Bonterra Oil & Gas Ltd. Announces Second Quarter 2009 Results



    CALGARY, Aug. 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 and six months ended
June 30, 2009.

    
    Highlights

                                  Three months ended        Six Months Ended
    -------------------------------------------------------------------------
    ($ 000 except $ per          June 30,    June 30,    June 30,    June 30,
     share/unit)                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    FINANCIAL
    Revenue - realized oil
     and gas sales                20,501      34,398      39,801      64,891
    Cash flow from operations      9,238      20,530      15,870      36,742
      Per share/unit - basic        0.52        1.21        0.91        2.16
      Per share/unit - diluted      0.52        1.19        0.91        2.15
      Payout ratio(1)                77%         69%         83%         71%
    Funds flow(3)                  9,780      21,352      18,156      39,410
      Per share/unit - basic        0.55        1.25        1.04        2.32
      Per share/unit - diluted      0.55        1.24        1.04        2.31
      Payout ratio(1)                73%         67%         73%         67%
    Cash dividends per
     share/unit(1)                  0.40        0.84        0.76        1.54
    Net earnings                   4,544      12,912      10,637      23,716
      Per share/unit - basic        0.26        0.76        0.61        1.40
      Per share/unit - diluted      0.26        0.75        0.61        1.39
    Capital expenditures and
     acquisitions                  2,255       2,543       4,956       8,964
    Total assets                                         258,393     153,247
    Working capital deficiency                            13,989      57,148
    Long-term debt                                        71,573           -
    Shareholders'/unitholders'
     equity                                               72,332      46,612
    -------------------------------------------------------------------------
    OPERATIONS
    Oil and NGLs
      - barrels per day            3,029       3,024       3,148       3,088
      - average price
         ($ per barrel)            59.77      101.69       52.56       94.31
    Natural gas - MCF per day     11,912       7,272      12,067       7,206
                - average price
                   ($ per MCF)      3.64        9.61        4.42        8.97
    Total barrels of oil
     equivalent per day (BOE)(2)   5,014       4,236       5,159       4,289
    -------------------------------------------------------------------------

    (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.


    The TSX does not accept responsibility for the accuracy of this release.
    


    REPORT TO SHAREHOLDERS

    Bonterra Oil & Gas Ltd. (Bonterra or the Company) is pleased to report
the operating and financial results for the three months and six months ended
June 30, 2009.
    The second quarter is generally a difficult period from a production
volume perspective due to road bans making it difficult to repair or complete
wells and gas plant maintenance and repairs are generally done in May and June
which results in wells having to be shut in. The low commodity price
environment, most notably in natural gas prices, has also continued to
negatively impact financial results during the first half of 2009 compared
with the same period in 2008.
    Despite these difficult economic times, Bonterra has been able to make
positive advances in many areas. It has been able to substantially reduce its
bank debt, increase its inventory of non-producing properties and most
importantly, has increased its confidence in the potential for economic
success in drilling horizontal wells in the Cardium zone in the Pembina field.
In addition, Bonterra is proud to report that it is one of a small number of
trusts or companies that has increased its monthly payment to
shareholders/unitholders (by 17 percent) in 2009 and this quarter represents
the 44th consecutive quarter dating back to 1998 in which positive net
earnings were achieved.

    Operations

    Bonterra's production averaged 5,014 BOE per day in the second quarter of
2009, an increase of 18.4 percent over the second quarter of 2008. The
increase is due mainly to additional production from the Company's first
Pembina Cardium horizontal well, the fourth quarter 2008 drilling program and
the Silverwing Energy Inc. acquisition, including the subsequent optimization
of the Silverwing existing wells. The company continues to project a 20
percent increase in 2009 average daily production rates over the previous
year.
    Bonterra's capital expenditures during the quarter totaled approximately
$2.3 million and for the first half of the year totaled approximately $5.0
million. This included the start of the 2009 drilling program in June which
included the drilling of our second Cardium horizontal well, participating in
several smaller interest gas wells, completion and tie-in costs related to the
Q408 drilling program, the purchase of additional land rights in the Pembina
area of Alberta and various project and facility upgrades to enhance existing
production.
    The majority of the $20 million 2009 capital development drilling program
will be spent in the latter half of the year with a strong focus on the
Pembina Cardium horizontal program. Bonterra has a significant land position
in the Pembina field with a large amount of undeveloped land with similar
reservoir characteristics to the Company's first successful horizontal well.
Bonterra also has a $10,000,000 capital budget in 2009 for acquisitions of
Cobalt Energy Ltd. and additional producing and non-producing lands.
    The first horizontal well produced at an average rate of approximately
250 barrels of oil per day in February 2009, its first month of production.
The well is currently producing in excess of 100 barrels of oil per day and
approximately 40 MCF per day of solution gas. The second horizontal well was
drilled in June, completed and tested in July and commenced production in
August, 2009.
    The horizontal program provides Bonterra with the opportunity to continue
unlocking further value from the Pembina field, Canada's largest
original-oil-in-place field. The Company has identified an additional 80
horizontal locations and is planning to drill three to four additional
horizontal Cardium wells in 2009 (working interests range from 68 to 100
percent) to further evaluate the play.

    Improved Financial Strength

    During the second quarter of 2009, the Company took several steps towards
improving its financial position. Bonterra entered into a new syndicated
banking facility effective April 29, 2009 consisting of a $100 million
syndicated revolving credit facility and a $20 million non-syndicated
revolving credit facility. In addition, the Company issued 1,068,000 common
shares at a price of $16.85 per share for net proceeds of $16,985,000 with the
funds used to retire debt and for general working capital.
    Bonterra is continuing to seek additional ways to improve the financial
position through project reviews, cost reduction programs and operational
efficiencies. The improved financial position provides increased flexibility
for the Company to fund its 2009 capital development program and to pursue
additional acquisition opportunities that may become available.
    Subsequent to quarter end, Bonterra was able to successfully close the
strategic acquisition of Cobalt Energy Ltd. (Cobalt), a junior oil and gas
exploration company. The acquisition is expected to result in an additional
production of approximately 40 BOE per day during the second half of 2009 and
also includes increased working interests in approximately 11 sections of land
which has prospective horizontal drilling opportunities.

