ProEx First Quarter Results - Foothills Acquisition Positions Company for Next Leg of Growth



    Production up 55 percent year over year

    CALGARY, April 23 /CNW/ -

    
                                                          Three months ended
                                                                    March 31
    -------------------------------------------------------------------------
    HIGHLIGHTS                                                2007      2006
    -------------------------------------------------------------------------
    Financial    ($ thousands, except per share amounts)
                 Petroleum and natural gas revenue          28,524    20,472
                 Funds generated from operations            17,907    10,653
                   - Basic per share                          0.45      0.32
                   - Diluted per share                        0.39      0.26
                 Net earnings                                4,066     4,265
                   - Basic per share                          0.10      0.13
                   - Diluted per share                        0.09      0.11
                 Capital investment                         50,488    50,539
                 Bank debt and working capital deficiency   69,858    49,126

    Operations   Production
                   - Natural gas (mcf/d)                    36,631    23,454
                   - Crude oil (bbls/d)                        384       314
                   - Natural gas liquids (bbls/d)              246       112
                   - Total production (boe/d)                6,735     4,335
                 Average realized price
                   - Natural gas ($/mcf)                      7.57      8.50
                   - Crude oil ($/bbl)                       64.46     65.66
                   - Natural gas liquids ($/bbl)             61.24     68.00
                 Netback per boe ($)
                   Petroleum and natural gas revenue         47.06     52.47
                   Realized gain on financial instruments     5.83
                   Royalties                                (12.47)   (15.50)
                   Operating expenses                        (4.80)    (4.65)
                   Transportation Expenses                   (3.68)    (3.70)
    -------------------------------------------------------------------------
                 Operating netback                           31.94     28.62
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Foothills Acquisition

    -   On April 2, 2007, ProEx acquired certain interests in northeast
        British Columbia Foothills assets previously acquired by Progress
        Energy Trust (the "Acquisition"). ProEx's total consideration under
        the agreement was approximately $134.3 million and has been financed
        through a concurrently announced equity offering, described below, as
        well as increased bank debt.

    -   The Acquisition was a unique high-quality opportunity at this time in
        the cycle and is an extremely complementary fit to ProEx's existing
        operations in the British Columbia Foothills. The Acquisition
        includes producing assets with significant exploitation potential and
        exploratory lands on-trend to the Company's existing Foothills
        activities.

    -   The Acquisition will add production of approximately 2,000 boe per
        day during the second quarter. The assets are 95 percent natural gas
        with proved plus probable reserves of approximately 6.6 million boe.
        Other assets include; large contiguous blocks of undeveloped lands
        with high working interests in ProEx's core region adding
        approximately 80,000 net acres and over 800 square kilometers of
        three dimensional "3-D" seismic coverage

    First Quarter Activity

    -   ProEx drilled 24 wells (16.4 net) during the quarter with an
        80 percent net success rate. Capital investment during the first
        quarter was $50.5 million (69 percent directed towards drilling and
        completions) consistent with $50.5 million during the same period in
        2006

    -   During the quarter the earning commitment phase of two industry
        farm-in arrangements in the British Columbia Foothills were completed
        with follow-up wells drilled at both Lily Lake and Sasquatch.

    -   Drilling activities were predominantly focused on exploratory
        concepts in Altares, and step out and pool delineation in Bernadet,
        Julienne, Dogrib and Sasquatch.

    -   At Julienne West, ProEx shot another "3-D" seismic program which was
        140 square kilometers in size. This data will contribute to the
        assessment of subsurface targets to be tested in the second half of
        the year.

    -   The Company brought on stream two major Foothills pipeline projects
        and related facilities at Julienne and Sasquatch. Both projects were
        significant engineering projects requiring the construction of
        approximately 22.2 kilometers of pipeline including a one kilometer
        bore under the Beaton River. These projects plus single well tie-ins
        at West Beg and Bernadet provided the production gains by late March
        and into the first week of April.

    -   Production during April reached 9,500 boe per day with the inclusion
        of these projects and the previously announced asset acquisition.
        Behind pipe production at quarter end that is expected to come on
        stream during 2007 is estimated to be approximately 2,000 boe per
        day.

    -   Production for the first quarter averaged 6,735 boe per day, up
        55 percent, compared to 4,335 boe per day in same quarter in 2006.
        Production per share, diluted was up 37 percent compared to the same
        period in 2006.

    -   Funds generated from operations for the first quarter was
        $17.9 million compared to $10.7 million in the prior year. Funds
        generated from Operations per share were $0.45 basic ($0.39 diluted)
        compared to $0.32 basic ($0.26 diluted) in the same period in 2006.
        The Company reported net earnings of $4.1 million compared to
        $4.3 million during the same period in 2006. Beginning January 1,
        2007, ProEx changed from using hedge accounting to using mark-to-
        market accounting for its financial instruments in accordance with
        new accounting policies (as disclosed in note 2 of the unaudited
        interim financial statements), and as a result, the Company recorded
        a $4.0 million unrealized loss on financial instruments largely
        attributed to the increase in forward natural gas prices after
        January 1, 2007.

    -   The Company ended the first quarter with total debt of $69.9 million
        (including a working capital deficit of $10.1 million) on a recently
        increased credit facility of $120 million. Subsequent to the end of
        the current quarter, the credit facility was increased to
        $150 million upon closing of the acquisition on April 2, 2007.

    Industry Farm-in

    -   Subsequent to the end of the quarter ProEx secured another industry
        farm-in arrangement whereby the Company can earn a working interest
        on four land blocks immediately adjacent to the Company's holdings in
        the BC Foothills. The farm-in provides access to approximately 40,000
        acres of undeveloped land. The farm-in arrangement contemplates a
        series of drilling commitment wells and option wells that could
        extend through to year end 2008.

    ASSET ACQUISITION

    On April 2, 2007 the Company acquired certain interests in northeast
British Columbia Foothills assets (the "Acquisition"). The Acquisition had an
effective date of April 1, 2007. ProEx's total consideration under the
agreement was approximately $134.3 million, subject to certain closing
adjustments and was financed through a concurrently announced equity offering,
described below, as well as increased bank debt.
    The Acquisition was a unique high-quality opportunity at this time in the
cycle and is an extremely complementary fit to ProEx's existing operations in
the British Columbia Foothills. The Acquisition includes producing assets with
significant exploitation potential and exploratory lands on-trend to the
Company's existing Foothills activity.
    The key attributes of this Acquisition are:

    -   Production of approximately 2,000 boe per day during the second
        quarter including sales that ProEx had previously paid to the
        original vendor through gross overriding royalties.

    -   Proved plus probable reserves, as estimated by the original vendor's
        third party engineering firm of approximately 6.6 million boe. Based
        on knowledge and experience obtained over the past four years through
        successful exploration activities in the Foothills, ProEx expects to
        significantly increase the proved plus probable reserves through the
        drilling of approximately 20 to 25 wells over the next two years.

    -   Large contiguous land blocks with high working interests within
        ProEx's core regions which will add approximately 80,000 net
        undeveloped acres bringing total undeveloped land under control to
        approximately 365,000 acres.

    -   The addition of over 800 square kilometers of "3-D" seismic coverage,
        expanding ProEx's 3-D seismic data library to approximately 2,000
        square kilometers, and approximately 2,000 kilometers of two
        dimensional data ("2-D").

    -   Improved netback and future profitability resulting from the
        acquisition of royalties on prior farm-in lands.

    -   Access to alternate major natural gas processing facilities allowing
        greater diversity in ProEx processing capacity.
    

    Acquisition and full-cycle metrics

    Excluding the value of the undeveloped land and seismic data of
$27.2 million, the net acquisition cost of $107.1 million results in
attractive on-stream costs of $48,700 per producing boe based on the acquired
production of approximately 2,200 boe per day, and a proved plus probable
reserve additions cost, based on the original vendor's third party reserve
report, of $16.23 per boe. The acquisition cost plus future activity is
expected to result in full-cycle finding and development costs of
approximately $10.00 to $12.00 per boe to exploit the recoverable reserves.
This is consistent with the Company's cumulative full-cycle all-in finding
costs since 2004 in the British Columbia Foothills.

    ProEx's growing dominance in the Foothills

    ProEx's predecessor company, Progress Energy, entered the Foothills
region in 2002 through the acquisition of four producing wells in the Town and
Beg areas. The first third party activity completed by Progress in the
Foothills was a farm-in on a block of land which is included in this above
mentioned asset acquisition. Since that time, ProEx and Progress have jointly
drilled approximately 130 Foothills wells. Based on the combined year-end
reserve reports, ProEx and Progress have discovered 350 billion cubic feet of
natural gas in the Foothills over the past four years of which ProEx has
booked approximately 200 billion cubic feet. Significant expertise has been
developed throughout this period by our technical team who continuously look
for not only large scale regional expansion opportunities but cost effective
refinements to the ongoing program.

    Acquired properties

    Bubbles area

    ProEx has acquired a 40 percent working interest in the majority of these
lands and a 26 percent working interest in the deeper Slave Point horizon. The
Bubbles area represents approximately 65 percent of the acquired production
and is producing primarily from the Halfway, Baldonnel and Slave Point
formations. The regional geology is characterized by its stacked reservoirs in
the Triassic and Cretaceous sections similar in depths to adjacent ProEx
working interest properties at Town and West Beg. Natural gas in the Halfway
is contained within a tight gas reservoir with well-log and producing
characteristics consistent with ProEx's experience throughout the northeast
British Columbia Foothills. An aggressive step-out and infill program is
planned across the Bubbles lands. The Slave Point Formation also offers
exposure to higher impact exploration that has the potential to materially
expand the Company's ultimate potential over the longer term.

