Galleon Energy announces record second quarter 2008 financial results



    CALGARY, Aug. 13 /CNW/ - Galleon Energy Inc. ("Galleon") announces strong
financial results and continued success in the drilling program focused on
light oil and natural gas resource projects.

    
    Second Quarter 2008 Highlights

    -   Funds from operations for the three months ending June 30, 2008 were
        $61.2 million ($0.86 per basic share), an increase of 86% from
        Q2 2007;
    -   Received an average operating netback of $49.08/BOE, an increase of
        $28.94/BOE recorded in Q2 2007;
    -   Earnings for the three months ending June 30, 2008 were $5.7 million
        ($0.08 per basic share) and $16.1 million for the six months ended
        June 30, 2008 ($0.23 per basic share);
    -   Daily production for the quarter averaged 16,191 BOE, an increase of
        21% from Q2 2007;
    -   Drilled 9 gross wells resulting in 7 (7.0 net) natural gas wells and
        2 (2.0 net) light oil wells; a success rate of 100%;
    -   At June 30, 2008, net debt was $229.3 million with available credit
        facilities of $310 million.
    

    Commodity prices combined with year over year production growth lifted
revenues to record levels in the second quarter of 2008. Galleon has generated
funds from operations of $61.2 million in the second quarter of 2008 and
$116.6 million to June 30, 2008. In comparison, funds from operations of
$131.1 million were recorded for the entire year of 2007. The capital program
is expected to be fully funded by funds from operations, another milestone for
Galleon.

    Montney update

    One of the key achievements in the second quarter of 2008 was the
commencement of production from Galleon's first horizontal well in the East
Montney project located in Dawson, Alberta. In addition, three successful
horizontal wells were drilled in the East Montney project in Q2 2008. The
Montney horizontal drilling program is expected to continue over the next
8-10 years due to Galleon's extensive landholdings in the Peace River Arch
region of Alberta and British Columbia. Today, Galleon has identified 8
Montney resource projects (6 projects in Alberta and 2 in B.C.) spread over a
large land base of approximately 0.5 million gross acres.
    The successes of the Montney horizontal drilling program and new
exploration oil and natural gas discoveries have led Galleon to increase the
2008 capital program to approximately $280 million. The 2008 capital program
is expected to be funded by internal cash flow. Approximately 60% of the
capital expenditures in the second half of 2008 will be directed to Montney
resource projects. Galleon expects to employ 7 to 8 rigs to drill between 72
and 80 wells in the second half of 2008.
    Included in the expansion of the capital program is the construction of
two natural gas facilities to be located in Dawson and Kakut, Alberta. At
Dawson, a new plant with capacity of 10 Mmcf/d is planned for the southern end
of the Eastern Montney pool. Combined with the existing 30 Mmcf/d natural gas
plant located 20 km to the north, Galleon will have natural gas processing
capacity of approximately 40 Mmcf/d in the area. The new plant is expected to
be on-stream in late Q4 2008 or early Q1 2009. Kakut is located in the Central
Montney region and is expected to be a significant growth area for Galleon. An
owned natural gas plant at Kakut will be expanded from 5 Mmcf/d to 15 Mmcf/d
and is scheduled to be on stream in Q4 2008.
    Galleon has access to approximately 1 million gross acres of undeveloped
land, of which 90% is located in the Peace River Arch area of Alberta and
British Columbia. In combination with this large land base, the success of the
drilling program to date, and the drilling opportunities planned during the
second half of 2008, Galleon is positioned for production and reserve growth
in 2008 and 2009.

    Management's Discussion and Analysis

    This Management's Discussion & Analysis ("MD&A") is intended to assist in
the understanding of the trends and significant changes in the financial
condition and results of operations of Galleon Energy Inc. ("Galleon" or the
"Corporation") for the three and six months ended June 30, 2008 with
comparisons to the three and six months ended June 30, 2007 and as at
December 31, 2007. The MD&A has been prepared by management in accordance with
Canadian generally accepted accounting principles ("GAAP") and should be read
in conjunction with the unaudited interim financial statements as at and for
the three and six month periods ended June 30, 2007 and 2006 and the audited
financial statements and MD&A for the year ended December 31, 2007.
    Petroleum and natural gas 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. BOEs may be misleading, particularly if used in
isolation. The forgoing conversion ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
    Amounts are shown in Canadian dollars unless otherwise stated. All
production volumes disclosed herein are sales volumes.
    This MD&A is based on information available as of, and is dated,
August 13, 2008.

    Non-GAAP Measurements

    The MD&A contains terms commonly used in the oil and gas industry, such
as funds from operations, funds from operations per share, and operating
netback. These terms are not defined by GAAP and should not be considered an
alternative to, or more meaningful than, cash provided by operating activities
or net earnings as determined in accordance with Canadian GAAP as an indicator
of Galleon's performance. Management believes that in addition to net
earnings, funds from operations is a useful financial measurement which
assists in demonstrating the Corporation's ability to fund capital
expenditures necessary for future growth or to repay debt. Galleon's
determination of funds from operations may not be comparable to that reported
by other companies. All references to funds from operations throughout this
report are based on cash flow from operating activities before changes in
non-cash working capital and abandonment expenditures. The Corporation
calculates funds from operations per share by dividing funds from operations
by the weighted average number of Class A shares outstanding.
    Galleon uses the term net debt in the MD&A and presents a table showing
how it has been determined. This measure does not have any standardized
meaning prescribed by Canadian GAAP and therefore may not be comparable to
similar measures presented by other companies.

    Forward-Looking Statements

    Statements that are not historical facts may be considered forward
looking statements including management's assessment of future plans and
operations, growth expectations within the Corporation, expected production
and production increases, length of drilling program in Montney, expected
general and administration and operating expenses in 2008, expectation that
the Corporation will not be taxable in 2008, drilling plans and the timing
thereof, facilities to be constructed or expanded and the timing thereof,
capital expenditures, the timing thereof and the method of funding thereof.
These forward-looking statements sometimes include words to the effect that
management believes or expects a stated condition or result. All estimates and
statements that describe the Corporation's objectives, goals or future plans
are forward-looking statements. Since forward-looking statements address
future events and conditions, by their very nature they involve inherent risks
and uncertainties 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,
Galleon's actual results may differ materially from those expressed in, or
implied by, the forward-looking statements. Forward-looking statements or
information are based on a number of factors and assumptions which have been
used to develop such statements and information but which may prove to be
incorrect. Although the Corporation believes that the expectations reflected
in such forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements because the
Corporation can give no assurance that such expectations will prove to be
correct. In addition to other factors and assumptions which may be identified
in this document, assumptions have been made regarding, among other things:
the impact of increasing competition; the general stability of the economic
and political environment in which the Corporation operates; the timely
receipt of any required regulatory approvals; the ability of the Corporation
to obtain qualified staff, equipment and services in a timely and cost
efficient manner; drilling results; the ability of the operator of the
projects which the Corporation has an interest in to operate the field in a
safe, efficient and effective manor; the ability of the Corporation to obtain
financing on acceptable terms; field production rates and decline rates; the
ability to replace and expand oil and natural gas reserves through
acquisition, development of exploration; the timing and costs of pipeline,
storage and facility construction and expansion and the ability of the
Corporation to secure adequate product transportation; future oil and natural
gas prices; currency, exchange and interest rates; the regulatory framework
regarding royalties, taxes and environmental matters in the jurisdictions in
which the Corporation operates; and the ability of the Corporation to
successfully market its oil and natural gas products.
    Readers are cautioned that the foregoing list of all factors and
assumptions is not exhaustive. Additional information on these and other
factors that could affect Galleon's operations and financial results are
included elsewhere herein and in reports on file with Canadian securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com), or at Galleon's website (www.galleonenergy.com). Furthermore,
the forward-looking statements contained herein are made as at the date hereof
and Galleon 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.


