Solana Resources Limited ("Solana" or the "Company"): Restated financial report for the six month period ended June 30, 2007



    CALGARY, AB and LONDON, UK, Oct. 31 /CNW/ - Solana Resources Limited
(TSX-V: SOR; AIM: SORL), the Colombia focussed independent oil and gas
exploration and production company, today announces restated results for the
six month period ended June 30, 2007. After consultation with its auditors in
connection with the bought deal financing announced on October 25, 2007, the
Company is restating its financial report for the six month period ended
June 30, 2007 reflecting a decrease in depletion expense and a corresponding
decrease in the Company's net loss of US$800,000 for three months and
US 1,600,000 for six months ended June 30, 2007. This favourable restatement
reduces Solana's three and six month loss per share to ($0.03) and ($0.06)
from ($0.05) and ($0.08) respectively, resulting from the application of
reserve additions pursuant to a mid year engineering report announced on
August 27, 2007.
    The restated financial report for the six month period ended June 30,
2007 reflecting this restatement is attached.
    These results should be read in conjunction with the audited consolidated
financial statements for the years ended December 31, 2006 and 2005. All
numbers in this report are expressed in US dollars unless otherwise indicated.
    Please note that the commentary accompanying the restated figures has not
otherwise been updated for events subsequently announced following publication
of Solana's original Financial Report on 27 August 2007.

    Solana (www.solanaresources.com) is an international resource company
engaged in the acquisition, exploration, development and production of oil and
natural gas. The Company's properties are located in Colombia, South America
and are held through its wholly owned subsidiary, Solana Petroleum Exploration
(Colombia) Limited. The company is headquartered in Calgary, Alberta Canada.
    Additional information (which does not form part of this announcement) is
available on the Company's website at www.solanaresources.com or the Sedar
website at www.sedar.com.

    
        NO REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE CONTENT OF
    THIS RELEASE. THE TSX VENTURE EXCHANGE DOES NOT ACCEPT RESPONSIBILITY FOR
                   THE ADEQUACY OR ACCURACY OF THIS RELEASE

    HIGHLIGHTS

    -   On May 29, 2007, Solana announced that the Juanambu-1 wildcat
        exploration well, located in the Guayuyaco Block, Putumayo Basin,
        southern Colombia, was a new field discovery. Juanambu-1 tested a
        combined 139 m(3)/day (876 bopd) from 26.8 m (88 ft) of perforations
        over four separate zones. Solana holds a non-operated 50% working
        interest in this field that will be reduced to 35% should Ecopetrol,
        the Colombian State oil company, exercise its back-in rights.

    -   On June 25, 2007 Solana acquired the 439 km(2) Colonia, and
        the 423 km(2) San Pablo, exploration blocks in the Llanos Basin.
        These blocks border Solana's Guachiria, Guachiria Norte and Guachiria
        Sur blocks and together form a five block contiguous land package
        encompassing 1,735 km(2). This area is considered to be highly
        prospective.

    -   On July 9, 2007, the Company announced that the Costayaco-1 wildcat
        exploration well, located in the Chaza Block, Putumayo Basin,
        southern Colombia, was a new field discovery. Costayaco-1 tested a
        combined 939 m3/day (5,906 bopd) maximum flow rate from 47.2 m
        (155 ft) of perforations over four formations. Solana holds a non-
        operated 50% working interest in the Chaza Block.

    -   100 km(2) 3-D seismic data were acquired over portions of the Garibay
        block in the Llanos Basin. Interpretation is underway.

    -   In comparison to December 31, 2006, mid-year 2007 total proved oil
        reserves increased by 180% to 2.0 MMbbls and proved plus producing
        oil reserves increased by 390% to 4.5 MMbbls (forecast prices case).

    -   In comparison to December 31, 2006, mid-year 2007 total proved plus
        probable oil reserves NPV 10% (before tax) increased by 500% to
        $127 million (forecast prices case).

    -   At June 30, 2007 the Company had a net cash balance of $19.2 million.

    -   June 30, 2007 the production was 529 boepd, net to Solana.
    


    OPERATIONAL UPDATE

    LLANOS BASIN

    The Llanos Basin is located northeast of Bogota, the capital of Colombia,
on the east side of the Andes Mountains. This Basin covers an area of
approximately 200,000 km(2) (77,000 square miles) and holds Colombia's largest
number of oil fields and proved oil reserves.
    Solana has working interests in seven blocks in the Llanos Basin,
covering an area of 2,542 km(2) (981 square miles). These blocks are:
Guachiria Norte, Guachiria, Guachiria Sur, Colonia, San Pablo, Gaviotas and
Garibay.

