TUSK Energy Corporation
TSX : TSK

TUSK Energy Corporation

May 09, 2008 08:00 ET

TUSK Energy Corporation: Financial and Operating Results for the Three Months Ended March 31, 2008

CALGARY, ALBERTA--(Marketwire - May 9, 2008) - TUSK Energy Corporation ("TUSK" or the "Corporation") (TSX:TSK) is pleased to announce its financial and operating results for the three months ended March 31, 2008.



HIGHLIGHTS

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Three Months Ended March 31, 2008 2007 % Change
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($000s, except per share amounts)
Financial
Oil and gas revenue 25,852 16,200 60
Funds from operations (1) 13,702 6,136 123
Per share - basic and diluted 0.15 0.07 114
Net income (loss) (454) (2,430) (81)
Per share - basic and diluted (0.01) (0.03) (67)
Capital expenditures (net) 14,393 47,984 (70)
Net debt (working capital deficiency) 57,649 27,899 107
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Operations
Sales volumes
Oil (bbls/d) 1,596 1,454 10
Natural gas (mcf/d) 15,049 11,413 32
Natural gas liquids (bbls/d) 122 77 58
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Combined (boe/d) 4,226 3,433 23
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Operating netbacks ($/boe) (2)
Average selling prices 67.22 52.47 28
Royalties (13.53) (10.93) 24
Operating expenses (10.49) (10.74) (2)
Transportation expenses (2.61) (2.52) 4
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Operating netback 40.59 28.28 44
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Share Data (#000s)
Weighted average outstanding 90,442 88,880 2
Equity outstanding - end of period
Common shares 90,442 88,880 2
Stock options 8,142 8,416 (3)
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(1) Funds from operations is a non-GAAP measure that represents net income
(loss) before depletion, depreciation and accretion, future taxes,
stock-based compensation, gain on investment, commodity derivatives and
asset retirement obligation expenditures. See further discussion under
Non-GAAP Measures in the Management's Discussion and Analysis.

(2) Operating netback is a non-GAAP measure that represents specific revenue
and expenses on a per unit of production basis. Natural gas has been
converted to boe at a ratio of 6 mcf : 1 bbl.


LETTER TO SHAREHOLDERS

First Quarter 2008 Highlights

During the first three months of 2008, sales volumes averaged 4,226 boe/d, 23% higher than the volumes recorded in the 2007 three-month period. On a barrel of oil equivalent basis, natural gas accounted for 59% of first quarter 2008 volumes and oil and NGLs 41%. Compared to the same period in 2007, TUSK's realized oil price increased 51% to $95.29/bbl and natural gas prices rose 11% to $8.17/mcf. First quarter 2008 revenue was $25,852,000 (Q1 2007 - $16,200,000), funds from operations totaled $13,702,000 (Q1 2007 - $6,136,000) and the net loss was $454,000 (Q1 2007 - $2,430,000). On a per share basis, first quarter 2008 funds from operations more than doubled to $0.15 per share (Q1 2007 - $0.07 per share) and the net loss was reduced to $0.01 per share (Q1 2007 - $0.03 per share).

Capital expenditures for the three months ended March 31, 2008 totaled $26,094,000, down from $47,984,000 spent in the same period in 2007. Approximately 63% of first quarter 2008 expenditures were incurred in the Conroy area, where 6 gross (3.0 net) wells were drilled and construction of a gas processing facility and pipeline was completed. Approximately 31% of first quarter capital expenditures were spent in the Mega/Gutah area, primarily on the drilling of 4 gross (3.3 net) horizontal wells. Most of the remaining 6% of the expenditures were incurred in the Peace River Arch area.

On March 31, 2008, TUSK completed the swap of its 50% non-operated interests in the Elleh area for certain interests in the Conroy area and $11,700,000. Both Elleh and Conroy are natural gas projects located in northeastern British Columbia. Post swap, TUSK operates approximately 90% of its production and virtually its entire drilling inventory.

Reserves

On April 30, 2008, TUSK announced the results of an independent reserves evaluation effective March 31, 2008. This reserves update took into account the asset swap noted above and, therefore, provides shareholders with an up-to-date picture of our asset values. At a high level, the reserves evaluation showed an increase in the estimated before tax net present value of future net revenue discounted at 10% ("BT-NPV10") for proved plus probable reserves of $96 million and an increase in the estimated BT-NPV10 for proved reserves of $49 million. TUSK estimates the factors that contributed to the increase in the estimated values for total proved plus probable reserves were as follows: Northeastern British Columbia asset swap - 81% increase; new discoveries - 15% increase; higher commodity prices - 7% increase; and first quarter 2008 production - 3% decrease. Deeper in the numbers is the fact that our proved volumes decreased while probable volumes increased, and the values of proved and proved plus probable increased. From a reserves perspective, our next challenge is moving probable volumes into the proved category through drilling.

Outlook

At Conroy, we plan to drill at least 25 wells starting after spring breakup. If circumstances warrant, we have licenced 40 wells to ensure an adequate drilling inventory. We have three rigs scheduled to move to Conroy in mid to late June, depending on weather. New natural gas from this drilling program is anticipated to start coming on-stream in August. This is a very exciting program for TUSK as much of our expected production increases will come from this area.

Commodity prices have recently reached new highs and futures markets indicate that expectations are for these strong prices to continue. TUSK currently has no arrangements in place that limit the upside of oil and natural gas prices. These high prices will provide the Corporation with the financial flexibility to increase capital budgets, pay down debt or buy back shares. Each of these alternatives are being evaluated by management on an ongoing basis.

On behalf of the Board of Directors,

John R. Rooney

Chief Executive Officer

May 9, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis of financial condition and results of operations ("MD&A") was prepared by management and reviewed and approved by the Board of Directors of TUSK Energy Corporation ("TUSK" or the "Corporation"). The discussion and analysis is a review of TUSK's operational and financial results based on Canadian generally accepted accounting principles ("GAAP"). Its focus is primarily a discussion of the operational and financial performance for the three months ended March 31, 2008 and 2007 and should be read in conjunction with the unaudited financial statements for the three months ended March 31, 2008 and the audited financial statements and related MD&A for the year ended December 31, 2007. TUSK's audited financial statements and related MD&A for the year ended December 31, 2007 are available on SEDAR at www.sedar.com or on TUSK's website at www.tusk-energy.com. The discussion and analysis has been prepared as of May 9, 2008.

FORWARD-LOOKING STATEMENTS

The information herein contains forward-looking statements and assumptions, such as those relating but not limited to, risks associated with the oil and gas industry in general (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserves estimates; the uncertainty of estimates and projections relating to production, costs and expenses; and health, safety and environmental risks), commodity prices, financing sources and exchange rate fluctuations. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, actual results may differ materially from those predicted. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise, and as such, undue reliance should not be placed on forward-looking statements. Unless required by law, the Corporation does not undertake any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

NON-GAAP MEASURES

This MD&A contains the terms "funds from operations", "funds from operations per share", "operating netback", "cash netback" and "corporate netback". These terms do not have any standardized meaning under GAAP, and therefore, may not be comparable with the calculation of similar measures presented by other issuers. Funds from operations is calculated based on cash provided by operating activities before changes in non-cash working capital and expenditures on asset retirement obligations. TUSK believes that, in conjunction with results presented in accordance with GAAP, these measures assist in providing a more complete understanding of certain aspects of the Corporation's results of operations and the ability to finance capital expenditures. Funds from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of earnings per share. Funds from operations as presented should not be considered an alternative to, or more meaningful than, cash provided by operating activities as determined in accordance with GAAP as an indicator of the Corporation's performance.

The table below reconciles cash provided by operating activities to funds from operations.



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Three Months Ended March 31, 2008 2007 % Change
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($000s)
Cash provided by operating activities
(per GAAP) 10,139 7,393 37
Changes in non-cash working capital 3,238 (1,257) 358
Asset retirement obligation
expenditures 325 - -
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Funds from operations 13,702 6,136 123
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BOE PRESENTATION

Barrels of oil equivalent may be misleading, particularly if used in isolation. The boe conversion ratio of 6 mcf : 1 bbl of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this report are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.

OVERVIEW OF THREE MONTHS ENDED MARCH 31, 2008

First quarter 2008 sales volumes averaged 4,226 boe/d comprised of 1,718 boe/d of oil and NGLs and 15,049 mcf/d of natural gas. Commodity prices were strong in the quarter, with TUSK realizing average selling prices of $95.29/bbl of oil and $8.17/mcf of natural gas. For the three months ended March 31, 2008, TUSK reported revenue of $25,852,000, funds from operations of $13,702,000 ($0.15 per share) and a net loss of $454,000 ($0.01 per share). Capital expenditures for the period were $26,094,000 with Conroy and Mega/Gutah accounting for the majority of the investment. At Conroy, TUSK drilled 6 gross (3.0 net) gas wells and completed a sales pipeline and a gas processing facility. All of the new Conroy wells were on production by the end of the first quarter. At Mega/Gutah, TUSK drilled 4 gross (3.3 net) oil wells during the three-month period. Two gross (2.0 net) wells were placed on production and 2 gross (1.3 net) wells are standing. One of the standing wells is waiting on a workover/stimulation and the other is waiting on the drilling of a second horizontal leg.

