Flagship announces third quarter 2007 results and fourth quarter 2007 update



    CALGARY, Nov. 16 /CNW/ - Flagship Energy Inc. ("Flagship" or the
"Company") (TSXV - FG.A and FG.B) announces its financial and operational
results for the third quarter 2007.
    Selected information for the third quarter include:

    
    -  A before-tax write-down of property, plant and equipment of
       $18.4 million and an impairment of goodwill of $7.5 million
       contributed to a net loss of $24.6 million in the third quarter
       ($0.30 per basic Class A share after taking into account the deemed
       conversion of Class B shares), compared to a net loss of $1.1 million
       in the second quarter 2007 and a net loss of $1.5 million in Q3 2006.
       The write down of property, plant and equipment was a non-cash charge
       and largely related to the carrying value of the Southeast
       Saskatchewan properties which were sold in the quarter.

    -  Operating netback was $2.8 million for the quarter, a decrease of 49%
       over third quarter 2006 and a decrease of 35% over second quarter
       2007. On a BOE basis, netbacks were $20.94/BOE for the third quarter
       2007 compared to $25.52/BOE for Q3 2006 and $26.75/BOE for Q2 2007.
       The decline in operating netbacks from the third quarter 2006 is
       primarily due to a 37% decline in production volumes and a 6% decrease
       in commodity prices. Approximately one half of the decline in
       production from the third quarter 2006 is due to various property
       dispositions during the last twelve months.

    -  Funds flow from operations for the quarter was $1.2 million, a
       decrease of 74% over third quarter 2006 and a decrease of 53% over
       second quarter 2007. On a per issued Class A share basis, funds flow
       from operations was $0.04 for Q3 2007, compared to $0.08 for Q2 2007
       and $0.14 for third quarter 2006.

    -  Average production for the third quarter 2007 was 1,443 BOEPD,
       comprised of 518 bbls/d of crude oil and natural gas liquids and
       5.5 MMcf/d of natural gas. Third quarter 2007 production represents a
       37% decrease over third quarter 2006 production, and a decrease of 18%
       from Q2 2007 production.

    -  During the third quarter, Flagship completed a new pool oil discovery
       well at Alsask in southern Alberta. The well is now on production. Two
       exploration wells at Veteran were successful in finding new gas pools.
       Both wells have been completed and production tested and now await
       tie-in. The Carson Creek Devonian exploration well was drilled and
       abandoned and an additional Veteran exploration well was unsuccessful
       upon completion.

    -  The Pembina 3D seismic program was completed and evaluated during the
       third quarter. The program was designed to evaluate Flagship lands and
       Flagship-optioned lands for Nisku Formation light oil potential.

    -  The Company disposed of certain of its petroleum and natural gas
       properties in Southeast Saskatchewan for cash consideration of
       $24.8 million, before closing adjustments. The average production from
       these properties for the second quarter 2007 was 478 BOE/d. The
       proceeds were used to repay a portion of its debt facilities.

    -  The Company entered into a secured development bridge facility
       ("Bridge Facility") with Tricap Partners Ltd., and also entered into a
       revolving operating loan facility with ATB Financial ("Operating
       Facility"), which replaces its previous credit facility with ATB
       Financial. The lending value of the Bridge Facility is $33 million,
       and is reduced by the Operating Facility, currently established at
       $8 million. The proceeds from the Facilities will be used primarily to
       fund the Company's ongoing capital program.
    

    Drilling during the fourth quarter is expected to be very active for
Flagship. Up to nine exploration wells are planned before year-end. These
wells are targeting 2 to 5 BCF gas-equivalent targets. One well at Calmar has
already been drilled. Wells have commenced drilling at Knopcik, Harmattan,
Ferrier and Windfall. Additional drilling will commence later in November at
Buck Lake, Crystal and potentially at Redwater and Mannville. All these wells
are in central Alberta. A 2D-seismic program is also planned for early
December at Brightsand in western Saskatchewan and at Mannville and Wildmere
in eastern Alberta.
    One of the two outstanding Crossfire wells is now expected to be drilled
before year-end. The Company is in a carried-working position in the well. The
second well at Crossfire has been dropped by the Farmee. The Farmee indicates
that they have taken a corporate position to pursue only non-farmout wells
following the Province of Alberta's proposed royalty changes. Flagship is very
disappointed with their decision but the prospect now is controlled 100% by
the Company and remains available for drilling.