    GUACHIRIA NORTE BLOCK

    Solana is the Operator of the 412 km(2) (159 square miles) Guachiria
Norte Block with a working interest of 70%. The block is located approximately
250 km (155 miles) northeast of Bogota and is subject to an Agencia Nacional
de Hidrocarburos (ANH) contract.
    Phase 1 (December 21, 2004 to December 21, 2005) commitments were met
with the drilling of the Bonaire-1 well. Although the well tested 7 m(3)/day
(44 bopd) of waxy crude, a complete technical review, including petrophysical
and reservoir parameter analysis, indicated that Bonaire-1 is not commercially
viable. Solana and its partners have agreed to abandon the well.
    During Phase 2 (December 21, 2005 to December 21, 2006, extended to
March 21, 2007) 56 line-km (35 miles) of seismic were acquired and
interpreted. Also in Phase 2, a 157 km(2) (61 square miles) 3-D seismic
survey, that was acquired in 2001 and reprocessed in 2005, was re-interpreted.
This re-interpretation resulted in the identification of a very prospective
channel system in the Carbonera depositional package.
    In this part of the Llanos Basin, drilling activity is generally
restricted to a four month weather window from December to March and as such
Solana submitted an application to the ANH to extend the Phase 2 period to
March 2007. The ANH approved this extension on the condition that Phases 3
and 4 are combined into one. During Phases 3 and 4 (March 21, 2007 to
March 21, 2009) Solana is required to drill two exploration wells.
    Solana is currently incorporating the results of the Calcedonia-1 well,
drilled and abandoned in March 2007, with the Onyx 3-D seismic survey, to
optimize the location of the next well, a Carbonera C5 channel target. The
Company plans to drill this well prior to the March 21, 2009 deadline.

    GUACHIRIA BLOCK

    Solana is the Operator of the 75 km(2) (29 square miles) Guachiria Block
with a working interest of 70%. The block adjoins the Guachiria Norte Block
immediately to the South. This block was acquired from Empresa Colombiana de
Petroleos SA (Ecopetrol, the State owned oil Company), and is subject to a
standard ANH contract plus an additional 13% royalty payable to Ecopetrol.
    During Phase 1 (October 9, 2003 to October 9, 2004) the Malabares-1 well
was drilled and following an inconclusive test the well was suspended, pending
further evaluation.
    During Phase 2 (October 9, 2004 to October 9, 2005, extended to June 1,
2006) the Bucaro-1 well was re-entered. The well tested 123 m(3)/day
(774 bopd) waxy crude but is currently shut in due to a high water cut. In May
2006 the Yalea-1 well was drilled. The well tested oil and is currently
producing approximately 15 m(3)/day (72 bopd, 41 net to Solana).
    For Phase 3 (June 1, 2006 to June 1, 2007), Ecopetrol agreed that Solana
may substitute its well commitment for a 100 km(2) (39 square mile) 3-D
seismic survey, covering the block, and overlapping the southern part of the
adjacent Guachiria Norte 3-D seismic survey. Data acquisition and processing
for this survey are now complete and interpretation is underway. In this part
of the Llanos Basin, drilling and seismic activity is generally restricted to
a four month weather window from December to March.

    GUACHIRIA SUR BLOCK

    Solana is the Operator of the 366 km(2) (141 square miles) Guachiria Sur
Block with a working interest of 70%. The block is to the west and the south
of the Guachiria Block and to the south of the Guachiria Norte Block. This
block is subject to an ANH contract.
    During Phase 1 (October 25, 2005 to October 25, 2006) 155 line-km
(96 miles) of seismic data was acquired and 300 line-km (186 miles) of seismic
data were reprocessed.
    The commitment to drill a well during Phase 2 (October 25, 2006 to
October 25, 2007) was renegotiated with the ANH and was replaced by a 120
km (2) (74 square mile) 3-D seismic survey and a commitment to drill one well
during Phase 3 (October 25, 2007 to October 25, 2008). This survey started in
December 2006 and covers the northern part of the block, immediately west and
south of the Guachiria Block. Acquisition and processing are now complete and
interpretation is underway. In this part of the Llanos Basin, drilling and
seismic activity is generally restricted to a four month weather window from
December to March.

