Winslow Resources Inc.
TSX VENTURE : WLR

Winslow Resources Inc.

August 29, 2005 08:30 ET

Winslow Announces Second Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 29, 2005) - Winslow Resources Inc. (TSX VENTURE:WLR) ("the Company") is please to announce it's results for the three and six months ending June 30, 2005.

The Company has continued it's strategy to seek unconventional as well as conventional drilling opportunities and pursue the most prospective geological and economically sound plays. The primary focus remains to be opportunity-driven, flexible and entrepreneurial to respond quickly to attractive business opportunities that provide near-term production and long reserve life. Our main objective going into 2005 was to expand our growth plan to include shallow gas reservoirs and unconventional gas plays such as coal bed methane ("CBM"). The Company has been positioned into a number of core areas in Saskatchewan and Alberta, is well financed and able to drill and evaluate the hydrocarbon potential of the properties it has acquired over the past year. The second quarter of 2005 has been very active for the Company. 13 potential gas wells have been drilled this quarter with completions and testing to be finalized by the end of the third quarter.

Leader, SK

In the first quarter Winslow entered into a large-scale farmout agreement with a major oil and gas company covering 44 contiguous sections of land to explore for and develop widespread, multi-zone, shallow Milk River formation gas in west-central Saskatchewan. The properties are located near Leader, Saskatchewan in an area of active shallow gas drilling activity eight kilometers west of the prolific Abbey/Shackleton Milk River gas pools and sixteen kilometers north of the giant Hatton Milk River gas pool.

Winslow, as operator, drilled 12 wells to test the Milk River formation during the second quarter. Prospective zones within the Milk River formation are being tested and will be completed during the third quarter. After completion of the first drilling phase, the Company has the option to drill an additional 12 wells to earn the balance of the farmin lands as well as earn 12 existing shut-in Milk River gas wells on the properties. Winslow will have also earned a 50% interest in all deeper P&NG rights. A pipeline is favorably situated across the southern end of the acreage block and would provide a starting point for future expansion.

Viewfield, SK

Winslow acquired an additional 15% interest in it's Viewfield, Saskatchewan lands during the second quarter. The lands are strategically located within the active Bakken oil shale play in southeast Saskatchewan. The Company has agreed to drill a test well with it's operating partner in the third quarter. Winslow will have a 50% interest in the well.

Hairy Hills, AB

The Company's Hairy Hills gas well, in the Wellington area of central Alberta, was effectively drilled and cased to target depth in December of 2004. The well was tied-in during the second quarter but is currently shut-in pending plant expansion. Winslow has a net 25% interest in the well.

Tindastoll, AB

The Company drilled a 100% working interest gas well near Tindastoll in west-central Alberta in December of 2004. Two zones were subsequently fracture stimulated and re-tested. The latest test data suggests sufficient producible gas is present. The well is expected to be tied-in early in the third quarter.

Coal Valley, AB

Winslow entered into a Joint Venture Agreement with Richards Oil and Gas Limited and an industry participant to explore and jointly develop CBM properties in west-central Alberta. The Coal Valley properties are located in areas of active surface coal mining and were acquired strategically under an option agreement in 2004 based on technical data available as a result of the long history of coal mining activity near the properties. Our partners have substantial CBM experience and bring with them the ability to add value to the Coal Valley and future projects.

A well location was selected in Coal Valley to initiate the drilling project. The well was spud in the second quarter and the industry partner was operator of the well. The well has been partially completed and will be fully completed in the third quarter. The Company retains a 27.8% working interest within the Area of Mutual Interest ("AMI") which includes three sections under the 2004 option agreement and five additional contiguous sections of farmin lands. The lands are ideally located near road access and infrastructure which improves the economically feasible of the project. An additional well location and land acquisitions are being considered for the third quarter.

