Bonterra Oil & Gas Ltd. Announces First Quarter 2009 Results



    CALGARY, May 13 /CNW/ - Bonterra Oil & Gas Ltd. ("Bonterra" or the
"Company") (www.bonterraenergy.com) (TSX: BNE) is pleased to announce its
financial and operational results for the three months ended March 31, 2009.

    
    Highlights

    For the three months ended                 March    December       March
    ($ 000 except $ per unit)               31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------
    FINANCIAL
    Revenue - realized oil and gas sales      19,300      22,613      30,493
    Cash flow from operations                  6,632      10,336      16,212
      Per share/unit - basic                    0.38        0.59        0.96
      Per share/unit - diluted                  0.38        0.59        0.96
      Payout ratio(1)                            94%        105%         73%
    Funds flow(3)                              8,376       9,880      18,058
      Per share/unit - basic                    0.49        0.57        1.07
      Per share/unit - diluted                  0.49        0.57        1.06
      Payout ratio(1)                            74%        109%         66%
    Cash dividends per share/unit(1)            0.36        0.62        0.70
    Net earnings                               6,093      10,585      10,804
      Per share/unit - basic                    0.35        0.62        0.64
      Per share/unit - diluted                  0.35        0.62        0.64
    Capital expenditures and acquisitions      2,696      30,405       6,421
    Total assets                             260,732     265,301     150,169
    Working capital deficiency                14,909      23,878      57,810
    Long-term debt                            89,383      79,910           -
    Shareholders'/unitholders' equity         56,377      56,777      48,136
    -------------------------------------------------------------------------
    OPERATIONS
    Oil and NGLs - barrels per day             3,268       3,105       3,153
                 - average price
                   ($ per barrel)              45.80       58.91       87.20
    Natural gas  - MCF per day                12,223       8,892       7,139
                 - average price
                   ($ per MCF)                  5.19        7.00        8.32
    Total barrels of oil equivalent
     per day (BOE)(2)                          5,305       4,587       4,343
    -------------------------------------------------------------------------
    (1) Cash payments per share/unit are based on payments made in respect of
        production months within the quarter.
    (2) BOE is calculated using a conversion ratio of 6 MCF to 1 barrel of
        oil. The conversion is based on an energy equivalency conversion
        method primarily applicable at the burner tip and does not represent
        a value equivalency at the wellhead and as such may be misleading if
        used in isolation.
    (3) Funds flow is not a recognized measure under GAAP. For these
        purposes, the Company defines funds flow as funds provided by
        operations before changes in non-cash operating working capital items
        excluding gain on sale of property and asset retirement expenditures.
    

    Report to Shareholders

    Bonterra Oil & Gas Ltd. ("Bonterra" or "the Company") is pleased to
report the operating and financial results for the three months ended March
31, 2009. Despite continued weakness in the commodity and credit markets, the
Company was able to continue its long-term approach to both operating its
business and creating additional value for shareholders. As a result of this
approach, Bonterra was able to grow its production through its capital
development program which included a successful operated horizontal well in
the Pembina Cardium field, low cost field optimization and sustainable
operating cost reductions. Subsequent to quarter-end, the Company also
strengthened its financial position by increasing its bank line and raising
funds through a private placement and expanded its asset base through a
strategic corporate acquisition.

    Operations

    Bonterra achieved record production volumes of 5,305 barrels of oil
equivalent (BOE) per day during the first quarter of 2009. This represents an
increase of 16 percent over the previous quarter and 22 percent over the first
quarter of 2008. This increase is due to the Company's successful capital
development program and the acquisition and subsequent optimization of the
Silverwing Energy Inc. (Silverwing) properties in the Company's new core area
of Northeast British Columbia. The Silverwing corporate acquisition closed in
November, 2008.
    The Company has been successful in reducing operating costs by over nine
percent in the first quarter of 2009 compared to the previous quarter as a
result of a focused review of its operating costs and increased production
volumes. Operating costs are projected to remain lower than in previous years
because of further field optimization and reduced costs of services.
    As part of the capital development program, Bonterra successfully drilled
and placed on production its first operated Cardium horizontal well in the
Pembina area of west central Alberta (25 percent working interest). The well's
first month production (February, 2009) averaged approximately 250 barrels of
oil per day. It is currently producing approximately 145 barrels of oil per
day and 85 MCF per day of solution gas which is being conserved.
    Bonterra has a very large land position in the Pembina field with a
significant amount of undeveloped land with similar reservoir characteristics
to the above horizontal well. Working interests range from 25 to 100 percent
and with the recent Crown royalty credit announcement by the Alberta
government, the Company plans on drilling additional horizontal Pembina
Cardium oil wells to further evaluate the play as well as continuing with its
selective vertical Pembina Cardium wells.
    Bonterra's 2009 capital program is currently expected to total $20
million. This has been increased from $15 million due to the Alberta
government's recent royalty and incentive programs, the Company's strengthened
financial position, improving commodity prices and encouraging drilling
results. Drilling is anticipated to commence late in the second quarter with
the majority of the drilling expenditures expected to be incurred during the
third and fourth quarters of 2009.

    Maintaining Financial Strength

    Subsequent to the quarter-end, Bonterra entered into a new syndicated
banking facility effective April 29, 2009. The maximum borrowing amount of the
new facility has been increased to $120 million from $100 million and consists
of a $100 million syndicated revolving credit facility and a $20 million
non-syndicated revolving credit facility. The terms of the new facility
provides that the loan is revolving until April 28, 2011 and is subject to an
annual review and has no fixed payment requirements.
    Also subsequent to the quarter-end, the Company entered into a
bought-deal private placement financing where it will issue 890,000 common
shares at a price of $16.85 per share for gross proceeds of $15,000,000. The
underwriters also have an option exercisable prior to the closing date to
increase the size of the offering up to an additional 178,000 common shares at
a price of $16.85 for further proceeds of up to $2,999,300 which would
increase the offering to $17,999,300. This transaction is expected to close
prior to May 31, 2009.
    This further strengthens Bonterra's financial position and provides
increased flexibility for the Company to fund its 2009 capital development
program and continue to pursue additional acquisition opportunities as they
become available. In addition, Bonterra will continue to seek new ways to
strengthen its financial position through cost reduction initiatives, low-cost
production optimization, project reviews and exploring and implementing
operational efficiencies across its business.

    Strategic Acquisition

    Bonterra continues to diligently assess additional opportunities to grow
its reserves and production through strategic acquisitions. Subsequent to the
quarter-end, the Company entered into a letter of intent to proceed with a
proposed plan of arrangement to acquire all of the issued and outstanding
shares of Cobalt Energy Ltd. (Cobalt).
    Cobalt is a junior oil and gas exploration and production company
operating in western Canada with production of approximately 85 BOE per day.
Cobalt's main assets consist of a 43.18 percent working interest in the
Company's above-mentioned horizontal well and additional lands with Cardium
horizontal well potential in Pembina with working interests ranging between 25
and 43.18 percent. These lands are operated by Bonterra.
    The board of directors of Cobalt has unanimously approved the proposed
transaction and, subject to receipt of an independent fairness opinion,
intends to recommend that the shareholders vote in favour of the proposed
transaction. Cobalt has agreed to pay a non-completion fee not to exceed
$400,000 to Bonterra under certain circumstances. Shareholders of Cobalt will
be asked to approve the Plan of Arrangement at a special meeting of
shareholders expected to be scheduled in late June, 2009. The plan will,
amongst other closing conditions, require the approval of 66 2/3 percent of
the votes cast by the shareholders and the approval of the Court of Queen's
Bench of Alberta. The transaction may also be subject to TSX Venture Exchange
and other regulatory approvals.

    Commodity Prices

    During the first quarter of 2009, the continued and significant weakness
in commodity prices impacted the Company's financial performance. Average
realized prices for crude oil declined 22 percent quarter over quarter and 47
percent from the first quarter of 2008 while average realized prices for
natural gas declined 26 percent quarter over quarter and 38 percent from the
same period in 2008. This resulted in significant declines in revenue, net
earnings and cash flow from operations.
    Crude oil prices have been improving in the second quarter while natural
gas prices have continued their decline. Bonterra currently anticipates that
crude oil and natural gas prices will not change significantly from the
current levels for the remainder of 2009. As a result, commodity prices are
expected to continue to significantly and negatively impact results compared
to 2008. The price declines should be partially offset by increases in
production volumes and a reduction in operating costs and royalties.
    Cash dividends paid to shareholders totaled $0.36 per share in the first
quarter of 2009. This represents a monthly dividend of $0.12 per share with a
payout ratio of 74 percent of funds flow during the quarter. The Board of
Directors and management will continue to monitor dividend levels, payout
ratios and capital expenditures on a monthly basis and adjust the amount if
necessary. However, the monthly dividend level has been set at an amount
deemed appropriate to both balance capital development requirements while
providing investors with a maximized and stable cash payment. If current
commodity prices are sustained or increase, Bonterra should be in a position
to increase dividends.

