TriLoch Resources Inc.
TSX VENTURE : TLR.A
TSX VENTURE : TLR.B

TriLoch Resources Inc.

May 26, 2005 09:05 ET

TriLoch Announces First Quarter 2005 Results

CALGARY, ALBERTA--(CCNMatthews - May 26, 2005) - TriLoch Resources Inc. (TSX VENTURE:TLR.A) (TSX VENTURE:TLR.B)



Highlights

- Production averaged 1,457 boed in Q1 2005, 55 percent greater than
the same quarter last year;
- Oil production rates rose by 93 percent, while natural gas was 42
percent higher than Q1 2004;
- Funds flow in Q1 was $3,179,031 - up 52 percent compared to Q1 2004;
- Triloch drilled seven (3.7 net) wells in the three months period with
86 percent success;
- Agreed to a proposed sale of the Company through a business
combination with Enerplus Resources Fund, which includes the creation
of NuLoch Resources Inc., a new junior oil and gas company.


-----------------------------------------------------------------------
Three months ended
March 31
2005 2004
Operating

Daily sales volumes
Oil and NGL (bpd) 448 232
Natural gas (mcfd) 6,054 4,257
-----------------------------------------------------------------------
Total oil equivalent(boed) (1) 1,457 942

Average sales prices
Oil and NGL ($ per bbl) $ 52.67 $ 39.92
Natural gas ($ per mcf) $ 7.19 $ 6.66
-----------------------------------------------------------------------

Financial

Petroleum and natural gas revenue $ 6,035,248 $ 3,421,839
Funds flow from operations (2) 3,179,031 2,093,805
Per share - Basic 0.15 0.11
- Diluted 0.15 0.10

Net earnings 997,931 335,805
Per share - Basic 0.05 0.02
- Diluted 0.05 0.02

Working capital (deficiency) (7,411,718) (2,548,303)

Capital expenditures 4,825,158 3,216,130

-----------------------------------------------------------------------
Common shares - end of period
Class A 18,399,452 16,194,752
Class B 807,752 807,752
Options 1,727,500 1,527,500
-----------------------------------------------------------------------
(1) Six mcf of natural gas is considered equivalent to 1 barrel of oil
(2) Funds flow from operations before changes in non-cash operating
working capital


Management's Discussion and Analysis

This interim management discussion and analysis (MD&A) for the three months ended March 31, 2005, prepared as at May 25, 2005 is an update to the MD&A provided for the year ended December 31, 2004. This MD&A should be read in conjunction with the unaudited interim financial statements for the three months ended March 31, 2005 and with the 2004 annual report which contains the audited financial statements for the year ended December 31, 2004.

The financial statements, and extracts of those statements provided within this MD&A, were prepared in Canadian dollars using Canadian generally accepted accounting principles (GAAP). Certain other information with respect to the Company is available on SEDAR at http://www.sedar.com.

Use of Barrels of Oil Equivalent (boe)

Disclosure provided herein in respect of boe units may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf of natural gas to 1 bbl of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and may not represent a value equivalency at the wellhead.

Non-GAAP Measurement - Funds Flow

Funds flow from operations, which is determined before changes in non-cash working capital, is used by the Company as a key measure of performance. Funds flow from operations does not have a standardized meaning prescribed by Canadian generally accepted accounting principles and therefore may not be comparable with the calculation of similar measures for other companies. Funds flow from operations as presented is not intended to represent operating profits for the period nor should it be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Funds flow from operations per share is calculated using the same share bases which are used in the determination of earnings per share.

Forward-Looking Statements

Certain statements in this document or incorporated herein by reference may constitute "forward-looking statements". These forward-looking statements can generally be identified as such because of the context of the statements including words such as the Company "believes", "anticipates", "expects" or words of a similar nature. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions which will, among other things, impact demand for and market prices of the Company's products; industry capacity; the ability of the Company to implement its business strategy, including exploration and development activities; the ability of the Company to complete its capital programs; successful negotiations with bankers and other third parties; the success of exploration and development activities; production levels; government regulations and the expenditures required to comply with them (especially safety and environmental laws and regulations); site restoration costs; and other circumstances affecting revenues and expenses.