    Buckinghorse/Green area

    ProEx has acquired a 50 percent working interest in the exploration lands
and production in the Buckinghorse/Green area. This area represents
approximately 35 percent of the acquired production and is producing primarily
from the Baldonnel, Bluesky, and Debolt formations. The acquired lands cover
approximately 30,000 net undeveloped acres and are contiguous with the
Company's lands acquired in the fourth quarter of 2006. Significant upside has
been identified utilizing "2-D" seismic data in look-alike opportunities
similar to the producing wells. Acquisition of seismic data will be necessary
to further expand the inventory of opportunities in the Cretaceous and
Triassic horizons. ProEx will also hold a 50 percent working interest in three
Buckinghorse-Halfway A pool discovery wells that are not currently on
production. Each discovery well provides an immediate inventory of drilling
locations which will provide the critical mass necessary to advance the
facilities development.

    Substantial Upside Potential

    The focus of ProEx's historical activities in the Foothills has been the
extensive Triassic aged Halfway Formation. Prior to 2006, the majority of the
Company's drilling activities have been along the seismically identified
anticlinal crests where ProEx employed innovative drilling techniques to
unlock the potential of the region. Typical Halfway wells along the crest
produce from one to three million cubic feet per day in the first year and
then stabilize in the range of 0.5 to 1.0 million cubic feet per day with a
production life greater than 30 years. In 2006, ProEx along with its working
interest partner Progress, experienced substantial success in the Cretaceous
horizons throughout the Foothills predominantly in the Bluesky and Gething
formations.

    Royalty Obligations Acquired

    Since the Company's (and its predecessor) initial start in the Foothills
in 2002, a number of wells were drilled on lands farmed out by the original
vendor and subject to gross overriding royalties ("GORR") payable by ProEx to
the vendor. With the acquisition, ProEx has acquired these obligations. This
will result in lower royalties, higher netbacks and enhanced drilling
economics.

    Financial Strength

    In conjunction with the Acquisition, ProEx entered into a bought deal
agreement with a syndicate of underwriters pursuant to which the underwriters
agreed to purchase for resale to the public, on a bought deal basis, 8,050,000
subscription receipt common shares (the "Subscription Receipts") at a price of
$12.45 per Subscription Receipt for aggregate gross proceeds of
$100.2 million. The closing of the Subscription Receipt offering occurred on
March 27, 2007. As part of the acquisition, ProEx's credit facility has
increased to $150 million.

    CAPITAL PROGRAM UPDATE

    ProEx drilled 24 wells (16.4 net) in the first quarter targeting natural
gas reservoirs in the Foothills region of northeast British Columbia. Halfway
tests were drilled at Dogrib, Lily, Sasquatch, Altares and Bernadet while the
balance of the drilling program concentrated on shallower Cretaceous targets
at Altares and Julienne. The first quarter drilling program was largely
exploratory or step-out oriented resulting in an overall success rate of
79 percent (80 percent net). At Bernadet, a successful new pool Halfway well
was discovered and a two to three well development program is now planned for
the third and fourth quarters of 2007. At Sasquatch a development/step-out
program is also planned, to extend the Halfway trend to the north, following
the first quarter success in this area.
    Approximately 2,000 boe per day of production is behind pipe and will
require infrastructure construction during the third and fourth quarters.
These projects include successful Halfway wells at Lily Lake, Julienne,
Bubbles and Buckinghorse as well as Cretaceous horizons at Julienne North and
West Beg. During the first quarter the Company drilled a successful Cretaceous
well between Julienne and Lily Lake, laying the foundation for a future
pipeline connecting Lily Lake and Julienne. A short term solution is currently
under consideration that would allow the tie-in and testing at reduced rates
of one Lily Lake well into a third party facility until sufficient critical
mass can be developed. At Julienne, the two sour Halfway wells discovered in
2006 will be co-mingled with existing sweet Gething production with some
facility modifications during the second quarter.
    In addition 140 square kilometer "3-D" seismic data was recorded in the
Julienne West area several kilometres west of the newly commissioned gas
facility at Julienne. This data will be interpreted and drill locations
recommended in time for the third quarter drilling program. Also, a
40 kilometer "2-D" seismic program was conducted in the Altares area with the
intent of expanding the pool edges of the Bluesky gas accumulation.
    In early February 2007, the Company completed the final portion of the
Julienne sales line to the Spectra Energy Ltd. (formerly Duke) tie in point to
by-pass a third party facility that had proved to be unreliable. Also in early
April the Company completed the tie in of its Sasquatch and North Dogrib wells
which were stranded on the north side of the Beaton River. The Company
completed a successful one kilometer bore under the Beaton River and
constructed all the necessary gathering systems tying into the existing Dogrib
facility. A facility expansion was completed at Julienne in mid-April with an
additional compressor being added.

    
    2007 First Quarter Drilling Results

                                 Gross Wells                Net Wells
                          ------------------------- -------------------------
                            Gas   Oil   Dry  Total    Gas   Oil   Dry  Total
                          ------------------------- -------------------------

    British Columbia
    - Foothills region       19     -     5     24   13.1     -   3.3   16.4
    - Fort St. John
      Plains region           -     -     -      -      -     -     -      -
                          ------------------------- -------------------------
    Total                    19     -     5     24   13.1     -   3.3   16.4
                          ------------------------- -------------------------
                          ------------------------- -------------------------
    

    OUTLOOK

    ProEx continues to rapidly expand its footprint in the Foothills of
northeastern British Columbia. The most recent expansion was a farm-in which
the Company has access to approximately 40,000 acres of undeveloped land. The
previously announced acquisition is the first for ProEx and not only adds new
production to our base but brings a substantial exploitation and exploratory
inventory.
    First Quarter drilling at Altares targeted new exploratory concepts in
both the Cretaceous and Triassic intervals. The results of this particular
program did not meet expectations. A review of this initiative is currently
underway and will assist in modifying our future exploratory efforts in this
area. Drilling results at Julienne and West Beg for the Cretaceous, and
Sasquatch and Bernadet for the Halfway, were consistent with our experience in
these regions and as a result have been tied in and are currently on
production. Dogrib south drilling was limited to only two wells which
encountered a tighter facies of Halfway reservoir and further Halfway drilling
in the immediate areas has been deferred, however, success in the Cretaceous
and Baldonnel will spur further shallow drilling.
    For the balance of the year ProEx will focus on stepout drilling for
Triassic targets at Bernadet and Sasquatch. Drilling for Cretaceous horizons
will be focused in the Julienne and Town South fields. In addition a
significant exploitation program at Bubbles will include development drilling
and recompletions on existing wells. At Buckinghorse, up to seven wells are
expected to be drilled testing strata from the Mississipian aged Debolt
through to the Halfway and Cretaceous horizons.
    New grass roots facility construction is anticipated at Buckinghorse and
Lily Lake with two new installations and compressor expansions or facility
upgrades planned at Dogrib/Sasquatch, Bernadet and North Buckinghorse. As
ProEx extends its operations to the north, the terrain and infrastructure
becomes more challenging than what has been experienced to date, but the
resource prospectively has significant potential. This will, however, impact
the full cycle time to establish new production beyond the timeframes we have
come to expect. By conducting a balanced program of development and new
exploration, the Company will strive to mitigate long term stranded gas and
pursue a continued aggressive production growth profile.
    Production during April reached approximately 9,500 boe per day with
approximately 2,000 boe per day behind pipe, expected to be tied in during
2007. Annual guidance remains unchanged but we are targeting to be at the
lower end of the average and exit production guidance range of 10,000 to
10,500 boe per day and 12,000 to 13,000 boe per day respectively.
    Our opportunity inventory has taken a large step forward with the
acquisition of the northeast British Columbia assets, as well as our
investment in new lands made at Crown land sales during the fourth quarter. We
will continue our aggressive capture of on-trend and adjacent holdings as we
expand our regional dominance. Production and reserve growth potential has
never been more visible than it is at this time. The Company has the potential
to drill at the current pace of 50 to 55 net wells per year, well into 2009.
    The Company will be holding its Annual Meeting of the shareholders on
Tuesday April 24, 2007 at 3:30 PM in the McMurray Room at the Calgary
Petroleum Club, 319 - 5th Avenue S.W., Calgary, Alberta.

    On behalf of the Board of Directors,
    (Signed) "David D. Johnson"

    David D. Johnson
    President & Chief Executive Officer
    April 23, 2007


    MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

    The following discussion and analysis as provided by the Management of
ProEx Energy Ltd. ("ProEx" or the "Company") as of April 23, 2007, is to be
read in conjunction with the accompanying unaudited interim financial
statements and related notes for the period ended March 31, 2007 and ProEx's
audited financial statements, related notes and MD&A for the year ended
December 31, 2006. The financial data presented has been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP").
The reporting and the measurement currency is the Canadian dollar.

    Description of Company

    ProEx is a Calgary based, natural gas focused, exploration and
development company, established on July 2, 2004. Primary operating areas
include northeast British Columbia Foothills and Fort St. John Plains regions.
Shares of ProEx trade on the Toronto Stock Exchange ("TSX") under the symbol
PXE.

