Compton Petroleum announces second quarter results



    CALGARY, Aug. 11 /CNW/ - Compton Petroleum Corporation ("Compton" or the
"Company") is pleased to announce its financial and operating results for the
quarter ended June 30, 2008 and provide an update on its strategic review
process.

    STRATEGIC REVIEW PROCESS

    On February 28, 2008, the Board of Directors of Compton announced that it
was conducting a formal review of the Company's business plans and strategic
alternatives for enhancing shareholder value. The Board appointed a Special
Committee comprised of independent directors to conduct the review and
retained Tristone Capital Inc. and UBS Securities Canada Inc. as independent
financial advisors to assist the Company in the conduct of the review. The
review included, among other considerations, the exploration of potential
asset divestments, equity alternatives, strategic alliances, joint venture
opportunities, mergers or a corporate transaction.
    On June 11, 2008, the Special Committee received independent reports and
recommendations from its financial advisors and after due deliberation and on
the recommendation of the Special Committee, the Board of Directors determined
to commence a process to seek a buyer for all the outstanding shares of the
Company.
    Currently, the Company together with the advisors, are in the process of
preparing a Data Room that will be accessible to interested purchasers in
early September. The sale process is expected to conclude this autumn.
    The Company is pursuing an active third quarter drilling program,
however, in view of the sales process, will not be providing updated guidance
nor hosting a conference call in relation to this news release.

    
    SECOND QUARTER 2008 HIGHLIGHTS

    -   Second quarter 2008 natural gas production of 150 mmcf/d, a 15% year
        over year increase.
    -   Total second quarter production averaged 30,557 boe/d, a 6% year over
        year increase.
    -   Funds flow from operations of $77 million for the quarter ended
        June 30, 2008, a 58% increase over last year.
    -   Second quarter 2008 adjusted net earnings from operations of
        $22 million, a 144% year over year increase.

    FINANCIAL SUMMARY
    -------------------------------------------------------------------------
                             Three Months Ended           Six Months Ended
    ($000s, except                 June 30                     June 30
     per share
     amounts)               2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Gross revenue       $186,797  $126,171    48%  $349,230  $267,048    31%
    Funds flow from
     operations(1)(2)   $ 76,651  $ 48,582    58%  $145,973  $117,365    24%
    Per share
      - basic(1)        $   0.59  $   0.38    55%  $   1.13  $   0.91    24%
      - diluted(1)      $   0.58  $   0.36    61%  $   1.10  $   0.88    25%
    Adjusted net
     earnings from
     operations(1)      $ 22,319  $  9,137   144%  $ 41,336  $ 31,471    31%
    Per share
      - basic(1)        $   0.17  $   0.07   143%  $   0.32  $   0.24    33%
      - diluted(1)      $   0.17  $   0.07   143%  $   0.31  $   0.24    29%
    Net earnings        $ (8,561) $ 45,307  -119%  $ (6,942) $ 59,026  -112%
    Per share
      - basic           $  (0.07) $   0.35  -120%  $  (0.05) $   0.46  -111%
      - diluted         $  (0.07) $   0.34  -121%  $  (0.05) $   0.44  -111%
    Capital
     expenditures       $ 64,138  $ 51,133    25%  $175,665  $112,500    56%
    -------------------------------------------------------------------------
    (1) See advisory statements at the beginning of Management's Discussion
        and Analysis.
    (2) Funds flow from operations was referred to as adjusted cash flow from
        operations in prior filings.


    OPERATING SUMMARY
    -------------------------------------------------------------------------
                             Three Months Ended           Six Months Ended
                                   June 30                     June 30
                            2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Average daily
     production
      Natural gas
       (mmcf/d)              150       130    15%       160       139    15%
      Liquids (bbls/d)     5,643     7,199   -22%     5,326     7,959   -33%
    -------------------------------------------------------------------------
      Total (boe/d)       30,557    28,918     6%    31,916    31,105     3%

    Realized prices
      Natural gas
       ($/mcf)          $   9.42  $   6.92    36%  $   8.39  $   7.09    18%
      Liquids ($/bbl)   $ 110.37  $  60.49    82%  $ 103.13  $  57.74    79%
    -------------------------------------------------------------------------
      Total ($/boe)     $  67.18  $  47.94    40%  $  60.12  $  47.43    27%
    Field netback
     ($/boe)            $  37.60  $  28.55    32%  $  34.97  $  28.22    24%
    -------------------------------------------------------------------------
    

    OPERATIONS REVIEW

    Consistent with the industry in general, our field activities during the
second quarter of 2008 were restricted by spring break-up and extended wet
field conditions that reduced drilling, well completions, and tie-ins. As a
result we drilled a total of 34 wells during the quarter as compared to the 99
wells drilled in Q1 2008. The 34 wells drilled during the quarter included six
horizontal wells: three at Niton, one at Caroline, and two at Hooker.
    With improved field conditions, activity has increased markedly with a
primary focus of applying horizontal wells combined with multi-stage frac
completions to our deeper resource plays. As of August 1, 2008, we have 11
operated and two non-operated drilling rigs working. Two drilling rigs are
drilling horizontal wells at Hooker, and four rigs are operating at Niton,
with three drilling horizontals targeting the Rock Creek and one drilling a
vertical Rock Creek test. At Caroline, we have two drilling rigs operating,
one drilling a Lower Mannville horizontal test and one drilling a vertical
well. In the Plains Belly River play, we have three drilling rigs operating in
southern Alberta and finally at Callum, we have just rig released our first
horizontal well located using 3D seismic and targeting the Thrusted Belly
River. Multi stage fracs are planned for all of the horizontal wells.

    Drilling Summary

    Of the total 133 (106 net) wells drilled during the first half of this
year, 130 wells were classified as development and three as exploratory wells.
The following table summarizes our drilling results in the first half of the
year.

    
    -------------------------------------------------------------------------
    First Half 2008 Drill
     Summary                     Gas     Oil     D&A   Total     Net  Success
    -------------------------------------------------------------------------
    Southern Alberta              80       -       2      82      79      92%
    Central Alberta               38       5       3      46      22      97%
    -------------------------------------------------------------------------

    Standing, cased wells                                  5       5
    -------------------------------------------------------------------------
    Total                        118       5       5     133     106      96%
    -------------------------------------------------------------------------
    

    SOUTHERN ALBERTA: FOOTHILLS

    During the second quarter at our thrusted foothills Belly River gas play
at Callum/Cowley, we spudded our first horizontal well using proprietary 3D
seismic. The well is located at 14-5-7-1W5M, and was successfully completed
using multi stage frac technology. The 14-5 horizontal leg is oriented to
maximize the number of natural fractures encountered across this
over-pressured natural gas play, and is projected to be on-stream during the
third week of August. There are four immediate offset wells located using 3D
seismic that Compton is in the process of licensing.

    DEEP BASIN GAS

    Compton has three Deep Basin natural gas resource plays: the Basal Quartz
sands at Hooker in southern Alberta, the Gething/Rock Creek sands at Niton and
in central Alberta, and the shallow Plains Belly River play in southern
Alberta.

    Southern Alberta: Hooker

    In the second quarter of 2008, the Hooker pool reached a 100 bcf
cumulative production milestone since its discovery by Compton in 1999. During
the quarter, we placed our second horizontal Basal Quartz well on production
at 15-30-16-29W4M, with an initial production rate of 2.2 mmcfe/d, whereas
offsetting vertical wells also on the edge of the play produce, on average, 40
to 100 mcfe/d. The first two horizontal wells successfully targeted the tight
margins on the western edge of the Hooker channel. Compton currently has two
horizontal wells drilling at Hooker. The third horizontal well at
13-34-18-29W4M will target the middle of the channel, with the fourth well at
1-18-17-29W4M continuing to target the tighter formations on the western edge
of the play.
    Hooker is a deep basin channel sand deposit covering over five townships.
Compton is the major landholder and operator in the area, with over 120 net
development sections. Horizontal wells together with multi stage frac
technology increase the probability of accessing reservoir quality rock with
increased gas production rates. Compton is planning to drill up to six
additional Hooker horizontal wells in the second half of 2008.

    Central Alberta: Niton and Caroline

    In the Niton area, Compton controls over 270 gross sections of land in
this Deep Basin multi-zone area, mainly targeting tight Rock Creek and
Ellerslie (Hooker BQ equivalent) sands.
    During the first half of 2008, Compton drilled 10 Rock Creek horizontals
as compared to a total of eight horizontal Rock Creek wells drilled in all of
2007.
    Multiple horizontal locations have been identified on this Rock Creek
trend. Compton currently has three rigs in the area drilling high impact Rock
Creek horizontal wells. We plan to drill eight Rock Creek horizontal wells and
two Ellerslie horizontal wells in the second half of 2008.
    During the second quarter of 2008, we also completed compressor and
pipeline installations at Edson 5-26-53-17W5M on May 30, 2008. The system is
100% Compton owned. The most recent horizontal well at 4-28-52-17W5 tested at
rates of 8.1 mmscf/d on post frac cleanup with the well being tested in line.
    Also at Niton, Compton has earned 11 sections of land on farm-ins.
Compton has drilled three Rock Creek vertical oil wells and three Rock Creek
horizontal gas wells on these lands.
    At Caroline, where we have 100 gross sections of land, we are currently
drilling the area's first horizontal well targeting a sand similar to our
Hooker Basal Quartz pool. With success, a number of follow-ups have been
identified.
    At Gilby, immediately north of Caroline, on a play similar to our Niton
Rock Creek area, we drilled a successful Rock Creek vertical well. We hold
five offset sections to this well and multiple Rock Creek horizontal locations
have been identified as follow-ups to our vertical discovery.

