Silverwing Announces 2007 Third Quarter Results



    CALGARY, Nov. 14 /CNW/ - Silverwing Energy Inc. ("Silverwing" or the
"Company") (TSX-SVW, SVW.WT) is pleased to announce its financial and
operating results for the three and nine months ended September 30, 2007.


    
    HIGHLIGHTS

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                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    (000s, except per
     share amounts)          ($)      ($)      (%)      ($)      ($)      (%)

    Financial
    Oil and gas revenue   2,324    3,300      (30)   9,753    7,033       39
    Cash flow from
     (used in)
     operations(1)         (344)     837     (141)    (117)   1,615     (107)
      Per share - basic
       and diluted            -     0.03        -        -     0.06        -
    Net loss            (19,620)  (1,063)  (1,746) (25,149)  (1,567)  (1,505)
      Per share - basic
       and diluted        (0.15)   (0.04)    (275)   (0.37)   (0.05)    (640)
    Capital expenditures  7,106   22,524      (68)  15,572   44,502      (65)
    Bank debt and working
     capital deficiency   6,932    9,415      (26)   6,932    9,415      (26)
    -------------------------------------------------------------------------
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    (000s)                 (No.)    (No.)      (%)    (No.)    (No.)      (%)
    Share Data
    Total shares
     outstanding
      Basic             188,068   28,553      559  188,068   28,553      559
      Diluted           188,068   28,553      559  188,068   28,553      559
    Weighted average
     shares outstanding
      Basic             134,064   13,802      871   67,920   12,827      430
      Diluted           134,064   13,802      871   67,920   12,827      430
    -------------------------------------------------------------------------
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                                               (%)                        (%)
    Operating
    Average daily
     production
      Crude oil and
       NGLs (bbls/d)         40       44       (9)      52       39       33
      Natural gas
       (mcf/d)            4,075    5,347      (24)   4,633    3,563       30
    -------------------------------------------------------------------------
      Total (boe/d)         719      935      (23)     824      633       30
    -------------------------------------------------------------------------
    Average selling
     prices
      Crude oil and
       NGLs
       ($/bbl)            59.57    83.43      (29)   60.66    69.70      (13)
      Natural gas
       ($/mcf)             5.61     6.02       (7)    7.03     6.46        9
    -------------------------------------------------------------------------
      Total ($/boe)       35.11    38.36       (8)   43.36    40.70        7
    -------------------------------------------------------------------------
    Wells drilled -
     gross (net) (No.)
      Gas                   -(-)   8(4.2)     -(-)   4(0.2)  27(9.1) -85(-98)
      Standing/untested   4(4.0)     -(-)     -(-)   6(5.1)     -(-)     -(-)
      Dry and abandoned   1(1.0)   1(0.5)   -(100)   1(1.0)   1(0.5)   -(100)
    -------------------------------------------------------------------------
      Total               5(5.0)   9(4.7)   -44(6)  11(6.3)  28(9.6) -61(-34)
      Drilling success
       rate (%)              80       89      (10)      91       96       (5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Cash flow from operations is defined as cash provided by operations
        before changes in non-cash operating working capital.
    

    LETTER TO SHAREHOLDERS

    I am pleased to present the financial and operating highlights for the
three and nine months ended September 30, 2007 and provide an outlook for the
remainder of the year.

    
    Third Quarter Highlights
    -   Production averaged 719 boe/d.
    -   Oil and gas revenue totaled $2.3 million.
    -   Cash flow deficit was $0.3 million.
    -   Capital expenditures were $7.1 million.

    Corporate Activities and Financial Highlights

    During the third quarter, our principal objective was to strengthen the
Company's financial position in order to allow Silverwing to resume its
activities at Tomahawk. Consequently, to help meet these objectives, we
successfully completed the following:
    -   closed an equity financing for gross proceeds of $30.0 million on
        August 2, 2007 to support our Company's capital program for the
        balance of 2007;
    -   changed the composition of our Board of Directors; and
    -   met all of the requirements necessary for continued listing of the
        Company's securities on the Toronto Stock Exchange.
    

    On August 16, 2007, Silverwing announced the resignations of Mr. Robert
Wagemakers and Mr. Geoff Waterman from its Board of Directors. We express our
sincere gratitude to both gentlemen for their assistance and guidance
throughout the important formative stage of our Company's growth. In addition,
the Company announced the appointment of Mr. Michael Atkinson and Mr. Scott M.
Reeves as new members of our Board. Mr. Atkinson has been Vice-President of
Quest Capital Corp. and its predecessor companies since November 2001 and is
responsible for structuring Quest's debt financing investments in the oil and
gas, mining and real estate industries. Mr. Atkinson has over 15 years
experience in the capital markets and financial services industries. Mr.
Reeves is a partner in the law firm TingleMerrett LLP where his practice is
focused on securities, corporate finance and commercial transactions for
emerging and growth companies and partnerships. Mr. Reeves has advised
numerous private and public corporations in a wide range of business matters,
including access to capital markets, corporate governance and operational
issues. Mr. Reeves has acted as Corporate Secretary of Silverwing since
December 2003 and continues to maintain that position.
    Primarily due to the low natural gas prices anticipated in the future,
the Company incurred an impairment of $18.1 million during the quarter on its
oil and gas properties.
    As a consequence of the financing program announced by the Company in
early 2007, on May 29, 2007 the Toronto Stock Exchange ("TSX") undertook a
listing review of the Company. On September 26, 2007, the TSX announced that
Silverwing had successfully met all of the requirements necessary for the
continued listing of its securities.

    Operations Review

    For the three months ended September 30, 2007, corporate production
decreased 23% to 719 boe/d from 935 boe/d a year ago and fell 14% from the
839 boe/d average recorded during the second quarter of 2007. The decreases
reflect expected declines and our Company's scaled-back capital program
implemented in our Prespatou core producing area in early 2007. Continued weak
natural gas prices continue to support the scaled-back decision.
    No new drilling took place during the third quarter at Prespatou, which
is located in northeastern British Columbia. Due to the scaled-back capital
program described above, production additions at Prespatou are expected to be
modest in 2007. However, technical work is continuing and once access to
capital funding improves and commodity prices recover, Silverwing will be
prepared to step-up this area's program.
    At Tomahawk, located in west central Alberta, Silverwing has committed to
a 29-well drilling program to earn lands in the initial phase of the project.
To date, our Company has drilled 16 wells and we are on schedule to complete
our drilling commitments as planned. Of the 16 wells drilled, 15 have been
cased as potential multi-zone oil and gas wells pending completion activities
that are anticipated to commence in late 2007/early 2008. Consequently, we
expect to begin showing results from this project in early 2008. In addition,
we are aggressively proceeding with preparations to test the Nisku potential
at Tomahawk and Easyford, which is located west of Drayton Valley, Alberta. We
currently have five firm Nisku locations in various stages of licensing at
Tomahawk and an additional independent sixth Nisku location at Easyford. The
Easyford prospect is situated on a separate farm-in with Canadian Natural
Resources Limited and provides Silverwing with an opportunity to test a high
impact Nisku target that has been defined by 3-D seismic and is located
approximately 1.5 kilometres from existing Nisku oil production. We consider
this specific project to be a low risk, high reward drilling opportunity that
could significantly impact Silverwing's future value. We expect that our Nisku
programs at Tomahawk and Easyford will commence in late 2007/early 2008.
    On September 26, 2007, Silverwing advised that it had terminated its
Participation Agreement with Argen Energy Corp. as a result of that company's
inability to fulfil its Tomahawk farm-in financial commitments. Silverwing is
currently in the process of securing an alternative partner for the project.