    GAVIOTAS BLOCK

    Solana is the Operator of the 377 km(2) (146 square miles) Gaviotas Block
with a 70% working interest. In addition to Lewis Energy's 30% earning rights,
a Colombian investment fund has a 20% participation right on individual
Gaviotas wells. The Fund evaluates and elects its participation on a well by
well basis. The block is located approximately 170 km (105 miles) east of
Bogota and was acquired from Empresa Colombiana de Petroleos SA (Ecopetrol,
the State owned oil Company). It is subject to a standard ANH contract plus an
additional 13% royalty payable to Ecopetrol.
    During Phase 1 (December 18, 2003 to February 18, 2005) 50 line-km
(31 miles) of seismic data was acquired.
    During Phase 2 (February 18, 2005 to February 18, 2006, extended to
May 18, 2006) the Gaviotas-1 well was drilled and 85 line-km (53 miles) of
seismic were acquired and 650 line-km (404 miles) reprocessed. Although wire
line logs of the Gaviotas-1 well indicated hydrocarbon bearing zones, tests
were inconclusive. Further petrophysical evaluation of the logs indicated that
Gaviotas-1 is not commercially viable. Solana and its partners have agreed to
abandon the well.
    The well commitment for Phase 3 (May 18, 2006 to May 18, 2007) was met by
drilling Bevea-1. This well reached a Total Depth of 3802 m (12,475 ft) on
June 19, 2007 and was subsequently abandoned. While there were minor oil and
gas shows during drilling, subsequent well log analysis determined the
presence of hydrocarbons in sub-commercial quantities. Solana and its partners
have agreed to relinquish this block.

    GARIBAY BLOCK

    Solana is the Operator of the 450 km(2) (174 square miles) Garibay Block
with a working interest of 100%. The block is located approximately 170 km
(105 miles) east of Bogota and 15 km (9 miles) south of the Gaviotas Block.
This block is subject to an ANH contract.
    During Phase 1 (October 25, 2005 to October 25, 2006) 136 line-km
(85 miles) of seismic data was acquired and 300 line-km (186 miles)
reprocessed.
    During Phase 2 (October 25, 2006 to October 25, 2007) Solana is required
to drill one well. The ANH has approved the replacement of this program with
the acquisition of 100 km(2) (39 square miles) of 3-D seismic, subject to
relinquishment of 30% of the block area. This survey started in March 2007.
Acquisition and processing are now complete and interpretation is underway.

    COLONIA BLOCK

    On June 25, 2007, Solana acquired the 439 km(2) (169 square mile) Colonia
Block, situated immediately to the west of the Guachiria Norte Block. Solana's
commitments are to acquire 55 km(2) (21 square miles) of 3-D seismic data and
to reprocess the existing 2-D seismic data during the first phase (June 25,
2007 until June 25, 2008), and to drill one exploration well in each of the
subsequent five annual phases.

    SAN PABLO BLOCK

    On June 25, 2007, Solana acquired the 423 km(2) (163 square mile) San
Pablo Block, situated immediately to the west of the Guachiria Sur Block.
Solana's commitments are to acquire 50 km(2) (19 square miles) of 3-D seismic
data during the first phase (June 25, 2007 until June 25, 2008) and to drill
one exploration well in each of the subsequent five annual phases.

    PUTUMAYO BASIN

    The Putumayo Basin is located in southwest Colombia and extends into
Ecuador and Peru, where it is called the Oriente (Ecuador)-Maranon (Peru)
Basin. It covers an area of approximately 320,000 km(2) (124,000 square miles)
and Solana holds interests in the Guayuyaco Block and the Chaza Block totaling
536 km(2) (207 square miles) in this Basin.