    Relationship with Progress Energy Trust

    The Company receives personnel and certain administrative and technical
services from Progress Energy Trust ("Progress") in connection with the
management, development, exploitation and operation of the assets of ProEx and
the marketing of its production. Progress provides these services in
accordance with the Technical Services Agreement entered into with ProEx as
described below.
    ProEx and Progress have joint interest in certain properties and
undeveloped land in the northeast British Columbia Foothills and Fort St. John
Plains regions. These joint interest properties are governed by standard
industry agreements and in addition the Company has entered into a protocol
arrangement ("Protocol Arrangement") with Progress that specifies how each
company will manage the joint lands in specifically identified areas of
interest. To ensure good governance practices, both ProEx and Progress have
each created independent committees of their Board of Directors to monitor
compliance with the Technical Services Agreement and the Protocol Arrangement.

    Technical Services Agreement - The Technical Services Agreement has no
set termination date and will continue until terminated by either party with
one year prior written notice to the other party or some other date as
mutually agreed. The Company receives services including management,
development, exploitation, operations, administrative, and marketing, as well
as information technology systems from Progress on an expense reimbursement
basis, based on the Company's monthly capital activity and production levels
relative to the combined capital activity and production levels of both ProEx
and Progress.

    Protocol Arrangement - The Protocol Arrangement identifies methods and
processes to be followed on both existing and new lands, joint facilities,
marketing, seismic and surface rights. The Protocol Arrangement also outlines
the practices to be followed in the event either party enters into areas
outside of the identified areas of interest.

    Non-GAAP Measures

    The MD&A contains the term "funds generated from operations" and
"operating netbacks" which are non-GAAP terms. The Company uses these measures
to help evaluate its performance. Operating netback is the net result of the
Company's revenue net of realized gains and losses on financial instruments,
and royalty, operating and transportation expenses as found in the
accompanying interim financial statements. Management considers operating
netbacks an important measure as it demonstrates its profitability relative to
current commodity prices. Management uses funds generated from operations to
analyze operating performance and leverage and considers funds generated from
operations to be a key measure as it demonstrates the Company's ability to
generate the cash necessary to fund future capital investments and to repay
debt. Funds generated from operations should not be considered an alternative
to, or more meaningful than cash flow from operating activities as determined
in accordance with Canadian GAAP as an indicator of the Company's performance.
Therefore, references to funds generated from operations or funds generated
from operations per share (basic and diluted) may not be comparable with the
calculation of similar measures for other entities. The reconciliation between
net earnings, funds generated from operations and cash flow from operations
can be found in the statements of cash flows in the interim unaudited
financial statements. Funds generated from operations per share is calculated
using the basic and diluted weighted average number of shares for the period.

    Boe Presentation

    Barrels of oil equivalent ("boe") may be misleading, particularly if used
in isolation. A boe conversion ratio of six thousand cubic feet ("mcf") to one
barrel ("bbl") is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. All boe conversions in this report are derived by converting natural
gas to oil in the ratio of six mcf of gas to one barrel of oil.

    Forward-Looking Information

    Certain information regarding the Company set forth in this document,
including Management's assessment of the Company's future plans and
operations, may constitute forward-looking statements under applicable
securities law and necessarily involve risks associated with oil and gas
exploration, production, marketing, and transportation such as loss of market,
volatility of commodity prices, currency fluctuations, imprecision of reserve
estimates, environmental risks, competition from other producers and ability
to access sufficient capital from internal and external sources; as a
consequence, actual results may differ materially from those anticipated in
the forward-looking statements.

    
    RESULTS OF OPERATIONS

    Production

    The following is a summary of daily production for the periods indicated:

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
                                                              2007      2006
    -------------------------------------------------------------------------
    Natural gas (mcf/d)                                     36,631    23,454
    Crude oil (bbls/d)                                         384       314
    Natural gas liquids (bbls/d)                               246       112
    -------------------------------------------------------------------------
    Total production (boe/d)                                 6,735     4,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the three months ended March 31, 2007 (the "Quarter"), ProEx's
production averaged 6,735 boe per day consisting of 36,631 mcf per day of
natural gas, 384 bbls per day of crude oil and 246 bbls per day of natural gas
liquids. Production during the Quarter was 55 percent higher than the
4,335 boe per day recorded for the same period in 2006. The Company's
production portfolio for the Quarter was weighted 91 percent to natural gas,
six percent to crude oil and three percent to natural gas liquids.
    Natural gas production of 36,631 mcf per day during the Quarter was
56 percent higher than the 23,454 mcf per day recorded for the same period in
2006. Crude oil and natural gas liquids production for the Quarter increased
47 percent to 630 bbls per day from 426 bbls per day for the same period in
2006. The increase in, year over year natural gas and natural gas liquids
production is primarily due to on-stream production of successful discoveries
and ongoing development drilling at Julienne, Dogrib, Bernadet, West Beg and
Altares.

    Pricing and Risk Management

    Natural Gas Markets
    ProEx's realized natural gas price in the Quarter was $7.57 per mcf (2006
- $8.50 per mcf), before the impact of financial instrument settlements,
compared to the AECO daily index average of $7.48 per mcf. The higher
realization reflects the higher heat content of ProEx' natural gas stream.
Including the impact of financial instrument settlements, ProEx realized an
average of $8.64 per mcf (2006 - $8.50, no hedges were in place during the
same period in 2006).
    Although the winter season in North America turned out to be warmer than
normal, the arrival of the coldest February in thirty years helped to draw
down natural gas storage levels from persistently high levels earlier in the
winter. Although natural gas storage levels remain high relative to historical
levels, supply concerns are growing. In Western Canada, a pullback in natural
gas directed drilling activity is having the impact of lowering gas
production, and along with the growth in demand for natural gas by oil sands
producers, these factors will result in lower volumes of Canadian natural gas
exported to the United States. As well, persistently high service industry
costs across North America are expected to lead to a slow down in natural gas
directed drilling activity in the United States. On the demand side, normal
summer weather expectations, potential hurricane activity, growth in natural
gas-fired electricity generation and growth in oil sands demand are expected
to keep the supply-demand balance very tight.
    There is little on the immediate supply front to change the supply
situation as both Canada and the United States continue to face steadily
growing higher decline rates, smaller reserve sizes, lower productivity wells
and a general slowdown in natural gas-directed drilling activity.

    Oil Markets
    ProEx' realized prices in the Quarter for its liquids streams were $64.46
per bbl (2006 - $65.66 per bbl) for crude oil and $61.24 per bbl (2006 -
$68.00 per bbl) for natural gas liquids.
    Crude oil prices were relatively volatile through the Quarter. Demand
growth remains strong, supply remains tight and inventory levels have
undergone some sharp downward swings during the past two quarters. The United
States has historically been considered the bellwether for oil and product
inventories but supply concerns are assessed on a global basis given the
relative growth of under-developed countries such as China. Several above
ground forces including a shortage of oilfield equipment, personnel and
political issues created by rising nationalism (i.e. Venezuela) are expected
to remain in place for some time to come and will only add further volatility.
    The global oil demand picture is ever evolving with a steady rotation
toward transportation fuels and growth in under-developed economies. These
shifting tides are likely to underpin the demand for light sweet crude streams
like West Texas Intermediate and weigh upon heavier grades of crude. ProEx'
crude oil production is made up predominately of light crude and does not
include any heavy oil.

    
                                                          Three Months Ended
    Average Benchmark Prices                                        March 31
    -------------------------------------------------------------------------
                                                              2007      2006
    -------------------------------------------------------------------------
    Natural gas - Station no.2 ($/mcf daily index)            7.19      7.21
    Natural gas - AECO ($/mcf daily index)                    7.48      7.59
    Natural gas - AECO ($/mcf monthly index)                  7.47      9.36
    Exchange rate (US$/Cdn$)                                1.1716    1.1545
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                          Three Months Ended
    ProEx Realized Prices                                           March 31
    -------------------------------------------------------------------------
                                                              2007      2006
    -------------------------------------------------------------------------
    Natural gas ($/mcf)                                       7.57      8.50
    Crude oil ($/bbl)                                        64.46     65.66
    Natural gas liquids ($/bbl)                              61.24     68.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Risk Management
    The Company has entered into several natural gas financial contracts for
the purpose of protecting its funds generated from operations from the
volatility of natural gas prices. For the Quarter, the Company's natural gas
price risk management program had a net realized gain of $3.5 million (2006 -
nil).
    On January 1, 2007 the Company adopted the new accounting standards
regarding the accounting for financial instruments. In addition to the
adoption of the new standards, Management has elected not to use hedge
accounting and consequently records the fair value of its natural gas
financial contracts at each reporting period with the change in the fair value
being classified as unrealized gains and losses in the statement of earnings.
The accounting for hedging relationships for prior fiscal periods are not
retroactively changed, therefore, there was no restatement of the financial
position or results of operation as at and for the three months ended
March 31, 2006.
    On adoption, the Company recognizes a current asset of $7.4 million for
the fair value of its natural gas derivative contracts with a corresponding
increase to accumulated other comprehensive income of $4.9 million (net of tax
of $2.4 million). The $4.9 million in accumulated other comprehensive income
will be amortized through other comprehensive income and unrealized gain or
loss on the statement of earnings over the term of the contracts. For the
Quarter, $3.0 million was amortized through other comprehensive income with a
corresponding pre-tax unrealized gain of $4.5 million and a charge to future
income tax expense of $1.5 million.
    At March 31, 2007, the fair value of the natural gas financial contracts
was a liability of $1.1 million. The decrease in value from January 1, 2007 to
March 31, 2007 of $8.5 million was due to the increase in forward natural gas
prices from the date of adoption, January 1, 2007 to March 31, 2007 and the
expiration of three months of its current financial contracts. As a result,
for the Quarter, the Company had a net unrealized loss on financial
instruments of $8.5 million, less the $4.5 million gain amortized from
accumulated other comprehensive income, for a net unrealized loss on financial
instruments of $4.0 million.
    The Company's financial derivative trading activities are conducted
pursuant to the Company's Risk Management Policy approved by the Board of
Directors. The Risk Management Policy has the objectives of reducing risk
exposure to budgeted annual funds generated from operations projections
resulting from uncertainty or changes in commodity prices, interest rates or
foreign exchange; limiting financial contract volumes up to a maximum of 50
percent of budgeted production before royalties; and limiting financial
derivative trading activity to counter-parties that provide sufficient
collateral in support of payment or have investment grade credit ratings.
    ProEx's commodity risk management positions are described in Note 8 in
the unaudited interim financial statements. The Company's current financial
derivative contracts are for the period April 2007 to October 2007 for a total
of 20,000 gigajoules ("gj") per day using call spreads with a net floor price
of $7.01 per gj and a net ceiling price of $8.01 per gj.