    Outlook

    For the final quarter of 2007, our capital expenditures program is
projected to be $11.7 million, with $9.4 million allocated to the Tomahawk
program and $2.3 million for other operations, primarily Prespatou.
    Our focus at Tomahawk will be on drilling ten wells before the end of
2007, which will be followed by an evaluation and completion program. We will
also be planning a strategy for follow-up drilling and for the construction of
the required production infrastructure. New production is expected to commence
during the first quarter of 2008. Concurrent with the first phase drilling at
Tomahawk, we are also preparing for the drilling of our high impact Nisku
locations at Tomahawk and Easyford.
    During the fourth quarter at Prespatou, we expect to bring on
approximately 140 boe/d of new production as we complete the gathering systems
and associated tie-ins of 2 gross (1.6 net) wells drilled in late 2006 and
early 2007. In addition, we plan to implement a number of production
enhancements on several of our wells at Sirius, Beavertail and North Buick
Creek in order to optimize production in these areas. Although Silverwing has
scaled-back its drilling program for Prespatou during 2007, we are ready to
resume our activities in this core gas area once natural gas prices firm up.
    Complementary to our aggressive exploratory drilling strategy in Tomahawk
and Easyford and our maintenance program in Prespatou, our Company is actively
evaluating strategic additions to our land and production base. This approach
is supported by current market conditions that are very favourable to
executing an acquisition strategy.
    Silverwing recognizes that the royalty regime changes announced in
October 2007 by the Alberta government will affect many junior oil and gas
exploration and production companies. This is particularly true for companies
that explore in the high potential Pembina Nisku oil play with Crown mineral
leases because successful Nisku oil wells, known to produce at rates of up to
2,500 bbls/d, may see significantly increased royalty costs. Silverwing is an
active explorer for the Nisku in the Pembina and Tomahawk areas; however, by
virtue of our extensive freehold land position at Tomahawk, we expect to be
substantially immune to the royalty changes announced by the Province.
    I look forward to reporting on the progress of our drilling and
completions activities at Tomahawk as we approach the end of 2007 and embark
on the evaluation of the Nisku opportunities.
    We greatly appreciate the continued support shown by our shareholders and
our many vendors over the course of the year. We also acknowledge the ongoing
commitment and hard work of our employees, directors, strategic consultants
and financial partners during this very dynamic period.

    On behalf of the Board of Directors,

    (signed)

    Oleh Wowkodaw
    President & Chief Executive Officer

    November 13, 2007

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    This Management's Discussion and Analysis ("MD&A") has been prepared by
management as of November 13, 2007 and reviewed and approved by the Board of
Directors of Silverwing Energy Inc. ("Silverwing" or the "Company"). This MD&A
is a review of the operational results of the Company with disclosure of oil
and gas activities in accordance with Canadian Securities Regulators National
Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI
51-101") and a review of financial results of the Company based on accounting
principles generally accepted in Canada. Its focus is primarily a comparison
of the operational and financial performance for the three and nine months
ended September 30, 2007 and 2006 and should be read in conjunction with the
audited financial statements and accompanying notes for the year ended
December 31, 2006.
    For the purpose of calculating unit costs, natural gas volumes have been
converted to a barrel equivalent ("boe") using six thousand cubic feet equal
to one barrel unless otherwise stated. A boe conversion ratio of 6:1 is based
on an energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead. This
conversion conforms with NI 51-101. Boes may be misleading, particularly if
used in isolation.
    Cash flow from operations, cash flow from operations per share and
operating netback are terms that do not have a standardized measuring
prescribed by Canadian generally accepted accounting principles ("GAAP").
Management believes that cash flow from operations, cash flow from operations
per share and operating netback are useful supplemental measures as they
demonstrate the Company's ability to generate the cash necessary to repay debt
or fund future growth through capital investment. Investors are cautioned,
however, that these measures should not be construed as an alternative to cash
flow determined in accordance with GAAP as an indication of the Company's
performance. Silverwing's method of calculating these measures may differ from
other companies, and accordingly, may not be comparable to measures used by
other companies. For these purposes, the Company defines cash flow from
operations as cash provided by operations before changes in non-cash operating
working capital and defines operating netback as revenue less royalties and
operating expenses. The Company also presents cash flow from operations per
share whereby amounts per share are calculated using weighted average shares
outstanding consistent with the calculation of earnings per share. Cash flow
from operations and funds from operations as noted in the financial statements
are terms that are used synonymously.

    Forward-Looking Statements

    Certain statements contained in this report, including statements that
may contain words such as "anticipates," "can," "may," "expect," "believe or
believes" and "will" and similar expressions are forward-looking statements.
These statements may include, but are not limited to, future capital
expenditures, future financial resources, future oil and gas well activity,
outcome of specific events, and trends in the oil and gas industry. These
statements are derived from certain assumptions and analyses made by the
Company based on its experience and interpretation of historical trends,
current conditions and expected future developments, and other factors that it
believes are appropriate in the circumstances. These statements or predictions
are subject to a number of known and unknown risks and uncertainties, which
are discussed previously in this report, that could cause actual results to
differ materially from the Company's expectations. Consequently, all of the
forward-looking statements made in this report are qualified by these
cautionary statements and there can be no assurance that actual results or
developments anticipated by the Company will be realized, or that they will
have the expected consequences or effects on the Company or its business or
operations. The Company assumes no obligation to update publicly any such
forward-looking statements, whether as a result of new information, future
events or otherwise.
    All financial measures presented in this MD&A are expressed in Canadian
dollars unless otherwise indicated.

    General Description of Business

    Silverwing Energy Inc. is a Calgary based crude oil and natural gas
exploration and production company. By implementing its strategic plan in key
focus areas located throughout the Western Canadian Sedimentary Basin,
Silverwing is well positioned to achieve its growth plans for the benefit of
its shareholders. Common shares and share purchase warrants of Silverwing are
listed for trading on the Toronto Stock Exchange ("TSX") under the symbol SVW
and SVW.WT, respectively.

    Operations Overview - Third Quarter 2007

    During the third quarter of 2007, Silverwing continued with drilling the
Tomahawk farm-in project, including casing 4 gross (4.0 net) wells and
abandoning 1 gross (1.0 net) well. The completions program was put on hold
pending the drilling of a budgeted 22 wells by December 31, 2007. Once the
drilling commitment is satisfied, the Company intends to resume the
completions program.
    Production continued to decline as no additional capital was expended in
the Prespatou core area due to depressed natural gas prices received during
the third quarter and that are anticipated to continue in the immediate
future.
    Financially, Silverwing closed an equity financing for gross proceeds of
$30.0 million. These funds were used to pay down Company debt and fund the
ongoing drilling program in the Tomahawk project area.


    
    Financial Results

    Production
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                                               (%)                        (%)
    Daily Production
    Crude oil and NGLs
     (bbls/d)                40       44       (9)      52       39       33
    Natural gas (mcf/d)   4,075    5,347      (24)   4,633    3,563       30
    -------------------------------------------------------------------------
    Boe/d                   719      935      (23)     824      633       30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                             (%)      (%)      (%)      (%)      (%)      (%)
    Production Mix
    Crude oil and NGLs        6        5      (20)       6        6        -
    Natural gas              94       95       (1)      94       94        -
    -------------------------------------------------------------------------
                            100      100        -      100      100        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Production volumes for the third quarter averaged 719 boe/d, a decrease of
23% from the 935 boe/d recorded in 2006 primarily due to natural declines in
the northeastern British Columbia project area. Crude oil and NGLs production
decreased 9% to 40 boe/d from 44 boe/d in the same period of 2006, while
natural gas production declined 24% to 4,075 mcf/d from 5,347 mcf/d a year
ago. Production for the nine-month period rose 30% to average 824 boe/d from
633 boe/d in the corresponding period of 2006. These production increases were
the result of tie-ins of a number of wells at Sirius, North Buick and Boundary
Lake. The installation of facilities in these areas in late 2006 supported the
production increases.