    
    Results of Operations

    Comparative financial results for the quarter are as follows:

    Three months ended June 30         2008                    2007
    -------------------------------------------------------------------------
                                  1,473,414 BOE           1,216,855 BOE
    ($000s)                                    $/BOE                   $/BOE
    -------------------------------------------------------------------------
    Revenues                     120,602       81.85      60,735       49.91
    Other income                     105        0.07           -           -
    Royalties                    (27,155)     (18.43)    (13,609)     (11.18)
    GCA(1)                         6,097        4.14       2,603        2.14
    Transportation costs          (2,416)      (1.64)     (1,408)      (1.16)
    Operating costs              (18,726)     (12.71)    (10,507)      (8.63)
    -------------------------------------------------------------------------
    Net                           78,507       53.28      37,814       31.08
    G&A                           (3,698)      (2.51)     (1,797)      (1.48)
    Interest costs                (2,977)      (2.02)     (2,682)      (2.20)
    Capital and other taxes         (358)      (0.24)       (502)      (0.41)
    Realized gain (loss)
     on financial derivative     (10,317)      (7.00)          -           -
    -------------------------------------------------------------------------
    Funds from operations(2)      61,157       41.51      32,833       26.99
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended June 30           2008                    2007
    -------------------------------------------------------------------------
                                  3,020,890 BOE           2,286,770 BOE
    ($000s)                                    $/BOE                   $/BOE
    -------------------------------------------------------------------------
    Revenues                     222,118       73.53     113,709       49.72
    Other income                     228        0.08           -           -
    Royalties                    (47,823)     (15.83)    (24,625)     (10.77)
    GCA(1)                         8,520        2.82       5,237        2.29
    Transportation costs          (4,031)      (1.33)     (2,995)      (1.31)
    Operating costs              (36,186)     (11.98)    (19,985)      (8.74)
    -------------------------------------------------------------------------
    Net                          142,826       47.29      71,341       31.19
    G&A                           (6,069)      (2.01)     (3,061)      (1.34)
    Interest costs                (5,780)      (1.91)     (4,928)      (2.15)
    Capital and other taxes         (697)      (0.23)       (722)      (0.32)
    Realized gain (loss)
     on financial derivative     (13,678)      (4.53)        373        0.16
    -------------------------------------------------------------------------
    Funds from operations(2)     116,602       38.61      63,003       27.54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) GCA means Gas Cost Allowance
    (2) See "Non-GAAP Measurements"



    Petroleum and Natural Gas Revenues

    Three months ended June 30      2008                    2007
    -------------------------------------------------------------------------
    ($000s)                                        %                       %
    Light oil                     51,789          43      21,397          36
    Heavy oil                     16,830          14       7,491          12
    NGLs                           3,244           3       1,390           2
    Natural gas                   48,537          40      30,275          50
    Royalty income                   202           0         182           -
    -------------------------------------------------------------------------
    Total                        120,602         100      60,735         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended June 30        2008                    2007
    -------------------------------------------------------------------------
    ($000s)                                        %                       %
    Light oil                     98,648          44      39,706          35
    Heavy oil                     30,717          14      14,411          13
    NGLs                           5,696           3       2,441           2
    Natural gas                   86,718          39      56,790          50
    Royalty income                   339           0         361           -
    -------------------------------------------------------------------------
    Total                        222,118         100     113,709         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Revenues for the three months ended June 30, 2008 increased by 99% to
$120.6 million from $60.7 million for the same period of the prior year due to
a 21% increase in average production volumes, a 148% increase in heavy oil
prices, a 72% increase in light oil prices and a 35% increase in gas prices.
    In the second quarter of 2008, on a revenue basis, oil and liquids
generated 60% of revenues compared to 50% in the same period of the prior
year.

    
    Production

                        Three months ended June 30  Six months ended June 30
                            2008         2007         2008         2007
    -------------------------------------------------------------------------
                                    %            %            %            %
    Light oil (Bbls/d)     4,629   29   3,317   25   5,015   30   3,223   26
    Heavy oil (Bbls/d)     2,066   13   2,247   17   2,228   13   2,164   17
    NGLs (Bbls/d)            501    3     256    2     471    3     231    1
    Natural gas (Mcf/d)   53,971   55  45,314   56  53,307   54  42,097   56
    -------------------------------------------------------------------------
    BOE/d (6:1)           16,191  100  13,372  100  16,599  100  12,634  100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Average production volumes of 16,191 BOE/d for the second quarter 2008
were 21% greater than the average of 13,372 BOE/d in second quarter 2007. By
product, production volumes increased as follows: light oil volumes by 40%,
natural gas volumes by 19% and natural gas liquids volumes by 96%. Heavy oil
volumes decreased by 8%.

    Commodity Pricing and Marketing

    Petroleum products are sold to major Canadian marketers at spot reference
prices based on US WTI for crude oil and AECO for natural gas. As a means of
managing the risk of commodity price volatility, Galleon entered into one term
natural gas contract and three crude oil financial contracts. The natural gas
contract for 10,000 GJ/day was put in place on January 8, 2008 and has a term
from February 1 to December 31, 2008 with pricing subject to a costless collar
of $6.00/GJ and $8.00/GJ Canadian. An additional natural gas contract was
acquired with Adamant. This second contract is for 8,500 GJ/day and was put in
place from January 1, 2008 through December 31, 2008 with pricing subject to a
costless collar of $6.00/GJ to $8.00/GJ Canadian. At the date of acquisition,
this contract represented a $5.3 million liability which will be amortized
into income over the remaining life of the contract. At June 30, 2008, the
balance of this liability was $4.6 million. For the three and six months ended
June 30, 2008, the natural gas contracts had realized losses of $2,456,118 and
$2,869,920 respectively.
    For crude oil, Galleon entered into one costless collar contract for
2,000 Bbl/day, fixing a floor price of WTI CDN $70.00/Bbl and a ceiling of WTI
CDN $80.75/Bbl for the period January 1, 2008 to December 31, 2008. A second
crude oil costless collar contract was entered into for 1,000 Bbl/day, fixing
a floor price of $75.00 WTI USD and a ceiling price of $100.00 WTI USD for the
period January 1, 2008 to December 31, 2008. A third crude oil costless collar
contract was entered into for 1,000 Bbl/day, fixing a floor price of $110.00
WTI CDN and a ceiling price of $177.30 WTI CDN for the period July 1, 2008 to
December 31, 2008. For the three and six months ended June 30, 2008, the three
crude oil contracts resulted in realized losses of $10.3 million and
$3.4 million, respectively. Unrealized losses of $32.2 million were recorded
as a liability based on the mark to market value at June 30, 2008 of these
financial contracts. The contracts will protect base line revenues if the WTI
crude oil benchmark falls below floor price. The contracts will be settled
monthly based on the average USD and CDN WTI benchmark price. Galleon will
receive payments on the contracts if the benchmark USD and CDN WTI price falls
below the set floor price and will be required to make payments if the price
rises above the set ceiling price. Galleon has recognized this financial
instrument on its balance sheet at fair value, and is accounting for the
instrument using mark to market accounting.


    
    Prices (net of transportation)

                                      Three months             Six months
                                      ended June 30           ended June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Light oil ($/Bbl)             120.68       70.12      106.77       66.91
    Heavy oil ($/Bbl)              88.93       35.89       75.30       36.21
    Total oil including
     financial derivative
     contract ($/Bbl)              93.95       56.42       86.72       54.96
    Total oil without
     financial derivative
     contract ($/Bbl)             110.88       56.42       97.09       54.57
    NGLs ($/Bbl)                   71.19       59.67       66.42       58.33
    Natural gas ($/Mcf)             9.65        7.14        8.70        7.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Light oil prices increased by 72% to $120.68/Bbl, excluding the loss
incurred from the crude oil costless collars. Average heavy oil prices of
$88.93/Bbl increased by 148% from the same period of the prior year due to an
increase in demand at refineries which resulted in an improvement in heavy oil
differentials. Average natural gas prices of $9.65/Mcf increased by 35% from
the second quarter of 2007. The average gas price calculated includes the
impact of the two natural gas contracts.

