Cuervo Resources Inc CRVNF

Find Energy Ltd. Announces 2006 First Quarter

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Find Energy Ltd. Announces 2006 First Quarter Results CALGARY, ALBERTA, May 9, 2006 (CCNMatthews via COMTEX News Network) -- Find Energy Ltd. (TSX:FE) ("Find" or the "Company") today announced its financial and operating results for the three months ended March 31, 2006. This message should be read in conjunction with the unaudited financial statements and the Management's Discussion and Analysis, which form part of this press release. For additional information, these documents, along with other statutory filings, are available on SEDAR at www.sedar.com and the Company's website at www.findenergy.ca. Find's excellent results in 2005 continued through the first quarter of 2006 with substantial oil and natural gas reserve additions and continued production growth. Wells that established reserves in 2005 began to commence production through the Company's Blue Rapids gas plant driving growth throughout the quarter. Highlights Q1 2006 Q4 2005 % Change -----------------------------------Production Volumes Natural gas (mcf/day) 21,754 12,684 72 Oil and NGL (bbls/day) 1,222 1,256 (3) ----------------------------------- Total (boe/day) 4,848 3,370 44Product Prices Natural gas ($/mcf) 7.96 11.91 (33) Crude oil and natural gas liquids ($/bbl) 51.34 52.33 (2) ----------------------------------- Total ($/boe) 48.68 64.34 (24)Financial Results Revenue ($000) 21,239 19,948 6 Cash flow ($000) 12,321 12,162 1 Basic per share ($) 0.36 0.36 - Net income ($000) 3,455 4,736 (27) Basic per share ($) 0.10 0.14 (29) Cash flow netback ($/boe) 28.24 39.23 (28) Royalties ($/boe) 13.17 16.03 (18) Operating expense ($/boe) 6.09 7.88 (23) General and administrative costs ($/boe) 0.27 0.53 (49) Capital expenditures ($000) 37,176 42,283 (12) Debt plus working capital deficiency ($000) 65,646 43,555 (51) Shares outstanding (000) 35,051 34,026 3Reserves Proved (mboe) 12,148 10,311 18 Proved plus probable (mboe) 15,998 13,311 20 NPV 10% discount ($million) 328 280 17 Debt adjusted proved reserves, per thousand shares 293 266 10 Debt adjusted proved plus probable reserves, per thousand shares 385 344 12 Production and Operations Production With the commencement of production through the Blue Rapids gas plant, Find experienced significant growth in volumes. Average production during the quarter was 4,848 boe per day, comprised of 21.8 mmcf per day of natural gas and 1,222 bbls per day of oil and natural gas liquids. These rates compare to Q4 2005 production of 3,370 boe per day, made up of 12.7 mmcf per day and 1,256 bbls per day of oil and natural gas liquids. Although production was up sharply in Q1, further growth was hampered by a fire at the Blue Rapids gas plant on February 7, 2006 that caused operation of one of the compressors to be suspended until March 11, 2006 when full productive capacity was restored. Find estimates that this curtailment reduced production by approximately 125 boe per day for the quarter. As well, at Bigstone, another operator shut in the Company's production due to lack of processing capacity at their gas plant. This curtailment is unfortunately likely to continue through Q2 and into Q3 of 2006. This situation is reducing the Company's production by approximately 200 boe per day. Alternative gas processing arrangements are currently being evaluated by Find. The situation at Bigstone serves to reinforce Find's strategy at Pembina West to obtain the advantages of size and scale while operating it own processing facilities. Find estimates that during the last week of April 2006 its production averaged 5,460 boe per day comprised of 24.2 mmcf per day of natural gas and 1,430 bbls per day of oil and natural gas liquids . Drilling All of Find's drilling in the first quarter was in the West Central Alberta operating area. A total of 17 (11.7 net) wells were drilled, resulting in 14 (10.9 net) gas wells, 1 (0.3 net) oil well and 2 (0.5 net) dry holes. At Pembina West, Find drilled 13 (10.3 net) gas wells. By the end of the quarter only one of these wells was producing. The Company plans to tie-in the remainder of these wells by the end of 2006. Land Find had an active quarter at Crown land sales, investing a total of $9.6 million to expand its Pembina West land holdings and as well add lands in other areas. The Company acquired a total of 20,100 acres of net undeveloped land at Alberta Crown land sales and by farmin during the quarter at an average price of $478 per acre. Of the land acquired, 14,340 net undeveloped acres were added in the Pembina West area. Currently Find holds rights to explore 155,726 acres of net undeveloped land having a value estimated at $28.7 million. Reserves Find engaged GLJ Petroleum Consultants Ltd. ("GLJ"), an independent reserves evaluator, to prepare a reserve evaluation of Find's drilling results for the three months ended March 31, 2006. The evaluation concluded that the Company discovered a total of 2,310 mboe of proved reserves and 3,158 mboe of proved plus probable reserves during the quarter. The reserves added during Q1 replaced production during the period by more than seven times. Based on total capital expenditures of $37.2 million in Q1, GLJ's reserve evaluation indicates that Find posted finding and development costs of $16.09 per boe proved and $11.77 per boe proved plus probable. If the cost of land was deducted these costs would be $11.94 per boe of proved reserves and $8.73 per boe on a proved plus probable basis. These finding and development costs are estimated before any consideration of future capital adjustments. Find also requested that GLJ update the Company's reserve report dated December 31, 2005 by deducting Q1 2006 production and applying GLJ's estimate of future prices dated April 1, 2006. Details of this update along with the net present value of the Company's reserves are contained in the MD&A section of the quarterly report. GLJ has estimated the value of the Company's proved plus probable reserves, discounted at 10 percent and based on their April 1, 2006 price forecast, at $327.7 million. Financial Petroleum and natural gas sales Revenue grew by six percent in the quarter to $21.2 million from $19.9 million in the fourth quarter. This occurred as production grew by 44 percent on a boe basis in the quarter; gas prices, however, tumbled by 33 percent to offset this increase. Operating costs Field operating costs fell by 23 percent in the quarter to $6.09 per boe compared to the fourth quarter of 2005. This decrease is due to most of the Company's Pembina West gas now being processed at the Blue Rapids gas plant. General and administrative expense General and administrative expenses were down to $0.27 per boe in the quarter. In part this was achieved because the active drilling and capital program produced substantial overhead recoveries. This is an improvement of 49 percent over the $0.53 per boe recorded in the fourth quarter. Cash flow Cash flow of $12.3 million or $0.36 per share was virtually unchanged from cash flow of $12.2 million and $0.36 per share in the fourth quarter of 2005. Increases in production (up 44 percent) were offset by decreases in prices (down 24 percent). Find continued to show improvements in cash costs. Excluding royalties, total cash costs were $7.27 per boe in the quarter, an improvement of 20 percent over the $9.08 per boe recorded in the fourth quarter. Capital expenditures Find invested a total of $37.2 million in capital expenditures in the first quarter. The majority of this was spent drilling and completing 17 (11.7 net) wells. The Company also spent $9.6 million at Crown land sales. Bank debt and working capital By the end of the first quarter, Find had bank debt of $53.6 million and a working capital deficiency of $12.0 million for a total debt position of $65.6 million. The Company has signed a commitment letter with its principal lender establishing the Company's credit facility at $100 million. Net Asset Value The GLJ estimate of the value of Find's proved plus probable reserves discounted at 10 percent is $327.7 million. The value of the Company's undeveloped land is estimated at $28.7 million and its net debt at March 31, 2006 is $65.6 million, providing a net value of $290.8 million. The number of shares outstanding is 35.0 million providing a net asset value per basic share of $8.30 at March 31, 2006 This is 10 percent higher than the estimate of net asset value at the end of 2005 of $7.52 using similar parameters, although GLJ's estimate of future pricing was dated January 1, 2006. Outlook Find continues to achieve excellent exploration and development results that have provided the Company growing confidence in the quality of its assets at Pembina West. The Company has announced plans to increase its capital program to $110 million in 2006 from a previously announced $70 million. Almost all of this additional spending will be directed to the Pembina West area. An important component of the increased budget will be an expansion of the Pembina Blue Rapids gas plant. Plant processing capacity will be increased by 20 mmcf per day to a total of 50 mmcf per day of natural gas. Find will operate the expansion, have a working interest of 90 percent and own approximately 60 percent of the new gas to be processed. The expansion should be completed sometime in the fourth quarter of 2006. The balance of the increased capital expenditures will be spent drilling additional wells, most of which will occur at Pembina West. Find intends to drill a total of 76 (57 net) wells in 2006. Of these, 52 (38 net) wells will be drilled at Pembina this year. Natural gas prices have an important influence on Find's results. Currently they are well off the average prices experienced in the fourth quarter of 2005. The Company continually monitors the forward pricing strip and will make adjustments to its capital program as required. Find continues to remain optimistic about the future price of natural gas. We believe that the investments that are being made now to expand our production facilities and drill new wells will be rewarded as prices recover. ----------------------------------------------------------------------- This news release contains information regarding estimated net present values of reserves. It should not be assumed that the estimates of net present value of the reserves represents the fair market value of the reserves. Investors are further cautioned that the preparation of financial statements in accordance with Canadian generally accepted accounting principles ("GAAP") requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes. Under NI 51-101, the methodology used to calculate FD&A costs includes incorporating changes and future development capital ("FDC") required to bring proved undeveloped and probable reserves to production. For continuity, Find presented FD&A costs both excluding and including FDC. In all cases, the FD&A number is calculated by dividing the identified capital expenditures by the applicable reserve additions. Find has adopted the standard of 6 mcf of natural gas being equivalent to 1 barrel of oil when converting natural gas to barrels of oil equivalent (boe). This practice may be misleading, particularly if used in isolation. A 6 conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This news release contains certain forward-looking statements, which are based on Find's current internal expectations, estimates, projections, assumptions and beliefs. Some of the forward-looking statements may be identified by words such as "expects", "anticipates", "believes", "projects", "plans" and similar expressions. These statements are not guarantees of future performance and involve a number of risks and uncertainties, many of which are beyond Find's control. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause Find's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits Find will derive from them. The risks and uncertainties associated with the forward-looking statements included in this news release include, among other things, changes in general economic, market and business conditions; changes or fluctuations in production levels, unexpected drilling results, commodity prices, currency exchange rates, capital expenditures, reserves or reserves estimates and debt service requirements; changes to legislation, investment eligibility or investment criteria; Find's ability to comply with current and future environmental or other laws; Find's success at acquisition, exploration and development of reserves; actions by governmental or regulatory authorities including increasing taxes, changes in investment or other regulations; and the occurrence of unexpected events involved in the exploration for, and the operation and development of, oil and gas properties. Many of these risks and uncertainties are described in Find's Annual Information Form and Find's Management's Discussion and Analysis. Readers are also referred to risk factors described in other documents Find files with Canadian securities authorities. Copies of these documents are available without charge from Find. Except as required by applicable law, Find disclaims any responsibility to update these forward-looking statements. ----------------------------------------------------------------------- FIND ENERGY LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS This management's discussion and analysis ("MD&A") dated April 30, 2006, should be read in conjunction with the annual audited financial statements of Find Energy Ltd. ("Find" or the "Company") as well as the Annual Information Form and the Statement of Reserves Data and Other Information. These documents along with other statutory filings are available on SEDAR at www.sedar.com and at the Company's website at www.findenergy.ca. In this MD&A, the calculation of boe is based on the conversion rate of six thousand cubic feet of natural gas for one barrel of oil. This conversion conforms to National Instrument 51-101 - Standards for Oil and Gas Activities of the Canadian Securities Administrators. Readers are cautioned that boe may be misleading if used in isolation. A boe conversion ratio of 6 mcf bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This MD&A contains forward-looking statements. Forward-looking