    Revenues

    For the Quarter, natural gas revenue increased 39 percent to
$24.9 million from $17.9 million for the same period in 2006 due to increased
production. The increase in production was partially offset by lower natural
gas prices. Production revenue for the Quarter also included $2.2 million from
crude oil sales and $1.4 million from the sale of natural gas liquids, for a
combined increase of 40 percent in liquids sales as compared to the same
period in the prior year.
    For the three months ended March 31, 2007, petroleum and natural gas
revenue included the following balances compared to the same period in 2006:

    
                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------
    Natural gas sales                                       24,943    17,932
    Crude oil sales                                          2,227     1,856
    Natural gas liquids sales                                1,354       684
    -------------------------------------------------------------------------
    Petroleum and natural gas revenue                       28,524    20,472
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalties

    Royalty expense consists of royalties paid to provincial governments,
freehold landowners and overriding royalty owners. For the Quarter, royalties
were $7.6 million ($6.0 million for the same period in 2006). The Company's
average royalty rate for the Quarter was 26.5 percent compared to 29.5 percent
in 2006. The lower royalty rate in the Quarter as compared to the same period
in 2006 is attributable to the lower natural gas prices as well as an increase
in marginal well royalty rate incentives received on certain low volume wells
in Northeast British Columbia.
    Management anticipates, based on current commodity prices, the average
royalty rate for the remainder of 2007 will be approximately 28 to 30 percent.

    Operating Expenses

    Operating expenses during the Quarter were $2.9 million compared to
$1.8 million for the same period in 2006. On a boe basis, operating expenses
for the Quarter of $4.80 were consistent with the $4.65 recorded in the same
period in 2006.
    Management anticipates operating expenses for the remainder of 2006 to be
between $4.50 and $5.00 per boe.

    Transportation Expenses

    Transportation expenses were $2.2 million for the Quarter compared to the
same period in 2006 of $1.4 million. On a boe basis, transportation expenses
during the Quarter were $3.68 per boe, consistent with the $3.70 per boe for
the same quarter in 2006.
    In British Columbia, there is an infrastructure owned by Duke Energy that
enables gas producers to avoid facility construction in exchange for regulated
gathering, processing and transmission fees. This all-in charge is included in
transportation expenses.

    Operating Netbacks

    The following table summarizes the operating netbacks for natural gas and
crude oil propertie s for the Quarter ended March 31, 2007 compared to the
same period in 2006:

    
                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
                                                              2007      2006
    -------------------------------------------------------------------------
    Natural gas properties ($/mcf)
    Sales price                                               7.73      8.64
    Realized gain on financial instruments                    1.02         -
    Royalties                                                (2.08)    (2.69)
    Operating expenses                                       (0.77)    (0.71)
    Transportation expenses                                  (0.62)    (0.63)
    -------------------------------------------------------------------------
    Operating netback - Natural gas properties                5.28      4.61
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Crude oil properties ($/bbl)
    Sales price                                              60.27     62.41
    Royalties                                               (11.82)    (5.60)
    Operating expenses                                       (8.87)   (10.46)
    Transportation expenses                                  (2.33)    (2.31)
    -------------------------------------------------------------------------
    Operating netback - Crude oil properties                 37.25     44.04
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    General and Administrative Expenses

    For the Quarter, general and administrative expenses net of overhead
recoveries, ("G&A") were $0.7 million compared to $0.4 million for the same
period in 2006. On a boe basis for the Quarter, G&A was $1.17 per boe compared
to $0.97 per boe recorded for the same period in 2006.
    The increase in G&A for the Quarter as compared to the same period in the
prior year is primarily due to an increase in technical service fees from
Progress resulting from ProEx's increased production in relation to Progress'
production in accordance with the terms of the Technical Services Agreement.
Management anticipates G&A expense to average between $1.10 per boe and $1.20
per boe for the remainder of 2007.
    The following table summarizes G&A for the Quarter ended March 31, 2007
compared to the same period in 2006:

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------
    Direct expenses                                            218       185
    Technical services fee from Progress                     1,584     1,210
    -------------------------------------------------------------------------
    Gross G&A                                                1,802     1,395
    Recoveries                                                (880)     (733)
    Capitalized expenses                                      (212)     (285)
    -------------------------------------------------------------------------
    Total G&A                                                  710       377
    -------------------------------------------------------------------------
    Total G&A ($boe)                                          1.17      0.97
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock Based Compensation

    For the Quarter, stock based compensation expense related to outstanding
stock options and Class B Performance Shares was $0.3 million ($0.47 per boe)
compared to $0.2 million ($0.44 per boe) for the same period in 2006. ProEx's
stock based compensation plan is described in Note 6 in the unaudited interim
financial statements.

    Interest and Financing

    For the Quarter, interest and financing charges were $0.5 million ($0.81
per boe) compared to $0.1 million ($0.23 per boe) for the same period in 2006.
The increase in interest and financing charges for the Quarter as compared to
the same period in the prior year, is a result of higher debt levels utilized
to fund the increased capital investment program and costs incurred on the
Acquisition. Details of ProEx's bank debt are described in Note 4 in the
unaudited interim financial statements.

    Depletion, Depreciation and Accretion

    For the Quarter, depletion and depreciation of property, plant and
equipment and the accretion of the asset retirement obligations ("DD&A") was
$8.1 million compared to $3.8 million for the same period in 2006. DD&A per
boe for the Quarter was $13.35 per boe compared to $9.70 per boe recorded for
the same period in 2006, $11.17 per boe average for the twelve months ended
December 31, 2006 and $13.59 in the fourth quarter of 2006.

    Future Income Taxes

    The provision for future income taxes for the Quarter was an expense of
$1.7 million compared to an expense of $2.4 million in same period in 2006.
The lower taxes in the Quarter as compared to the same period in the prior
year is a result of lower pre-tax earnings.

    Net Earnings, Comprehensive Income and Funds Generated from Operations

    The Company recorded net earnings for the Quarter of $4.1 million compared
to net earnings of $4.3 million during the same period in 2006. The basic and
diluted net earnings per share for the Quarter was $0.10 and $0.09
respectively ($0.13 basic and $0.11 diluted for the same period in 2006). Net
earnings recorded in the Quarter includes a $4.0 million unrealized loss on
financial instruments, and comprehensive income for the Quarter includes
$3.0 million for the amortization of the amount recognized in accumulated
other comprehensive income on the adoption of the new accounting standards for
financial instruments (see the "Risk Management" section above).
    Funds generated from operations were $17.9 million for the Quarter
compared to $10.7 million during the same period in 2006. Basic and diluted
funds generated from operations per share for the Quarter was $0.45 basic and
$0.39 diluted, compared to $0.32 and $0.26 respectively during the same period
in 2006. Funds generated from operations increased 68 percent over the same
period in the prior year due primarily to a 55 percent increase in production
during the same period.
    The following table summarizes the funds generated from operations and net
earnings on a boe basis for the Quarter ended March 31, 2007 compared to the
same period in 2006:

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($/boe)                                                   2007      2006
    -------------------------------------------------------------------------
    Petroleum and natural gas revenues                       47.06     52.47
    Royalties                                               (12.47)   (15.50)
    -------------------------------------------------------------------------
                                                             34.59     36.97
    Realized gain in financial instruments                    5.83         -
    Interest income                                              -      0.01
    -------------------------------------------------------------------------
                                                             40.42     36.98
    Operating expenses                                       (4.80)    (4.65)
    Transportation expenses                                  (3.68)    (3.70)
    -------------------------------------------------------------------------
    Operating netback                                        31.94     28.63
    General and administrative expenses                      (1.17)    (0.97)
    Interest and financing expenses                          (0.81)    (0.23)
    Asset retirement expenditures (1)                        (0.42)    (0.02)
    Capital taxes                                                -     (0.10)
    -------------------------------------------------------------------------
    Funds generated from operations                          29.54     27.31
    Asset retirement expenditures (1)                         0.42      0.02
    Unrealized loss in financial instruments                 (6.65)        -
    Stock based compensation expense                         (0.47)    (0.44)
    Depletion, depreciation and accretion expenses          (13.35)    (9.70)
    -------------------------------------------------------------------------
    Earnings before taxes                                     9.49     17.19
    Future income taxes                                      (2.78)    (6.26)
    -------------------------------------------------------------------------
    Net earnings                                              6.71     10.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Actual asset retirement costs incurred during the period are
        classified for cash flow purposes as an operating item, however these
        costs are not an expense of the period and are therefore added back
        for purposes of determining net earnings
    

    The Company's funds generated from operations were $29.54 per boe for the
three months ended March 31, 2007 compared to $27.31 per boe for the same
period in 2006. Net earnings were $6.71 per boe for the Quarter compared to
$10.93 per boe in the same period in 2006. Lower net earnings in the current
Quarter is the result of the impact of unrealized financial instrument losses
recorded in compliance with the Company's change in accounting policy for
financial instruments as disclosed in note 2 of the unaudited interim
financial statements.