    
    RESULTS OF OPERATIONS

                       3rd Quarter   2nd Quarter   1st Quarter   4th Quarter
                              2007          2007          2007          2006
    Sales volumes
    Oil (bbls/d)               484           620           645           786
    Natural gas (Mcf/d)      5,547         6,571         7,062         7,462
    NGL's (bbls/d)              34            45            42            44
    -------------------------------------------------------------------------

    BOE/d (6:1)              1,443         1,760         1,863         2,074
    Daily BOE sales
     volumes per
     million Class
     A shares                   46            56            59            66
    Prices
    Oil ($/bbl)              68.54         61.94         56.77         52.89
    Natural gas ($/Mcf)       5.04          6.98          7.34          6.49
    NGL's ($/bbl)            59.33         52.13         51.32         49.68

    Per BOE ($)
    Gross revenues           44.05         49.51         48.81         44.78
    Royalties                (7.08)        (8.06)        (8.21)        (6.65)
    Operating costs         (14.22)       (13.23)       (12.64)       (13.47)
    Transportation
     charges                 (1.81)        (1.47)        (1.36)        (2.19)
    -------------------------------------------------------------------------

    Operating netback        20.94         26.75         26.60         22.47
    Other revenue                -             -          0.02             -
    General and
     administrative          (2.23)        (2.90)        (2.49)        (3.05)
    Interest expense         (8.39)        (6.39)        (4.02)        (3.82)
    Current tax expense      (1.40)        (2.16)        (1.16)        (0.64)
    -------------------------------------------------------------------------

    Funds flow from
     operations               8.92         15.30         18.95         14.96
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                       3rd Quarter   2nd Quarter   1st Quarter   4th Quarter
                              2006          2006          2006          2005
    Sales volumes
    Oil (bbls/d)               933           418             -             -
    Natural gas (Mcf/d)      8,148         5,993         3,434         3,359
    NGL's (bbls/d)              16            13             8             7
    -------------------------------------------------------------------------

    BOE/d (6:1)              2,307         1,430           581           567
    Daily BOE sales
     volumes per million
     Class A shares             73            59            35            39
    Prices
    Oil ($/bbl)              64.20         66.12             -             -
    Natural gas ($/Mcf)       5.61          5.49          7.07         10.86
    NGL's ($/bbl)           100.29         39.75         67.75        112.55

    Per BOE ($)
    Gross revenues           46.59         42.91         43.52         66.40
    Royalties                (7.03)        (7.97)        (9.61)       (16.82)
    Operating costs         (12.55)        (7.43)        (8.17)       (10.31)
    Transportation
     charges                 (1.49)        (0.77)        (1.04)        (1.21)
    -------------------------------------------------------------------------

    Operating netback        25.52         26.74         24.70         38.06
    Other revenue             0.03          0.11          1.68          1.37
    General and
     administrative          (1.68)        (3.19)        (3.82)        (5.65)
    Interest expense         (2.81)        (3.39)        (0.11)        (0.22)
    Current tax (expense)
     recovery                (0.17)         0.57         (0.78)        (1.78)
    -------------------------------------------------------------------------

    Funds flow from
     operations              20.89         20.84         21.67         31.78
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                       3rd Quarter   2nd Quarter   1st Quarter   4th Quarter
    Financial ($)             2007          2007          2007          2006