    
    Performance by Property

    Three months ended June 30

                                2008                    2007
    -----------------------------------------  ----------------------   2008
                                       Oper-                   Oper-    Funds
                                       ating                   ating    from
                                        net-                    net-    oper-
                                       backs/                  backs/  ations
                         Production    BOE(1)    Production    BOE(1)    (2)
    -------------------------------------------------------------------------
                       BOE/d       %       $   BOE/d       %       $       %
    Puskwa             2,391      15   65.48   2,128      16   49.78      20
    Eastern Montney
     gas               3,172      20   42.07   3,826      29   32.74      17
    Eaglesham          2,804      17   58.24   1,713      13   29.83      21
    Dawson
     conventional      1,824      11   48.44   2,675      20   25.58      11
    Edam and other
     heavy oil         1,459       9   34.62   2,247      17   10.26       6
    Calais               648       4   44.75     374       3   32.74       4
    McLean Creek         566       3   99.62       -       -       -       7
    Alexis             1,078       7   45.08       -       -       -       6
    Whitelaw             494       3   22.82       -       -       -       1
    Dixonville           346       2   19.43       -       -       -       1
    St. Anne             286       2   37.75       -       -       -       1
    Jack/Pica             88       1   19.02       -       -       -       -
    -------------------------------------------------------------------------
    Other              1,035       6   36.73     409       2   15.65       5
    -------------------------------------------------------------------------
                      16,191     100   49.08  13,372     100   28.94     100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended June 30

                                2008                    2007
    -----------------------------------------  ----------------------   2008
                                       Oper-                   Oper-    Funds
                                       ating                   ating    from
                                        net-                    net-    oper-
                                       backs/                  backs/  ations
                         Production    BOE(1)    Production    BOE(1)    (2)
    -------------------------------------------------------------------------
                       BOE/d       %       $   BOE/d       %       $       %
    Puskwa             2,546      15   60.91   1,828      15   49.83      21
    Eastern Montney
     gas               3,482      21   38.31   3,328      26   31.52      18
    Eaglesham          2,950      18   51.34   1,634      13   31.12      21
    Dawson
     conventional      1,963      12   39.63   2,855      23   27.11      11
    Edam and other
     heavy oil         1,700      10   28.36   2,165      17   10.25       7
    Calais               778       5   36.22     425       3   26.08       4
    McLean Creek         608       4   93.05       -       -       -       8
    Alexis             1,028       6   39.04       -       -       -       5
    Whitelaw             247       1   22.82       -       -       -       1
    Dixonville           173       1   19.43       -       -       -       -
    St. Anne             143       1   37.75       -       -       -       1
    Jack/Pica             44       0   19.02       -       -       -       -
    -------------------------------------------------------------------------
    Other                937       6   32.84     399       3   19.22       3
    -------------------------------------------------------------------------
                      16,599     100   44.39  12,634     100   28.91     100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Operating netbacks/BOE exclude GCA and are calculated by subtracting
        royalties and operating costs from revenues and dividing the result
        by average production for the period.
    (2) See "Non-GAAP Measurements".
    

    Volume growth in Q2 2008 compared to Q2 2007 was led by light oil
production and by the acquisitions of ExAlta in January 2008 and Adamant in
May 2008. Within the last year, Galleon's drilling program has been focused on
light oil projects due to rising oil prices and soft natural gas prices. At
Puskwa, Eaglesham and Mclean Creek, Alberta, light oil volumes were 50% higher
in Q2 2008 than in Q2 2007.
    During second quarter 2008, Galleon experienced operational challenges
due to extremely wet conditions caused by a prolonged spring break up period.
Drilling operations commenced in June 2008 resulting in the drilling of 9
successful wells for a success rate of 100%. In addition, several service rigs
and pipeline crews were mobilized in June 2008. The effects of this activity
will be seen in future periods.
    At Puskwa, production increased by 12% during second quarter 2008
compared to the same period in 2007. The operating netback was $65.48/BOE, an
improvement of 32% from second quarter 2007. These strong operating netbacks
were driven by average light oil prices (net of transportation) in the period
of $125.12/Bbl. During Q2 2008, Puskwa contributed 20% of funds from
operations from 15% of the production volumes. Average production volumes at
Puskwa during second quarter 2008 were comprised of 83% oil and 17% associated
gas.
    The Puskwa project has moved into the development stage with the
implementation of two enhanced recovery schemes. Currently, wells drilled to
date have confirmed that the Beaverhill lake fairway extends over nine miles
in length. Down spacing applications to allow up to 16 wells per section are
planned within the next year. Galleon plans to drill additional wells for oil
targets as well as for injection purposes.
    Production averaged 3,172 BOE/d (89% natural gas and 11% oil and liquids)
in the Eastern Montney gas project during second quarter 2008 compared to
3,826 BOE/d in second quarter 2007. This decrease is a result of reduced
activity on this project in the form of fewer vertical Montney gas wells being
drilled in the second half of 2007 and in Q1 2008. Capital was allocated
towards light oil projects given the relative strength of oil prices to gas
prices. In addition, Galleon began to consider the benefits of developing this
project with horizontal wells rather than vertical wells. Galleon's first
horizontal well was drilled in Q1 2008 and commenced production in the latter
part of June 2008. Second quarter 2008 production volumes were affected by
power plant outages at Galleon's natural gas plant. The operating netback of
$42.07/BOE has improved by 28% from second quarter 2007 as a result of recent
strong natural gas prices. The Eastern Montney project contributed 17% to
total funds from operating activities based on 20% of production volumes.
    Average production at Eaglesham in the second quarter of 2008 averaged
2,804 BOE/day comprised of 66% natural gas and 34% oil and liquids. Average
production was 1,713 BOE/d at Eaglesham during second quarter 2007. Eaglesham
contributed 21% of the second quarter 2008 funds from operations from 17% of
production volumes.
    During Q2 2008, production declines in the Dawson conventional area
resulted in a decrease of 32% in volumes compared to the prior year. This area
represented 11% of funds from operating activities generated from 11% of the
production volumes in second quarter 2008.
    In Q2 2008, the heavy oil wells located at Edam, Saskatchewan generated
6% of funds from operations from 9% of total production. Operating netbacks of
$34.62/BOE increased by 237% due to the increase in heavy oil prices in the
second quarter 2008.
    Production volumes of 648 BOE/d were recorded at Calais which generated a
netback of $44.75/BOE and contributed 4% of funds from operations.
    McLean Creek has contributed 7% of funds from operations based on 3% of
the production volumes. The high netback of $99.62/BOE in Q2 2008 is
attributed to high oil prices received and a royalty holiday period. This deep
oil property commenced production in December 2007.
    The Alexis property was acquired in the ExAlta acquisition in January
2008. Galleon acquired the properties of Whitelaw, Dixonville, Jack/Pica and
St. Anne in the Adamant acquisition in May 2008.