statements are based on current expectations that involve a number of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the MD&A. Forward-looking statements are based on the estimates and opinions of Find's management at the time the statements were made. The MD&A contains the term cash flow from operations, which should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles as an indicator of the Company's performance. Find's calculation of cash flow from operations may not be comparable to that reported by other companies. Cash flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of income per share. The terms "2006 Q1", "2005 Q4" and "2005 Q1" refer to the three months ended March 31, 2006, December 31, 2005 and March 31, 2005 respectively. Volumes 2006 2005 2005 Q1 Q4 Q1 ---------------------------Natural gas (mcf/day) 21,754 12,684 8,535Oil and NGL (bbls/day) 1,222 1,256 1,630 ---------------------------Total (boe/day) 4,848 3,370 3,053 --------------------------- --------------------------- Find's gas production grew by 72 percent in the first quarter compared to the fourth quarter of 2005. This growth is a result of the Pembina Blue Rapids gas plant becoming operational late in 2005, which enabled previously shut-in wells to begin producing. During the quarter, production at Find's Bigstone property was reduced and finally shut-in by the operator of the natural gas plant through which the Company was producing. The Company estimates that a total of 1.0 mmcf per day of natural gas and 30 barrels per day of natural gas liquids is shut-in at Bigstone due to plant capacity restrictions. The Pembina Blue Rapids gas plant produced continuously through the quarter. However, production was 10 mmcf per day less than full capacity, or 20 mmcf per day, due to an equipment failure and subsequent fire that prevented gas from flowing through one of the compressors for approximately five weeks. During the first quarter of 2006, Find drilled 13 successful gas wells at Pembina West, only one of which is currently producing. The others wells are at various stages in the completion process. Crude oil and natural gas liquids production fell 3 percent in the first quarter as compared to the fourth quarter of 2005. Normal declines at all of Find's producing properties were almost entirely offset by natural gas liquids production increases at Pembina. Find's total production for the quarter increased by 44 percent over the fourth quarter of 2005 and by 59 percent over the first quarter of 2005. Product Pricing 2006 2005 2005Natural Gas ($/mcf) Q1 Q4 Q1 ---------------------------Price before hedging 7.96 11.91 7.28Hedging gain - - - ---------------------------Net price 7.96 11.91 7.28 --------------------------- ---------------------------AECO daily index 7.53 11.31 6.85NYMEX (US$/mcf) 7.89 12.86 6.48 Find's realized natural gas price fell by 33 percent or $3.95 per mcf in the quarter compared to the fourth quarter of 2005. Prices at the AECO storage hub and on the NYMEX market followed suit, declining by 33 percent and 39 percent respectively. The traditional winter heating season began in the fourth quarter of 2005 with storage levels at capacity. The warmest January in history sharply reduced demand for natural gas for heating and prices quickly declined. With gas storage inventories far in excess of historical norms for this part of the year, prices remain weak. The outlook for gas prices is unclear, but signs indicate that prices may have touched bottom. 2006 2005 2005Oil and Natural Gas Liquids ($/bbl) Q1 Q4 Q1 ---------------------------Price before hedging 51.34 52.33 48.32Hedging gain (loss) - - (3.19) ---------------------------Net price 51.34 52.33 45.13 --------------------------- ---------------------------WTI (US$/bbl) 63.35 60.03 49.69Edmonton Light ($/bbl) 69.36 71.64 62.04CDN$/US$ 0.8661 0.8526 0.815 Find's realized oil and natural gas liquids price was off marginally in the first quarter compared to the fourth quarter of 2005. West Texas Intermediate crude oil prices rose by 5.5 percent to average $63.35 per barrel in the first quarter. However, the CDN$ increased in value by 1.6 percent, and a greater percentage of the Company's liquids production is represented by natural gas liquids, which receives a lower price than crude oil. The Company also experienced a very slight widening of differentials on its medium gravity oil property at Hazlet. Income Statement 2006 2005 2005Revenue Q1 Q4 Q1 ---------------------------Oil & natural gas sales ($000) 21,238 19,948 12,684 Per boe ($) 48.68 64.34 46.18Hedging loss ($000) - - 468 Per boe ($) - - 1.70The following table reconciles oil and natural gas revenue between thefourth quarter of 2005 and the first quarter of 2006:Revenue for the three months ended December 31, 2005 ($000) 19,948Decrease in commodity prices ($000) (4,788)Increase in production volumes ($000) 6,079 -------Revenue for the three months ended March 31, 2006 ($000) 21,239 ------- ------- 2006 2005 2005Royalties Q1 Q4 Q1 ---------------------------Total royalties ($000) 5,746 4,972 2,746% of revenue before hedging 27.1 24.9 21.6Per boe ($) 13.17 16.03 9.99 Find's royalty rate rose to 27.1 percent in the first quarter, which was 2.2 percent higher than the royalty rate in the fourth quarter of 2005. Rates were negatively impacted as a greater percentage of the Company's production was from Pembina West which attracts the highest Crown royalty rate as "new gas". During the fourth quarter of 2005, 49 percent of Find's production was from Pembina West compared to 70 percent in the first quarter of 2006. 2006 2005 2005 Operating Expenses Q1 Q4 Q1 --------------------------- Total lease operating ($000) 2,658 2,444 2,372 Per boe ($) 6.09 7.88 8.63 Find's field operating expenses showed a dramatic decrease in the first quarter, falling by 23 percent to $6.09 per boe compared to the fourth quarter of 2005. This is due entirely to the commissioning of the Pembina Blue Rapids gas plant, which processed most of the Company's Pembina West gas during the quarter. Some Pembina West gas volumes were still processed at third-party plants; these volumes should be entirely processed at the Blue Rapids plant by later this year. When compared to the first quarter of 2005, per boe operating costs were reduced by 29 percent. This is reflective of the Company's sale in Q2 2005 of oil assets in Southeast Saskatchewan and its focus on operated natural gas opportunities. 2006 2005 2005General & Administrative ($000) Q1 Q4 Q1 --------------------------Total G & A expense 1,270 1,817 1,005Recoveries (704) (1,017) (410)Capitalized (448) (636) (322) --------------------------Net 118 164 273Per boe ($) 0.27 0.53 0.99 Net general and administrative costs fell to $0.27 per boe in the first quarter, 49 percent lower than the $0.53 per boe recorded in the fourth quarter of 2005. General and administrative costs in the fourth quarter were impacted by staff bonuses paid during the period. Recoveries remain quite high as the Company continues with an active drilling program and begins to earn recoveries through its ownership in the Blue Rapids gas plant. 