    SHALLOW GAS - Plains Belly River and Edmonton Group

    The Plains Belly River and overlying Edmonton shallow gas zones are
comprised of multiple sands, silts, shales, and coals, with an average of 900
vertical metres being gas charged. Our land covers more than 1,200 sections  
in southern Alberta. We are continuing to focus on downspacing, development
drilling, and recompletions in order to establish a resource manufacturing and
processing model designed to maximize production and capital efficiency.
    In the second quarter of 2008, we drilled 24 Belly River wells. We
currently have three rigs working on our Plains Belly River gas play. The
wells typically take two to three days to drill, and are attractive at current
AECO gas prices. We now have over 500 drilling locations identified and in
various stages of acquisition.
    At Centron, adjacent to the city of Calgary, Compton acquired and
licensed a pipeline system that is currently under construction and will tie
in eight standing gas wells. The standing wells are analogues to the well at
02/06-22-22-28W4M, which had an initial production rate of 740 mcf/d.

    Southern Alberta: Vulcan

    Compton placed on production a horizontal Vulcan Lower Mannville I oil
well in June 2008. The well is currently producing 225 bbls/d. This pool
received Good Production Practice (GPP) on July 19, 2008, which has removed
certain production restrictions. We are currently upgrading our Vulcan
9-29-15-25W4M oil battery to accommodate the increased oil and gas production
volumes. We anticipate these expansion requirements will benefit future water
flood plans for the area. One additional well is planned for the second half
of 2008.

    MANAGEMENT'S DISCUSSION AND ANALYSIS
    -------------------------------------------------------------------------

    ADVISORIES

    Management's Discussion and Analysis ("MD&A") is intended to provide both
an historical and prospective view of our activities. The MD&A was prepared as
at August 8, 2008 and should be read in conjunction with the interim unaudited
consolidated financial statements for the six months ended June 30, 2008 and
the audited consolidated financial statements for the year ended December 31,
2007, available in printed form on request and posted on Compton's website.

    Forward Looking Statements

    Certain information regarding the Company contained herein constitutes
forward-looking information and statements and financial outlooks
(collectively, "forward-looking statements") under the meaning of applicable
securities laws, including Canadian Securities Administrators' National
Instrument 51-102 Continuous Disclosure Obligations and the United States
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include estimates, plans, expectations, opinions, forecasts, projections,
guidance, or other statements that are not statements of fact, including
statements regarding (i) cash flow and capital and operating expenditures,
(ii) exploration, drilling, completion, and production matters, (iii) results
of operations, (iv) financial position, and (v) other risks and uncertainties
described from time to time in the reports and filings made by Compton with
securities regulatory authorities. Although Compton believes that the
assumptions underlying, and expectations reflected in, such forward-looking
statements are reasonable, it can give no assurance that such assumptions and
expectations will prove to have been correct. There are many factors that
could cause forward-looking statements not to be correct, including risks and
uncertainties inherent in the Company's business. These risks include, but are
not limited to: crude oil and natural gas price volatility, exchange rate
fluctuations, availability of services and supplies, operating hazards, access
difficulties and mechanical failures, weather related issues, uncertainties in
the estimates of reserves and in projection of future rates of production and
timing of development expenditures, general economic conditions, and the
actions or inactions of third-party operators, and other risks and
uncertainties described from time to time in the reports and filings made with
securities regulatory authorities by Compton. Statements relating to
"reserves" and "resources" are deemed to be forward-looking statements, as
they involve the implied assessment, based on estimates and assumptions, that
the reserves and resources described exist in the quantities predicted or
estimated, and can be profitably produced in the future.
    The forward-looking statements contained herein are made as of the date
of this MD&A solely for the purpose of generally disclosing Compton's views of
its prospective activities. Compton may, as considered necessary in the
circumstances, update or revise the forward-looking statements, whether as a
result of new information, future events, or otherwise, but Compton does not
undertake to update this information at any particular time, except as
required by law. Compton cautions readers that the forward-looking statements
may not be appropriate for purposes other than their intended purposes and
that undue reliance should not be placed on any forward-looking statement. The
Company's forward-looking statements are expressly qualified in their entirety
by this cautionary statement.

    Non-GAAP Financial Measures

    Included in the MD&A and elsewhere in this report are references to terms
used in the oil and gas industry such as funds flow from operations, cash flow
per share, adjusted net earnings from operations, adjusted EBITDA, and
enterprise value. These terms are not defined by GAAP in Canada and
consequently are referred to as non-GAAP measures. Non-GAAP measures do not
have any standardized meaning and therefore reported amounts may not be
comparable to similarly titled measures reported by other companies.
    Funds flow from operations should not be considered an alternative to, or
more meaningful than, cash provided by operating, investing and financing
activities or net earnings as determined in accordance with Canadian GAAP, as
an indicator of the Company's performance or liquidity. Funds flow from
operations is used by Compton to evaluate operating results and the Company's
ability to generate cash to fund capital expenditures and repay debt.
    Adjusted net earnings from operations represents net earnings excluding
certain items that are largely non-operational in nature and should not be
considered an alternative to, or more meaningful than, net earnings as
determined in accordance with Canadian GAAP. Adjusted net earnings from
operations is used by the Company to facilitate comparability of earnings
between periods.

    Use of BOE Equivalents

    The oil and natural gas industry commonly expresses production volumes
and reserves on a barrel of oil equivalent ("boe") basis whereby natural gas
volumes are converted at the ratio of six thousand cubic feet to one barrel of
oil. The intention is to sum oil and natural gas measurement units into one
basis for improved measurement of results and comparisons with other industry
participants. Compton has used the 6:1 boe measure which is the approximate
energy equivalency of the two commodities at the burner tip. However, boe does
not represent a value equivalency at the plant gate where Compton sells its
production volumes and therefore may be a misleading measure if used in
isolation.

    
    EXECUTIVE SUMMARY

    -   Second quarter 2008 natural gas production of 150 mmcf/d, a 15% year
        over year increase.
    -   Total second quarter production averaged 30,557 boe/d, a 6% year over
        year increase.
    -   Funds flow from operations of $77 million for the quarter ended
        June 30, 2008, a 58% increase over last year.
    -   Second quarter 2008 adjusted net earnings from operations of
        $22 million, a 144% year over year increase.

    RESULTS OF OPERATIONS

    FUNDS FLOW FROM OPERATIONS

    Funds flow from operations is a non-GAAP measure that represents net
earnings adjusted for non-cash items. We consider funds flow from operations
to be a key financial measure as it demonstrates our ability to generate funds
necessary to finance future growth through capital investment. Funds flow from
operations may not be comparable to similar measures presented by other
companies.

    -------------------------------------------------------------------------
                             Three Months Ended           Six Months Ended
    ($000s, except                 June 30                     June 30
     per share
     amounts)               2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Funds flow from
     operations         $ 76,651  $ 48,582    58%  $145,973  $117,365    24%
    Per share
      - basic           $   0.59  $   0.38    55%  $   1.13  $   0.91    24%
      - diluted         $   0.58  $   0.36    61%  $   1.10  $   0.88    25%
    Net earnings        $ (8,561) $ 45,307  -119%  $ (6,942) $ 59,026  -112%
    Per share
      - basic           $  (0.07) $   0.35  -120%  $  (0.05) $   0.46  -111%
      - diluted         $  (0.07) $   0.34  -121%  $  (0.05) $   0.44  -111%
    -------------------------------------------------------------------------

    The following schedule sets out the determination of funds flow from
operations and reconciles funds flow from operations to cash flow from
operating activities:

    -------------------------------------------------------------------------
    Three months ended June 30,                              2008       2007
    -------------------------------------------------------------------------
    Operating activities
    Net earnings                                         $ (8,561)  $ 45,307
      Amortization and other                                  939      1,415
      Depletion and depreciation                           39,541     35,070
      Accretion of asset retirement obligations               825        612
      Unrealized foreign exchange (gain) loss              (4,185)   (40,275)
      Future income taxes                                  (1,564)     2,619
      Unrealized risk management (gain) loss               46,987         87
      Stock-based compensation                              1,878      2,362
      Asset retirement expenditures                          (590)      (516)
      Non-controlling interest                              1,381      1,901
    -------------------------------------------------------------------------
    Funds flow from operations                           $ 76,651   $ 48,582
      Change in non-cash working capital                   (9,934)    (5,908)
    -------------------------------------------------------------------------
    Cash flow from operating activities                  $ 66,717   $ 42,674
    -------------------------------------------------------------------------
    

    NET EARNINGS AND ADJUSTED NET EARNINGS FROM OPERATIONS

    Risk management losses significantly affected net earnings for the second
quarter and for the six months ended June 30, 2008 and largely resulted in the
Company reporting a loss for the quarter and the six month period. During the
six month period we recognized a $60.6 million net risk management loss of
which $60.4 million was recognized in the second quarter. The six month loss
included unrealized losses of $63 million associated with outstanding
commodity hedge contracts. Of the total risk management loss reported for the
six months, $47.8 million was unrealized. Risk management activities are
discussed in greater detail in the Risk Management section of the MD&A and
also in Note 13 to the financial statements.
    Adjusted net earnings from operations is a non-GAAP measure that adjusts
net earnings by non-operating items, net of tax, that we believe reduce the
comparability of our underlying financial performance between periods. The
following reconciliation of adjusted net earnings from operations has been
prepared to provide investors with information that is more comparable between
periods. Adjusted net earnings from operations should not be considered an
alternative or meaningful than net earnings detailed in accordance with GAAP.