    
    Royalties
    Three months ended June 30                            2008          2007
    -------------------------------------------------------------------------
    ($000s, except as indicated)
    Crown                                               25,007        12,366
    Freehold                                               302           344
    GORR and other                                       1,846           899
    -------------------------------------------------------------------------
    Gross royalties                                     27,155        13,609
    GCA                                                 (6,097)       (2,603)
    -------------------------------------------------------------------------
    Net royalties                                       21,058        11,006
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    % of revenue                                          22.5          22.4
    % of revenue net of GCA                               17.5          18.1


    Six months ended June 30                              2008          2007
    -------------------------------------------------------------------------
    ($000s, except as indicated)
    Crown                                               43,570        22,457
    Freehold                                               756           757
    GORR and other                                       3,497         1,411
    -------------------------------------------------------------------------
    Gross royalties                                     47,823        24,625
    GCA                                                 (8,520)       (5,237)
    -------------------------------------------------------------------------
    Net royalties                                       39,303        19,388
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    % of revenue                                          21.5          21.7
    % of revenue net of GCA                               17.7          17.1
    -------------------------------------------------------------------------
    


    Gross royalties were 22.5% of revenues for the second quarter of 2008
compared to 22.4% for the same period in 2007. Included in Q2 2008 gross
royalties is an amount of $2.3 million which was paid to the Alberta
Government due to a reclassification of some wells at Puskwa from an
exploratory class to development. Excluding this adjustment, gross royalties
were 20.6% of revenues in second quarter 2008.
    By product, for the second quarter of 2008, gross royalties were 18.6%
for light oil, 26.1% for natural gas, 22.4% for heavy oil, and 32.6% for
liquids. For the second quarter of 2007, gross royalties were 21.9% for light
oil, 23.3% for natural gas, 19.8% for heavy oil, and 24.7% for liquids.
    During Q2 2008, net royalties were 17.5% of revenues, a decrease from
18.1% in the prior year as a result of greater GCA credits as a percentage of
total royalties. After excluding the adjustment related to Puskwa, net
royalties as a percentage of revenues in second quarter 2008 were 15.6%.


    
    Operating Costs
    Three months ended June 30
                                2008                     2007
    -------------------------------------------------------------------------
                  Production  Operating Costs    Production  Operating Costs
    -------------------------------------------------------------------------
                           %       %    $/BOE             %       %    $/BOE
    Puskwa                15      10     9.35            16       6     3.04
    Eastern Montney gas   20      13     8.16            29      15     4.07
    Eaglesham             17      15     8.66            13       8     4.43
    Dawson conventional   11      18    20.94            20      30    13.03
    Edam and other heavy
     oil                   9      19    29.95            17      32    18.23
    Calais                 4       2     7.67             3       3     8.97
    McLean Creek           3       4    15.10             -       -        -
    Alexis                 7       6     8.55             -       -        -
    Dixonville             2       2    15.23             -       -        -
    Jack / Pica            1       1    16.64             -       -        -
    Whitelaw               3       2     7.53             -       -        -
    St. Anne               2       1    10.56             -       -        -
    Other                  6       7    14.39             2       6    19.04
    -------------------------------------------------------------------------
                         100     100    12.71           100     100     8.63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Six months ended June 30
                                2008                     2007
    -------------------------------------------------------------------------
                  Production  Operating Costs    Production  Operating Costs
    -------------------------------------------------------------------------
                           %       %    $/BOE             %       %    $/BOE
    Puskwa                15      11     9.15            15       6     3.21
    Eastern Montney gas   21      11     5.96            26      14     4.15
    Eaglesham             18      15     8.43            13       8     4.97
    Dawson conventional   12      21    22.19            23      30    11.58
    Edam and other heavy
     oil                  10      20    25.95            17      33    18.53
    Calais                 5       3     7.56             3       3     8.02
    McLean Creek           4       3    12.13             -       -        -
    Alexis                 6       6     8.81             -       -        -
    Dixonville             1       1    15.23             -       -        -
    Jack / Pica            -       -    16.64             -       -        -
    Whitelaw               1       1     7.53             -       -        -
    St. Anne               1       1    10.56
    Other                  6       7    13.92             3       6    18.04
    -------------------------------------------------------------------------
                         100     100    11.98           100     100     8.74
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Operating costs were $18.7 million or $12.71/BOE for the second quarter
of 2008 compared to $10.5 million or $8.63/BOE for the same period of the
prior year. Galleon's operating costs per barrel of oil equivalent excluding
heavy oil costs at Edam, Saskatchewan and Alexis, Alberta was $9.44/BOE for
the second quarter of 2008.
    During Q2 2008, Galleon has experienced higher costs associated with
operating crude oil wells compared to the costs of operating natural gas
wells. Some of the more significant costs of operating crude oil wells include
trucking, artificial lift and maintenance costs.
    Lower production volumes were recorded in Q2 2008 due to production
disruptions caused by extremely wet ground conditions during the spring break
up period. As a result of the decreased production volumes, per unit costs are
higher.
    Operating costs at Puskwa were $9.35/BOE in the second quarter of 2008
compared to $3.04/BOE in 2007. At Puskwa, waterflood schemes were implemented
in two sections in late Q2 2007 and additional sections in Q4 2007. The
benefits of waterflood schemes include improved recovery of reserves and
greater production. However, there are additional costs associated with
enhanced production recovery compared to primary production recovery. During
Q2 2008, increased water trucking costs of $1.00/BOE for injection purposes
were incurred due to a water pipeline failure in Q1 2008. Other cost increases
at Puskwa included minor work over and well service costs of $0.79/BOE due to
a greater percentage of pumping oil wells in 2008 compared to flowing wells in
2007. Operating costs for the remainder of the year are expected to average
below $8.00/BOE at Puskwa.
    In the Eastern Montney natural gas project, operating costs were
$8.16/BOE in Q2 2008 of which $1.47/BOE were related to annual road and lease
maintenance costs, property taxes and EUB fees incurred during June 2008.
Operating costs for the remainder of the year are expected to average below
$6.00/BOE in this area.
    Eaglesham operating costs for the second quarter 2008 were $8.66/BOE
compared to $4.43/BOE in 2007. The Eaglesham properties acquired from ExAlta
have a high operating cost base which Galleon plans to reduce where possible.
For Q2 2008, the Eaglesham operating costs, excluding costs related to the
ExAlta Eaglesham wells, were $6.49/BOE. Operating costs for the remainder of
the year are expected to average between $8.00/BOE and $9.00/BOE in Eaglesham.


    
    General and Administration Expenses
    Three months ended June 30           2008                    2007
    -------------------------------------------------------------------------
    ($000s)                                    $/BOE                   $/BOE
    Gross                          4,919        3.34       2,556        2.10
    Capitalized overhead            (833)      (0.57)       (541)      (0.44)
    Overhead recoveries             (388)      (0.26)       (218)      (0.18)
    -------------------------------------------------------------------------
                                   3,698        2.51       1,797        1.48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Six months ended June 30             2008                    2007
    -------------------------------------------------------------------------
    ($000s)                                    $/BOE                   $/BOE
    Gross                          8,803        2.91       5,088        2.22
    Capitalized overhead          (2,042)      (0.68)     (1,677)      (0.73)
    Overhead recoveries             (692)      (0.23)       (350)      (0.15)
    -------------------------------------------------------------------------
                                   6,069        2.00       3,061        1.34
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Gross general and administrative expenses (G&A) have increased by
$1.24/BOE to $3.34/BOE in second quarter 2008 compared to $2.10/BOE in second
quarter 2007. This increase is primarily due to a 38% increase in staffing
levels required to manage the growth of the company. Also, in April 2008,
Galleon relocated to new and larger office space in order to accommodate the
addition of employees and consultants. The office space was 150% greater in
area with a rate increase of approximately 30% per square foot. The rate
increase reflects current market rates compared to those in 2005. Net G&A
expenses of $2.51/BOE for the second quarter of 2008 increased by $1.03/BOE
compared to the same period of the previous year.
    To June 30, 2008, gross G&A has increased by $0.69/BOE and net G&A has
increased by $0.66/BOE compared to the same periods in 2007. Galleon expects
that net G&A will average between $2.10/BOE and $2.20/BOE over 2008.


    
    G&A by category     Three months ended June 30  Six months ended June 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
                                       %           %           %           %
    Salary and employee               44          52          48          51
    Office                            30          22          25          21
    Consulting                        10           6           9           7
    Computer                           7           8           7           8
    Investor relations and
     communications                    2           1           3           4
    Audit, engineering and legal       4           6           5           5
    Other                              3           5           3           4
    -------------------------------------------------------------------------
                                     100         100         100         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Interest

    Interest expense of $3.0 million for the three months ended June 30, 2008
was higher than $2.7 million in the same period of the prior year due to
increased average debt levels. At June, 2008 an amount of $223.6 million was
drawn against the Corporation's credit facility compared to $168.1 million in
the same period prior year.