    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                         (boe/d)  (boe/d)      (%)  (boe/d)  (boe/d)      (%)

    Daily Production by
     Area
    Birley                  218      242      (10)     215      249      (14)
    Sirius                  251      548      (54)     290      316       (8)
    North Buick Creek        77        -        -      113        -        -
    South Beavertail         97        -        -      131        -        -
    Other                    76      145      (48)      75       68       10
    -------------------------------------------------------------------------
    Total                   719      935      (23)     824      633       30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pricing
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                                               (%)                        (%)
    Selling Prices
    Crude oil and NGLs
     ($/bbl)              59.57    83.43      (29)   60.66    69.70      (13)
    Natural gas ($/mcf)    5.61     6.02       (7)    7.03     6.46        9
    -------------------------------------------------------------------------
    Total combined
     ($/boe)              35.11    38.36       (8)   43.36    40.70        7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     Average crude oil and NGL prices for the third quarter of 2007 decreased
29% to $59.57/bbl compared to $83.43/bbl for the same period in 2006, while
natural gas prices remained consistent at $5.61/mcf versus $6.02/mcf a year
ago. Sales prices for the nine months ended September 30, 2007 averaged
$60.66/bbl for crude oil and NGLs and $7.03/mcf for natural gas compared to
$69.70/bbl and $6.46/mcf, respectively, realized in the same period of 2006.

    Oil and Gas Revenue
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    (000s)                   ($)      ($)      (%)      ($)      ($)      (%)
    Crude oil and NGLs
     revenue                221      337      (34)     859      745       15
    Natural gas revenue   2,103    2,963      (29)   8,894    6,288       41
    -------------------------------------------------------------------------
    Total oil and gas
     revenue              2,324    3,300      (30)   9,753    7,033       39
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company's gross revenue for the three months ended September 30, 2007
totaled $2.3 million compared to $3.3 million a year ago. The 30% reduction
was primarily due to decreases in production volumes in the period. Total
crude oil and natural gas revenue for the nine-month period was $9.8 million
versus $7.0 million in 2006. This 39% increase was due to improved production
and stronger commodity prices recorded period-over-period.

    Royalty Expense
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                                               (%)                        (%)
    Total royalties
     ($000s)                360      899      (60)   1,944    1,610       21
    As a % of oil and
     gas sales              16%      27%      (41)     20%      23%      (13)
    $/boe                  5.44    10.45      (48)    8.64     9.32       (7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three-month period, royalty expense declined 60% to $0.4 million
from $0.9 million a year ago due to the decreased revenue received and a
reduced royalty rate realized in the period. Year-over-year royalties as a
percentage of production revenue fell 41% as a result of lower productivity
and accrual adjustments. For the nine-month period, royalty expense increased
21% to $1.9 million from $1.6 million a year ago due to the increase in
revenue.

    Operating Expenses
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                                               (%)                        (%)
    Operating expenses
     ($000s)              1,259      955       32    3,592    2,009       79
    Operating expenses
     ($/boe)              19.02    11.10       71    15.97    11.63       37
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating expenses increased 32% to $1.3 million in the 2007 third quarter
from $1.0 million the prior year due primarily to prior period adjustments
totaling $0.5 million that were incurred through a non-operated facility.
Operating expenses for the nine months ended September 30, 2007 rose 79% to
$3.6 million from $2.0 million in 2006, reflecting the year-over-year increase
in production, higher production costs and the prior period non-operated
facility charge. On a per boe basis, operating expenses increased 71% and 37%
in the three and nine-month periods, respectively, over the corresponding
periods in 2006, with $6.80/boe and $2.00/boe, respectively, of the costs
directly attributable to the prior period expense. Operating expenses for the
third quarter of 2007 were offset by $0.1 million in third party processing
fees from prior periods related to the non-operated facility.

    General and Administrative ("G&A") Expenses
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    (000s)                   ($)      ($)      (%)      ($)      ($)      (%)
    Gross expense           722      767       (6)   2,316    2,264        2
    Capitalized and
     overhead recoveries   (184)    (245)     (25)    (656)    (623)       5
    -------------------------------------------------------------------------
    G&A expenses before
     stock-based
     compensation           538      522        3    1,660    1,641        1
    Stock-based
     compensation expense     -      164        -      108      674      (84)
    -------------------------------------------------------------------------
    Total G&A expense       538      686      (22)   1,768    2,315      (24)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    $/boe                  8.13     8.13        -     7.86    13.29      (41)
    % capitalized           23%      14%       64      19%      14%      36%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the third quarters of 2007 and 2006, net G&A expenses, before
stock-based compensation, remained constant at $0.5 million. For the nine
months ended September 30, 2007, net G&A expenses, before stock-based
compensation, were relatively steady at $1.7 million versus $1.6 million in
the prior year.
    Stock-based compensation expense was $nil during the third quarter of 2007
compared to $0.2 million in 2006, while for the 2007 nine-month period, this
expense dropped 84% to $0.1 million from $0.7 million a year ago. These
decreases were due to the number of stock options that became fully vested,
resulting in less amortization of stock compensation. As at June 30, 2007, all
stock options became fully vested. No stock options have been issued during
2007.

    Interest Income and Expense

    Interest income for the three-month period ended September 30, 2007 was
$nil compared to $17,000 the prior year. During the first nine months of 2007,
interest income totaled $8,000 compared to $49,000 received in the same period
a year ago. The decreases were directly related to the balance of cash on hand
throughout the respective periods.
    Interest expense and financing fees for the three and nine months ended
September 30, 2007 was $0.5 million and $2.7 million, respectively, versus
$0.1 million and $0.2 million in the same periods of 2006. The year-over-year
changes were due to higher average debt levels, the $1.4 million paid as
financing fees to secure the bridge loan in the second quarter and Part XII.6
corporate income tax interest calculated on the balance of the 2006
flow-through share issue that must be expended by December 31, 2007.

    Cash Flow and Operating Netbacks
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                         ($/boe)  ($/boe)      (%)  ($/boe)  ($/boe)      (%)
    Sales price           35.11    38.36       (8)   43.36    40.70        7
      Royalties           (5.44)  (10.45)     (48)   (8.64)   (9.32)      (7)
      Operating          (19.02)  (11.10)      71   (15.97)  (11.63)      37
    -------------------------------------------------------------------------
    Operating netback     10.65    16.81      (37)   18.75    19.75       (5)
      G&A (net of
       non-cash items)    (8.13)   (6.05)      34    (7.38)   (9.49)     (22)
      Interest and other
      (net of non-cash
      items)              (7.72)   (1.20)     543   (11.92)   (1.19)     902
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Corporate netback
     (loss)               (5.20)    9.56     (154)   (0.55)    9.07     (106)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flow from
     (used in) operations
     ($000s)               (344)     839     (141)    (117)   1,617     (107)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     For the three months ended September 30, 2007, cash flow from operations
declined 141% to negative $0.3 million from positive cash flow of $0.8 million
received in the same period of 2006 due to lower commodity prices, increased
operating costs and higher interest and financing charges in the period
relative to the prior year. For the nine-month period, cash flow from
operations decreased 107% to negative $0.1 million from positive cash flow
from operations of $1.6 million a year ago primarily as a result of increases
in interest and financing fees, higher production costs as well as lower G&A
recoveries. On a cash netback per boe basis, 2007 third quarter cash flow fell
154% to a deficit of $5.20/boe from a positive $9.56/boe a year ago, while
nine-month cash flow dropped 106% to a deficit of $0.55/boe from a positive
$9.07/boe in 2006.

    Depletion, Depreciation and Accretion ("DD&A")
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
                                               (%)                        (%)
    DD&A provision
     ($000s)              2,161    2,104        3    7,380    4,144       78
    DD&A provision
     ($/boe)              32.65    24.46       33    32.81    23.98       37
    Impairment provision
     for oil and gas
     assets ($000s)      18,094        -        -   20,352        -        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the third quarter of 2007, the DD&A provision increased 3% to
$2.2 million from $2.1 million in 2006 due to increased costs of finding
production. On a per boe basis, the DD&A provision rose 33% to $32.65 from
$24.46 a year ago as a result of these increased costs of proved reserves
additions. For the nine months ended September 30, 2007, the DD&A provision
increased 78% to $7.4 million from $4.1 million for the same period in 2006
due to the increase in year-over-year production coupled with the increased
cost of proved reserves additions. For the nine-month period of 2007, the DD&A
provision per boe rose 37% to $32.81 from $23.98 as a result of the increased
year-over-year cost of proved reserves additions.
    At September 30, 2007, the impairment recognition portion of the ceiling
test indicated the estimated undiscounted future cash flows from proved
reserves was less than the carrying amount of producing petroleum and natural
gas properties. In the second stage of the AcG-16 impairment test, the future
cash flows from the proved plus probable reserves were discounted at the
risk-free rate and were compared to the carrying amount of the oil and gas
properties to determine a ceiling test write-down. A write-down of
$20.4 million was included in DD&A during the 2007 nine-month period that was
incurred in the first and third quarters of 2007.