    Deferred acquisition costs

    On April 2, 2007, ProEx acquired certain interests in northeast British
Columbia Foothills assets previously acquired by Progress Energy Trust (the
"Acquisition"). ProEx's total consideration was approximately $134.3 million
prior to closing adjustments, and was financed through an equity offering and
increased bank debt, as described below.
    In conjunction with the Acquisition, ProEx issued 8,050,000 common shares
at a price of $12.45 per share for aggregate gross proceeds of $100.2 million
($96.1 million net of issue costs). The remainder of the purchase price was
financed through increased bank debt.
    Costs incurred prior to March 31, 2007, as part of the Acquisition and
the related equity offering have been classified and reported separately on
the balance sheet as 'Deferred acquisition costs'. On closing, these costs
will be classified as property, plant and equipment, or share issue costs.

    Capital Expenditures

    During the Quarter the Company invested approximately $34.7 million in
drilling and completions, $7.9 million in equipping and facilities,
$4.9 million in seismic activities and $2.8 million in land acquisitions.
Total capital investment for the Quarter was $50.5 million which was
consistent with the $50.5 million recorded for the same period in 2006.

    
                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------
    Land acquisitions and retention                          2,811     3,487
    Geological and geophysical                               4,885     4,172
    Drilling and completions                                34,660    34,876
    Equipping and facilities                                 7,888     7,960
    Net property acquisitions (dispositions)                   244        44
    -------------------------------------------------------------------------
    Total net capital investment                            50,488    50,539
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Capitalization and Capital Resources

    Common Share Information (thousands)
                                                         March 31,  December
                                                              2007  31, 2006
    -------------------------------------------------------------------------
    Three months ended weighted average outstanding
     Common Shares
    -   Basic                                               39,768    35,336
    -   Diluted                                             45,820    41,749

    Outstanding Securities
    -   Common Shares                                       39,829    39,691
    -   Common Share options                                   777       778
    -   Common Share warrants                                6,012     6,144
    -------------------------------------------------------------------------
    -   Diluted Common Shares outstanding                   46,618    46,613
    -------------------------------------------------------------------------
    -   Class B Performance Shares                             695       695
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Outstanding Securities at April 20, 2007 (thousands)
    -   Common Shares                                       47,954
    -   Common Share options                                   764
    -   Common Share warrants                                5,951
    -------------------------------------------------------------------------
    -   Diluted Common Shares outstanding                   54,669
    -------------------------------------------------------------------------
    -   Class B Performance Shares                             695
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In conjunction with the Acquisition on April 2, 2007, ProEx issued
8,050,000 common shares at a price of $12.45 per share for aggregate gross
proceeds of $100.2 million ($96.1 million net of issue costs).

    Total Market Capitalization

    The Company's market capitalization at March 31, 2007 was $603.4 million.

                                                         March 31,  December
    (thousands)                                               2007  31, 2006
    -------------------------------------------------------------------------
    Common Shares outstanding                               39,829    39,691
    Share price ($) (1)                                      15.15     12.85
    -------------------------------------------------------------------------
    Total market capitalization ($)                        603,409   510,029
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Represents the closing price on the Toronto Stock Exchange ("TSX").


    Liquidity and Capital Resources

                                                         March 31,  December
    (thousands)                                               2007  31, 2006
    -------------------------------------------------------------------------
    Working capital deficiency                              10,086     2,035
    Bank debt                                               59,772    25,803
    -------------------------------------------------------------------------
    Total debt                                              69,858    27,838
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    At March 31, 2007 the Company had $59.8 million outstanding on its credit
facilities and a working capital deficit of $10.1 million, resulting in
$69.9 million of total debt. During the Quarter, the Company completed a
review with its lender and as a result its credit facility was increased to
$120 million. Upon the closing of the Acquisition on April 2, 2007, as
disclosed in note 9 of the unaudited interim financial statements, the credit
facility was increased to $150 million. The Company's credit facility is a
demand revolving operating credit facility with a Canadian bank and is
reviewed twice per year. The facility is a borrowing base facility that is
determined based on, among other things, the Company's current reserve report,
results of operations, current and forecasted commodity prices and the current
economic environment.
    The Company's investing activities in the Quarter consisted primarily of
expenditures on its capital program and costs incurred on the Acquisition.
Management anticipates that the Company will continue to have adequate
liquidity to fund future working capital and budgeted capital expenditures
during 2007 through a combination of cash flow and additional debt. New
equity, if available and on favorable terms, may be utilized to expand
exploration programs.


    QUARTERLY FINANCIAL SUMMARY

    The following table highlights ProEx's performance for the quarterly
reporting periods from April 1, 2005 to March 31, 2007:

                                   2007                  2006
    -------------------------------------------------------------------------
    ($ thousands, except per
     share amounts)               Mar 31   Dec 31  Sept 30  June 30   Mar 31
    -------------------------------------------------------------------------
    Petroleum and natural gas
     sales                        28,524   23,386   19,419   20,723   20,472
    Funds generated from
     operations                   17,907   13,995    8,766   10,118   10,653
      - Per share basic             0.45     0.37     0.24     0.29     0.32
      - Per share diluted           0.39     0.32     0.21     0.25     0.26
    Net earnings                   4,066    4,293    2,627    3,978    4,265
      - Per share basic             0.10     0.11     0.07     0.12     0.13
      - Per share diluted           0.09     0.10     0.06     0.10     0.11
    Total assets                 339,252  290,307  246,227  217,078  192,613
    Bank debt and working
     capital deficiency/
     (surplus)                    69,858   27,838   41,499   18,364   49,126
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                              2005
    -------------------------------------------------------------------------
    ($ thousands, except per
     share amounts)                                 Dec 31  Sept 30  June 30
    -------------------------------------------------------------------------
    Petroleum and natural gas sales                 29,984   17,434   11,217
    Funds generated from operations                 16,501    8,953    5,589
      - Per share basic                               0.50     0.29     0.19
      - Per share diluted                             0.41     0.23     0.15
    Net earnings                                     7,775    3,585    1,919
      - Per share basic                               0.24     0.11     0.06
      - Per share diluted                             0.20     0.09     0.05
    Total assets                                   150,193  139,769   93,657
    Bank debt and working capital
     deficiency/(surplus)                            9,275   (2,915)   8,455
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Quarterly petroleum and natural gas revenue, funds generated from
operations and net earnings increased over the first three quarters above due
to strong commodity prices and production growth resulting from the ongoing
successful drilling program in British Columbia. Lower petroleum and natural
gas revenue, funds generated from operations and net earnings in the first
three quarters of 2006 was due to a sharp decline in commodity prices, while
the two most recently completed quarters have increased due to consistent
production growth and strengthening commodity prices.

    DISCLOSURE CONTROLS AND PROCEDURES

    Disclosure controls and procedures have been designed to ensure that
information required to be disclosed by ProEx is accumulated and communicated
to the Company's Management as appropriate to allow timely decisions regarding
required disclosures. The Company's Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation as of the end of
the period covered by the interim filings, that the Company's disclosure
controls and procedures are effective to provide reasonable assurance that
material information related to the issuer, is made known to them by others
within the Company. It should be noted that while the Company's Chief
Executive Officer and Chief Financial Officer believe that the Company's
disclosure controls and procedures provide a reasonable level of assurance
that they are effective, they do not expect that the disclosure controls and
procedures or internal control over financial reporting will prevent all
errors and fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objectives of
the control system are met.

    ADDITIONAL INFORMATION

    Additional information relating to the Company is filed on SEDAR and can
be viewed at www.sedar.com. Information can also be obtained by contacting the
Company at ProEx Energy Ltd. 1200, 205 - 5th Avenue S.W., Calgary, Alberta,
Canada T2P 2V7 or by e-mail at ir@proexenergy.com. Information is also
accessible on the Company's web site at www.proexenergy.com.