2006 2005 2005 Interest Expense ($000) Q1 Q4 Q1 ------------------------- Total interest expense ($000) 299 65 116 Per boe ($) 0.69 0.21 0.42 Interest expense increased to $0.69 per boe in the quarter compared to $0.21 per boe in the fourth quarter of 2005. Loan balances during the first quarter were on average 187 percent higher than in the fourth quarter, leading to interest expense of $299,000. The prime lending rate was also 50 basis points higher during the quarter, averaging 5.29 percent, thereby also contributing to higher interest costs. 2006 2005 2005Provision for Taxes ($000) Q1 Q4 Q1 --------------------------Future income taxes 2,333 2,930 1,113Current tax expense - 32 -Capital tax expense 96 109 141 --------------------------Total tax expense 2,429 3,071 1,254 -------------------------- --------------------------Find had no cash income tax expense in the first quarter due to itslarge opening tax pool balance and the level of capital expenditures. 2006 2005 2005Stock-based Compensation ($000) Q1 Q4 Q1 -------------------------Total stock-based compensation 995 406 344Capitalized (416) (138) (127) -------------------------Net 579 268 217Per boe ($) 1.33 0.86 0.79Stock-based compensation was higher in the first quarter. The increasewas due to the exercise of stock options and their subsequentre-granting. 2006 2005 2005Depletion, Depreciation and Accretion Q1 Q4 Q1 --------------------------Total DD&A ($000) 5,954 4,229 3,778Per boe ($) 13.65 13.64 13.75The depletion, depreciation and accretion rate remained consistent inthe first quarter of 2006 as the Company continues to add provedreserves at its historical depletion rate. 2006 2005 2005Net Income ($000) Q1 Q4 Q1 ---------------------------Net income 3,455 4,736 1,393Per boe ($) 7.92 15.27 5.07Per share ($) 0.10 0.14 0.04Diluted per share ($) 0.10 0.13 0.04Weighted average shares outstanding (000) 34,201 33,910 33,542 Net income in the first quarter was 27 percent less than in the last quarter of 2005, totalling $3.5 million. On a boe basis, it was $7.92 or 48 percent less than the fourth quarter and on a per share basis 29 percent less at $0.10 per basic share. These decreases in net income were driven entirely by decreases in commodity prices, as all cost items declined in the quarter on a boe basis. Find's realized commodity price declined by 24 percent in the first quarter compared to the fourth quarter of 2005; however, cash costs declined by 19 percent and non- cash costs declined by 15 percent. 2006 Q1 2005 Q4 $000 $/boe $000 $/boe ------------------------------------Revenue 21,238 48.68 19,948 64.34 ------------------------------------Royalties 5,746 13.17 4,972 16.03Operating expenses 2,658 6.09 2,444 7.88General and administrative 118 0.27 164 0.53Interest 299 0.69 65 0.21Capital taxes 96 0.22 141 0.46 ------------------------------------ 8,917 20.44 7,786 25.11 ------------------------------------ ------------------------------------Cash flow from operations 12,321 28.24 12,162 39.23Depletion, depreciation and accretion 5,954 13.65 4,229 13.64Stock-based compensation 579 1.33 268 0.86Future taxes 2,333 5.34 2,930 9.46 ------------------------------------Net income 3,455 7.92 4,736 15.27 ------------------------------------ ------------------------------------Liquidity and Capital Resources 2006 2005 2005Cash Flow from Operations Q1 Q4 Q1 ----------------------------Cash flow from operations ($000) 12,321 12,162 6,874Cash flow from operations, per basic share ($) 0.36 0.36 0.20Cash flow from operations, per diluted share ($) 0.34 0.34 0.20Cash flow netback, per boe ($) 28.24 39.23 25.03Cash flow as a percentage of revenue 58.0% 61.0% 54.2%Weighted average shares outstanding (000) 34,201 33,910 33,542 Cash flow from operations was virtually unchanged in the quarter, as volatile commodity prices (down 24 percent) were offset by large increases in production (up 44 percent). The cash flow netback was hampered by lower commodity prices. However, cash costs excluding royalties were $7.27 per boe in the quarter, an improvement of 20 percent over cash costs of $9.08 recorded in the fourth quarter of 2005. 2006 2005 2005Capital Expenditures ($000) Q1 Q4 Q1 ---------------------------Land 9,635 421 717Seismic 516 474 103Drilling and completions 19,770 23,307 11,742Pembina Blue Rapids gas plant 2,409 9,851 -Well equipment and facilities 4,398 7,594 5,301 --------------------------- 36,728 41,647 17,863Capitalized G & A 448 636 322 ---------------------------Total capital expenditures 37,176 42,283 18,185 --------------------------- ---------------------------Funding of first quarter capital expenditures: $ Million -----------Cash flow from operations 12.3Draw on bank line of credit 28.3Increase in current assets (6.2)Issue of shares 2.8 -----------Total capital expenditures 37.2 ----------- -----------Capital Expenditures by Area(Three Months Ended March 31, 2006) Land/ Drilling/ Equipping/Area ($000) Seismic Completions Facilities Total -----------------------------------------------West Central Alberta 10,043 18,476 5,865 34,384East Central Alberta 108 1,294 942 2,344 ----------------------------------------------- 10,151 19,770 6,807 36,728 ----------------------------------------------- -----------------------------------------------Wells Drilled by Area(Three Months Ended March 31, 2006)Area Gas Oil D & A Total --------------------------------------------------- Success Gross Net Gross Net Gross Net Gross Net Rate ------------------------------------------------------------West Central Alberta 14 10.9 1 0.3 2 0.5 17 11.7 96%East Central Alberta - - - - - - - - - ------------------------------------------------------------ 14 10.9 1 0.3 2 0.5 17 11.7 96% ------------------------------------------------------------ ------------------------------------------------------------ Reserves The Company engaged GLJ Petroleum Consultants Ltd. ("GLJ"), independent reserves evaluator, to prepare a reserve evaluation of Find's drilling results for the three months ended March 31, 2006. The reserves data summarizes the oil, liquids and natural gas reserves of Find discovered in the first quarter and the net present value of future net reserves using forecast prices and costs. The forecast prices and costs are summarized below. This reserves data conforms to the requirements of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities "NI-5101". Summary of Company Interest Oil and Natural Gas Reserve Additions(forecast prices and costs)Three Months Ended March 31, 2006 Natural Gas Crude Oil Natural Gas Liquids Total (mbbls) (mmcf) (mbbls) (mboe) ----------------------------------------------------- TCI Net TCI Net TCI Net TCI Net (1) (2) (1) (2) (1) (2) (1) (2) -----------------------------------------------------Proved Developed producing - - - - - - - - Developed non-producing 15 12 10,816 8,326 491 335 2,310 1,736 Undeveloped - - - - - - - - -----------------------------------------------------Total proved 15 12 10,816 8,326 491 335 2,310 1,736Probable 8 6 3,954 3,120 182 125 848 650 -----------------------------------------------------Total proved plus probable 23 18 14,773 11,446 673 460 3,158 2,386 ----------------------------------------------------- -----------------------------------------------------(1) Total