    Commodity Prices

    Oil prices have continued to recover during the second quarter of the
year and into the third quarter. The Company's average realized price for
crude oil and natural gas liquids was $59.77 in the second quarter of 2009
versus $45.80 recorded during the first quarter of the year. Higher crude oil
prices were partially offset by the continued decline in natural gas prices
from $5.19 per MCF in Q109 to $3.64 per MCF in Q209. However, Bonterra
recorded a 17 percent increase in funds flow from operations and a 23 percent
increase in cash netbacks quarter over quarter.
    As a result of the improved oil price environment and strong production
levels, Bonterra was able to increase the dividend to shareholders to $0.14
per share beginning with the June 30, 2009 dividend payment (May 2009
production month) from $0.12 per share previously. Cash payments to
shareholders during the second quarter of 2009 totaled $0.40 per share with a
payout ratio of 73 percent of fund flow. The Board of directors and management
will continue to monitor dividend levels, payout ratios and capital
expenditures on a monthly basis and will adjust the amount if necessary.
    Natural gas prices have continued to collapse. Prices declined
significantly to $3.64 per MCF during the second quarter of 2009 and the
Company's average realized price decreased approximately 30 percent quarter
over quarter and over 62 percent compared with the same period in 2008.
    It is difficult to predict when natural gas prices might recover. The low
price environment negatively impacts funds flow, but may provide opportunities
for the Company to further grow its asset base through acquisitions. Bonterra
has historically made acquisitions counter-cyclically and this strategic
approach remains significant in today's marketplace. The Company's strong
balance sheet provides the ability to move quickly and the junior sector
continues to operate within a difficult business environment. As a result,
there has been an increase in assets for sale and Bonterra will endeavor to
take advantage of any opportunities to add additional value to its portfolio.

    Summary

    As the Company moves into the second half of 2009, it will continue to
execute its long-term strategy to maximize shareholder returns through prudent
financial management while conservatively growing the Company with a targeted
exploitation and development program.

    
    (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

    The following 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 six months ended June 30, 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.

    Non-GAAP Measures

    Throughout the press release we use the terms "payout ratio" and "cash
netback" to analyze operating performance. Payout ratio is calculated by
dividing cash distributions/dividends to unitholders/shareholders by cash flow
from operating activities both of which are measures prescribed by GAAP which
appear on our consolidated statements of cash flows. Cash netback is
calculated by dividing various operation and deficit statement items as
determined by GAAP by total production on a barrel of oil equivalent basis.
The above terms do not have standardized meaning or definition as prescribed
by GAAP and therefore may not be comparable with the calculation of similar
measures by other entities.

    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
    -------------------------------------------------
    Financial ($ 000 except
     $ per share)                     Q2          Q1
    -------------------------------------------------
    Revenue - realized oil and
     gas sales                    20,501      19,300
    Cash flow from operations      9,238       6,632
      Per share - basic             0.52        0.38
      Per share - fully diluted     0.52        0.38
    Cash payments per share(1)      0.40        0.36
    Payout Ratio(1)                  77%         94%
    Net earnings                   4,544       6,093
      Per share - basic             0.26        0.35
      Per share - fully diluted     0.26        0.35
    Capital expenditures
     and acquisitions              2,255       2,696
    Total assets                 258,393     260,732
    Working capital deficiency    13,989      14,909
    Long-term debt                71,573      89,383
    Shareholders' equity          72,332      56,377
    -------------------------------------------------
    Operations
    Oil and NGLs (barrels
     per day)                      3,029       3,268
    Natural gas (MCF per day)     11,912      12,223
    Total BOE per day(2)           5,014       5,305
    -------------------------------------------------


                                                      2008
    -------------------------------------------------------------------------
    Financial ($ 000 except
     $ per share/unit)                Q4          Q3          Q2          Q1
    -------------------------------------------------------------------------
    Revenue - realized oil
     and gas sales                22,613      34,226      34,398      30,493
    Cash flow from operations     10,336      22,492      20,530      16,212
      Per share/unit - basic        0.59        1.31        1.21        0.96
      Per share/unit -
       fully diluted                0.59        1.30        1.20        0.96
    Cash payments per
     share/unit(1)                  0.62        0.96        0.84        0.70
    Payout Ratio(1)                 105%         73%         69%         73%
    Net earnings                  10,585      21,125      12,912      10,804
      Per share/unit - basic        0.62        1.23        0.76        0.64
      Per share/unit -
       fully diluted                0.62        1.22        0.75        0.64
    Capital expenditures
     and acquisitions             30,405       6,038       2,543       6,421
    Total assets                 265,301     150,120     153,247     150,169
    Working capital deficiency    23,878      47,499      57,148      57,810
    Long-term debt                79,910           -           -           -
    Shareholders'/unitholders'
     equity                       56,777      57,623      46,612      48,136
    -------------------------------------------------------------------------
    Operations
    Oil and NGLs
     (barrels per day)             3,105       3,013       3,024       3,153
    Natural gas (MCF per day)      8,892       7,233       7,272       7,139
    Total BOE per day(2)           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             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
                        2009        2009        2008        2009        2008
    -------------------------------------------------------------------------
    Crude oil and
     NGLs (barrels
     per day)          3,029       3,268       3,024       3,148       3,088
    Natural gas
     (MCF per day)    11,912      12,223       7,272      12,067       7,206
    -------------------------------------------------------------------------
    Average BOE
     per day           5,014       5,305       4,236       5,159       4,289
    -------------------------------------------------------------------------
    

    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 half of 2009 were up 20.3 percent over
the corresponding 2008 period. Added production related to the Silverwing
Energy Inc. (Silverwing) acquisition, Bonterra's Q4 2008 drilling program
including the start of production from the Company's first Pembina Cardium
horizontal well, new gas wells drilled, and optimization of existing wells.
These additions more than offset Bonterra's average corporate production
decline of approximately two percent per quarter.
    Q209 production was down 291 BOE per day from Q109 due to spring break up
as well as planned gas plant scheduled maintenance shutdowns at several of the
Company's main gas plants. Also flush production from the Company's first
horizontal well and new gas well on the former Silvering property resulted in
higher Q109 volumes.
    The Company commenced its 2009 drilling program in June with the drilling
of the Company's second horizontal well (0.68 net). The well commenced
production in August, 2009.