    PROEX ENERGY LTD.
    BALANCE SHEETS

                                                          March 31, December
    (thousands)                                               2007  31, 2006
    -------------------------------------------------------------------------
                                                        (unaudited)
    ASSETS
    Current
      Cash and short-term investments                            -         -
      Accounts receivable                                   17,905    22,774
      Prepaid expenses and deposits                          2,032     1,215
    -------------------------------------------------------------------------
                                                            19,937    23,989
    Deferred acquisition costs (Note 9)                      9,702         -
    Property, plant and equipment                          309,613   266,318
    -------------------------------------------------------------------------
                                                           339,252   290,307
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current
      Accounts payable and accrued liabilities              30,023    26,024
      Bank debt (Note 4)                                    59,772    25,803
      Fair value of financial instruments (Note 2, 8)        1,119         -
    -------------------------------------------------------------------------
                                                            90,914    51,827
    Asset retirement obligations (Note 5)                    2,436     1,791
    Future income taxes                                     20,037    11,291
    -------------------------------------------------------------------------
                                                           113,387    64,909

    SHAREHOLDERS' EQUITY
    Share capital and warrants (Note 6)                    186,234   192,050
    Contributed surplus (Note 6)                             1,721     1,453
    Accumulated other comprehensive income (Note 6)          1,949         -
    Retained earnings                                       35,961    31,895
    -------------------------------------------------------------------------
                                                           225,865   225,398

    Subsequent event (Note 9)
    -------------------------------------------------------------------------
                                                           339,252   290,307
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    PROEX ENERGY LTD.
    STATEMENTS OF NET EARNINGS, COMPREHENSIVE INCOME
    AND RETAINED EARNINGS

    (Unaudited)
                                                          Three Months Ended
                                                                    March 31
    ($ thousands, except per share amounts)                   2007      2006
    -------------------------------------------------------------------------

    REVENUES
      Petroleum and natural gas                             28,524    20,472
      Royalties                                             (7,557)   (6,048)
    -------------------------------------------------------------------------
                                                            20,967    14,424
      Realized gain on financial instruments (Note 2, 8)     3,535         -
      Unrealized loss on financial instruments (Note 2, 8)  (4,034)        -
      Interest                                                   -         3
    -------------------------------------------------------------------------
                                                            20,468    14,427
    -------------------------------------------------------------------------

    EXPENSES
      Operating                                              2,907     1,816
      Transportation                                         2,232     1,444
      General and administrative                               710       377
      Stock based compensation (Note 6)                        284       172
      Interest and financing                                   490        92
      Depreciation, depletion and accretion                  8,093     3,782
    -------------------------------------------------------------------------
                                                            14,716     7,683
    -------------------------------------------------------------------------
    Net earnings before taxes                                5,752     6,744

    TAXES
    Capital taxes                                                -        38
    Future income taxes                                      1,686     2,441
    -------------------------------------------------------------------------
                                                             1,686     2,479
    -------------------------------------------------------------------------
    NET EARNINGS                                             4,066     4,265

    Other comprehensive income/(loss) (Note 2, 6)           (2,998)        -
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME                                     1,068     4,265

    Retained earnings, beginning of period                  31,895    16,732
    -------------------------------------------------------------------------
    Retained earnings, end of period                        35,961    20,997
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per share ($) (Note 6)
      Basic                                                  $0.10     $0.13
      Diluted                                                $0.09     $0.11
    -------------------------------------------------------------------------
    See accompanying notes to the financial statements



    PROEX ENERGY LTD.
    STATEMENTS OF CASH FLOWS
    (Unaudited)

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------

    Cash provided by (used in)

    OPERATING
      Net earnings                                           4,066     4,265
      Depletion, depreciation and accretion                  8,093     3,782
      Unrealized loss on financial instruments               4,034         -
      Stock based compensation                                 284       172
      Asset retirement expenditures (Note 5)                  (256)       (7)
      Future income taxes                                    1,686     2,441
    -------------------------------------------------------------------------
      Funds generated from operations                       17,907    10,653
      Change in non-cash working capital (Note 7)            3,584    (1,915)
    -------------------------------------------------------------------------
                                                            21,491     8,738
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FINANCING
      Increase in bank debt                                 33,969    37,003
      Issue of shares and warrants (net of share
       issue costs)                                            263        35
      Change in non-cash working capital (Note 7)              (97)     (192)
    -------------------------------------------------------------------------
                                                            34,135    36,846
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INVESTING
      Deferred acquisition costs (Note 9)                   (9,702)        -
      Capital expenditures                                 (50,488)  (50,539)
      Change in non-cash working capital (Note 7)            4,564     4,288
    -------------------------------------------------------------------------
                                                           (55,626)  (46,251)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Change in cash and short-term investments                    -      (667)
    Cash and short-term investments, beginning of period         -       667
    -------------------------------------------------------------------------
    Cash and short-term investments, end of period               -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the financial statements


    PROEX ENERGY LTD.
    NOTES TO FINANCIAL STATEMENTS
    (Unaudited)

    ProEx Energy Ltd. ("ProEx" or the "Company") was incorporated on April 8,
    2004 and commenced commercial operations on July 2, 2004 under a Plan of
    Arrangement entered into by Progress Energy Ltd. ("Progress"), Cequel
    Energy Inc., Progress Energy Trust, Cyries Energy Inc. and ProEx. Under
    the Plan of Arrangement various assets of Progress were transferred to
    ProEx. At the time of this transaction, Progress and ProEx were related
    companies resulting in the transfer of assets and related liabilities to
    ProEx from Progress at their carrying value.

    1. SUMMARY OF ACCOUNTING POLICIES

    Nature of Business and Basis of Presentation

    ProEx is involved in the exploration, development and production of
    petroleum and natural gas in British Columbia. The financial statements
    are stated in Canadian dollars and have been prepared in accordance with
    Canadian generally accepted accounting principles ("GAAP").

    The unaudited interim financial statements of the Company have been
    prepared by Management in accordance with Canadian generally accepted
    accounting principles, following the same accounting policies and methods
    of computation as the audited financial statements of ProEx Energy Ltd.
    for the year ended December 31, 2006 except as disclosed below. The
    disclosures provided below are incremental to those included with the
    annual financial statements and certain disclosures which are normally
    required to be included in the notes to the annual financial statements,
    have been condensed or omitted. These unaudited interim financial
    statements should be read in conjunction with the financial statements
    and notes thereto in ProEx's annual report for the year ended
    December 31, 2006.

    The preparation of financial statements in conformity with Canadian
    generally accepted accounting principles requires management to make
    estimates and assumptions that affect the reported amounts of assets and
    liabilities and disclosure of contingent assets and liabilities at the
    date of the financial statements and the reported amounts of revenues and
    expenses during the period. Actual results may differ from those
    estimates.

    2. CHANGE IN ACCOUNTING POLICY

    Financial Instruments

    On January 1, 2007 ProEx adopted the new accounting standards regarding
    the recognition, measurement, disclosure and presentation of financial
    instruments. In conjunction with the adoption of these new standards, the
    Company elected not to use hedge accounting for its natural gas
    derivative contracts under its risk management program. The fair value of
    the commodity contracts is recognized at each reporting period with the
    change in the fair value being classified as an unrealized gain or loss
    on the statement of earnings. In accordance with the transitional
    provisions of the standards, the accounting for hedging relationships for
    prior periods is not retroactively adjusted, therefore, there has been no
    restatement of the prior period. On adoption, the Company recognized a
    current asset of $7.4 million for the fair value of its natural gas
    derivative contracts and an increase to accumulated other comprehensive
    income of $4.9 million, net of tax of $2.5 million. The $4.9 million in
    accumulated other comprehensive income will be amortized through other
    comprehensive income and unrealized gain or loss on financial instruments
    on the statement of earnings over the term of the contracts. As a result,
    $3.0 million (net of tax of $1.5 million) was charged to other
    comprehensive income during the Quarter with a corresponding unrealized
    gain on financial instruments of $4.5 million and a charge to future
    income tax expense of $1.5 million. The impact of the change in fair
    value as at March 31, 2007 is disclosed in note 8. Certain comparative
    amounts have been reclassified to conform to the presentation adopted in
    2007.

    3. RELATIONSHIP WITH PROGRESS ENERGY TRUST

    A technical services agreement ("Technical Service Agreement") is
    currently in place between ProEx and Progress Energy Trust ("Progress")
    whereby Progress provides personnel and certain administrative and
    technical services in connection with the management, development,
    exploitation and operation of the assets of ProEx and the marketing of
    its production. ProEx has granted performance shares to the employees of
    Progress as service providers. Progress provides these services to ProEx
    on an expense reimbursement basis, based on ProEx's monthly capital
    activity and production levels relative to the combined capital activity
    and production levels of both Progress and ProEx. Total expenses
    reimbursed by ProEx for the three month period ended March 31, 2007 was
    $1.2 million (2006 - $1.1 million).

    As at March 31, 2006, accounts receivable included $2.6 million
    (March 31, 2006 - $0.2 million) receivable from Progress which includes
    standard joint venture amounts. These amounts were received subsequent to
    March 31, 2007.

    4. BANK DEBT

    At March 31, 2007, the Company has a $120 million demand revolving
    operating credit facility with a Canadian chartered bank. Subsequent to
    March 31, 2007 and in conjunction with the closing of the asset
    acquisition (disclosed in note 9), the borrowing base was increased to
    $150 million with an increase to $500 million for the fixed and floating
    charge debenture on the assets of the Company. The credit facility
    provides that advances may be made by way of direct advances or bankers'
    acceptances. Direct advances bear interest at the bank's prime lending
    rate plus a variable rate and the bankers' acceptances bear interest at
    the applicable bankers' acceptance rate plus a variable rate per annum
    stamping fee. The variable rate charged by the bank is dependent upon the
    Company's debt to trailing cash flow ratio. The borrowing base is subject
    to a semi-annual and annual review by the bank.