    Gross revenues       5,847,560     7,930,197     8,185,700     8,543,811
    Royalties             (940,529)   (1,291,163)   (1,376,177)   (1,269,057)
    Operating costs     (1,887,344)   (2,118,292)   (2,119,730)   (2,569,640)
    Transportation
     charges              (239,862)     (235,066)     (227,473)     (417,377)
    -------------------------------------------------------------------------
    Operating netback    2,779,825     4,285,676     4,462,320     4,287,737
    Other revenue                -             -         2,709           471
    General and
     administrative       (296,474)     (464,445)     (417,080)     (581,868)
    Interest expense    (1,139,850)   (1,023,987)     (674,404)     (729,076)
    Current tax expense   (185,830)     (345,293)     (194,000)     (122,678)
    -------------------------------------------------------------------------
    Funds flow from
     operations          1,157,671     2,451,951     3,179,545     2,854,586
    Stock-based
     compensation           46,701         7,187      (268,302)     (132,969)
    Depletion,
     depreciation,
     amortization
     and accretion      (3,868,101)   (4,024,449)   (4,276,880)   (8,424,270)
    Write-down of
     property, plant
     and equipment     (18,446,000)            -             -   (70,300,000)
    Impairment of
     goodwill           (7,517,209)            -             -   (34,458,000)
    Future income
     tax recovery        3,980,211       450,972       584,731    20,985,214
    -------------------------------------------------------------------------
    Net loss           (24,646,727)   (1,114,339)     (780,906)  (89,475,439)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets        68,932,816   114,615,763   119,086,521   122,459,884
    Exploration and
     development costs   4,521,739     1,578,008     3,964,223     5,079,498
    Weighted average
     outstanding
     Class A shares
     - basic(1)         83,112,185    83,072,625    83,052,185    71,166,423
    Earnings (loss)
     per share
     - basic(1)              (0.30)        (0.01)        (0.01)        (1.26)
    Funds flow from
     operations per
     issued Class A
     share                    0.04          0.08          0.10          0.09
    Funds flow from
     operations per
     share - basic(1)         0.01          0.03          0.04          0.04

                       3rd Quarter   2nd Quarter   1st Quarter   4th Quarter
    Financial ($)             2006          2006          2006          2005

    Gross revenues       9,890,010     5,585,974     2,273,999     3,460,863
    Royalties           (1,491,419)   (1,036,941)     (502,037)     (876,617)
    Operating costs     (2,664,461)     (967,409)     (426,841)     (537,397)
    Transportation
     charges              (316,841)     (100,490)      (54,239)      (63,178)
    -------------------------------------------------------------------------
    Operating netback    5,417,289     3,481,134     1,290,882     1,983,671
    Other revenue            6,836        13,692        87,917        71,555
    General and
     administrative       (357,612)     (415,311)     (199,449)     (294,363)
    Interest expense      (595,453)     (441,128)       (5,985)      (11,461)
    Current tax
     (expense) recovery    (36,663)       73,697       (41,000)      (93,000)
    -------------------------------------------------------------------------
    Funds flow from
     operations          4,434,397     2,712,084     1,132,365     1,656,402
    Stock-based
     compensation         (284,155)     (294,473)     (179,884)     (232,790)
    Depletion,
     depreciation,
     amortization
     and accretion      (5,780,462)   (4,458,022)   (1,563,067)   (1,167,667)
    Future income
     tax recovery          107,353     2,650,077             -             -
    -------------------------------------------------------------------------
    Net earnings
     (loss)             (1,522,867)      609,666      (610,586)      255,945
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets       226,484,532   222,173,949    57,557,035    57,159,072
    Exploration and
     development
     costs              11,508,622     5,242,560    11,840,979    12,724,502
    Weighted average
     outstanding
     Class A shares
     - basic(1)         53,622,604    33,463,379    18,723,034    15,301,724
    Earnings (loss)
     per share
     - basic(1)              (0.03)         0.02         (0.03)         0.02
    Funds flow from
     operations per
     issued Class A
     share                    0.14          0.11          0.07          0.12
    Funds flow from
     operations per
     share  - basic(1)        0.08          0.08          0.06          0.11

    (1) includes deemed conversion of Class B shares, with conversion rate
        based on the Class A share price at each balance sheet date.


    Flagship Energy Inc.
    Balance Sheets
    (unaudited)

    As at                                        September 30,   December 31,
                                                         2007           2006
    -------------------------------------------------------------------------
    Assets                                                  $              $
    Current assets
    Cash held in escrow                             8,000,000              -
    Accounts receivable                             3,315,947      6,016,497
    Prepaid expenses and deposits                     793,981        749,178
    -------------------------------------------------------------------------
                                                   12,109,928      6,765,675

    Property, plant and equipment                  56,822,888    108,177,000
    Goodwill                                                -      7,517,209
    -------------------------------------------------------------------------

                                                   68,932,816    122,459,884
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
    Bank indebtedness                               1,661,893        557,318
    Accounts payable and
     accrued liabilities                            4,294,261      9,936,401
    Debt facilities                                30,375,687     46,275,000
    -------------------------------------------------------------------------
                                                   36,331,841     56,768,719