    
    Revenue

                            Three months ended             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($)                 2009        2009        2008        2009        2008
    -------------------------------------------------------------------------
    Revenue - oil
     and gas sales
     (000's)          20,501      19,300      34,398      39,801      64,891

    Average Realized
     Prices:
    Crude oil and
     NGLs (per
     barrel)           59.77       45.80      101.69       52.56       94.31
    Natural gas
     (per MCF)          3.64        5.19        9.61        4.42        8.97
    -------------------------------------------------------------------------

    Revenue from petroleum and natural gas sales decreased $25,090,000 in the
first half of 2009 from the corresponding period in 2008 primarily due to a 44
percent drop in crude oil prices and a 51 percent drop in natural gas prices.
The drop in commodity prices were partially offset with the above mentioned
production increases. Quarter over quarter saw an increase in revenues of
$1,201,000 due to improved crude oil prices.

    Royalties

                            Three months ended             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($ 000)             2009        2009        2008        2009        2008
    -------------------------------------------------------------------------

    Crown royalties      674       1,364       4,263       2,038       7,876
    Freehold royalties,
     gross overriding
     royalties and net
     carried interests   587         501       1,056       1,088       1,787
    -------------------------------------------------------------------------
    Total royalty
     expense           1,261       1,865       5,319       3,126       9,663
    -------------------------------------------------------------------------
    % of total revenue   6.2         9.7        15.5         7.9        14.9
    -------------------------------------------------------------------------
    

    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 5.2
percent (2008 - 11.2 percent) and approximately 2.7 percent (2008 - 2.5
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 the
first half of 2009. In addition, the majority of the Company's Crown royalty
payments are in respect to natural gas production. With the significant
reduction in natural gas prices experienced during the second quarter coupled
with its low productivity wells, Crown royalty payments have dropped by
$690,000 quarter over quarter.
    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, 2011. 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 to maximize the crown royalty credits available under the new
drilling incentive program which should result in lower crown royalty payments
for the balance of 2009 and 2010.

    
    Production Costs

                            Three months ended             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($ 000)             2009        2009        2008        2009        2008
    -------------------------------------------------------------------------

    Production costs   7,355       7,038       6,089      14,393      12,406
      $ per BOE        16.12       14.74       15.79       15.41       15.89
    -------------------------------------------------------------------------
    

    Total production costs in the first half of 2009 have increased by
$1,987,000 over the first half of 2008. The increase is due to increased
production volumes (see Production). On a per BOE basis, production costs have
declined in the first half of 2009 compared to the same period in 2008 mainly
due to a general decline in service and material costs resulting from
decreased industry demand and field optimization.
    During the second quarter, the Company incurred costs related to the
annual scheduled maintenance shutdowns on several of its Pembina gas plants as
well as clean-up costs related to a minor pipeline break at one of the
Company's Saskatchewan properties. These costs resulted in a slight increase
in total operating costs compared to the first quarter of 2009. The Company
continues to anticipate operating costs will remain in the $14 to $15 per BOE
range for 2009.
    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 7.9 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.

    
    General and Administrative (G&A) Expense

                            Three months ended             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($ 000)             2009        2009        2008        2009        2008
    -------------------------------------------------------------------------
    G&A Expense        1,108         939         855       2,047       1,732
      $ per BOE         2.43        1.97        2.22        2.19        2.22
    -------------------------------------------------------------------------
    

    The increase in G&A expense in the first half of 2009 compared to the
first half of 2008 was due to increased accounting contract personnel costs
($123,000) related to temporary staffing needs; professional service costs
($168,000) related to IFRS, internal control reviews and various legal and
accounting services related to annual filing requirements; computer services
fees ($191,000) related to new monthly geological software licensing fees,
service costs related to a new production accounting software, and the
contracting of a new IT manager position; bad debt expense ($53,000) due to
the receivership of one of the Company's joint venture partners and numerous
accounts with small oil and gas organizations which have become delinquent;
bank charges ($262,000) related to cancelling the old banking facility and
setting up the new banking facility, offset partially by reduced employee
compensation ($613,000).
    Quarter over quarter saw an increase of $169,000 related primarily to the
write off of costs associated with the establishment of the old banking
facility $132,000 as well as additional professional fees and computer
services costs as discussed above.
    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             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($ 000)             2009        2009        2008        2009        2008
    -------------------------------------------------------------------------

    Interest Expense     915         826         650       1,741       1,449
    -------------------------------------------------------------------------
    

    Interest charges increased in the first half of 2009 as average
outstanding debt balance (included related party balances) increased by
approximately $40,000,000 over the first half of 2008. The acquisition of
Silverwing as well as the reorganization into a corporation resulted in an
approximate additional $44.5 million of debt. This was partially offset by net
proceeds of $16,985,000 from a 2009 second quarter private equity issue.
Offsetting the increased debt balances was an average reduction of one percent
(4.5 percent in 2008 to 3.5 percent in 2009) in interest rates paid on the
outstanding debt balances.
    Effective April 29, 2009, the Company entered into a new bank facility
with new 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 three and a half 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 stock 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
$450,000 will be recorded for the balance of 2009, $425,000 in 2010 and
$160,000 in 2011.

