 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, cost 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 "funds 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 funds from operations may not be comparable to that reported by other companies. Funds from operations has been determined by TRAFINA based upon cash flows from operating activities before the change in non-cash operating working capital. The Corporation also presents funds 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 59.7% of the Corporation's production in 2007. In this area, TRAFINA pursues production from both conventional wells and unconventional Coal Bed Methane (CBM wells). TRAFINA also has other non-operational oil and gas interests in the Wetaskiwin area and three other areas in Alberta.

Production of oil and gas in 2007 decreased approximately 16% over 2006, with gas sales representing approximately 80% of sales as compared to 88% in 2006.

TRAFINA drilled 7 gross (4.2 net) wells in the Wetaskiwin area during 2007, resulting in 1 gross (1 net) dry hole and 6 gross (3.2 net) gas wells. The Corporation incurred capital expenditures of $3,094,681.



SELECTED FINANCIAL INFORMATION

----------------------------------------------------------------------------
2007 to 2006 2006 to 2005
2007 - $ % Change 2006 - $ % Change 2005 - $
----------------------------------------------------------------------------
Gross revenue 4,598,057 -30 6,540,028 +14 5,750,639
----------------------------------------------------------------------------
Gain on sale of property
and equipment 0 -100 3,608,885 +100 0
Royalties net of ARTC 560,003 -33 831,266 -11 936,130
Oil & gas sales net of
royalties and ARTC 3,910,895 -29 5,511,216 +16 4,730,672
Operating expenses 1,579,612 -5 1,656,820 +28 1,294,773
Funds from operations 1,138,260 -50 2,289,386 +1 2,263,112
per basic common share 0.20 -50 0.40 -18 0.49
per diluted common share 0.20 -49 0.39 -17 0.47
Weighted average basic
shares 5,778,485 +0.4 5,752,342 +24 4,647,818
Weighted average diluted
shares 5,778,485 -3 5,937,403 +24 4,772,748
Income (loss) before
income taxes (1,444,745) -137 3,863,674 +382 801,084
Net income (loss) (705,256) -125 2,781,307 +428 526,738
Net income (loss)
per basic common share (0.12) -125 0.48 +336 0.11
per diluted common share (0.12) -126 0.47 +327 0.11
Capital expenditures 3,094,681 -63 8,366,433 +58 5,291,840
Total Assets 14,892,732 -9 16,297,069 +15 14,163,598
Bank debt 282,866 +100 0 0 0
Working capital
(deficiency) (1,216,727) -280 739,694 +238 (535,209)
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DETAILED FINANCIAL ANALYSIS

SALES REVENUE

TRAFINA's petroleum and natural gas sales revenue, net of royalties and Alberta Royalty Tax Credit (ARTC), decreased 29% to $3,910,895 in the year ended December 31, 2007 from $5,511,216 in 2006, due primarily to a 16% decrease in sales volume and a 16% decrease in average products prices. Petroleum and natural gas sales revenue decreased 21% to $942,199 in the 4th quarter of 2007 from $1,185,858 in the same period in 2006, due to a 7% decrease in sales volume and an 11% decrease in average products prices.



ANALYSIS OF SALES REVENUE

----------------------------------------------------------------------------
4th quarter 4th quarter Year ended Year ended

% %
2007 - $ 2006 - $ Change 2007 - $ 2006 - $ Change
----------------------------------------------------------------------------

Gross petroleum
and natural gas
revenue 1,094,061 1,327,861 -18 4,470,898 6,342,482 -30
Royalties net of
ARTC (151,862) (142,003) -7 (560,003) (831,266) -33
----------------------------------------------------------
Net petroleum
and natural
gas revenue 942,199 1,185,858 -21 3,910,895 5,511,216 -29
----------------------------------------------------------
----------------------------------------------------------


ROYALTIES

For the year ended December 31, 2007, total royalties, net of ARTC, decreased 33% to $560,003, or $5.70 per BOE from $831,266, or $7.12 in 2006. During 2007, TRAFINA was credited with a prior period ARTC rebate of $1,508 compared to $108,317 for the same period in 2006. For the 4th quarter of 2007, total royalties, net of ARTC, increased 7% to $151,862 from $142,003 in the same period in 2006. The overall decrease in crown royalties was primarily due to the decrease in sales volumes combined with a decrease in the average product price.