Company interest; includes working interest and royalty interest reserves(2) Net reserves are total Company interest reserves, net of royalties Proved developed non-producing reserves are reserves established by wells that were drilled by March 31 and have been subsequently completed and classified as proved, but were not producing as of the effective date of the engineering report. These wells require minor capital expenditures to bring them on production. Find had a total of 2,310,000 boe of reserves classified as proved developed non-producing. By the end of the second quarter of 2006, the Company expects to have brought on production proved developed non-producing reserves with a combined total of 1,788,000 boe, thereby transferring them to proved producing. Find also requested that GLJ update the Company's reserve report dated December 31, 2005 by deducting Q1 2006 production and applying GLJ's estimate of future prices dated April 1, 2006. This review was mechanical in nature and did not revisit GLJ's estimates for productivity of the Company's wells nor their estimates of ultimate recoveries. The tables below describe Find's reserves position as at March 31, 2006 together with the net present values of the reserves at various discount rates. GLJ's April 1, 2006 estimate of future prices is also attached. Summary of Company Interest Oil and Natural Gas Reserves(forecast prices and costs)As at March 31, 2006 Natural Gas Crude Oil Natural Gas Liquids Total (mbbls) (mmcf) (mbbls) (mboe) ----------------------------------------------------- TCI Net TCI Net TCI Net TCI Net (1) (2) (1) (2) (1) (2) (1) (2) -----------------------------------------------------Proved Developed producing 1,256 1,072 31,889 24,796 1,288 876 7,859 6,080 Developed non-producing 84 78 19,637 15,215 776 526 4,133 3,141 Undeveloped 123 119 167 122 5 3 156 142 -----------------------------------------------------Total proved 1,464 1,269 51,693 40,133 2,069 1,405 12,148 9,363Probable 541 486 16,132 12,902 620 422 3,850 3,058 -----------------------------------------------------Total proved plus probable 2,005 1,755 67,825 53,035 2,689 1,828 15,998 12,421 ----------------------------------------------------- -----------------------------------------------------(1) Total Company interest; includes working interest and royalty interest reserves(2) Net reserves are total Company interest reserves, net of royaltiesSummary of Net Present Values of Future Net Revenue(forecast prices and costs)As at March 31, 2006 Net Present Values Before Income Taxes Discounted at ----------------------------------------($000) 0% 5% 10% ----------------------------------------Proved Developed producing 283,142 219,102 183,490 Developed non-producing 132,705 105,716 89,333 Undeveloped 3,216 2,374 1,781 ----------------------------------------Total proved 419,063 327,192 274,605Probable 139,629 78,477 53,089 ----------------------------------------Total 558,692 405,669 327,694 ---------------------------------------- ----------------------------------------GLJ Petroleum Consultants Ltd.Forecast Prices Effective April 1, 2006 Edmonton Henry Hub WTI Light Gas AECO - C Spot CDN$ (US$) (CDN$) (US$/mmbtu) (CDN$/mmbtu) ---------------------------------------------------------2006 0.85 64.50 74.00 8.25 8.052007 0.85 60.00 70.00 9.00 9.452008 0.85 55.00 64.00 8.00 8.602009 0.85 50.00 58.00 7.50 8.052010 0.85 48.75 56.75 7.00 7.452011 0.85 49.75 57.75 6.60 7.002012 0.85 50.75 59.00 6.75 7.152013 0.85 51.75 60.25 6.85 7.302014 0.85 52.75 61.25 7.00 7.452015 0.85 53.75 62.50 7.15 7.652016 0.85 55.00 64.00 7.30 7.802017+ 0.85 +2%/yr +2%/yr +2%/yr +2%/yrReserves per Share (000) March 31, December 31, December 31, 2006 2005 2004 ------------------------------------Proved reserves 12,148 10,311 6,353Proved plus probable reserves 15,998 13,331 8,487Basic shares outstanding 35,051 34,026 33,542Proved reserves per thousand shares 347 303 189Proved plus probable reserves per thousand shares 456 392 253Debt adjusted proved reserves per thousand shares 293 266 168Debt adjusted proved plus probable reserves per thousand shares 385 344 224 Undeveloped Land Undeveloped land is an important component of a company's asset base as it represents future drilling opportunities. The Company engaged Seaton-Jordan & Associates Ltd. ("Seaton-Jordan") to prepare an evaluation of the Company's undeveloped land holdings as at December 31, 2005. Seaton-Jordan estimated their value to be approximately $19.1 million at March 14, 2006. During the first quarter of 2006, Find was very active at Crown land sales, investing a total of $9.6 million to increase its Pembina West land holdings and expand other core areas. Sensitivities A critical component in Find's growth plan is the Company's cash flow. Cash flow represents funds available for reinvestment in capital projects. Among the various components that affect cash flow, management has determined that the price of oil and natural gas have the most impact on the Company's cash flow. Of course, adding production volumes with the highest possible netback also has a very meaningful impact on available cash flow. The CDN dollar exchange rate is the factor that has the next largest impact, while changes in interest rates have very little impact. The following table illustrates the sensitivity of Find's cash flow to changes in natural gas prices, oil prices and the CDN dollar. Annual Cash Flow Cash Flow ($000) per Share -------------------------------100 boe/day of production 1,249 $0.04Crude oil - WTI price change of $1.00 US/bbl 450 $0.01Natural gas - AECO price change of$0.25/mcf 1,821 $0.05CDN$ - change of $0.01 US 366 $0.01Selected Supplemental Information Dec. 31, Dec. 31, Dec. 31,($000) 2005 2004 2003 -----------------------------------Petroleum and natural gas sales 63,931 34,681 8,931Income (loss) for the year 11,963 2,905 (1,130)Income (loss) per share - basic 0.36 0.10 (0.08)Income (loss) per share - diluted 0.34 0.10 (0.08)Total assets 171,865 116,054 79,269Total current liabilities 60,509 31,966 26,787 Q1 Q4 Q3 Q2 2005 2004 2004 2004 ---------------------------------Petroleum and natural gas sales 12,684 10,029 8,814 9,805Income for the quarter 1,393 960 1,398 877Income per share - basic and diluted 0.04 0.03 0.05 0.03 Q1 Q4 Q3 Q2 2006 2005 2005 2005 ---------------------------------Petroleum and natural gas sales 21,239 19,948 16,248 15,051Income for the quarter 3,455 4,736 3,717 2,117Income per share - basic 0.10 0.14 0.11 0.06Income per share - diluted 0.10 0.13 0.11 0.06Estimated Tax Pools March 31,($000) 2006 ----------Canadian oil and gas property expense 9,261Canadian development expense 50,501Canadian exploration expense 14,716Tangibles 39,671Non-capital losses 7,897Financing expenses 1,981 ---------- 124,027 ---------- ---------- Off-Balance Sheet Arrangements Find currently does not have any off-balance sheet arrangements with any party, and does not currently expect to enter into any such arrangements for the balance of 2006. Transactions with Related Parties During the first quarter of 2006, the Company had no transactions with any related parties. Financial Reporting and Regulatory Update The Company was not subjected to any new financial reporting or regulatory requirements in the first quarter of 2006 and is not aware of any impending changes over the balance of the year. Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect assets, liabilities, revenues and expenses. Management is also required to adopt accounting policies that require the use of significant estimates. Find's management believes the most critical accounting estimates that may have an impact on the Company's results are in the non-cash areas of accounting for property, plant & equipment, asset retirement obligations, and stock based compensation. Property, Plant & Equipment Find follows the full cost method of accounting for oil and natural gas properties. Under this method, all costs related to the acquisition of, exploration for and development of oil and natural gas reserves are capitalized. These costs are then systematically charged to income through a depletion, depreciation and amortization (DD&A) calculation. This calculation is based on the unit of production method which amortizes the cost of oil and gas assets over the Company's proved oil and gas reserve base. Proved reserves are determined by the Company using the guidelines of National Instrument 51-101. Changes to proved reserves in the future could increase or decrease the amount of the Company's DD&A. A ceiling test calculation is required each time financial statements are prepared. The test limits the carrying value of the Company's property and equipment to the estimated net present value of future cash flows from the proved and probable reserves. At March 31, 2006, Find had a ceiling test cushion of approximately $272 million. The full cost accounting guidelines allow for the cost of unproved properties to be excluded from the DD&A calculation. For the three months ended March 31, 2006, Find excluded $20.9 million from costs subject to DD&A. These costs are assessed quarterly for impairment. Should the judgement be made that these costs are impaired, an increase to DD&A will result. Asset Retirement Obligations Under the asset retirement obligations rules, the total fair value of the Company's retirement obligations are set up on the balance sheet at the discounted future value of the liability. The key areas of judgement are in determining the amount of the future liability, the appropriate discount rate and when the expenditures will be incurred. External factors influencing these obligations include commodity prices, interest rates and changes to regulatory requirements. Dramatic changes in any of these could result in an increase or decrease in net income. Stock-based Compensation Find is required to calculate the fair value of stock options at the time of grant and charge this to income in a systematic manner over the vesting period of the options. The calculation method that Find has adopted to calculate the fair value of options is the Black-Scholes model. The most critical estimate in the Black-Scholes model is the expected volatility of Find's shares. Management has determined that 45 to 50 percent is an appropriate volatility rate for Find. Actual volatility could be more or less than 50 percent which could have a material impact on net income. Share Capital As at April 30, 2006, the Company had outstanding 35,403,815 common shares, 3,524,135 stock options and 379,833 common shares secured by employee share purchase loans. Disclosure Controls and Procedures Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure. The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by the 2006 first quarter, that the Company's disclosure controls and procedures are effective to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made known to them by others within those entities. It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe that the Company'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 or internal controls over financial reporting 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. Business Risks Find Energy is subject to business risks that impact the market in general and the oil and gas business in particular. These include, but are not limited to the following: Market Risks The primary risk factor impacting Find's future performance is the price of oil and gas followed by currency fluctuations and interest rates. In addition, Find is impacted by the current industry demand for oilfield services which has driven up costs. Cash flow, as impacted by these risks, has a direct impact on Find's ability to finance its capital programs. The Company has a hedging policy such that it can enter into commodity and currency hedges when it deems it appropriate. No hedges are currently in place. Consolidated Financial Statements ofFIND ENERGY LTD.March 31, 2006FIND ENERGY LTD.Consolidated Balance Sheets March 31, 2006 and December 31, 2005 March 31, December 31, 2006 2005 $ $ (unaudited) (audited) ----------------------------------- (thousands of dollars)ASSETSCURRENT Cash and cash equivalents - 11 Accounts receivable 17,078 16,662 Prepaid expenses 326 280 ----------------------------------- 17,404 16,953Deposits and other (Note 2) 409 350Property and equipment (Note 3) 186,506 154,562 ----------------------------------- 204,319 171,865 ----------------------------------- -----------------------------------LIABILITIESCURRENT Accounts payable and accrued liabilities 29,347 35,128 Income taxes payable 110 89 Bank indebtedness (Note 5) 53,593 25,291 ----------------------------------- 83,050 60,508 -----------------------------------Asset retirement obligations (Note 4) 4,438 4,133 -----------------------------------Future income taxes 18,819 13,915 -----------------------------------SHAREHOLDERS' EQUITYShare capital (Note 7) 80,772 79,168Contributed surplus 2,437 2,793Retained earnings 14,803 11,348 ----------------------------------- 98,012 93,309 ----------------------------------- 204,319 171,865 ----------------------------------- -----------------------------------Commitments and contingencies (Note 9)The accompanying notes are an integral part of these financialstatements.FIND ENERGY LTD.Consolidated Statements of Operations and Retained EarningsFor the three month period ended March 31Unaudited March 31 March 31 2006 2005 ----------------------------------- $ $ ----------------------------------- (thousands of dollars except per share data)REVENUE Petroleum and natural gas sales 21,238 12,216 Royalties 5,746 2,746 ----------------------------------- 15,492 9,470 Interest and other - 1 Realized loss on financial instruments (Note 9(a)) - (68) ----------------------------------- 15,492 9,403 -----------------------------------EXPENSES Operating 2,658 2,372 General and administrative 118 273 Interest 299 116 Depletion, depreciation and accretion 5,954 3,778 Stock-based compensation (Note 7(f)) 579 217 ----------------------------------- 9,608 6,756 -----------------------------------Income before taxes 5,884 2,647 -----------------------------------Provision for taxes (Note 6) Capital 96 141 Future 2,333 1,113 ----------------------------------- 2,429 1,254 -----------------------------------Income