On March 31, 2008, TUSK completed the swap of its non-operated 50% interest in Elleh for certain interests at Conroy plus $11,700,000 (see "Northeastern British Columbia Asset Swap"). TUSK funded the majority of its first quarter 2008 capital expenditure program with funds from operations and the cash received from the asset swap. As a result, TUSK's net debt (working capital deficiency) at March 31, 2008 of $57,649,000 is only $1,079,000 higher than it was at December 31, 2007.

NORTHEASTERN BRITISH COLUMBIA ASSET SWAP

On March 31, 2008, TUSK exchanged its 50% non-operated interest in the Elleh area for certain interests in the Conroy area and $11,700,000. Both Elleh and Conroy are located in northeastern British Columbia. As of April 1, 2008, TUSK has no interests in the Elleh area. At Conroy, TUSK now holds and operates a 100% working interest in two gas plants and 85 kilometres of pipelines, mostly 100% working interest in 125,000 acres of mineral rights and a royalty interest in 32,000 acres of mineral rights. TUSK estimates that there are currently 116 drilling locations in the area, half of which are summer accessible. The asset swap resulted in the termination of TUSK's farm-in commitments in the Conroy area. The 100% working interest will give TUSK complete control over the project's development.



FINANCIAL AND OPERATING RESULTS

Sales Volumes

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Three Months Ended March 31, 2008 2007 % Change
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Oil (bbls/d) 1,596 1,454 10
Natural gas (mcf/d) 15,049 11,413 32
NGLs (bbls/d) 122 77 58
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Combined (boe/d) 4,226 3,433 23
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Sales volumes averaged 4,226 boe/d during the three months ended March 31, 2008, up from 3,433 boe/d during the same period in 2007. Comparing the first quarter of 2008 to the same period in 2007, all three major areas experienced higher volumes. At Conroy in northeastern British Columbia, volumes averaged 358 boe/d in the first quarter of 2008. TUSK started developing the Conroy project during the third quarter of 2007. Overall, the Peace River Arch area showed a 186 boe/d improvement, where increases at Gage offset declines at Puskwa/Peoria. The Northern area showed a very modest improvement in the first quarter of 2008 compared to the same period in 2007.

In the first quarter of 2008, oil and NGLs accounted for 41% and natural gas for 59% of TUSK's sales volumes. Based on current expenditure plans, TUSK expects its production mix for the balance of 2008 to be in the same range as the first quarter.

The table below details TUSK's sales volumes by area for the first quarter of 2008.



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Oil & Natural Gas Combined
NGLs
(bbls/d) (mcf/d) (boe/d)
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Northeastern British Columbia
(Elleh, Conroy, Thetlaandoa) 147 9,288 1,695
Peace River Arch, Alberta
(Clair, Gage, Puskwa/Peoria) 1,185 5,432 2,090
Northern (Mega, Gutah) 386 329 441
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Total 1,718 15,049 4,226
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Commodity Prices and Risk Management

Benchmark Prices
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Three Months Ended March 31, 2008 2007 % Change
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Crude oil
WTI (US$/bbl) 97.96 58.11 68
Edmonton Light (CDN$/bbl) 97.64 67.07 45
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Natural gas
AECO (CDN$/mcf) (1) 7.13 7.46 (4)
AECO (CDN$/GJ) 6.76 7.07 (4)
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Foreign exchange rate
US dollar to Canadian dollar 1.004 1.172 (14)
Canadian dollar to US dollar 0.996 0.854 17
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(1) AECO selling price per mcf is based on a conversion factor of 1.055 mcf
per GJ.


Realized Selling Prices
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Three Months Ended March 31, 2008 2007 % Change
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Oil ($/bbl) 95.29 63.20 51
Natural gas ($/mcf) 8.17 7.37 11
NGLs ($/bbl) 74.57 50.60 47
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Combined ($/boe) 67.22 52.47 28
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In the first quarter of 2008, TUSK's sales volumes were sold at daily posted prices, and therefore, changes to realized selling prices reflect market conditions. TUSK produces light oil, which results in a small differential to posted prices. In the first quarter of 2008, TUSK's realized natural gas price was $8.17/mcf, which was $1.04/mcf higher than the AECO benchmark price of $7.13/mcf. The relatively high first quarter 2008 natural gas selling price was the result of a combination of a number of factors. First, in the first quarter of 2008, TUSK sold its natural gas at daily spot prices whereas the benchmark is a monthly posted price. During the first quarter of 2008, natural gas prices increased every month, which is reflected immediately in daily prices but delayed in the monthly price. Second, although described in terms of price per unit volume ($/mcf), the selling price of natural gas is actually determined by its energy content ($/GJ) or heating value ($/mmbtu). Benchmark prices are based on average heating value natural gas whereas some of TUSK's properties produce high heat gas (e.g. Conroy). Third, results for the first quarter of 2008 include natural gas volume adjustments that relate to a previous quarter.

In September 2007, TUSK entered into an arrangement to ensure a minimum level of revenue on a portion of its 2008 oil production. TUSK purchased a US$65.00/bbl put option contract on 1,000 bbls/d of oil for the period of January 1, 2008 to December 31, 2008. The put contract is a right and not an obligation and effectively acts as a floor price with no constraint or limitation on upward price movements. Furthermore, because the cost of the contract is paid in full when the arrangement is entered into, TUSK is not exposed to any ongoing risk as it relates to the put option. The arrangement allows TUSK to more accurately forecast funds from operations, which are used to finance capital expenditures. In addition, this particular contract was used by TUSK's bankers in their determination of lending values.

TUSK paid $781,000 to enter into the contract and, based on a mark-to-market valuation, would have received $46,000 if the contract was settled at the end of March 2008. The $46,000 is recorded on the balance sheet as a current asset. Going forward, TUSK may enter into additional arrangements to reduce its exposure to oil and natural gas price fluctuations.



Revenue

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Three Months Ended March 31, 2008 2007 % Change
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($000s)
Oil 13,843 8,273 67
Natural gas 11,183 7,574 48
NGLs 826 353 134
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Combined 25,852 16,200 60
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Oil and gas revenue for the three months ended March 31, 2008 was $25,852,000 compared to $16,200,000 in the same period of 2007 as a result of higher sales volumes and selling prices.



Royalties

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Three Months Ended March 31, 2008 2007 % Change
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($000s)
Crown 4,772 3,003 59
Freehold 234 100 134
Gross overriding 198 278 (29)
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Total 5,204 3,381 54
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Royalties as a % of revenue (%) 20.1 20.9 (4)
Royalties per boe ($/boe) 13.53 10.93 24
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Royalties were $5,204,000 for the first quarter of 2008, up from $3,381,000 in the same period of 2007. The increase was almost exclusively due to higher revenue, as the decline in the effective royalty rate to 20.1% from 20.9% had only a modest impact. Comparing the first quarter of 2008 to the first quarter of 2007, freehold royalties are a larger percentage of total royalties. Most of TUSK's freehold royalty burden is at the Gage property in the Peace River Arch area. TUSK increased its interest in this property in the second quarter of 2007.

In the fall of 2007, the Alberta government announced a New Royalty Framework ("NRF") to take effect on January 1, 2009. TUSK's Conroy project area, which is located in British Columbia, and a small portion of its Alberta production does not attract Alberta Crown royalty and is therefore not subject to the NRF. TUSK estimated the impact on the Corporation's December 31, 2007 before tax net present value of future net revenue discounted at 10% due to the NRF on total proved plus probable reserves to be a reduction of between 5% and 6%. TUSK received an evaluation of its reserves effective March 31, 2008, but did not run sensitivities to the NRF. On April 10, 2008, Alberta's Energy Minister announced new deep resource programs intended to promote high cost oil and gas development. Based on the limited application of these programs to TUSK's current opportunity portfolio and considering the information on these new programs released publicly since that announcement, TUSK anticipates that these programs will not be sufficient to offset the detrimental economic impact of the NRF. TUSK will continue to focus its capital expenditure plans outside of the Province of Alberta.



Operating Expenses

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Three Months Ended March 31, 2008 2007 % Change
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Total ($000s) 4,037 3,320 22
Per boe ($/boe) 10.49 10.74 (2)
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Operating expenses were $4,037,000 for the three months ended March 31, 2008 compared to $3,320,000 during the same period of 2007. The overall increase was caused by higher production volumes offset by a modest decline in the unit rate to $10.49/boe in 2008 from $10.74/boe in 2007. TUSK anticipates operating expenses to trend to $10.00/boe for the balance of 2008.



Transportation Expenses

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Three Months Ended March 31, 2008 2007 % Change
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Total ($000s) 1,003 779 29
Per boe ($/boe) 2.61 2.52 4
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Transportation expenses for the first three months of 2008 were $1,003,000 ($2.61/boe) compared to $779,000 ($2.52/boe) for the same period in 2007. The year-over-year increase in total transportation expenses was due to higher production volumes and an increase in the cost per boe. Transportation expenses per boe fluctuate in response to changes in TUSK's production profile.