On Oct 25, 2007 the Alberta government announced changes to the provincial royalty program effective January 1, 2009. The government has introduced dual sliding scale royalties for conventional crude oil and natural gas production that are based on commodity price levels and monthly well production rates. Although royalty rates were reduced for certain low productivity wells in low price environments, most royalties are expected to increase, especially with higher well productivity and commodity prices.

New royalty rates for natural gas wells will range from 5% to 50% of a market-based reference price, an increase from the current program that ranges from 5% to 35%. In addition, the Alberta government has announced a program whereby deep gas wells are less affected by the new royalty regime based on a formula that is sensitive to total drilling distances (both vertical and horizontal) that exceed 2,000 meters. TRAFINA also expects a more favorable royalty framework is forthcoming (lower royalties and a wider price range than other conventional gas) for coal bed methane, tight gas and shale gas but no specific information with respect to these royalty programs is available from the Alberta government at this time.

Furthermore on natural gas, the Alberta government announced it will implement "shallow rights reversion" whereby mineral rights to undeveloped shallow gas above zones that are being developed will revert back to the government and made available for resale. TRAFINA is assessing the potential impact of this policy of its reserves and development plans pending further details from the Alberta government.

Royalty rates for crude oil wells will increase from the current maximum of 35% to a new maximum of 50% for higher ranging prices and production levels. Most other specialty royalty programs will be eliminated.

Approximately $262,000 (46.9%) of TRAFINA's total royalties during the twelve months ended December 31, 2007 were Alberta crown royalties. Based on royalties paid during 2007 and in the context of production and pricing during that period, TRAFINA expects the new Alberta royalties to have no material effect. The revised royalty program is a reflection of the new royalty regime's sensitivity to the low natural gas prices experienced this year and TRAFINA's portfolio of lower productivity wells. These estimates have assumed the applicability of deeper well relief to TRAFINA's current wells and that the current "effective corporate" royalty rates used to calculate the Crown's share of capital for gas processing facilities will be similar to the new "facility effective" rates proposed by the Alberta government. These estimates are also based on production and pricing that may not be indicative of the environment in 2009 when these royalty changes come into effect.

The most recent announcement by the Alberta government relative to the new royalty framework deals with deep oil wells, deep gas wells, par prices and CBM. None of these changes are expected have any material impact on the value of TRAFINA's reserves.



ANALYSIS OF ROYALTIES

----------------------------------------------------------------------------
4th quarter 4th quarter Year ended Year ended

2007 - $ 2006 - $ % Change 2007 - $ 2006 - $ % Change
----------------------------------------------------------------------------
Crown royalty 63,975 79,301 -19 262,336 508,638 -48
Freehold royalty 72,967 61,107 +19 236,816 340,120 -30
Overriding royalty 14,920 17,115 -13 62,359 90,825 -31
Alberta Royalty
Tax Credit 0 (15,520) -100 (1,508) (108,317) -99
----------------------------------------------------------
Total royalties
net of ARTC 151,862 142,003 +7 560,003 831,266 -33
----------------------------------------------------------
----------------------------------------------------------


OPERATING EXPENSES

For the year ended December 31, 2007, total operating expenses decreased 5% to $1,579,612 from $1,656,820 in 2006. The decrease in the 2007 year was primarily due to a decrease in TRAFINA's sales volume. For the 4th quarter of 2007, total operating expenses decreased 11% to $424,140 from $474,974 in the same period in 2006 also due to a decrease in sales volume.