    Depletion, Depreciation, Accretion and Dry Hole Costs

    Provision for depletion, depreciation and accretion was $9,523,000 and
$7,010,000, respectively for the six month periods ending June 30, 2009 and
June 30, 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 (June 30, 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 a resource surcharge of $129,000
payable 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 three
percent in 2009. The capital tax payable to the Province of Quebec is a
one-time charge that resulted from the Company's conversion to a corporation.

    
    Net Earnings

                            Three months ended             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($ 000)             2009        2009        2008        2009        2008
    -------------------------------------------------------------------------

    Net Earnings       4,544       6,093      12,912      10,637      23,716
    -------------------------------------------------------------------------
    

    Net earnings decreased in the first six months of 2009 by $13,079,000
from the corresponding 2008 period. Reduced revenues resulting from decreased
commodity prices were the main reason for the reduction. This reduction was
partially offset by production volume gains. The Company continues to return
in excess of 25 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 lower
commodity price environment.
    The three months ended June 30, 2009 saw a decline of $1,549,000 in net
earnings from the first three months of 2009. The decrease was primarily due
to reduced future income tax recovery. Income before taxes was higher quarter
over quarter by $853,000 due primarily to increased crude oil prices.

    Comprehensive Income

    Other comprehensive income for 2009 consists of an unrealized gain on
investment in a related party of $818,000 (2008 - ($164,000)) due to an
increase in the related company's fair value.

    
    Cash Flow from Operations

                            Three months ended             Six months ended
                     June 30,   March 31,    June 30,    June 30,    June 30,
    ($ 000)             2009        2009        2008        2009        2008
    -------------------------------------------------------------------------

    Cash flow from
     operations        9,238       6,632      20,530      15,870      36,742
    -------------------------------------------------------------------------
    

    First half 2009 cash flow from operations decreased 57 percent compared
to first half 2008 due to decreased commodity prices received during the first
six months of 2009. Q2 cash flow increased by $2,606,000 from Q1 due primarily
to recovering crude oil pricing.
    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 of approximately 20 percent in 2009 over 2008
levels and a reduction in royalties.

    Cash Netback

    The following table illustrates the Company's cash netback from
operations for the six month periods ended June 30:

    
    $ per Barrel of Oil Equivalent (BOE)                    2009        2008
    -------------------------------------------------------------------------
    Production volumes (BOE)                             933,781     780,644
    Gross production revenue                          $    42.62  $    90.02
    Realized gain (loss) on risk management contracts          -       (6.90)
    Royalties                                              (3.35)     (12.38)
    Field operating costs                                 (15.41)     (15.89)
    -------------------------------------------------------------------------
    Field netback                                          23.86       54.85
    General and administrative                             (2.19)      (2.22)
    Interest and taxes                                     (2.29)      (2.18)
    -------------------------------------------------------------------------
    Cash netback                                      $    19.38  $    50.45
    -------------------------------------------------------------------------

    The following table illustrates the Company's cash netback from operations
for the three month periods ended:

                                                         June 30,   March 31,
    $ per Barrel of Oil Equivalent (BOE)                    2009        2009
    -------------------------------------------------------------------------
    Production volumes (BOE)                             456,286     477,495
    Gross production revenue                          $    44.93  $    40.42
    Royalties                                              (2.76)      (3.91)
    Field operating costs                                 (16.12)     (14.74)
    -------------------------------------------------------------------------
    Field netback                                          26.05       21.77
    General and administrative                             (2.43)      (1.97)
    Interest and taxes                                     (2.17)      (2.40)
    -------------------------------------------------------------------------
    Cash netback                                      $    21.45  $    17.40
    -------------------------------------------------------------------------
    

    Related Party Transactions

    The Company owns 689,682 (December 31, 2008 - 689,682) common shares in
Comaplex Minerals Corp. ("Comaplex") which have a fair market value as of June
30, 2009 of $3,083,000 (December 31, 2008 - $2,131,000). Comaplex is a
publicly 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 $165,000 (2008 -
$165,000). 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 June 30, 2009, Comaplex owed
the Company $75,000 (December 31, 2008 - $56,000).
    As of June 30, 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. Effective July 1, 2009, the interest rate was reduced to Canadian
chartered bank prime less .25 percent. The reduction in rate was due to the
lowering of the Company's bank interest rate caused by the improving debt to
cash flow ratio (see Interest Expense and Liquidity and Capital Resources
sections).
    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 six months of 2009 was $79,000. This results in being a
substantial benefit to Bonterra and to Comaplex. The interest paid to Comaplex
by Bonterra is substantially lower than bank interest and for Comaplex the
interest earned is substantially higher than Comaplex would receive by
investing in bank instruments such as BA's or GIC's.
    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 $60,000 (2008 - $118,800). Services provided by the
Company include executive services (CEO, 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 June 30, 2009, the
Company had an account receivable from Pine Cliff of $1,000 (December 31, 2008
- $1,000).
    As of June 30, 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 and has no set
repayment terms. Effective July 1, 2009 the interest rate was decreased to
Canadian chartered bank prime less .25 percent. 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 six
months of 2009 was $101,000. This loan results in being a substantial benefit
to Bonterra and to the CEO. The interest paid to the CEO by Bonterra is
substantially lower than bank interest and for the CEO the interest earned is
substantially higher than the CEO would receive by investing in bank
instruments such as BA's or GIC's.