General and Administrative ("G&A") Expenses

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Three Months Ended March 31, 2008 2007 % Change
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($000s)
Total 2,022 4,362 (55)
Overhead recoveries (491) (372) 6
Capitalized (315) (1,260) (75)
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Expensed 1,216 2,730 (55)
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Expensed per boe ($/boe) 3.16 8.83 (64)
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Total G&A costs for the three months ended March 31, 2008 were $2,022,000 versus $4,454,000 for the corresponding period of 2007. First quarter 2007 results were burdened with significant one-time severance and retention costs regarding staff rationalization efforts following the merger with Zenas Energy Corp. G&A costs capitalized to oil and gas properties were $315,000 (26% of total G&A) in the first quarter of 2008, down from $1,260,000 (28% of total G&A) in the first quarter of 2007. For the balance of 2008, TUSK expects the capitalization rate to continue to trend lower. G&A costs expensed were $1,216,000 ($3.16/boe) in the first quarter of 2008, down from $2,730,000 ($8.83/boe) in the first quarter of 2007. The primary reason for the decline was the one-time costs incurred in 2007 as described above.

Financing Charges

Financing charges were $690,000 during the three months ended March 31, 2008. Financing charges are comprised primarily of interest paid on TUSK's credit facility and also include bank commitment fees and guarantee fees for letters of credit issued in connection with project commitments. Financing charges also include Part XII.6 Tax, which is calculated with reference to unspent amounts remaining from the issue of flow-through shares in December 2007. TUSK did not incur financing charges in the first quarter of 2007.

Stock-Based Compensation

Stock-based compensation totaled $590,000 in the first quarter of 2008 (Q1 2007 - $1,284,000), of which $459,000 was expensed (Q1 2007 - $477,000) and $131,000 was capitalized to oil and gas properties (Q1 2007 - $807,000). At March 31, 2008, TUSK had 8,141,833 stock options outstanding at an average exercise price of $2.81 per share. During the first quarter of 2008, no options were granted and 340,000 options were forfeited.

Gain on Sale of Investment

On January 1, 2007, TUSK held an investment in a publicly traded oil and gas company with a cost basis of $4,270,000. For financial statement purposes, the carrying value of this investment was adjusted to fair value at each balance sheet date and an unrealized gain or loss recorded. This accounting treatment was adopted prospectively effective January 1, 2007, and as a result, an adjustment was made to increase the carrying value of this investment by $2,483,000 and the future income tax liability by $360,000 with a corresponding decrease to the deficit of $2,123,000. At March 31, 2007, the carrying value of the investment was adjusted to fair value resulting in an unrealized loss on investment of $491,000.



Depletion, Depreciation and Accretion ("DD&A") Expense

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Three Months Ended March 31, 2008 2007 % Change
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($000s)
Depletion and depreciation of oil
and gas properties 13,515 8,202 65
Accretion of asset retirement
obligations 83 60 38
Depreciation of office equipment
and leasehold improvements 29 29 0
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Total 13,627 8,291 64
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Per boe ($/boe) 35.43 26.82 33
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DD&A expense for the first quarter of 2008 totaled $13,627,000 ($35.43/boe), up from $8,291,000 ($26.72/boe) during the first quarter of 2007. Almost all of TUSK's DD&A expense is comprised of depletion and depreciation of oil and gas properties, which is based on a ratio of production volumes for the period to proved reserves assignments. Comparing the first quarter of 2008 to the same period of 2007, the increase in DD&A expense was caused by the 23% increase in sales volumes and a 33% increase in the unit rate. The unit rate increased in the first quarter of 2008 primarily due to the Northeastern British Columbia asset swap (see above). The swap resulted in an increase in proved plus probable reserves and a decrease in proved reserves. As TUSK continues developing the Conroy property, probable reserves will be converted to proved reserves, causing the oil and gas depletion and depreciation unit rate to decrease.

Provision for Income Taxes

TUSK recorded a loss before income taxes of $447,000 and future income taxes of $7,000 for the first quarter of 2008. The small income tax expense (versus a larger income tax recovery) was caused primarily by stock-based compensation expense of $459,000, which is non-deductible for tax. In the first quarter of 2007, TUSK recorded a loss before taxes of $3,123,000 and a future income tax reduction of $693,000.

TUSK did not pay current income taxes in 2007. At March 31, 2008, TUSK had approximately $243,000,000 of available income tax deductions and does not expect to incur cash taxes in 2008.

Funds from Operations

Funds from operations for the first quarter of 2008 totaled $13,702,000 ($0.15 per share) compared to $6,136,000 ($0.07 per share) for the first three months of 2007. Comparing the two periods, funds from operations were positively affected by higher sales volumes, higher commodity prices and lower G&A expenses and negatively affected by higher operating expenses, transportation expenses and financing charges.



Cash Netbacks

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Three Months Ended March 31, 2008 2007 % Change
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($/boe)
Oil and gas revenue 67.22 52.47 28
Royalties (13.53) (10.93) 24
Operating expenses (10.49) (10.74) (2)
Transportation expenses (2.61) (2.52) 4
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Operating netback 40.59 28.28 44
G&A expenses (3.16) (8.83) (64)
Financing charges (1.79) - -
Interest income - 0.42 (100)
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Corporate netback 35.64 19.87 79
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Comparing the three months ended March 31, 2008 to the same period in 2007, operating netbacks increased to $40.59/boe from $28.28/boe primarily as a result of higher average selling prices, partially offset by higher royalties. Corporate cash netbacks increased to $35.64/boe in 2008 from $19.87/boe in 2007. On a per unit basis, year-over-year changes include lower G&A expenses and the introduction of financing charges in 2008.

Net Income (Loss)

The net loss for the three months ended March 31, 2008 was $454,000 ($0.01 per share - basic and diluted) compared to $2,430,000 ($0.03 per share - basic and diluted) for the same period in 2007. Compared to the first quarter of 2007 and exclusive of the increase in sales volumes and related expenses, the first quarter 2008 net loss was larger as a result of higher financing charges and higher DD&A expense and smaller as a result of lower G&A expenses.



Capital Expenditures

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Three Months Ended March 31, 2008 2007 % Change
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($000s)
Land acquisition and retention 229 528 (57)
Geological and geophysical 371 3,023 (88)
Drilling and completions 13,954 31,410 (56)
Well equipping, tie-ins and
facilities 11,212 11,431 (2)
Property acquisitions - 29 (100)
Capitalized overhead 315 1,260 (75)
Office 13 303 (96)
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Total 26,094 47,984 (46)
Dispositions (11,701) - -
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Net 14,393 47,984 (70)
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Capital expenditures totaled $26,094,000 for the three months ended March 31, 2008, down from $47,984,000 in the first quarter of 2007. First quarter 2008 expenditures included $16,368,000 in the Conroy area, $8,049,000 in the Northern area, $1,058,000 in the Peace River Arch area, $154,000 at Elleh and corporate level expenditures of $465,000. At Conroy, TUSK drilled 6 wells (part of the 15-well winter program that commenced in 2007), completed a sales pipeline and a gas processing facility. All of the gas wells were placed on-stream during the quarter. In the first quarter of 2008, TUSK spent $11,212,000 on tangible equipment. Over 90% of this amount was incurred in the Conroy area. In the Northern area, 4 gross (3.3 net) horizontal wells were drilled, of which 2 gross (2.0 net) of these wells are on production and 2 gross (1.3 net) wells are standing. One of the standing wells is waiting on a workover/stimulation and the other is waiting on the drilling of a second horizontal leg. As a result of surface considerations, these two operations may not occur until late summer or fall of 2008.

During the three months ended March 31, 2008, TUSK drilled 10 gross (6.3 net) wells, resulting in 6 gross (3.0 net) gas wells and 2 gross (2.0 net) oil wells and 2 gross (1.3 net) standing wells.

First quarter 2008 results include proceeds on disposition of property and equipment of $11,701,000. Virtually all of this relates to the Northeastern British Columbia asset swap (see above) and represents the proceeds after closing adjustments.

OUTLOOK

The completion of the Northeastern British Columbia asset swap on March 31, 2008 was a very positive milestone for TUSK. The Corporation now operates approximately 90% of its production and virtually all of its exploration prospects.

On April 30, 2008, TUSK announced the receipt of an independent reserves evaluation dated April 21, 2008 effective March 31, 2008 from GLJ Petroleum Consultants Ltd. ("GLJ"). Compared to a similar evaluation prepared effective December 31, 2007 by GLJ, the estimated net present value of future net revenue as at March 31, 2008 (based on forecast prices and costs), discounted at 10% before tax ("BT-NPV10") of TUSK's proved plus probable reserves, increased by $96.0 million to $297.9 million (December 31, 2007 - $201.9 million). The estimated BT-NPV10 of proved reserves increased $48.8 million to $190.6 million (December 31, 2007 - $141.8 million). TUSK estimates that the factors that contributed to the increase in estimated BT-NPV10 of total proved plus probable reserves are as follows: Northeastern British Columbia asset swap - 81% increase; new discoveries - 15% increase; higher oil and gas prices - 7% increase; and first quarter 2008 production - 3% decrease.