    Income Taxes

    The year-over-year future income tax recovery for the three and nine
months ended September 30, 2007 increased to $1.0 million from $0.4 million
and to $2.8 million from $1.6 million, respectively. The changes in this
non-cash item are the anticipated future tax effect of the periods'
activities, after reconciling recorded net assets with the Company's tax pool
assets at the end of each period. The primary reason for the change was a
year-over-year future tax rate decrease and the impairment of oil and gas
assets offset by the renunciation of the related income tax deductions for
eligible exploration and development expenses related to the issuance of
flow-through shares in 2006.
    As at September 30, 2007, the Company had approximately $72.3 million in
tax pools available to shelter taxable income in future years.

    Cash Flow and Net Loss
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    (000s, except per
     share amounts)          ($)      ($)      (%)      ($)      ($)      (%)
    Cash flow from
     (used in) operations  (344)     837     (141)    (117)   1,615     (107)
      Per share - basic
       and diluted            -     0.03        -        -     0.06        -
    Net loss            (19,620)  (1,063)  (1,746) (25,149)  (1,567)  (1,505)
      Per share - basic
       and diluted        (0.15)   (0.04)    (275)   (0.37)   (0.05)    (640)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flow from operations declined to negative $0.3 million ($nil per
basic and diluted share) for the three months ended September 30, 2007 from
$0.8 million ($0.03 per basic and diluted share) in the comparable period of
2006. For the nine months ended September 30, 2007, cash flow from operations
declined 107% to negative $0.1 million ($nil per basic and diluted share) from
$1.6 million ($0.06 per basic and diluted share) the prior year. The reduction
in cash flow was primarily the result of increases in interest and financing
fees along with higher production costs.
    During the third quarter of 2007, the Company recorded a net loss of $19.6
million ($0.15 per basic and diluted share) versus a net loss of $1.1 million
($0.04 per basic and diluted share) a year ago due primarily to an impairment
to oil and gas properties coupled with a reduction in revenue, an increase in
interest and higher production costs that were offset by a reduction of future
income taxes. For the 2007 nine-month period, the net loss increased to $25.1
million ($0.37 per basic and diluted share) from $1.6 million ($0.05 per basic
and diluted share) recorded in the corresponding period of 2006, which was due
to the impairment to oil and gas properties along with increased interest and
finance fees and higher production costs that were offset by a reduction in
future income taxes.

    Liquidity and Capital Resources
    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    (000s)                   ($)      ($)      (%)      ($)      ($)      (%)
    Working capital
     (deficiency),
     beginning of
     period             (26,909) (16,315)      65  (19,817)   3,478     (670)
    Cash flow from
     (used in)
     operations            (344)     837     (141)    (117)   1,615     (107)
    Issue of capital
     stock (net)         27,427   28,587       (4)  28,574   29,994       (5)
    Capital expenditures
     (net)               (7,106) (22,524)     (68) (15,572) (44,502)     (65)
    -------------------------------------------------------------------------
    Working capital
     (deficiency), end
     of period           (6,932)  (9,415)     (26)  (6,932)  (9,415)     (26)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Silverwing opened the third quarter of 2007 with a working capital
deficiency of $26.9 million. Changes in the quarter's working capital involved
$27.4 million (net) proceeds from a private placement that was offset by
negative cash flow from operations of $0.3 million and capital expenditures of
$7.1 million. The equity proceeds were used to pay down Company debt and for
capital expenditures planned for the second half of 2007. The Company entered
the 2007 nine-month period with a working capital deficit of $19.8 million.
Increases to working capital during the period involved equity increases that
added $28.6 million in net working capital, while decreases involved capital
expenditures of $15.6 million and negative cash flow from operations of
$0.1 million, thereby leaving the Company with a working capital deficit of
$6.9 million as at September 30, 2007.
    During the quarter, the bank amended its non-revolving and revolving
demand loan facilities to a cumulated amount of $14.0 million. The balance
drawn at period-end was $10.1 million. These facilities are scheduled to be
reviewed in November 2007.

    Capital Expenditures

    Capital expenditures made during the three and nine months ended September
30, 2007 and 2006 are summarized in the following table and do not include
non-cash transactions.

    -------------------------------------------------------------------------
                           Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                           2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    (000s)                   ($)      ($)      (%)      ($)      ($)      (%)
    Land                     92    1,696      (95)     990    2,390      (59)
    Seismic                   -      545        -      108    2,477      (96)
    Drilling and
     completions          6,084    6,196       (2)  11,413   14,685      (22)
    Facilities and
     equipment              804    2,503      (68)   2,714   13,222      (79)
    Property acquisitions     -   14,671        -        -   15,204        -
    Property dispositions     -   (3,126)       -        -   (3,776)       -
    Capitalized G&A and
     other                  126       39      223      347      300       16
    -------------------------------------------------------------------------
    Total                 7,106   22,524      (68)  15,572   44,502      (65)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the third quarter of 2007, the Company invested $7.1 million in
capital activities compared to $22.5 million in 2006. Drilling and completion
expenditures of $6.1 million were incurred in the Tomahawk area of central
Alberta. There were 5 gross (5.0 net) wells drilled, while 7 gross (7.0 net)
wells were in the completion process with 1 gross (1.0 net) well abandoned
during the period. Equipment and facilities expenditures totaling $0.8 million
were incurred to equalize into a compressor facility in northeastern British
Columbia.
    During the 2007 nine-month period, the Company spent $15.6 million in
exploration and development activities compared to $44.5 million in the
corresponding period of 2006. Land and seismic costs of $1.0 million were
incurred in relation to the Tomahawk farm-in. During the nine-month period of
2007, the Company drilled 11 gross (6.3 net) wells, spending a total of
$11.4 million on drilling and completions. Equipment and facilities
expenditures totaled $2.7 million were incurred to tie-in wells and purchase a
compressor in the Sirius area of northeastern British Columbia.
    Pursuant to flow-through common share issuances completed on August 22,
2006, December 21, 2006 and August 2, 2007, the Company committed to renounce
a total of $18.0 million of exploration expenditures. As at September 30,
2007, Silverwing had incurred $10.1 million of eligible expenditures for
renouncement, leaving $6.4 million and $1.5 million to be incurred by
December 31, 2007 and 2008, respectively. Interest is payable to the federal
government on the unspent portion that began to accrue as of February 1, 2007
until the amounts are fully expended.
    During 2006, the Company entered into a one-year and a three-year
contract involving two drilling rigs guaranteeing 260 days at a day rate of
$8,500 and 560 days at a day rate of $18,500, respectively. The total
commitment as at November 13, 2007 was $8.1 million for the two drilling rig
contracts as the 260-day and 560-day guarantees had 36 and 422 days remaining,
respectively. Subsequent to September 30, 2007, the Company had received an
extension to the 260-day rig contract to December 20, 2007, thereby allowing
sufficient time to fulfill the remaining 36 days.
    The Tomahawk farm-in agreement stipulates that the Company is to drill
29 wells to earn lands for the Tomahawk project. As at November 13, 2007,
16 wells were drilled with an additional 13 wells (consisting of 6 Belly River
and Mississippian targets as well as 7 Nisku wells) that are required to be
drilled by December 31, 2007, subject to regulatory approvals being in place.
Due to regulatory delays, the Company expects the Nisku wells to commence
drilling in late 2007 or early 2008. As at September 30, 2007, management
estimates that the total maximum contingent liability for noncompliance of the
terms of the farm-in agreement is $8.9 million, being the non-performance fee
associated with the seven locations remaining to be drilled and loss in any
interest of the properties. As a requirement of the farm-in extension granted
during the second quarter of 2007, $11.1 million was paid by the Company and
held in escrow by the farmors to be used for future exploration and
development in the Tomahawk project area. The funds are to be released to the
Company as the capital expenditures are incurred. At the earlier of 22 wells
being drilled or December 31, 2007, the escrowed funds will be distributed to
the Company less any portion of the commitment remaining at that time.

