Gentry Announces First Half 2008 Financial and Operational Results



    CALGARY, Aug. 13 /CNW/ -

    
    Highlights

    Gentry Resources Ltd. (Gentry or the Company) is pleased to announce
financial and operating results for the three and six months ended
June 30, 2008.

    Financial Highlights

    -  Gentry's gross revenue for the three months ended June 30, 2008 was
       $29.74 million compared to $17.12 million in the comparative period of
       2007. For the six months ended June 30, 2008, gross revenue was
       $59.04 million, compared to $32.84 million recorded a year ago.

    -  Funds flow from operations for the second quarter of 2008 was
       $11.93 million ($0.22 per share), compared to $6.90 million ($0.15 per
       share) recorded in the second quarter of 2007. For the first half of
       2008, funds flow from operations was $24.75 million ($0.45 per share),
       compared to $13.34 million ($0.32 per share) recorded in the first
       half of 2007.

    -  Gentry recorded a loss of $2.83 million ($0.05 per share) in the
       second quarter of 2008 versus a net loss of $410 thousand ($0.01 per
       share) in the second quarter of 2007. The Company's loss for the six
       months ended June 30, 2008 was $2.47 million ($0.04 per share)
       compared to a net loss of $256 thousand ($0.01 per share) recorded in
       the first six months of 2007. Contributing to the losses in 2008 were
       unrealized losses on commodity contracts of $4.58 million and
       $6.26 million for the three and six months ended June 30, 2008
       respectively.

    -  Operating netbacks for the three months ended June 30, 2008 increased
       by 71% to $42.63/boe from $24.99/boe recorded in the corresponding
       period of 2007. For the six months ended June 30, 2008, operating
       netbacks were up 52% to $37.82/boe from $24.91/boe recorded a year
       ago.

    -  Excluding acquisitions and dispositions, Gentry's capital expenditures
       for the three-month period ended June 30, 2008, were $9.02 million
       versus $7.83 million in the comparative period. Gentry's capital
       program for the first six months of the year was $20.74 million
       compared to the $18.38 million spent in the first six months of 2007.

    -  Gentry's net debt, excluding the fair value of commodity contracts,
       was $54.42 million at quarter end, or 1.1 times annualized second
       quarter funds flow from operations.

    Operational Highlights

    -  Daily production for the quarter averaged 3,862 boe/d versus
       3,904 boe/d in second quarter 2007, reflecting the shut-in of
       approximately 1,000 boe/d due to the temporary shut down
       of two third-party gas plants and restricted field access due to
       prolonged wet weather. Production averaged 4,358 boe/d for the six
       month period compared with 3,759 boe/d for last year's first half.

    -  Current production has been rebuilt to approximately 4,800 boe/d and
       an additional 500 boe/d is behind pipe.

    -  The oil to gas ratio of total production is now 50/50, as 2008
       drilling continues to focus on oil targets. The percentage of oil
       production is expected to continue to rise.

    -  Quarterly drilling achieved 86% success on seven wells; five were
       cased as oil wells at Princess. An extended period of wet weather in
       the Princess area forced deferral of much of the drilling campaign to
       the year's second half.

    -  With two drilling rigs working at Princess, 15 wells (15.0 net) have
       been drilled to date in the third quarter with 13 cased as oil wells.

    -  The first horizontal well has been drilled into the Pekisko formation
       at Princess with promising initial results and a second horizontal
       well has just completed drilling operations. Both wells are expected
       to be tied in early September.

    Proposed merger with Crew Energy Inc.

    -  On June 23, 2008, Gentry announced an agreement with Crew Energy Inc.
       (Crew) whereby, subject to certain conditions, Crew will acquire all
       of the issued and outstanding shares of Gentry. Under the terms of the
       agreement, Gentry shareholders will receive 0.22 of a Crew common
       share for each Gentry common share held. A special meeting of Gentry
       shareholders to vote on the transaction is scheduled for August 21,
       2008.


                      Three months ended June 30    Six months ended June 30
                                            %                           %
                          2008      2007  change      2008      2007  change
    -------------------------------------------------------------------------
    Financial
     (thousands, except
     per share amounts)
    -------------------------------------------------------------------------
    Revenue           $ 29,735  $ 17,118      74  $ 59,042  $ 32,842      80
    -------------------------------------------------------------------------
    Funds flow from
     operations         11,932     6,903      73    24,745    13,344      85
    -------------------------------------------------------------------------
      per share - basic   0.22      0.15      47      0.45      0.32      41
    -------------------------------------------------------------------------
      per share -
       diluted            0.21      0.15      40      0.44      0.32      38
    -------------------------------------------------------------------------
    Net income (loss)   (2,833)     (410)    591    (2,473)     (256)    866
    -------------------------------------------------------------------------
      per share - basic  (0.05)    (0.01)    400     (0.04)    (0.01)    300
    -------------------------------------------------------------------------
      per share -
       diluted           (0.05)    (0.01)    400     (0.04)    (0.01)    300
    -------------------------------------------------------------------------
    Capital
     expenditures        9,016     7,833      15    20,737    18,380      13
    -------------------------------------------------------------------------
    Corporate
     acquisition             -    73,595    (100)        -    73,595    (100)
    -------------------------------------------------------------------------
    Net debt            60,678    52,448      16    60,678    52,448      16
    -------------------------------------------------------------------------
    Shares outstanding,
     weighted average   55,282    44,753      24    55,158    41,832      32
    -------------------------------------------------------------------------
    Production
    -------------------------------------------------------------------------
    Oil & liquids
     (bbls/d)            1,829     1,534      19     2,114     1,485      42
    -------------------------------------------------------------------------
    Gas (mcf/d)         12,193    14,217     (14)   13,464    13,646      (1)
    -------------------------------------------------------------------------
    Oil equivalent
     (per boe)           3,862     3,904      (1)    4,358     3,759      16
    -------------------------------------------------------------------------
    Average Realized
     Prices
    -------------------------------------------------------------------------
    Oil & liquids
     (per bbl)        $ 102.14  $  55.49      84  $  91.85  $  54.74      68
    -------------------------------------------------------------------------
    Gas (per mcf)         9.94      7.24      37      8.97      7.34      22
    -------------------------------------------------------------------------
    Oil equivalent
     (per boe)           79.75     48.19      65     72.27     48.27      50
    -------------------------------------------------------------------------
    Operating Netbacks
    -------------------------------------------------------------------------
    Oil & liquids
     (per bbl)        $  58.52  $  29.10     101  $  51.92  $  30.58      70
    -------------------------------------------------------------------------
    Gas (per mcf)         4.73      3.73      27      4.09      3.53      16
    -------------------------------------------------------------------------
    Oil equivalent
     (per boe)           42.63     24.99      71     37.82     24.91      52
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note: Barrels of oil equivalent (boe) have been calculated by converting
          gas to boe at a ratio of 6:1.
    

    PRESIDENT'S MESSAGE TO SHAREHOLDERS

    Late in the second quarter Gentry embarked on a new strategic direction
which has set the stage for a new era for our shareholders. On June 23, we
announced an agreement which, if approved by Gentry shareholders, will see
Gentry merge with Crew Energy Inc. The details are outlined in this report,
however, Gentry's management and Board believe the combination is in the best
interests of shareholders. The merger will create an intermediate-sized
company with a strong foundation of assets for realizing growth in our
competitive industry and for generating future value for our shareholders.
    Operationally during the quarter, Gentry once again recorded solid
drilling success in targeting the Pekisko formation at Princess, although
unseasonably wet field conditions delayed rig moves and drilling for an
extended period. A portion of planned drilling was deferred to the third
quarter and we are now aggressively at work with two drilling rigs and two
completion rigs at Princess. So far in the third quarter, 15 wells have been
drilled, 13 of which have been completed as successful oil wells. However, our
production for the second quarter was down by approximately 1,000 boe/d as we
faced the temporary shut down of two third-party gas plants. This is discussed
in detail below, and it should be noted that production is back up to
approximately 4,800 boe/d, largely due to successful efforts to re-route our
gas volumes from third party facilities to Gentry-owned and operated
facilities.

    2008 drilling

    Gentry's drilling success was 86% (82% net) on seven wells (5.6 net)
during the second quarter, a period that presented many weather-related
challenges which restricted drilling to a brief window on a small portion of
lands at Princess. Field work was limited to 22 of 91 days, due to inclement
conditions. Of the seven wells drilled in the quarter, six were in the
Princess area (5.2 net), five were cased as oil wells (4.2 net) and one well
was abandoned (1.0 net). The Company also participated in one well (0.4 net)
at Mirage in the Peace River Arch which is currently suspended awaiting
further work.
    For the first half of 2008, Gentry's drilling success was 83% (81% net).
The Company drilled 18 wells (15.8 net) resulting in 12 oil wells (10.4 net),
three wells (2.4 net) are awaiting further completion work and three were
abandoned (3.0 net). Fourteen of the wells (12.4 net) were drilled in the
Princess area resulting in 12 oil wells (10.4 net) and two abandoned wells
(2.0 net).
    With the resumption of drilling operations in the third quarter, 15 wells
have been drilled at Princess. Thirteen wells (13.0 net) were cased as oil
wells, and two wells were abandoned (2.0 net). Included in that well count is
the first horizontal well drilled into the Pekisko formation, located in the
Princess Alderson area. Preliminary results are encouraging and a second
horizontal well from the same surface location has just finished drilling
operations. Both wells will be completed at the same time and are expected to
be tied in early September.