    
    Summary of adjusted net earnings from operations(1)
    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
    ($000s, except per share               June 30               June 30
     amounts)                          2008     2007(3)      2008     2007(3)
    -------------------------------------------------------------------------
    Net earnings, as
     reported                      $ (8,561)  $ 45,307   $ (6,942)  $ 59,026
    Non-operational items, after
     tax
      Unrealized foreign exchange
       loss (gain)                   (3,568)   (33,807)    11,701    (38,491)
      Unrealized risk management
       loss (gain)                   33,125         59     33,668     11,819
      Stock-based compensation(2)     1,323      1,603      2,909      3,142
      Effect of statutory tax rate
       changes                            -     (4,025)         -     (4,025)
    -------------------------------------------------------------------------
    Adjusted net earnings from
     operations                    $ 22,319   $  9,137   $ 41,336   $ 31,471
    Per share
      - basic                      $   0.17   $   0.07   $   0.32   $   0.24
      - diluted                    $   0.17   $   0.07   $   0.31   $   0.24
    -------------------------------------------------------------------------
    (1) Adjusted net earnings from operations was referred to as Operating
        Earnings in prior filings.
    (2) Excludes compensation costs related to the Restricted Share Unit
        Plan.
    (3) Prior periods have been revised to conform with current period
        presentation.



    REVENUE

    -------------------------------------------------------------------------
                             Three Months Ended           Six Months Ended
                                   June 30                     June 30
                            2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Average production
      Natural gas
       (mmcf/d)              150       130    15%       160       139    15%
      Liquids (light
       oil & ngls)
       (bbls/d)            5,643     7,199   -22%     5,326     7,959   -33%
    -------------------------------------------------------------------------
      Total (boe/d)       30,557    28,918     6%    31,916    31,105     3%

    Benchmark prices
      AECO ($/GJ)
       Monthly index    $   8.68  $   7.07    23%  $   7.81  $   7.03    11%
        Daily index     $   9.68  $   7.00    38%  $   8.59  $   6.85    25%
      WTI (U.S.$/bbl)   $ 123.98  $  58.16   113%  $ 110.92  $  61.60    80%
      Edmonton Par
       ($/bbl)          $ 126.02  $  67.12    88%  $ 111.74  $  69.51    61%

    Realized prices
      Natural gas
       ($/mcf)          $   9.42  $   6.92    36%  $   8.39  $   7.09    18%
      Liquids ($/bbl)     110.37     60.49    82%    103.13     57.74    79%
    -------------------------------------------------------------------------
      Total ($/boe)     $  67.18  $  47.94    40%  $  60.12  $  47.43    27%

    Revenue ($000s)
      Natural gas       $126,780  $ 82,112    54%  $242,160  $178,191    36%
      Crude oil and
       ngls               60,017    44,059    36%   107,070    88,857    20%
    -------------------------------------------------------------------------
      Total             $186,797  $126,171    48%  $349,230  $267,048    31%
    -------------------------------------------------------------------------
    

    Natural gas production increased 15% during the second quarter and first
half of 2008 as compared to 2007. Year over year liquids production decreased
primarily as a result of the sale of the Company's oil property at Worsley
that closed at the end of the third quarter of 2007. Overall second quarter
production increased by 6% when compared to the second quarter of 2007.
    Second quarter production was impacted by high initial decline rates,
typical of tight gas production, associated with new wells placed on-stream
during the previous two quarters. Additionally, field activities decreased
from the first quarter as a result of spring break-up and extended wet field
conditions that delayed well completions and tie-ins. Finally, second quarter
production realized the full impact of the previously reported high rate gas
zone in a well at Bigoray that watered out during the first quarter. As a
result and similar to prior years, second quarter production decreased 8% from
that of the first quarter of 2008.
    Approximately 9% of Compton's natural gas production is marketed through
aggregator contracts during the quarter, which received a price that was, on
average, $1.25/mcf less than prices received on non-aggregator volumes.

    
    ROYALTIES

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Royalties ($000s)              $ 37,686   $ 23,307   $ 71,173   $ 51,953
    Percentage of revenues             20.2%      18.5%      20.4%      19.5%
    -------------------------------------------------------------------------

    The Alberta royalty structure is based upon commodity prices and well
productivity, with higher prices and well productivity attracting higher
royalty rates. Year over year royalties paid by Compton are slightly higher on
a percentage of revenues basis due to the proportionate increase in natural
gas production which generally attracts a higher royalty rate.

    OPERATING EXPENSES

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Operating expenses ($000s)     $ 28,448   $ 23,472   $ 57,290   $ 49,504
    Operating expenses per boe
     ($/boe)                       $  10.23   $   8.92   $   9.86   $   8.79
    -------------------------------------------------------------------------

    Operating expenses for the second quarter and for the six months ended
June 30, 2008 were higher due to higher costs associated with accelerated
activity throughout the oil and gas industry. Second quarter costs are
relatively consistent with the first quarter of 2008, although 7% higher on a
boe basis due to lower production volumes.

    TRANSPORTATION EXPENSES

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Transportation expenses
     ($000s)                       $  2,573   $  4,252   $  4,827   $  6,734
    Transportation expenses per
     boe ($/boe)                   $   0.93   $   1.62   $   0.83   $   1.20
    -------------------------------------------------------------------------

    Transportation expenses for the three and six months ended June 30, 2008
were significantly lower than for the comparable periods in 2007 due to
reduced trucking charges associated with lower oil production.

    GENERAL AND ADMINISTRATIVE EXPENSES

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
    ($000s, except where noted)        2008       2007       2008       2007
    -------------------------------------------------------------------------
    General and administrative
     expenses                      $ 10,038   $ 11,431   $ 22,092   $ 20,806
    Capitalized general and
     administrative expenses         (2,112)    (1,404)    (4,570)    (3,606)
    Operator recoveries                (610)      (804)    (1,284)    (1,568)
    -------------------------------------------------------------------------
    Total general and
     administrative expenses       $  7,316   $  9,223   $ 16,238   $ 15,632

    General and administrative
     expenses per boe ($/boe)      $   2.63   $   3.50   $   2.80   $   2.78
    -------------------------------------------------------------------------
    

    General and administrative costs for the second quarter of 2008 decreased
$1.9 million from the second quarter of 2007 and $1.6 million from the first
quarter of 2008. With the decision, announced June 11, 2008, to seek a buyer
for all the capital stock of the Company, we have discontinued accruing for
certain year end expenses, including 2008 employee bonuses and also reversed
those provided for in the first quarter. This has more than offset an overall
increase in general and administrative expense resulting from higher personnel
costs, higher rent associated with additional office space and insurance
costs. Our annual employee bonus program is largely offset by an employee
retention program that is accounted for in strategic review expenses.

    
    STRATEGIC REVIEW EXPENSES

    -------------------------------------------------------------------------
                                                    Three Months  Six Months
                                                           Ended       Ended
                                                         June 30     June 30
    -------------------------------------------------------------------------
    Strategic review costs ($000s)                      $  3,666    $  6,234
    Strategic review costs per boe ($/boe)              $   1.32    $   1.07
    -------------------------------------------------------------------------
    

    In the second quarter of 2008, we incurred approximately $3.7 million in
expenses associated with the strategic review process. Compton has estimated
direct costs associated with and resulting from the review process could total
approximately $10.8 million, excluding any fees associated with the sale of
the Company. Strategic review expenses include, among others, consulting and
advisory fees, legal fees, and costs relating to employee retention.

    
    INTEREST AND FINANCE CHARGES

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Interest on bank debt, net     $  5,965   $  6,039   $ 12,423   $ 11,248
    Interest on senior notes          9,041      9,798     18,022     20,243
    -------------------------------------------------------------------------
    Interest charges               $ 15,006   $ 15,837   $ 30,445   $ 31,491
    Finance charges                     590        141      1,002         31
    -------------------------------------------------------------------------
    Total interest and finance
     charges                       $ 15,596   $ 15,978   $ 31,447   $ 31,522

    Total interest and finance
     charges per boe ($/boe)       $   5.61   $   6.07   $   5.41   $   5.60
    -------------------------------------------------------------------------

    Interest costs in the three and six months ended June 30, 2008 were
consistent with comparative periods in 2007. When measured on a $/boe basis,
our interest and finance charges were 8% and 3% lower for the first quarter
and the first half of 2008 respectively due to increased year over year
production.

    WEIGHTED AVERAGE DEBT

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
    ($000s, except where noted)        2008       2007       2008       2007
    -------------------------------------------------------------------------
    Bank Debt                      $447,747   $347,846   $433,159   $335,064
    Effective Interest Rate            5.33%      6.38%      5.68%      6.41%
    Senior unsecured notes
     (US$450,000)                  $443,182   $473,212   $442,035   $492,153
    Effective interest rate            8.16%      8.28%      8.15%      8.23%
    -------------------------------------------------------------------------



    DEPLETION AND DEPRECIATION

    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Depletion and depreciation
     ($000s)                       $ 39,541   $ 35,070   $ 81,348   $ 73,864
    Depletion and depreciation per
     boe ($/boe)                   $  14.22   $  13.33   $  14.00   $  13.12
    -------------------------------------------------------------------------
    

    Strong commodity prices have accelerated capital programs and competition
throughout the oil and gas industry, raising the demand for and costs of goods
and services. This increase in costs is reflected in increased finding,
development, and on-stream costs which in turn have resulted in an increase in
depletion and depreciation rates in the current quarter in comparison to the
prior comparative period.