    Stock Based Compensation

    Stock based compensation was a non-cash expense of $2.3 million for the
three month period ending June 30, 2008 compared to $2.2 million in the same
period of the prior year. The increase was due to a greater number of options
outstanding. During the second quarter of 2008, 430,000 stock options were
granted to employees at an average exercise price of $18.18 having fair values
of between $4.76 and $5.12 per option.
    At June 30, 2008, 6,213,485 stock options were outstanding at an average
exercise price of $13.10.

    Depletion, Depreciation and Accretion

    Depletion and depreciation ("D&D") charges were $32.4 million or
$22.01/BOE for the three months ended June 30, 2008 compared to $25.0 million
or $20.53/BOE for the same period of the prior year. The D&D rate increase was
due to the ExAlta and Adamant acquisitions and increased finding costs from
the drilling program. Reserve additions for the first half of 2008 were
estimated internally.
    As at June 30, 2008, $109.9 million (June 30, 2007 - $84.1 million) of
undeveloped land and seismic have been excluded from, and $112.8 million
(June 30, 2007 - $85.8 million) in future development costs have been added
into, the full cost pool for depletion purposes.
    Accretion expense on the Corporation's asset retirement obligation was
$464,000 for the second quarter of 2008 compared to $356,000 in the same
quarter of the prior year. Accretion expense increased due to a greater asset
retirement obligation which is driven by the number of wells and facilities in
which Galleon has an interest. During the quarter, $4.4 million of asset
retirement liabilities were added due to the acquisition of Adamant.

    Capital and Future Taxes

    The current tax provision of $358,000 for the second quarter was
comprised of Saskatchewan capital and resource taxes, as was the $502,000
provision for the second quarter of 2007. The provision is calculated based on
revenues earned in Saskatchewan. It is not expected that Galleon will pay any
income taxes in 2008.
    The provision for future income taxes was $2.9 million for the second
quarter of 2008 compared to $2.0 million for the same period in the prior
year. The increase in future taxes was a result of higher net earnings before
taxes during the period.


    
    Capital Expenditures
                                                                      ($000s)
    -------------------------------------------------------------------------
    Property & equipment balance at December 31, 2007                739,643
    Additions to property and equipment                              106,182
    Acquisition of property and equipment                              9,402
    Acquisition of ExAlta                                             92,345
    Acquisition of Adamant                                            71,909
    Well abandonments                                                    897
    Asset retirement obligation acquired                               7,834
    Asset retirement obligation additions                              1,247
    Depletion and depreciation                                       (66,052)
    -------------------------------------------------------------------------
    Property & equipment balance at June 30, 2008                    963,407
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    During the second quarter of 2008, $76.3 million was recorded in property
and equipment additions, including asset retirement obligations of
$4.4 million due to the acquisition of Adamant.


    Three months ended June 30      2008                    2007
    -------------------------------------------------------------------------
    ($000s)                                        %                       %
    Land                           3,732          11       1,812           8
    Geological and geophysical     2,723           8       3,200          13
    Drilling and completion       19,008          54      15,240          64
    Plant and facilities           8,512          24       3,275          15
    Other assets                     881           3         141           -
    -------------------------------------------------------------------------
    Exploration and Development
     Expenditures                 34,856         100      23,668         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended June 30        2008                    2007
    -------------------------------------------------------------------------
    ($000s)                                        %                       %
    Land                           5,771           5       5,445           6
    Geological and geophysical     8,076           8       6,130           7
    Drilling and completion       63,401          60      55,793          66
    Plant and facilities          27,920          26      18,048          21
    Other assets                   1,014           1         186           -
    -------------------------------------------------------------------------
    Exploration and Development
     Expenditures                106,182         100      85,602         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Exploration and development expenditures during the second quarter of
2008 were $34.9 million which included the drilling and completion of 9 gross
(9.0 net) wells in June 2008. Seven (7.0 net) natural gas wells and 2 (2.0
net) light oil wells were cased for production representing a success rate of
100%.
    Facilities expenditures of $8.5 million were incurred with land and
seismic expenditures of $3.7 million and $2.7 million, respectively, in second
quarter 2008. Management has established an exploration and development
capital budget of up to $280 million for 2008 which is expected to be funded
from funds from operations.


    
    Liquidity and Capital Resources
    June 30                                                 2008        2007
    -------------------------------------------------------------------------
    ($000s)
    Bank debt                                            223,562     168,091
    Capital leases - non current                           2,467           -
    Working capital deficiency                             3,311       9,787
    -------------------------------------------------------------------------
    Total net debt                                       229,340     177,878
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Funding of Capital Program
    Three months ended June 30                              2008        2007
    -------------------------------------------------------------------------
    ($000s)
    Issuance of shares, net of costs                       7,966      29,746
    Funds from operations                                 61,157      32,833
    Change in bank debt                                   (6,304)    (21,323)
    Change in debt and working capital from acquisitions   9,336           -
    Change in capital leases                                (624)          -
    Change in working capital and other                  (24,382)    (11,416)
    -------------------------------------------------------------------------
                                                          47,149      29,840
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended June 30                                2008        2007
    -------------------------------------------------------------------------
    ($000s)
    Issuance of shares, net of costs                       9,712      30,542
    Funds from operations                                116,602      63,003
    Change in bank debt                                   60,184      45,095
    Change in debt and working capital from acquisitions (36,947)          -
    Change in capital leases                              (1,108)          -
    Change in working capital and other                  (28,062)    (18,885)
    -------------------------------------------------------------------------
                                                         120,381     119,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    During the quarter option exercises of $8.0 million and funds from
operations of $61.2 million, and an additional $9.3 million in working capital
from acquisitions, were used to pay down $6.3 million in bank debt and fund
$47.1 million of acquisition and exploration and development expenditures.
    At June 30, 2008, the Corporation has extendible revolving term credit
facilities of $310 million in place with a bank syndicate. The facilities bear
interest at rates ranging from the bank's prime rate to prime plus 0.75% per
annum on $290 million and at rates ranging from the bank's prime rate plus
0.95% to prime plus 1.75% on $20 million based on the Corporation's debt to
cash flow ratio. The Corporation may also borrow at the prevailing Banker's
Acceptance rate. Collateral for the facilities consists of a demand debenture
for $500 million collateralized by a first floating charge over all of the
property and equipment of the Corporation. At June 30, 2008, an amount of
$223.6 million was drawn against the credit facilities (June 30, 2007 -
$168.1 million).

    Commitments

    Drilling Rig:

    The Corporation has entered into a Master Daywork Contract whereby it is
entitled to the use of a drilling rig for a two year period which commenced
November 15, 2007. Future minimum payments under this contract are as follows:


    
                                                                      Amount
    Year                                                              ($000s)
    -------------------------------------------------------------------------
    2008                                                               1,970
    2009                                                               4,170

    Minimum Lease Payments:

    At June 30, 2008 the Corporation has committed to future minimum payments
under operating leases that cover office space as follows:

                                                                      Amount
    Year                                                               ($000)
    -------------------------------------------------------------------------
    2008                                                               1,334
    2009                                                               2,514
    2010                                                               1,800

    The above commitment includes an estimate of the Corporation's share of
operating expenses, utilities and taxes for the duration of the office lease.

    Vehicle and equipment:

    At June 30, 2008 the Corporation committed to future minimum payments
under leases for vehicles and compressors, under operating leases, as follows:

                                                                      Amount
    Year                                                                   $
    -------------------------------------------------------------------------
    2008                                                                  41

    The Corporation has entered into a series of equipment lease financing
arrangements. Under these arrangements, the Corporation is committed to annual
minimum lease payments as follows:

                                                                           $
    2008                                                               1,222
    2009                                                               2,274
    2010                                                               1,605
    -------------------------------------------------------------------------
    Total minimum lease payments                                       5,101
    Less interest included in payments                                  (350)
    -------------------------------------------------------------------------
    Principal portion of minimum lease payments                        4,751
    Less current portion                                              (2,284)
    -------------------------------------------------------------------------
    Capital lease obligation at June 30, 2008                          2,467
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Flow-through Shares:

    In connection with the Corporation's flow-through share offering in 2007,
Galleon is obligated to spend $60.0 million on qualifying exploration expenses
prior to December 31, 2008. As at June 30, 2008, approximately $2.5 million of
the required qualifying expenditures remain to be incurred.