    Response to gas plant shut downs

    Beginning in April and extending to the first week of May, gas processing
at third party facilities in the Princess/Bantry areas was temporarily shut
down, pursuant to ERCB regulatory orders, which affected all producers in the
area. Over this five-week period, the restrictions imposed on the third party
facilities resulted in a temporary shut down of a large part of the Company's
operations in the Princess area. During this shut down, Gentry undertook to
reroute gas through Company-owned and operated gas sweetening facilities which
feed into a Gentry-owned and operated gas plant.
    At the end of July, all of Gentry's oil and associated gas production in
the Tilley to Tide Lake corridor was being routed through Gentry-operated
facilities and bypassing historically unreliable third-party facilities.
Gentry's Princess production now has access to several processing routes in
the event of any future sour gas processing bottlenecks or shut downs.

    Production

    Production recovered briefly in May from the plant shut downs, however,
unusually wet weather in May and June hampered well maintenance and start-up
of wells that were shut-in, or were restricted by the April ERCB order on the
third party facilities. The wet weather also resulted in stop-and-start
operations for drilling, completions, workovers and pipeline tie-ins.
    The net result was that average production for the quarter of 3,862 boe/d
was a reduction of approximately 1,250 boe/d from March volumes, although
reserves and productive capability have not been affected.
    Production has steadily increased back to 4,800 boe/d. With wells being
brought back into service from second quarter interruptions, Gentry's average
for the month of July was approximately 4,400 boe/d while another 400 to
500 boe/d from existing wells has been phased in during August. Additional
volumes are expected to come on stream as a result of facility upgrades at the
West Tide Lake battery and facility improvements resulting from re-routing of
solution gas into Company-operated facilities. An additional 500 boe/d of
tested capability, resulting from a successful and ongoing Princess drilling
program, is currently behind pipe and at various stages of tie-in or line
testing.

    Activity back on track

    Tie-in operations are in various stages of completion and/or line testing
for our behind-pipe production. Drilling, completion and tie-in operations,
which were weather delayed in the second quarter, are now proceeding well. Two
drilling rigs and two completion rigs have been operating steady since the
last week in June with 15 wells drilled to date in the third quarter, 13 of
which are cased as oil wells and two are dry and abandoned. With the current
focus on development drilling near existing facilities, Gentry is able to
expeditiously tie-in wells and quickly bring behind-pipe capability on
production.
    Gentry has submitted a waterflood application for the Tilley Pekisko oil
field with the ERCB. In addition to our waterflood project, we are beginning
to receive approvals for down spacing and holding applications filed with the
ERCB earlier in the year. The down spacing and holding applications are
expected to have a positive impact on operations and drilling over the coming
months. Implementation of a waterflood is expected to improve production
performance in 2009. Based on waterflood scenarios, oil recovery factors are
anticipated to increase by approximately 15% from the current primary recovery
factors. The Company anticipates reserve and production additions to its
various Pekisko pools once these waterflood recovery schemes are in operation.

    Other core area activity

    Technical work and development of drilling programs is progressing on
Gentry's Peace River Arch and West Central Alberta core areas. In the first
quarter, a new oil pool discovery was drilled in the Peace River Arch which is
currently producing approximately 100 boe/d of 38 degree API oil to a
Gentry-owned and operated multi-well battery. An additional five wells (4.6
net) are planned in the fourth quarter for the Peace River Arch, where a
number of locations are ready to drill, and West Central Alberta.

    Factors impacting net income

    Several factors impacted our profitability during the quarter. First, as
was announced on July 30, Gentry has a potential financial exposure of
approximately $4.5 million to companies contracted to market a portion of our
oil and natural gas production. Their parent company, SemGroup, LP, has filed
a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code and two of its Canadian subsidiaries that Gentry dealt with
have filed for creditor protection in Canada. Gentry's exposure relates to
marketing of production for the month of June and the first 22 days of July,
2008.
    A second factor was Gentry's commodity hedges, which, for the three and
six months ended June 30, 2008, resulted in unrealized losses of $4.58 million
and $6.26 million respectively.

    Proposed merger with Crew Energy Inc.

    On June 23, 2008, the Company announced that it had entered into an
Arrangement Agreement (the Agreement) with Crew Energy Inc. (Crew) whereby,
subject to certain conditions, Crew will acquire all of the issued and
outstanding shares of Gentry. Under the terms of the Agreement, Gentry
shareholders will receive 0.22 of a Crew common share for each Gentry common
share held. The transaction is expected to be completed by way of a Plan of
Arrangement and is subject to normal stock exchange, court and regulatory
approval as well as the requisite approval of Gentry shareholders.
    Strategically, the merger will result in an intermediate-sized, more
liquid company with exposure to three emerging resource plays in Western
Canada. The combined entity will provide shareholders with high quality
assets, including a significant land position within the Montney trend in
northeastern British Columbia, one of the most exciting gas plays in North
America. Gentry shareholders will retain the substantial growth opportunities
from the Company's extensive land base, particularly the large contiguous land
block of nearly 450 sections at Princess.

    Special meeting of shareholders

    In the view of management and Gentry's Board of Directors, the proposed
merger with Crew presents an opportunity to create an entity with economies of
scale, financially and operationally, with the potential to unlock significant
value for Gentry shareholders.
    The Boards of Directors of Crew and Gentry have both unanimously approved
the merger. Gentry's Board of Directors has concluded that the transaction is
in the best interests of its shareholders and has resolved to recommend that
Gentry shareholders vote their shares in favour of the merger. A special
meeting of Gentry shareholders to vote on the transaction will take place on
August 21, 2008.

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    Management's discussion and analysis (MD&A) should be read in conjunction
with Gentry Resources Ltd.'s (Gentry or the Company) unaudited interim
consolidated financial statements for the three and six months ended June 30,
2008 and the audited consolidated financial statements and MD&A for the year
ended December 31, 2007.
    Reported production represents Gentry's ownership share before the
deduction of royalties. Where amounts are expressed on a barrel of oil
equivalent (boe) basis, natural gas has been converted at a ratio of six
thousand cubic feet to one boe. Boes may be misleading, particularly if used
in isolation. A boe conversion ratio of six thousand cubic feet to one barrel
is based on an energy equivalent conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.
    Included in the MD&A are references to financial measures commonly used
in the oil and gas industry, such as funds flow from operations, funds flow
from operations per share and operating netbacks. These measures have no
standardized meaning, are not defined by Canadian generally accepted
accounting principles (GAAP), and accordingly are referred to as non-GAAP
measures. These supplemental measures are used by management to assess
operating results between years and between peer companies as they provide an
indication of the results generated by the Company's principal business
activities before the consideration of how these activities are financed or
how the results are taxed.
    Gentry determines funds flow from operations as cash provided by
operating activities prior to changes in non-cash working capital items. A
reconciliation of cash provided by operating activities to funds flow from
operations is presented below:

    
                                    Three months ended      Six months ended
                                               June 30               June 30
    (thousands)                        2008       2007       2008       2007
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                   $  14,666  $   4,236  $  25,896  $   7,571
    -------------------------------------------------------------------------
    Changes in non-cash working
     capital items                   (2,734)     2,667     (1,151)     5,773
    -------------------------------------------------------------------------
    Funds flow from operations    $  11,932  $   6,903  $  24,745  $  13,344
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Funds flow from operations per share is calculated using the weighted
average basic and diluted shares used in calculations of net income per share.
Operating netbacks are calculated by taking production revenue and any
realized gains (or losses) on commodity contracts and deducting royalty,
production and transportation expenses. Gentry's reported amounts may not be
comparable to similarly titled measures reported by other companies. These
terms should not be considered an alternative to, or more meaningful than,
cash provided by operating, investing, and financing activities or net income
as determined by Canadian GAAP as an indicator of the Company's performance or
liquidity.
    Certain disclosure in this MD&A constitutes forward-looking statements.
These forward-looking statements involve known and unknown risks and
uncertainties which include, but are not limited to: exploration, development
and production risks; insurance; commodity prices, markets and marketing of
crude oil, liquids and natural gas; collection of accounts receivable;
substantial capital requirements; liquidity; competition; environmental risks;
reserve replacement; reliance on operators and key personnel; corporate
matters; permits and licenses; additional funding requirements; aboriginal
claims; issuance of debt; availability of drilling equipment; access
restrictions; cost inflation; title defects; uncertainty of reserve
information; Kyoto protocol; and government regulation and taxation.
    Any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Forward-looking
statements are often, but not always, identified by the use of words such as
"anticipate," "believes," "budget," "continue," "could," "estimate," "expect,"
"forecast," "future," "intends," "may," "plan," "predicts," "projects,"
"should," "will," and other similar expressions. These statements relate to
future events and/or performance and although considered reasonable by Gentry
at the time of preparation, may prove to be incorrect and actual results may
differ materially from those anticipated in the statements made. Gentry does
not undertake any obligation to publicly update forward-looking information
except as required by applicable securities law.
    Certain figures in the comparative financial statements and MD&A have
been reclassified to conform with the current year's presentation.
    This MD&A has been prepared as of August 11, 2008.