    GUAYUYACO BLOCK

    Solana holds a 35% non-operated net working interest in the 212 km(2)
(82 square mile) Guayuyaco Block, located approximately 290 km (180 miles)
southwest of Bogota. Gran Tierra Energy Inc. is the Operator with a 35%
working interest. Ecopetrol has a 30% working interest in the Guayuyaco field
which is currently producing 107 m(3)/day (670 bopd, 234 bopd net to Solana).
Guayuyaco production volumes have recovered from the first quarter, All
commitments have been fulfilled and the block is being further developed under
an Association Contract.
    During the first quarter of 2007 Solana participated in drilling the
Juanambu-1 exploration well with a rig mobilized from Venezuela. This well
reached a total depth of 2,790 meters (9,154 feet) is a new field discovery.
    Six different reservoir intervals, the Lower Caballos, Middle Caballos,
Villeta T sand, Villeta U sand, Villeta A limestone and the Rumiyaco Kg sand,
were tested through separate DSTs. Viable test rates were obtained from four
of the six zones, with the Villeta U sand and Villeta A limestone being
non-commercial. Juanambu-1 tested a combined 139 m(3)/day (876 bopd) from 26.8
m (88 ft) of perforations over the four viable zones.
    The Caballos flowed naturally at a rate of 71 m(3)/day (448 bopd), and
still increasing, from 10.4 m (34 ft) of perforations. The Villeta T sand
flowed 34 m(3)/day (214 bopd), and still increasing, from 11.9 m (39 ft) of
perforations. The Kg sand flowed 34 m(3)/day (214 bopd) on pump from 4.6 m
(15 ft) of perforations.
    The well has been completed with a jet pump and the tubing string
configured to allow for production from selected zones. Pursuant to regulatory
requirements, the well has been intermittently tested since April 26, 2007 and
as of June 30, 2007 has produced a total of 819 m(3) (5,152 bbls) gross. This
well will be placed on continuous production as soon as regulatory approval is
obtained. This approval is anticipated in the third quarter of 2007.
    Solana paid for two thirds of this well to earn a 50% interest (35% if
Ecopetrol elects to back-in).

    CHAZA BLOCK

    Solana has a 50% working interest in the 325 km(2) (125 square mile)
Chaza Block, immediately west of the Guayuyaco Block. Gran Tierra, the
operator, holds the other 50% in the block. The block is held under an ANH
contract.
    During Phase 1 (June 27, 2005 to June 26, 2006) Solana participated in
the acquisition of 27 line-km of 2-D and the reprocessing of 250 line-km of
2-D data.
    During Phase 2 (June 27, 2006 to June 26, 2007) the partners were
required to drill one well. This commitment was fulfilled with the Costayaco-1
wildcat exploration well which reached a total measured depth of 2,612 meters
(8,570 feet) on May 10, 2007, and is a new field discovery.
    Six zones over four formations were tested through cased hole and yielded
an exceptional 939 m(3)/day (5,906 bopd) combined maximum flow rate from 47.2 
m (155 ft) of perforations.
    The Caballos flowed naturally at a rate of 422 m(3)/day (2,655 bopd) from
29.0 m (95 ft) of perforations. The Villeta T sand flowed 352 m(3)/day
(2,212 bopd) from 12.2 m (40 ft) of perforations. The Villeta U sand flowed 67
m(3)/d (420 bopd), on pump, from 3.0 m (10ft) of perforations and the Kg sand
flowed 98 m(3)/day (619 bopd) on pump from 3.0 m (10 ft) of perforations.
    The Pride-17 drilling rig, used to drill Costayaco-1, is expected to be
available for additional drilling as of November. Current plans include
drilling two additional wells as soon as Pride-17 is available. The two well
locations are based on the existing 2D seismic data and will be step outs from
Costayaco-1. One well is situated to penetrate the crest of the structure. To
optimize further drilling locations, and to gain a more complete picture of
the size and shape of the Costayaco structure, a 3-D seismic infill program is
currently being planned.
    Although Costayaco-1 is proximal to infrastructure, which will allow for
early monetization of a portion of its production, the magnitude of this
discovery will require additional facilities, including a dedicated pipeline,
and infrastructure, to exploit this field. These phased plans are currently
being fast tracked, but will take some time to implement. The Chaza block is
subject to a fiscally attractive ANH contract, with no additional state
participation.

    CATATUMBO BASIN

    The Catatumbo Basin is a 7,350 km(2) sub-basin, forming the southwest
flank of Venezuela's prolific Maracaibo Basin. Solana has one block in the
Catatumbo sub-basin, namely Catguas.