ANALYSIS OF OPERATING EXPENSES

----------------------------------------------------------------------------
4th quarter 4th quarter Year ended Year ended

2007 - $ 2006 - $ % Change 2007 - $ 2006 - $ % Change
----------------------------------------------------------------------------
Production
expenses 292,716 301,249 -2.8 1,064,135 1,027,782 +4
Processing and
transportation 105,499 148,255 -29 408,378 546,353 -25
Lease rental
expenses 25,925 25,470 +2 107,099 82,685 +30
----------------------------------------------------------
Total operating
expenses 424,140 474,974 -11 1,579,612 1,656,820 -5
----------------------------------------------------------
----------------------------------------------------------


NETBACKS

TRAFINA's average operating netback decreased 28% to $23.74 per BOE for the year ended December 31, 2007, from $32.99 per BOE in 2006 and decreased 19% to $19.39 per BOE for the 4th quarter of 2007, from $24.08 per BOE in the same period in 2006. These changes were primarily due to a decrease in gas prices in 2007.



ANALYSIS OF NETBACKS

---------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended

2007 - 2006 - % 2007 - 2006 - %
$/BOE $/BOE Change $/BOE $/BOE Change
---------------------------------------------------------------------------
Sales price 40.94 46.01 -11 45.53 54.29 -16
Royalties (net of ARTC) (5.68) (4.92) +15 (5.70) (7.12) -20
Operating expenses (14.90) (16.10) -7 (15.00) (13.47) +11
Lease Rental (0.97) (0.91) +7 (1.09) (0.71) +54
-------------------------------------------------
Average operating netback 19.39 24.08 -19 23.74 32.99 -28
-------------------------------------------------
-------------------------------------------------


GENERAL AND ADMINISTRATIVE (G & A) EXPENSES

Net general and administrative expenses increased 10% to $1,617,758 for the year ended December 31, 2007 compared to $1,465,851 in 2006 and increased 23% to $442,761 for the 4th quarter of 2007 compared to $360,945 in the same period in 2006. These increases are due to reduction in capitalized G&A expense resulting from lower geological expenses incurred in 2007.



ANALYSIS OF G & A EXPENSES

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended

2007 - $ 2006 - $ % Change 2007 - $ 2006 - $ % Change
----------------------------------------------------------------------------
Gross G & A Expense 380,391 403,784 -6 1,697,477 1,695,127 +0.1
Capitalized G & A
Expense 62,370 (42,839) +246 (79,719) (229,276) -65
--------------------------------------------------------
Net G & A Expense 442,761 360,945 +23 1,617,758 1,465,851 +10
--------------------------------------------------------
--------------------------------------------------------
Per BOE
Gross G & A Expense 14.24 13.99 +2 17.29 14.51 +19
Capitalized G & A
Expense 2.33 (1.48) +257 (0.81) (1.96) -59
--------------------------------------------------------
Net G & A Expense 16.57 12.51 +32 16.48 12.55 +31
--------------------------------------------------------
--------------------------------------------------------


INTEREST EXPENSE

For the year ended December 31, 2007, interest expense decreased 50% to $12,136 compared to $24,338 in 2006, and increased 100% to $7,891 for the 4th quarter of 2007 compared to $0 in the same period in 2006. Interest expense per BOE decreased 43% to $0.12 per BOE compared to $0.21 per BOE in 2006. For the 4th quarter of 2007, interest expense per BOE decreased marginally to $0.30 compared to $0 in 2006.



ANALYSIS OF INTEREST EXPENSE

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended

2007 2006 % Change 2007 2006 % Change
----------------------------------------------------------------------------
Interest expense ($) 7,891 0 +100 12,136 24,338 -50
Interest expense ($/BOE) 0.30 0 +100 0.12 0.21 -43
---------------------------------------------------


STOCK BASED COMPENSATION EXPENSES

For the year ended December 31, 2007, stock based compensation expenses decreased 85% to $14,000 compared to $93,500 in 2006, and increased 116% to $5,000 for the 4th quarter of 2007 compared to $(30,500) in the same period in 2006. No amounts were capitalized during the three and twelve month periods ended December 31, 2007 as all outstanding options were held by directors of the Company.