Financing

In May 2005 Winslow completed a financing of 2,500,000 flow-through shares at a price of $0.40 per share and 10,732,000 common shares at a price of $0.33 per share, all for gross proceeds of $4,541,560. The agent received a cash commission and non-transferable broker warrants to purchase up to 396,960 Common Shares of the Corporation at an exercise price of $0.40 per share on or before May 12, 2006. The proceeds from this financing are being used to fund exploration, development, and completion of new and existing projects as well as for working capital purposes.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements of the Company for the three and six months ended June 30, 2005 and the audited financial statements and MD&A for the year ended December 31, 2004. All figures herein have prepared in accordance with Canadian generally accepted accounting principles.

Certain disclosure in this MD&A contains forward-looking statements that involve risks and uncertainties. Such information, although considered reasonable by Winslow at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated in the statements made. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to, risks associated with operations, loss of market, regulatory matters, commodity price risk, environmental risks, industry competition, and ability to access sufficient capital from internal and external sources.

The MD&A has been prepared as of August 24, 2005.

Results of Operations

During the second quarter of 2005, Winslow earned gross revenue of $14,367 from its royalty interest in a freehold lease that forms part of the North Virden Scallion Unit #1. This brings year to day gross revenue to $27,919. Production amounted to an average of three barrels of oil per day.

With regard to expenses, general and administrative expenditures increased to $146,725 compared to $36,731 in the second quarter 2005. The increase is primarily a result of an increase in salary and benefits and consulting fees due to an increase of employees and activity over the second quarter 2004. A comparative summary of the Company's general and administrative costs over the first quarters of 2005 and 2004 is as follows:





three months six months
ended June 30 ended June 30
2005 2004 2005 2004
----------------------------------------------
Salaries & benefits $ 67,682 $ 5,493 $ 109,655 $ 11,004
Administration 32,346 7,183 40,309 10,246
Consulting fees 7,649 4,980 33,256 9,135
Shareholder
Communications 20,567 9,984 24,033 9,984
Legal and accounting 12,675 3,076 12,675 7,246
Office rent 6,000 6,000 12,185 6,000
Filing fees (194) 15 6,839 5,195

----------------------------------------------
$ 146,725 $ 36,731 $ 238,952 $ 58,810
----------------------------------------------
----------------------------------------------


Depletion, depreciation and accretion costs were $10,836 for the second quarter 2005 compared to $9,238 in the second quarter 2004. Stock based compensation was $15,284 in the second quarter (2004 -Nil) resulting from the vesting of stock options during the quarter. Interest expense decreased to $1,087 in the second quarter 2005 (2004 - $1,423) as the Company repaid its callable debt in May.

Overall the Company's net income for the first six months of 2005 was $98,532 ($nil per share) compared to a loss of $54,674 in the comparative period ($nil per share). During the first quarter 2005 the company recorded a future income tax recovery of $388,131 (2004 - Nil) arising from a flow-through share renouncement.

In the second quarter of 2005, Winslow incurred $1,278,542 (2004 - $28,107) acquiring and exploring its oil and gas assets. The majority of the expenditures relates to the Company's 12 well drilling program in Leader Saskatchewan.

Liquidity and Capital Resources

Winslow began 2005 with 22,159,649 common shares issued and outstanding. During the quarter a further 13,232,000 common shares were issued pursuant the Company's May financing. During the first six months, an additional 669,050 shares were issued pursuant to the exercise of share purchase warrants, stock options and issuance of shares for the acquisition of certain CBM interests. As at June 30, 2005 the Company has 36,060,699 common shares outstanding.

In May, Winslow completed a financing of 2,500,000 flow-through shares at a price of $0.40 per share and 10,732,000 common shares at a price of $0.33 per share, all for gross proceeds of $4,541,560. The agent received a cash commission and non-transferable broker warrants to purchase up to 396,960 Common Shares of the Corporation at an exercise price of $0.40 per share on or before May 12, 2006. The proceeds from this financing are being used to fund exploration, development, and completion of new and existing projects as well as for working capital purposes.