    5. ASSET RETIREMENT OBLIGATIONS

    The total future asset retirement obligation was estimated based on the
    Company's net ownership interest in all wells and facilities, the
    estimated costs to abandon and reclaim the wells and facilities and the
    estimated timing of the costs to be incurred in future periods. The total
    undiscounted amount of the estimated cash flows required to settle the
    asset retirement obligations is approximately $12.7 million which will be
    incurred over the next 43 years with the majority of costs incurred
    between 2008 and 2020. A credit adjusted risk-free rate of eight percent
    was used to calculate the fair value of the asset retirement obligations.

    The following reconciles the Company's asset retirement obligations:

                                             Three Months Ended   Year Ended
                                                       March 31  December 31
    -------------------------------------------------------------------------
    ($ thousands)                             2007         2006         2006
    -------------------------------------------------------------------------
    Balance, beginning of period             1,791        1,426        1,426
    Liabilities incurred                       848          142          606
    Liabilities settled                       (256)          (7)        (424)
    Accretion expense                           53           37          183
    -------------------------------------------------------------------------
    Balance, end of period                   2,436        1,598        1,791
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    6. SHARE CAPITAL

    Authorized

    Unlimited number of voting Common Shares, without nominal or par value

    701,300 Class B Performance Shares, without nominal or par value


    Issued                            Three Months Ended March 31
    ($ thousands - except            2007                      2006
     share amounts)            Number       Amount       Number       Amount
    -------------------------------------------------------------------------
    Common Shares
    Balance, beginning of
     period                39,690,659      189,820   32,997,815       98,193
      Issued on exercise
       of options               7,667           95        3,600           36
      Issued on exercise
       of warrants            131,066          229        1,198            2
      Flow through share
       renouncement                         (6,093)                        -
    -------------------------------------------------------------------------
    Balance, end of
     period                39,829,392      184,051   33,002,613       98,231
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Warrants
      Balance, beginning
       of period            6,143,539        2,223    6,584,503        2,381
        Exercised            (131,066)         (47)      (1,198)           -
    -------------------------------------------------------------------------
    Balance, end of period  6,012,473        2,176    6,583,305        2,381
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Class B Performance
     Shares
    Balance, beginning and
     end of period            694,566            7      694,851            7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total share capital
     and warrants at end
     of period                             186,234                   100,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shares issued for cash

    Subsequent to March 31, 2007, and in conjunction with the asset
    acquisition on April 2, 2007 (see note 9), ProEx issued 8,050,000 common
    shares at a price of $12.45 per share for aggregate gross proceeds of
    $100.2 million ($96.1 million net of issue costs).

    Flow through share renouncement

    On November 30, 2006 the Company issued 1.3 million flow-through common
    shares at a price of $16.25 per flow-through share. Pursuant to the flow-
    through share offering, the Company renounced $20.3 million of qualifying
    resource expenditures, effective December 31, 2006, which will be
    incurred in 2007. The future income tax effect and reduction to share
    capital has been recorded in the Quarter, the period in which the Company
    filed the renouncement documents with the tax authorities.

    Earnings per share

    Net earnings per Common Share figures have been calculated using the
    treasury stock method. The following table reconciles the denominators
    used for the basic and diluted earnings per Common Share calculations.

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
                                                           2007         2006
    -------------------------------------------------------------------------
    Weighted Average Common Shares
    Basic                                            39,767,593   33,001,062
    Effect of warrants                                5,422,605    6,583,518
    Effect of stock options                                   -       80,761
    Effect of Class B Performance Shares                630,056      623,853
    -------------------------------------------------------------------------
    Diluted                                          45,820,254   40,289,194
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock options

    Under the terms of the stock option plan (the "Plan"), directors and
    officers of ProEx and Progress employees in their capacity as service
    providers, may be granted options to purchase Common Shares. The Plan
    provides for the granting of up to 10 percent of the issued and
    outstanding Common Shares of the Company. As at March 31, 2007, the
    Company could grant up to 3,982,939 options. Options granted under the
    plan have a term of five years to expiry and vest equally over a three
    year period starting on the first anniversary date of the grant. The
    exercise price of each option equals the market price of the Company's
    Common Shares on the date of grant.

    The following table sets forth a reconciliation of the stock option plan
    activity for the three months ended March 31, 2007.

                                                                    Weighted
                                                                     average
                                                      Number of     exercise
                                                        options      price($)
    -------------------------------------------------------------------------
    Balance, beginning of period                        778,334        10.63
    Granted                                              26,500        13.66
    Cancelled                                           (19,833)       13.07
    Exercised                                            (7,667)       10.35
    -------------------------------------------------------------------------
    Balance, end of period                              777,334        10.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    The following table summarizes stock options outstanding and exercisable
    under the plan at March 31, 2007.

                        Options outstanding            Options exercisable
    -------------------------------------------------------------------------
                               Weighted
                    Number      average     Weighted      Number    Weighted
    Range of   outstanding    remaining      average exercisable     average
    exercise     at period  contractual     exercise   at period    exercise
    price              end         life        price         end       price
    -------------------------------------------------------------------------
    $5.60 to
     $7.95         228,667         2.35         5.82     149,334        5.80
    $9.08 to
     $13.40        291,667         3.49        11.31     102,667       10.40
    $14.50 to
     $16.50        257,000         4.25        14.28      25,167       14.79
    -------------------------------------------------------------------------
                   777,334         3.36        10.68     277,168        8.32
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock Based Compensation

    The Company accounts for its stock based compensation plan using the fair
    value method. Under this method, a compensation cost is charged over the
    vesting period for stock options and Class B Performance Shares granted
    to officers and directors of ProEx and Progress employees in their
    capacity as service providers, with a corresponding increase to
    contributed surplus.

    The following table reconciles the Company's contributed surplus:

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------
    Balance, beginning of period                             1,453       637
    Stock based compensation expense
      Stock options                                            272       145
      Class B Performance shares                                12        27
    Exercise of stock options                                  (16)       (3)
    -------------------------------------------------------------------------
    Balance, end of period                                   1,721       806
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of the options granted during the period was estimated on
    the date of grant using the Black-Scholes option pricing model with
    weighted average assumptions and resulting values for grants as follows:

    Assumptions                                           Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
                                                              2007      2006
    -------------------------------------------------------------------------
    Risk free interest rate (%)                               3.96      3.93
    Expected life (years)                                     3.00      3.00
    Expected volatility (%)                                     43        42
    Weighted average fair value of options granted ($)        5.93      5.97
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Accumulated Other Comprehensive Income                Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)
    -------------------------------------------------------------------------
    Fair value of financial instruments upon initial adoption of new
     accounting standard (net of tax of $2.5 million)                  4,947
    Fair value applicable to the period, amortized to earnings
     (net of tax of $1.5 million)                                     (2,998)
    -------------------------------------------------------------------------
    Balance, end of period                                             1,949
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    7. SUPPLEMENTAL CASH FLOW INFORMATION

    Changes in non-cash working capital
                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------
    Accounts receivable                                      4,869     3,948
    Prepaid expenses and deposits                             (817)      (99)
    Accounts payables and accrued liabilities                3,999    (1,668)
    -------------------------------------------------------------------------
    Change in non-cash working capital                       8,051     2,181

    Relating to:
      Financing activities                                     (97)     (192)
      Investing activities                                   4,564     4,288
      Operating activities                                   3,584    (1,915)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest and taxes paid

                                                          Three Months Ended
                                                                    March 31
    -------------------------------------------------------------------------
    ($ thousands)                                             2007      2006
    -------------------------------------------------------------------------
    Interest received                                            -         3
    Interest paid                                              460        42
    Income and other taxes paid                                  -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8. FINANCIAL INSTRUMENTS

    Fair value of financial assets

    The Company's financial instruments recognized in the balance sheet
    consist of cash and short-term investments, accounts receivable, accounts
    payable and accrued liabilities, bank debt and derivative natural gas
    contracts ("financial instruments"). The fair value of these instruments,
    excluding the derivative natural gas contracts, approximate their
    carrying amounts due to their short terms to maturity or the indexed rate
    of interest on the bank debt. The fair value of the natural gas contracts
    is recognized on the balance sheet as described below.

    Credit risk

    Substantially all of the Company's petroleum and natural gas production
    is marketed under standard industry terms by Progress in accordance with
    the Technical Services Agreement. ProEx monitors the financial condition
    of Progress on a quarterly basis in order to mitigate the concentration
    of credit risk with this counterparty. All other accounts receivable are
    with customers and joint venture partners in the petroleum and natural
    gas business under normal industry sale and payment terms and are subject
    to normal credit risks. The Company routinely assesses the financial
    strength of its customers.

    Interest rate risk

    The Company is exposed to interest rate risk to the extent that changes
    in market interest rates will impact the Company's debts that have a
    floating interest rate. The Company had no interest rate swaps or hedges
    at March 31, 2007.