    CATGUAS BLOCK

    Solana is the operator of the 1,620 km(2) (625 square miles) Catguas
Block with an 85% working interest in the southernmost two-thirds of the
Block. In the northern third, Solana has a 50% working interest. Solana's
partner in this block is Trayectoria Oil and Gas, Sucursal Colombia, a
Colombian company.
    The block is held under an ANH contract. Fulfillment of first Phase
(November 17, 2005 to May 17, 2007) commitments is underway. The acquisition
of 200 line-km (124 miles) of seismic data and 10 line-km (six miles) of high
resolution seismic has been completed.
    Seismic interpretation and geochemical mapping identified several
drillable prospects and two shallower Barco structures, Tres Curvas and
Cocodrilo, were selected. Tres Curvas-1 is currently drilling and Cocodrilo-1
will follow immediately afterwards. Solana has received an extension to the
phase 1 deadline.

    LOWER MAGDALENA BASIN

    The Lower Magdalena Basin is located in northwest Colombia. It covers an
area of approximately 87,000 km(2) (33,500 square miles) and contains Solana's
Magangue Block.

    MAGANGUE BLOCK

    The Magangue Block is held pursuant to the Magangue Association Contract.
Solana is the operator of the block with a 37.8% working interest and has
partners, Ecopetrol with 58%, and Technopetrol, a Colombian company, with
4.2%.
    Solana operates the Guepaje gas field on the 169 km(2) (65 square mile)
Magangue Block, which is currently producing 94,000 m(3)/day (3.3 mmcfd,
0.9 mmcfd net to Solana) and sold into the local market at $2.16/mmbtu. Solana
is currently re-evaluating the available seismic and geological information to
identify possible workover opportunities and other possible targets.

    MID YEAR RESERVES UPDATE

    Following Solana's participation in the Costayaco and Juanambu new field
discoveries during the first half of 2007, a mid year reserves update was
performed. This evaluation has an effective date of June 30, 2007 and was
completed by DeGolyer and MacNaughton, Solana's independent reserves
engineers. The reserves provided below are based on forecast prices and costs
and reflect Solana's interest net of all royalties. Degolyer and MacNaughton's
reserve report evaluates Solana's Guepaje, Yalea, Guayuyaco, Juanambu and
Costayaco properties but does not include any resources associated with the
exploration properties in Solana's 11 Colombian blocks.

    
    Company Net Reserves - June 30, 2007
    -------------------------------------------------------------------------
                                       Oil (mbbls)                  Gas (mcf)
                       ------------------------------------------------------
    Reserve Category   Yalea  Guayuyaco  Juanambu  Costayaco  TOTAL  Guepaje
    -------------------------------------------------------------------------

    Proved
      - Producing         58        145         -          -    203    1,938
      - Non Producing      -        319       231        811  1,361        -
      - Undeveloped        -        107         -        348    455        -
    -------------------------------------------------------------------------
    Total Proved          58        571       231      1,159  2,019    1,938

    -------------------------------------------------------------------------
    Probable               8        156       331      2,007  2,502      253
    -------------------------------------------------------------------------
    Total Proved +
      Probable            66        727       562      3,166  4,521    2,191

    Possible               -          -       512      3,544  4,056        -
    -------------------------------------------------------------------------
    Total Proved +
     Probable + Possible  66        727     1,074      6,710  8,577    2,191
    -------------------------------------------------------------------------
    

    OUTLOOK

    Over the next three months, Solana looks to finish its six exploration
well drilling program. To date two non-operated wells in the Putamayo Basin
have been drilled and both are new field discoveries; Juanambu-1 on the
Guayuyaco Block and Costayaco-1 on the Chaza Block. Conversely, two operated
wells in the Llanos Basin, Calcedonia-1 on the Guachiria Norte Block and
Bevea-1 on the Gaviotas Block, have been drilled and abandoned. Solana looks
forward to drilling results in the third quarter on the two operated shallower
wells, Tres Curvas-1 and Cocodrilo-1, on the Catguas Block in the Catatumbo
Basin.
    By year end, Solana should have one Costayaco step out well drilled. The
acquisition and processing phases of the Costayaco 3D seismic program should
also be completed by year end.
    Regulatory approval to start Juanambu-1 production should be obtained in
the third quarter with production commencing at that time. Costayaco-1
production should also be initiated in the third quarter by trucking.
Costayaco-1 production will be limited by trucking constraints.
    Solana is currently interpreting the 320 km(2) of 3D seismic acquired
during the first quarter of 2007 in the Llanos Basin over the entire Guachiria
Block and portions of the Guachiria Sur Block and the Garibay Block. This
seismic will be used to high-grade prospects and select drilling locations for
the next Llanos dry season drilling campaign.
    In addition to development activity on Costayaco, Juanambu and possibly
Tres Curvas and Cocodrilo, Solana looks forward to drilling five to six
exploration wells in 2008.
    Glenn Van Doorne, Chief Operating Officer of Solana, a Petroleum
Geologist, with 30 years of experience and a member of the AAPG and the SPE,
is the qualified person that has reviewed the technical reserve, resource, and
drilling update information contained in these results.