On August 5, 2005, the Company announced a total of 1,185,000 stock options were granted. Each stock option entitles the holder to acquire one common share of the Company at an exercise price of $0.38 per share at any time on or before August 5, 2010.

As at the date of this MD&A, 36,350,699 commons shares are outstanding. A further 2,779,160 warrants at a weighted average exercise price of $0.19 per share and 2,965,000 incentive stock options at a weighted average exercise price of $0.31 per share are reserved for issuance.

As at June 30, 2005, the Company has met its commitment to spend $1,005,000 flow-through proceeds raised in December 2004. The Company has until December 31, 2006 to incur the $1,000,000 worth of eligible expenditures pursuant to the flow-through portion of the financing completed in May 2005.

Related Party Transactions

During the six months ended June 30, 2005 the Company expensed rent of $12,000 (2004 - $6,000) to a company related by the way of common senior management. These transactions are in the normal course of operations and have been valued in these financial statements at the exchange amount which is the amount of consideration established and agreed to by the related parties.

Critical Accounting Estimates

The amounts recorded for depletion and depreciation, asset retirement costs and obligations are based on estimated proved reserves, production rates, future oil and natural gas prices and future costs.

The amounts used to estimate fair values of stock options and warrants issued are based on estimates of future volatility of the Company's share price, expected lives of the stock options and warrants, expected dividends to be paid by the Company and other relevant assumptions.

By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates in future periods could be significant.

Quarterly Information

The following table sets forth certain financial information from the past eight quarters.



Quarter Quarter Quarter Quarter
ended ended ended ended
June 30 Mar 31 Dec 31 Sep 30
2005 2005 2004 2004
----------------------------------------------

Production revenue $ 14,367 $ 13,552 $ 13,314 $ 14,081
Net income (loss) (142,204) 240,736 7,960 (16,002)
per share - basic - 0.01 - -
per share - diluted - 0.01 - -

Quarter Quarter Quarter Quarter
ended ended ended ended
June 30 Mar 31 Dec 31 Sep 30
2004 2004 2003 2003
----------------------------------------------

Production revenue $ 12,812 $ 11,655 $ 10,723 $ -
Net income (loss) (34,410) (20,264) (87,818) (415,586)
per share - basic - - (0.01) (0.04)
per share - diluted - - (0.01) (0.04)


NOTICE TO READER

The accompanying unaudited interim financial statements of Winslow Resources Inc. for the three and six months ended June 30 2004, have been prepared by management and approved by the Board of Directors of the Company. These periods have not been reviewed by Winslow Resources Inc.'s external auditors.




Dated August 24, 2005

On behalf of Winslow Resources Inc.


(signed)"Hugh G. Ross" (signed)"Ketan Panchmatia"
Hugh G. Ross Ketan Panchmatia
Chief Executive Officer Chief Financial Officer



WINSLOW RESOURCES INC
BALANCE SHEETS
AS AT JUNE 30 2005 AND DECEMBER 31, 2004

ASSETS
June 30 December 31
2005 2004
-----------------------------
(unaudited) (audited)

CURRENT
Cash and cash equivalents $ 4,083,892 $ 1,227,671
Accounts receivable 102,110 27,493
Cash calls receivable 151,181 190,043
Prepaid expenses 20,578 14,585
-----------------------------
4,357,761 1,459,792

PROPERTY AND EQUIPMENT (note 2) 2,545,497 737,678

MINING PROPERTY (note 3) 608,447 605,479

INVESTMENTS 5,800 5,800

-----------------------------
$ 7,517,505 $ 2,808,749
-----------------------------
-----------------------------


LIABILITIES & SHAREHOLDERS' EQUITY

CURRENT
Accounts payable and accrued liabilities $ 989,587 $ 447,698
Current portion of callable debt (note 4) - 30,000
-----------------------------
989,587 477,698
Callable debt not expected to be paid in
the next 12 months (note 4) - 60,000
-----------------------------