    Financial Derivative Contracts

    ProEx has entered into several derivative natural gas financial
    instruments for the purpose of protecting its funds generated from
    operations from the volatility of natural gas prices. For the three
    months ended March 31, 2007, the Company's natural gas price risk
    management program had a net realized gain of $3.5 million (2006 -
    nil). As described in note 2, the Company recognizes the fair
    value of its commodity price contracts on the balance sheet each
    reporting period with the change in fair value being recognized as an
    unrealized gain or loss on the statement of earnings. On January 1, 2007
    the fair value of the commodity price contracts was an asset of
    $7.4 million and resulted in an increase to accumulated other
    comprehensive income and the future income tax liability of $4.9 million
    and $2.5 million, respectively. The $4.9 million recognized in
    accumulated other comprehensive income will be amortized over the term of
    the contracts through other comprehensive income with a corresponding
    unrealized gain on financial instruments on the statements of earnings.
    As a result, $3.0 million, net of tax, was charged to other comprehensive
    income with a corresponding unrealized gain on financial instruments of
    $4.5 million and a charge to future income tax expense of $1.5 million
    for the three months ended March 31, 2007. At March 31, 2007 the fair
    value was a liability of $1.1 million, resulting in an unrealized loss
    for the three months ended March 31, 2007 of $4.0 million, net of the
    amortization of the accumulated other comprehensive income.

    Contracts outstanding in respect to financial instruments are as follows:

                                  Pricing     Strike      Cost/
    Natural Gas       Volume       Point    Price ($gj)  Premium     Term
    -------------------------------------------------------------------------
    Summary 2007
      Swap-call                              Cdn$7.40-             Apr 01/07-
       spread(1)    20,000 gj/d     AECO     Cdn$8.40    $0.39/gj  Oct 31/07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Call spread strike prices indicate minimum floor and maximum ceiling

    9. SUBSEQUENT EVENT

    Asset acquisition

    On April 2, 2007, ProEx acquired certain interests in northeast British
    Columbia Foothills assets previously acquired by Progress Energy Trust
    (the "Acquisition"). ProEx's total consideration was approximately
    $134.3 million before closing adjustments, and was financed through a
    concurrently announced equity offering and increased available credit
    facilities, as described below.

    In conjunction with the Acquisition, ProEx issued 8,050,000 common shares
    at a price of $12.45 per share for aggregate gross proceeds of
    $100.2 million ($96.1 million net of issue costs). The remainder of the
    purchase price was financed through increased bank debt. As part of the
    Acquisition, ProEx's credit facility was increased to $150 million.

    Costs incurred prior to March 31, 2007, as part of the Acquisition and
    the related equity offering have been classified and reported separately
    on the balance sheet as 'Deferred acquisition costs'. On closing, these
    costs will be classified as property, plant and equipment, or share issue
    costs.

    2007 AND 2006 SELECTED QUARTERLY INFORMATION
    ProEx Energy Ltd.

    FINANCIAL HIGHLIGHTS

    ($ thousands except
     per share amounts)               Three months ended
    -------------------------------------------------------------------------
                                             2006                       2007
    -------------------------------------------------------------------------
                            March 31   June 30  Sept. 30   Dec. 31  March 31
    -------------------------------------------------------------------------
    Income Statement

    Petroleum and natural
     gas revenue              20,472    20,723    19,419    23,386    28,524
    Funds generated from
     operations               10,653    10,118     8,766    13,995    17,907
      Per share - basic         0.32      0.29      0.24      0.37      0.45
      Per share - diluted       0.26      0.25      0.21      0.32      0.39
    Net earnings               4,265     3,978     2,627     4,293     4,066
      Per share - basic         0.13      0.12      0.07      0.11      0.10
      Per share - diluted       0.11      0.10      0.06      0.10      0.09

    Balance Sheet

    Capital investment
      Land acquisitions and
       retention               3,487     5,893     2,604     5,162     2,811
      Geological and
       geophysical             4,172     3,577     1,357     1,147     4,885
      Drilling and
       completions            34,876    12,372    23,087    25,578    34,660
      Equipping and
       facilities              7,960     3,603     5,006    11,597     7,888
      Net property
       acquisitions
       (dispositions)             44       198       388        53       244
    -------------------------------------------------------------------------
                              50,539    25,643    32,442    43,537    50,488
    -------------------------------------------------------------------------
    Total debt
      Bank debt               37,003    18,509    34,865    25,803    59,772
      Working capital
       deficiency (surplus)   12,123      (145)    6,634     2,035    10,086
    -------------------------------------------------------------------------
                              49,126    18,364    41,499    27,838    69,858
    -------------------------------------------------------------------------
    Shareholders' equity     122,422   173,625   176,968   225,398   225,865
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Share Information (thousands, except per share amounts)

    Shares outstanding at
     end of period
        - Common              33,003    36,021    36,380    39,688    39,829

    Weighted average shares
     outstanding for the
     period
        - Basic               33,001    34,497    36,255    37,528    39,768
        - Diluted             40,289    41,151    42,645    43,697    45,820

    Volume traded
                              14,377     7,934     9,894    11,831    13,855

    Common share price ($)
        - High                 16.98     16.64     15.65     14.46     15.49
        - Low                  11.70     12.10     12.00     12.00     11.83
        - Closing              14.66     13.53     12.81     12.85     15.15
    -------------------------------------------------------------------------



    2007 AND 2006 SELECTED QUARTERLY INFORMATION
    ProEx Energy Ltd.

    OPERATIONAL HIGHLIGHTS

    ($ thousands except
     per share amounts)               Three months ended
    -------------------------------------------------------------------------
                                             2006                       2007
    -------------------------------------------------------------------------
                            March 31   June 30  Sept. 30   Dec. 31  March 31
    -------------------------------------------------------------------------
    Production
      Natural gas (mcf/d)     23,454    29,931    28,348    35,505    36,631
      Crude oil (bbls/d)         314       352       331       343       384
      Natural gas liquids
       (bbls/d)                  112       163       148       152       246
      Total production
       (boe/d)(6:1)            4,335     5,503     5,204     6,080     6,735
    Pricing
      Natural gas ($/mcf)       8.50      6.34      6.19      7.53      7.57
      Crude oil ($/bbl)        65.66     74.72     75.56     60.87     64.46
      Natural gas liquids
       ($/bbl)                 68.00     72.41     71.46     56.35     61.24
    Highlights
      Petroleum and natural
       gas revenues            52.47     41.38     40.56     46.32     47.06
      Realized gain on
       financial instruments       -         -         -                5.83
      Royalties               (15.50)   (11.63)   (10.87)   (11.38)   (12.47)
      Interest income           0.01         -         -         -         -
      Operating expenses       (4.65)    (4.69)    (5.06)    (4.62)    (4.80)
      Transportation expenses  (3.70)    (3.52)    (3.56)    (3.64)    (3.68)
    -------------------------------------------------------------------------
      Operating netback        28.63     21.54     21.07     26.68     31.94
      General and
       administrative expenses (0.97)    (1.08)    (0.88)    (0.65)    (1.17)
      Interest expenses        (0.23)    (0.21)    (1.24)    (0.93)    (0.81)
      Asset retirement
       expenditures(1)         (0.02)    (0.12)    (0.64)    (0.09)    (0.42)
      Capital taxes            (0.10)     0.08         -         -         -
    -------------------------------------------------------------------------
      Funds generated from
       operations              27.31     20.21     18.31     25.01     29.54
      Unrealized loss on
       financial instruments       -         -         -         -     (6.65)
      Asset retirement
       expenditures(1)          0.02      0.12      0.64      0.09      0.42
      Stock based compensation
       expense                 (0.44)    (0.39)    (0.41)    (0.47)    (0.47)
      Depletion, depreciation
       and accretion expenses  (9.70)   (10.47)   (10.27)   (13.59)   (13.35)
    -------------------------------------------------------------------------
      Net earnings before
       taxes                   17.19      9.47      8.27     11.04      9.49
      Future income taxes      (6.26)    (1.53)    (2.79)    (3.37)    (2.78)
    -------------------------------------------------------------------------
      Net earnings             10.93      7.94      5.48      7.67      6.71
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross Drilling Results
    Natural gas                   16         5        18        18        19
    Crude oil                      1         -         2         -         -
    Dry                            2         -         1         -         5
    -------------------------------------------------------------------------
                                  19         5        21        18        24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Drilling Results
    Natural gas                 12.4       4.4      10.5      13.7      13.1
    Crude oil                    1.0         -       0.3         -         -
    Dry                          1.6         -       0.1         -       3.3
    -------------------------------------------------------------------------
                                15.0       4.4      10.9      13.7      16.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Success rate(%)               89       100        98       100        80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additional information relating to the Company is filed on SEDAR and can
    be viewed at www.sedar.com.
    

    %SEDAR: 00020978E




For further information:

For further information: Information can also be obtained by contacting
Mr. David Johnson, President & Chief Executive Officer; Mr. Greg Kist, Vice
President Investor Relations & Marketing, or Mr. Steven Allaire, Vice
President Finance & Chief Financial Officer, at ProEx Energy Ltd., 1200, 205 -
5th Avenue S.W., Calgary, Alberta, Canada T2P 4B9; Phone: (403) 216-2510, Fax:
(403) 216-2514 or by e-mail at ir@proexenergy.com; Information is also
accessible on the Company's web site at www.proexenergy.com

Organization Profile

PROEX ENERGY LTD.

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