    Summary

    In conclusion, Bonterra remains well-positioned to both continue its
strong dividend policy and ensure the long-term sustainability of its
business. The Company's focus is on maximizing its high-quality asset base,
finding additional operational efficiencies and taking advantage of continued
opportunities due to the low price environment, including lower land costs,
lower project costs and acquisition opportunities. Bonterra's improved
financial strength well-positions the Company to capitalize on these
objectives and the Company will strive to add further value on behalf of
investors.

    
    (signed)                             (signed)
    George F. Fink                       Randy M. Jarock
    Chief Executive Officer and          President and Chief Operating
    Director                             Officer
    

    A Discussion of Financial and Operational Results

    This press release is a review of the operations and current financial
position for Bonterra Oil & Gas Ltd. (Bonterra or the Company) and should be
read in conjunction with the unaudited financial statements for the three
months ended March 31, 2009, including the notes related thereto, and the
audited financial statements for the fiscal year ended December 31, 2008,
together with the notes related thereto.

    Forward-looking Information

    Certain statements contained in this press release include statements
which contain words such as "anticipate", "could", "should", "expect", "seek",
"may", "intend", "likely", "will", "believe" and similar expressions, relating
to matters that are not historical facts, and such statements of our beliefs,
intentions and expectations about development, results and events which will
or may occur in the future, constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and are based on
certain assumptions and analysis made by us derived from our experience and
perceptions. Forward-looking information in this press release includes, but
is not limited to: expected cash provided by continuing operations; cash
dividends; future capital expenditures, including the amount and nature
thereof; oil and natural gas prices and demand; expansion and other
development trends of the oil and gas industry; business strategy and outlook;
expansion and growth of our business and operations; and maintenance of
existing customer, supplier and partner relationships; supply channels;
accounting policies; credit risks; and other such matters.
    All such forward-looking information is based on certain assumptions and
analyses made by us in light of our experience and perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. The risks,
uncertainties, and assumptions are difficult to predict and may affect
operations, and may include, without limitation: foreign exchange
fluctuations; equipment and labour shortages and inflationary costs; general
economic conditions; industry conditions; changes in applicable environmental,
taxation and other laws and regulations as well as how such laws and
regulations are interpreted and enforced; the ability of oil and natural gas
companies to raise capital; the effect of weather conditions on operations and
facilities; the existence of operating risks; volatility of oil and natural
gas prices; oil and gas product supply and demand; risks inherent in the
ability to generate sufficient cash flow from operations to meet current and
future obligations; increased competition; stock market volatility;
opportunities available to or pursued by us; and other factors, many of which
are beyond our control.
    Actual results, performance or achievements could differ materially from
those expressed in, or implied by, this forward-looking information and,
accordingly, no assurance can be given that any of the events anticipated by
the forward-looking information will transpire or occur, or if any of them do,
what benefits will be derived there from. Except as required by law, Bonterra
disclaims any intention or obligation to update or revise any forward-looking
information, whether as a result of new information, future events or
otherwise.
    The forward-looking information contained herein is expressly qualified
by this cautionary statement.

    
    Quarterly Comparisons

                                2009                      2008
    -------------------------------------------------------------------------
    Financial ($ 000
     except $ per unit)           Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue - realized oil
     and gas sales            19,300    22,613    34,226    34,398    30,493
    Cash flow from
     operations                6,632    10,336    22,492    20,530    16,212
      Per share/unit
       - basic                  0.38      0.59      1.31      1.21      0.96
      Per share/unit
       - fully diluted          0.38      0.59      1.30      1.20      0.96
    Cash payments per
     share/unit(1)              0.36      0.62      0.96      0.84      0.70
    Payout Ratio(1)              94%      105%       73%       69%       73%
    Net earnings               6,093    10,585    21,125    12,912    10,804
      Per share/unit
       - basic                  0.35      0.62      1.23      0.76      0.64
      Per share/unit
       - fully diluted          0.35      0.62      1.22      0.75      0.64
    Capital expenditures
     and acquisitions          2,696    30,405     6,038     2,543     6,421
    Total assets             260,732   265,301   150,120   153,247   150,169
    Working capital
     deficiency               14,909    23,878    47,499    57,148    57,810
    Long-term debt            89,303    79,910         -         -         -
    Shareholders'/
     unitholders' equity      56,377    56,777    57,623    46,612    48,136
    -------------------------------------------------------------------------
    Operations
    Oil and NGLs
     (barrels per day)         3,268     3,105     3,013     3,024     3,153
    Natural gas
     (MCF per day)            12,223     8,892     7,233     7,272     7,139
    Total BOE per day(2)       5,305     4,587     4,219     4,236     4,343
    -------------------------------------------------------------------------

                                                          2007
    -------------------------------------------------------------------------
    Financial ($ 000
     except $ per unit)                     Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue - realized oil
     and gas sales                      26,573    23,794    23,462    22,602
    Cash flow from operations           13,369    11,886    13,413    12,765
      Per unit - basic                    0.79      0.70      0.79      0.76
      Per unit - fully diluted            0.79      0.70      0.79      0.76
    Cash distributions(1)                 0.66      0.66      0.66      0.66
    Payout Ratio(1)                        84%       94%       84%       87%
    Net earnings                         8,372     8,945     5,371     7,662
      Per unit - basic                    0.49      0.53      0.32      0.45
      Per unit - fully diluted            0.49      0.53      0.32      0.45
    Capital expenditures and
     acquisitions                        7,213     2,763     1,699     7,625
    Total assets                       143,239   138,140   139,432   140,926
    Working capital deficiency          58,766    50,041    49,595    49,288
    Long-term debt                           -         -         -         -
    Unitholders' equity                 44,218    50,820    51,920    57,646
    -------------------------------------------------------------------------
    Operations
    Oil and NGLs (barrels per day)       3,098     3,054     3,074     3,227
    Natural gas (MCF per day)            7,176     6,196     6,663     6,470
    Total BOE per day(2)                 4,295     4,086     4,184     4,305
    -------------------------------------------------------------------------
    (1) Cash payments per share/unit are based on payments made in respect of
        production months within the quarter.
    (2) BOE is calculated using a conversion ratio of 6 MCF to 1 barrel of
        oil. The conversion is based on an energy equivalency conversion
        method primarily applicable at the burner tip and does not represent
        a value equivalency at the wellhead and as such may be misleading if
        used in isolation.


    Production

                                                    Three months ended
                                               March    December       March
                                            31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Crude oil and NGLs (barrels per day)       3,268       3,105       3,153
    Natural gas (MCF per day)                 12,223       8,892       7,139
    -------------------------------------------------------------------------
    Average BOE per day                        5,305       4,587       4,343
    -------------------------------------------------------------------------
    

    Barrels of oil equivalent (BOE) are calculated using a conversion ratio
of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead and as such may be misleading if
used in isolation.
    Production volumes for the first quarter of 2009 were a record for the
Company. Added production related to the Silverwing Energy Inc. (Silverwing)
acquisition (approximately 650 BOE per day), Bonterra's Q4 2008 drilling
program including the start of production from the Company's first Pembina
Cardium horizontal well and new gas wells drilled and optimization of existing
wells on former Silverwing properties (totaling approximately 250 BOE per
day). These additions more than offset Bonterra's average corporate production
decline of approximately two percent per quarter.
    The Company did not drill any wells during the first quarter of 2009. It
did participate in several small interest wells resulting in approximately one
net gas well. As of March 31, 2009, all of the Company's operated drilled oil
and natural gas wells (excluding 3 (2.5 net) coalbed methane wells) were on
production.

    
    Revenue

                                                    Three months ended
                                               March    December       March
    ($)                                     31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Revenue - oil and gas sales (000's)       19,300      22,613      30,493

    Average Realized Prices:
    Crude oil and NGLs (per barrel)            45.80       58.91       87.20
    Natural gas (per MCF)                       5.19        7.00        8.32
    -------------------------------------------------------------------------
    

    Revenue from petroleum and natural gas sales decreased $11,193,000 from
the corresponding 2008 quarter primarily due to a 47 percent drop in crude oil
prices and a 38 percent drop in natural gas prices. Quarter over quarter saw a
decline in revenues of $3,313,000 again due to declining commodity prices
(approximately 25 percent). Crude oil prices increased modestly in the month
of March however natural gas prices continued to fall throughout the first
quarter.