989,587 537,698
-----------------------------

ASSET RETIREMENT OBLIGATIONS (note 5) 111,951 25,146
-----------------------------

COMMITMENT (note 10)

CAPITAL STOCK (note 6) 13,104,039 9,156,181
CONTRIBUTED SURPLUS (note 7) 250,611 126,939
DEFICIT (6,938,683) (7,037,215)
-----------------------------
6,415,967 2,245,905

-----------------------------
$ 7,517,505 $ 2,808,749
-----------------------------
-----------------------------

See accompanying notes

Director: (signed) "Hugh G. Ross"
----------------------------

Director: (signed) "Hughes P. Salat"
----------------------------


WINSLOW RESOURCES INC
STATEMENTS OF INCOME (LOSS) AND DEFICIT
FOR THE PERIODS ENDING JUNE 30, 2005
(unaudited)

three months ended six months ended
June 30 June 30
2005 2004 2005 2004
-------------------------------------------------
REVENUE
Production $ 14,367 $ 12,812 $ 27,919 $ 24,467
-------------------------------------------------

EXPENSES
General and
administrative 146,725 36,731 238,952 58,810
Production Expense - 330 - 330
Stock based
compensation
(note 8) 15,284 - 82,792 -
Interest on callable
debt 1,087 1,423 2,276 3,077
Depletion,
depreciation
and accretion 10,836 9,238 16,062 18,153
-------------------------------------------------
173,932 47,722 340,082 80,370
-------------------------------------------------

LOSS BEFORE OTHER (159,565) (34,910) (312,163) (55,903)

OTHER
Interest income 17,361 500 22,564 1,229
-------------------------------------------------

LOSS BEFORE FUTURE
INCOME TAXES (142,204) (34,410) (289,599) (54,674)

Future income taxes
recovery - - 388,131 -
-------------------------------------------------

NET INCOME (LOSS)
FOR THE PERIOD (142,204) (34,410) 98,532 (54,674)

DEFICIT, beginning
of year (6,796,479) (6,994,763) (7,037,215) (6,974,499)

-------------------------------------------------
DEFICIT, end of period $(6,938,683)$(7,029,173)$(6,938,683)$(7,029,173)
-------------------------------------------------
-------------------------------------------------



NET INCOME (LOSS) PER SHARE

Basic $ - $ - $ - $ -
-------------------------------------------------
-------------------------------------------------

Diluted $ - $ - $ - $ -
-------------------------------------------------
-------------------------------------------------

See accompanying notes


STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDING JUNE 30, 2005
(unaudited)

three months ended six months ended
June 30 June 30
2005 2004 2005 2004
-------------------------------------------------

OPERATING ACTIVITIES
Net income (loss) $ (142,204)$ (34,410)$ 98,532 $ (54,674)
Add (deduct) items
not requiring cash
Depletion,
depreciation
and accretion 10,836 9,238 16,062 18,153
Future Income tax
recovery - - (388,131) -
Stock based
compensation 15,284 - 82,792 -
-------------------------------------------------
(116,084) (25,172) (190,745) (36,521)

Change in non-cash
working capital items (37,455) (11,988) (81,706) (12,590)
-------------------------------------------------
(153,539) (37,160) (272,451) (49,111)

FINANCING ACTIVITIES
Net proceeds from
common share issue 4,200,994 - 4,276,869 -
Callable debt repayments (82,500) (7,500) (90,000) (15,000)
Change in non-cash
working capital items 6,240 - (15,318) -
-------------------------------------------------
4,124,734 (7,500) 4,171,551 (15,000)

INVESTING ACTIVITIES
Acquisition of property
and equipment (1,278,542) (28,107) (1,637,076) (115,863)
Mining Property
Expenditures (2,968) - (2,968) -
Decrease (increase)
in loan receivable - - - 15,000
Change in non-cash
working capital items 671,016 (19,877) 597,165 46,566
-------------------------------------------------
(610,494) (47,984) (1,042,879) (54,297)

INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 3,360,701 (92,644) 2,856,221 (118,408)

CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD 723,191 187,726 1,227,671 213,490

-------------------------------------------------
CASH AND CASH
EQUIVALENTS, END
OF PERIOD $ 4,083,892 $ 95,082 $ 4,083,892 $ 95,082
-------------------------------------------------
-------------------------------------------------


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

Cash and cash
equivalents
consists of
Cash $ 91,772 $ 95,082 $ 91,772 $ 95,082
Short-term deposits 3,992,120 - 3,992,120 -
-------------------------------------------------
$ 4,083,892 $ 95,082 $ 4,083,892 $ 95,082
-------------------------------------------------
-------------------------------------------------

------------------------------------------------------------------------
Non-cash transaction
The following non-cash
transaction has been
excluded from the
statement of cash flows:
Acquisition of
petroleum and natural
gas properties by the
issuance of
share capital $ - $ - $ 100,000 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes



NOTES TO THE JUNE 30, 2005 INTERIM FINANCIAL STATEMENTS

(unaudited)

1. ACCOUNTING POLICIES

The interim financial statements of Winslow Resources Inc. ("Winslow" or the "Company") have been prepared in accordance with generally accepted accounting principles in Canada which were the same accounting policies and methods of computation as the financial statements as at December 31, 2004. The disclosure which follows is incremental to the disclosure included in the annual financial statements. The interim financial statements should be read in conjunction with the Company's financial statements and notes thereto for the year ended December 31, 2004.



2. PROPERTY AND EQUIPMENT

Accumulated 30-Jun-05 31-Dec-04
Cost Amortization Net Net
-------------------------------------------------

Petroleum and natural
gas properties
including exploration
and development
thereon $ 2,460,393 $ 31,567 $ 2,428,826 $ 718,190
Production equipment 104,182 1,852 102,330 6,541
Office equipment 58,533 44,192 14,341 12,947
-------------------------------------------------
$ 2,623,108 $ 77,611 $ 2,545,497 $ 737,678
-------------------------------------------------
-------------------------------------------------


3. MINING PROPERTY

Acquisition Exploration 30-Jun-05 31-Dec-04
Costs Costs Total Total
-------------------------------------------------
British Columbia $ 283,489 $420,445 $ 703,934 $ 700,966
---------------------------
---------------------------
Less recovery of costs
from the sale of
mineral interests (95,487) (95,487)
----------------------
$ 608,447 $ 605,479
----------------------
----------------------


4. CALLABLE DEBT

Callable debt consists of the following:
30-Jun-05 31-Dec-04
----------------------
Bank demand loan bearing interest
at prime plus 1.25% repayable at
$2,500 per month principal plus interest $ - $ 90,000
Less: current portion - (30,000)
----------------------
$ - $ 60,000
----------------------
----------------------


The demand loan is secured by a general security agreement representing a first charge on all the Company's assets and a $1,000,000 debenture representing a first floating charge on all present and after acquired property with a fixed charge on certain properties.

5. ASSET RETIREMENT OBLIGATIONS

The following table summarizes changes in the asset retirement obligations for the six months ended June 30, 2005 and year ended December 31, 2004.



six months year
ended June 30 ended Dec 31
2005 2004
------------------------------
Asset retirement obligations,
beginning of period $ 25,146 $ 12,749
Liabilities incurred 85,991 14,750
Liabilities settled - (2,976)
Accretion expense 814 623
------------------------------
Asset retirement obligations,
end of period $ 111,951 $ 25,146
------------------------------
------------------------------


The undiscounted amount of the estimated future cash flows required to settle the obligations is $256,169 (Dec 31, 2004 - $32,713). These obligations are expected to be paid over the next several years with a weighted average life of approximately 13 years (Dec 31, 2004 - 4 years). The estimated future cash flows have been discounted at the weighted average credit-adjusted risk free rate of 6.93% (Dec 31, 2004 - 6.45%).