The Corporation's total interest proved plus probable reserves as at March 31, 2008 (based on forecast prices and costs) increased 0.509 million boes to 13.745 million boes (December 31, 2007 - 13.236 million boes) and its interest proved reserves as at March 31, 2008 decreased 0.552 million boes to 8.499 million boes (December 31, 2007 - 9.051 million boes). The increase in proved plus probable reserves and the decrease in proved reserves were primarily the result of the Northeastern British Columbia asset swap.

As at and for the three months ended March 31, 2008, TUSK generated funds from operations of $13,702,000, had net debt of $57,649,000 and no commodity arrangements in place that could limit the benefit of higher prices. With higher sales volumes expected (most notably at Conroy), TUSK has the ability to carry out its planned capital expenditure program without requiring additional equity.

LIQUIDITY AND CAPITAL RESOURCES

TUSK has a $75,000,000 demand credit facility comprised of a $60,000,000 operating/revolving line and a $15,000,000 acquisition/development line. The facility is available through two Canadian chartered banks. The interest rate charged on the facility is based on a pricing grid that is debt to cash flow sensitive. An increase in TUSK's debt to cash flow ratio will cause an increase in the interest rate. The interest rate is calculated quarterly and ranges from the bank's prime rate to prime plus 1.0%. At March 31, 2008, the effective annual interest rate was 5.50% on the operating/revolving line and 5.75% on the acquisition/development line. The credit facility is secured by a $150,000,000 fixed and floating charge debenture on the assets of TUSK and a general assignment of book debts.

TUSK's first quarter 2008 capital expenditure program was financed primarily by funds from operations and proceeds received as a result of the Northeastern British Columbia asset swap. Net debt at March 31, 2008 was $57,649,000, up slightly from $56,570,000 at December 31, 2007. With existing bank lines of $75,000,000, TUSK's available liquidity is over $17,000,000. Planned capital expenditures for the balance of 2008 can be financed primarily with funds from operations. Bank debt will increase when capital expenditures exceed funds from operations and then will be reduced as new production is placed on-stream. The majority of TUSK's capital expenditure program for the balance of 2008 is discretionary. TUSK will incur non-discretionary expenditures, such as oil and gas well operating expenses, interest expense and G&A costs. TUSK expects to finance all of these expenditures with funds from operations.

On an ongoing basis, TUSK will typically utilize three sources of funding to finance its capital expenditure program: internally generated cash flow from operations, debt, where deemed appropriate, and new equity issues, if available on favourable terms. Commodity prices and production volumes have the largest impact on TUSK's ability to generate adequate cash flow to meet all of its obligations. A prolonged decrease in commodity prices would negatively affect TUSK's cash flow from operations and would also likely result in a reduction in the amount of bank loan available. If TUSK's capital expenditure program does not result in sufficient additional reserves and/or production, the Corporation's ability to raise additional equity would be negatively impacted.

OUTSTANDING SHARE DATA

As of March 31, 2008, TUSK had 90,442,222 common shares and 8,141,833 stock options outstanding. From April 1, 2008 to the date of this MD&A, there were no changes to TUSK's outstanding securities, except for the grant of 900,000 stock options.

CONTRACTUAL OBLIGATIONS

Drilling Rigs

As of December 31, 2007, TUSK is obligated to utilize one drilling rig for a minimum of 165 days per year over a four-year period or pay a stand-by fee of $6,800 per day. Based on planned capital expenditures, TUSK expects to fully utilize the drilling rig and does not anticipate paying the stand-by fee.

Office Space

TUSK has a lease commitment for office space that expires on January 31, 2013. The annual payments due pursuant to this obligation are as follows: 2008 - $390,000; 2009 - $536,000; 2010 to 2012 - $540,000; and 2013 - $44,000.



----------------------------------------------------------------------------
Payment Due by Period
-------------------------------------------------
Less Than 1 - 3 4 - 5 After
($000s) Total 1 Year Years Years 5 Years
----------------------------------------------------------------------------
Bank debt 40,276 40,276 - - -
Drilling rigs 4,488 1,122 2,244 1,122 -
Office space 2,590 390 1,076 1,080 44
----------------------------------------------------------------------------
Total 47,354 41,788 3,320 2,202 44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note: The period less than 1 year is April 1 to December 31, 2008.


CONTINGENCIES

TUSK is involved in litigation matters arising out of the ordinary course and conduct of its business. Claims made against the Corporation total approximately $2,400,000 and the Corporation's counterclaims exceed $6,000,000. The likelihood of contingent liabilities resulting from these matters is not determinable and related potential losses cannot be reasonably estimated. No accrual of loss has been made to the financial statements.

RELATED PARTY TRANSACTIONS

An officer of TUSK is a director and significant shareholder of a private company that provides project management consulting services and systems support to TUSK. For the three months ended March 31, 2008, this company was paid $109,000 (three months ended March 31, 2007 - $49,000). Of this amount, $99,000 was charged to G&A expenses and $10,000 to property and equipment.

A company controlled by an officer of TUSK holds a royalty on certain TUSK operated properties. For the three months ended March 31, 2008, royalties of $51,000 were paid to this company (three months ended March 31, 2007 - $31,000). All of the payments made were charged to royalties. March 31, 2008 accounts payable and accrued liabilities includes $25,000 regarding these royalties.

The above-mentioned transactions were provided at commercial rates and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.



SELECTED QUARTERLY INFORMATION

----------------------------------------------------------------------------
2008 2007
(unaudited) Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Financial Highlights
($000s, except per share amounts)
Oil and gas revenue 25,852 20,242 20,560 20,153 16,200
Royalties (5,204) (3,808) (3,546) (4,216) (3,381)
Interest income - - 1 9 146
Operating (4,037) (4,551) (3,765) (3,064) (3,320)
Transportation (1,003) (999) (1,171) (873) (779)
G&A (1,216) (1,155) (1,074) (1,117) (2,730)
Financing charges (690) (818) (586) (408) -
Contract termination - (2,000) - - -
Income taxes-current - - - - -
----------------------------------------------------------------------------
Funds from operations 13,702 6,911 10,419 10,484 6,136
Per share
- basic and diluted 0.15 0.08 0.12 0.12 0.07
Commodity derivatives (63) (627) (45) - -
Stock-based compensation (459) (625) (707) (537) (477)
Gain (loss) on investment - - - 1,105 (491)
DD&A (13,627) (11,928) (10,741) (9,960) (8,290)
Future income taxes 130 2,279 99 (226) 693
----------------------------------------------------------------------------
Net income (loss) (454) (3,990) (975) 866 (2,429)
Per share
- basic and diluted (0.01) (0.04) (0.01) 0.01 (0.03)
----------------------------------------------------------------------------
Issue of shares (net) - 2,480 - - -
Capital expenditures 26,094 20,774 7,899 33,045 47,983
Proceeds on disposal (11,701) (832) - (1,937) -
Corporate acquisition - - - - -
Working capital (57,650) (56,570) (45,128) (47,416) (27,899)
Shareholders' equity 221,984 222,536 229,074 229,172 227,564
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Highlights
Sales volumes
Oil and NGLs (bbls/d) 1,718 1,603 1,806 1,730 1,531
Natural gas (mcf/d) 15,049 14,004 15,652 14,115 11,413
Total (boe/d) 4,226 3,937 4,415 4,083 3,433
----------------------------------------------------------------------------
Selling prices
Oil ($/bbl) 95.29 84.76 79.13 70.11 63.20
Natural gas ($/mcf) 8.17 6.13 5.25 7.17 7.37
NGLs ($/bbl) 74.57 69.38 61.85 60.27 50.60
----------------------------------------------------------------------------
Operating netbacks ($/boe)
Selling price 67.22 55.89 50.62 54.24 52.48
Royalties (13.53) (10.51) (8.73) (11.35) (10.94)
Operating expenses (10.49) (12.56) (9.27) (8.25) (10.74)
Transportation expenses (2.61) (2.76) (2.88) (2.35) (2.52)
----------------------------------------------------------------------------
Field netbacks 40.59 30.06 29.74 32.29 28.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common Shares Outstanding
Weighted average (#000s) 90,442 88,931 88,880 88,880 88,880
Period end (#000s) 90,442 90,442 88,880 88,880 88,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
2006
(unaudited) Q4 Q3 Q2
----------------------------------------------------------------------------
Financial Highlights
($000s, except per share amounts)
Oil and gas revenue 6,327 4,657 3,348
Royalties (1,258) (678) (774)
Interest income 230 318 207
Operating (834) (1,089) (633)
Transportation (291) (161) (295)
G&A (1,268) (793) (407)
Financing charges - - -
Contract termination - - -
Income taxes-current 28 (28) -
----------------------------------------------------------------------------
Funds from operations 2,934 2,226 1,446
Per share
- basic and diluted 0.06 0.04 0.03
Commodity derivatives - - -
Stock-based compensation (1,546) (407) (396)
Gain (loss) on investment - - -
DD&A (4,368) (2,154) (1,648)
Future income taxes 637 (85) (85)
----------------------------------------------------------------------------
Net income (loss) (2,343) (420) (683)
Per share
- basic and diluted (0.05) (0.01) (0.02)
----------------------------------------------------------------------------
Issue of shares (net) 98,721 - 47,402
Capital expenditures 13,698 11,273 17,715
Proceeds on disposal - - -
Corporate acquisition 100,140 - -
Working capital 11,957 24,724 34,384
Shareholders' equity 226,587 127,793 128,205
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Highlights
Sales volumes
Oil and NGLs (bbls/d) 699 502 318
Natural gas (mcf/d) 3,636 2,493 2,362
Total (boe/d) 1,305 918 711
----------------------------------------------------------------------------
Selling prices
Oil ($/bbl) 58.55 71.23 72.16
Natural gas ($/mcf) 7.90 6.02 6.02
NGLs ($/bbl) 24.77 55.72 40.18
----------------------------------------------------------------------------
Operating netbacks ($/boe)
Selling price 52.68 55.14 51.72
Royalties (10.47) (8.03) (11.95)
Operating expenses (6.94) (12.90) (9.77)
Transportation expenses (2.42) (1.90) (4.55)
----------------------------------------------------------------------------
Field netbacks 32.85 32.31 25.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common Shares Outstanding
Weighted average (#000s) 51,662 51,766 43,271
Period end (#000s) 88,880 51,637 51,789
----------------------------------------------------------------------------
----------------------------------------------------------------------------