----------------------------------------------------------------------------
Stock Based Compensation 4th 4th Year Year
quarter quarter ended ended

2007- $ 2006- $ % Change 2007- $ 2006- $ % Change
----------------------------------------------------------------------------
Gross costs 5,000 (3,000) +267 14,000 121,000 -88
Capitalized 0 (27,500) -100 0 (27,500) -100
----------------------------------------------------------------------------
Net costs 5,000 (30,500) +116 14,000 93,500 -85
---------------------------------------------------
---------------------------------------------------


DEPLETION, DEPRECIATION, AND ACCRETION

For the year ended December 31, 2007, depletion and depreciation increased 1% to $2,211,302 from $2,184,127 in 2006 and on a unit of production basis, depletion and depreciation increased to $22.51 per BOE in 2007, from $18.69 per BOE in 2006. TRAFINA recorded $47,991 in accretion, for the year ended December 31, 2007, compared to $29,337 in 2006. The increase in depletion and depreciation in 2007 versus 2006 was due to a decrease in natural gas reserves as well as an increase in the overall depletable base. For the 4th quarter of 2007, depletion and depreciation increased 45% to $624,824 from $432,278 in 2006 and on a unit of production basis, depletion and depreciation increased to $23.34 per BOE in 2007, from $15.49 per BOE in 2006. Accretion increased 348% to $29,437 compared to $6,577 in the 4th quarter of 2006, primarily due to a change in estimate of the ARO obligation in 2007. Capital expenditures were made in the 4th quarter for which reserves have not yet been recognized.



ANALYSIS OF DEPLETION, DEPRECIATION, AND ACCRETION

----------------------------------------------------------------------------
4th 4th Year Year
quarter quarter ended ended

2007 2006 % Change 2007 2006 % Change
----------------------------------------------------------------------------
Depletion and
depreciation ($) 624,824 432,278 +45 2,211,302 2,184,127 +1
Accretion ($) 29,437 6,577 +348 47,991 29,337 +64
Depletion and
depreciation ($/BOE)
(gas at 6:1) 23.34 15.49 +51 22.51 18.69 +20

Accretion ($/BOE) (gas
at 6:1) 1.10 0.24 +358 0.49 0.25 +96
-----------------------------------------------------


INCOME TAXES

Available tax pools at December 31, 2007 were $5,442,000 compared to $4,171,000 in 2006. Reduction in current income taxes amounted to $309,712 for 2007. During 2007, overall future income tax liability decreased by $430,000 to $1,922,000 (decrease of $430,000 in future tax expense) compared to an increase of $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) in 2006.



SUMMARY OF INCOME TAX POOLS

-------------------------------------------------------------------------
Deduction Rate 2007 $ 2006 $
-------------------------------------------------------------------------
Canadian exploration expense 100% 287,000 0
Canadian development expense 30% 1,263,000 0
Canadian oil and gas property expense 10% 15,000 0
Undepreciated capital cost allowance 20% - 30% 3,595,000 3,876,000
Attributed Canadian royalty income 0 0
Shares issue cost 20% 282,000 295,000
-----------------------------------
Available tax pools 5,442,000 4,171,000
-----------------------------------
-----------------------------------


FUNDS FROM OPERATIONS

Funds from operations for the year ended December 31, 2007 decreased 50% to $1,138,260 from $2,289,386 in 2006. This translates to $0.20 per diluted common share, a 49% decrease over the $0.39 per diluted common share recorded in 2006 mainly due to a decrease in natural gas prices and production. Funds from operations for the 4th quarter of 2007 decreased 28% to $340,948 from $471,892 in the same period in 2006. Funds from operations decreased in the 4th quarter also as a result of a decrease in natural gas prices and production.