    Asset retirement obligations                    6,667,100      9,080,132
    -------------------------------------------------------------------------
    Total liabilities                              42,998,941     65,848,851
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock                                 134,817,543    139,710,337
    Warrants                                          320,000              -
    Carry-over warrants                                     -              1
    Contributed surplus                             2,751,504      2,313,895
    Deficit                                      (111,955,172)   (85,413,200)
    -------------------------------------------------------------------------

                                                   25,933,875     56,611,033
    -------------------------------------------------------------------------
                                                   68,932,816    122,459,884
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Flagship Energy Inc.
    Statements of Operations and Retained Earnings (Deficit)
    (unaudited)

                              Three months ended           Nine months ended
                                    September 30,               September 30,
    -------------------------------------------------------------------------

                              2007          2006          2007          2006
    -------------------------------------------------------------------------
                                 $             $             $             $
    Revenue
    Natural gas, oil
     and liquids         5,847,560     9,890,010    21,963,457    17,749,983
    Royalty expense       (940,529)   (1,491,419)   (3,607,869)   (3,030,397)
    Interest and other           -         6,836         2,709       108,445
    -------------------------------------------------------------------------

                         4,907,031     8,405,427    18,358,297    14,828,031
    -------------------------------------------------------------------------

    Expenses
    Operating            1,887,344     2,664,461     6,125,366     4,058,711
    Transportation         239,862       316,841       702,401       471,570
    General and
     administrative        296,474       357,612     1,177,999       972,372
    Interest             1,139,850       595,453     2,838,241     1,042,566
    Stock-based
     compensation
     (recovery)            (46,701)      284,155       214,414       758,512
    Depletion,
     depreciation,
     amortization
     and accretion       3,868,101     5,780,462    12,169,430    11,801,551
    Write down of
     property, plant
     & equipment        18,446,000             -    18,446,000             -
    Impairment of
     goodwill            7,517,209             -     7,517,209             -
    -------------------------------------------------------------------------

                        33,348,139     9,998,984    49,191,060    19,105,282
    -------------------------------------------------------------------------

    Loss before taxes  (28,441,108)   (1,593,557)  (30,832,763)   (4,277,251)
    Provision for
     (recovery of) taxes
    Recovery of future
     income taxes       (3,980,211)     (107,353)   (5,015,914)   (2,757,430)
    Current taxes          185,830        36,663       725,123         3,966
    -------------------------------------------------------------------------

                        (3,794,381)      (70,690)   (4,290,791)   (2,753,464)

    Net loss and
     comprehensive
     loss              (24,646,727)   (1,522,867)  (26,541,972)   (1,523,787)
    Retained earnings
     (deficit),
     beginning
     of period         (87,308,445)    5,725,200   (85,413,200)      177,620
    Elimination of
     future income
     tax liability               -             -             -     5,548,500
    -------------------------------------------------------------------------

    Retained earnings
     (deficit), end
     of period        (111,955,172)    4,202,333  (111,955,172)    4,202,333
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss per
     common share
    Basic and diluted        (0.30)        (0.03)        (0.32)        (0.03)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Flagship Energy Inc.
    Statements of Cash Flows
    (unaudited)

                              Three months ended           Nine months ended
                                    September 30,               September 30,
    -------------------------------------------------------------------------

                              2007          2006          2007          2006
    -------------------------------------------------------------------------
                                 $             $             $             $
    Operating
     activities

    Net loss           (24,646,727)   (1,522,867)  (26,541,972)   (1,523,787)
    Depletion,
     depreciation,
     amortization and
     accretion           3,868,101     5,780,462    12,169,430    11,801,551
    Write down of
     property, plant
     & equipment        18,446,000             -    18,446,000             -
    Impairment of
     goodwill            7,517,209             -     7,517,209             -
    Recovery of
     future income
     taxes              (3,980,211)     (107,353)   (5,015,914)   (2,757,430)
    Stock-based
     compensation
     (recovery)            (46,701)      284,155       214,414       758,512
    -------------------------------------------------------------------------

                         1,157,671     4,434,397     6,789,167     8,278,846
    Change in non-cash
     working capital
     items                 479,355     7,875,924      (843,102)   (1,085,352)
    -------------------------------------------------------------------------

    Cash provided by
     operating
     activities          1,637,026    12,310,321     5,946,065     7,193,494
    -------------------------------------------------------------------------
    Investing activities