    INCOME TAXES

    Income taxes are recorded using the liability method of accounting.
Future income taxes are calculated based on the difference between the
accounting and income tax basis of an asset or liability. Note 12 in the
financial statements details the calculation of the provision and the
effective tax rate for the period. The classification of future income taxes
between current and non-current is based upon the classification of the
liabilities and assets to which the future income tax amounts relate. The
classification of a future income tax amount as current does not imply a cash
settlement of the amount within the following twelve month period.

    
    CAPITAL EXPENDITURES

    -------------------------------------------------------------------------
    Six Months Ended June 30
     ($000s)                           2008          %       2007          %
    -------------------------------------------------------------------------
    Land and seismic               $ 12,497          8   $ 20,750         13
    Drilling and completions        103,089         63     88,989         58
    Production facilities and
     equipment                       48,759         29     44,067         29
    -------------------------------------------------------------------------
    Sub-total                      $164,345        100   $153,806        100
    Property acquisitions
     (divestitures) net              11,192               (45,241)
    -------------------------------------------------------------------------
    Sub-total                      $175,537              $108,565
    MPP                                 128                 3,935
    -------------------------------------------------------------------------
    Total capital expenditures     $175,665              $112,500
    -------------------------------------------------------------------------
    

    Capital expenditures, before acquisitions and divestitures for the first
half of 2008 increased $10.5 million as compared to the same time period in
2007 primarily due to an increase of $14.1 million in drilling and completion
expenditures. During the first half of 2008, we drilled 106 net wells, whereas
during the same period in 2007 we drilled 75.5 net wells. Land and seismic
expenditures decreased in real dollars and also as a percentage of
expenditures primarily as a result of reduced seismic programs.

    RISK MANAGEMENT

    Our financial results are impacted by external market risks associated
with fluctuations in commodity prices, interest rates, and the Canadian/US
currency exchange rate. We use various financial instruments for non-trading
purposes to manage and partially mitigate our exposure to these risks.
    Financial instruments used to manage risk are subject to periodic
settlements throughout the term of the instruments. Such settlements may
result in a gain or loss which is recognized as a risk management gain or loss
at the time of settlement. The mark-to-market value of an instrument
outstanding at the end of a reporting period indicates the value of the
instrument based upon market conditions existing as of that date. Any change
in value from that determined at the end of the prior period is recognized as
an unrealized Risk Management gain or loss.
    Risk management gains and losses recognized in the quarter are summarized
in the following table.

    
    Risk Management (Gains) Losses
    -------------------------------------------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30               June 30
    ($000s)                            2008       2007       2008       2007
    -------------------------------------------------------------------------
    Commodity contracts
      Realized                     $  9,704   $ (3,030)  $  9,093   $(11,783)
      Unrealized                     35,908     (3,033)    63,005     13,453
    Foreign currency contracts
      Realized                        3,720      3,072      3,720      3,072
      Unrealized                     11,075      3,120    (15,249)     3,958
    -------------------------------------------------------------------------
    Total risk management          $ 60,407   $    129   $ 60,569   $  8,700
    -------------------------------------------------------------------------

    Realized                       $ 13,424   $     42   $ 12,813   $ (8,711)
    Unrealized                       46,983         87     47,756     17,411
    -------------------------------------------------------------------------
    Total risk management          $ 60,407   $    129   $ 60,569   $  8,700
    -------------------------------------------------------------------------

    Outstanding Commodity Contracts

    The following table outlines commodity hedge contracts which were in place
during the second quarter of 2008 and/or are currently in place.

    -------------------------------------------------------------------------
    Commodity             Term              Amount     Average Price   Index
    -------------------------------------------------------------------------
    Natural gas
      Collars   April 2008 - Oct. 2008 66,667 mcf/d  $7.50 - $ 8.93/mcf AECO
      Fixed     April 2008 - Oct. 2008 19,048 mcf/d          $ 7.86/mcf AECO
      Collars   Nov. 2008 - March 2009 28,571 mcf/d  $8.40 - $10.00/mcf AECO
      Fixed     Nov. 2008 - March 2009  9,524 mcf/d          $ 8.51/mcf AECO

    Crude oil
      Fixed      March 2008 - Dec. 2008  1,000 bbls/d  U.S.$93.00/bbl    WTI
    -------------------------------------------------------------------------

    Outstanding Foreign Exchange Contracts

    On June 30, 2008, the Company had the following foreign exchange contracts
in place:

    -------------------------------------------------------------------------
                                                                       Mark-
                                                                         to-
                                                                      Market
    Contract      Amount     Rate       Amount          Term            gain
                   USD                   CDN                           (loss)
    -------------------------------------------------------------------------
    Currency
    Swap      $450,000,000  96.9750  $436,387,500  Matures on
                                                   December 1, 2010  $21,915
    Currency                                       Equal payments on
    Swap      $ 78,435,000  99.5500  $ 78,082,043  May 30 and Nov. 30
                                                   until 2010          1,753
    Cross
    Currency                     BA
    Interest
     Rate                      plus                Equal payments on
                                                   May 15
    Swap      $ 16,335,000   4.845% $21,002,412    and Nov. 15 until
                                                   2009               (4,471)
    -------------------------------------------------------------------------
    Total unrealized foreign exchange gain                           $19,197
    -------------------------------------------------------------------------