NET INCOME

TRAFINA's net loss for the year ended December 31, 2007 was $705,256, a 125% decrease from net income of $2,781,307 recorded in 2006. Net loss on a diluted share basis for the year ended December 31, 2007 was $0.12, from net income of $0.47 in 2006. The decrease in net income in 2007 is a result of the gain on sale of property and equipment recorded in 2006 and lower natural gas prices and production in 2007. Net loss for the 4th quarter of 2007 decreased by 41% to $25,536, (($0.00) per share) from net loss of $43,143, ($0.00 per share) in 2006 due to the recovery of income taxes in the 4th quarter of 2007.

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 decreased to -7% for the year ended December 31, 2007 compared to 32% in 2006, a decrease of 122% primarily due to the gain on sale of property and equipment recorded in 2006. For the 4th quarter of 2007, after-tax return on shareholders' equity decreased marginally to -0.3% compared to 0% in 2006.

BANK DEBT AND LIABILITY

TRAFINA has a demand revolving operating credit facility with a Chartered bank under which it can borrow up to $4.30 million, of which $282,866 was drawn at December 31, 2007. The facility bears interest at the bank's prime rate plus 0.25 percent per annum. For the year ended December 31, 2007, TRAFINA paid interest at an average rate of 6.5% for amounts drawn. 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, 2008 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.

As at December 31, 2007, current assets plus the unused portion of the credit facility exceeded current liabilities by 2.1 times and cash flow of $1,138,260 exceeded 2007 annual interest payments by 93.8 times (2007 interest charges were $12,136). TRAFINA had bank debt of $282,866 at December 31, 2007.

CAPITAL EXPENDITURES

Capital expenditures for the year ended December 31, 2007, decreased 63% to $3,094,681 from $8,366,433 in 2006.



COMPARATIVE CAPITAL EXPENDITURES FOR 2007, 2006, AND 2005:

-------------------------------------------------------------------------
2007 2006 2005
Land acquisitions 17,000 (33,000) 626,000
Seismic 15,000 124,000 145,000
Drilling and completions 2,156,000 4,023,000 3,374,000
Production facilities 826,000 3,784,000 955,000
Other 81,000 468,000 192,000
------------------------------
Total capital expenditures 3,095,000 8,366,000 5,292,000
------------------------------
------------------------------


FINDING AND DEVELOPMENT COSTS ("F&D")

Finding and development costs are a measure of capital efficiency. In accordance with National Insurance 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 developments 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 cost per BOE.



F&D COSTS

----------------------------------------------------------------------------
For the year ended For the year ended
December December
31, 2007(4) 31, 2006

Proved and Proved and
Proved Probable Proved Probable
Reserves Reserves Reserves Reserves
----------------------------------------------------------------------------
Exploration and development
costs ($) 2,956,852 2,956,852 2,885,451 2,885,451
Change in estimated future
development costs ($)(3) 830,400 593,100 166,200 (796,000)
---------------------------------------------
Total Costs ($) 3,787,252 3,549,952 3,051,651 2,089,451
Reserves additions (BOE)(3) 572 0 18,286 0
---------------------------------------------
F&D costs per ($/BOE) 6,621.07 - 166.88 -
Operating netback per ($/BOE) 23.74 23.74 32.99 32.99
---------------------------------------------
Recycle ratio - - 0.20 -
Three-year rolling average
F&D cost per ($/BOE) 2,267.29 - 61.93 -
---------------------------------------------


(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.

The inordinately high F&D cost per BOE is due to very low reserve additions, caused by poor drilling/recompletions results. As well, there was a negative reserve booking for proved and probable reserves due to lands expiring for which probable reserves had been previously booked.

In 2007, the Corporation incurred capital expenditures of $3.09 million. These expenditures include drilling, completing and equipping costs associated with 7 gross (4.2 net) new wells ($1.57 million) and costs required to equip and tie-in both conventional and unconventional CBM wells drilled in prior years and other costs ($1.52 million).