FINANCIAL INSTRUMENTS

Commodity Price Risk Management

In September 2007, TUSK entered into a crude oil hedging transaction for 1,000 bbls/d for the period January 1 to December 31, 2008. This transaction consisted of the purchase of a US$65.00/bbl put option at a cost of $781,000. TUSK would have received $46,000 if the contract was settled at the end of March 2008. This amount has been recorded on the balance sheet as a current asset. (See "Commodity Prices and Risk Management - Realized Selling Prices".)

Credit Risk

Credit risk is the risk of financial loss to TUSK if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from TUSK's receivables from joint venture partners and petroleum and natural gas marketers.

Receivables from petroleum and natural gas marketers are normally collected on the 25th day of the month following production. TUSK's policy to mitigate credit risk associated with these balances is to establish marketing relationships with large purchasers. The Corporation historically has not experienced any collection issues with its petroleum and natural gas marketers. Joint venture receivables are typically collected within one to three months of the joint venture bill being issued to the partner. TUSK attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to expenditure. However, the receivables are from participants in the petroleum and natural gas sector, and collection of the outstanding balances is dependent on industry factors, such as commodity price fluctuations, escalating costs and the risk of unsuccessful drilling. In addition, further risk exists with joint venture partners as disagreements occasionally arise that increase the potential for non-collection. TUSK does not typically obtain collateral from petroleum and natural gas marketers or joint venture partners; however, TUSK does have the ability to withhold production from joint venture partners in the event of non-payment.

Cash and cash equivalents consist of cash bank balances and short-term deposits maturing in less than 90 days. TUSK manages the credit exposure related to short-term investments by selecting counter parties based on credit ratings and monitors all investments to ensure a stable return, avoiding complex investment vehicles with higher risk, such as asset-backed commercial paper.

The carrying amount of accounts receivable and cash and cash equivalents represents the maximum credit exposure. TUSK did not have an allowance for doubtful accounts as at March 31, 2008 and 2007 and did not provide for any doubtful accounts nor was it required to write-off any receivables during the three months ended March 31, 2008 and 2007.

Foreign Currency Exchange Risk

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although substantially all of TUSK's petroleum and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for petroleum and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar. TUSK had no forward exchange rate contracts in place as at or during the three months ended March 31, 2008.

Fair Value of Financial Instruments

TUSK's financial instruments as at March 31, 2008 and December 31, 2007 include cash and cash equivalents, accounts receivable, derivative contracts, accounts payable and accrued liabilities, and bank debt. The fair value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity. The fair value of derivative contracts is determined using the mark-to-market method, which assumes the contract is closed out in the open market at the balance sheet date. Bank debt bears interest at a floating market rate, and accordingly, the fair market value approximates the carrying value.

Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. TUSK is exposed to interest rate fluctuations on its bank debt, which bears a floating rate of interest. TUSK had no interest rate swap or financial contracts in place as at or during the three months ended March 31, 2008.

BUSINESS RISKS AND UNCERTAINTIES

TUSK's production and exploration activities are concentrated in the Western Canadian Sedimentary Basin where activity is highly competitive and includes a variety of different sized companies ranging from smaller junior producers to the much larger integrated petroleum companies. TUSK is subject to the various types of business risks and uncertainties including:

- Finding and developing oil and natural gas reserves at economic costs

- Production of oil and natural gas in commercial quantities

- Marketability of oil and natural gas produced

- Substantial capital requirements and access to capital markets

- Environmental risks

- Insurance

- Reliance on operators and key employees

- Third party credit risk

- Changes in legislation and incentive programs

In order to reduce exploration risk, TUSK strives to employ highly qualified and motivated professional employees with a demonstrated ability to generate quality proprietary geological and geophysical prospects. To help maximize drilling success, the Corporation combines exploration in areas that afford multi-zone prospect potential, targeting a range of low to moderate risk prospects with some exposure to select high risk with high reward opportunities. TUSK also explores in areas where it has significant drilling experience.

TUSK mitigates its risk related to producing hydrocarbons through the utilization of the most appropriate technology and information systems. In addition, the Corporation seeks to maintain operational control of the majority of its prospects.

Oil and gas exploration and production can involve environmental risks, such as pollution of the environment and destruction of natural habitat, as well as safety risks, such as personal injury. In order to mitigate such risk, TUSK conducts its operations at high standards and follows safety procedures intended to reduce the potential for personal injury to employees, contractors and the public at large. The Corporation maintains current insurance coverage for general and comprehensive liability as well as limited pollution liability. The amount and terms of this insurance are reviewed on an ongoing basis and adjusted as necessary to reflect changing corporate requirements as well as industry standards and government regulations. TUSK may periodically use financial or physical delivery hedges to reduce its exposure against the potential adverse impact of commodity price volatility, as governed by formal policies approved by senior management subject to controls established by the Board of Directors.

CHANGES IN ACCOUNTING POLICIES

(a) Financial Instruments - Disclosures and Presentation

In December 2006, the Accounting Standards Board ("AcSB") issued CICA section 3862, "Financial Instruments - Disclosure and Presentation." Section 3862 outlines the disclosure requirements for financial instruments and non-financial derivatives. This guidance prescribes an increased importance on risk disclosures associated with recognized and unrecognized financial instruments and how such risks are managed. Specifically, section 3862 requires disclosure of the significance of financial instruments for a company's financial position. In addition, the guidance outlines revised requirements for the disclosure of qualitative and quantitative information regarding exposure to risks arising from financial instruments.

Sections 3862 and 3863 became effective and were adopted by TUSK on January 1, 2008.

(b) Capital Disclosures

In December 2006, the AcSB issued new CICA section 1535, "Capital Disclosures" requiring disclosures regarding an entity's objectives, policies and processes for managing capital. These disclosures include a description of what TUSK manages as capital, the nature of externally imposed capital requirements, how the requirements are incorporated into TUSK's management of capital, whether the requirements have been complied with, or consequences of non-compliance and an explanation of how TUSK is meeting its objective for managing capital. In addition, quantitative data about capital and whether TUSK has complied with all capital requirements are also required.

Section 1535 became effective and was adopted by TUSK on January 1, 2008.

(c) International Financial Reporting Standards ("IFRS")

In 2005, the AcSB announced that accounting standards of Canada are to converge with IFRS. The AcSB has indicated that Canadian entities will need to begin reporting under IFRS by the first quarter of 2011 with appropriate comparative data from the prior year. Under IFRS, the primary audience is capital markets and as a result, there is significantly more disclosure required, specifically for quarterly reporting. Further, while the IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences in accounting policy that must be addressed.

TUSK is currently assessing the impact of these new standards on its financial statements.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Other than described above (see "Changes in Accounting Policies"), there has been no change in TUSK's accounting estimates and policies since December 31, 2007. A summary of TUSK's significant accounting policies can be found in Note 1 to the December 31, 2007 audited financial statements.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by TUSK is accumulated and communicated to the Corporation's management as appropriate to allow timely decisions regarding required disclosure. TUSK's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded, based on their evaluation as of the end of the period covered by the Corporation's interim filings for the most recently completed interim period, that the Corporation's disclosure controls and procedures as of the end of such period are effective to provide reasonable assurance that material information related to the Corporation is made known to them by others within the Corporation. It should be noted that while TUSK's CEO and CFO believe that the Corporation's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

TUSK's CEO and CFO are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Management has designed internal controls over financial reporting as at March 31, 2008.

In addition, National Instrument 52 - 109 requires CEOs and CFOs to certify that they have designed internal controls over financial reporting, or caused it to be designed under their supervision.