    LIQUIDITY AND CAPITAL RE

SOURCES ------------------------------------------------------------------------- As at As at June 30, Dec. 31, ($000s, except where noted) 2008 2007 ------------------------------------------------------------------------- Senior term notes $458,370 $444,645 Associated unrealized risk management (gain) (21,915) (14,146) ------------------------------------------------------------------------- $436,455 $430,499 Bank debt 470,000 400,000 ------------------------------------------------------------------------- Long term debt $906,455 $830,499 Working capital deficiency (surplus) (3,376) 39,215 ------------------------------------------------------------------------- Total indebtedness $903,079 $869,714 Shareholders' equity $873,293 $869,956 Debt to adjusted EBITDA(1)(2) 3.8x 3.6x Debt to total capitalization(1) 51% 50% Debt to enterprise value(1)(3) 35% 41% ------------------------------------------------------------------------- (1) Excludes risk management items net of related future income taxes. (2) Based on trailing 12 month adjusted EBITDA as presented in Note 5 to the financial statements. (3) Enterprise value is the sum of market capitalization and total indebtedness. Our senior term notes are payable in US dollars and are translated into Canadian dollars at the period end at the then prevailing exchange rate. Any change from the prior period is recognized as an unrealized exchange gain or loss and decreases or increases the carrying value of the notes. At June 30, 2008 the carrying value of the notes increased $13.7 million from December 31, 2007 as a result of the unrealized loss on translation at June 30, 2008. In 2007, we entered into foreign exchange contracts relating to the senior notes that effectively fixes their liability in Canadian dollars through to December 1, 2010. The unrealized mark-to-market gain on these contracts is recognized as a reduction to the notes in determining total debt and capitalization as determined above. Note 5 to the financial statements discusses our capital structure and certain non-GAAP measures utilized in managing our capital structure. We have targeted a total debt to capitalization ratio of between 40% and 50% and a total debt to adjusted EBITDA ratio of between 2.5 to 1 and 3.0 to 1. As at June 30, 2008 our debt to capitalization ratio of 51% and our debt to adjusted EBITDA of 3.8 to 1 exceed our targeted ranges. The proceeds from asset dispositions outlined below will assist us in achieving our stated targets. Subsequent to June 30, 2008, the Company closed the transaction for the sale of certain assets in the Peace River Arch area. Gross proceeds of $38.5 million, before adjustments, were received from the disposition. Additionally, Purchase and Sale Agreements have been executed relating to the sale of assets at Zama, Thornbury, and Cecil. The Company anticipates that these sales will close in August, with expected gross proceeds before adjustments of $179.6 million. Our corporate debt is structured to provide us with financial flexibility and coincide with the nature of our asset base. As of December 31, 2007 the reserve life index of our proved reserves was approximately 12 years. Of our existing debt, 49% consists of long term senior notes that are not due until 2013. This structure provides the ability to draw on our senior secured credit facilities to assist in funding our planned capital programs. The borrowing base on which our syndicated credit facility is based is determined in relation to our year end reserves. The annual review of the facility has recently been completed, giving effect to the asset sales outlined above, resulting in no adjustment to the authorized amount of $500 million of which $470 million was drawn as of June 30, 2008. Proceeds from the asset sales will initially be used to reduce the amount outstanding subsequent to which approximately $230 million will remain available under the facilities. We believe internally generated funds from operations and the proceeds from the asset dispositions will be more than sufficient to fund our planned capital program. OUTLOOK AND GUIDANCE As announced on June 11, 2008, the Company's Board of Directors has determined to seek a buyer for all of the capital stock of the Company. The Company, together with its advisors, Tristone Capital Inc. and UBS Securities Canada Inc., are currently in the process of preparing a Data Room that will be accessible to interested parties in early September. The Company is pursuing an active third quarter drilling program, however in view of the sale process, updated guidance is not being provided. Changes in Internal Control over Financial Reporting There were no changes during the quarter ended June 30, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. QUARTERLY INFORMATION The following table sets forth certain quarterly financial information of the Company for the eight most recent quarters. ------------------------------------------------------------------------- 2008 2007 Q2 Q1 Q4 Q3 Q2 Q1 ------------------------------------------------------------------------- Total revenue (millions) $ 187 $ 162 $ 126 $ 108 $ 126 $ 141 Funds flow from operations (millions) $ 77 $ 69 $ 46 $ 33 $ 49 $ 69 Per share - basic $ 0.59 $ 0.54 $ 0.35 $ 0.26 $ 0.38 $ 0.53 - diluted $ 0.58 $ 0.52 $ 0.35 $ 0.25 $ 0.36 $ 0.52 Net earnings (millions) $ (9) $ 2 $ 50 $ 20 $ 45 $ 14 Per share - basic $ (0.07) $ 0.01 $ 0.39 $ 0.15 $ 0.35 $ 0.11 - diluted $ (0.07) $ 0.01 $ 0.38 $ 0.15 $ 0.34 $ 0.10 Adjusted net earnings from operations (millions)(1) $ 26 $ 19 $ 8 $ (1) $ 9 $ 22 Production Natural gas (mmcf/d) 150 170 167 135 130 148 Liquids (bbls/d) 5,643 5,009 4,818 7,954 7,199 8,729 ------------------------------------------------------------------------- Total (boe/d) 30,557 33,274 32,646 30,440 28,918 33,316 Average price Natural gas (mmcf/d) $ 9.42 $ 7.48 $ 6.00 $ 5.23 $ 6.92 $ 7.24 Liquids (bbls/d) 110.37 94.97 77.60 61.91 60.49 54.20 ------------------------------------------------------------------------- Total ($/boe) $ 67.18 $ 53.64 $ 41.94 $ 38.56 $ 47.94 $ 46.98 ------------------------------------------------------------------------- --------------------------------- 2006 Q4 Q3 --------------------------------- Total revenue (millions) $ 130 $ 127 Funds flow from operations (millions) $ 55 $ 60 Per share - basic $ 0.43 $ 0.47 - diluted $ 0.42 $ 0.45 Net earnings (millions) $ (10) $ 31 Per share - basic $ (0.08) $ 0.24 - diluted $ (0.08) $ 0.23 Adjusted net earnings from operations (millions)(1) $ 19 $ 14 Production Natural gas (mmcf/d) 148 142 Liquids (bbls/d) 8,600 9,249 --------------------------------- Total (boe/d) 33,245 32,843 Average price Natural gas (mmcf/d) $ 6.48 $ 5.38 Liquids (bbls/d) 48.44 57.53 --------------------------------- Total ($/boe) $ 42.60 $ 42.03 --------------------------------- (1) Prior periods have been revised to conform with current period presentation. Compton Petroleum Corporation is a Calgary-based public company actively engaged in the exploration, development, and production of natural gas, natural gas liquids, and crude oil in the Western Canada Sedimentary Basin. Compton's shares are listed on the Toronto Stock Exchange under the symbol CMT and on the New York Stock Exchange under the symbol CMZ. Compton Petroleum Corporation Consolidated Financial Statements June 30, 2008 (Unaudited) ------------------------------------------------------------------------- Compton Petroleum Corporation Consolidated Balance Sheets (thousands of dollars) ------------------------------------------------------------------------- June 30, December 31, 2008 2007 ------------ ------------ (unaudited) Assets Current Cash $ 13,160 $ 8,665 Accounts receivable 103,027 83,144 Risk management gain (Note 13b) 531 1,835 Other current assets 24,415 19,772 Future income taxes 19,186 2,606 ------------ ------------ 160,319 116,022 Property and equipment 2,211,508 2,116,834 Goodwill 9,933 9,933 Other assets 325 291 Risk management gain (Note 13b) 23,137 14,320 ------------ ------------ $2,405,222 $2,257,400 ------------ ------------ ------------ ------------ Liabilities Current Accounts payable $ 137,226 $ 150,796 Risk management loss (Note 13b) 65,686 8,832 Future income taxes 154 542 ------------ ------------ 203,066 160,170 Long term debt (Note 3) 916,951 832,188 Asset retirement obligations (Note 7) 38,692 36,696 Risk management loss (Note 13b) - 1,585 Future income taxes 311,202 293,494 Non-controlling interest (Note 8) 62,018 63,311 ------------ ------------ 1,531,929 1,387,444 ------------ ------------ Shareholders' equity Capital stock (Note 4) 245,577 235,871 Contributed surplus (Note 9a) 25,499 24,233 Retained earnings 602,217 609,852 ------------ ------------ 873,293 869,956 ------------ ------------ $2,405,222 $2,257,400 ------------ ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. ------------------------------------------------------------------------- Compton Petroleum Corporation Consolidated Statements of Earnings and Other Comprehensive Income (unaudited) (thousands of dollars, except per share amounts) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Revenue Oil and natural gas revenues $ 186,797 $ 126,171 $ 349,230 $ 267,048 Royalties (37,686) (23,307) (71,173) (51,953) ------------ ------------ ------------ ------------ 149,111 102,864 278,057 215,095 ------------ ------------ ------------ ------------ Expenses Operating 28,448 23,472 57,290 49,504 Transportation 2,573 4,252 4,827 6,734 General and administrative 7,316 9,223 16,238 15,632 Stock-based compensation 3,620 3,982 6,616 7,248 Strategic review (Note 16) 3,666 - 6,234 - Interest and finance charges (Note 10) 15,596 15,978 31,447 31,522 Foreign exchange (gain) loss (Note 14) (4,147) (39,691) 13,759 (45,213) Risk management (gain) loss (Note 13c) 60,407 129 60,569 8,700 Depletion and depreciation 39,541 35,070 81,348 73,864 Accretion of asset retirement obligations 825 612 1,637 1,263 ------------ ------------ ------------ ------------ 157,845 53,027 279,965 149,254 ------------ ------------ ------------ ------------ Earnings (loss) before taxes and non-controlling interest (8,734) 49,837 (1,908) 65,841 ------------ ------------ ------------ ------------ Income taxes (Note 12) Current 10 10 18 (3) Future (1,564) 2,619 1,722 3,229 ------------ ------------ ------------ ------------ (1,554) 2,629 1,740 3,226 ------------ ------------ ------------ ------------ Earnings (loss) before non-controlling interest (7,180) 47,208 (3,648) 62,615 Non-controlling interest 1,381 1,901 3,294 3,589 ------------ ------------ ------------ ------------ Net earnings (loss) (8,561) 45,307 (6,942) 59,026 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Other comprehensive income - - - - ------------ ------------ ------------ ------------ Comprehensive income (loss) $ (8,561) $ 45,307 $ (6,942) $ 59,026 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net earnings (loss) per share (Note 11) Basic $ (0.07) $ 0.35 $ (0.05) $ 0.46 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Diluted $ (0.07) $ 0.34 $ (0.05) $ 0.44 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------------------------------------------------------------------- Compton Petroleum Corporation Consolidated Statements of Retained Earnings (unaudited) (thousands of dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Retained earnings, beginning of period $ 610,874 $ 496,770 $ 609,852 $ 483,838 Net earnings (loss) (8,561) 45,307 (6,942) 59,026 Premium on redemption of shares (Note 4) (96) (995) (693) (1,782) ------------ ------------ ------------ ------------ Retained earnings, end of period $ 602,217 $ 541,082 $ 602,217 $ 541,082 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. ------------------------------------------------------------------------- Compton