The additional reserves that were found in 2007 did not offset the downward reserve revisions which were the primary reason for the increase in F&D costs in 2007. The downward probable reserves revisions resulted from poor drilling results in the Wetaskiwin area and land expirations. TRAFINA believes that successful drilling and completion activity during Q1 2008 on the CBM HSC project may result in the Company achieving a more acceptable F&D cost and Recycle Ratio.

NET ASSET VALUE

TRAFINA's net asset value as at December 31, 2007, using forecast prices and costs, discounted at 10%, for 2007 was $2.43 per diluted share compared to $3.49 per diluted share in 2006. 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, 2007.

The reduction in net asset value at the end of 2007, as calculated, is primarily due to lower reserves, lower prices, reduced undeveloped land values, and lower working capital, in comparison to 2006. TRAFINA's decrease in reserves is primarily the result of downward revisions, in the Wetaskiwin area of Alberta, mainly due to expiration of land, poor drilling results in the Wetaskiwin area, a decrease in product prices and an increase in operating costs. Due to TRAFINA being 80% gas-weighted, the impact of a reduction in gas prices was significant in 2007.



ANALYSIS OF NET ASSET VALUE BEFORE TAXES

Forecast Prices And Costs
----------------------------------------------------------------------------
2007 2006

(Discounted at Present Value 10%) ($000) ($000) % Change
----------------------------------------------------------------------------
Proved reserves 8,816 11,733 -25
Probable reserves 4,217 5,411 -22
Undeveloped land & other assets 2,200 2,832 -22
Working capital (deficiency) (1,217) 740 -280
----------------------------------------------------------------------------
Total net asset value 14,016 20,716 -33
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Asset value per weighted average outstanding share $2.43 $3.61 -33
Asset value per weighted average diluted share $2.43 $3.49 -31
----------------------------------------------------------------------------



Outstanding Shares 2007 2006
----------------------------------------------------------------------------

Weighted average (basic) 5,778,485 5,752,342
Weighted average (diluted) 5,778,485 5,937,403
----------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES

TRAFINA relies upon two sources of funding to support its capital expenditure programs and working capital deficiencies. These sources are internally generated cash flow and borrowings under TRAFINA's demand revolving operating credit facility.

In 2007, TRAFINA financed its gross capital expenditures of $3,094,681 from its cash flow of $1,138,260 and the remaining net proceeds received from the disposition of capital assets in 2006. Working capital deficiency at December 31, 2007 was $1,216,727.

OUTLOOK AND 2008 BUDGET

The Board of Directors of TRAFINA has approved a budget of $3.9 million for 2008. TRAFINA has committed to participate as to its 40% interest in a 24 well CBM Horseshoe Canyon drilling program to be conducted during 2008 at Wetaskiwin. Other activity during 2008 will include the tie in of several gas wells at Wetaskiwin and recommencement of production from one oil well, subject to the resolution of outstanding surface landowner issues. The capital funds required by the Company to participate in the 2008 capital program will be sourced from cash flow and from available lines of credit.

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
Change of Cash Flow Before Taxes ($) Taxes ($/share)
----------------------------------------------------------------------------
$1.00/Mcf natural gas 247,000 0.04
$1.00/Bbl 10,000 0.00
1 Mmcf/d natural gas 1,400,000 0.25
10 Bbl/d oil 92,000 0.02



CONTRACTUAL OBLIGATIONS

TRAFINA is committed to operating leases for office space of $62,246 for 2008.

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, 2007.

CHANGE IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2008, the Corporation will be required to adopt three new accounting standards in the handbook of the Canadian Institute of Chartered Accountants (CICA): Section 1535, Capital Disclosures, Section 3862, Financial Instruments - Disclosures and Section 3863, Financial Instruments - Presentation. Section 1535 requires disclosure of an entity's objectives, policies and processes for managing capital, including: quantitative data about what the entity considers capital, whether the entity has complied with any capital requirements and the consequences of non-compliance if the entity has not complied. Sections 3862 and 3863 specify standards of presentation and enhanced disclosures on financial instruments. Although the Corporation is currently assessing the impact of these standards on its financial statements, it is not anticipated that the adoption of these new standards will impact the amounts reported in the Corporation's financial statements as they primarily relate to disclosure.