Critical Accounting Estimates

The amounts presented in the Company's financial statements depend to varying degrees on estimates made by management. An estimate is considered a critical accounting estimate if it requires management to make assumptions about matters that are highly uncertain, and if different estimates that could have been used would have a material impact.

(a) Proved Petroleum and Natural Gas Reserves

Estimates of proved petroleum and natural gas reserves that can be recovered in future years under forecast economic and operating conditions are critical to many aspects of the Company's financial statements. These estimates are made using geological, reservoir and production data and are subject to revisions based on changes in reservoir performance and commodity prices.

(b) Depletion and Depreciation Expense

Depletion and depreciation of petroleum and natural gas properties and associated equipment are calculated using the unit-of-production method based upon proved reserves as estimated by management each quarter and evaluated by an independent engineer, usually on an annual basis. Costs of acquiring unproved properties are initially excluded from the full cost pool and are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned to a property or a property is considered to be impaired, the cost of the property or the amount of impairment is added to the full cost pool.

The Company applies a cost recovery impairment test to capitalized costs. Future net revenues are estimated using expected future product prices. When the carrying value of capitalized costs is determined to be not recoverable, an impairment loss is recognized to the extent that the value of discounted future net revenues from production of proved and probable reserves plus the cost of unproved properties net of any impairment allowance exceeds the carrying value. Any such impairment loss is charged to depletion and depreciation in the period.

(c) Asset Retirement Obligations

The provision for asset retirement obligations is based on estimates of costs to abandon and reclaim wells and facilities, the timing of those operations, and inflation and discount rates over the life of the reserves. Changes to any of these assumptions will have an impact on the provision and the accretion expense included in earnings.

(d) Income Taxes

The determination of the Company's income tax liabilities requires interpretation of complex laws and regulations and all tax filings are subject to audit and reassessment. Future income tax expense is calculated using tax rates based on the estimated timing of reversal of temporary differences between tax basis and carrying value on the balance sheet of certain assets and liabilities.

Capital Expenditures

In the three months ended March 31, 2005 the Company's capital investment totalled $4,825,158 compared to $3,216,130 in the corresponding three month period in 2004.



Three months ended
March 31
2005 2004

Land and acquisitions $ 2,447 $ 287,758
Seismic and geoscience 420,822 17,481
Drilling and completions 1,992,565 1,692,672
Equipment 2,024,568 1,029,905
Administrative assets 3,793 10,832
Capitalized overhead 380,963 177,482
-----------------------------------------------------------------------
4,825,158 3,216,130
Future asset retirement estimate 59,000 157,000
-----------------------------------------------------------------------
Total $ 4,884,158 $ 3,373,130
-----------------------------------------------------------------------
-----------------------------------------------------------------------

TriLoch drilled seven wells in the three months ended March 31, 2005 as
follows:

Wells Drilled
-----------------------------------------------------------------------
Natural Success
Oil Gas Suspended Dry Total Rate
------- ------- ------- ------- ------- -------
Gross 5 1 - 1 7 86%
Net 2.3 0.4 - 1.0 3.7


In addition to the wells drilled, TriLoch participated in the re-completion of 1 (0.8 net) oil well during the period.

A considerable portion of the capital investment in the quarter was directed to wellsite equipment and tie-in of new oil wells and the installation of pumpjacks on existing wells to enhance and stabilize production rates.

The Company shot a nine-square-mile 3-D seismic program following a trend identified by two wells drilled by the Company in 2004.