    Plan of Arrangement with Crew Energy Inc.

    On June 23, 2008 Gentry and Crew Energy Inc. (Crew) announced that they
had entered into an Arrangement Agreement whereby, subject to certain
conditions, Crew will acquire all of the issued outstanding common shares of
Gentry (the Transaction). Under the terms of the agreement, Gentry
shareholders will receive 0.22 of a Crew common share for each Gentry common
share held.
    The Transaction is expected to be completed by way of a Plan of
Arrangement and is subject to normal stock exchange, court and regulatory
approval and the requisite approval of Gentry shareholders. An Information
Circular and Proxy Statement dated July 21, 2008 has been mailed to Gentry
shareholders in advance of the shareholder meeting to be held August 21, 2008.
    Any forward-looking statements in this MD&A have been prepared on the
basis that Gentry continues to be a stand alone company and do not contemplate
the effects of the proposed Plan of Arrangement with Crew.

    Production

    Gentry's average daily production for the second quarter of 2008 was
3,862 boe/d, similar to the 3,904 boe/d recorded in the second quarter of
2007. For the first six months of 2008, production averaged 4,358 boe/d up 16%
from the 3,759 boe/d recorded in the first six months of 2007.
    During April and early May, gas processing at third party facilities in
the Princess/Bantry areas was temporarily restricted pursuant to ERCB
regulatory orders, which affected all producers in the region. Non-associated
gas was shut-in first followed a few days later by solution gas, the latter of
which affected some oil production as wells flowing both oil and natural gas
could not be produced. During this period, Gentry added gas sweetening
facilities to its 100% owned and operated facilities which enabled it to
process the shut-in gas, effectively bypassing third party facilities.
    Production affected by the ERCB regulatory orders was just over 1,000
boe/d, and while production recovered in the first part of May, the rest of
the month and June were plagued with unusually wet weather which hampered the
startup of wells previously shut-in for the gas plant problems. The wet
weather also restricted field access for repairs and maintenance and resulted
in stop and start operations for drilling, completions, workovers and pipeline
tie-ins. In July, the weather cleared and the ground dried, and production
steadily increased to approximately 4,800 boe/d by month end.

    
                      Three months ended June 30    Six months ended June 30
    Average daily                           %                           %
     production           2008      2007  change      2008      2007  change
    -------------------------------------------------------------------------
    Oil and liquids
     (bbls/d)            1,829     1,534      19     2,114     1,485      42
    -------------------------------------------------------------------------
    Natural gas (mcf/d) 12,193    14,217     (14)   13,464    13,646      (1)
    -------------------------------------------------------------------------
    Barrels of oil
     equivalent (boe/d)  3,862     3,904      (1)    4,358     3,759      16
    -------------------------------------------------------------------------
    

    Revenue and Pricing

    Gross production revenue, excluding losses on commodity contracts, was
$29.74 million in the second quarter of 2008, up 74% from $17.12 million
recorded in the second quarter last year. The increase in crude oil and ngls
prices caused revenue to increase by $8.68 million, while higher natural gas
prices contributed an extra $3.78 million to the top line revenue figure.
Higher oil and ngls volumes increased revenue by $1.49 million but this was
largely offset by the lower gas volumes which caused a decline of
$1.33 million.
    For the six month period ended June 30, 2008, gross production revenue,
excluding losses on commodity contracts, was $59.04 million, up 80% from the
$32.84 million recorded in the comparative period. The increase in crude oil
and ngls prices caused revenue to increase by $15.22 million, while higher gas
prices added $4.78 million. An increase of $6.35 million in revenue due to
higher oil and ngls volumes more than offset the $143 thousand lost due to
marginally lower gas volumes.
    Gentry has forward contracts outstanding for the sale of both crude oil
and natural gas volumes as follows:

    
                  Contract                              Pricing
    Product           Type        Volume          Term    Point        Price
    -------------------------------------------------------------------------
                  Costless                    Mar 1/08
    Crude oil       collar    500 bbls/d   - Dec 31/08      WTI   US $85-104
    -------------------------------------------------------------------------
                     Fixed                    Apr 1/08
    Natural gas      price   4,000 GJs/d   - Oct 31/08     AECO        $7.51
    -------------------------------------------------------------------------
    

    For the most recently completed quarter, these contracts resulted in a
realized loss of $1.71 million and an unrealized loss of $4.58 million. For
the first six months of 2008, these contracts resulted in a realized loss of
$1.73 million and an unrealized loss of $6.26 million. There were no commodity
contracts in place during 2007 and no other commodity contracts are
outstanding at this time.

    
                      Three months ended June 30    Six months ended June 30
    Realized revenue                        %                           %
     (thousands)          2008      2007  change      2008      2007  change
    --------------------------------------------------------------------------
    Oil and Liquids
    -------------------------------------------------------------------------
    Production
     revenue          $ 17,921  $  7,748     131  $ 36,273  $ 14,712     147
    -------------------------------------------------------------------------
    Realized loss on
     commodity
     contracts            (919)        -     n/a      (941)        -     n/a
    -------------------------------------------------------------------------
    Realized oil and
     liquids revenue    17,002     7,748     119    35,332    14,712     140
    -------------------------------------------------------------------------
    Natural Gas
    -------------------------------------------------------------------------
    Production
     revenue            11,814     9,370      26    22,769    18,130      26
    -------------------------------------------------------------------------
    Realized loss on
     commodity
     contracts            (791)        -     n/a      (791)        -     n/a
    -------------------------------------------------------------------------
    Realized natural
     gas revenue        11,023     9,370      18    21,978    18,130      21
    -------------------------------------------------------------------------
    Oil Equivalent
    -------------------------------------------------------------------------
    Production
     revenue            29,735    17,118      74    59,042    32,842      80
    -------------------------------------------------------------------------
    Realized loss on
     commodity
     contracts          (1,710)        -     n/a    (1,732)        -     n/a
    -------------------------------------------------------------------------
    Total realized
     revenue          $ 28,025  $ 17,118      64  $ 57,310  $ 32,842      75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                      Three months ended June 30    Six months ended June 30
    Realized sales                          %                           %
     prices               2008      2007  change      2008      2007  change
    --------------------------------------------------------------------------
    Oil and Liquids
     (per bbl)
    -------------------------------------------------------------------------
    Field price       $ 107.66  $  55.49      94  $  94.30  $  54.74      72
    -------------------------------------------------------------------------
    Realized loss on
     commodity
     contracts           (5.52)        -     n/a     (2.45)        -     n/a
    -------------------------------------------------------------------------
    Realized oil and
     liquids price      102.14     55.49      84     91.85     54.74      68
    -------------------------------------------------------------------------
    Natural Gas
     (per mcf)
    -------------------------------------------------------------------------
    Field price          10.65      7.24      47      9.29      7.34      27
    -------------------------------------------------------------------------
    Realized loss on
     commodity
     contracts           (0.71)        -     n/a     (0.32)        -     n/a
    -------------------------------------------------------------------------
    Realized natural
     gas price            9.94      7.24      37      8.97      7.34      22
    -------------------------------------------------------------------------
    Oil Equivalent
     (per boe)
    -------------------------------------------------------------------------
    Field price          84.62     48.19      76     74.45     48.27      54
    -------------------------------------------------------------------------
    Realized loss on
     commodity
     contracts           (4.87)        -     n/a     (2.18)        -     n/a
    -------------------------------------------------------------------------
    Total realized
     price            $  79.75  $  48.19      65  $  72.27  $  48.27      50
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalties

    Gentry's royalty expenses increased to $7.37 million in the second
quarter of 2008 from $3.92 million in the comparative period. Expressed as a
percentage of production and excluding the effects of commodity contracts,
royalties increased to 24.8% versus 22.9% a year ago.
    For the six month period ended June 30, 2008, royalties were
$13.80 million, compared to $7.62 million recorded a year ago. As a percentage
of production and excluding the effects of commodity contracts, royalties were
23.4% in 2008 versus 23.2% in the first six months of 2007.

    Production Expenses

    In the second quarter of 2008, production expenses increased to
$5.11 million from $3.76 million a year ago. On a unit basis, costs increased
to $14.55/boe versus $10.59/boe a year earlier.
    For the first six months of 2008, production expenses were $11.89 million
compared to $7.28 million a year earlier. On a boe basis, costs were
$14.99/boe in the first half of 2008 and $10.70/boe in the first half of 2007.
    Prior to 2008, operating costs at Princess, which is the Company's main
producing asset, had been on an upward trend since mid 2007, as the Company
focused its efforts on completing its earning phase exploration commitments
and construction of the Alderson battery. Since the startup of the battery in
mid-January of this year, the per unit operating costs have declined.