    Liquidity and Capital Resources

    During the first six months of 2009, the Company incurred capital costs
of $4,956,000 (2008 - $8,964,000). In the second quarter of 2009, the Company
drilled one horizontal well (0.68 net) and acquired approximately $600,000 of
land rights in the Pembina area of Alberta. During the first half of 2009,
Bonterra also participated in a number of smaller interest natural gas wells
for total costs of approximately $1,000,000 and spent approximately $1,300,000
on completion and tie in costs in respect to wells drilled in Q4 2008. The
balance of the capital expenditures 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.
    On July 2, 2009, Bonterra completed its acquisition of Cobalt Energy Ltd.
(Cobalt). The Company issued 201,738 common shares and assumed $2,818,000 of
negative working capital. Total costs to complete the acquisition were
approximately $170,000. This acquisition resulted in acquiring an additional
40 BOE per day of production as well as increasing the Company's land position
in approximately 11 sections of land with potential horizontal locations in
the Pembina area of Alberta.
    The Company currently has plans to spend an estimated $20,000,000 in 2009
(approximately $16,000,000 in the third and fourth quarters) on development of
its oil and gas properties. Land acquisitions and property or corporate
acquisitions estimated to be $10,000,000 (including the Cobalt acquisition)
will bring the total to approximately $30,000,000. 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 vertical
Pembina Cardium wells. The exact number of each will depend on drilling
success and commodity prices. The 2009 drilling program commenced 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. The new facility consists of a $100,000,000
syndicated revolving credit facility and a $20,000,000 non-syndicated
revolving credit facility. At June 30, 2009, the Company's bank loan was
$71,573,000 (December 31, 2008 - $93,235,000). 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.

    
    The following is a list of the material covenants:

    1)  The Company is required to not exceed $120,000,000 in consolidated
        debt (includes negative working capital but excludes debt to related
        parties). As of June 30, 2009 the Company had consolidated debt of
        $63,562,000.

    2)  Dividends paid in any quarter shall not exceed 80 percent of the
        average of the previous four quarters' cash flow as defined under
        GAAP. During the quarter Bonterra paid $6,708,000 in dividends. This
        compares to $11,998,000 that was allowed under the bank covenant.
    

    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 June 30, 2009 and December 31, 2008
    (unaudited)
    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Assets
    Current
      Restricted term deposit                                  -          20
      Accounts receivable (Note 11)                       10,553      11,753
      Crude oil inventory                                    538         845
      Prepaid expenses                                     4,468       4,222
      Future income tax asset (Note 8)                     8,591       2,669
      Investments in related party (Note 3)                3,083       2,131
    -------------------------------------------------------------------------
                                                          27,233      21,640
    -------------------------------------------------------------------------
    Restricted cash (Note 4)                               1,257       1,252
    Future income tax asset (Note 8)                      77,021      85,416
    Property and Equipment (Note 5)
      Petroleum and natural gas properties and
       related equipment                                 237,585     232,685
      Accumulated depletion and depreciation             (84,703)    (75,692)
    -------------------------------------------------------------------------
    Net Property and Equipment                           152,882     156,993
    -------------------------------------------------------------------------
                                                         258,393     265,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities            11,827      23,888
      Due to related parties (Note 6)                     22,000       6,000
      Deferred credit (Note 8)                             7,395       2,305
      Short-term debt (Note 7)                                 -      13,325
    -------------------------------------------------------------------------
                                                          41,222      45,518
    Long-term bank debt (Note 7)                          71,573      79,910
    Deferred credit (Note 8)                              54,598      64,758
    Asset retirement obligations                          18,668      18,338
    -------------------------------------------------------------------------
                                                         186,061     208,524
    -------------------------------------------------------------------------
    Shareholders' Equity (Note 9)
      Share capital                                      116,773      99,530
      Contributed surplus                                  3,010       2,542
    -------------------------------------------------------------------------
                                                         119,783     102,072
    -------------------------------------------------------------------------
      Deficit                                            (49,689)    (46,715)
      Accumulated other comprehensive income (Note 10)     2,238       1,420
    -------------------------------------------------------------------------
                                                         (47,451)    (45,295)
    -------------------------------------------------------------------------
    Total Shareholders' Equity                            72,332      56,777
    -------------------------------------------------------------------------
                                                         258,393     265,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

    For the periods ended
     June 30 (unaudited)            Three Months             Six Months
    ($ 000)                       2009        2008        2009        2008
    -------------------------------------------------------------------------
    Unitholders' equity,
     beginning of period
     (Note 1)                          -      48,136           -      44,218
    Shareholders' equity,
     beginning of period
     (Note 1)                     56,377           -      56,777           -
    Comprehensive income
     for the period                5,181      12,577      11,455      23,552
    Net capital contributions     17,243       4,210      17,243       4,490
    Stock-based compensation         239         279         468         562
    Dividends declared            (6,708)          -     (13,611)          -
    Distributions declared             -     (18,590)          -     (26,210)
    -------------------------------------------------------------------------
    Unitholders' Equity,
     End of Period                     -      46,612           -      46,612
    -------------------------------------------------------------------------
    Shareholders' Equity,
     End of Period                72,332           -      72,332           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

    For the periods ended
     June 30 (unaudited)            Three Months             Six Months
    ($000, except $ per Share)    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Revenue
      Oil and gas sales           20,501      38,412      39,801      70,272
      Loss on risk management
       contracts - cash                -      (4,014)          -      (5,381)
      Loss on risk management
       contracts - non-cash            -      (4,636)          -      (7,025)
      Royalties                   (1,261)     (5,319)     (3,126)     (9,663)
      Interest and other              (6)          9          60          22
    -------------------------------------------------------------------------
                                  19,234      24,452      36,735      48,225
    -------------------------------------------------------------------------
    Expenses
      Production costs             7,355       6,089      14,393      12,406
      General and administrative   1,108         855       2,047       1,732
      Interest on debt               915         650       1,741       1,449
      Stock-based compensation       239         279         468         562
      Depletion, depreciation
       and accretion               4,909       3,516       9,523       7,010
    -------------------------------------------------------------------------
                                  14,526      11,389      28,172      23,159
    -------------------------------------------------------------------------
    Earnings Before Taxes          4,708      13,063       8,563      25,066
    -------------------------------------------------------------------------
    Taxes (Recovery)
      Current                         76         142         398         253
      Future                          88           9      (2,472)      1,097
    -------------------------------------------------------------------------
                                     164         151      (2,074)      1,350
    -------------------------------------------------------------------------
    Net Earnings for the Period    4,544      12,912      10,637      23,716
    Deficit, beginning
     of period                   (47,525)    (48,359)    (46,715)    (51,543)
    Dividends declared            (6,708)          -     (13,611)          -
    Distributions declared             -     (13,116)          -     (20,736)
    -------------------------------------------------------------------------
    Deficit, End of Period       (49,689)    (48,563)    (49,689)    (48,563)
    -------------------------------------------------------------------------
    Net Earnings Per Share
     - Basic (Note 9)               0.26        0.76        0.61        1.40
    -------------------------------------------------------------------------
    Net Earnings Per Share
     - Diluted (Note 9)             0.26        0.75        0.61        1.39
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