Field Netback Analysis

Three months ended
March 31
2005 2004

Daily sales volumes:
Oil and NGL (bpd) 448 232
Natural gas (mcfd) 6,054 4,257
Oil equivalent (boed) 1,457 942

Revenue:
Oil and NGL $ 2,119,673 $ 840,896
Natural gas 3,915,575 2,580,943
-----------------------------------------------------------------------
6,035,248 3,421,839

Royalties (1,376,180) (792,797)
Alberta Royalty Tax Credit 279,369 180,700
Operating (1,183,514) (504,567)
-----------------------------------------------------------------------
Field netback $ 3,754,923 $ 2,305,175
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Selling prices:
Oil and NGL ($/bbl) 52.67 39.92
Natural gas ($/mcf) 7.19 6.66

Field netback per boe:
Oil equivalent selling price ($/boe) 46.05 39.96
Royalties ($/boe) (10.50) (9.26)
Alberta Royalty
Tax Credit ($/boe) 2.13 2.11
Operating ($/boe) (9.03) (5.89)
-----------------------------------------------------------------------
Field netback ($/boe) 28.65 26.92
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Revenue

Gross revenue from the sale of petroleum and natural gas totalled $6,035,248 during the three months ended March 31, 2005. This compares to $3,421,839 in the first quarter of 2004. Most of the increase is attributable to higher 2005 sales volumes that averaged 1,457 boed in the quarter, consisting of 448 bpd of oil and NGL and 6,054 mcfd of natural gas. Oil and NGL average rates increased by 93 percent while natural gas rates were 42 percent higher than a year ago. Higher oil rates in the current quarter are attributable to 8.2 net wells drilled in 2004 that did not contribute to production in the first quarter of 2004. The natural gas rates reflect the addition of 26.2 net shallow gas wells placed on production in the first quarter of 2005.

During the first quarter, average liquids prices were $52.67 per barrel while natural gas was sold into the daily spot market at an average of $7.19 per mcf. These prices were 32 percent higher for oil and 8 percent higher for natural gas than those achieved in the first quarter of 2004. Market forces were the primary determinant of the prices received. However, the Company's oil battery, commissioned in fall 2004, permits the trucking of clean oil to markets with better prices than is possible from third-party facilities that are pipeline-connected to different markets.

Royalties

The Company incurred gross Crown royalties of $1,194,392 in the first quarter of 2005 compared to $731,714 in the corresponding period last year. This represents approximately 20 percent and 21 percent, respectively, of gross petroleum and natural gas revenue in the quarters. Freehold and overriding royalties accounted for a further 3 percent of gross revenue. After adjusting for ARTC, the overall effective royalty rate on production revenue was 18 percent.

Operating

Operating expenses, including transportation of products to market, totalled $1,183,514 in the three months ended March 31, 2005 which equates to $9.03 per boe compared to $504,567 ($5.89 per boe) in the first quarter of 2004. Generally, the cost per boe increases as the Company's production matures and production rates on individual wells decline. Much of the oil production has now been converted to pumpjack which requires additional expenditures for fuel and maintenance.

Effective April 1, 2004 the Company adopted a new accounting recommendation with respect to transportation of products to market. These amounts are now considered operating costs rather than netted against petroleum and natural gas revenue and comparative figures have been restated to conform to this presentation.

Interest

The Company has established a demand, revolving, operating credit facility with a Canadian chartered bank in the amount of $12,000,000. At the end of the quarter, a total of $5,987,988 had been drawn on this facility. Interest expense, based on the bank's prime rate, totalled $47,863 for the three months ended March 31, 2005. In the corresponding period last year, interest expense was $11,510.



General and Administrative (G&A)

Three months ended
March 31,
2005 2004

Gross overhead costs $ 927,871 $ 379,420
Amounts capitalized (380,963) (177,481)
Stock-based compensation 98,100 73,000
-----------------------------------------------------------------------
Net G&A $ 645,008 $ 274,939
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Per BOE

Gross overhead costs $ 7.08 $ 4.43
Amounts capitalized (2.91) (2.07)
Stock-based compensation 0.75 0.85
-----------------------------------------------------------------------
Net G&A $ 4.92 $ 3.21
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Most of the increase in G&A, both quantum and rate per boe, is attributable to increased employee compensation and petroleum and natural gas reserve evaluation costs commensurate with the increased size of the business.