for the period 3,455 1,393Retained earnings, beginning of the period 11,348 1,447 -----------------------------------Retained earnings, end of period 14,803 2,840 -----------------------------------Income per share, basic and diluted 0.10 0.04 -----------------------------------Weighted average number of shares - basic (000) (Note 8) 34,201 33,542 -----------------------------------Total number of shares outstanding, end of period (000) (Note 7(b)) 35,051 33,542 -----------------------------------The accompanying notes are an integral part of these financialstatements.FIND ENERGY LTD.Consolidated Statements of Cash FlowsFor the three month period ended March 31Unaudited March 31 March 31 2006 2005 ----------------------------------- $ $ ----------------------------------- (thousands of dollars)CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:OPERATING Income for the period 3,455 1,393 Adjustments for: Unrealized gain on financial instruments (Note 9(a)) - 372 Depletion, depreciation and accretion 5,954 3,778 Stock-based compensation 579 217 Future income taxes 2,333 1,113 ----------------------------------- 12,321 6,873 Changes in non-cash working capital 1,449 (1,912) ----------------------------------- 13,770 4,961 -----------------------------------FINANCING Issue of shares, net of share issue costs 2,824 1 Bank indebtedness 28,302 13,591 ----------------------------------- 31,126 13,592 -----------------------------------INVESTING Property and equipment (37,226) (18,185) Other deposits (59) - Proceeds on sale of properties 50 - Changes in non-cash working capital (7,672) (368) ----------------------------------- (44,907) (18,553) -----------------------------------Net decrease in cash and cash equivalents (11) -Cash and cash equivalents, beginning of period 11 - -----------------------------------Cash and cash equivalents, end of period - - -----------------------------------Taxes paid during the period 75 33 -----------------------------------Interest paid during the period 381 132 -----------------------------------The accompanying notes are an integral part of these financialstatements.FIND ENERGY LTD.Notes to the Consolidated Financial StatementsMarch 31, 2006Unaudited(Amounts in thousands unless otherwise stated) 1. SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements of Find Energy Ltd. (the "Corporation") have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting principles and methods of computation as those utilized in the consolidated financial statements for the year ended December 31, 2005. The disclosures provided below are incremental to those included with the annual consolidated financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2005. 2. DEPOSITS AND OTHER Deposits and other is comprised of deposits required under Crown royalty regulations and operating lease obligations. 3. PROPERTY AND EQUIPMENT Net Book Accumulated Value Depletion and March 31 Cost Depreciation 2006 ----------------------------------------- $ $ $Petroleum and natural gas properties and equipment 222,942 36,498 186,444Furniture and equipment 130 68 62 ----------------------------------------- 223,072 36,566 186,506 ----------------------------------------- ----------------------------------------- Unproved properties and proprietary seismic data of $20,923 have been excluded from costs subject to depletion. During the first quarter of 2006, the Corporation capitalized $864 (2005 - $449) of general and administrative expenditures and stock-based compensation related to exploration and development activities. 4. ASSET RETIREMENT OBLIGATIONSThe change in asset retirement obligations for the year ended December31, 2005 and quarters ended March 31, 2005 and 2006 are as follows: December March 31, March 31, 31, 2006 2005 2005 (audited) ----------------------------------------- $ $ $Asset retirement obligation, beginning of period 4,133 3,264 3,264Liabilities incurred 233 165 1,198Liabilities acquired - - 25Liabilities settled - - (554)Accretion expense 72 57 200Revisions in estimated cash flows - - - -----------------------------------------Asset retirement obligation, end of period 4,438 3,486 4,133 ----------------------------------------- ----------------------------------------- The total estimated, undiscounted cash flows required to settle the obligations at March 31, 2006 without including salvage, is $9,570 (March 31, 2005 - $6,681) and December 31, 2005 - $8,523). These amounts have been discounted using a credit-adjusted risk-free rate of 7.0 percent. The Corporation expects these obligations to be settled, on average, in 11.1 years. The majority is expected to be incurred between 2008 and 2025. 5. BANK INDEBTEDNESS Effective March 14, 2006, the Corporation agreed to a revised credit facility comprised of a $100 million Revolving Operating Demand Loan by way of prime rate loans, guaranteed notes and letters of credit. The credit facility bears interest as follows: - Prime-based loans: Interest is payable in Canadian dollars at prime plus 0.0 percent per 365-day period; - Guaranteed Notes: Fee is payable in Canadian dollars at base rate plus 1.20 percent per 365-day period. The facility is subject to a review on or before June 30, 2006. The facility is secured by a general security agreement providing a security interest over all present and after acquired personal property and a floating charge on all lands. The balance as of March 31, 2006 is comprised of the following:Revolving Operating Demand Loan at prime plus 0 percent $ 42,821Guaranteed Notes 10,000Letter of Guarantee 772 ---------- $ 53,593 ---------- ---------- The Letter of Guarantee has been issued to the Monitor appointed under the Corporation's Creditor Arrangement Act for Liberty Oil & Gas Ltd., a former subsidiary of Lexxor Energy Inc. ("Lexxor"). Lexxor was acquired by the Corporation in 2003. The Monitor is currently settling creditor claims and the Letter of Guarantee is periodically reduced as the claims are settled by the Corporation. 6. INCOME TAXES The provision for capital taxes reflected in the consolidated statement of operations includes Large Corporation and Saskatchewan Capital Taxes and Saskatchewan Resource Surcharge. 