    Off-Balance Sheet Arrangements

    As at the date of this report, the Company had no off-balance sheet
financing arrangements.

    Transactions with Related Parties

    Included in G&A expenses are amounts for services provided to the Company
through entities affiliated with and/or controlled by the Corporate Secretary
of Silverwing. During the three and nine months ended September 30, 2007, the
Company paid to the affiliated entity $89,170 and $191,570 (2006 - $144,320
and $178,631), respectively. There was an outstanding payable balance of $nil
(2006 - $nil) with the related company at period-end. These amounts are
considered to be in the normal course of operations and approximate the fair
values for services received.
    The Company utilizes the services of a consultant, through his operating
company, who is considered a related party by virtue of significant influence
on the Company's drilling operations. The Company pays the related party's
operating company a management fee, granted the related party stock options
and provided the related party an interest free loan to purchase shares in the
Company. For the three and nine months ended September 30, 2007, the Company
paid $134,476 and $139,036 (2006 - $216,409 and $751,725), respectively, to
the related party, representing the fair market value for those services. The
outstanding related party balance was $119,663 and $25,000 at September 30,
2007 and 2006, respectively. Effective April 15, 2006, this consultant became
an employee of Silverwing.
    During the period ended September 30, 2007, the Company utilized the
services of a drilling company of which two directors of Silverwing are
officers. The total purchased services amounted to $705,793 and $724,293 (2006
- $1,950,786 and $1,950,786) for the three and nine months ended September 30,
2007, respectively. The balance owing to the related company was $712,604
(2006 - $nil) as at September 30, 2007. The transactions are in the normal
course of operations and are measured at the exchange amount that approximates
fair market value of the services.
    The Company granted share purchase loans to employees in 2004 for the
purchase of the Company's flow-through shares at that time. The loan balance
from the employees was $6,000 at September 30, 2007 (2006 - $76,500). The
loans were non-interest bearing and were fully repaid on October 31, 2007
according to the terms of the agreement.

    Outstanding Shares

    The Company is authorized to issue an unlimited number of common shares,
of which 188,068,316 common shares were issued and outstanding as fully paid
and non-assessable as at the date of this report. The Company is also
authorized to issue an unlimited number of preferred shares, of which nil
preferred shares were issued and outstanding as at this date. At the date of
this report, warrants to purchase an aggregate of 10,637,500 common shares at
$2.25 per share expire February 22, 2008 and warrants to purchase an aggregate
of 151,053,000 common shares at $0.20 and $0.25 per share expire between
August 2, 2009 and August 2, 2010 were outstanding. In addition, options to
purchase an aggregate of 1,527,500 common shares have been granted to
directors, officers, employees and consultants of the Company at an exercise
price of $2.00 and $2.10 per common share. During the second quarter of 2006,
performance warrants to purchase an aggregate of 3,800,000 common shares were
outstanding to certain directors, officers and employees of the Company at an
exercise price of $2.20 per common share. These warrants may be exercised only
upon a change in control of the Company.

    
    Summary of Quarterly Results
    -------------------------------------------------------------------------
    Three
     Months                       Dec.31,  Mar.31,  Jun.30,  Sep.30,  Dec.31,
     Ended                          2005     2006     2006     2006     2006
    -------------------------------------------------------------------------
    (000s, except per share
     amounts)                         ($)      ($)      ($)      ($)      ($)

    Oil and gas revenue            2,743    1,880    1,853    3,300    4,136
    Cash flow from (used in)
     operations                    1,402      515      263      837    1,740
      Per share - basic and
       diluted                      0.11     0.04     0.02     0.03     0.06
    Net earnings (loss)              152     (259)    (245)  (1,063) (10,649)
      Per share - basic and
       diluted                      0.01    (0.04)   (0.02)   (0.04)   (0.37)
    Capital expenditures (net)     6,292    9,091   12,887   22,524   18,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------
    Three
     Months                       Mar.31,  Jun.30,  Sep.30,
     Ended                          2007     2007     2007
    -------------------------------------------------------
    (000s, except per share
     amounts)                         ($)      ($)      ($)

    Oil and gas revenue            3,871    3,558    2,324
    Cash flow from (used in)
     operations                    1,267   (1,040)    (344)
      Per share - basic and
       diluted                      0.04    (0.03)       -
    Net earnings (loss)           (2,854)  (2,675) (19,620)
      Per share - basic and
       diluted                     (0.08)   (0.08)   (0.15)
    Capital expenditures (net)     7,095    1,371    7,106
    -------------------------------------------------------
    -------------------------------------------------------
    

    Internal Controls Over Financial Reporting

    There were no changes in internal control over financial reporting from
year-end that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

    New Accounting Pronouncements

    In 2006, the Canadian Institute of Chartered Accountants issued new
accounting standards concerning financial instruments: "Financial Instruments
- Recognition and Measurement" (Section 3855), "Hedges" (Section 3865) and
"Comprehensive Income" (Section 1530). These standards require prospective
application and became effective during the Company's first quarter of fiscal
2007. The Company applied the new accounting standards at the beginning of its
current fiscal year and their implementation did not have a significant impact
on the Company's results of operations or financial position.

    Financial and Other Instruments

    Currently, Silverwing does not have a hedge or other commodity risk
control strategy in place. Management will consider employing such strategies
once the Company has sufficiently advanced beyond the current production
profile to warrant such measures.

    SEDAR

    Additional information relating to Silverwing, including the Company's
Prospectus document supporting its Initial Public Offering, are available on
the Canadian Securities Administrators' System for Electronic Document
Analysis and Retrieval ("SEDAR") at www.sedar.com.

    
    BALANCE SHEETS

    -------------------------------------------------------------------------
    As at                                        September 30,   December 31,
                                                         2007           2006
    -------------------------------------------------------------------------
    (000s) (unaudited)                                     ($)            ($)
    Assets
    Current assets
      Cash                                                 42            408
      Restricted cash (note 3)                         11,100              -
      Accounts receivable and other assets              4,090          6,103
    -------------------------------------------------------------------------
                                                       15,232          6,511
    Future income taxes                                   470          1,399
    Property, plant and equipment (note 4)             56,579         68,228
    -------------------------------------------------------------------------
                                                       72,281         76,138
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities         12,040         19,297
      Bank debt (note 5)                               10,124          7,031
    -------------------------------------------------------------------------
                                                       22,164         26,328
    Asset retirement obligations (note 7)               3,453          2,999

    Shareholders' Equity
    Common shares (note 8)                             66,942         53,149
    Share purchase warrants (note 8)                   15,405          4,344
    Contributed surplus (note 8)                        2,887          2,739
    Deficit                                           (38,570)       (13,421)
    -------------------------------------------------------------------------
                                                       46,664         46,811
    Future operations (notes 1)
    Commitments (note 10)
    -------------------------------------------------------------------------
                                                       72,281         76,138
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the interim financial statements.