    
    Royalties

                                                    Three months ended
                                               March    December       March
    ($ 000)                                 31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Crown royalties                            1,364       2,337       3,613
    Freehold royalties, gross overriding
     royalties and net carried interests         501         558         731
    -------------------------------------------------------------------------
    Total royalty expense                      1,865       2,895       4,344
    -------------------------------------------------------------------------
    

    Royalties paid by the Company consist primarily of Crown royalties paid
to the Provinces of Alberta, Saskatchewan and British Columbia. Most of the
Company's wells are low productivity wells and therefore have low Crown
royalty rates. The Company's average Crown royalty rate is approximately 7.1
percent (2008 - 11.3 percent) and approximately 2.6 percent (2008 - 2.3
percent) for other royalties.
    The recently announced new Alberta Crown royalty rates vary by prices as
well as productivity levels. With recent declines in commodity prices and the
Silvering acquisition (mostly BC production with lower Crown royalty rates)
the Company has experienced a significant reduction in Crown royalties in Q1
2009.
    The government of the province of Alberta has recently announced drilling
incentives and royalty reductions in respect of wells drilled after April 1,
2009 and prior to March 31, 2010. The Company is currently examining its
capital requirements (see Liquidity and Capital Resources) and the impact on
its crown royalty for newly drilled wells in that period. The Company is
planning on maximizing the crown royalty credits available under the new
drilling incentive program which should result in lower crown royalty payments
in the third and fourth quarters of 2009 and first quarter of 2010.

    
    Production Costs

                                                    Three months ended
                                               March    December       March
    ($ 000)                                 31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Production costs                           7,038       6,859       6,317
      $ per BOE                                14.74       16.25       15.98
    -------------------------------------------------------------------------
    

    Total production costs in Q1 2009 have increased by $721,000 over Q1
2008. The increase is due to increased production volumes (see Production). On
a BOE basis production costs have declined mainly due a general decline in
service and material costs resulting from decreased industry demand and field
optimization.
    The Company's production comes primarily from low productivity wells.
These wells generally result in higher production costs on a per
unit-of-production basis as costs such as municipal taxes, surface leases,
power and personnel costs are not variable with production volumes. The high
production costs for the Company are substantially offset by current low
royalty rates of approximately 9.7 percent, which is much lower than industry
average for conventional production and results in high cash netbacks on a
combined basis despite higher than industry average production costs.
    With the acquisition of Silverwing and the Company's recent drilling
success and expected continued declines in oilfield service costs, the Company
anticipates operating costs will remain in the $14 to $15 per BOE range for
2009.

    
    General and Administrative (G&A) Expense

                                                    Three months ended
                                               March    December       March
    ($ 000)                                 31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    G&A Expense                                  939         824         877
      $ per BOE                                 1.97        1.95        2.22
    -------------------------------------------------------------------------
    

    The increase in G&A expense year over year was due to increased contract
personal costs ($123,000) related to temporary staffing needs, professional
service costs ($30,000) related to IFRS and internal control reviews, computer
services fees ($99,000) related to new monthly geological software licensing
fees and service costs related to a new production accounting software, bad
debt expense ($28,000) due to the receivership of one of the Company's joint
venture partners, bank charges ($25,000) related to the old banking facility,
offset partially by reduced employee compensation ($283,000).
    G&A costs are anticipated to remain at approximately $1,000,000 per
quarter ($2 per BOE) as costs associated with contract personnel and
production accounting will be reduced, but will be offset with additional bank
charges related to the new banking facility (approximately $100,000 per
quarter).

    
    Interest Expense

                                                    Three months ended
                                               March    December       March
    ($ 000)                                 31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Interest Expense                             826         746         799
    -------------------------------------------------------------------------
    

    Interest charges increased as the Q1 2009 average outstanding debt
balance (included related party balances) increased by $43,500,000 over Q1
2008. The acquisition of Silverwing as well as the reorganization into a
corporation resulted in an approximate additional $44.5 million of debt.
Offsetting the increased debt balances was an average reduction of 2.25
percent in interest rates paid on the outstanding debt balances.
    Effective April 29, 2009, the Company entered into a new bank facility
under similar terms and conditions. The new facility consists of a
$100,000,000 syndicated revolving credit facility and a $20,000,000
non-syndicated revolving credit facility.
    The interest rate on the new credit facility is calculated as follows:

    
    -------------------------------------------------------------------------
                         Level I   Level II  Level III   Level IV    Level V
    -------------------------------------------------------------------------
    Consolidated Total
     Funded Debt(1) to                 Over       Over       Over
     Consolidated Cash     Under   1.0:1 to   1.5:1 to   2.0:1 to       Over
     flow Ratio            1.0:1      1.5:1      2.0:1      2.5:1      2.5:1
    -------------------------------------------------------------------------
    Canadian Prime Rate
     Plus(2)                 125        150        175        200        250
    -------------------------------------------------------------------------
    Bankers' Acceptances
     Rate Plus(2)            275        300        325        350        400
    -------------------------------------------------------------------------
    (1) Consolidated total funded debt excludes related party amounts but
        includes working capital.
    (2) Numbers in table represent basis points.
    

    Consolidated total funded debt to consolidated cash flow ratio shall be
adjusted effective as of the first day of the next fiscal quarter following
the end of each fiscal quarter, with each such adjustment to be effective
until the next such adjustment.
    The above rate schedule combined with current bank prime and interest
rates on the related party debt is expected to result in average borrowing
costs of approximately four percent for the balance of the fiscal year.

    Stock-Based Compensation

    Stock-based compensation is a statistically calculated value representing
the estimated expense of issuing employee unit options. The Company records a
compensation expense over the vesting period based on the fair value of
options granted to employees, directors and consultants. Based on currently
outstanding options, the Company anticipates that an expense of approximately
$700,000 will be recorded for the balance of 2009, $350,000 in 2010 and
$160,000 in 2011.

    Depletion, Depreciation, Accretion and Dry Hole Costs

    Provision for depletion, depreciation and accretion was $4,614,000 and
$3,494,000, respectively for the three month periods ending March 31, 2009 and
March 31, 2008. The increase in the depletion amount was due primarily to
increased production volumes and an increase in the average cost of reserves
resulting from the Silverwing acquisition. The Company has capital costs of
approximately $6.60 (March 31, 2008 - $6.10) per proved BOE of reserves based
on the December 31, 2008 independent engineering report.

    Taxes

    On November 12, 2008, the Company converted from a trust to a
corporation. Due to the conversion and the acquisition of Silverwing, the
Company increased its usable tax pools to approximately $468,000,000. As a
result of the reorganization, the Company has recorded a future income tax
asset and a corresponding deferred tax credit. These amounts will be amortized
into future tax expense as the associated tax pools are consumed.
    The current tax provision relates to resource surcharge of $53,000
payable by the Company to the Province of Saskatchewan as well as a capital
tax amount of $269,000 payable to the Province of Quebec. The resource
surcharge is calculated as a flat percent of revenues generated from the sale
of petroleum products produced in Saskatchewan. The resource surcharge rate is
3 percent in 2009. The capital tax payable to the Province of Quebec is a
one-time charge.

    
    Net Earnings

                                                    Three months ended
                                               March    December       March
    ($ 000)                                 31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Net Earnings                               6,093      10,585      10,804
    -------------------------------------------------------------------------
    

    Net earnings decreased in the first three months of 2009 by $4,711,000
from the corresponding 2008 period and $4,492,000 from Q4 2008. Reduced
revenues resulted from decreased commodity prices that more than offset
production volume gains. The Company continues to return in excess of 30
percent of its gross realized revenues in net earnings. The Company's low
capital costs combined with the Company's low production decline rates should
allow for continued positive earnings even in the current low commodity price
environment.

    Comprehensive Income

    Other comprehensive income for 2009 consists of an unrealized gain on
investment in a related party of $181,000 (2008 - $171,000) due to an increase
in the related company's fair value.

    
    Cash Flow from Operations

                                                    Three months ended
                                               March    December       March
    ($ 000)                                 31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Cash flow from operations                  6,632      10,336      16,212
    -------------------------------------------------------------------------
    

    First quarter 2009 cash flow from operations decreased 59 percent
compared to Q1 2008 due to decreased commodity prices received during the
first three months of 2009.
    Due to accounting software upgrades, financial regulatory requirements
and integration of the Silverwing acquisition, the normal month end cheque run
for the month of December was not processed until January 2009. This resulted
in approximately $1.5 million of operating accounts payable being paid in Q1
2009 which would normally have been paid in Q4 of 2008. The impact on cash
flow from operations was a decrease of $1.5 million in Q1 2009 and an increase
to Q4 2008 of an equivalent amount. After adjusting for the timing of these
payables, Q1 2009 cash flow from operations would have been only slightly
below that of Q4 2008.
    With the continuing depressed crude oil and natural gas prices, cash flow
for the remainder of 2009 is expected to be significantly negatively affected
compared to 2008 figures. The price declines should be partially offset by
increases in production volumes to approximately 5,250 BOE per day for 2009
and a reduction in royalties.