    For the Periods Ended June 30
     (unaudited)                     Three Months             Six Months
    ($ 000, except $ per Share)    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net Earnings for the Period    4,544      12,912      10,637      23,716
    Unrealized gains and losses
     on investments (net of
     Income taxes; Three months
     ended 2009 - 108, 2008 -
     (112); Six months ended 2009
     - 134, 2008 - (55))             637        (355)        818        (164)
    -------------------------------------------------------------------------
    Other Comprehensive Income
     (Loss)                          637        (355)        818        (164)
    -------------------------------------------------------------------------
    Comprehensive Income           5,181      12,577      11,455      23,552
    -------------------------------------------------------------------------
    Comprehensive Income
     Per Share - Basic (Note 9)     0.29        0.74        0.66        1.39
    -------------------------------------------------------------------------
    Comprehensive Income
     Per Share - Diluted (Note 9)   0.29        0.73        0.66        1.38
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    For the periods ended
     June 30 (unaudited)            Three Months             Six Months
    ($000)                        2009        2008        2009        2008
    -------------------------------------------------------------------------
    Operating Activities
      Net earnings for the period  4,544      12,912      10,637      23,716
      Items not affecting cash
        Loss on risk management
         contracts - non-cash          -       4,636           -       7,025
        Stock-based compensation     239         279         468         562
        Depletion, depreciation
         and accretion             4,909       3,516       9,523       7,010
        Future income taxes           88           9      (2,472)      1,097
    -------------------------------------------------------------------------
                                   9,780      21,352      18,156      39,410
    -------------------------------------------------------------------------
      Change in non-cash
       working capital
        Accounts receivable          104      (1,636)      1,200      (4,837)
        Crude oil inventory          (17)        (55)        299          87
        Prepaid expenses            (814)     (1,116)       (246)     (1,047)
        Accounts payable and
         accrued liabilities         243       2,171      (3,410)      5,042
      Asset retirement
       obligations settled           (58)       (186)       (129)     (1,913)
    -------------------------------------------------------------------------
                                    (542)       (822)     (2,286)     (2,668)
    -------------------------------------------------------------------------
    Cash Provided by
     Operating Activities          9,238      20,530      15,870      36,742
    -------------------------------------------------------------------------
    Financing Activities
      Increase (decrease)
       in debt                   (17,810)     (5,933)    (21,662)     (4,442)
      Due to related parties           -           -      16,000           -
      Issue of shares pursuant
       to private placement       17,996           -      17,996           -
      Share issue costs           (1,011)          -      (1,011)          -
      Stock option proceeds            -       4,210           -       4,490
      Dividends                   (6,708)          -     (13,611)          -
      Unit distributions               -     (13,116)          -     (24,460)
    -------------------------------------------------------------------------
    Cash Used in Financing
     Activities                   (7,533)    (14,839)     (2,288)    (24,412)
    -------------------------------------------------------------------------
    Investing Activities
      Property and equipment
       expenditures               (2,255)     (2,543)     (4,956)     (8,964)
      Restricted term deposit          -           -          20           -
      Restricted cash                  -           -           5           -
      Change in non-cash
       working capital Accounts
       payable and accrued
       liabilities                   550      (3,148)     (8,651)     (3,366)
    -------------------------------------------------------------------------
    Cash Used in Investing
     Activities                   (1,705)     (5,691)    (13,582)    (12,330)
    -------------------------------------------------------------------------
    Net Cash Inflow                    -           -           -           -
    Cash, beginning of period          -           -           -           -
    -------------------------------------------------------------------------
    Cash, End of Period                -           -           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Interest Paid               861         650       1,687       1,449
    Cash Taxes Paid                   31          90         192         368



    NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    Periods Ended June 30, 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" or the "Trust")
    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., a wholly owned subsidiary of
    the Company.

    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's 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.

    In June 2009, the CICA issued amendments to CICA Handbook Section 3862,
    "Financial Instruments - Disclosures". The amendments include enhanced
    disclosures related to the fair value of financial instruments and the
    liquidity risk associated with financial instruments. The amendments will
    be effective for annual financial statements for fiscal years ending
    after September 30, 2009. The amendments are consistent with recent
    amendments to financial instrument disclosure standards in IFRS. The
    Company will include these additional disclosures in its annual
    consolidated financial statements for the year ending December 31, 2009.

    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

                                  June 30, 2009          December 31, 2008
    -------------------------------------------------------------------------
                                       Accumulated               Accumulated
                                         Depletion                 Depletion
                                               and                       and
    ($ 000)                    Cost   Depreciation       Cost   Depreciation
    -------------------------------------------------------------------------
    Undeveloped land          2,580              -      2,295              -
    Petroleum and natural
     gas properties and
     related equipment      233,574         83,768    229,136         74,844
    Furniture, equipment
     and other                1,431            935      1,254            848
    -------------------------------------------------------------------------
                            237,585         84,703    232,685         75,692
    -------------------------------------------------------------------------


    6.  DUE TO RELATED PARTIES

    As of June 30, 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 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 July 1, 2009 the interest
    rate was decreased to Canadian chartered bank prime less .25 percent. The
    interest rate was decreased to keep the loan rate at approximately two
    percent below the Company's bank financing rate. Interest paid on this
    loan during the first half of 2009 was $101,000.