    Transportation Expenses

    Transportation expenses were $564 thousand in the second quarter of 2008
consistent with the $562 thousand in the comparative period. On a barrel of
equivalent basis, costs were $1.60/boe in the most recently completed quarter
versus $1.58/boe a year ago.
    For the six month periods, transportation expenses were $1.63 million in
2008 versus $999 thousand in 2007, or $2.05/boe and $1.47/boe respectively.
The primary reason for the increase this year was that in the first quarter of
2008, the Company transported certain crude oil volumes to more distant
facilities, realizing an opportunity to increase some of its crude oil
pricing, which more than offset the increased trucking costs and resulted in
higher overall netbacks. In the second quarter of 2008, the narrowing
differentials between light oil and Gentry's medium to heavier crude streams
meant the premium Gentry was receiving at those facilities no longer justified
the increased transportation costs. The Company continually assesses where to
best market and sell its crude oil, weighing changes in transportation costs
against changes in revenue pricing.

    Operating Netbacks

    Gentry realized the following operating netbacks from its oil and gas
operations:

    
                                    Three months ended      Six months ended
                                               June 30               June 30
    (per boe)                          2008       2007       2008       2007
    -------------------------------------------------------------------------
    Selling price                 $   84.62  $   48.19  $   74.45  $   48.27
    -------------------------------------------------------------------------
    Realized loss on commodity
     contracts                        (4.87)         -      (2.18)         -
    -------------------------------------------------------------------------
    Royalties                        (20.97)    (11.03)    (17.41)    (11.19)
    -------------------------------------------------------------------------
    Production expenses              (14.55)    (10.59)    (14.99)    (10.70)
    -------------------------------------------------------------------------
    Transportation expenses           (1.60)     (1.58)     (2.05)     (1.47)
    -------------------------------------------------------------------------
    Operating netbacks            $   42.63  $   24.99  $   37.82  $   24.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    General and Administrative Expenses

    Gentry's general and administrative expenses increased to $1.58 million
in the second quarter of 2008 from $1.20 million in the second quarter of
2007, with additional staffing and compensation costs accounting for one-third
of this increase. On a barrel of oil equivalent basis, general and
administrative expenses were $4.48/boe versus $3.36/boe in the comparative
quarter. Going forward, while Gentry expects its gross administrative
expenditures to increase, the per unit figures should fall as additional
production volumes are added.
    For the six month period ended June 30, 2008, general and administrative
costs were $2.94 million versus $2.16 million a year ago. On a unit
measurement basis, this equates to $3.71/boe in 2008 and $3.18/boe in 2007.
Again, additional staffing and compensation costs were the largest
contributing factor to this increase.

    Bad Debt Expense

    On July 22, 2008, SemGroup LP filed for reorganization under Chapter 11
of the U.S. bankruptcy Code and two of SemGroup LP's Canadian subsidiaries,
SemCanada Energy Company and SemCanada Crude Company, filed for creditor
protection in Canada. Gentry sold a portion of its June 2008 crude oil and
natural gas volumes to these two subsidiaries and as result of their filings,
the Company has identified approximately $2.7 million of accounts receivable
that has become impaired as at June 30, 2008. Gentry estimates it has
additional exposure of approximately $1.7 million for production sold during
the first 22 days of July. The Company has made alternative marketing
arrangements effective July 23 and does not anticipate that the exposure will
impair its ongoing capital expenditure programs or affect the completion of
the Plan of Arrangement with Crew Energy Inc.
    At this time, the Company is unable to ascertain the amount of the
receivable that will be recovered but, as of June 30, 2008, has recorded an
allowance for doubtful accounts of $683 thousand, which is approximately 25%
of the amount owed as at June 30, 2008. In the third quarter, Gentry will
reassess the recoverability of the June revenues and assess the recoverability
of the July revenues and make adjustments to the bad debt provision
accordingly.
    The allowance for doubtful accounts of $683 thousand is based on
preliminary estimates of the net assets available to satisfy unsecured
creditors and the resolution of the bankruptcy application. Changes in these
estimates could materially affect net income and the fair value of accounts
receivable.

    Interest Expense

    Gentry's interest expense was $741 thousand in the second quarter of
2008, similar to the $758 thousand in the second quarter of 2007.
    For the first half of 2008, Gentry's interest expense was $1.53 million
versus $1.34 million in the comparative period. Although Gentry's interest
rates were generally similar during these periods, the higher utilization of
the credit facility was the reason for the growth of this expense.

    Stock-based Compensation

    Gentry's stock-based compensation expense for the second quarter of 2008
was $1.32 million. Of this amount, $1.28 million related to the amortization
and vesting of stock options and $39 thousand related to the Company's
Employee Share Ownership Plan (ESOP). This compares to stock-based
compensation of $620 thousand a year ago, $592 thousand of which related to
stock options and $28 thousand to the ESOP. In May 2008, 3.48 million stock
options were granted at a price of $3.74 and 730 thousand of these vested at
the time of grant, contributing $989 thousand towards the expense figure.
    For the six month period ended June 30, 2008, stock-based compensation
expense was $1.46 million versus $972 thousand a year ago.

    Depletion, Depreciation and Accretion

    Depletion, depreciation and accretion charges for the second quarter of
this year increased to $8.53 million from $6.60 million a year ago. This
amounts to $24.26/boe in 2008 versus $18.57/boe a year ago.
    For the six month periods, depletion, depreciation, and accretion charges
were $19.03 million in 2008 and $12.33 million in 2007, or $23.99/boe and
$18.12/boe respectively.
    The increased depletion rate, which is the ratio of production to proved
reserves, is the main reason for the increase behind these figures.

    Income Taxes

    Gentry's current income tax expense for the second quarter of 2008
increased to $48 thousand from $21 thousand in the comparative period of 2007.
Future taxes also increased, rising to $344 thousand from $96 thousand in the
comparative period.
    For the first half of 2008, current taxes were $86 thousand versus
$76 thousand a year ago. Future taxes were $478 thousand for the first six
months of 2008 compared to $329 thousand in the first six months of 2007. The
recording of differences between certain actual and projected tax pool
balances arising from the acquisition of 1317010 Alberta Ltd. (1317010) in
2007 was the primary reason for the overall increase in future taxes.

    Funds Flow from Operations and Net Income

    Funds flow from operations for the second quarter of 2008 increased to
$11.93 million from $6.90 million in the comparative quarter. This amounts to
$0.22 per share ($0.21 diluted) in 2008 versus $0.15 per share ($0.15 diluted)
during the second quarter of 2006. The increase in commodity prices more than
offset the lower than anticipated production volumes.
    For the first six months of 2008, funds flow from operations was
$24.75 million compared to $13.34 million for the first six months of 2007.
This amounts to $0.45 per share ($0.44 diluted) in 2008 and $0.32 per share
($0.32 diluted) in 2007.
    The Company recorded a net loss of $2.83 million in the second quarter of
2008 versus a net loss of $410 thousand in the second quarter of 2007. This
loss amounts to $0.05 per share ($0.05 diluted) in 2008 versus a loss of
$0.01 per share ($0.01 diluted) in 2007. Contributors to the loss were the
realized and unrealized losses on commodity contracts of $1.71 million and
$4.58 million respectively.
    For the first six months of 2008, Gentry recorded a net loss of
$2.47 million compared to a net loss of $256 thousand for the first six months
of 2007. As with the second quarter figures, the losses on commodity contracts
were a large part of the increased negative numbers in 2008.

    Capital Expenditures

    Net capital expenditures were $7.26 million in the most recently
completed quarter versus $81.43 million incurred in the comparative
three-month period. The 2007 figure includes $73.60 million for the purchase
of 1317010 which closed May 31, 2007.

    
                                    Three months ended      Six months ended
                                               June 30               June 30
    (thousands)                        2008       2007       2008       2007
    -------------------------------------------------------------------------
    Drilling and completions      $   3,736  $   4,378  $  12,309  $   9,527
    -------------------------------------------------------------------------
    Facilities and equipping          4,536      2,591      6,643      6,713
    -------------------------------------------------------------------------
    Land and seismic                     30        327        339      1,134
    -------------------------------------------------------------------------
    Capitalized expenses                492        444      1,149        882
    -------------------------------------------------------------------------
    Other                               222         20        297         51
    -------------------------------------------------------------------------
                                      9,016      7,760     20,737     18,307
    -------------------------------------------------------------------------
    Asset acquisitions                    -         73          -         73
    -------------------------------------------------------------------------
    Asset dispositions               (1,759)         -     (1,759)         -
    -------------------------------------------------------------------------
    Corporate acquisition                 -     73,595          -     73,595
    -------------------------------------------------------------------------
    Net expenditures              $   7,257  $  81,428  $  18,978  $  91,975
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Liquidity and Capital Resources

    Gentry began the second quarter of 2008 with 55,052,332 common shares
outstanding. During the second quarter, Gentry issued 340,000 common shares
pursuant to the exercise of stock options ($1.38 per share), 23,264 shares
pursuant to the ESOP ($3.37 per share) and repurchased 261,700 shares pursuant
to the Company's normal course issuer bid ($3.51 per share). As a result,
Gentry ended the quarter with 55,153,896 common shares issued and outstanding.
    As of the date of this MD&A, 55,160,846 common shares are outstanding. A
further 4,725,000 shares are reserved for issuance pursuant to outstanding
stock option agreements (at an average exercise price of $3.18 per share).
    In June 2008, Gentry finalized a new Credit Agreement with National Bank
of Canada and Fortis Capital (Canada) Ltd. The new credit facility stands at
$75 million and as at June 30, 2008 Gentry's net debt (current liabilities in
excess of current assets) stood at $60.68 million.