    Cash Netback

    The following table illustrates the Company's cash netback from
operations (excludes reorganization costs) for the three month periods ended:

    
                                               March    December       March
    $ per Barrel of Oil Equivalent (BOE)    31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------

    Production volumes (BOE)                 477,495     422,008     395,176
    Gross production revenue              $    40.42  $    51.27  $    80.62
    Realized gain (loss) on risk
     management contracts                          -        2.31       (3.46)
    Royalties                                  (3.91)      (6.86)     (10.99)
    Field operating costs                     (14.74)     (16.25)     (15.98)
    -------------------------------------------------------------------------
    Field netback                              21.77       30.47       50.19
    General and administrative                 (1.97)      (1.95)      (2.22)
    Interest and taxes                         (2.40)      (1.90)      (2.30)
    -------------------------------------------------------------------------
    Cash netback                          $    17.40  $    26.62  $    45.67
    -------------------------------------------------------------------------
    

    Related Party Transactions

    The Company holds 689,682 (December 31, 2008 - 689,682) common shares in
Comaplex Minerals Corp. which have a fair market value as of March 31, 2009 of
$2,338,000 (December 31, 2008 - $2,131,000). Comaplex is a publically traded
mineral company on the Toronto Stock Exchange. The Company's ownership in
Comaplex represents approximately 1.3 percent of the issued and outstanding
common shares of Comaplex. The Company has common directors and management
with Comaplex.
    Comaplex paid a management fee to the Company of $82,500 (2008 -
$82,500). Comaplex also shares office rental costs and reimburses the Company
for costs related to employee benefits and office materials. In addition,
Comaplex owns 204,633 (December 31, 2008 - 204,633) common shares in the
Company. Services provided by the Company include executive services (chief
executive officer, president and vice president, finance duties), accounting
services, oil and gas administration and office administration. All services
performed are charged at estimated fair value. At March 31, 2009, Comaplex
owed the Company $60,000 (December 31, 2008 - $56,000).
    As of March 31, 2009, Comaplex has loaned the Company $12,000,000
(December 31, 2008 - Nil). The loan is unsecured, bears interest at Canadian
chartered bank prime plus one quarter of a percent and has no set repayment
terms. The loan can only be repaid should the Company have sufficient
available borrowing limits under the Company's credit facility. Interest paid
on this loan during the first quarter of 2009 was $3,000. This loan results in
Comaplex receiving increased interest income and providing Bonterra with a
lower cost of capital.
    The Company also has a management agreement with Pine Cliff Energy Ltd.
(Pine Cliff). Pine Cliff has common directors and management with the Company.
Pine Cliff trades on the TSX Venture Exchange. Pine Cliff paid a management
fee to the Company of $30,000 (2008 - $59,400). Services provided by the
Company include executive services (president and vice president, finance
duties), accounting services, oil and gas administration and office
administration. All services performed are charged at estimated fair value.
The Company has no share ownership in Pine Cliff. As at March 31, 2009 the
Company had an account receivable from Pine Cliff of $Nil (December 31, 2008 -
$1,000).
    As of March 31, 2009, the Company's CEO and major shareholder has loaned
the Company $10,000,000 (December 31, 2008 - $6,000,000). The loan is
unsecured, bears interest at Canadian chartered bank prime less one half of a
percent and has no set repayment terms. The loan can only be repaid should the
Company have sufficient available borrowing limits under the Company's credit
facility. Effective May 1, 2009 the interest rate was increased to Canadian
chartered bank prime. Interest paid on this loan during the first quarter of
2009 was $48,000 (Last quarter 2008 - $7,000). This loan results in the major
shareholder receiving increased interest income and providing Bonterra with a
lower cost of capital.

    Liquidity and Capital Resources

    During the first three months of 2009, the Company incurred capital costs
of $2,696,000 (2008 - $6,421,000). The Company did not directly drill any
wells during the first quarter but did participate in a number of smaller
interest natural gas wells (approximately one net) for total costs of
$686,000. Bonterra did spend approximately $1,300,000 on completion and tie in
costs in respect to wells drilled in Q4 2008. The balance of the capital
expenditures of approximately $710,000 related to various capital projects
ranging from pipeline tie-ins to maximizing natural gas production to various
battery upgrades to enhance overall production from existing wells.
    The Company currently has plans to spend an estimated $20,000,000 on
capital projects (recently increased from $15,000,000). With the recent Crown
royalty credit announcement by the Alberta government, the Company plans on
drilling additional horizontal Pembina Cardium oil wells as well as selective
vertical Pembina Cardium wells. The exact number of each will depend on
drilling success and commodity prices. Drilling is anticipated to commence in
the second quarter with the majority of the drilling expenditures expected to
be incurred during the third and fourth quarters.
    Bonterra anticipates funding the 2009 capital program out of cash flow
and the Company's line of credit. Effective April 29, 2009, the Company
entered into a new bank facility under similar terms and conditions. The new
facility consists of a $100,000,000 syndicated revolving credit facility and a
$20,000,000 non-syndicated revolving credit facility. At March 31, 2009 the
Company's bank loan was $89,383,000 (December 31, 2008 - $79,910,000). The
terms of the new facility provides that the loan is revolving until April 28,
2011, is subject to annual review and has no fixed payment requirements.
    Bonterra, subsequent to the end of the quarter, entered into an agreement
to issue up to 1,068,000 common shares at a price of $16.85 per share. The
financing is expected to close on May 27, 2009. The funds from the equity
placement will be used to retire debt and for general working capital.
    Additional information relating to the Company may be found on
www.sedar.com or visit our website at www.bonterraenergy.com.
    The following consolidated financial statements and notes to the
consolidated financial statements have been provided for further details.


    
    Consolidated Balance Sheets

    As at March 31, 2009 and December 31, 2008
    (unaudited)
    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Assets
    Current
      Restricted term deposit                                  -          20
      Accounts receivable (Note 11)                       10,657      11,753
      Crude oil inventory                                    543         845
      Prepaid expenses                                     3,654       4,222
      Future income tax asset (Note 8)                     6,841       2,669
      Investments in related party (Note 3)                2,338       2,131
    -------------------------------------------------------------------------
                                                          24,033      21,640
    -------------------------------------------------------------------------
    Restricted cash (Note 4)                               1,257       1,252
    Future income tax asset (Note 8)                      80,157      85,416
    Property and Equipment (Note 5)
      Petroleum and natural gas properties
       and related equipment                             235,306     232,685
      Accumulated depletion and depreciation             (80,021)    (75,692)
    -------------------------------------------------------------------------
    Net Property and Equipment                           155,285     156,993
    -------------------------------------------------------------------------
                                                         260,732     265,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities            11,034      23,888
      Due to related parties (Note 6)                     22,000       6,000
      Deferred credit (Note 8)                             5,908       2,305
      Short-term debt (Note 7)                                 -      13,325
    -------------------------------------------------------------------------
                                                          38,942      45,518
    Long-term bank debt (Note 7)                          89,383      79,910
    Deferred credit (Note 8)                              57,533      64,758
    Asset retirement obligations                          18,497      18,338
    -------------------------------------------------------------------------
                                                         204,355     208,524
    -------------------------------------------------------------------------
    Shareholders' Equity (Note 9)
      Share capital                                       99,530      99,530
      Contributed surplus                                  2,771       2,542
    -------------------------------------------------------------------------
                                                         102,301     102,072
    -------------------------------------------------------------------------
      Deficit                                            (47,525)    (46,715)
      Accumulated other comprehensive income (Note 10)     1,601       1,420
    -------------------------------------------------------------------------
                                                         (45,924)    (45,295)
    -------------------------------------------------------------------------
    Total Shareholders' Equity                            56,377      56,777
    -------------------------------------------------------------------------
                                                         260,732     265,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Shareholders' Equity

    For the Three Months Ended March 31 (unaudited)
    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Unitholders' equity, beginning of period                   -      44,218
    Shareholders' equity, beginning of period             56,777           -
    Comprehensive income for the period                    6,274      10,975
    Net capital contributions                                  -         280
    Stock-based compensation                                 229         283
    Distributions declared                                     -      (7,620)
    -------------------------------------------------------------------------
    Unitholders' Equity, End of Period                    63,280      48,136
    Conversion of the trust to a corporation (Note 1)          -           -
    Dividends declared                                    (6,903)          -
    -------------------------------------------------------------------------
    Shareholders' Equity, End of Period                   56,377           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Operations and Deficit