Depletion, Depreciation and Asset Retirement Accretion (DD&A)

DD&A expenses were $1,514,000 ($11.55 per boe) in the quarter ended March 31, 2005 compared to $1,457,000 ($17.01 per boe) recorded in the corresponding period of 2004. These amounts are calculated using proved reserves and production volumes in the period. A year ago, the Company had many new wells with short production histories and only limited volumes of proved reserves could be assigned to such wells. Consequently, the DD&A rate per boe was much higher than the $11.55 recorded this year. In the updated reserve report effective December 31, 2004, proved reserves were assigned to the waterflood potential of certain oil pools and the Company's shallow gas program drilled in fall 2004 provided significant additional proved gas reserves.

Income Taxes

The estimated future income tax liability arising from operations was $569,000 and $228,000 in the three months ended March 31, 2005 and 2004, respectively. There is no provision for current taxes payable; however, the current tax horizon will depend on factors such as production levels, commodity prices and the nature of capital expenditures over the balance of the year.

The effective rates of income tax expense in the quarters were 36.3 percent in 2005 and 40.4 percent in 2004. The liability for future taxes at March 31, 2005 was increased to $5,516,300 from $3,939,300 at December 31, 2004. This was the result of the 2005 future income tax provision of $569,000 and the $1,008,000 tax effect associated with the renouncement, in the quarter, of $3,000,000 of Canadian Exploration Expense with respect to the November 2004 flow-through private placement of Class A common shares.

Funds Flow and Net Earnings

Funds flow from operations amounted to $3,179,031 ($0.15 per share basic) in the three months ended March 31, 2005 which is 52 percent higher than the $2,093,805 ($0.11 per share) posted in the first quarter of 2004. This increase is consistent with the 55 percent increase in oil equivalent production rates. Higher commodity prices in the current quarter were offset by higher operating and G&A expenses.

Net earnings were $997,931 and $335,805 in the three months ended March 31, 2005 and 2004 respectively. This 197 percent increase in Q1 profit outpaced the 52 percent increase in funds flow. Most of the increase in net earnings is attributable to much lower rates of depletion and depreciation per boe. Those costs are based on estimates of proved reserves and are the largest single expense of the Company. Future profitability will depend, in large measure, on the estimates of the Company's proved reserves.

Liquidity and Capital Resources

TriLoch had a working capital deficiency of $7,411,718 at March 31, 2005 compared to a deficiency of $5,765,591 at December 31, 2004. Year-to-date capital expenditures, which total $4,825,158, exceeded funds flow of $3,179,031 in the period.

The Company maintains a demand, revolving, operating credit facility with a Canadian chartered bank. The borrowing base has been set at $12,000,000. This amount can be adjusted upward by mutual agreement with the bank depending primarily on the Company's proved producing petroleum and natural gas reserves.

In 2004 the Company issued 1,000,000 Class A common shares on a flow-through basis pursuant to a private placement at $3.00 per share for gross proceeds of $3,000,000. The Company is committed to incur qualifying Canadian Exploration Expenses in the amount of $3,000,000 prior to December 31, 2005.

The capital program has been established at $26,000,000 for 2005. A shortfall in available funds may be satisfied with bank borrowings or further equity issues if appropriate. If these or other sources of funding are insufficient, then prudent reductions in the capital program may be warranted.

Subsequent Event

On May 16, 2005 the Company entered into an agreement with Enerplus Resources Fund ("Enerplus"), unanimously agreed to by the boards of directors of both organizations, that will result in a business combination through a plan of arrangement (the "Plan"). Enerplus will acquire the Company and virtually all of its assets in exchange for units of Enerplus.

Enerplus has agreed to issue to TriLoch shareholders 0.07151 of an Enerplus trust unit ("Enerplus Unit") for each TriLoch Class A share ("Class A Share") and 0.23923 of an Enerplus Unit for each TriLoch Class B share. In addition, holders of TriLoch Class A Shares will receive, in respect of each Class A Share held, one share of a newly created company ("NuLoch"), which will hold certain properties and opportunities currently held by TriLoch. The shares of NuLoch will then be consolidated on a 10-for-1 basis.

The total value of the transaction, based upon Enerplus' last closing price prior to the announcement of $41.80 and including assumed debt of approximately $5.2 million (net of option proceeds), is approximately $73.4 million. This excludes transaction costs and value attributable to NuLoch.