    Financial Instruments

    Refer to the "Commodity Pricing and Marketing" section.

    Business Risks

    Galleon is engaged in the exploration, development and production of
crude oil and natural gas. The oil and gas business is inherently risky and
there is no assurance that hydrocarbon reserves will be discovered and
economically produced. Operational risks include competition, reservoir
performance uncertainties, environmental factors, and regulatory, environment
and safety concerns. Financial risks associated with the petroleum industry
include fluctuations in commodity prices, interest rates, currency exchange
rates and the cost of goods and services.
    Galleon employs highly qualified people, uses sound operating and
business practices, and evaluates all potential and existing wells using the
latest applicable technology. Galleon complies with government regulations and
has in place an up-to-date emergency response program. Environment and safety
policies and standards are adhered to. Asset retirement obligations are
recognized upon acquisition, construction, development and/or normal use of
the assets. Galleon maintains property and liability insurance coverage. The
coverage provides a reasonable amount of protection from risk of loss;
however, not all risks are foreseeable or insurable.
    Financial risks include fluctuations in commodity prices, interest rates
and the Canadian/US dollar exchange rate, and the cost of goods and services.
The Corporation currently has three financial contracts with a Canadian
chartered bank and two term natural gas contracts (see "Commodity Pricing and
Marketing" for details). The Corporation also manages these risks by
maintaining a healthy balance sheet with prudent levels of debt measured by
debt to funds from operations and debt coverage ratios. This allows for strong
financial capacity to maintain exploration and development activities in any
downturn in commodity prices. An additional risk is credit risk for failure of
performance by counter-parties. This risk is controlled by an evaluation of
the credit risk before contract initiation and ensuring product sales and
delivery contracts are made with well-known and financially strong crude oil
and natural gas marketers.
    All phases of the oil and natural gas business present environmental
risks and hazards and are subject to environmental regulation pursuant to a
variety of federal, provincial and local laws and regulations. Compliance with
such legislation can require significant expenditures and a breach may result
in the imposition of fines and penalties, some of which may be material.
Environmental legislation is evolving in a manner expected to result in
stricter standards and enforcement, larger fines and liability and potentially
increased capital expenditures and operating costs. In 2002, the Government of
Canada ratified the Kyoto Protocol (the "Protocol"), which calls for Canada to
reduce its greenhouse gas emissions to specified levels. There has been much
public debate with respect to Canada's ability to meet these targets and the
Government's strategy or alternative strategies with respect to climate change
and the control of greenhouse gases. Implementation of strategies for reducing
greenhouse gases whether to meet the limits required by the Protocol or as
otherwise determined could have a material impact on the nature of oil and
natural gas operations, including those of the Corporation. Given the evolving
nature of the debate related to climate change and the control of greenhouse
gases and resulting requirements, it is not possible to predict either the
nature of those requirements or the impact on the Corporation and its
operations and financial condition.

    Changes in Accounting Policies

    As of January 1, 2008, Galleon adopted several new CICA standards,
section 1400 "General Standards of Financial Statement Presentation", section
1535 "Capital Disclosures", section 3031 "Inventories", section 3862
"Financial Instruments - Disclosures" and Section 3863 "Financial Instruments
- Presentation,".
    CICA 1400, General Standards of Financial Statement Presentation, was
amended to include requirements to assess and disclose an entity's ability to
continue as a going concern. The new requirements are effective for interim
and annual financial statements relating to fiscal years beginning on or after
January 1, 2008. The adoption of this standard did not have an impact on the
Corporation's financial statements.
    Section 1535 establishes standards for disclosing information regarding
the capital of the entity and how it is managed. The section specifies the
disclosure of i) objectives, policies, and processes for managing capital by
the entity; ii) quantitative data about what the entity regards as capital;
iii) whether the entity has complied with any capital requirements; and iv) if
it has not complied, the consequences of such non-compliance.
    CICA 3031, Inventories replaces CICA 3030, Inventories and establishes
standards for measurement and disclosure of inventories. This standard
provides guidance on the determination of cost and subsequent recognition as
an expense, including any write-down to net realizable value and the reversal
of previous write-downs when there is a subsequent increase in the value of
inventories. It also provides guidance on the cost formulas that are used to
assign costs. The adoption of this standard did not have an impact on the
Corporation's financial statements.
    Sections 3862 and 3863 replace section 3861 "Financial Instruments -
Disclosure and Presentation" which revises and enhances financial instruments
disclosure requirements and leaves unchanged its presentation requirements.
The objective of section 3862 is to provide financial statement disclosure to
enable users to evaluate the significance of financial instruments to the
Corporation's financial position and performance. The section also requires
increased disclosure on the nature and extent of risks arising from financial
instruments that the Corporation is exposed to during the reporting period and
the balance sheet date and how the corporation is managing those risks. The
purpose of section 3863 is to enhance the financial statement users'
understanding of the significance of financial instruments to the
Corporation's financial position, performance and cash flows.
    The Canadian Accounting Standards Board (AcSB) has confirmed that the use
of the International Financial Reporting Standards ("IFRS") will be required
in 2011 for publicly accountable profit-oriented enterprises. IFRS will
replace Canada's current GAAP for those enterprises that are responsible to
large or diverse groups of stakeholders. The official changeover date is for
interim and annual financial statements relating to fiscal years beginning on
or after January 1, 2011. Companies will be required to provide comparative
IFRS information for the previous fiscal year. Galleon is currently evaluating
the impact of adopting IFRS.

    Controls and Procedures over Financial Reporting

    Galleon has established disclosure controls and procedures to provide
reasonable assurance that material information relating to Galleon, including
its consolidated subsidiaries, is made known to the Chief Executive Officer
(CEO) and the Chief Financial Officer (CFO) by others within those entities,
particularly during the period in which the annual and interim filings have
been prepared. The CEO and the CFO have designed or caused to be designed
under their supervision, internal controls over financial reporting to provide
reasonable assurance regarding the reliability of the Corporation's financial
reporting and the preparation of financial statements for external purposes in
accordance with Canadian GAAP.
    The Corporation's CEO and CFO are required to cause the Corporation to
disclose any change in the Corporation's internal controls over financial
reporting that occurred during the Corporation's most recent interim period
that has material affected, or is reasonably likely to materially affect, the
Corporation's internal controls over financial reporting. No material changes
in the Corporation's internal controls over financial reporting were
identified during the Corporation's most recent interim period that has
materially affected, or are reasonably likely to materially affect, the
Corporation's internal controls over financial reporting.
    It should be noted that a control system, including the Corporation's
disclosure and internal controls and procedures, no matter how well conceived,
can provide only reasonable, but not absolute, assurance that the objectives
of the control system will be met and it should not be expected that the
disclosure and internal controls and procedures will prevent all errors or
fraud.


    
    Share Information

    The following table summarizes the outstanding shares of Galleon as of
    June 30:

                                                            2008        2007
    -------------------------------------------------------------------------
    Class A shares outstanding
      Basic                                           72,817,827  59,734,952
      Diluted(1)                                      79,031,312  65,133,902
    Class B shares outstanding                           922,500     922,500
    Class A shares issuable on conversion
     of Class B shares(2)                                447,816     525,941
    -------------------------------------------------------------------------
    (1) Includes total outstanding options of 6,213,485 (June 30, 2006 -
        5,398,950).
    (2) Assumes a conversion at the June 30, 2008 closing price of $20.60 per
        Class A share (June 30, 2006 -$17.54). The actual conversion rate
        varies based on a formula related to the trading price of the Class A
        shares.
    