    For the Three Months Ended March 31 (unaudited)
    ($000, except $ per Share)                              2009        2008
    -------------------------------------------------------------------------
    Revenue
      Oil and gas sales                                   19,300      31,860
      Gain (loss) on risk management contracts
       - cash                                                  -      (1,367)
      Gain (loss) on risk management contracts
       - non-cash                                              -      (2,389)
      Royalties                                           (1,865)     (4,344)
      Interest and other                                      66          13
    -------------------------------------------------------------------------
                                                          17,501      23,773
    -------------------------------------------------------------------------
    Expenses
      Production costs                                     7,038       6,317
      General and administrative                             939         877
      Interest on debt                                       826         799
      Stock based compensation                               229         283
      Depletion, depreciation and accretion                4,614       3,494
    -------------------------------------------------------------------------
                                                          13,646      11,770
    -------------------------------------------------------------------------
    Earnings Before Taxes                                  3,855      12,003
    -------------------------------------------------------------------------
    Taxes (Recovery)
      Current                                                322         111
      Future                                              (2,560)      1,088
    -------------------------------------------------------------------------
                                                          (2,238)      1,199
    -------------------------------------------------------------------------
    Net Earnings for the Period                            6,093      10,804
    Deficit, beginning of period                         (46,715)    (51,543)
    Dividends declared                                    (6,903)          -
    Distributions declared                                     -      (7,620)
    -------------------------------------------------------------------------
    Deficit, End of Period                               (47,525)    (48,359)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Earnings Per Share - Basic and Diluted (Note 9)     0.35        0.64
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Comprehensive Income

    For the Three Months Ended March 31 (unaudited)
    ($ 000, except $ per Share)                             2009        2008
    -------------------------------------------------------------------------

    Net Earnings for the Period                            6,093      10,804

    Other Comprehensive Income
    Unrealized gains and losses on investments
     (net of income taxes of 2009 - $26, 2008 - $47)         181         171
    -------------------------------------------------------------------------
    Other Comprehensive Income                               181         171
    -------------------------------------------------------------------------
    Comprehensive Income                                   6,274      10,975
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Comprehensive Income Per Share - Basic
     and Diluted (Note 9)                                   0.36        0.65



    Consolidated Statements of Cash Flows

    For the Three Months Ended March 31 (unaudited)
    ($000)                                                  2009        2008
    -------------------------------------------------------------------------
    Operating Activities
      Net earnings for the period                          6,093      10,804
      Items not affecting cash
        (Gain) loss on risk management contracts
         - non-cash                                            -       2,389
        Stock based compensation                             229         283
        Depletion, depreciation and accretion              4,614       3,494
        Future income taxes                               (2,560)      1,088
    -------------------------------------------------------------------------
                                                           8,376      18,058
    -------------------------------------------------------------------------
      Change in non-cash working capital
        Accounts receivable                                1,096      (3,201)
        Crude oil inventory                                  316         142
        Prepaid expenses                                     568          69
        Accounts payable and accrued liabilities          (3,653)      2,871
      Asset retirement obligations settled                   (71)     (1,727)
    -------------------------------------------------------------------------
                                                          (1,744)     (1,846)
    -------------------------------------------------------------------------
    Cash Provided by Operating Activities                  6,632      16,212
    -------------------------------------------------------------------------
    Financing Activities
      Increase (decrease) in debt                         (3,852)      1,491
      Due to related parties                              16,000           -
      Stock option proceeds                                    -         280
      Dividends                                           (6,903)          -
      Unit distributions                                       -     (11,344)
    -------------------------------------------------------------------------
    Cash Provided by (Used in) Financing Activities        5,245      (9,573)
    -------------------------------------------------------------------------
    Investing Activities
      Property and equipment expenditures                 (2,696)     (6,421)
      Restricted term deposit                                 20           -
      Change in non-cash working capital
        Accounts payable and accrued liabilities          (9,201)       (218)
    -------------------------------------------------------------------------
    Cash Used in Investing Activities                    (11,877)     (6,639)
    -------------------------------------------------------------------------
    Net Cash Inflow                                            -           -
    Cash, beginning of period                                  -           -
    -------------------------------------------------------------------------
    Cash, End of Period                                        -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Interest Paid                                       826         799
    Cash Taxes Paid                                          161         278



    Notes to The Interim Consolidated Financial Statements

    Periods Ended March 31, 2009 and 2008 (unaudited)

    1.  CHANGE OF ORGANIZATION

    On November 12, 2008, Bonterra Energy Income Trust (the "Trust")
    converted to Bonterra Oil & Gas Ltd. (the "Company") through a reverse
    takeover by the Trust of SRX Post Holdings Inc. (SRX). In conjunction
    with the reorganization, the Trust acquired all of the issued and
    outstanding shares of Silverwing Energy Inc. (Silverwing). Concurrently,
    all of the Company's subsidiaries, including Silverwing were amalgamated
    into Bonterra Energy Corp.

    Prior to the Arrangement on November 12, 2008, the consolidated financial
    statements included the accounts of the Trust and its subsidiaries. After
    giving effect to the Arrangement, the consolidated financial statements
    have been prepared on a continuity of interests basis, which recognizes
    Bonterra Oil & Gas Ltd. as the successor entity to the Trust. The
    continuity of interest basis requires that the 2008 comparative
    consolidated financial statement figures presented prior to the
    reorganization are those previously presented by the Trust.

    2.  SIGNIFICANT ACCOUNTING POLICIES

    The accounting policies and methods of application followed in the
    preparation of the interim consolidated financial statements are the same
    as those followed in the preparation of Bonterra Oil & Gas Ltd.'s (the
    Company or Bonterra) 2008 annual consolidated financial statements except
    as described below. These interim consolidated financial statements do
    not include all disclosures required for annual consolidated financial
    statements. The interim consolidated financial statements as presented
    should be read in conjunction with the 2008 annual consolidated financial
    statements.

    In February 2008, the Canadian Institute of Chartered Accountants (CICA)
    issued Section 3064, "Goodwill and intangible assets", replacing Section
    3062, "Goodwill and other intangible assets" and Section 3450, "Research
    and development costs". Various changes have been made to other sections
    of the CICA Handbook for consistency purposes. The new Section is
    applicable to financial statements relating to fiscal years beginning on
    or after October 1, 2008. Accordingly, the Company adopted the new
    standards for its fiscal year beginning January 1, 2009. It establishes
    standards for the recognition, measurement, presentation and disclosure
    of goodwill subsequent to its initial recognition and of intangible
    assets by profit-orientated enterprises. Standards concerning goodwill
    are unchanged from the standards included in the previous Section 3062.
    The adoption of this Standard did not have an impact on the Consolidated
    Financial Statements.

    In January 2009, the CICA issued EIC-173, "Credit Risk and the Fair Value
    of Financial Assets and Financial Liabilities". The EIC provides guidance
    on how to take into account credit risk of an entity and counterparty
    when determining the fair value of financial assets and financial
    liabilities, including derivative instruments. This standard is effective
    for the Company's fiscal periods ending on or after January 20, 2009 with
    retrospective application. The application of this EIC did not have a
    material effect on the Company's Consolidated Financial Statements.

    In December 2008, the CICA issued Section 1582, "Business Combinations",
    which will replace former guidance on business combinations. Section 1582
    establishes principles and requirements of the acquisition method for
    business combinations and related disclosures. This statement applies
    prospectively to business combinations for which the acquisition date is
    on or after the beginning of the first annual reporting period beginning
    on or after January 1, 2011 with earlier adoption permitted. The Company
    is currently evaluating the impact of this change on its Consolidated
    Financial Statements.

    In December 2008, the CICA issued Sections 1601, "Consolidated Financial
    Statements", and 1602, "Non-controlling Interests", which replaces
    existing Section 1600. Section 1601 establishes standards for the
    preparation of consolidated financial statements. Section 1602 provides
    guidance on accounting for a non-controlling interest in a subsidiary in
    consolidated financial statements subsequent to a business combination.
    These standards are effective on or after the beginning of the first
    annual reporting period beginning on or after January 2011 with earlier
    adoption permitted. These standards currently do not impact the Company
    as it has full controlling interest of all of its subsidiaries.

    Recent Accounting Pronouncements

    The Accounting Standards Board has confirmed that the convergence of
    Canadian GAAP with International Financial Reporting Standards (IFRS)
    will be effective January 1, 2011. The Company has performed an initial
    scoping process in order to ensure successful implementation within the
    required timeframe. The impact on the Company's consolidated financial
    statements is not reasonably determinable at this time. Key information
    will be disclosed as it becomes available during the transition period.