    Selected Quarterly Information

    The following table summarizes selected quarterly information from the
past eight quarters:

    
                                2008                       2007
                         ---------------- -----------------------------------
                             Q2       Q1       Q4       Q3       Q2       Q1
                         ----------------------------------------------------
    Production
    -------------------------------------------------------------------------
    bbls/d                1,829    2,398    1,877    1,512    1,534    1,435
    -------------------------------------------------------------------------
    mcf/d                12,193   14,735   15,904   16,280   14,217   13,069
    -------------------------------------------------------------------------
    boe/d                 3,862    4,854    4,528    4,226    3,904    3,613
    -------------------------------------------------------------------------
    Financial
     ($thousands except
     per share amounts)
    -------------------------------------------------------------------------
    Production revenue   29,735   29,307   21,723   17,084   17,118   15,724
    -------------------------------------------------------------------------
    Funds flow from
     operations          11,932   12,813    6,826    5,164    6,903    6,441
    -------------------------------------------------------------------------
      per share - basic    0.22     0.23     0.12     0.09     0.15     0.17
    -------------------------------------------------------------------------
      per share -
       diluted             0.21     0.23     0.12     0.09     0.15     0.16
    -------------------------------------------------------------------------
    Net income (loss)    (2,833)     360    2,304    1,710     (410)     154
    -------------------------------------------------------------------------
      per share - basic   (0.05)    0.01     0.04     0.03    (0.01)       -
    -------------------------------------------------------------------------
      per share -
       diluted            (0.05)    0.01     0.04     0.03    (0.01)       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                               2006
                         ----------------
                             Q4       Q3
                         ----------------
    Production
    -------------------------------------
    bbls/d                1,447    1,538
    -------------------------------------
    mcf/d                17,331   14,388
    -------------------------------------
    boe/d                 4,335    3,936
    -------------------------------------
    Financial
     ($thousands except
     per share amounts)
    -------------------------------------
    Production revenue   17,924   16,147
    -------------------------------------
    Funds flow from
     operations           4,875    7,085
    -------------------------------------
      per share - basic    0.13     0.18
    -------------------------------------
      per share -
       diluted             0.12     0.18
    -------------------------------------
    Net income (loss)      (931)     104
    -------------------------------------
      per share - basic   (0.02)       -
    -------------------------------------
      per share -
       diluted            (0.02)       -
    -------------------------------------
    -------------------------------------
    

    Volumes increased at a relatively smooth rate over the past eight
quarters with a couple of exceptions. In the third quarter of 2006, volumes
were directly impacted by downtime at three third party operating facilities
which curtailed production at both Princess and Sedalia. In the first quarter
of 2007, volumes were adversely affected by the loss of 700 boe/d of
production at four Princess wells and one Red Willow well, most of which never
fully recovered. Starting in June 2007, the Company began recording production
and revenue from the acquisition of 137010 that closed May 31, 2007. Those
volumes carried through the remainder of the year, although other production
was hampered by shut-in volumes due to delays in obtaining approvals for water
disposal wells and the loss of Nisku gas production at Princess. Volumes in
the second quarter of 2008 were adversely affected by gas processing
restrictions at third party facilities and wet weather conditions.
    Generally speaking, production revenue and funds flow from operations are
largely a function of production volumes and commodity prices. In 2006,
although both crude oil and natural gas prices were quite volatile, most of
the change in production revenue was volume based, as Gentry's average
quarterly sales price did not vary from the $45.83 average yearly price by
more than $2/boe in any one quarter. In 2007, Gentry's average field price was
relatively consistent for the first half of the year, averaging $48.27/boe. It
fell to $43.94/boe in the third quarter before rising to $52.15/boe in the
fourth quarter and subsequently to $66.35/boe and $84.62/boe in the first and
second quarters of 2008 respectively. Funds flow from operations was lower
than expected in the fourth quarter of 2006 due to increased production
expenses and additional royalties recorded in the period. In the last half of
2007, funds flow from operations decreased as a percentage of production
revenue due to higher production and administrative expenditures. The 2008
second quarter funds flow figure was adversely impacted by the $1.7 million
realized loss on commodity contracts.
    In the fourth quarter of 2006, the net loss was largely attributable to
the reduced funds flow from operations. In the second quarter of 2007, the net
loss arose as a result of higher depletion charges, in part associated with
the acquisition of assets in that period. The gains recorded by Gentry on the
sale of its investments in the last half of 2007 enabled the Company to record
positive income in those two quarters, while the unrealized losses on
commodity contracts contributed to the lower income (and loss) figures in
2008.

    Changes in Accounting Policies

    Financial Instruments - Disclosures and Financial Instruments -
    Presentation

    Effective January 1, 2008, the Company adopted two new Canadian Institute
of Chartered Accountants (CICA) standards, Section 3862 "Financial Instruments
- Disclosures" and Section 3863 "Financial Instruments - Presentation" which
replace Section 3861 "Financial Instruments - Disclosure and Presentation".
The new disclosure standard increases the emphasis on the risks associated
with both recognized and unrecognized financial instruments and how those
risks are managed. The new presentation standard carries forward the former
presentation requirements.

    Capital Disclosures

    Effective January 1, 2008, the Company adopted CICA Section 1535 "Capital
Disclosures" which requires additional disclosures of objectives, policies and
processes for managing capital. In addition, disclosures include whether
companies have complied with externally imposed capital requirements.

    Disclosure and Internal Controls over Financial Reporting

    The Chief Executive Officer and Chief Financial Officer have designed or
caused to be designed under their supervision a process of internal control
over financial reporting. The process was designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Canadian
GAAP. There were no changes in the Company's internal control over financial
reporting during the three months ended June 30, 2008 that materially
affected, or are reasonably likely to affect, the Company's internal control
over financial reporting. It should be noted that a control system, no matter
how well conceived or operated, can only provide reasonable, not absolute,
assurance that the objectives of the control system are met.

    
    CONSOLIDATED BALANCE SHEETS
    (unaudited)

                                                             June   December
    (thousands)                                          30, 2008   31, 2007
    -------------------------------------------------------------------------

    ASSETS

    Current
    -------------------------------------------------------------------------
      Cash and cash equivalents                         $       -  $      16
    -------------------------------------------------------------------------
      Accounts receivable (note 9)                         17,440     16,966
    -------------------------------------------------------------------------
      Prepaid expenses and deposits                         1,651      1,557
    -------------------------------------------------------------------------
                                                           19,091     18,539
    -------------------------------------------------------------------------
    Property and equipment (note 3)                       210,575    210,098
    -------------------------------------------------------------------------
    Goodwill                                                6,073      6,073
    -------------------------------------------------------------------------
                                                        $ 235,739  $ 234,710
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & SHAREHOLDERS' EQUITY

    Current
    -------------------------------------------------------------------------
      Accounts payable and accrued liabilities          $  22,624  $  23,337
    -------------------------------------------------------------------------
      Income taxes payable                                     86        224
    -------------------------------------------------------------------------
      Bank debt (note 4)                                   50,800     54,713
    -------------------------------------------------------------------------
      Fair value of commodity contracts (note 8)            6,259          -
    -------------------------------------------------------------------------
                                                           79,769     78,274
    -------------------------------------------------------------------------
    Asset retirement obligations (note 5)                  10,768     10,249
    -------------------------------------------------------------------------
    Future income taxes                                    14,606     14,128
    -------------------------------------------------------------------------
                                                          105,143    102,651
    -------------------------------------------------------------------------
    Share capital (note 6)                                106,133    105,847
    -------------------------------------------------------------------------
    Contributed surplus (note 6)                            5,504      4,334
    -------------------------------------------------------------------------
    Retained earnings                                      18,959     21,878
    -------------------------------------------------------------------------
                                                          130,596    132,059
    -------------------------------------------------------------------------
                                                        $ 235,739  $ 234,710
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Please refer to the accompanying notes.