    At June 30, 2008, the market value of Galleon's class A and class B
shares was $1.5 billion based on the June 30, 2008 closing price of $20.60 per
class A share and $9.65 per class B share. As of August 13, 2008, the number
of class A shares, class B shares, and options outstanding are 72,918,493,
922,500 and 6,466,152 respectively.

    Additional Information

    Additional information relating to Galleon, including Galleon's Annual
Information Form, can be accessed on-line on SEDAR at www.sedar.com, or from
the Corporation's website at www.galleonenergy.com.


    
    Quarterly Highlights               2008                    2007
    -------------------------------------------------------------------------
                                  Q2          Q1          Q4          Q3
    Production
    Light oil (Bbl/d)              4,629       4,871       4,419       3,375
    Heavy oil (Bbl/d)              2,066       2,919       1,746       1,949
    Natural Gas (Mcf/d)           53,971      52,644      49,486      48,989
    Liquids (Bbl/d)                  501         441         283         237
    BOE/d                         16,191      17,005      14,695      13,726
    Total BOE produced         1,473,414   1,547,476   1,351,986   1,262,762
    Daily BOE of production
     per million Class A
     shares - basic(1)               229         254         232         229

    Prices (net of
     transportation)
    Light oil ($/Bbl)             120.68       94.79       83.38       78.43
    Heavy oil ($/Bbl)              88.93       63.52       37.32       40.04
    Crude oil ($/Bbl)             110.88       85.20       64.40       63.25
    Natural Gas ($/Mcf)             9.65        7.73        6.16        5.73
    NGLs ($/Bbl)                   71.19       59.59       72.90       64.05

    Per BOE ($)
    Revenues                       81.85       65.60       52.77       47.64
    Royalties, net of ARTC
     and GCA                      (14.29)     (11.79)      (8.55)      (8.41)
    Transportation costs           (1.64)      (1.04)      (1.18)      (1.13)
    Operating costs               (12.71)     (11.28)     (10.52)      (8.35)
    Net                            53.21       41.49       32.52       29.75
    Other revenue                   0.07        0.08           -           -
    G&A                            (2.51)      (1.53)      (2.00)      (1.19)
    Interest                       (2.02)      (1.81)      (1.83)      (2.14)
    Capital and other taxes        (0.24)      (0.22)       0.05       (0.18)
    Realized gain (loss) on
     financial derivative          (7.00)      (2.18)      (2.49)      (0.44)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Funds from operations(2)       41.51       35.83       26.25       25.80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Quarterly Highlights               2007                    2006
    -------------------------------------------------------------------------
                                  Q2          Q1          Q4          Q3
    Production
    Light oil (Bbl/d)              3,317       3,127       2,419       1,823
    Heavy oil (Bbl/d)              2,247       2,081       2,100       1,984
    Natural Gas (Mcf/d)           45,314      38,845      36,733      33,068
    Liquids (Bbl/d)                  256         206         230         102
    BOE/d                         13,372      11,888      10,869       9,420
    Total BOE produced         1,216,855   1,069,915     999,982     866,646
    Daily BOE of production
     per million Class A
     shares - basic(1)               226         206         191         172

    Prices (net of
     transportation)
    Light oil ($/Bbl)              70.12       63.24       63.03       75.65
    Heavy oil ($/Bbl)              35.89       36.55       31.16       47.01
    Crude oil ($/Bbl)              56.30       52.57       47.19       53.35
    Natural Gas ($/Mcf)             7.14        7.36        6.84        5.58
    NGLs ($/Bbl)                   59.67       56.64       56.02       69.83

    Per BOE ($)
    Revenues                       49.91       49.51       45.26       46.06
    Royalties, net of ARTC
     and GCA                       (9.04)      (7.84)      (6.02)      (7.20)
    Transportation costs           (1.16)      (1.47)      (1.37)      (1.25)
    Operating costs                (8.63)      (8.86)      (9.65)     (10.66)
    Net                            31.08       31.34       28.22       26.95
    Other revenue                      -           -           -           -
    G&A                            (1.48)      (1.18)      (2.67)      (0.80)
    Interest                       (2.20)      (2.10)      (1.49)      (1.39)
    Capital and other taxes        (0.41)      (0.21)      (0.21)      (0.33)
    Realized gain (loss) on
     financial derivative              -        0.35           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Funds from operations(2)       26.99       28.20       23.85       24.43
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Restated to reflect a three-for-two Class A share split in June 2006.
    (2) See "Non-GAAP Measurements"



    Quarterly Highlights
     (unaudited)                       2008                    2007
    -------------------------------------------------------------------------
                                  Q2          Q1          Q4          Q3
    Financial ($000s)
    Revenues                     120,602     101,516      71,339      60,156
    Operating costs              (18,726)    (17,460)    (14,227)    (10,547)
    General & Administrative
     expenses                     (3,698)     (2,371)     (2,712)     (1,507)
    Interest expense              (2,977)     (2,803)     (2,476)     (2,707)
    Funds from operations(2)      61,157      55,445      35,483      32,566
      Per share,
       basic(1),(2)                 0.86        0.83        0.56        0.54
      Per share,
       diluted(1),(2)               0.84        0.81        0.55        0.53
    Earnings                       5,673      10,417        (495)      1,590
      Per share, basic(1)           0.08        0.16       (0.01)       0.03
      Per share, diluted(1)         0.08        0.15       (0.01)       0.03
    Total assets               1,070,765     975,911     799,359     743,932
    Weighted average
     outstanding Class A
     shares-basic(1)          70,741,901  67,034,895  63,206,585  59,880,135
    Weighted average
     outstanding Class A
     shares-diluted(1)        72,575,607  68,630,474  64,716,872  61,724,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Quarterly Highlights
     (unaudited)                       2007                    2006
    -------------------------------------------------------------------------
                                  Q2          Q1          Q4          Q3
    Financial ($000s)
    Revenues                      60,734      52,974      45,264      39,921
    Operating costs              (10,507)     (9,478)     (9,651)     (9,243)
    G&A                           (1,797)     (1,264)     (2,670)       (692)
    Interest                      (2,681)     (2,246)     (1,487)     (1,202)
    Funds from operations(2)      32,834      30,170      23,857      21,178
      Per share,
       basic(1),(2)                 0.55        0.52        0.42        0.39
      Per share,
       diluted(1),(2)               0.54        0.50        0.40        0.37
    Earnings                       3,270       3,921       1,906       2,196
      Per share, basic(1)           0.06        0.07        0.03        0.04
      Per share, diluted(1)         0.05        0.07        0.03        0.04
    Total assets                 699,112     692,749     614,565     540,980
    Weighted average
     outstanding Class A
     shares-basic(1)          59,204,393  57,800,899  56,761,415  54,854,334
    Weighted average
     outstanding Class A
     shares-diluted(1)        61,175,217  59,947,494  59,234,229  57,447,555
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Restated to reflect a three-for-two Class A share split in June 2006.
    (2) See "Non-GAAP Measurements".