    3.  INVESTMENT IN RELATED PARTY

    The investment consists of 689,682 (December 31, 2008 - 689,682) common
    shares in Comaplex Minerals Corp. (Comaplex), a company with common
    directors and management with the Company and its subsidiaries. The
    investment is recorded at fair market value. The common shares trade on
    the Toronto Stock Exchange under the symbol CMF. The investment
    represents less than one and a half percent ownership in the outstanding
    shares of Comaplex.

    4.  RESTRICTED CASH

    An escrow account was held by Silverwing prior to its acquisition by the
    Company. The escrow account was created to support eligible expenditures
    related to a farm-in agreement. The Company may access the funds upon
    completion and tie-in or abandonment and reclamation of 22 wells. The
    funds are administered by the farmors' legal counsel. The funds in the
    escrow account are invested in interest bearing term deposits.

    5.  PROPERTY AND EQUIPMENT

                                 March 31, 2009          December 31, 2008
    -------------------------------------------------------------------------
                                       Accumulated               Accumulated
                                         Depletion                 Depletion
                                               and                       and
    ($ 000)                    Cost   Depreciation       Cost   Depreciation
    -------------------------------------------------------------------------
    Undeveloped land          2,013              -      2,295              -
    Petroleum and natural
     gas properties and
     related equipment      232,007         79,136    229,136         74,844
    Furniture, equipment
     and other                1,286            885      1,254            848
    -------------------------------------------------------------------------
                            235,306         80,021    232,685         75,692
    -------------------------------------------------------------------------

    6.  DUE TO RELATED PARTIES

    As of March 31, 2009, the Company's CEO and major shareholder has loaned
    the Company $10,000,000 (December 31, 2008 - $6,000,000). The loan is
    unsecured, bears interest at Canadian chartered bank prime less one half
    of a percent and has no set repayment terms but is payable on demand.
    However, the loan can only be repaid should the Company have sufficient
    available borrowing limits under the Company's credit facility. Effective
    May 1, 2009 the interest rate was increased to Canadian chartered bank
    prime. The interest rate was increased to keep the loan rate at
    approximately two percent below the Company's bank financing rate.
    Interest paid on this loan during the first quarter of 2009 was $48,000.

    As of March 31, 2009, Comaplex has loaned the Company $12,000,000
    (December 31, 2008 - Nil). The loan is unsecured, bears interest at
    Canadian chartered bank prime plus one quarter of a percent and has no
    set repayment terms but is payable on demand. However, the loan can only
    be repaid should the Company have sufficient available borrowing limits
    under the Company's credit facility. Interest paid on this loan during
    the first quarter of 2009 was $3,000.

    Please refer to note 11 for additional related party transactions.

    7.  BANK DEBT

    As of March 31, 2009 and December 31, 2008, the Company has a bank
    facility consisting of an $80,000,000 syndicated revolving credit
    facility and a $20,000,000 non-syndicated demand credit facility. Amounts
    drawn under these facilities at March 31, 2009 were $89,383,000
    (December 31, 2008 - $93,235,000). The interest rates on the outstanding
    debt as of March 31, 2009 were 3.35 percent and 2.50 percent on the
    Company's Canadian prime rate loan (short-term debt) and Bankers'
    Acceptances (long-term debt), respectively. The terms of the syndicated
    revolving credit facility provided that the loan was revolving to May 30,
    2010 and is subject to annual review. The revolving credit facility had
    no fixed payment requirements. The terms of the non-syndicated demand
    credit facility provided that the loan is due on demand and is subject to
    annual review and has no fixed repayment terms.

    Effective April 29, 2009, the Company entered into a new bank facility
    under similar terms and conditions. The new facility consists of a
    $100,000,000 syndicated revolving credit facility and a $20,000,000 non-
    syndicated revolving credit facility. The terms of the new facility
    provides that the loan is revolving until April 28, 2011, is subject to
    annual review and has no fixed payment requirements.

    The amount available for borrowing under the credit facilities is reduced
    by outstanding letters of credit. Letters of credit totaling $85,000 were
    issued at March 31, 2009 (December 31, 2008 - $525,000). Security for the
    credit facilities consists of various fixed and floating demand
    debentures totaling $200,000,000 over all of the Company's assets, and a
    general security agreement with first ranking over all personal and real
    property.

    The interest rate on the new credit facility is calculated as follows:

    -------------------------------------------------------------------------
                         Level I   Level II  Level III   Level IV    Level V
    -------------------------------------------------------------------------
    Consolidated Total
     Funded Debt(1) to                 Over       Over       Over
     Consolidated Cash     Under   1.0:1 to   1.5:1 to   2.0:1 to       Over
     flow Ratio            1.0:1      1.5:1      2.0:1      2.5:1      2.5:1
    -------------------------------------------------------------------------
    Canadian Prime Rate
     Plus(2)                 125        150        175        200        250
    -------------------------------------------------------------------------
    Bankers' Acceptances
     Rate Plus(2)            275        300        325        350        400
    -------------------------------------------------------------------------
    (1) Consolidated total funded debt excludes related party amounts but
        includes working capital.
    (2) Numbers in table represent basis points.


    Consolidated total funded debt to consolidated cash flow ratio shall be
    adjusted effective as of the first day of the next fiscal quarter
    following the end of each fiscal quarter, with each such adjustment to be
    effective until the next such adjustment.

    The following is a list of the material covenants:

    -   The Company is required to not exceed $120,000,000 in consolidated
        debt (includes negative working capital but excludes debt to related
        parties).
    -   Dividends paid in any quarter shall not exceed 80 percent of the
        average of the previous four quarters' cash flow as defined under
        GAAP.

    8.  TAXES

    The Company has recorded a future income tax asset related to assets and
    liabilities and related tax amounts:

    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Future tax liability related to investments:            (237)       (212)
    Future tax liability related to property
     and equipment:                                       (6,192)     (7,097)
    Future tax asset related to asset retirement
     obligations:                                          4,653       4,593
    Futures tax asset related to finance costs:            1,025       1,134
    Future tax asset related to corporate tax
     losses and SR&ED claims:                             80,908      86,998
    -------------------------------------------------------------------------
    Future Tax Asset - Long-term                          80,157      85,416
    -------------------------------------------------------------------------

    Current portion of future income tax asset related
     to corporate tax losses and SR& ED claims:            6,841       2,669
    -------------------------------------------------------------------------
    Future Tax Asset - Current                             6,841       2,669
    -------------------------------------------------------------------------

    As a result of the reorganization, the Company recorded a deferred credit
    relating to the difference between the future income tax asset generated
    on the reorganization and the amount of the cash payment made to SRX
    immediately before the reorganization. This credit is being amortized on
    the same basis as the related future income tax asset.

    A reconciliation of the deferred credit is as follows:

    ($ 000)
    -------------------------------------------------------------------------
    Amount recorded on reorganization                                 71,303
    Amortized in 2008                                                 (4,240)
    -------------------------------------------------------------------------
    Balance as of December 31, 2008                                   67,063
    Amortized in first quarter of 2009                                (3,622)
    -------------------------------------------------------------------------
    Balance as of March 31, 2009                                      63,441
    -------------------------------------------------------------------------

    Current portion                                                    5,908
    Long-term portion                                                 57,533
    -------------------------------------------------------------------------
                                                                      63,441
    -------------------------------------------------------------------------

    The Company and its subsidiaries have the following tax pools, which may
    be used to reduce taxable income in future years, limited to the
    applicable rates of utilization:

                                                         Rate of
    ($ 000)                                       Utilization (%)     Amount
    -------------------------------------------------------------------------
    Undepreciated capital costs                           20-100      24,410
    Eligible capital expenditures                              7       1,837
    Share issue costs                                         20       4,112
    Canadian oil and gas property expenditures                10      24,749
    Canadian development expenditures                         30      51,858
    Canadian exploration expenditures                        100      11,279
    SR&ED expenditures                                       100      80,357
    Income tax losses carried forward(1)                     100     263,482
    -------------------------------------------------------------------------
                                                                     462,084
    -------------------------------------------------------------------------
    (1) Income tax losses carried forward expire in the following years;
        2014 - $1,069,000, 2025 - $3,179,000, 2026 - $92,857,000, 2027 -
        $116,787,000, 2028 - $40,750,000, 2029 - $8,840,000.


    The Company has $27,670,000 of investment tax credits (ITC) that expire
    in the following years; 2009 - $3,469,000, 2010 - $3,059,000, 2011 -
    $4,667,000, 2012 - $3,909,000, 2013 - $3,155,000, 2014 - $1,995,000,
    2015 - $2,257,000, 2016 - $2,405,000, 2017 - $2,009,000, 2018 - $745,000.