There is substantial overlap in systems and controls between the definition of disclosure controls and procedures and internal control over financial reporting. TUSK has designed controls for this process and has conducted an evaluation that has identified several potential weaknesses in its controls. Based on management's ongoing assessment and review of the design of internal controls over financial reporting, it was noted that due to the limited number of staff at TUSK, it is not feasible to achieve complete segregation of incompatible duties.

The limited number of staff has also led the Corporation to identify a weakness with respect to accounting for complex and non-routine accounting transactions as TUSK does not have sufficient number of finance personnel with technical accounting knowledge to address all complex and non-routine accounting matters that may arise. Neither of these weaknesses has resulted in a misstatement in TUSK's interim or annual financial statements; however, as there is no guarantee that material misstatement would not be prevented or detected, these items have been classified as material weakness.

Several internal controls over financial reporting have been designed, which provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Management and Board of Director reviews are utilized to mitigate the risk of material misstatement in financial reporting and to ensure internal controls remain effective.

It should be noted that a control system, including the Corporation's disclosure and internal controls and procedures, no matter how well conceived can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met and it should not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud.

ADDITIONAL INFORMATION

Additional information regarding TUSK Energy Corporation, including its Annual Information Form, is available on SEDAR at www.sedar.com or on TUSK's website at www.tusk-energy.com.



FINANCIAL STATEMENTS

BALANCE SHEETS

----------------------------------------------------------------------------
As at March 31, December 31,
2008 2007
----------------------------------------------------------------------------
(unaudited) ($000s)
Assets
Current
Investments (note 3) 258 258
Accounts receivable 17,957 14,504
Prepaid expenses and deposits 498 595
Commodity derivatives (note 9) 46 109
----------------------------------------------------------------------------
18,759 15,466
Property, plant and equipment (note 4) 298,158 295,989
----------------------------------------------------------------------------
316,917 311,455
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities 36,132 31,163
Bank loan (note 5) 40,276 40,873
----------------------------------------------------------------------------
76,408 72,036
Future income taxes (note 6) 13,465 12,717
Asset retirement obligations (note 7) 5,060 4,166
----------------------------------------------------------------------------
94,933 88,919
----------------------------------------------------------------------------
Shareholders' equity
Share capital (note 8) 223,066 223,754
Contributed surplus (note 8) 10,552 9,962
Deficit (11,634) (11,180)
----------------------------------------------------------------------------
221,984 222,536
----------------------------------------------------------------------------
316,917 311,455
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments and contingencies (notes 4 and 11)

See accompanying notes.


STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT

----------------------------------------------------------------------------
Three Months Ended March 31, 2008 2007
----------------------------------------------------------------------------
(unaudited) ($000s, except per share amounts)
Revenue
Oil and gas revenue 25,852 16,200
Royalties (5,204) (3,381)
Unrealized loss on commodity
derivatives (note 9) (63) -
----------------------------------------------------------------------------
20,585 12,819
Interest income - 146
----------------------------------------------------------------------------
20,585 12,965
----------------------------------------------------------------------------
Expenses
Operating 4,037 3,320
Transportation 1,003 779
General and administrative 1,216 2,730
Financing charges 690 -
Stock-based compensation (note 8) 459 477
Unrealized loss on investment (note 3) - 491
Depreciation, depletion and accretion 13,627 8,291
----------------------------------------------------------------------------
21,032 16,088
----------------------------------------------------------------------------
Loss before taxes (447) (3,123)
Income taxes (note 6)
Future (reduction) 7 (693)
----------------------------------------------------------------------------
Net loss and comprehensive loss (454) (2,430)
----------------------------------------------------------------------------
Deficit, beginning of period (11,180) (6,775)
Change of accounting policies
(net of tax of $360) (note 3) - 2,123
----------------------------------------------------------------------------
Deficit, end of period (11,634) (7,082)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss per share (note 8)
Basic and diluted (0.01) (0.03)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes.


STATEMENTS OF CASH FLOWS

----------------------------------------------------------------------------
Three Months Ended March 31, 2008 2007
----------------------------------------------------------------------------
(unaudited) ($000s)
Operating activities
Net loss for the period (454) (2,430)
Items not involving cash:
Stock-based compensation 459 477
Unrealized loss on investment - 491
Depreciation, depletion and accretion 13,627 8,291
Commodity derivatives 63 -
Future tax expense (reduction) 7 (693)
Asset retirement obligation expenditures (325) -
----------------------------------------------------------------------------
13,377 6,136
Change in non-cash working capital (note 10) (3,238) 1,257
----------------------------------------------------------------------------
10,139 7,393
----------------------------------------------------------------------------
Financing activities
Increase (decrease) in bank loan (597) 8,701
Change in non-cash working capital (note 10) (10) -
----------------------------------------------------------------------------
(607) 8,701
----------------------------------------------------------------------------
Investing activities
Expenditures on property and equipment (26,094) (47,984)
Proceeds on disposition of property
and equipment 11,701 -
Change in non-cash working capital
(note 10) 4,861 4,703
----------------------------------------------------------------------------
(9,532) (43,281)
----------------------------------------------------------------------------
Decrease in cash and cash equivalents - (27,187)
Cash and cash equivalents, beginning of period - 27,187
----------------------------------------------------------------------------
Cash and cash equivalents, end of period - -
----------------------------------------------------------------------------
Interest paid 611 -
Taxes paid - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental disclosure of cash flow information (note 10)

See accompanying notes.


NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2008 and 2007
(unaudited)
(tabular amounts in $000s, except share and per share amounts)


NATURE OF BUSINESS AND BASIS OF PRESENTATION

TUSK Energy Corporation ("TUSK" or the "Corporation") is involved in the exploration, development and production of petroleum and natural gas in Alberta and British Columbia. TUSK was incorporated on September 24, 2004 and commenced operations on November 2, 2004.

1. SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), using the same accounting policies as those set out in Note 1 to the audited financial statements for the year ended December 31, 2007, except as described in Note 2 below. The interim financial statements contain disclosures that are supplemental to TUSK's December 31, 2007 audited financial statements. Certain disclosures, which are normally required to be included in the notes to the annual audited financial statements, have been condensed or omitted. In the opinion of management, these interim financial statements contain all adjustments of a normal and recurring nature to present fairly TUSK's financial position as at March 31, 2008 and the results of its operations for the three months ended March 31, 2008. The interim financial statements should be read in conjunction with TUSK's audited financial statements and notes thereto for the year ended December 31, 2007.

2. CHANGES IN ACCOUNTING POLICIES

(a) Financial Instruments - Disclosures and Presentation

In December 2006, the Accounting Standards Board ("AcSB") issued CICA section 3862, "Financial Instruments - Disclosure and Presentation." Section 3862 outlines the disclosure requirements for financial instruments and non-financial derivatives. This guidance prescribes an increased importance on risk disclosures associated with recognized and unrecognized financial instruments and how such risks are managed. Specifically, section 3862 requires disclosure of the significance of financial instruments for a company's financial position. In addition, the guidance outlines revised requirements for the disclosure of qualitative and quantitative information regarding exposure to risks arising from financial instruments.

Section 3862 was effective for TUSK on January 1, 2008 (see note 9).

(b) Capital Disclosures

In December 2006, the AcSB issued new CICA section 1535, "Capital Disclosures" requiring disclosures regarding an entity's objectives, policies and processes for managing capital. These disclosures include a description of what TUSK manages as capital, the nature of externally imposed capital requirements, how the requirements are incorporated into TUSK's management of capital, whether the requirements have been complied with, or consequences of non-compliance and an explanation of how TUSK is meeting is objective for managing capital. In addition, quantitative data about capital and whether TUSK has complied with all capital requirements are also required.

Section 1535 was effective for TUSK on January 1, 2008 (see note 9).

(c) International Financial Reporting Standards ("IFRS")

In 2005, the AcSB announced that accounting standards of Canada are to converge with IFRS. The AcSB has indicated that Canadian entities will need to begin reporting under IFRS by the first quarter of 2011 with appropriate comparative data from the prior year. Under IFRS, the primary audience is capital markets and as a result, there is significantly more disclosure required, specifically for quarterly reporting. Further, while the IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences in accounting policy that must be addressed.

TUSK is currently assessing the impact of these new standards on its financial statements.

3. INVESTMENTS

Effective January 1, 2007, TUSK adopted the CICA's section 3855, "Financial Instruments - Recognition and Impairment". The new standard was adopted prospectively.

At December 31, 2006, TUSK held an investment in a publicly traded oil and gas company with a cost basis of $4,270,000. At January 1, 2007, an adjustment was made to increase the carrying value of this investment by $2,483,000 and the future income tax liability by $360,000 with a corresponding decrease to the deficit of $2,123,000. At March 31, 2007, the carrying value of the investment was adjusted to fair value resulting in an unrealized loss on investment of $491,000. This investment was sold during the second quarter of 2007.

TUSK invested $258,000 in common shares of a private drilling company. The investment is carried at fair value, which approximates cost.