    STATEMENTS OF OPERATIONS AND DEFICIT

    -------------------------------------------------------------------------
                                       Three Months Ended   Nine Months Ended
                                           September 30,       September 30,
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    (000s, except per share amounts)
     (unaudited)                            ($)       ($)       ($)       ($)

    Revenues
      Petroleum and natural gas sales    2,324     3,300     9,753     7,033
      Royalties                           (360)     (899)   (1,944)   (1,610)
    -------------------------------------------------------------------------
                                         1,964     2,401     7,809     5,423
    Interest and other income                -        17         8        49
    -------------------------------------------------------------------------
                                         1,964     2,418     7,817     5,472
    Expenses
      Production                         1,259       955     3,592     2,009
      General and administrative           538       686     1,768     2,315
      Interest and financing fees          511       104     2,682       207
      Depletion, depreciation and
       accretion                        20,255     2,104    27,732     4,144
    -------------------------------------------------------------------------
                                        22,563     3,849    35,774     8,675
    -------------------------------------------------------------------------
    Loss before income taxes           (20,599)   (1,431)  (27,957)   (3,203)
    Future income tax reduction            979       368     2,808     1,636
    -------------------------------------------------------------------------
    Net loss for the period            (19,620)   (1,063)  (25,149)   (1,567)
    Deficit, beginning of period       (18,950)   (1,709)  (13,421)   (1,205)
    -------------------------------------------------------------------------
    Deficit, end of period             (38,570)   (2,772)  (38,570)   (2,772)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss per share (note 8)
      Basic and diluted                  (0.15)    (0.04)    (0.37)    (0.05)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the interim financial statements.



    STATEMENTS OF CASH FLOWS
    -------------------------------------------------------------------------
                                       Three Months Ended   Nine Months Ended
                                           September 30,       September 30,
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    (000s) (unaudited)                      ($)       ($)       ($)       ($)

    Cash provided by (used in):
    Operations
      Net loss for the period          (19,620)   (1,063)  (25,149)   (1,567)
      Add (subtract) non-cash items:
        Stock-based compensation             -       164       108       674
        Depletion, depreciation and
         accretion                      20,255     2,104    27,732     4,144
        Future income tax reduction       (979)     (368)   (2,808)   (1,636)
    -------------------------------------------------------------------------
                                          (344)      837      (117)    1,615
      Net change in non-cash working
       capital                          (1,647)     (125)    2,539        29
    -------------------------------------------------------------------------
                                        (1,991)      712     2,422     1,644
    -------------------------------------------------------------------------
    Financing
      Issue of common shares and
       warrants                         31,383    30,776    32,534    32,188
      Share issue costs                 (3,956)   (2,189)   (3,960)   (2,194)
      Bank debt                         (2,820)   (5,013)    3,093     2,057
      Bridge loan (note 6)             (13,000)        -         -         -
      Net change in non-cash working
       capital                              (1)      350       (44)       30
    -------------------------------------------------------------------------
                                        11,606    23,924    31,623    32,081
    -------------------------------------------------------------------------
    Investing
      Property, plant and equipment
       expenditures                     (7,106)  (10,979)  (15,572)  (33,074)
      Property acquisitions                  -   (14,671)        -   (15,204)
      Proceeds on disposal of property,
      plant and equipment                    -     3,126         -     3,776
      Net change in non-cash working
       capital                          (2,494)   (2,112)  (18,839)    2,306
    -------------------------------------------------------------------------
                                        (9,600)  (24,636)  (34,411)  (42,196)
    -------------------------------------------------------------------------
    Change in cash                          15         -      (366)   (8,471)
    Cash, beginning of period               27         -       408     8,471
    -------------------------------------------------------------------------
    Cash, end of period                     42         -        42         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                          315       101       826       138
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the interim financial statements.



    NOTES TO INTERIM FINANCIAL STATEMENTS

    Nine Months Ended September 30, 2007 and 2006
    (unaudited)

    Basis of Presentation

    Silverwing Energy Inc. ("Silverwing" or the "Company") is engaged in the
exploration, development and production of petroleum and natural gas reserves
in Western Canada.
    The interim financial statements of Silverwing have been prepared in
accordance with Canadian generally accepted accounting principles using the
same accounting policies as the financial statements for the year ended
December 31, 2006. The disclosures herein are incremental to, and should be
read in conjunction with those annual financial statements and notes.

    1.  Future Operations

        The future operation of the Company is dependant on its ability to
        successfully explore, develop and produce economically viable
        reserves and market petroleum products from its properties, raise
        capital to support its activities and meet its obligations as
        outlined in note 10, and receiving the continued financial support
        from its lenders.

        These financial statements have been prepared on the basis that the
        Company will be able to discharge its obligations and realize its
        assets in the normal course of business at the values at which they
        are carried in these financial statements, and that the Company will
        be able to continue its business activities.

        Management believes that the going concern assumption is appropriate
        for these financial statements. If this assumption were not
        appropriate, adjustments to the carrying amounts of the assets and
        liabilities, revenues and expenses and the balance sheet
        classifications used may be necessary.

    2.  Change in Accounting Policies

        The Company has adopted new accounting standards concerning financial
        instruments: "Financial Instruments - Recognition and Measurement,"
        "Hedges" and "Comprehensive Income." These standards require
        prospective application and became effective January 1, 2007. The
        Company applied the new accounting standards at the beginning of its
        current fiscal year.

        The adoption of these standards has had no material impact on the
        Company's net earnings or cash flows.

        Comprehensive Income

        The new standards introduce comprehensive income, which consists of
        net earnings and other comprehensive income ("OCI"). The cumulative
        changes in OCI are included in the accumulated other comprehensive
        income, which is presented as a new category within shareholders'
        equity in the balance sheet. The adoption of the comprehensive income
        standard has been made in accordance with its transitional
        provisions. A statement of comprehensive income has not been included
        in these financial statements as the Company has no adjustments that
        are required to be reported in OCI.

        Financial Instruments

        The financial instruments standard establishes the recognition and
        measurement criteria for financial assets, financial liabilities and
        derivatives. All financial instruments are required to be measured at
        fair value on initial recognition of the instrument, except for
        certain related party transactions. Measurement in subsequent periods
        depends on whether the financial instrument has been classified as
        "held-for-trading," "available-for-sale," "held-to-maturity," "loans
        and receivables" or "other financial liabilities" as defined by the
        standard.

        Financial assets and financial liabilities "held-for-trading" are
        measured at fair value, with changes in those fair values recognized
        in net earnings. Financial assets "available-for-sale" are measured
        at fair value, with changes in those fair values recognized in OCI.
        Financial assets "held-to-maturity," "loans and receivables" and
        "other financial liabilities" are measured at amortized cost using
        the effective interest method of amortization. The methods used by
        the Company in determining fair value of financial instruments are
        unchanged as a result of implementing the new standard.

        Cash and cash equivalents are designated as "held-for-trading" and
        are measured at carrying value, which approximates fair value due to
        the short-term nature of these instruments. Accounts receivable and
        accrued revenues and the partnership contribution receivable are
        designed as "loans and receivables." Accounts payable and accrued
        liabilities, the partnership contribution payable and long-term debt
        are designated as "other liabilities."

        The adoption of the financial instruments standard has been made in
        accordance with its transitional provisions.

        In addition, two new accounting standards have been issued that will
        require additional disclosure in the Company's financial statements
        commencing January 1, 2008 about the Company's financial instruments
        as well as its capital and how it is managed.

    3.  Restricted Cash

        Restricted cash as at September 30, 2007 consisted of $11.1 million
        deposited in an escrow account with the farmors of the Tomahawk
        property as a condition for extending the drilling commitment. The
        escrow account serves as an exploration and development fund that is
        administered by the farmors' legal counsel to support eligible
        expenditures related to the Tomahawk farm-in agreement. The Company
        may only access the funds as expenditures are incurred in the
        Tomahawk farm-in project (see note 10(d)).

    4.  Property, Plant and Equipment
        ---------------------------------------------------------------------
                                                       Accumulated
                                                         Depletion
                                                               and       Net
                                                           Depreci-     Book
                                                    Cost     ation     Value
        ---------------------------------------------------------------------
        (000s)                                        ($)       ($)       ($)
        September 30, 2007
        Petroleum and natural gas properties      76,834   (36,022)   40,812
        Production equipment                      30,670   (14,995)   15,675
        Office furniture, equipment and other        136       (44)       92
        ---------------------------------------------------------------------
                                                 107,640   (51,061)   56,579
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        December 31, 2006
        Petroleum and natural gas properties      63,660   (15,998)   47,662
        Production equipment                      27,957    (7,484)   20,473
        Office furniture, equipment and other        123       (30)       93
        ---------------------------------------------------------------------
                                                  91,740   (23,512)   68,228
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During the three and nine months ended September 30, 2007, the
        Company capitalized $0.1 million (2006 - $0.1 million) and
        $0.4 million (2006 - $0.3 million), respectively, of general and
        administrative expenses directly related to exploration and
        development activities.