    The amount and timing of reversals of temporary differences will also
    depend on the Company's future operating results, and acquisitions and
    dispositions of assets and liabilities. A significant change in any of
    the preceding assumptions could materially affect the Company's estimate
    of the future income tax asset.

    9.  SHAREHOLDERS' EQUITY

    Authorized

    The Company is authorized to issue an unlimited number of common shares
    without nominal or par value.

                                                                      Amount
    Issued                                                Number      ($ 000)
    -------------------------------------------------------------------------
    Common Shares
    Balance, January 1, 2009                          17,257,603      99,530
    -------------------------------------------------------------------------
    Balance, March 31, 2009                           17,257,603      99,530
    -------------------------------------------------------------------------

    The Company is authorized to issue an unlimited number of Class "A"
    redeemable Preferred Shares and an unlimited number of Class "B"
    Preferred Shares. There are currently no outstanding Class "A" redeemable
    preferred shares or Class "B" preferred shares.

    The number of common shares (2008 numbers based on units) used to
    calculate diluted net earnings per share (2008 earnings per unit) for the
    three month periods ended March 31 is as follows:

                                                            2009        2008
    -------------------------------------------------------------------------
    Basic shares/units outstanding                    17,257,603  16,938,333
    Dilutive effect of share/unit options                      -      19,153
    -------------------------------------------------------------------------
    Diluted shares/units outstanding                  17,257,603  16,957,486
    -------------------------------------------------------------------------

    A summary of the changes of the Company's contributed surplus is
    presented below:

    Contributed surplus
    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Balance, beginning of period                           2,542       2,140
    Stock-based compensation expensed (non-cash)             229         283
    Stock-based options exercised (non-cash)                   -         (30)
    -------------------------------------------------------------------------
    Balance, end of period                                 2,771       2,393
    -------------------------------------------------------------------------

    The deficit balance is composed of the following items:

                                                        March 31,   March 31,
    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Accumulated earnings                                 214,275     163,560
    Accumulated cash dividends/distributions            (261,800)   (211,919)
    -------------------------------------------------------------------------
    Deficit                                              (47,525)    (48,359)
    -------------------------------------------------------------------------

    The Company provides an option plan for its directors, officers,
    employees and consultants. Under the plan, the Company may grant options
    for up to 1,725,760 (December 31, 2008 - 1,725,760) common shares. The
    exercise price of each option granted equals the market price of the
    common shares on the date of grant and the option's maximum term is five
    years.

    A summary of the status of the Company's stock option plan as of
    March 31, 2009 and December 31, 2008, and changes during the three month
    and twelve month periods ended on those dates is presented below:

                                   March 31, 2009         December 31, 2008
    -------------------------------------------------------------------------
                                            Weighted-               Weighted-
                                             Average                 Average
                                            Exercise                Exercise
                                 Options       Price     Options       Price
    -------------------------------------------------------------------------
    Outstanding at beginning
     of period                 1,390,500      $20.50           -      $    -
    Options granted                    -           -   1,390,500       20.50
    -------------------------------------------------------------------------
    Outstanding at end
     of period                 1,390,500      $20.50   1,390,500      $20.50
    -------------------------------------------------------------------------
    Options exercisable at
     end of period                     -      $    -           -      $    -
    -------------------------------------------------------------------------

    The following table summarizes information about options outstanding at
    March 31, 2009:

                            Options Outstanding          Options Exercisable
    -------------------------------------------------------------------------
                                  Weighted-
                                   Average   Weighted-              Weighted-
    Range of           Number    Remaining    Average       Number   Average
    Exercise      Outstanding  Contractual   Exercise  Exercisable  Exercise
    Prices         At 3/31/09         Life      Price   at 3/31/09     Price
    -------------------------------------------------------------------------
    $20.50          1,390,500    3.6 years     $20.50            -    $    -
    -------------------------------------------------------------------------

    No stock options were granted in either the first quarter of 2009 or
    2008.

    10. ACCUMULATED OTHER COMPREHENSIVE INCOME

                                                           Other
                                                          Compre-
                                           January 1,    hensive       March
    ($ 000)                                     2009      Income    31, 2009
    -------------------------------------------------------------------------
    Unrealized gains on available-for-
     sale financial assets (net of tax)        1,420         181       1,601
    -------------------------------------------------------------------------

                                                           Other
                                                          Compre-
                                                         hensive
                                           January 1,     Income    December
    ($ 000)                                     2008       (Loss)   31, 2008
    -------------------------------------------------------------------------
    Unrealized gains (losses) on
     available-for-sale financial
     assets (net of tax)                       3,031      (1,611)      1,420
    -------------------------------------------------------------------------

    11. RELATED PARTY TRANSACTIONS

    The Company received a management fee from Comaplex of $82,500 (2008 -
    $82,500) for management services and office administration. This fee has
    been included as a recovery in general and administrative expenses. As at
    March 31, 2009, the Company had an account receivable from Comaplex of
    $60,000 (December 31, 2008 - $56,000).

    The Company received a management fee from Pine Cliff Energy Ltd. (Pine
    Cliff) of $30,000 (2008 - $59,400) for management services and office
    administration. This fee has been included as a recovery in general and
    administrative expenses. As at March 31, 2009 the Company had an account
    receivable from Pine Cliff of $Nil (December 31, 2008 - $1,000).

    12. FINANCIAL AND CAPITAL RISK MANAGEMENT

    Financial Risk Factors
    ----------------------

    The Company undertakes transactions in a range of financial instruments
    including:

    -   Receivables
    -   Payables
    -   Common share investments
    -   Due to related parties
    -   Bank loans
    -   Derivatives

    The Company's activities result in exposure to a number of financial
    risks including market risk (commodity price risk, interest rate risk,
    foreign exchange risk, credit risk, and liquidity risk).

    The Company's overall risk management program seeks to mitigate these
    risks and reduce the volatility on the Company's financial performance.
    Financial risk management is carried out by senior management under the
    direction of the Directors of the Company.

    The Company enters into various risk management contracts in accordance
    with Board approval to manage the Company's exposure to commodity price
    fluctuations. Currently no risk management agreements are in place in
    respect of interest rate risk. The Company does not speculatively trade
    in risk management contracts. The Company's risk management contracts are
    entered into to manage the risks relating to commodity prices from its
    business activities.

    Capital Risk Management
    -----------------------
    The Company's objectives when managing capital are to safeguard the
    Company's ability to continue as a going concern, so that it can continue
    to provide returns to its shareholders and benefits for other
    stakeholders and to maintain an optimal capital structure to reduce the
    cost of capital. In order to maintain or adjust the capital structure,
    the Company may adjust the amount of dividends, the percentage of return
    of capital or issue new shares.

    The Company monitors capital on the basis of the ratio of debt to cash
    flow. This ratio is calculated using each quarter end net debt (total
    debt adjusted for working capital) and divided by the preceding twelve
    months cash flow.

    The combination of the Trust reorganization and the acquisition of
    Silverwing Energy Inc. in 2008 resulted in the Company increasing its
    debt, including negative working capital, to approximately $105,000,000
    resulting in an increased debt to cash flow ratio. The Company believes
    that a debt level of approximately one and a half year's cash flow is an
    appropriate level to allow it to take advantage in the future of either
    acquisition opportunities or to provide flexibility to develop its infill
    oil, shallow gas and coalbed methane potential.

    The following section (a) of this note provides a summary of the
    Company's underlying economic positions as represented by the carrying
    values, fair values and contractual face values of the Company's
    financial assets and financial liabilities. The Company's debt to cash
    flow is also provided.

    The following section (b) addresses in more detail the key financial risk
    factors that arise from the Company's activities including its policies
    for managing these risks.

    The following section (c) provides details of the Company's risk
    management contracts that are used for financial risk management.

        a)  Financial assets, financial liabilities and debt ratio

        The carrying amounts, fair value and face values of the Company's
        financial assets and liabilities are shown in Table 1.

        Table 1

                           As at March 31, 2009      As at December 31, 2008
        ---------------------------------------------------------------------
                        Carrying    Fair     Face  Carrying    Fair     Face
        ($ 000)            Value   Value    Value     Value   Value    Value
        ---------------------------------------------------------------------
        Financial
         assets
        Restricted term
         deposit               -       -        -       20       20       20
        Accounts
         receivable       10,657  10,657   10,774   11,753   11,753   11,838
        Investments in
         related party     2,338   2,338      N/A    2,131    2,131      N/A

        Financial
         liabilities
        Accounts payable
         and accrued
         liabilities      11,034  11,034   11,034   23,888   23,888   23,888
        Due to related
         parties          22,000  22,000   22,000    6,000    6,000    6,000
        Short-term debt        -       -        -   13,325   13,325   13,325
        Long-term debt    89,383  89,383   89,383   79,910   79,910   79,910
        ---------------------------------------------------------------------

        The net debt and cash flow figures as of March 31, 2009 are presented
        in Table 2.