    Acquisition of
     Hawk Energy Corp.           -             -             -   (37,300,000)
    Exploration and
     development costs  (4,521,739)  (11,508,622)  (10,063,970)  (28,592,161)
    Proceeds on
     disposition of oil
     and gas
     properties         24,244,481             -    28,714,633             -
    Cash held in
     escrow             (8,000,000)            -    (8,000,000)            -
    Change in non-cash
     working capital
     items                 168,020    (8,676,641)   (2,143,289)   (3,260,723)
    -------------------------------------------------------------------------

    Cash provided by
     (used in)
     investing
     activities         11,890,762   (20,185,263)    8,507,374   (69,152,884)
    -------------------------------------------------------------------------
    Financing activities

    Issue of
     capital stock               -    15,000,600             -    15,000,600
    Share issue costs            -      (978,632)          299    (1,061,338)
    Proceeds on
     exercise of options
     and warrants                -             -        21,000        34,072
    Increase (decrease)
     in debt
     facilities        (13,125,000)   (6,950,000)  (14,925,000)   29,945,176
    Change in non-cash
     working capital
     items                (654,313)      (63,487)     (654,313)      (63,487)
    -------------------------------------------------------------------------

    Cash provided by
     (used in)
     financing
     activities        (13,779,313)    7,008,481   (15,558,014)   43,855,023
    -------------------------------------------------------------------------

    Decrease in cash
     and cash
     equivalents          (251,525)     (866,461)   (1,104,575)  (18,104,367)
    Cash and cash
     equivalents,
     beginning of
     period             (1,410,368)     (402,163)     (557,318)   16,835,743
    -------------------------------------------------------------------------

    Cash and cash
     equivalents,
     end of period      (1,661,893)   (1,268,624)   (1,661,893)   (1,268,624)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash
     equivalents are
     comprised of
     bank indebtedness


    Cash interest paid     875,478       609,497     2,401,789     1,020,411
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash taxes paid         60,000        30,000       166,048       128,425
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Flagship is an emerging oil and gas company focused on the acquisition,
exploration, exploitation and development of oil and natural gas in Western
Canada. Flagship's business plan is to grow reserves and production to
increase shareholder value through a focused and balanced exploration program,
strategic acquisitions and value-added exploitation.

    Copies of Flagship's third quarter 2007 disclosure documents may be
obtained on its website at www.flagshipenergy.ca. or at www.sedar.com.

    NOTE: Natural gas and liquids reserves and volumes are converted to a
common unit of measure on a basis of six thousand cubic feet ("Mcf") of gas to
one barrel (bbl) of oil.  Disclosure provided herein in respect of barrels of
oil equivalent ("BOE") may be misleading, particularly if used in isolation. A
BOE conversion ratio of 6 mcf:1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.

    ADVISORY: Certain information regarding Flagship Energy Inc. in this news
release including management's assessment of future plans and operations,
reserve and production estimates, drilling inventory and wells to be drilled,
timing of drilling and tie in of wells, productive capacity of new wells,
capital expenditures and timing thereof, may constitute forward-looking
statements under applicable securities laws and necessarily involve risks
including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations, imprecision of
reserve estimates, environmental risks, competition from other producers,
inability to retain drilling rigs and other services, incorrect assessment of
the value of acquisitions, failure to realize the anticipated benefits of
acquisitions, delays resulting from or inability to obtain required regulatory
approvals and ability to access sufficient capital from internal and external
sources. As a consequence, actual results may differ materially from those
anticipated in the forward-looking statements. Readers are cautioned that the
foregoing list of factors is not exhaustive. Additional information on these
and other factors that could affect Flagship's operations and financial
results are included in reports on file with Canadian securities regulatory
authorities and may be accessed through the SEDAR website (www.sedar.com), or
Flagship's website (www.flagshipenergy.ca). Furthermore, the forward looking
statements contained in this news release are made as at the date of this news
release and Flagship does not undertake any obligation to update publicly or
to revise any of the included forward looking statements, whether as a result
of new information, future events or otherwise, except as may be required by
applicable securities laws.

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

    %SEDAR: 00003847E




For further information:

For further information: Glenn R. Carley, Executive Chairman, (403)
513-8300, gcarley@flagshipenergy.ca; Bradley Maynes, President and Chief
Operating Officer, (403) 513-8301, bmaynes@flagshipenergy.ca; Stuart Jaggard,
Vice President Finance and Chief Financial Officer, (403) 513-8302,
sjaggard@flagshipenergy.ca

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FLAGSHIP ENERGY INC.

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