    Approved by the Board:

    Director: (signed) "Michael H. Halvorson"
              ---------------
    Director: (signed) "A. Bruce Macdonald"
              ---------------



    CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
    (unaudited)

                                   Three months ended       Six months ended
    (thousands, except                         June 30               June 30
     per share amounts)                2008       2007       2008       2007
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
      Production                  $  29,735  $  17,118  $  59,042  $  32,842
    -------------------------------------------------------------------------
      Less: royalties                (7,369)    (3,918)   (13,804)    (7,615)
    -------------------------------------------------------------------------
      Realized loss on commodity
       contracts (note 8)            (1,710)         -     (1,732)         -
    -------------------------------------------------------------------------
      Unrealized loss on
       commodity contracts (note 8)  (4,577)         -     (6,259)         -
    -------------------------------------------------------------------------
                                     16,079     13,200     37,247     25,227
    -------------------------------------------------------------------------
    Expenses
    -------------------------------------------------------------------------
      Depletion, depreciation &
       accretion                      8,526      6,598     19,027     12,327
    -------------------------------------------------------------------------
      Production                      5,112      3,760     11,886      7,280
    -------------------------------------------------------------------------
      Transportation                    564        562      1,627        999
    -------------------------------------------------------------------------
      General & administrative        1,575      1,195      2,944      2,161
    -------------------------------------------------------------------------
      Interest                          741        758      1,527      1,339
    -------------------------------------------------------------------------
      Stock-based compensation
       (note 6)                       1,319        620      1,462        972
    -------------------------------------------------------------------------
      Bad debt expense (note 9)         683          -        683          -
    -------------------------------------------------------------------------
                                     18,520     13,493     39,156     25,078
    -------------------------------------------------------------------------
    Income (loss) before income
     taxes                           (2,441)      (293)    (1,909)       149
    -------------------------------------------------------------------------
    Income taxes
    -------------------------------------------------------------------------
      Current                            48         21         86         76
    -------------------------------------------------------------------------
      Future                            344         96        478        329
    -------------------------------------------------------------------------
                                        392        117        564        405
    -------------------------------------------------------------------------
    Net income (loss)                (2,833)      (410)    (2,473)      (256)
    -------------------------------------------------------------------------
    Retained earnings,
     start of period                 22,210     18,429     21,878     18,574
    -------------------------------------------------------------------------
    Less:  excess of cost of
           shares acquired over
           stated value                (418)         -       (446)      (299)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period                $  18,959  $  18,019  $  18,959  $  18,019
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income (loss) per share (note 6)
      Basic                       $   (0.05) $   (0.01) $   (0.04) $   (0.01)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Diluted                     $   (0.05) $   (0.01) $   (0.04) $   (0.01)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Please refer to accompanying notes.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED
    OTHER COMPREHENSIVE INCOME
    (unaudited)

                                    Three months ended      Six months ended
                                               June 30               June 30
    (thousands)                        2008       2007       2008       2007
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME (LOSS)
    -------------------------------------------------------------------------
    Net income (loss)             $  (2,833) $    (410) $  (2,473) $    (256)
    -------------------------------------------------------------------------
    Other comprehensive income (loss)
      Change in unrealized losses
       on available-for-sale
       assets, net of tax of $nil
       (six months ended
       June 30, 2007 - $309)              -       (718)         -     (1,616)
    -------------------------------------------------------------------------
    Comprehensive income (loss)   $  (2,833) $  (1,128) $  (2,473) $  (1,872)



    ACCUMULATED OTHER COMPREHENSIVE INCOME
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive income,
     start of period              $       -  $   9,865  $       -  $       -
    -------------------------------------------------------------------------
      Change in accounting policy         -          -          -     10,763
    -------------------------------------------------------------------------
      Change in unrealized losses
       on available-for-sale
       assets, net of tax of $nil
       (six months ended
       June 30, 2007 - $309)              -       (718)         -     (1,616)
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive income,
     end of period                $       -  $   9,147  $       -  $   9,147
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Please refer to the accompanying notes.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)

                                    Three months ended      Six months ended
                                               June 30               June 30
    (thousands)                        2008       2007       2008       2007
    -------------------------------------------------------------------------
    Operating activities
    -------------------------------------------------------------------------
      Net income (loss)           $  (2,833) $    (410) $  (2,473) $    (256)
    -------------------------------------------------------------------------
      Adjustments for:
    -------------------------------------------------------------------------
      Unrealized loss on
       commodity contracts            4,577          -      6,259          -
    -------------------------------------------------------------------------
      Depletion, depreciation
       & accretion                    8,526      6,598     19,027     12,327
    -------------------------------------------------------------------------
      Stock-based compensation        1,319        620      1,462        972
    -------------------------------------------------------------------------
      Future income taxes               344         96        478        329
    -------------------------------------------------------------------------
      Asset retirement
       expenditures                      (1)        (1)        (8)       (28)
    -------------------------------------------------------------------------
                                     11,932      6,903     24,745     13,344
    -------------------------------------------------------------------------
      Changes in non-cash
       working capital items          2,734     (2,667)     1,151     (5,773)
    -------------------------------------------------------------------------
                                     14,666      4,236     25,896      7,571
    -------------------------------------------------------------------------
    Investing activities
    -------------------------------------------------------------------------
      Capital expenditures           (9,016)    (7,833)   (20,737)   (18,380)
    -------------------------------------------------------------------------
      Dispositions of property
       and equipment                  1,759          -      1,759          -
    -------------------------------------------------------------------------
      Corporate acquisition               -    (73,595)         -    (73,595)
    -------------------------------------------------------------------------
      Changes in non-cash
       working capital items         (1,291)       932     (2,576)     4,646
    -------------------------------------------------------------------------
                                     (8,548)   (80,496)   (21,554)   (87,329)
    -------------------------------------------------------------------------
    Financing activities
    -------------------------------------------------------------------------
      Proceeds from (repayments
       on) bank debt, net            (5,750)    15,380     (3,913)    19,030
    -------------------------------------------------------------------------
      Redemption of share capital      (919)         -     (1,105)      (407)
    -------------------------------------------------------------------------
      Proceeds on issuance of
       share capital, net               508     60,875        656     61,119
    -------------------------------------------------------------------------
      Changes in non-cash
       working capital items              -         (2)         4          4
    -------------------------------------------------------------------------
                                     (6,161)    76,253     (4,358)    79,746
    -------------------------------------------------------------------------
    Decrease in cash                    (43)        (7)       (16)       (12)
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     start of period                     43         13         16         18
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $       -  $       6  $       -  $       6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flows disclosure:
    -------------------------------------------------------------------------
      Interest paid               $     741  $     758  $   1,527  $   1,339
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes paid           $       -  $     273  $     224  $     273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Please refer to the accompanying notes.



    NOTES TO THE JUNE 30, 2008 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)

    1.  Accounting Policies

        The interim consolidated financial statements of Gentry Resources
        Ltd. (Gentry or the Company) have been prepared in accordance with
        generally accepted accounting principals in Canada, which were the
        same accounting policies and methods of computation as the
        consolidated financial statements as at and for the year ended
        December 31, 2007, except as disclosed in Note 2. The disclosure
        which follows is incremental to the disclosure included in the annual
        consolidated financial statements. The interim consolidated financial
        statements should be read in conjunction with the Company's
        consolidated financial statements and notes thereto for the year
        ended December 31, 2007.

    2.  Changes in Accounting Policies

        Capital Disclosures

        Effective January 1, 2008, the Company adopted the Canadian Institute
        of Chartered Accountants (CICA) Section 1535 "Capital Disclosures"
        which requires additional disclosures of objectives, policies and
        processes for managing capital. In addition, disclosures include
        whether companies have complied with externally imposed capital
        requirements. Please refer to note 7 for these disclosures.

        Financial Instruments Disclosures and Presentation

        Effective January 1, 2008, the Company adopted two new CICA
        standards, Section 3862 "Financial Instruments - Disclosures" and
        Section 3863 "Financial Instruments - Presentation" which replace
        Section 3861 "Financial Instruments - Disclosure and Presentation".
        The new disclosure standard increases the emphasis on the risks
        associated with both recognized and unrecognized financial
        instruments and how those risks are managed. The new presentation
        standard carries forward the former presentation requirements. Please
        refer to note 8 for these disclosures.

    3.  Property and Equipment

                                                             June   December
        (thousands)                                      30, 2008   31, 2007
        ---------------------------------------------------------------------
        Petroleum and natural gas properties including
         exploration and development thereon            $ 241,488  $ 227,911
        ---------------------------------------------------------------------
        Production equipment and facilities                93,886     88,548
        ---------------------------------------------------------------------
        Other                                               1,366      1,069
        ---------------------------------------------------------------------
                                                          336,740    317,528
        ---------------------------------------------------------------------
        Accumulated depletion and depreciation           (126,165)  (107,430)
        ---------------------------------------------------------------------
                                                        $ 210,575  $ 210,098
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As at June 30, 2008, costs of unproved petroleum and natural gas
        properties amounting to $32.0 million (December 31, 2007 -
        $32.3 million) have been excluded from the depletion calculation.
        During the six months ended June 30, 2008, the Company capitalized
        $1.15 million (2007 - $882 thousand) in general and administrative
        expenses.