        Table 2
        ($ 000)                                               March 31, 2009
        ---------------------------------------------------------------------
        Long-term debt                                                89,383
        Accounts payable and accrued liabilities                      11,034
        Due to related parties                                        22,000
        Current assets(1)                                            (17,192)
        ---------------------------------------------------------------------
        Net Debt                                                     105,225
        ---------------------------------------------------------------------
        Cash flow from operations(2)                                  59,990
        ---------------------------------------------------------------------
        Net debt to cash flow from operations                           1.75
        ---------------------------------------------------------------------
        (1) Current assets include accounts receivable, crude oil inventory,
            prepaid expenses and investment in related party.
        (2) Cash flow from operations includes net earnings over the past
            twelve months less adjustment for non-cash (gain) loss on risk
            management contracts, stock-based compensation, depletion,
            depreciation and accretion, future income taxes, changes in
            non-cash working capital items and asset retirement obligations
            settled.

        b)  Risks and mitigations

        Market risk is the risk that the fair value or future cash flow of
        the Company's financial instruments will fluctuate because of changes
        in market prices. Components of market risk to which the Company is
        exposed are discussed below.

        Commodity price risk
        --------------------
        The Company's principal operation is the production and sale of crude
        oil, natural gas and natural gas liquids. Fluctuations in prices of
        these commodities directly impact the Company's performance and
        ability to continue with its dividends.

        The Company had used various risk management contracts to set price
        parameters for a portion of its production. Management, in agreement
        with the Board of Directors, decided that at least in the near term
        it will discontinue the use of commodity price agreements. The
        Company will assume full risk in respect of commodity prices.

        Sensitivity Analysis

        Commodity prices have fluctuated significantly over the recent past.
        The following table updates the annual cash flow sensitivity for
        movements in the commodity prices of $1 U.S. WTI for crude oil, $0.10
        per MCF AECO for natural gas and $0.01 fluctuation in exchange rates.

                                                                   Cash Flow
        ---------------------------------------------------------------------
        U.S. $1.00 per barrel                                      $ 870,000
        Canadian $0.10 per MCF                                     $ 289,000
        Change of Canadian $0.01/U.S. $ exchange rate              $ 593,000
        ---------------------------------------------------------------------

        Interest rate risk
        ------------------
        Interest rate risk refers to the risk that the value of a financial
        instrument or cash flows associated with the instrument will
        fluctuate due to changes in market interest rates. Interest rate risk
        arises from interest bearing financial assets and liabilities that
        the Company uses. The principal exposure of the Company is on its
        bank borrowings and related party debts which have variable interest
        rates which gives rise to a cash flow interest rate risk.

        The Company's debt consists of a $120,000,000 revolving line and
        $22,000,000 due to related parties. The borrowings under these
        facilities are at bank prime plus or minus various percentages as
        well as by means of bankers' acceptances (BA's). The Company manages
        its exposure to interest rate risk through entering into various term
        lengths on its BA's but in no circumstances do the terms exceed six
        months.

        Sensitivity Analysis

        Based on historic movements and volatilities in the interest rate
        markets and management's current assessment of the financial markets,
        the Company believes that a one percent variation in the Canadian
        prime interest rate is reasonably possible over a 12-month period. No
        income tax effect has been calculated as the Company is expected to
        be non-taxable until January 1, 2015.

        A one percent change in the Canadian prime rate would increase or
        decrease cash flow by $1,114,000.

        Foreign exchange risk
        ---------------------
        The Company has no foreign operations and currently sells all its
        product sales in Canadian currency. The Company however is exposed to
        currency risk in that crude oil is priced in U.S. currency then
        converted to Canadian currency. The Company currently has no
        outstanding risk management agreements. Management, in agreement with
        the Board of Directors, recently decided that at least in the near
        term it will discontinue the use of commodity price agreements. The
        Company will assume full risk in respect of foreign exchange
        fluctuations.

        Credit risk
        -----------
        Credit risk is the risk that a contracting party will not complete
        its obligations under a financial instrument and cause the Company to
        incur a financial loss. The Company is exposed to credit risk on the
        carrying value of all financial assets included on the balance sheet.
        To help mitigate this risk:

        -  The Company only enters into material agreements with credit
           worthy counterparties. These include major oil and gas companies
           or major Canadian chartered banks;
        -  Agreements for product sales are primarily on 30 day renewal
           terms; and
        -  Investments are generally only with companies that have common
           management with the Company.

        Of the accounts receivable balance at March 31, 2009 ($10,657,000)
        and December 31, 2008 ($11,753,000), over 83 (2008 - 82) percent
        relates to product sales with international oil and gas companies or
        tax receivables from the Canadian Government.

        The Company assesses quarterly if there has been any impairment of
        the financial assets of the Company. During the quarter ended
        March 31, 2009, there was no impairment provision required on any of
        the financial assets of the Company due to historical success of
        collecting receivables. The Company does have a credit risk exposure
        as the majority of the Company's accounts receivable are with
        counterparties having similar characteristics. However, payments from
        the Company's largest accounts receivable counterparties have
        consistently been received within 30 days and the sales agreements
        with these parties are cancellable with 30 days notice if payments
        are not received.

        At March 31, 2009, approximately $225,000 or 2.1 percent of the
        Company's total accounts receivable are aged over 120 days and
        considered past due. The majority of these accounts are due from
        various joint venture partners. The Company actively monitors past
        due accounts and takes the necessary actions to expedite collection,
        which can include withholding production or net paying when the
        accounts are with joint venture partners. Should the Company
        determine that the ultimate collection of a receivable is in doubt,
        it will provide the necessary provision in its allowance for doubtful
        accounts with a corresponding charge to earnings. If the Company
        subsequently determines an account is uncollectable, the account is
        written off with a corresponding charge to the allowance account. The
        Company's allowance for doubtful accounts balance at March 31, 2009
        is $117,000 (December 31, 2008 - $85,000). There were no accounts
        written off during the period.

        The carrying value of accounts receivable approximates their fair
        value due to the relatively short periods to maturity on this
        instrument. The maximum exposure to credit risk is represented by the
        carrying amount on the balance sheet. There are no material financial
        assets that the Company considers past due.

        Liquidity risk
        --------------
        Liquidity risk includes the risk that, as a result of Company's
        operational liquidity requirements:

        -  The Company will not have sufficient funds to settle a transaction
           on the due date;
        -  The Company will not have sufficient funds to continue with its
           dividends;
        -  The Company will be forced to sell assets at a value which is less
           than what they are worth; or
        -  The Company may be unable to settle or recover a financial asset
           at all.

        To help reduce these risks the Company:

        -  Maintains a portfolio of high-quality, long reserve life oil and
           gas assets.

        The Company has the following maturity schedule for its financial
        liabilities:

                                                   Payments Due by Period
        ---------------------------------------------------------------------
                           Recognized on        Less
                               Financial      than 1        2-3          4-5
        ($ 000)               Statements        year      years        years
        ---------------------------------------------------------------------
        Accounts payable and       Yes -
         accrued liabilities   Liability      11,034           -           -
        Due to related             Yes -
         parties               Liability      22,000           -           -
        Long-term                  Yes -
         bank debt             Liability           -      89,383           -
        Office leases                 No         593       1,249         918
        ---------------------------------------------------------------------
        Total                                 33,627      90,632         918
        ---------------------------------------------------------------------

        c)  Risk management contracts

        The Company currently has no outstanding risk management contracts:

    13. SUBSEQUENT EVENT - DIVIDENDS

    Subsequent to March 31, 2009, the Company declared a dividend of $0.12
    per common share payable on April 30, 2009 to shareholders of record on
    April 15, 2009 and a dividend of $0.12 per common share payable on
    May 29, 2009 to shareholders of record on May 15, 2009.

    14. SUBSEQUENT EVENT - EQUITY PLACEMENT

    The Company, subsequent to the end of the quarter, entered into an
    agreement to issue up to 1,068,000 common shares at a price of $16.85 per
    share. The financing is expected to close on May 27, 2009.
    

    %SEDAR: 00003132E




For further information:

For further information: George F. Fink, CEO or Garth E. Schultz, Vice
President, Finance and CFO or Kirsten Kulyk, Manager, Investor Relations,
Telephone: (403) 262-5307, Fax: (403) 265-7488, Email:
info@bonterraenergy.com, Website: www.bonterraenergy.com

Organization Profile

Bonterra Energy Corp.

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