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.

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 has also established a Reserve Committee to review the independence of the engineering firm performing the annual reserve audit and their final reserve estimate, and a Compensation Committee to assist the Board with compensation matters.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

In the fourth quarter of 2007, TRAFINA has entered into a consulting agreement with an executive officer of TRAFINA, on terms and conditions customary for a public company such as TRAFINA. In that regard, the executive officer of TRAFINA is entitled to receive a monthly consulting fee and benefits, as well as other compensation for services provided to TRAFINA. The consulting contract is due to expire on September 15, 2008.

Directors of TRAFINA are paid a fee of $300 for each Board meeting attended, $300 for each Audit Committee, Reserve Committee, and Compensation Committee 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, committee meetings or information meetings.

During the quarter ended December 31, 2007, $82,400 in aggregate was paid or payable by TRAFINA to executive officers and directors of TRAFINA. Except as noted above, 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, 2007.

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 22, 2008, 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 30,000 Class A voting common shares were issued and outstanding as of April 22, 2008.

NORMAL COURSE ISSUER BID

TRAFINA received approval from the TSX Venture Exchange ("TSX-V") to permit it to purchase up to 289,000 Class A common shares, representing approximately 5% of the then outstanding Class A common shares, by way of a normal course issuer bid ("NCIB") through the facilities of the TSX-V. The NCIB commenced on December 20, 2007 and ends on December 19, 2008. As at December 31, 2007, no Class A common shares had been purchased by TRAFINA pursuant to the NCIB program.

Shareholders may obtain a copy of the notice provided to the TSX-V regarding the NCIB by contacting TRAFINA at 688, 505 - 3rd Street S.W., Calgary, Alberta, Canada T2P 3E6 or by e-mail at info@trafinaenergy.ca.

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 2003 to 2007 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)

----------------------------------------------------------------------------

2007 Q1 Q2 Q3 Q4
----------------------------------------------------------------------------
Gross Revenue $ 1,133,046 $ 1,164,516 $ 1,176,605 $ 1,123,890
----------------------------------------------------------------------------
Cash flow per basic
common share 0.03 0.05 0.06 0.06
per diluted common share 0.03 0.05 0.06 0.06
Net income per basic
common share (0.04) (0.04) (0.04) (0.00)
per diluted common share (0.04) (0.04) (0.04) (0.00)
----------------------------------------------------------------------------

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


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 S.W., Calgary, Alberta, Canada T2P 3E6 or by email 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 sometimes necessitates the use of estimates when transactions affecting the current accounting period cannot be finalized until future periods. Such estimates are based on careful judgments made by management.

External auditors appointed by the shareholders have conducted an independent examination of the corporate accounting records 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.

Thomas R. Holland, Interim President & CEO

David C. Yu, Vice President, Finance & CFO

April 22, 2008

AUDITORS' REPORT

TO THE SHAREHOLDERS OF TRAFINA ENERGY LTD.

We have audited the balance sheets of TRAFINA Energy Ltd. as at December 31, 2007 and 2006 and the statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Corporation'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 Corporation as at December 31, 2007 and 2006 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 22, 2008



FINANCIAL STATEMENTS

BALANCE SHEETS

AS AT DECEMBER 31, 2007 AND 2006

-------------------------------------------------------------------------
ASSETS 2007 2006
-------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 0 $ 2,677,545
Accounts receivable 1,129,297 1,330,591
Income taxes receivable 321,580 0
Prepaid expenses 93,686 77,824
-------------------------
1,544,563 4,085,960
Property and equipment (note 3) 13,348,169 12,211,109
-------------------------