    4.  Bank Debt

        The Company has an extendible revolving term loan to a maximum of
        $75 million, which revolves in 364 day periods and, in the absence of
        any extension, will mature on April 30, 2010. The loan is available
        to the Company by way of prime rate based loans, bankers' acceptances
        and letters of credit/guarantee with interest paid monthly. Interest
        rates are determined quarterly and are based on a grid system which
        ranges from prime to prime plus 1.5% depending on a debt to cash flow
        ratio of less than 1:1 to greater than or equal to 3:1. As at
        June 30, 2008, interest on the prime rate based loans was payable at
        the bank's prime lending rate plus 0.5%, making the effective rate
        5.25%.

        The loan is secured by a general assignment of book debts, a
        $100 million demand debenture with a floating charge over all assets
        with a Negative Pledge and Undertaking to provide fixed charges upon
        request. Under the terms of the agreement, the Company is required to
        meet certain financial and other reporting requirements and may not
        breach certain financial tests without prior consent of the bank.

        The loan is reviewed periodically by the bank, with the next review
        scheduled on or before October 31, 2008.

    5.  Asset Retirement Obligations

        The following table summarizes changes in the asset retirement
        obligations:

                                                             June   December
        (thousands)                                      30, 2008   31, 2007
        ---------------------------------------------------------------------
        Asset retirement obligations, start of period   $  10,249  $   5,104
        ---------------------------------------------------------------------
        Liabilities incurred                                  234      1,169
        ---------------------------------------------------------------------
        Accretion expense                                     293        242
        ---------------------------------------------------------------------
        Liabilities settled                                    (8)      (388)
        ---------------------------------------------------------------------
        Liabilities related to business combination             -      4,368
        ---------------------------------------------------------------------
        Liabilities acquired                                    -        509
        ---------------------------------------------------------------------
        Liabilities disposed                                    -       (755)
        ---------------------------------------------------------------------
        Asset retirement obligations, end of period     $  10,768  $  10,249
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The inflated, undiscounted amount of the estimated future cash flows
        required to settle the obligations is $19.6 million (December 31,
        2007 - $19.2 million). These obligations are expected to be paid over
        the next several years with a weighted average life of approximately
        11 years (2007 - 10 years). The estimated future cash flows have been
        discounted at the credit-adjusted risk-free rate of 6.0% (2007 -
        6.0%). As at June 30, 2008, no funds have been set aside to settle
        these obligations.

    6.  Share Capital

        Authorized

        Gentry's authorized share capital consists of an unlimited number of
        voting common shares and an unlimited number of non-voting preferred
        shares. No preferred shares have been issued.

        Issued

                                                        Number of     Stated
        (thousands)                                        Shares      Value
        ---------------------------------------------------------------------
        Balance - December 31, 2007                        55,058  $ 105,847
        ---------------------------------------------------------------------
        Stock options exercised for cash                      390        584
        ---------------------------------------------------------------------
        Transferred from contributed surplus on
         options exercised                                      -        219
        ---------------------------------------------------------------------
        Employee share ownership plan                          50        144
        ---------------------------------------------------------------------
        Normal course issuer bid purchases                   (344)      (661)
        ---------------------------------------------------------------------
        Balance - June 30, 2008                            55,154  $ 106,133
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the six months ended June 30, 2008, the attributed values of
        common shares issued under the Company's portion of the employee
        share ownership plan of $72 thousand (2007 - $55 thousand) have been
        excluded from the consolidated statements of cash flows as non-cash
        transactions.

        Stock Options

                                                                    Weighted
                                                                        Avg.
                                                        Number of   Exercise
        (thousands)                                       Options      Price
        ---------------------------------------------------------------------
        Balance - December 31, 2007                         1,959  $    2.12
        ---------------------------------------------------------------------
        Granted                                             3,544       3.72
        ---------------------------------------------------------------------
        Exercised                                            (390)      1.50
        ---------------------------------------------------------------------
        Cancelled                                            (298)      4.69
        ---------------------------------------------------------------------
        Balance - June 30, 2008                             4,815  $    3.19
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Exercisable - June 30, 2008                         1,894  $    2.44
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        On May 22, 2008, the shareholders of the Company approved a change in
        the Company's stock option plan whereby the plan was changed from a
        fixed maximum plan to a rolling maximum plan, such that up to 10% of
        the issued and outstanding common shares of the Company may be made
        available for issuance as stock options under the plan.

        Stock-based Compensation Expense

        The fair value of stock options granted during 2008 was estimated on
        the dates of grant using the Black-Scholes option pricing model with
        the following assumptions:

          -  Risk free interest rate of 3.18% to 3.66%
          -  Expected life of options of 3.6 years
          -  Expected volatility of 40.11% to 43.90%
          -  Expected dividend rate of 0%
          -  Weighted average fair value per option granted of $1.34

        Of the 3.54 million stock options granted during 2008,
        730 thousand stock options vested immediately.

        Compensation costs of $1.28 million for the three months ended
        June 30, 2008 (2007 - $592 thousand) and $1.39 million for the six
        months ended June 30, 2008 (2007 - $916 thousand) have been expensed
        and have resulted in corresponding increases in contributed surplus
        in the respective periods.

        On May 31, 2008 the Company's stock appreciation rights plan, and
        rights granted thereunder, were terminated. No compensation cost or
        liability for these rights was recorded as the vesting requirements
        were not met.

        Contributed Surplus

        (thousands)                                                   Amount
        ---------------------------------------------------------------------
        Balance - December 31, 2007                                $   4,334
        ---------------------------------------------------------------------
        Stock-based compensation expense                               1,389
        ---------------------------------------------------------------------
        Transferred to share capital on options exercised               (219)
        ---------------------------------------------------------------------
        Balance - June 30, 2008                                    $   5,504
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net Income (Loss) Per Share

        The following table reconciles the denominators used for the basic
        and diluted net income (loss) per share calculations:

                                    Three months ended      Six months ended
                                               June 30               June 30
        (thousands)                    2008       2007       2008       2007
        ---------------------------------------------------------------------
        Basic weighted average
         shares                      55,282     44,753     55,158     41,832
        ---------------------------------------------------------------------
        Effect of dilutive stock
         options                          -          -          -          -
        ---------------------------------------------------------------------
        Dilutive weighted average
         shares                      55,282     44,753     55,158     41,832
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The calculation of diluted net income (loss) per share for the three
        and six months ended June 30, 2008 does not include any stock options
        (2007 - nil) as the inclusion of these options would have been
        anti-dilutive.

    7.  Capital Disclosures

        The Company considers its capital structure to consist of
        shareholders' equity and working capital, including bank debt. The
        objectives of managing capital are to meet its financial obligations,
        maintain investor and creditor confidence, and to sustain the future
        development of the Company.

        The Company may make adjustments to its capital structure in light of
        changes in economic and market conditions and may issue shares from
        time to time, purchase shares for cancellation under a normal course
        issuer bid, or adjust its capital spending to manage current and
        projected debt levels. There were no changes to the Company's
        approach to capital management during the quarter.

        The Company monitors its capital structure using primarily the
        non-GAAP measurement ratio of net debt to funds flow from operations,
        annualized from the most recent quarter. The objective is to maintain
        this ratio below 1.5:1, although this ratio may temporarily increase
        at certain times as a result of acquisitions or other significant
        capital expenditures for which the full quarterly effect of funds
        flow has not yet been accounted for. As at June 30, 2008, the ratio
        of net debt to funds flow from operations was 1.3:1 calculated as
        follows:

                                                          Three months ended
        (thousands)                                                  June 30
        ---------------------------------------------------------------------
        Current assets                                             $  19,091
        ---------------------------------------------------------------------
        Current liabilities                                          (79,769)
        ---------------------------------------------------------------------
        Net debt                                                   $ (60,678)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Cash flow from operations                                  $  14,666
        ---------------------------------------------------------------------
        Changes in non-cash working capital items                     (2,734)
        ---------------------------------------------------------------------
        Funds flow from operations                                    11,932
        ---------------------------------------------------------------------
        Annualized funds flow from operations                         47,728
        ---------------------------------------------------------------------
        Net debt to annualized funds flow from operations              1.3:1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The Company's share capital is not subject to any external
        restrictions, however the amount of its credit facility is subject to
        the valuation of its petroleum and natural gas reserves and future
        cash flows. The credit facility contains certain covenants such that
        the Company cannot, without the prior written consent of the bank,
        hedge petroleum or natural gas volumes in excess of 50% of production
        volumes nor can it monetize or settle a hedge. The credit facility
        also contains a financial covenant that requires the Company to
        maintain a working capital ratio of at least 1:1, but for the
        purposes of the covenant, bank debt and the fair value of commodity
        contracts are excluded and the unused portion of the credit facility
        may be added to current assets. At June 30, 2008, this ratio was
        1.9:1.

    8.  Financial Instruments

        The Company has exposure to credit, liquidity, and market risks from
        its use of financial instruments. While the Board of Directors has
        the overall responsibility for the establishment and oversight of the
        Company's risk management framework, management has the
        responsibility to administer and monitor these risks.