4.PROPERTY, PLANT AND EQUIPMENT



----------------------------------------------------------------------------
March 31, December 31,
($000s) 2008 2007
----------------------------------------------------------------------------
Oil and natural gas properties 365,579 349,878
Office equipment and leasehold improvements 639 627
----------------------------------------------------------------------------
366,218 350,505
Accumulated depletion and depreciation (68,060) (54,516)
----------------------------------------------------------------------------
298,158 295,989
----------------------------------------------------------------------------
----------------------------------------------------------------------------


For the three months ended March 31, 2008, TUSK capitalized general and administrative expenses of $315,000 (three months ended March 31, 2007 - $1,260,000) to oil and natural gas properties. TUSK also capitalized to oil and natural gas properties a total of $184,000 (three months ended March 31, 2007 - $807,000) comprised of $131,000 of stock-based compensation (three months ended March 31, 2007 - $477,000) and the related future income taxes of $53,000 (three months ended March 31, 2007 - $330,000).

The March 31, 2008 depletion and depreciation calculation excluded unproved properties of $38,325,000 (December 31, 2007 - $39,619,000) and salvage values of $7,314,000 (December 31, 2007 - $6,064,000). The calculation includes future development costs of $48,245,000 (December 31, 2007 - $42,258,000).

On March 31, 2008, TUSK exchanged its 50% non-operated interest in the Elleh area for certain interests in the Conroy area and $11,700,000. Both Elleh and Conroy are located in northeastern British Columbia. As a result of this transaction, a farm-in agreement that obligated TUSK to complete a work commitment in the Conroy area was cancelled.

5. BANK LOAN

TUSK has a $75,000,000 demand credit facility comprised of a $60,000,000 revolving/operating line and a $15,000,000 acquisition/development line. The facility is available through two Canadian chartered banks. The interest charged on the facility is payable monthly and the rate is based on a pricing grid that is debt to cash flow sensitive. An increase in TUSK's debt to cash flow ratio will cause an increase in the interest rate. The interest rate is calculated quarterly and ranges from the bank's prime rate to prime rate plus 1.0%. At March 31, 2008, the effective annual interest rate was 5.50% on the revolving/operating line and 5.75% on the acquisition/development line. The credit facility is secured by a $150,000,000 fixed and floating charge debenture on the assets of TUSK and a general assignment of book debts.

6. FUTURE INCOME TAXES

(a) Tax Expense

The provision for income tax differs from the result that would be obtained by applying the combined Canadian federal and provincial tax rate to the net loss before income taxes. The principal reasons for this difference are as follows:



----------------------------------------------------------------------------
Three months ended March 31, 2008 2007
----------------------------------------------------------------------------
($000s)
Loss before taxes (447) (3,123)
Corporate tax rate 29.5% 34.5%
----------------------------------------------------------------------------
Expected income tax expense (reduction) (132) (1,077)
Add (deduct):
Non-deductible stock-based compensation 135 165
Tax rate change - 130
Non-deductible portion of capital loss - 85
Non-deductible expense 4 4
----------------------------------------------------------------------------
Tax expense (reduction) 7 (693)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(b) Future Income Taxes

Future income taxes consist of the following temporary differences:

----------------------------------------------------------------------------
March 31, December 31,
($000s) 2008 2007
----------------------------------------------------------------------------
Net book value in excess of tax basis of oil and
natural gas properties (17,856) (16,950)
Asset retirement obligations 1,391 1,146
Non-capital losses 1,041 1,041
Share issue costs 1,491 1,588
Commodity derivative 202 185
Other 266 273
----------------------------------------------------------------------------
Future income tax liability (13,465) (12,717)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. ASSET RETIREMENT OBLIGATIONS

TUSK's asset retirement obligations result from net ownership interests in petroleum and natural gas assets, including wellsites, gathering systems and processing facilities. TUSK estimates the net present value of its total asset retirement obligations to be $5,060,000, based on a total undiscounted amount of cash flows required to settle its asset retirement obligations of approximately $14,934,000. A credit-adjusted risk-free rate of 7.0% to 10.0% and an inflation rate of 2.0% were used to calculate the fair value of the asset retirement obligation. These obligations are expected to be incurred between 2008 and 2037 and will be funded from general corporate resources at the time of abandonment. The table below reconciles TUSK's asset retirement obligations.



----------------------------------------------------------------------------
Three Months Ended March 31, 2008 2007
----------------------------------------------------------------------------
($000s)
Balance, beginning of period 4,166 2,930
Liabilities acquired 1,439 -
Liabilities incurred 95 291
Obligations settled (325) -
Changes in estimates/revisions (398) -
Accretion expense 83 60
----------------------------------------------------------------------------
Balance, end of period 5,060 3,281
----------------------------------------------------------------------------
----------------------------------------------------------------------------

8. SHARE CAPITAL

(a) Issued and Outstanding

----------------------------------------------------------------------------
Number of
Shares Amount
----------------------------------------------------------------------------
($000s)
Balance, January 1, 2008 90,442,222 223,754
Income tax effect of flow-through shares - (688)
----------------------------------------------------------------------------
Balance, March 31, 2008 90,442,222 223,066
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(b) Per Share Amounts

The table below summarizes the weighted average number of common shares used in calculating net earnings (loss) per share.



----------------------------------------------------------------------------
Three Months Ended March 31, 2008 2007
----------------------------------------------------------------------------
Weighted average number of common shares
outstanding - basic and diluted 90,442,222 88,879,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The weighted average number of shares outstanding was not increased for outstanding stock options for purposes of calculating diluted loss per share as the effect would be anti-dilutive.

(c) Stock Options

The following table sets forth a reconciliation of TUSK's stock option plan for the three months ended March 31, 2008:



----------------------------------------------------------------------------
Weighted
Number of Average
Options Exercise Price
----------------------------------------------------------------------------
($/share)

Outstanding, beginning of period 8,481,833 2.81
Forfeited (340,000) 2.96
----------------------------------------------------------------------------
Outstanding, end of period 8,141,833 2.81
----------------------------------------------------------------------------
Exercisable, end of period 4,355,654 3.19
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The table below summarizes information regarding stock options outstanding at March 31, 2008.



----------------------------------------------------------------------------
Weighted Number of Weighted Average Number of
Average Options Remaining Options
Exercise Price Outstanding Contractual Life Exercisable
----------------------------------------------------------------------------
($/share) (years)
1.50 - 2.00 2,055,000 4.3 -
2.01 - 3.00 3,933,500 3.2 2,975,658
3.01 - 4.00 703,333 3.3 249,996
4.01 - 4.95 1,450,000 2.7 1,130,000
----------------------------------------------------------------------------
8,141,833 3.4 4,355,654
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of each option granted was estimated on the date of grant using the Black-Scholes options pricing model. The weighted average fair value of the options granted and the assumptions used in the model are set forth in the table below.



----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Fair value of options granted ($/share) - 0.69
Risk-free interest rate (%) - 3.4
Expected life (years) - 4.0
Expected volatility (%) - 54
Expected dividend yield (%) - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(d) Contributed Surplus



----------------------------------------------------------------------------
Three Months Ended March 31, 2008 2007
----------------------------------------------------------------------------
($000s)
Balance, beginning of period 9,962 6,284
Stock-based compensation expensed 459 477
Stock-based compensation capitalized 131 807
----------------------------------------------------------------------------
Balance, end of period 10,552 7,568
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. FINANCIAL RISK MANAGEMENT

Overview

TUSK has exposure to the following risks from its use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note presents information about TUSK's exposure to each of the above risks, the Corporation's objectives, policies and processes for measuring and managing risk, and the Corporation's management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Corporation's risk management framework. The Board has implemented and monitors compliance with risk management policies. TUSK's risk management policies are established to identify and analyze the risks faced by the Corporation, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Corporation's activities.

Credit Risk

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from TUSK's receivables from joint venture partners and petroleum and natural gas marketers. As at March 31, 2008, TUSK's receivables consisted of $3,578,000 from joint venture partners, $10,623,000 of receivables from petroleum and natural gas marketers and $3,756,000 of other receivables.

Receivables from petroleum and natural gas marketers are normally collected on the 25th day of the month following production. TUSK's policy to mitigate credit risk associated with these balances is to establish marketing relationships with large purchasers. The Corporation historically has not experienced any collection issues with its petroleum and natural gas marketers. Joint venture receivables are typically collected within one to three months of the joint venture bill being issued to the partner. TUSK attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to expenditure. However, the receivables are from participants in the petroleum and natural gas sector, and collection of the outstanding balances is dependent on industry factors, such as commodity price fluctuations, escalating costs and the risk of unsuccessful drilling. In addition, further risk exists with joint venture partners as disagreements occasionally arise that increase the potential for non-collection. TUSK does not typically obtain collateral from petroleum and natural gas marketers or joint venture partners; however, TUSK does have the ability to withhold production from joint venture partners in the event of non-payment.

Cash and cash equivalents consist of cash bank balances and short-term deposits maturing in less than 90 days. TUSK manages the credit exposure related to short-term investments by selecting counter parties based on credit ratings and monitors all investments to ensure a stable return, avoiding complex investment vehicles with higher risk. TUSK has no investments in asset-backed commercial paper.