The current management of TriLoch will play a key role at NuLoch where they plan to invest $700,000 by way of private placement. This is expected to be followed by the sale, brokered on a best-efforts basis, of 7,000 units at $1,000 per unit. Each unit is expected to consist of 400 Class A shares at $0.25 each and 90 Class B shares at $10.00 each. Upon completion of these steps NuLoch expects to have 7,612,695 Class A shares and 630,000 Class B shares with net proceeds and assets of approximately $7.5 million.

The Plan is subject to approval in court and by the Company's shareholders and includes a break fee payable to Enerplus in certain circumstances. The Plan is expected to take effect prior to July 2005.

Outstanding Share Data

The Class A and Class B common shares of the Company trade on the TSX Venture Exchange under the symbols TLR.A and TLR.B, respectively. The number of outstanding Class A and Class B common shares and options to acquire Class A common shares is unchanged at the date of this MD&A from that disclosed in the interim financial statements for the three months ended March 31, 2005.



Selected Quarterly Information

($000s except per share amounts)
2005 2004(1) 2003(1)
------ ----------------------- -----------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Petroleum and
natural gas revenue 6,035 4,001 3,450 4,285 3,422 1,971 1,715 961

Net earnings (loss) 998 773 372 868 336 (17) 150 111
Per share basic 0.05 0.02 0.02 0.04 0.02 - 0.01 0.01
Per share diluted 0.05 0.02 0.02 0.04 0.02 - 0.01 0.01

(1) Amounts have been adjusted to conform to current presentation and
to reflect changes in accounting policies regarding asset
retirement obligations and stock-based compensation.


Unaudited Financial Statements

TRILOCH RESOURCES INC.
Balance Sheets
As at March 31, December 31,
2005 2004
------------- -------------
Assets

Current assets:
Cash and cash equivalents $ - $ 1,735,594
Accounts receivable 4,128,965 2,164,278
Prepaid expenses and other assets 151,386 114,033
------------- -------------
4,280,351 4,013,905

Property and equipment (note 3) 37,551,440 34,163,282
------------- -------------
$ 41,831,791 $ 38,177,187
------------- -------------
------------- -------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and
accrued liabilities $ 5,704,081 $ 9,779,496
Bank loan (note 4) 5,987,988 -
------------- -------------
11,692,069 9,779,496

Future asset retirement
obligations (note 5) 1,519,000 1,442,000
Future income taxes 5,516,300 3,939,300

Shareholders' equity:
Share capital (note 6) 19,068,351 20,076,351
Contributed surplus (note 6(d)) 537,100 439,000
Retained earnings 3,498,971 2,501,040
------------- -------------
23,104,422 23,016,391

Commitment (note 7)
------------- -------------
$ 41,831,791 $ 38,177,187
------------- -------------
------------- -------------

Subsequent event (note 10)

See accompanying notes to financial statements


TRILOCH RESOURCES INC.
Statements of Operations and Retained Earnings
Three months ended March 31,
2005 2004
------------- -------------
Revenue:
Petroleum and natural gas $ 6,035,248 $ 3,421,839
Royalties, net of
Alberta Royalty Tax Credit (1,096,811) (612,097)
Interest and other 18,879 2,079
------------- -------------
4,957,316 2,811,821

Expenses:
Operating 1,183,514 504,567
General and administrative 645,008 274,939
Depletion, depreciation
and asset retirement accretion 1,514,000 1,457,000
Interest 47,863 11,510
------------- -------------
3,390,385 2,248,016

------------- -------------
Earnings before income taxes 1,566,931 563,805

Future income taxes 569,000 228,000
------------- -------------
Net earnings 997,931 335,805

Retained earnings,
beginning of period 2,501,040 151,935
------------- -------------
Retained earnings, end of period $ 3,498,971 $ 487,740
------------- -------------
------------- -------------

Net earnings per share (note 6(e)):
Basic $ 0.05 $ 0.02
Diluted 0.05 0.02
------------- -------------
------------- -------------

See accompanying notes to financial statements


TRILOCH RESOURCES INC.
Statements of Cash Flows
Three months ended March 31,
2005 2004
------------- -------------
Cash provided by (used in):