        As at September 30, 2007, costs to acquire and evaluate unproved
        properties totaling $18.6 million (2006 - $30.4 million) had been
        excluded from the depletion calculation. As at September 30, 2007,
        future development costs of $4.8 million (2006 - $0.6 million) had
        been included in the depletion calculation.

        During the first and third quarters of 2007, the Company incurred
        ceiling test write-downs of $2.3 million and $18.1 million,
        respectively, related to oil and gas assets subject to the impairment
        test for 2007. The write-down was included in the depletion expense
        recorded for the period.

    5.  Bank Debt

        On March 15, 2007 and subsequently amended on July 23, 2007, the bank
        amended a non-revolving acquisition/development demand loan facility
        of $1.0 million with a Canadian bank. This demand loan facility bears
        interest at the bank's prime rate plus 0.5% and requires monthly
        principal repayments of $45,000 commencing July 31, 2007. As at
        September 30, 2007, the Company had $0.9 million drawn on the
        facility and the interest rate was 6.75%.

        On June 6, 2007 and subsequently on July 23, 2007, the bank amended
        the revolving reducing demand facility to a revolving operating
        demand loan facility of $13.0 million with a Canadian bank. This
        demand loan facility bears interest at the bank's prime rate plus
        1.25%. As at September 30, 2007, the Company had $9.1 million drawn
        on the facility and the interest rate was 7.50%.

        The non-revolving acquisition/development demand loan facility and
        revolving operating demand loan facility noted above are secured by a
        $50.0 million debenture with a floating charge over all fixed assets
        of the Company.

        As at September 30, 2007, the Company had two Irrevocable Letters of
        Guarantee outstanding that expire July 8, 2008 totaling $160,000. The
        Letters of Guarantee are funded by the revolving operating demand
        loan facility. The Company holds a deposit from a joint interest
        partner in the amount of $41,250 securing the partner's share of this
        obligation.

    6.  Bridge Loan

        On June 4, 2007, the Company obtained a bridge loan financing
        facility from an investment corporation in the amount of
        $13.0 million and bearing interest at 12% per annum, paid monthly.
        This bridge loan was repaid on August 7, 2007.

    7.  Asset Retirement Obligations

        Changes to the asset retirement obligations were as follows:

        ---------------------------------------------------------------------
        As at                                    September 30,   December 31,
                                                         2007           2006
        ---------------------------------------------------------------------
        (000s)                                             ($)            ($)
        Balance - beginning of period                   2,999          1,049
        Liabilities incurred                              271            898
        Revisions                                           -            965
        Accretion                                         183             87
        ---------------------------------------------------------------------
        Balance - end of period                         3,453          2,999
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company's asset retirement obligations result from net ownership
        interests in petroleum and natural gas assets including wellsites,
        gathering systems and processing facilities. At September 30, 2007,
        the Company estimated the total undiscounted amount of cash flows
        required to settle its asset retirement obligations was approximately
        $6.1 million, which will be incurred over the next 15 years. In
        calculating the Company's future asset retirement obligations, an
        annual credit adjusted risk-free interest rate of 8.0% and an annual
        inflation rate of 2.0% were used.

    8.  Share Capital

        (a) Authorized

            Unlimited number of common shares.
            Unlimited number of preferred shares, of which none have been
            issued.

        (b) Issued

            -----------------------------------------------------------------
            As at                     September 30, 2007   December 31, 2006
            -----------------------------------------------------------------
                                          Shares  Amount      Shares  Amount
            -----------------------------------------------------------------
                                            (No.) ($000s)       (No.) ($000s)

            Common Shares
            Balance - beginning of
             period                   33,826,150  53,149  12,746,268  23,676
            Issued on exercise of
             warrants                          -       -     385,835     914
            Issued on exercise of
             special warrants                  -       -     688,000     739
            Issued for cash pursuant
             to private Placements   142,303,000  17,787     295,647     621
            Issued on initial public
             offering                          -       -  10,637,500  16,931
            Issued for cash pursuant
             to flow-through share
             placements                6,414,166   1,540   9,072,900  16,460
            Issued as a financing fee  5,525,000   1,105           -       -
            Tax effect of flow-through
             share renunciation                -  (4,947)          -  (4,438)
            Share issue costs                  -  (2,553)          -  (2,697)
            Tax benefit of share issue
             costs                             -     791           -     901
            Repayment of share
             purchase loan                     -      70           -      42
            -----------------------------------------------------------------
            Balance - end of period  188,068,316  66,942  33,826,150  53,149
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            In August 2007, the Company closed a private placement for gross
            proceeds of $30.0 million, involving the issue of
            142,303,000 units and 6,414,166 flow-through common shares priced
            at $0.20 and $0.24 per share, respectively. The units were
            comprised of one common share and one common share purchase
            warrant with each warrant enabling the holder to purchase one
            additional share from the Company at $0.25 per share on or prior
            to August 2, 2010. The valuation of the common shares was
            determined by prorating the fair value of the net proceeds and
            issuance costs to the common shares and warrants.

            In June 2007, the Company completed a bridge loan financing that
            required a non-refundable payment of $1,105,000, paid in the form
            of 3,683,333 shares issued prior to June 30, 2007 and
            1,841,667 issued in August 2007. The shares were issued at
            $0.20 per share, which was the market price at the final
            measurement date on August 2, 2007.

        (c) Contributed Surplus
            -----------------------------------------------------------------
            As at                                September 30,   December 31,
                                                         2007           2006
            -----------------------------------------------------------------
            (000s)                                         ($)            ($)
            Balance - beginning of period               2,739            587
            Stock-based compensation expensed             108            573
            Stock-based compensation capitalized           40            218
            Transfer on exercise and expiry of
             warrants                                       -          1,361
            -----------------------------------------------------------------
            Balance - end of period                     2,887          2,739
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (d) Stock Option Plan

            The Company has a stock option plan (the "Plan"), which is
            administered by the Board of Directors of the Company. All
            directors, officers, employees and key consultants are eligible
            to participate under the Plan. The aggregate number of shares
            reserved for issuance under the Plan shall not exceed 10% of the
            total number of issued and outstanding shares of the Company.
            Options will vest over a period of two years and expire after
            four years.

            The following table summarizes the number of options outstanding
            and the exercise price:

            -----------------------------------------------------------------
                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                                      Options          Price
            -----------------------------------------------------------------
                                                         (No.)     ($/option)
            Outstanding at December 31, 2006        1,540,000           2.06
            Forfeited                                 (12,500)          2.04
            -----------------------------------------------------------------
            Outstanding at September 30, 2007       1,527,500           2.06
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            As at September 30, 2007, the weighted average remaining life of
            the options outstanding was 1.39 years (December 31, 2006 -
            2.14 years).

            As at September 30, 2007, 1,527,500 (December 31, 2006 - 924,000)
            options were exercisable between $2.10 and $2.00 per share with a
            weighted average exercise price of $2.06 per share (2006 -
            $2.05 per share).