$ 14,892,732 $ 16,297,069
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 2,478,424 $ 3,075,693
Income taxes payable 0 270,573
Bank debt (note 4) 282,866 0
-------------------------
2,761,290 3,346,266
Asset retirement obligation (note 5) 733,572 431,900
Future income taxes (note 7) 1,921,926 2,351,703
-------------------------
5,416,788 6,129,869
-------------------------

Shareholders' equity

Share capital (note 6) 3,558,569 3,484,627

Contributed surplus (note 6) 264,664 324,606

Retained earnings 5,652,711 6,357,967
-------------------------

9,475,944 10,167,200
-------------------------

$ 14,892,732 $ 16,297,069
-------------------------
-------------------------
Commitment (note 10)

See accompanying notes to financial statements.

On behalf of the Board of Directors

Thomas R. Holland Donald J. Douglas
Director Director



FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

YEARS ENDED DECEMBER 31, 2007 AND 2006

---------------------------------------------------------------------------
REVENUES 2007 2006
---------------------------------------------------------------------------
Oil and gas sales $ 4,470,898 $ 6,342,482
Royalties, net of ARTC (560,003) (831,266)
-------------------------
3,910,895 5,511,216
Gain on sale of property and equipment (note 3) 0 3,608,885
Interest and other 127,159 197,546
-------------------------
4,038,054 9,317,647
-------------------------

EXPENSES
---------------------------------------------------------------------------
Operating 1,171,234 1,110,467
Processing and transportation 408,378 546,353
General and administration 1,617,758 1,465,851
Depletion and depreciation 2,211,302 2,184,127
Stock-based compensation (note 6) 14,000 93,500
Interest 12,136 24,338
Accretion (note 5) 47,991 29,337
-------------------------
5,482,799 5,453,973
-------------------------

Income (loss) before income taxes (1,444,745) 3,863,674
-------------------------

Provision (reduction) for income taxes (note 7)

Current (309,712) 272,367

Future (429,777) 810,000
-------------------------

(739,489) 1,082,367
-------------------------

Net income (loss) for the year (705,256) 2,781,307


Retained earnings, beginning of year 6,357,967 3,576,660
-------------------------
Retained earnings, end of year $ 5,652,711 $ 6,357,967
-------------------------
-------------------------

Net income (loss) per share (note 6)

Basic $ (0.12) $ 0.48
-------------------------
-------------------------

Diluted $ (0.12) $ 0.47
-------------------------
-------------------------

See accompanying notes to financial statements.



FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007 AND 2006

----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN): 2007 2006
----------------------------------------------------------------------------
OPERATIONS:
----------------------------------------------------------------------------
Net income (loss) for the year $ (705,256) $ 2,781,307
Items not involving cash:
Accretion 47,991 29,337
Depletion and depreciation 2,211,302 2,184,127
Stock-based compensation 14,000 93,500
Future income taxes (reduction) (429,777) 810,000
Gain on sale of property and equipment 0 (3,608,885)
-------------------------
1,138,260 2,289,386

Change in non-cash operating working capital
(note 8) (1,218,990) (2,073,793)
-------------------------
(80,730) 215,593
-------------------------


FINANCING:
----------------------------------------------------------------------------
Increase in bank debt 282,866 0
Common shares issued, net of share issue costs 0 1,950
-------------------------
282,866 1,950
-------------------------


INVESTING:
----------------------------------------------------------------------------
Proceeds on disposal of property and equipment 0 7,350,000
Additions to property and equipment (3,094,681) (8,366,433)
Change in non-cash working capital (note 8) 215,000 1,124,000
-------------------------
(2,879,681) 107,567
-------------------------

Net change in cash and cash equivalents (2,677,545) 325,110


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

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

See accompanying notes to financial statements.


Contact Information

  • TRAFINA Energy Ltd.
    Thomas R. Holland
    Interim President & CEO
    (403) 263-0800
    (403) 263-0811 (FAX)
    Website: www.trafinaenergy.ca