7. SHARE CAPITAL(a) AuthorizedUnlimited number of common sharesUnlimited number of preferred shares, issuable in series Quarter Ended Year Ended March 31, 2006 December 31, 2005 (audited) --------------------------------------- Number Amount Number Amount(b) Issued common shares of $ of $ Shares Shares ---------------------------------------Balance January 1 34,026 79,168 33,542 72,076Issued under Stock Option Plan 1,025 2,825 66 179Shares repurchased (Note 7(d)) - - (710) (1,529)Issued for cash pursuant to private placements (Note 7(c)) - - 1,000 7,600Issued for acquisition of properties - - 128 1,100Issued pursuant to employee loan (Note 7(e)) 366 999 - -Reclassification as a stock option (Note 7(e)) (366) (999) - -Transferred from Contributed Surplus on stock option exercise - 1,351 - 85Future income taxes on expenditures renounced for flow-through shares - (2,571) - - --------------------------------------- 35,051 80,773 34,026 79,511 ---------------------------------------Share issue costs (net of tax - nil, 2005 net of tax - $176) - (1) - (343) ---------------------------------------Balance, end of period 35,051 80,772 34,026 79,168 (c) On August 18, 2005, the Corporation completed a private placement of 1,000 flow-through common shares at a price of $7.60. Transaction costs were $517 including fees paid to underwriters. In accordance with the terms of the offering and pursuant to certain provisions of the Income Tax Act (Canada), the Corporation renounced, for income tax purposes, exploration expenditures of $7,600 to the holders of the flow-through common shares effective December 31, 2005, all of which had been incurred by December 31, 2005. Future tax cost of $2,571 associated with renouncing the expenditures was recorded in the first quarter of 2006. (d) On June 2, 2005, the Corporation announced a normal course issuer bid that will allow purchase and cancellation of up to 2,422 common shares. This normal course issuer bid is scheduled to expire on June 1, 2006. A total of 710 common shares were purchased during 2005 at a cost of $3,591. The excess of the cost to repurchase over the stated value of the shares of $2,062 was charged to retained earnings. (e) From time to time, the Corporation may loan funds to employees to assist in the purchase of the Corporation's own stock through exercising of stock options. These share purchase loans are presented as a reduction to shareholders' equity, rather than assets, unless there is substantial evidence that the borrower, and not the Corporation, is at risk for any decline in the price of the shares. When the loans are presented as reductions of shareholders' equity, the Corporation considers the loaned funds to be stock options in substance. During the period ended March 31, 2006, 366 (March 31, 2005 - nil) common shares were issued at an average exercise price of $2.73 that were financed by share purchase loans. These loans are non-interest bearing, due on demand, and secured by share certificates held in possession of the Corporation, being an amount equal to fifty percent (50%) of the common shares purchased by the borrower. In substance, this transaction is accounted for as if the Corporation granted stock options. As the loans are repaid, proceeds will be credited to share capital. (f) Stock Option Plan On September 10, 2003, the shareholders approved a stock option plan (the "Plan") for the Corporation. The Plan authorizes the Board to grant stock options to directors, officers, employees and consultants of the Corporation. The Plan also provides for options to be granted at the defined market price, and that the term of the option must be no more than five years. Stock options issued vest over a three-year period commencing on the first anniversary of, and expire five years after the date of issue. A summary of the Corporation's stock option plan as at March 31, 2006 isas follows: Weighted Number Average of ExerciseContinuity of stock options Shares Price ----------------------------Outstanding, December 31, 2005 3,390 $ 2.89Granted during the period 1,573 10.18Exercised during the period (1,025) 2.76Cancelled during the period (45) 2.89 ----------------------------Outstanding, March 31, 2006 3,893 $ 5.87 ---------------------------- ---------------------------- The following table summarizes information about the Corporation's stock options outstanding and exercisable at March 31, 2006, including the share purchase loans described in Note 7(e). Options Outstanding Exercisable Options --------------------------------------------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Number Life Exercise Number Exercise Outstanding (Years) Price Exercisable Price ---------------------------------------------------------$2.30 to $2.80 1,564 2.3 $ 2.64 555 $2.62$2.81 to $3.30 334 3.6 $ 3.03 31 $2.91$3.31 to $3.68 347 3.2 $ 3.67 64 $3.68$3.81 to $4.30 15 4.2 $ 4.20 - -$5.51 to $6.00 60 4.4 $ 6.00 - -$8.01 to $8.50 45 4.5 $ 8.05 - -$9.01 to $9.50 18 4.7 $ 9.69 - -$10.02 to $10.50 1,510 5.0 $10.25 - - --------------------------------------------------------- 3,893 3.6 $ 5.87 650 $2.74 --------------------------------------------------------- --------------------------------------------------------- Compensation cost recognized for the quarter ended March 31, 2006 related to options granted in prior years was $386, of which $274 was charged to income and $112 was capitalized. The fair value of stock options granted during the three months ended March 31, 2006 was estimated using the Black-Scholes option pricing model with the following assumptions: expected volatility (48 percent); risk-free interest rates (3.895 percent to 4.16 percent); expected life (five years); and expected future dividends (nil). Stock options granted during the period had an estimated fair value of $4.63 to $4.91 per share. Compensation cost recognized for the three months ended March 31, 2006 related to options granted in 2006 was $609, of which $305 was charged to income and $304 was capitalized to property and equipment. 8. WEIGHTED AVERAGE SHARES OUTSTANDING The weighted average number of common shares issued and outstanding forthe three months ended March 31, 2006 and March 31, 2005 are as follows: Three Months Ended March 31 ----------------------------- 2006 2005 -----------------------------Basic 34,201 33,542Diluted 35,825 33,934 9. COMMITMENTS AND CONTINGENCIES (a) Commodity marketing arrangement and foreign exchange contracts The Corporation has a price risk management program whereby the commodity price associated with a portion of its future production is fixed. The forward and futures contracts are subject to market risk from fluctuating commodity prices and exchange rates; however, gains and losses on the contracts are offset by changes in the value of the Corporation's production and recognized in income in the same period and category as the hedged item. The Corporation also enters into foreign exchange contracts to manage foreign currency fluctuations. As at March 31, 2006, the Corporation has no outstanding commodity marketing arrangements or foreign exchange contracts. The gain on settlement of foreign exchange contracts during the first quarter of 2005 was $304. At December 31, 2004, $372 of this was marked-to-market, with a net realized loss in the first quarter of 2005 of $68. (b) Operating commitments In order to ensure continued availability of, and access to, facilities and services to meet its operational requirements, the Corporation has entered into operating leases for office space and other property and equipment. Under contracts existing at March 31, 2006, future minimum amounts payable on a fiscal year basis, excluding operating costs, are as follows: 2006 $ 1382007 3982008 3832009 3812010 3752011 3742012 31 --------- $ 2,081 --------- --------- (c) Dispute with Industry Partner On August 8, 2003, a joint-venture partner of the Corporation filed a statement of claim in the amount of $768 in respect of a dispute regarding working-interest participation. A statement of defense has been filed and it is the opinion of management that this claim is without merit. SOURCE: Find Energy Ltd.