        (e) Share Purchase Warrants

            -----------------------------------------------------------------
            As at                     September 30, 2007   December 31, 2006
            -----------------------------------------------------------------
                                          Shares  Amount      Shares  Amount
            -----------------------------------------------------------------
                                            (No.) ($000s)       (No.) ($000s)

            Balance - beginning of
             period                   10,637,500   4,344   2,563,372   1,501
            Expired                            -       -  (2,177,537) (1,361)
            Exercised                          -       -    (385,835)   (140)
            Issue of warrants        142,303,000  10,673  10,637,500   4,344
            Warrant issue costs                -  (1,408)          -       -
            Tax benefit of warrant
             issue costs                       -     437           -       -
            Issue of broker warrants
             to purchase common share
             at $0.25 per share        3,500,000     513           -       -
            Issue of broker warrants
             to purchase common
             shares at $0.20 per
             share                     5,250,000     846           -       -
            -----------------------------------------------------------------
            Balance - end of period  161,690,500  15,405  10,637,500   4,344
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            In August 2007, the Company closed a private placement for gross
            proceeds of $30.0 million, involving the issue of
            142,303,000 units priced at $0.20 per share. The units were
            comprised of one common share and one common share purchase
            warrant with each warrant enabling the holder to purchase one
            additional common share from the Company at $0.25 per share on or
            prior to August 2, 2010. In addition, 1,750,000 broker warrants
            were issued to purchase common shares at an exercise price of
            $0.20 per warrant and 3,500,000 broker warrants were issued to
            purchase units consisting of one common share with an exercise
            price of $0.20 and one warrant to purchase an additional share at
            $0.25 per share. The fair value of the warrants was determined
            using the Black-Scholes model at the date of issue. The valuation
            of the warrants was determined by prorating the fair value of the
            net proceeds and issuance costs to the common shares and
            warrants.

        (f) Per Share Amounts

            Per share amounts have been calculated based on the weighted
            average number of common shares issued and outstanding, which for
            the three and nine months ended September 30, 2007 totaled
            134,063,517 and 67,920,244 (2006 - 13,801,929 and 12,826,652),
            respectively.

            In calculating the diluted loss per share for the nine months
            ended September 30, 2007, nil (2006 - nil) shares were added to
            the weighted average number of common shares outstanding for the
            dilutive effect of the warrants and stock options.

            In calculating the net loss per share, options and warrants
            totaling 167,018,000 (2006 - 15,977,500) were excluded from the
            dilution calculation, as they were anti-dilutive. No adjustments
            were required to net loss in computing diluted per share amounts.

    9.  Related Party Transactions

        Included in general and administrative expenses are amounts for
        services provided to the Company through entities affiliated with
        and/or controlled by the Secretary of the Company. During the three
        and nine months ended September 30, 2007, the Company paid to the
        affiliated entity $89,170 and $191,570 (2006 - $144,320 and
        $178,631), respectively, representing the fair market value for
        services received. There was no outstanding balance with the related
        company at period-end.

        The Company utilizes the services of a consultant, through his
        operating company, who was considered a related party by virtue of
        significant influence on the Company's drilling operations. The
        Company paid the related party's operating company a management fee,
        has provided the related party full time use of offices in its
        premises at below market rates for rent, granted the related party
        stock options and provided the related party an interest free loan to
        purchase shares in the Company. During the three and nine months
        ended September 30, 2007, the Company paid to the related party an
        amount totaling $134,476 and $139,036 (2006 - $216,409 and $751,725),
        respectively, representing the fair market value for services
        received. The outstanding related party balance was $119,663 at
        September 30, 2007. The Company estimates the fair market value of
        the subsidized rent to be approximately $17,517 for the period ended
        September 30, 2007 (2006 - $26,625). Effective April 15, 2006, this
        consultant became an employee of Silverwing.

        During the three and nine months ended September 30, 2007, the
        Company utilized the services of a drilling company of which two
        directors of Silverwing are officers. The total purchased services
        amounted to $705,793 (2006 - $nil) for the three-month period and
        $724,293 for the nine-month period. The balance owing to the related
        company was $712,604 as at September 30, 2007 (2006 - $nil). The
        transactions are in the normal course of operations and are measured
        at the exchange amount that approximates fair market value of the
        services.

        The Company granted share purchase loans to employees in 2004 for the
        purchase of the Company's flow-through shares at that time. The loans
        are non-interest bearing and are to be fully repaid by
        October 31, 2007. The loan balance from the employees was $6,000 at
        September 30, 2007 (2006 - $76,500).

    10. Commitments

        (a) Flow-Through Shares

            In the fourth quarter of 2006, the Company committed to renounce
            $7.0 million of exploration expenditures pursuant to a
            flow-through common share issue completed on December 21, 2006.
            Silverwing has until December 31, 2007 to incur these exploration
            expenditures. As at September 30, 2007, $6.4 million of the
            obligation remained outstanding. Interest totaling $0.4 million
            has been accrued for outstanding flow-through expenditures to be
            incurred during 2007.

            In the third quarter of 2007, the Company committed to renounce
            $1.5 million of exploration expenditures pursuant to a
            flow-through common share issue completed on August 2, 2007.
            Silverwing has until December 31, 2008 to incur these exploration
            expenditures. As at September 30, 2007, the entire obligation
            remains outstanding.

        (b) As at September 30, 2007, the Company had the following annual
            rental commitments on a sublease for office premises and
            equipment as follows:

            -----------------------------------------------------------------
            (000s)                                                        ($)
            2007                                                          79
            2008                                                         284
            2009                                                         284
            2010                                                         278
            2011                                                         298
            Thereafter                                                   596
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (c) Drilling Contracts

            During 2006, the Company entered into a one-year and a three-year
            drilling contract. In the one-year contract, Silverwing is
            committed to a 260-day guarantee within a 365-day period
            commencing June 1, 2006 with 64 days remaining at
            September 30, 2007. Subsequent to quarter-end, the 260-day
            contract was given an extension to December 20, 2007 to fulfill
            the remaining 64 days. In the three-year contract, Silverwing is
            committed to a 560-day guarantee within an 830-day period
            commencing October 14, 2006 with 422 days remaining at
            September 30, 2007. If the Company is unable to fulfill the
            operating day commitment, a shortfall penalty of $8,500 and
            $18,500 for each day or portion thereof for each contract,
            respectively, will be charged to Silverwing upon completion of
            the term.

            If Silverwing does not require the use of each rig during the
            duration of the contract term, the drilling contractor will put
            forth best efforts to contract the rig to another party. Should
            the drilling contractor be successful, any days worked for the
            other party during the contract term will be credited towards
            Silverwing's guaranteed day contract commitment on a prorated
            basis equal to each day worked for the other party. The combined
            drilling commitment for the rigs as at September 30, 2007 was
            $8.3 million.

        (d) Farm-In Agreement Contingency

            The Company has a farm-in agreement to drill 29 wells to earn
            lands in the Tomahawk project area of central Alberta. As at
            September 30, 2007, 12 of these wells have been drilled with
            17 remaining to be drilled by December 31, 2007, subject to
            securing regulatory approvals. As at September 30, 2007,
            management estimates that the total maximum contingent liability
            for noncompliance of the terms of the farm-in agreement is
            $8.9 million, being the non-performance fee associated with the
            17 locations remaining to be drilled. Upon payment of this fee,
            the commitment will be met and the Company would have a minimum
            of two years to earn the lands by drilling the remaining wells,
            subject to regulatory approvals. If this payment is not met, the
            Company will forfeit any interest earned in these properties with
            respect to costs incurred to date.

            The Company secured an extension of the farm-in agreement to
            December 31, 2007, which included a fee of $0.5 million and a
            deposit of $11.1 million held in trust. The deposit will be
            subsequently drawn down to fulfill the farm-in agreement
            obligations as costs are incurred. As at September 30, 2007, the
            deposit balance was $11.1 million and is presented as restricted
            cash on the balance sheet (see note 3).
    





For further information:

For further information: Silverwing Energy Inc., Oleh Wowkodaw,
President and Chief Executive Officer, (403) 538-5597, (403) 263-5549 (FAX),
Email: oleh@silverwingenergy.com or Terry O'Connor, Senior Vice President,
Business Development, (403) 538-5593, (403) 263-5549 (FAX), Email:
toconnor@silverwingenergy.com or Martin Rude, Vice President, Finance and
Chief Financial Officer, (403) 538-5591, (403) 263-5549 (FAX), Email:
mrude@silverwingenergy.com

Organization Profile

SILVERWING ENERGY INC.

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