Petroleum Corporation Consolidated Statements of Cash Flow (unaudited) (thousands of dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Operating activities Net earnings (loss) $ (8,561) $ 45,307 $ (6,942) $ 59,026 Amortization and other 939 1,415 837 1,926 Depletion and depreciation 39,541 35,070 81,348 73,864 Accretion of asset retirement obligations 825 612 1,637 1,263 Unrealized foreign exchange (gain) loss (4,185) (40,275) 13,725 (45,855) Future income taxes (1,564) 2,619 1,722 3,229 Unrealized risk management (gain) loss 46,987 87 47,756 17,411 Stock-based compensation 1,878 2,362 4,126 4,629 Asset retirement expenditures (590) (516) (1,530) (1,717) Non-controlling interest 1,381 1,901 3,294 3,589 ------------ ------------ ------------ ------------ 76,651 48,582 145,973 117,365 Change in non-cash working capital (9,934) (5,908) (9,608) (1,655) ------------ ------------ ------------ ------------ 66,717 42,674 136,365 115,710 ------------ ------------ ------------ ------------ Financing activities Issuance of bank debt 34,933 55,615 70,171 40,615 Proceeds from share issuances (net) 5,071 725 6,989 2,602 Distributions to limited partner (2,294) (2,293) (4,586) (4,586) Redemption of common shares (113) (1,173) (837) (2,119) ------------ ------------ ------------ ------------ 37,597 52,874 71,737 36,512 ------------ ------------ ------------ ------------ Investing activities Property and equipment additions (62,875) (50,597) (163,925) (156,025) Property acquisitions (675) (592) (11,673) (592) Property dispositions - 572 480 45,833 Change in non-cash working capital (44,218) (41,626) (28,489) (39,035) ------------ ------------ ------------ ------------ (107,768) (92,243) (203,607) (149,819) ------------ ------------ ------------ ------------ Change in cash (3,454) 3,305 4,495 2,403 Cash, beginning of period 16,614 10,974 8,665 11,876 ------------ ------------ ------------ ------------ Cash, end of period $ 13,160 $ 14,279 $ 13,160 $ 14,279 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. ------------------------------------------------------------------------- Compton Petroleum Corporation Notes to the Consolidated Financial Statements (unaudited) (Tabular amounts in thousands of dollars, unless otherwise stated) June 30, 2008 ------------------------------------------------------------------------- 1. Basis of presentation Compton Petroleum Corporation (the "Company" or "Compton") explores for and produces petroleum and natural gas reserves in the Western Canadian Sedimentary Basin. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The consolidated financial statements also include the accounts of Mazeppa Processing Partnership (the "Partnership" or "MPP") in accordance with Accounting Guideline 15 ("AcG-15"), Consolidation of Variable Interest Entities, as outlined in Note 8. These consolidated interim financial statements have been prepared by Management in accordance with accounting principles generally accepted in Canada. Certain information and disclosure normally required to be included in notes to annual consolidated financial statements have been condensed or omitted. The consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company's annual report for the year ended December 31, 2007. The consolidated interim financial statements have been prepared following the same accounting policies and methods of computation as the audited consolidated financial statements for the year ended December 31, 2007 except as disclosed in Note 2 below. All amounts are presented in Canadian dollars unless otherwise stated. 2. Changes in accounting policies and procedures On January 1, 2008, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3031, "Inventories", Handbook Section 1400, "General Standards of Financial Statement Presentation", Handbook Section 3862, "Financial Instruments - Disclosures", Handbook Section 3863, "Financial Instruments - Presentation", and Handbook Section 1535, "Capital Disclosures". The adoption of these standards has had no significant impact on the Company's consolidated financial statements. The effects of the implementation of the new standards are discussed below. a) Inventories The new standard replaces the previous standard and requires the consistent grouping of like assets and the application of the first- in-first-out or weighted average cost formula methodology. Spare parts inventory are tangible assets with a useful life that extends beyond one year and are held for re-deployment rather than re-sale. As such, they have been included in property and equipment and are depreciated on a per unit of production basis. b) General standards of financial statement presentation The new standard requires assessing an entity's ability to continue as a going concern and disclosing such if any uncertainty exists. c) Financial instruments disclosure and presentation The new standards require increased disclosure of financial instruments with particular emphasis on the risks associated with recognized and unrecognized financial instruments and how those risks are managed by the Company as disclosed in Note 13. d) Capital disclosures The new standard requires disclosure about the Company's objectives, policies and process for managing its capital structure as disclosed in Note 5. 3. Long term debt June 30, December 31, 2008 2007 ------------ ------------ Syndicated bank debt Prime rate $ 70,000 $ 50,000 Bankers' acceptance 400,000 350,000 Discount to maturity (1,403) (1,574) ------------ ------------ 468,597 398,426 ------------ ------------ Senior term notes US $450 million senior term notes 458,370 444,645 Unamortized transaction costs (10,016) (10,883) ------------ ------------ 448,354 433,762 ------------ ------------ Total long term debt $ 916,951 $ 832,188 ------------ ------------ ------------ ------------ As at June 30, 2008, the Company had arranged authorized senior credit facilities with a syndicate of banks in the amount of $500 million. Subsequent to June 30, 2008, the banking syndicates annual review of the Company's credit facilities was completed and renewed under the same terms and conditions. Certain syndicate members representing $90 million of the facility, have elected not to extend their participation beyond the term date of the renewed facility, July 2, 2009. 4. Capital stock Issued and outstanding June 30, 2008 December 31, 2007 ------------------------- ------------------------- Number Number of shares Amount of shares Amount ------------ ------------ ------------ ------------ (000s) (000s) Common shares outstanding, beginning of period 129,098 $ 235,871 128,503 $ 231,992 Shares issued for services 50 490 - - Shares issued under stock option plan 1,125 9,360 993 4,603 Shares repurchased (78) (144) (398) (724) ------------ ------------ ------------ ------------ Common shares outstanding, end of period 130,195 $ 245,577 129,098 $ 235,871 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ The Company maintains a normal course issuer bid program on an annual basis. Under the current program, the Company may purchase for cancellation up to 6,000,000 of its common shares, representing approximately 5.0% of the issued and outstanding common shares at the time the bid received regulatory approval. During the six months ended June 30, 2008 the Company purchased for cancellation 78,300 common shares at an average price of $10.69 per share (December 31, 2007 - 398,300 shares at an average price of $9.98 per share) pursuant to the normal course issuer bid. The excess of the purchase price over book value has been charged to retained earnings. 5. Capital structure The Company's capital structure is comprised of shareholders equity plus long-term debt. The Company's objectives when managing its capital structure are to: a) ensure the Company can meet its financial obligations, b) retain an appropriate level of leverage relative to the risk of Compton's underlying assets, and c) finance internally generated growth and potential acquisitions. Compton manages its capital structure based on changes in economic conditions and the Company's planned capital requirements. Compton has the ability to adjust its capital structure by making modifications to its capital expenditure program, divesting of assets and by issuing new debt or equity. The Company monitors its capital structure and financing requirements using non-GAAP measures consisting of total net debt to capitalization and total net debt to adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("adjusted EBITDA"). Compton targets a total net debt to capitalization ratio of between 40% and 50% calculated as follows: As at period ended June 30, December 31, 2008 2007 ------------ ------------ Senior term notes $ 458,370 $ 444,645 Associated unrealized risk management (gain) (21,915) (14,146) ------------ ------------ 436,455 430,499 Bank debt 470,000 400,000 ------------ ------------ Long-term debt 906,455 830,499 Working capital (surplus) deficiency(*) (3,376) 39,215 ------------ ------------ Total net debt 903,079 869,714 Total shareholder's equity 873,293 869,956 ------------ ------------ Total capitalization $1,776,372 $1,739,670 ------------ ------------ ------------ ------------ Total net debt to capitalization ratio 51% 50% ------------ ------------ ------------ ------------ (*) excludes risk management items, net of related future income taxes Compton's senior term notes, denominated in US dollars, are translated into Canadian dollars at period end at the then prevailing exchange rate. Any change from the prior period is recognized as an unrealized foreign exchange gain or loss and decreases or increases the carrying value of the notes. At June 30, 2008 the carrying value increased by $13.7 million from December 31, 2007 as a result of the unrealized loss on translation. In 2007, the Company entered into foreign exchange contracts relating to the senior notes that effectively fixes their liability in Canadian dollars through to December 1, 2010. The unrealized risk management gain on these contracts is recognized as a reduction to the notes in determining total net debt and capitalization as calculated above. The Company's total net debt to capitalization increased to 51% at June 30, 2008 from 50% at December 31, 2007 as a result of increased borrowings relating to first half activities. Compton targets a total net debt to adjusted EBITDA of 2.5 to 3.0 times. At June 30, 2008 total net debt to adjusted EBITDA was 3.8x (December 31, 2007 - 3.6x) calculated on a trailing 12 month basis as follows: As at period ended June 30, December 31, 2008 2007 ------------ ------------ Total net debt $ 903,079 $ 869,714 ------------ ------------ ------------ ------------ 12 months ended June 30, December 31, 2008 2007 ------------ ------------ Net earnings $ 63,298 $ 129,267 Add (deduct) Interest and finance charges 63,418 63,493 Income taxes (27,921) (26,435) Depletion, depreciation and amortization 158,895 151,411 Accretion of asset retirement obligations 3,092 2,718 Foreign exchange (gain) loss (19,745) (78,717) ------------ ------------ Adjusted EBITDA $ 241,037 $ 241,737 ------------ ------------ ------------ ------------ Net debt to adjusted EBITDA 3.8x 3.6x ------------ ------------ ------------ ------------ The Company is in the process of divesting of certain non-core assets. Proceeds from these divestments are expected to be such that, subsequent to closing, the Company will be within the range of its stated capital structure targets. The timing of these divestitures is discussed in Note 17 to these consolidated financial statements. Compton is subject to certain financial covenants relating to its credit facility and senior notes and at June 30, 2008 is in compliance with all such financial covenants. 