The carrying amount of accounts receivable and cash and cash equivalents represents the maximum credit exposure. TUSK did not have an allowance for doubtful accounts as at March 31, 2008 and 2007 and did not provide for any doubtful accounts nor was it required to write-off any receivables during the three months ended March 31, 2008 and 2007.

As at March 31, 2008 and December 31, 2007, TUSK considers its receivables to be aged as follows:



----------------------------------------------------------------------------
March 31, December 31,
($000s) 2008 2007
----------------------------------------------------------------------------
Not passed due (less than 90 days) 16,044 11,910
Past due (91 - 120 days) 1,031 816
Past due (121 - 365 days) - 1,343
Past due (over 1 year) 882 435
----------------------------------------------------------------------------
17,957 14,504
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note: Receivables outstanding for more than 1 year are with respect to
Alberta Royal Tax Credit.


Liquidity Risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they are due. TUSK's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking harm to the Corporation's reputation. TUSK prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Corporation utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. To facilitate the capital expenditure program, TUSK has a revolving reserve based credit facility, as outlined in note 5, that is reviewed at least annually by the lender.

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices and interest rates, will affect the Corporation's net earnings or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.

The Corporation may utilize both financial derivatives and physical delivery sales contracts to manage market risks. All such transactions are conducted in accordance with the risk management policy that has been approved by the Board of Directors.

(a) Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although substantially all of TUSK's oil and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for oil and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar. The Corporation had no forward exchange rate contracts in place as at or during the three months ended March 31, 2008.

(b) Commodity Price Risk

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar, as outlined above, but also world economic events that dictate the levels of supply and demand. From time to time, the Corporation will attempt to mitigate commodity price risk through the use of various financial derivative and/or physical delivery sales contracts.

In September 2007, TUSK entered into a crude oil hedging transaction for 1,000 bbls/d for the period January 1 to December 31, 2008. This transaction consisted of the purchase of a US$65.00/bbl put option at a cost of $781,000. TUSK would have received $46,000 if the contract was settled at the end of March 2008. This amount has been recorded on the balance sheet. This instrument is not used for trading or speculative purposes.

(c) Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. TUSK is exposed to interest rate fluctuations on its bank debt, which bears a floating rate of interest. For the three months ended March 31, 2008, if interest rates had been 1% lower with all other variables held constant, after tax net earnings for the period would have been $75,000 higher, due to lower interest expense. An equal and opposite impact would have occurred to net earnings had interest rates been 1% higher. The Corporation had no interest rate swap or financial contracts in place as at or during the three months ended March 31, 2008.

Capital Management

The Corporation's policy is to maintain a strong capital base to sustain the future development of the business and to maintain investor, creditor and market confidence.

The Corporation manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Corporation considers its capital structure to include shareholders' equity, bank debt and working capital. In order to maintain or adjust the capital structure, the Corporation may, from time to time, issue shares and adjust its capital spending to manage current and projected debt levels.

The Corporation monitors capital based on the ratio of net debt to annualized funds from operations. This ratio is calculated as net debt, defined as outstanding bank debt plus or minus working capital, divided by funds from operations before changes in non-cash working capital for the most recent calendar quarter, annualized (multiplied by four) and future expected cash flows on a running 12-month basis. Funds from operations is calculated based on cash provided by operating activities before changes in non-cash working capital and expenditures on asset retirement obligations. The Corporation's strategy is to maintain a ratio of net debt to annualized funds from operations of 1.5 to 1 or lower. This ratio may increase at certain times as a result of acquisitions and/or large capital projects. In order to facilitate the management of this ratio, the Corporation prepares annual capital expenditure budgets, which are updated as necessary depending on varying factors, including current and forecast prices, successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors.

As at March 31, 2008, the Corporation's ratio of net debt to annualized cash flow was 1.1 to 1, which is within the range established by the Corporation. The Corporation anticipates that the ratio will remain within the target range through 2008.

The Corporation's share capital is not subject to external restrictions; however, the bank debt facility is based on oil and natural gas reserves (see note 5). The Corporation has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.

There were no changes in the Corporation's approach to capital management during the three months ended March 31, 2008.

Fair Value of Financial Instruments

TUSK's financial instruments as at March 31, 2008 and December 31, 2007 include cash and cash equivalents, accounts receivable, derivative contracts, accounts payable and accrued liabilities, and bank debt. The fair value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity. The fair value of derivative contracts is determined using the mark-to-market method, which assumes the contract is closed out in the open market at the balance sheet date. Bank debt is payable on demand and bears interest at a floating market rate, and accordingly, the fair market value approximates the carrying value.



10. CASH FLOW INFORMATION

----------------------------------------------------------------------------
Three Months Ended March 31, 2008 2007
----------------------------------------------------------------------------
($000s)

Changes in non-cash working capital balances

Accounts receivable (3,453) (3,811)

Prepaid expenses and deposits 97 (56)

Accounts payable and accrued liabilities 4,969 9,827
----------------------------------------------------------------------------
1,613 5,960
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Changes in non-cash working capital related to

Operating activities (3,238) 1,257

Financing activities (10) 4,703

Investing activities 4,861 -
----------------------------------------------------------------------------
1,613 5,960
----------------------------------------------------------------------------
----------------------------------------------------------------------------


11. COMMITMENTS AND CONTINGENCIES

(a) Drilling Rigs

As of December 31, 2007, TUSK is obligated to utilize one drilling rig for a minimum of 165 days per year over a four-year period or pay a standby fee of $6,800 per day.

(b) Dispute

TUSK is involved in litigation matters arising out of the ordinary course and conduct of its business. Claims made against the Corporation total approximately $2,400,000 and the Corporation's counterclaims exceed $6,000,000. The likelihood of contingent liabilities resulting from these matters is not determinable and related potential losses cannot be reasonably estimated. No accrual of loss has been made to the financial statements.

12. RELATED PARTY TRANSACTIONS

An officer of TUSK is a director and significant shareholder of a private company that provides project management consulting services and systems support to TUSK. For the three months ended March 31, 2008, this company was paid $109,000 (three months ended March 31, 2007 - $49,000). Of this amount, $99,000 was charged to general and administrative expenses and $10,000 to property and equipment.

A company controlled by an officer of TUSK holds a royalty on certain TUSK operated properties. For the three months ended March 31, 2008, royalties of $51,000 were paid to this company (three months ended March 31, 2007 - $31,000). All of the payments made were charged to royalties. March 31, 2008 accounts payable and accrued liabilities includes $25,000 regarding these royalties.

The above-mentioned transactions were provided at commercial rates and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.



Industry Abbreviations

----------------------------------------------------------------------------
Crude Oil and Natural Gas Liquids Natural Gas
----------------------------------------------------------------------------
bbl One barrel equaling 34.972 Imperial bcf Billion cubic feet
gallons or 42 U.S. gallons
bcfe Billion cubic feet
bbls/d Barrels per day equivalent
mcf Thousand cubic feet
boe Barrels of oil equivalent
mcfe Thousand cubic feet
boe/d Barrels of oil equivalent per day equivalent
mcf/d Thousand cubic feet per
mboe Thousand barrels of oil equivalent day

mbbls Thousand barrels mmcf Million cubic feet

mmbtu Million British thermal
mmbbls Million barrels units

NGLs Natural gas liquids, consisting of GJ/d Gigajoules per day
any one or more of propane, butane
and condensate
----------------------------------------------------------------------------


Equivalencies
----------------------------------------------------------------------------
To Convert From To Multiply By
----------------------------------------------------------------------------
Thousand cubic feet Cubic metres 28.174
Cubic metres Cubic feet 35.494
Barrels Cubic metres 0.159
Cubic metres Barrels (6.290)
Feet Metres 0.305
Metres Feet 3.281
Miles Kilometres 1.609
Kilometres Miles 0.621
Acres Hectares 0.405
Hectares Acres 2.471
Gigajoules Thousand cubic feet 1.055
----------------------------------------------------------------------------



In addition to the forward-looking statements contained in the Management's Discussion and Analysis, this news release contains forward-looking statements with respect to TUSK and its operations and may contain reserves, resources and cash flow estimates, drilling plans, debt levels, production expectations, finding and development objectives, opinions, forecasts, projections, guidance and other statements that are not statements of fact. Although the Corporation believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. Some of the risks and other factors that could cause results to differ materially from those expressed in the forward-looking statements contained in this release include, but are not limited to, the lack of precision around estimates of reserves, performance of the Corporation's oil and gas properties, volatility in market prices for oil and gas, estimations of future costs, geological, technical, drilling and processing problems, changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry, and such other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by the Corporation, including in the Management's Discussion and Analysis and the Annual Information Form. The reader is cautioned that the foregoing list of important factors is not exhaustive. These statements speak only as of the date of this news release and the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, other than as required by law. The forward-looking statements contained in this release are expressly qualified by this cautionary statement.

Contact Information

  • TUSK Energy Corporation
    John Rooney
    CEO
    (403) 264-8875
    or
    TUSK Energy Corporation
    Michael Makinson
    CFO
    (403) 264-8875
    Website: www.tusk-energy.com