Operating:
Net earnings $ 997,931 $ 335,805
Items not involving cash:
Depletion, depreciation
and asset retirement accretion 1,514,000 1,457,000
Stock-based compensation 98,100 73,000
Future income taxes 569,000 228,000
------------- -------------
3,179,031 2,093,805
Change in non-cash
operating working capital (712,228) (977,578)
------------- -------------
2,466,803 1,116,227

Financing:
Increase in bank loan 5,987,988 1,012,638
Change in non-cash
financing working capital (22,724) -
------------- -------------
5,965,264 1,012,638


Investing:
Property and equipment (4,825,158) (3,216,130)
Change in non-cash
investing working capital (5,342,503) (612,284)
------------- -------------
(10,167,661) (3,828,414)
------------- -------------
Decrease in cash and cash equivalents (1,735,594) (1,699,549)

Cash and cash
equivalents, beginning of period 1,735,594 1,699,549

------------- -------------
Cash and cash equivalents, end of period $ - $ -
------------- -------------
------------- -------------

Supplemental cash flow information (note 8)

See accompanying notes to financial statements


TRILOCH RESOURCES INC.
Notes to the Financial Statements
For the three months ended March 31, 2005 and 2004


1. Basis of Presentation

These interim financial statements have been prepared by management of TriLoch Resources Inc. (the "Corporation") in accordance with Canadian generally accepted accounting principles using the same accounting policies as the financial statements for the year ended December 31, 2004. The disclosures contained herein are incremental to, and should be read in conjunction with, those annual financial statements.

2. Comparative Figures

Certain prior year amounts have been reclassified to conform to current year presentation.



3. Property and Equipment

Accumulated
depletion and Net book
March 31, 2005 Cost depreciation value
-----------------------------------------------------------------------
Petroleum and natural
gas interests $ 46,362,573 8,924,000 $ 37,438,573
Administrative assets 302,867 190,000 112,867
------------ ------------- -------------
$46,665,440 9,114,000 $ 37,551,440
------------ ------------- -------------
------------ ------------- -------------

December 31, 2004
-----------------------------------------------------------------------
Petroleum and natural
gas interests $ 41,482,208 7,442,000 $ 34,040,208
Administrative assets 299,074 176,000 123,074
------------ ------------- -------------
$41,781,282 7,618,000 $ 34,163,282
------------ ------------- -------------
------------ ------------- -------------


The Corporation capitalized general and administrative costs of $381,000 and $177,000 directly related to the acquisition, exploration and development of petroleum and natural gas reserves for the three month periods ended March 31, 2005 and 2004 respectively.

At March 31, 2005 costs associated with undeveloped or unproved petroleum and natural gas properties totalling $1,439,000 have been excluded from the depletion calculation (March 31, 2004 - $3,542,000).

4. Bank Loan

The Corporation maintains a Demand Revolving Operating Credit Facility with a Canadian chartered bank in the amount of $12,000,000. Borrowings under the facility bear interest at the bank's prime rate and are secured by a demand fixed and floating charge debenture conveying a first charge on all assets of the Corporation.

5. Future Asset Retirement Obligations

Expected future costs assume an inflation rate of 2 percent per annum and the present value of the estimated future asset retirement obligation has been calculated using a credit-adjusted risk-free rate of 5 percent per annum. A reconciliation of the change in future asset retirement obligations is presented in the following table.



Balance, beginning of period $ 1,442,000
Liabilities incurred 59,000
Accretion expense 18,000
-------------
Balance, March 31, 2005 $ 1,519,000
-------------
-------------


Most of the obligations are expected to be settled after 2009.

6. Share Capital

(a) Authorized

An unlimited number of Class A, Class B and Class C shares have been authorized.

Class B shares are exchangeable for Class A shares. The number of Class A shares obtained upon conversion of each Class B share will be equal to $10.00 divided by the greater of $1.00 and the 30-day average closing price for Class A common shares immediately prior to the effective date of conversion. Conversion may be effected by the Corporation in 2006 or 2007 or, if not converted before 2008, then at the option of the Class B shareholder in January, 2008 or otherwise automatically on February 1, 2008.