    As of June 30, 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. Effective July 1, 2009 the
    interest rate was decreased to Canadian chartered bank prime less .25
    percent. The interest rate was decreased to keep the loan rate at
    approximately two percent below the Company's bank financing rate. 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 half of 2009 was $79,000.

    Please refer to note 11 for additional related party transactions.

    7.  BANK DEBT

    As of June 30, 2009, the Company has a bank facility consisting of a
    $100,000,000 syndicated and $20,000,000 non-syndicated revolving credit
    facility (December 31, 2008 - $80,000,000 syndicated and $20,000,000 non-
    syndicated demand credit facility). This new facility became effective
    April 29, 2009, when the Company agreed to new terms and conditions.
    Amounts drawn under the facility at June 30, 2009 was $71,573,000
    (December 31, 2008 - $93,235,000). The interest rate on the outstanding
    debt as of June 30, 2009 was 4.25 percent on the Company's Canadian prime
    rate loan. The term 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 $285,000
    were issued at June 30, 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.


    The 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:

                                                        June 30  December 31
    ($ 000)                                                2009         2008
    -------------------------------------------------------------------------
    Future tax liability related to investments:           (331)        (212)
    Future tax liability related to property
     and equipment:                                      (6,334)      (7,097)
    Future tax asset related to asset retirement
     obligations:                                         4,697        4,593
    Futures tax asset related to finance costs:           1,143        1,134
    Future tax asset related to corporate tax losses
     and SR&ED claims:                                   77,846       86,998
    -------------------------------------------------------------------------
    Future Tax Asset - Long-term                         77,021       85,416
    -------------------------------------------------------------------------

    Current portion of future income tax asset
     related to corporate Tax losses and SR&ED claims:    8,591        2,669
    -------------------------------------------------------------------------
    Future Tax Asset - Current                            8,591        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 half of 2009                                  (5,070)
    -------------------------------------------------------------------------
    Balance as of June 30, 2009                                      61,993
    -------------------------------------------------------------------------

    Current portion                                                   7,395
    Long-term portion                                                54,598
    -------------------------------------------------------------------------
                                                                     61,993
    -------------------------------------------------------------------------

    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:

    ($ 000)                               Rate of Utilization (%)     Amount
    -------------------------------------------------------------------------
    Undepreciated capital costs                           20-100      21,844
    Eligible capital expenditures                              7       7,640
    Share issue costs                                         20       4,553
    Canadian oil and gas property expenditures                10      25,023
    Canadian development expenditures                         30      51,595
    Canadian exploration expenditures                        100      11,255
    SR&ED expenditures                                       100      80,357
    Income tax losses carried forward(1)                     100     252,536
    -------------------------------------------------------------------------
                                                                     454,803
    -------------------------------------------------------------------------

    (1) Income tax losses carried forward expire in the following years; 2013
        - $1,069,000, 2024 - $3,229,000, 2025 - $6,810,000, 2026 -
        $79,852,000, 2027 - $116,680,000, 2028 - $34,702,000, 2029 -
        $10,194,000.

    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
    Issued pursuant to private placement               1,068,000      17,996
    Issue costs for private placement                          -      (1,011)
    Future tax effect of share issue costs                     -         258
    -------------------------------------------------------------------------
    Balance, June 30, 2009                            18,325,603     116,773
    -------------------------------------------------------------------------

    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.

    On May 27, 2009, the Company completed a private placement for 1,068,000
    common shares at a price of $16.85 per common share for aggregate
    proceeds of $17,996,000. The Company paid a commission of five percent of
    the gross proceeds ($900,000) plus additional share issue costs of
    $111,000.

    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 and six month periods ended June 30 is as follows:

                                      Three Months             Six Months
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Basic shares/units
     outstanding              17,668,372  17,025,803  17,464,122  16,982,068
    Dilutive effect of
     share/unit options           28,735     185,533      14,447     102,363
    -------------------------------------------------------------------------
    Diluted shares/units
     outstanding              17,697,107  17,211,336  17,478,569  17,084,431
    -------------------------------------------------------------------------

    A summary of the changes during the first six months 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)             468         562
    Stock-based options exercised (non-cash)                   -        (448)
    -------------------------------------------------------------------------
    Balance, end of period                                 3,010       2,254
    -------------------------------------------------------------------------

    The deficit balance is composed of the following items:

                                                         June 30,    June 30,
    ($ 000)                                                 2009        2008
    -------------------------------------------------------------------------
    Accumulated earnings                                 218,819     176,472
    Accumulated cash dividends/distributions            (268,508)   (230,509)
    -------------------------------------------------------------------------
    Deficit                                              (49,689)    (54,037)
    -------------------------------------------------------------------------

    The Company provides an option plan for its directors, officers,
    employees and consultants. Under the plan, the Company may grant options
    for up to 1,832,560 (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 June 30,
    2009 and December 31, 2008, and changes during the six month and
    twelve month periods ended on those dates is presented below:

                                   June 30, 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               33,000       14.90   1,390,500       20.50
    -------------------------------------------------------------------------
    Outstanding at end of
     period                    1,423,500    $  20.37   1,390,500    $  20.50
    -------------------------------------------------------------------------
    Options exercisable at
     end of period                     -    $      -           -    $      -
    -------------------------------------------------------------------------

    The following table summarizes information about options outstanding at
    June 30, 2009:

                            Options Outstanding          Options Exercisable
    -------------------------------------------------------------------------
                                  Weighted-
                                   Average   Weighted-              Weighted-
    Range of           Number    Remaining    Average       Number   Average
    Exercise      Outstanding  Contractual   Exercise  Exercisable  Exercise
    Prices         At 6/30/09         Life      Price   at 6/30/09     Price
    -------------------------------------------------------------------------
    $14.90             33,000    3.6 years     $14.90            -     $   -
     20.50          1,390,500    3.3 years      20.50            -         -
    -------------------------------------------------------------------------
    $14.90-20.50    1,423,500    3.3 years     $20.37            -     $   -
    -------------------------------------------------------------------------

    The Company records compensation expense over the vesting period based on
    the fair value of options granted to employees, directors and
    consultants. The Company granted 33,000 stock options with an estimated
    fair value of $52,000 ($1.56 per option) using the Black-Scholes option
    pricing model with the following key assumptions:

                                                            2009        2008
    -------------------------------------------------------------------------
    Weighted-average risk free interest rate (%)             1.4         2.2
    Expected life (years)                                    3.0         3.5
    Weighted-average volatility (%)                         33.0        31.3
    Dividend yield 2009 and 2008                  based on the percentage of
                                                  dividends or distributions
                                                  paid during the period
                                                  granted
    -------------------------------------------------------------------------

    10. ACCUMULATED OTHER COMPREHENSIVE INCOME

                                                           Other
                                                          Compre-
                                           January 1,    hensive     June 30,
    ($ 000)                                     2009      Income        2009
    -------------------------------------------------------------------------
    Unrealized gains on available-for-
     sale financial assets (net of tax)        1,420         818       2,238
    -------------------------------------------------------------------------


                                                           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 $165,000 (2008 -
    $165,000) for management services and office administration. This fee has
    been included as a recovery in general and administrative expenses. As at
    June 30, 2009, the Company had an account receivable from Comaplex of
    $75,000 (December 31, 2008 - $56,000).

    The Company received a management fee from Pine Cliff Energy Ltd. (Pine
    Cliff) of $60,000 (2008 - $118,800) for management services and office
    administration. This fee has been included as a recovery in general and
    administrative expenses. As at June 30, 2009 the Company had an account
    receivable from Pine Cliff of $1,000 (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. 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 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. During the second quarter, the Company
    completed a private placement for net proceeds of $16,985,000 thereby
    reducing its level of indebtedness. 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 horizontal oil,
    infill oil and shallow gas 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 June 30, 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       10,553  10,553   10,690    11,753  11,753   11,838
        Investments in
         related party     3,083   3,083      N/A     2,131   2,131      N/A

        Financial
         liabilities
        Accounts payable
         and accrued
         liabilities      11,827  11,827   11,827    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    71,573  71,573   71,573    79,910  79,910   79,910
        ---------------------------------------------------------------------

        The net debt and cash flow figures as of June 30, 2009 are presented
        in Table 2.

        Table 2

        ($ 000)                                                June 30, 2009
        ---------------------------------------------------------------------
        Long-term debt                                                71,573
        Accounts payable and accrued liabilities                      11,827
        Due to related parties                                        22,000
        Current assets(1)                                            (18,642)
        ---------------------------------------------------------------------
        Net Debt                                                      86,758
        ---------------------------------------------------------------------
        Cash flow from operations(2)                                  48,698
        ---------------------------------------------------------------------
        Net debt to cash flow from operations                           1.78
        ---------------------------------------------------------------------
        (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, 2018.

        A one percent change in the Canadian prime rate would increase or
        decrease cash flow by $936,000.

        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 June 30, 2009 ($10,553,000) and
        December 31, 2008 ($11,753,000), over 77 (2008 - 82) percent relates
        to product sales with international oil and gas companies or tax
        receivables from the Canadian Government. In addition, the Company
        was owed $950,000 from a company it acquired on July 2 (See Note 14)
        which will be wound-up and eliminated on consolidation.

        The Company assesses quarterly if there has been any impairment of
        the financial assets of the Company. During the quarter ended
        June 30, 2009, there was no impairment provision required on any of
        the financial assets other than certain accounts receivable (see
        below). 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 June 30, 2009, approximately $545,000 or 5.1 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 June 30, 2009 is
        $137,000 (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      11,827          -            -
        Due to related             Yes -
         parties               Liability      22,000          -            -
        Long-term                  Yes -
         bank debt             Liability           -     71,573            -
        Office leases                 No         595      1,260          756
        ---------------------------------------------------------------------
        Total                                 34,422     72,833          756
        ---------------------------------------------------------------------

        c)  Risk management contracts

        The Company currently has no outstanding risk management contracts:

    13. SUBSEQUENT EVENT - DIVIDENDS

        Subsequent to June 30, 2009, the Company declared a dividend of $0.14
        per common share payable on July 31, 2009 to shareholders of record
        on July 15, 2009 and a dividend of $0.14 per common share payable on
        August 31, 2009 to shareholders of record on August 14, 2009.

    14. SUBSEQUENT EVENT - ACQUISITION

        On July 2, 2009, the Company acquired all of the issued common shares
        of Cobalt Energy Ltd. (Cobalt) for consideration of 201,738 common
        shares at a value of $15.92 per common share plus the assumption of
        $2,818,000 of negative working capital for total consideration of
        $6,025,000. Results of Cobalt's operations will be included in the
        consolidated financial statements commencing from that date.

        The acquisition was accounted for using the purchase method and the
        purchase price was allocated to the fair value of the assets acquired
        and the liabilities assumed as follows:

        Cost of acquisition (000's)
          Value of common stock                      $3,207
          Acquisition costs                             170
                                                     ------
                                                     $3,377
                                                     ------
                                                     ------
        Allocation of purchase price:
          Property and equipment                     $7,067
          Future income tax liability                  (748)
          Working capital deficiency                 (2,818)
          Asset retirement obligations                 (124)
                                                     ------
                                                     $3,377
                                                     ------
                                                     ------
    

    %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

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Bonterra Energy Corp.

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