    GALLEON ENERGY INC.
    Consolidated Balance Sheets

                                                       June 30,  December 31,
    ($000s) (unaudited)                                  2008        2007
    -------------------------------------------------------------------------
    ASSETS

    CURRENT
      Accounts receivable                                 56,336      35,406
      Deposits and prepaid expenses                        9,437       5,459
    -------------------------------------------------------------------------
                                                          65,773      40,865

    Goodwill                                              34,628      16,022
    Equipment inventory                                    6,957       2,829
    Property and equipment                               963,407     739,643
    -------------------------------------------------------------------------
                                                       1,070,765     799,359
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    CURRENT
      Accounts payable and accrued liabilities            66,800      71,044
      Gas contract                                         4,577           -
      Capital leases                                       2,284           -
      Bank loan                                          223,562     163,378
      Fair value of financial derivatives                 32,180       9,075
    -------------------------------------------------------------------------
                                                         329,403     243,497

    Asset retirement obligation                           35,351      25,535
    Capital leases                                         2,467           -
    Future income taxes                                   83,108      52,299
    -------------------------------------------------------------------------
                                                         450,329     321,331
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY

    Share capital                                        543,413     419,011
    Contributed surplus                                   20,980      19,064
    Retained earnings                                     56,043      39,953
    -------------------------------------------------------------------------
                                                         620,436     478,028
    -------------------------------------------------------------------------
                                                       1,070,765     799,359
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    GALLEON ENERGY INC
    Consolidated Statements of Earnings,
    Comprehensive Income and Retained Earnings

    ($000s, except per share amounts) (unaudited)

                                Three months ended       Six months ended
                                      June 30                 June 30
                                 2008        2007        2008        2007
    -------------------------------------------------------------------------
    REVENUE
    Petroleum and natural
     gas revenue                 120,602      60,735     222,118     113,709
    Royalties, net of GCA        (21,058)    (11,006)    (39,303)    (19,388)
    Realized gain on gas
     contract                        763           -         763           -
    Other income                     105           -         228           -
    -------------------------------------------------------------------------
                                 100,412      49,729     183,806      94,321

    EXPENSES
    Operating                     18,726      10,507      36,186      19,985
    Transportation                 2,416       1,408       4,031       2,995
    General and administration     3,698       1,797       6,069       3,061
    Interest                       2,977       2,682       5,780       4,928
    Stock-based compensation       2,271       2,193       5,042       4,054
    Accretion                        464         356       1,032         673
    Depletion and depreciation    32,433      24,979      66,052      47,001
    Realized loss (gain) on
     financial derivative         10,317           -      13,678        (373)
    Unrealized loss (gain) on
     financial derivative         18,178          26      23,105        (453)
    -------------------------------------------------------------------------
                                  91,480      43,948     160,975      81,871

    Earnings before taxes          8,932       5,781      22,831      12,450
    Income taxes
    Capital and other taxes          358         502         697         722
    Future income taxes            2,901       2,008       6,044       4,536
    -------------------------------------------------------------------------
                                   3,259       2,510       6,741       5,258

    NET EARNINGS AND
     COMPREHENSIVE INCOME          5,673       3,271      16,090       7,192
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS,
     BEGINNING OF PERIOD          50,370      35,588      39,953      31,667
    -------------------------------------------------------------------------
    RETAINED EARNINGS,
     END OF PERIOD                56,043      38,859      56,043      38,859
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET EARNINGS AND
     COMPREHENSIVE INCOME
     PER SHARE
    Basic                           0.08        0.06        0.23        0.12
    Diluted                         0.08        0.05        0.23        0.12
    Weighted average Class A
     shares - basic           70,741,901  59,204,393  68,862,794  58,506,523
            - diluted         72,575,607  61,175,217  70,419,898  60,427,881



    GALLEON ENERGY INC.
    Consolidated Statements of Cash Flows

    ($000s) (unaudited)
                               Three months ended       Six months ended
                                      June 30                 June 30
                                 2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    OPERATING ACTIVITIES
      Net earnings                 5,673       3,271      16,090       7,192
      Items not requiring cash:
        Future income taxes        2,901       2,008       6,044       4,536
        Depletion and
         depreciation             32,433      24,979      66,052      47,001
        Accretion                    464         356       1,032         673
        Stock-based
         compensation              2,271       2,193       5,042       4,054
        Unrealized loss (gain)
         on financial
         derivative               18,178          26      23,105        (453)
        Realized gain on gas
         contract                   (763)          -        (763)          -
      Abandonment costs              (91)       (109)     (1,194)       (456)
      Change in non-cash
       working capital            (4,613)     (1,619)    (17,570)     (3,682)
    -------------------------------------------------------------------------
                                  56,453      31,105      97,838      58,865
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
      Issue of common shares       8,055      31,378       9,893      32,178
      Share issue costs              (89)     (1,632)       (181)     (1,636)
      Capital lease payment         (624)          -      (1,108)          -
      Working capital assumed
       on acquisition of
       ExAlta                      1,317           -     (44,966)          -
      Working capital assumed
       on acquisition of
       Adamant                     8,019           -       8,019           -
       Bank loan                  (6,304)    (21,323)     60,184      45,095
    -------------------------------------------------------------------------
                                  10,374       8,423      31,841      75,637
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
      (Additions to) disposal
       of equipment inventory     (2,444)       (272)    (2,567)         453
      Additions to oil and
       gas properties            (34,856)    (23,668)  (106,182)     (85,602)
      Acquisition of oil and
       gas properties             (9,849)     (5,900)   (11,632)     (34,606)
      Change in non-cash
       working capital           (19,678)     (9,688)    (9,298)     (14,747)
    -------------------------------------------------------------------------
                                 (66,827)    (39,528)  (129,679)    (134,502)
    -------------------------------------------------------------------------
    CHANGE IN CASH                     -           -          -            -
    CASH, BEGINNING AND
     END OF PERIOD                     -           -          -            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    SUPPLEMENTARY INFORMATION
      Cash interest paid           2,972       2,933      5,775        5,168
      Cash taxes paid                 56         168        446          333
    


    ADVISORY: Statements that are not historical facts may be considered
forward looking statements including management's assessment of future plans
and operations, growth expectations within the Corporation, expected
production and production increases, length of drilling program in Montney,
expected general and administration and operating expenses in 2008,
expectation that the Corporation will not be taxable in 2008, drilling plans
and the timing thereof, facilities to be constructed or expanded and the
timing thereof, capital expenditures, the timing thereof and the method of
funding thereof. These forward-looking statements sometimes include words to
the effect that management believes or expects a stated condition or result.
All estimates and statements that describe the Corporation's objectives, goals
or future plans are forward-looking statements. Since forward-looking
statements address future events and conditions, by their very nature they
involve inherent risks and uncertainties 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, Galleon's actual results may differ materially from those
expressed in, or implied by, the forward-looking statements.
    Forward looking statements or information are based on a number of
factors and assumptions which have been used to develop such statements and
information but which may prove to be incorrect. Although the Corporation
believes that the expectations reflected in such forward looking statements or
information are reasonable, undue reliance should not be placed on forward
looking statements because the Corporation can give no assurance that such
expectations will prove to be correct. In addition to other factors and
assumptions which may be identified in this document, assumptions have been
made regarding, among other things: the impact of increasing competition; the
general stability of the economic and political environment in which the
Corporation operates; the timely receipt of any required regulatory approvals;
the ability of the Corporation to obtain qualified staff, equipment and
services in a timely and cost efficient manner; drilling results; the ability
of the operator of the projects which the Corporation has an interest in to
operate the field in a safe, efficient and effective manor; the ability of the
Corporation to obtain financing on acceptable terms; field production rates
and decline rates; the ability to replace and expand oil and natural gas
reserves through acquisition, development of exploration; the timing and costs
of pipeline, storage and facility construction and expansion and the ability
of the Corporation to secure adequate product transportation; future oil and
natural gas prices; currency, exchange and interest rates; the regulatory
framework regarding royalties, taxes and environmental matters in the
jurisdictions in which the Corporation operates; and the ability of the
Corporation to successfully market its oil and natural gas products.
    Readers are cautioned that the foregoing list of all factors and
assumptions is not exhaustive. Additional information on these and other
factors that could affect Galleon's operations and financial results are
included elsewhere herein and in reports on file with Canadian securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com), or at Galleon's website (www.galleonenergy.com). Furthermore,
the forward looking statements contained herein are made as at the date hereof
and Galleon 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.
    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.





For further information:

For further information: www.galleonenergy.com OR CONTACT: Steve
Sugianto, President and Chief Executive Officer, (403) 261-9287,
steves@galleonenergy.com; Glenn R. Carley, Executive Chairman, (403) 261-9277,
glennc@galleonenergy.com; Shivon Crabtree, Vice President and Chief Financial
Officer, (403) 261-9276

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GALLEON ENERGY INC.

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