(b) Issued and outstanding
Common
Shares Amount
------------- -------------
Class A common shares
Balance, December 31, 2004 18,399,452 $ 15,558,119
Tax effect of flow-through renunciation (1,008,000)
------------- -------------
Balance, March 31, 2005 18,399,452 14,550,119
------------- -------------
Class B common shares
Balance, December 31, 2004
and March 31, 2005 807,752 4,518,232
------------- -------------

Total share capital, March 31, 2005 $ 19,068,351
-------------
-------------


(c) Stock option plan

The Corporation maintains a stock option plan for its directors and employees that allows for a maximum of 1,920,720 options to be granted. The options vest a third annually over three years and expire after five years. Options are issued at strike prices equal to or greater than the market value of the Corporation's Class A shares on the date of grant.

The following table summarizes information about stock options outstanding at March 31, 2005.



Weighted Weighted
Remaining Average Average
Life Exercise Exercise
Options (Years) Price Vested Price
---------- ------ ------- --------- -------
1,037,500 2.5 $0.35 691,668 $0.35
130,000 2.9 $1.61 86,667 1.61
360,000 3.5 $2.76 119,998 2.76
20,000 4.3 $2.60 - -
180,000 4.7 $2.32 - -
---------- ------ ------- --------- -------
1,727,500 3.0 $1.18 898,333 $0.79
---------- ------ ------- --------- -------
---------- ------ ------- --------- -------


(d) Stock-based compensation expense

Options were not issued in the three months ended March 31, 2005. The Corporation estimated the weighted average fair value of options granted in 2004 at $1.50 each using the Black-Scholes pricing model with a risk-free interest rate of 4 percent, an option life of 5 years and expected volatility of 75 percent.

(e) Per share amounts

Per share amounts have been calculated on the weighted average number of shares outstanding after giving effect to the potential conversion of Class B shares into Class A shares at 1:3.1, based on the average closing price of Class A shares of $3.23 in the 30 trading days prior to March 31, 2005. The weighted average number of shares outstanding for the three months ended March 31, 2005 was 20,900,000 (2004 - 19,544,000). Options, when the exercise price is less than the average market price of the underlying security, are dilutive to net earnings per share and notionally increase the weighted average number of Class A common shares outstanding to 21,771,000 (2004 - 20,482,000).

7. Commitment

On February 24, 2005, the Corporation renounced $3,000,000 of Canadian Exploration Expense with an effective date of December 31, 2004 pursuant to the terms of its 2004 flow-through private placement of Class A common shares. The Corporation has committed to incur these qualifying resource expenditures prior to December 31, 2005.

8. Supplemental Cash Flow Information

During the three months ended March 31, 2005 the Corporation paid interest totalling $20,101 (March 31, 2004 - $135,831).

Provisions of the Income Tax Act permitted the renouncement of tax benefits to investors effective December 31, 2004 even though the corresponding exploration and development expenditures will not be made until 2005. For the three months ended March 31, 2005 interest, at 5 percent per annum and totaling $17,785, was payable on the unspent balance of those expenditures.

9. Financial Instruments

At March 31, 2005, the carrying value of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities included on the balance sheets approximate their fair value due to their short-term to maturity.

10. Subsequent Event

On May 16, 2005 the Corporation entered into an agreement with Enerplus Resources Fund ("Enerplus"), unanimously agreed to by the boards of directors of both organizations, that will result in a business combination through a plan of arrangement (the "Plan"). Pursuant to the Plan, Enerplus will acquire the Corporation and virtually all of its assets in exchange for units of Enerplus. Class A shareholders will also receive shares in a newly formed company that will hold certain properties and opportunities now held by Triloch. The Plan is subject to approval in court and by the Corporation's shareholders and is expected to take effect prior to July 2005.

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

Contact Information

  • TriLoch Resources Inc.
    Allan E. Spurgeon
    Chief Executive Officer
    (403) 920-0455
    or
    TriLoch Resources Inc.
    James N. McIndoe
    President and Chief Operating Officer
    (403) 920-0455
    (403) 920-0457 (FAX)
    Website: http://www.triloch.com