6. Business combination On December 21, 2007 the Company acquired all of the issued and outstanding shares of WIN Energy Corporation. The transaction was accounted for using the purchase method and during the period ended March 31, 2008 the purchase price allocation was finalized. The result was a decrease to petroleum and natural gas properties of $1.0 million and an increase to the future income tax asset of $1.0 million over that reported at December 31, 2007. 7. Asset retirement obligations The following table presents a reconciliation of the beginning and ending aggregate carrying amount of the obligations associated with the retirement of oil and gas assets: June 30, December 31, 2008 2007 ------------ ------------ Asset retirement obligations, beginning of period $ 36,696 $ 29,791 Liabilities incurred 2,268 8,719 Liabilities settled and disposed (210) (4,532) Accretion expense 1,637 2,718 Revision of estimate (1,699) - ------------ ------------ Asset retirement obligations, end of period $ 38,692 $ 36,696 ------------ ------------ ------------ ------------ 8. Non-controlling interest Pursuant to AcG-15, these consolidated financial statements include the assets, liabilities and operations of Mazeppa Processing Partnership (MPP). Equity in MPP, attributable to its partners, is recorded on consolidation as a non-controlling interest and is comprised of the following: June 30, December 31, 2008 2007 ------------ ------------ Non-controlling interest, beginning of period $ 63,311 $ 66,350 Earnings attributable to non-controlling interest 3,294 6,132 Distributions to limited partner (4,587) (9,171) ------------ ------------ Non-controlling interest, end of period $ 62,018 $ 63,311 ------------ ------------ ------------ ------------ MPP has guaranteed payment of certain obligations of its limited partner under a credit agreement between the limited partner and a syndicate of lenders. The maximum liability pursuant to the guarantee at June 30, 2008 is $7.6 million. The Company has determined that its exposure to loss under these arrangements is minimal, if any. 9. Stock-based compensation plans a) Stock option plan The following tables summarize the information relating to stock options: June 30, 2008 December 31, 2007 ------------------------- ------------------------- Weighted Weighted average average Stock exercise Stock exercise options price options price ------------ ------------ ------------ ------------ (000s) (000s) Outstanding, beginning of period 12,084 $ 8.49 11,611 $ 7.79 Granted 501 $ 9.75 2,074 $ 11.02 Exercised (1,125) $ 5.78 (993) $ 3.47 Forfeited (257) $ 12.70 (608) $ 11.97 ------------ ------------ ------------ ------------ Outstanding, end of period 11,203 $ 8.72 12,084 $ 8.49 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Exercisable, end of period 7,507 $ 7.27 7,240 $ 6.20 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ The range of exercise prices of stock options outstanding and exercisable at June 30, 2008 was as follows: Outstanding options Exercisable options ----------------------------------- ----------------------- Weighted average remaining Weighted Weighted Range of Number of contractual average Number of average exercise options life exercise options exercise prices outstanding (years) price outstanding price ------------- ----------- ----------- ----------- ----------- ----------- (000s) (000s) $1.45 - $3.99 2,448 2.0 $2.66 2,448 $2.66 $4.00 - $6.99 1,247 3.2 $4.44 1,247 $4.44 $7.00 - $9.99 1,792 2.3 $8.13 1,049 $7.62 $10.00 - $11.99 2,748 3.0 $11.20 1,107 $11.10 $12.00 - $13.99 1,619 2.2 $12.63 966 $12.56 $14.00 - $18.39 1,349 2.6 $14.69 690 $14.69 ----------- ----------- ----------- ----------- ----------- 11,203 2.6 $8.72 7,507 $7.27 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows: Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Weighted average fair value of options granted $4.56 $5.24 $3.95 $4.38 Risk-free interest rate 3.1% 4.3% 3.4% 4.0% Expected life (years) 5.0 5.0 5.0 5.0 Expected volatility 38.5% 38.6% 38.4% 39.2% The following table presents the reconciliation of contributed surplus with respect to stock-based compensation: June 30, December 31, 2008 2007 ------------ ------------ Contributed surplus, beginning of period $ 24,233 $ 16,974 Stock-based compensation expense 4,126 8,416 Stock options exercised (2,860) (1,157) ------------ ------------ Contributed surplus, end of period $ 25,499 $ 24,233 ------------ ------------ ------------ ------------ b) Restricted share unit plan On March 1, 2008, the Company implemented a Restricted Share Unit Plan ("RSU" or "the plan") for employees, officers and directors. The purpose of the Plan is to attract and retain personnel necessary to the successful operation of the Company and promote greater alignment of their interests to that of Compton's shareholders. Under the Plan and at the direction of the Board of Directors, RSUs may be granted to persons eligible under the Plan. Generally RSUs so granted vest over three years commencing with the first anniversary date of grant and entitle the holder to receive a cash payment equal to the fair market value of one common share of Compton per vested RSU. On March 10, 2008, 899,400 RSUs were granted under the Plan. In accordance with CICA Handbook section 3870 the Company recognizes, as compensation costs, the change in the intrinsic value of the RSUs over the vesting period. During the six months ending June 30, 2008 the Company recognized, within stock-based compensation, $2.5 million (March 31, 2008 - $0.8 million) of compensation costs related to outstanding RSUs. The corresponding liability is included in accounts payable as at June 30, 2008. All outstanding RSUs expire in 2011. c) Share appreciation rights plan CICA Handbook section 3870 requires recognition of compensation costs with respect to changes in the intrinsic value for the variable component of fixed share appreciation rights ("SARs"). During the periods ended June 30, 2008 and 2007, there were no significant compensation costs related to the outstanding variable component of these SARs. The liability related to the variable component of these SARs amounts to $1.0 million, which is included in accounts payable as at June 30, 2008 (December 31, 2007 - $1.0 million). All outstanding SARs having a variable component expire at various times through 2011. 10. Interest and finance charges Amounts charged to interest expense during the period were: Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Interest on bank debt, net $ 5,965 $ 6,039 $ 12,423 $ 11,248 Interest on senior term notes 9,041 9,798 18,022 20,243 Other finance charges 590 141 1,002 31 ------------ ------------ ------------ ------------ $ 15,596 $ 15,978 $ 31,447 $ 31,522 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Other finance charges include lease financing, bank service charges and fees as well as other miscellaneous interest revenue and expense. 11. Per share amounts The following table summarizes the common shares used in calculating net earnings per common share: Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ (000s) (000s) (000s) (000s) Weighted average common shares outstanding - basic 129,804 129,149 129,493 128,861 Effect of stock options 1,820 4,003 3,499 4,015 ------------ ------------ ------------ ------------ Weighted average common shares outstanding - diluted 131,624 133,152 132,992 132,876 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 12. Income taxes The following table reconciles income taxes calculated at the Canadian statutory rates with actual income taxes: Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Earnings before taxes and non-controlling interest $ (8,734) $ 49,837 $ (1,908) $ 65,841 ------------ ------------ ------------ ------------ Canadian statutory rates 29.5% 32.1% 29.5% 32.1% Expected income taxes $ (2,577) $ 15,998 $ (563) $ 21,135 Effect on taxes resulting from: Non-deductible stock-based compensation 554 759 1,218 1,487 Effect of tax rate changes and temporary differences recorded at future rates 2,353 (5,798) 741 (10,199) Non-taxable capital (gains) losses (1,756) (6,424) 630 (7,320) Other (128) (1,906) (286) (1,877) ------------ ------------ ------------ ------------ Provision for income taxes $ (1,554) $ 2,629 $ 1,740 $ 3,226 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Current $ 10 $ 10 $ 18 $ (3) Future (1,564) 2,619 1,722 3,229 ------------ ------------ ------------ ------------ $ (1,554) $ 2,629 $ 1,740 $ 3,226 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Effective tax rate 17.8% 5.3% (91.2%) 4.9% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 13. Financial instruments and risk management At June 30, 2008, the Company's financial assets and liabilities consist of cash, accounts receivable, other current assets, accounts payable, bank debt, senior term notes and risk management assets and liabilities relating to the use of derivative financial instruments. The following summarizes a) fair values of financial assets and liabilities, b) risk management assets and liabilities, c) risk management gains and losses and d) risks associated with financial assets and liabilities. a) Fair value of financial assets and liabilities The fair value of financial assets and liabilities were as follows: June 30, 2008 December 31, 2007 ------------------------- ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------ ------------ ------------ ------------ Financial assets Held-for-trading Cash $ 13,160 $ 13,160 $ 8,665 $ 8,665 Other current assets 24,415 24,415 19,772 19,772 Risk management assets(*) 23,668 23,668 16,155 16,155 Loans and receivables Accounts receivable 103,027 103,027 83,144 83,144 Financial liabilities Held-for-trading Risk management liabilities(*) $ 65,686 $ 65,686 $ 10,417 $ 10,417 Other financial liabilities Accounts payable 137,226 137,226 150,796 150,796 Bank debt 468,597 468,597 398,426 398,426 Senior term notes 448,354 448,057 433,762 415,743 (*) Includes current and non-current The carrying value of cash, accounts receivable, other current assets, accounts payable, and bank debt approximate fair value due to the short term nature of these instruments and variable rates of interest. The senior term notes trade in the US and the estimated fair value was determined using quoted market prices. Risk management assets and liabilities are recorded at their estimated fair value based on the mark to market method of accounting, using quoted market prices, third-party indications and forecasts. b) Risk management assets and liabilities i) Net risk management positions Risk management assets and liabilities relate to unrealized gains and losses associated with commodity price risk management and foreign currency risk management and are classified on the balance sheet as follows: Total Total Commodity Foreign June 30, December 31, Contracts Currency 2008 2007 ------------ ------------ ------------ ------------ Unrealized gain Current asset $ - $ 531 $ 531 $ 1,835 Non-current asset - 23,137 23,137 14,320 Unrealized loss Current liability (61,215) (4,471) (65,686) (8,832) Non-current liability - - - (1,585) ------------ ------------ ------------ ------------ Total unrealized gain (loss) $ (61,215) $ 19,197 $ (42,018) $ 5,738 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ii) Net fair value of commodity positions On June 30, 2008, the Company had the following commodity contracts in place: Daily Notional Average Mark-to- Commodity Term Volume Price Market ---------------- ----------- ------------ ------------------ ------------ gain (loss) Natural Gas Summer collar Apr./08 - Oct./08 66,667 mcf $7.50 - $8.93/mcf $ (24,097) Summer fixed Apr./08 - Oct./08 19,048 mcf $7.86/mcf (9,296) Winter collar Nov./08 - Mar./09 