        Credit Risk

        Credit risk is the risk of financial loss to the Company if a
        customer or party to a financial instrument fails to meet its
        contractual obligations. Substantially all of the Company's accounts
        receivable are with customers and joint venture partners in the
        petroleum and natural gas industry and are subject to normal industry
        credit risk.

        Receivables from petroleum and natural gas marketers are normally
        collected on the 25th day of the month following production and the
        Company sells the majority of its production to three large marketing
        companies. Receivables from joint venture partners are typically
        collected within one to three months of the joint venture billing
        being issued, however, collection is dependent on industry factors
        such as commodity price fluctuations, escalating costs, the risk of
        unsuccessful drilling, and occasional disagreements amongst partners.
        The Company attempts to mitigate credit risk from joint venture
        partners by obtaining partner approval of significant capital costs
        prior to expenditure. While the Company does not typically obtain
        collateral from joint venture partners, it may cash call a partner in
        advance of funds being expended. In addition, the Company has the
        ability to withhold production from partners in the event of
        non-payment. The Company has not experienced any material credit loss
        in the collection of accounts receivable to date, other than as
        described in note 9.

        Liquidity Risk

        Liquidity risk is the risk that the Company will not be able to meet
        its financial obligations as they become due. The Company's approach
        to managing liquidity is to ensure, as far as possible, that it will
        have sufficient liquidity to meet its liabilities as they become due.

        The Company prepares annual capital expenditure budgets, which are
        monitored and updated quarterly or as considered necessary. The
        Company also utilizes authorizations for expenditures to help manage
        its capital expenditures. To facilitate its capital expenditure
        programs, the Company has an extendible revolving term loan, as
        outlined in note 4, which is generally reviewed semi-annually by the
        lender. The Company also manages its capital structure as outlined in
        note 7.

        Market Risk

        Market risk is the risk that changes in market prices, such as
        foreign exchange rates, commodity prices, and interest rates will
        affect the Company's net earnings or value of financial instruments.
        The objective of market risk management is to manage and control
        market risk exposure within acceptable limits, while maximizing
        returns. The Company utilizes commodity contracts to manage market
        risk and all such contracts are approved by the Board.

        Foreign Currency Exchange Risk

        This is the risk that the fair value or future cash flows will
        fluctuate as a result of changes in foreign exchange rates. Although
        the Company's petroleum and natural gas sales are denominated in
        Canadian dollars, the underlying market prices in Canada are impacted
        by changes in the exchange rate between the Canadian and United
        States dollar. The Company had no forward exchange rate contracts in
        place, nor any significant working capital items denominated in
        foreign currencies, as at or during the three and six months ended
        June 30, 2008.

        Commodity Price Risk

        This is the risk that the fair value or future cash flows will
        fluctuate as a result of changes in commodity prices. Commodity
        prices for petroleum and natural gas are not only impacted by the
        relationship between the Canadian and United States dollar as
        outlined above, but also by world economic events that dictate the
        levels of supply and demand. The Company has attempted to mitigate
        commodity price risk through the use of commodity contracts, which
        lock in future petroleum and natural gas prices. As of June 30, 2008,
        the Company had the following commodity contracts outstanding:

                     Contract                            Pricing
        Product          Type       Volume         Term    Point       Price
        ---------------------------------------------------------------------
                     Costless                  Mar 1/08
        Crude oil      collar   500 bbls/d  - Dec 31/08      WTI  US $85-104
        ---------------------------------------------------------------------
                        Fixed                  Apr 1/08
        Natural gas     price  4,000 GJs/d  - Oct 31/08     AECO       $7.51
        ---------------------------------------------------------------------

        For the three and six months ended June 30, 2008, these contracts
        resulted in settlement losses of $1.7 million. As at June 30, 2008,
        the fair value of all commodity contract liabilities was
        $6.3 million. This resulted in the recognition of unrealized losses
        for the three and six months ended June 30, 2008 of $4.6 million and
        $6.3 million respectively.

        The following table illustrates the impact on net income, relevant
        only to the Company's commodity contracts, for the six months ended
        June 30, 2008 based on changes to commodity prices as specified
        below:

        (thousands)                        Increase (Decrease) in Net Income
        ---------------------------------------------------------------------
        10% increase in WTI oil price                              $    (668)
        ---------------------------------------------------------------------
        10% decrease in WTI oil price                                  1,116
        ---------------------------------------------------------------------
        10% increase in AECO gas price                                  (342)
        ---------------------------------------------------------------------
        10% decrease in AECO gas price                                   342
        ---------------------------------------------------------------------

        Interest Rate Risk

        This is the risk that the fair value or future cash flows will
        fluctuate as a result of changes in market interest rates. The
        Company is exposed to interest rate fluctuations on its bank debt
        which bears a floating rate of interest. From time to time, the
        Company may attempt to mitigate this risk by utilizing short-term
        bankers' acceptances to lock in a portion of its bank debt at fixed
        rates. No interest rate swaps or financial contracts were in place as
        at June 30, 2008. The impact on net income of a 1% change in the
        interest rate would have been $91 thousand and $182 thousand for the
        three and six months ended June 30, 2008 respectively.

        Fair Value of Financial Instruments

        The Company's financial instruments as at June 30, 2008 consist of
        accounts receivable, deposits, accounts payable and accrued
        liabilities, bank debt and commodity contracts. The fair value of
        accounts receivable, deposits, and accounts payable and accrued
        liabilities approximate their carrying value due to their short-term
        nature. The fair value of bank debt approximates its carrying value
        as it bears interest at market rates. The fair value of commodity
        contracts is based on mark-to-market valuations. At each reporting
        period, the Company will assess whether a financial asset, other than
        those classified as held-for-trading, is impaired and any loss will
        be included in earnings for that reporting period.

    9.  Measurement Uncertainty

        On July 22, 2008 SemGroup LP filed for reorganization under
        Chapter 11 of the U.S. bankruptcy Code and two of SemGroup LP's
        Canadian subsidiaries, SemCanada Energy Company and SemCanada Crude
        Company, filed for creditor protection in Canada. Gentry sold a
        portion of its June 2008 crude oil and natural gas volumes to these
        two subsidiaries and as result of their filings, the Company has
        identified approximately $2.7 million of accounts receivable that has
        become impaired as at June 30, 2008. At this time, the Company is
        unable to ascertain the amount of the receivable that will be
        recovered but, as of June 30, 2008, has recorded an allowance for
        doubtful accounts of $683 thousand, which is approximately 25% of the
        amount owed as at June 30, 2008.

        Gentry estimates it has additional exposure of up to $1.7 million
        related to a portion of its July 2008 production purchased by
        SemGroup LP's Canadian subsidiaries. The Company has taken steps to
        mitigate further ongoing financial exposure. In the third quarter of
        2008, the Corporation will re-assess the recoverability of the
        June 2008 revenues and also assess the recoverability of the
        July 2008 revenues.

        The $683 thousand impairment has been calculated based on very
        preliminary estimates of the net assets available to satisfy
        unsecured creditors and changes in these estimates could have a
        material impact on the financial results of the Company.

    10. Subsequent Event

        On June 23, 2008, the Company announced that it had entered into an
        Arrangement Agreement (the Arrangement) with Crew Energy Inc. (Crew)
        whereby, subject to certain conditions, Crew will acquire all of the
        issued and outstanding shares of Gentry (the Transaction). Under the
        terms of the Arrangement, Gentry shareholders will receive 0.22 of a
        Crew common share for each Gentry common share held. The Transaction
        is expected to be completed by way of a Plan of Arrangement and is
        subject to normal stock exchange, court and regulatory approval as
        well as the requisite approval of Gentry shareholders. A meeting of
        Gentry shareholders to vote on the Transaction has been scheduled for
        August 21, 2008.

        Estimated transaction costs, including severance, professional,
        legal, advisory and other fees are estimated to be $11 million. If
        the Transaction is approved, all non-vested options shall become
        fully vested immediately prior to the closing of the Transaction;
        all options not exercised prior to closing shall be terminated; and
        the Company's employee share ownership plan shall be cancelled
        effective July 31, 2008.

    11. Future Accounting Pronouncements

        As of January 1, 2009, the Company will be required to adopt CICA
        Section 3064 "Goodwill and Intangible Assets" which will replace CICA
        Section 3062 of the same name. The new standard revises the
        requirements for recognition, measurement, presentation, and
        disclosure of intangible assets. The requirements were issued in
        February 2008 and the Company is assessing the impact on its
        financial statements.

        In January 2006, the CICA Accounting Standards Board adopted a
        strategic plan for the direction of accounting standards in Canada.
        As part of the plan, accounting standards in Canada for public
        companies will converge with International Financial Reporting
        Standards (IFRS) on January 1, 2011. The Company continues to monitor
        and assess the impact of the convergence of Canadian GAAP and IFRS.

    12. Comparative Financial Statements

        Certain figures in the comparative financial statements have been
        reclassified to be consistent with presentation in the current
        period.

    




For further information:

For further information: Hugh Ross, President & CEO, Ketan Panchmatia,
CFO, or Gord McKay, COO at (403) 264-6161; Investor Relations, contact Roger
Fullerton at (952) 929-7243

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