6. SHARE CAPITAL

Winslow's authorized share capital consists of 100,000,000 voting common shares.



Issued

Voting Common Shares Number of Stated
Shares Value
-----------------------------

Balance - Dec 31, 2004 22,159,649 $ 9,156,181
Private Placement, net of costs 13,232,000 4,120,085
Exercise of Warrants 237,800 45,048
Exercise of Stock Options 181,250 70,856
Acquisition agreement 250,000 100,000
Flow-thru tax renunciation - (388,131)
-----------------------------
Balance - June 30, 2005 36,060,699 $13,104,039
-----------------------------
-----------------------------

Reserved for Issuance

Stock Options Number of Weighted Avg.
Options Exercise Price
-----------------------------

Balance - Dec 31, 2004 1,565,000 $ 0.21
Granted 790,000 0.35
Exercised (181,250) 0.25
Canceled (393,750) 0.25
-----------------------------
Balance - June 30, 2005 1,780,000 $ 0.26
-----------------------------
-----------------------------

Exercisable 1,275,000 $ 0.24
-----------------------------
-----------------------------

Warrants Number of Weighted Avg.
Warrants Exercise Price
-----------------------------

Balance - Dec 31, 2004 2,910,000 $ 0.16
Granted (i) 396,960 0.40
Exercised (237,800) 0.19
-----------------------------
Balance - June 30, 2005 3,069,160 $ 0.19
-----------------------------
-----------------------------

Exercisable 3,069,160 $ 0.19
-----------------------------
-----------------------------


i) During 2005, 396,960 warrants were issued in conjunction with the financing of the May 12, 2005 private placement. The value of the warrants, $70,861 was recognized as contributed surplus and the share issuance costs were applied against capital stock. The fair value of the warrants was based on the Black-Scholes option pricing model with following weighted average assumptions:

- Risk free interest rate of 2.94%

- Expected life of the warrants of 1 year

- Expected volatility of 127.29%

- Expected dividend rate of 0%

- Fair value per warrant granted of $0.18

7. CONTRIBUTED SURPLUS

The following table summarizes changes in contributed surplus for the six months ending June 30, 2005 and year-ended December 31, 2004.



six months year
ended June 30 ended Dec 31
2005 2004
------------------------------
Contributed Surplus, beginning of period $ 126,939 $ 24,175
Stock Based Compensation 82,792 102,764
Issuance of Warrants 70,861 -
Exercise of Stock Options (29,981) -
------------------------------
Contributed Surplus, end of period $ 250,611 $ 126,939
------------------------------
------------------------------


8. STOCK-BASED COMPENSATION EXPENSE

The fair value of stock options granted during 2005 was estimated on the dates of grant using the Black-Scholes option pricing model with the following assumptions:

- Risk free interest rate of 3.58%

- Expected life of options of 5 years

- Expected volatility of 199.65%

- Expected dividend rate of 0%

- Fair value per option granted of $0.34

9. RELATED PARTY TRANSACTIONS

The Company expensed rent of $12,000 (2004 - $6,000) to a company related by the way of common senior management. These transactions are in the normal course of operations and have been valued in these financial statements at the exchange amount which is the amount of consideration established and agreed to by the related parties.

10. COMMITMENT

During May 2005, the Company issued flow-through shares in the amount of $1,000,000. The Company is committed to spend the amount by December 31, 2006.

11. SUBSEQUENT EVENT

On August 5, 2005, the Company announced a total of 1,185,000 stock options were granted. Each stock option entitles the holder to acquire one common share of the Company at an exercise price of $0.38 per share at any time on or before August 5, 2010.

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

Contact Information

  • Winslow Resources Inc.
    John Nelson
    Interim President, Vice-President, New Ventures
    (403) 355-1175