28,571 mcf $8.40 - $10.00/mcf (13,211) Winter fixed Nov./08 - Mar./09 9,524 mcf $8.51/mcf (6,164) Oil fixed price Mar./08 - Dec./08 1,000 bbl US $93.00/bbl (8,909) Electricity Jan./07 - Dec./08 2.5 MW $55.00/MWh 462 ------------ Total unrealized commodity loss $ (61,215) ------------ ------------ iii) Net fair value of foreign currency positions On June 30, 2008, the Company had the following foreign exchange contracts in place: Mark- Contract Amount Rate Amount Term to- USD CDN Market ------------------------------------------------------------------------- gain (loss) Currency Swap $450,000,000 96.9750 $436,387,500 Matures on December 1, 2010 $ 21,915 Currency Swap $ 78,435,000 99.5500 $ 78,082,043 Equal payments on May 30 and Nov. 30 until 2010 1,753 Cross Currency Interest Rate Swap $ 16,335,000 BA plus $ 21,002,412 Equal payments on 4.845% May 15 and Nov. 15 until 2009 (4,471) --------- Total unrealized foreign exchange gain $ 19,197 --------- --------- c) Risk management gains and losses Risk management gains and losses recognized in the consolidated statements of earnings and other comprehensive income during the periods relating to commodity prices and foreign currency transactions are summarized below: Six months ended Commodity Foreign 2008 2007 June 30, 2008 Contracts Currency Total Total ----------------- --------- --------- --------- --------- Unrealized change in fair value $ 63,005 $(15,249) $ 47,756 $ 17,411 Realized cash settlements 9,093 3,720 12,813 (8,711) --------- --------- --------- --------- Total (gain) loss $ 72,098 $(11,529) $ 60,569 $ 8,700 --------- --------- --------- --------- --------- --------- --------- --------- Three months ended Commodity Foreign 2008 2007 June 30, 2008 Contracts Currency Total Total ----------------- --------- --------- --------- --------- Unrealized change in fair value $ 35,908 $ 11,075 $ 46,983 $ 87 Realized cash settlements 9,704 3,720 13,424 42 --------- --------- --------- --------- Total (gain) loss $ 45,612 $ 14,795 $ 60,407 $ 129 --------- --------- --------- --------- --------- --------- --------- --------- The gains and losses realized during the year on the electricity contract are included in operating expenses. d) Risk associated with financial assets and liabilities The Company is exposed to financial risks arising from its financial assets and liabilities which fluctuate in value due to movements in market prices and is comprised of the following: i) Market risk Market risk is the risk that the fair value or future cash flows from financial assets or liabilities will fluctuate due to movements in market prices and is comprised of the following: - Commodity price risk The Company is exposed to commodity price movements as part of its normal oil and gas operations. Under guidelines established and approved by the Board of Directors, Compton enters into economic hedge transactions relating to crude oil and natural gas prices to mitigate volatility in commodity prices and the resulting impact on cash flow. The contracts entered into are forward transactions providing the Company with a range of prices on the commodities sold. Prices are marked to industry benchmarks specifically to AECO monthly prices for gas contracts, WTI NYMEX prices for oil contracts and power pool spot prices for electricity contracts. Prices are valued in Canadian dollars unless otherwise disclosed. The Company does not use derivative contracts for speculative purposes. At June 30, 2008, with respect to commodity contracts in place on that date, an increase of $0.25/mcf in the price of natural gas, holding all other variables constant, would have reduced the fair value of the derivative financial instrument and negatively impacted before tax earnings by approximately $4.3 million. A similar decline in commodity prices would have had the opposite impact. - Foreign exchange rate risk Compton is exposed to fluctuations in the exchange rate between the Canadian dollar and the US dollar. Crude oil and to a certain extent natural gas prices are based upon reference prices denominated in US dollars, while the majority of the Company's expenses are denominated in Canadian dollars. To mitigate the exposure to the fluctuating Canada/US exchange rate the Company maintains a mix of US and Canadian dollar denominated debt. In addition Compton enters into agreements to fix the exchange rate of Canadian dollars to US dollars in order to manage the risk. With Board of Director approval, during 2007, the Company entered into a series of foreign exchange contracts relating to the US$450 million senior notes due December 1, 2013, effectively fixing the liability in Canadian dollars through to December 1, 2010, being the second call date of the senior notes. Additionally, the Company entered into a series of foreign exchange contracts relating to the semi-annual interest settlement obligations until November 30, 2010. At June 30, 2008, a $0.01 increase in the value of the Canadian dollar, when measured against the US dollar, would have reduced the fair value of the foreign exchange contracts and negatively impacted before tax earnings by approximately $4.8 million. A similar decrease of $0.01 would have had the opposite impact. - Interest rate risk The Company is exposed to interest rate risk principally associated with borrowings. Floating rates, associated with bank debt, expose the Company to short-term movements in interest rates. Fixed rates, associated with the senior term notes, introduce risk at the time of maturity if replacement bonds are issued. The Company partially mitigates its exposure to interest rate changes by maintaining a mix of both fixed and floating rate debt. Entering into interest rate swap transactions, when deemed appropriate, is another means of managing the fixed/floating rate debt portfolio mix. At June 30, 2008, a 100 basis point increase in floating interest rates, would negatively impact the cross currency interest rate swap before tax earnings by approximately 2.5 million. A similar decrease in floating rates would have the opposite impact. ii) Credit risk The Company is exposed to credit risk, which is the risk that a counterparty will fail to perform an obligation or settle a liability, resulting in a financial loss to the Company. A significant portion of Compton's accounts receivable and other current asset balances are with entities in the oil and gas industry and subject to normal industry credit risks. The allowance for doubtful accounts is less than 1% of total balances and relates to receivables acquired through corporate acquisitions and disputes with partners. Substantially all of the receivable balances at June 30, 2008 were current. In the money derivative financial instrument contracts are with investment grade Canadian and US financial institutions that are also members of the Company's banking syndicate. At June 30, 2008, Compton had two financial institutions whose net settlement position individually accounted for more than 10% of the fair value of the outstanding in-the-money net financial instrument contracts. The Company regularly assesses the financial strength of its marketing customers and limits the total exposure to individual counterparties based on management determined criteria. As well, a number of contracts contain provisions that allow Compton to demand the posting of collateral in the event of a downgrade to a non- investment grade credit rating. The maximum credit risk exposure associated with the Company's financial assets is the carrying amount. iii) Liquidity risk Compton is exposed to liquidity risk which is the risk that the Company will be unable to generate or obtain sufficient cash to meet its commitments as they come due. Mitigation of this risk is achieved through the active management of cash and debt. In managing liquidity risk, in addition to cash flow generated from operating activities, the Company has access to sources of funding at competitive rates through public debt markets, capital markets, property dispositions and banks as disclosed in Note 5. Compton believes it has sufficient funding through the use of these facilities to meet any foreseeable cash requirements. The timing of cash outflows relating to financial liabilities are outlined below: 1 year 2-3 years 4-5 years +5 years Total ----------- ----------- ----------- ----------- ----------- Accounts payable $ 137,226 $ - $ - $ - $ 137,226 Risk management liabilities 65,686 - - - 65,686 Bank debt - 470,000 - - 470,000 Senior term notes - - - 458,370 458,370 ----------- ----------- ----------- ----------- ----------- $ 202,912 $ 470,000 $ - $ 458,370 $1,131,282 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 14. Foreign exchange (gain) loss Amounts charged to foreign exchange (gain) loss during the period ended are as follows: Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2008 2007 2008 2007 ----------- ----------- ----------- ----------- Foreign exchange on translation of US$ debt $ (4,185) $ (40,275) $ 13,725 $ (45,855) Other foreign exchange 38 584 34 642 ----------- ----------- ----------- ----------- Total (gain) loss $ (4,147) $ (39,691) $ 13,759 $ (45,213) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 15. Supplemental cash flow information Amounts actually paid during the period relating to interest expense and capital taxes are as follows: Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2008 2007 2008 2007 ----------- ----------- ----------- ----------- Interest paid $ 24,598 $ 25,336 $ 31,230 $ 29,517 Taxes paid - - - - ----------- ----------- ----------- ----------- $ 24,598 $ 25,336 $ 31,230 $ 29,517 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 16. Strategic review In response to certain concerns raised by Centennial Energy Partners LLC, a major shareholder of Compton, the Board of Directors of the Company announced, in a news release dated February 28, 2008, that it would undertake a formal review of the Company's business plans and alternatives for enhancing shareholder value. The review was conducted under the direction of a Special Committee of the Board comprised of Compton's independent directors. Subsequent to the completion of the review process, as announced on June 11, 2008, the Company's Board of Directors has determined to seek a buyer for all of the capital stock of the Company. The Company has estimated direct costs associated with, and resulting from the review process will total approximately $10.8 million. These costs include among others, consulting and advisory fees, legal fees, and costs relating to employee retention but do not include fees payable associated with a sale of the Company. Costs are recognized as incurred and, as at June 30, 2008, the Company has recorded $6.2 million of strategic review related expenses. 17. Subsequent events Subsequent to June 30, 2008, the Company closed the transaction for the sale of certain assets in the Peace River Arch. Gross proceeds before adjustments were received in the amount of $38.5 million from the disposition. Additionally, Purchase and Sale Agreements have been executed relating to the sale of assets at Zama, Thornbury and Cecil. The Company anticipates that these sales will close in August, with expected gross proceeds before adjustments of $179.6 million. 18. Reclassification Certain amounts disclosed for prior periods have been reclassified to conform with current period presentation.

For further information:

For further information: Compton Petroleum Corporation, E.G. Sapieha,
President & CEO, or N.G. Knecht, VP Finance & CFO, or Lorna Klose, Manager,
Investor Relations, Telephone: (403) 237-9400, Fax: (403) 237-9410, Website:
www.comptonpetroleum.com, Email: investorinfo@comptonpetroleum.com

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