    OPERATING RESULTS

    Selected Quarterly Information

    The following table summarizes selected financial data for Solana for
each of the two most recently completed financial three and six month periods
ended June 30, 2007 and 2006.
    Unless otherwise noted, all currency amounts are stated in US dollars.

    
                                   June 2007                June 2006
    -------------------------------------------------------------------------
                              Three        Six          Three        Six
                              Months       Months       Months       Months
                              ended        ended        ended        ended
    -------------------------------------------------------------------------
                                $            $            $            $
    -------------------------------------------------------------------------
    Revenue
      Production Revenue,
       net of
      Royalties             1,387,542    2,801,468    2,415,196    4,579,105
      Operating costs         817,675    1,474,253      734,771      996,544
    -------------------------------------------------------------------------
                              569,867    1,327,215    1,680,425    3,582,561
    -------------------------------------------------------------------------

    Expenses
      General and
       administrative       1,319,363    2,380,667    1,197,315    2,137,147
      Depletion,
       depreciation           945,635    2,212,543      957,026    2,012,567
      Amortization          1,148,058    2,296,116            -            -
      Foreign exchange
      Loss(gain)              199,233      224,888      870,582    1,118,541
      Stock-based
       compensation            59,823      528,958      228,640      519,830
    -------------------------------------------------------------------------
                            3,672,112    7,643,172    3,253,563    5,788,085
    -------------------------------------------------------------------------
    Other income/(expenses)
        Interest and other    339,285      470,399      382,474      730,475
        Income taxes          (39,257)     (89,257)     (46,010)     (46,010)
    -------------------------------------------------------------------------
                              300,028      381,142      336,464      684,465
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)      (2,802,217)  (5,934,815)  (1,236,674)  (1,521,060)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)
     per share                  (0.03)       (0.06)       (0.01)       (0.02)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                      June 30,   December 31,
                                                        2007         2006
    -------------------------------------------------------------------------
                                                          $            $

    Share capital                                   130,998,659  130,998,659

    Working capital                                  18,039,839   37,106,929

    Petroleum and natural gas properties             70,078,418   54,313,189

    Total assets                                    103,635,387  106,651,944

    Total current liabilities                         5,632,373    3,404,607

    Shareholders' equity                             96,284,658  101,690,514

    Cash dividends per share                                NIL          NIL
    

    Results of operations for the three and six month periods ending
    June 30, 2007

    This consolidated financial information includes the revenue and expenses
of the Company for the six month periods ended June 30, 2007 and 2006. During
the six month period ended June 30, 2007, revenue from operations amounted to
$2,801,468. In this same period, operating costs were $1,474,253 resulting in
an operating profit of $1,327,215. During the six month period ended June 30,
2006, the Company generated revenue of $4,579,105. In this same period
operating costs were $996,544 resulting in an operating profit of $3,582,561.
This lower operating profit in the period ending June 30, 2007 is mainly a
consequence of lower international oil prices this period in comparison with
the previous one.
    The Company produced on average 468 boepd for the six months ended
June 30, 2007 and 684 boepd for the six months ended June 30, 2006.
    The Company's revenue, realized after royalties, operating costs and net
backs for the three month period June 30, 2007 and 2006 are as follows:

    
                                  June 30, 2007             June 30, 2006
    -------------------------------------------------------------------------
                               Three         Six         Three         Six
                               Months       Months       Months       Months
                               ended        ended        ended        ended
    Oil

    Bopd - Average                242          296          422          410
    Revenue, net of
     royalties per barrel       52.65        44.51        51.77        54.95
    Net operating costs
     per barrel                 21.15        19.09        19.35        11.81

    Gas

    Mscf per day - Average      1,019        1,034        1,297        1,233
    Revenue, net of royalties
     per Mscf                   2.165        2.228        2.371        2.246
    Net operating costs
     per Mscf                   0.877        0.890        0.580        0.538

    General and administrative expenses for the three and six month periods
ended June 30, 2007 amounted to $1,319,363 and $2,380,667, respectively, in
comparison to the three and six month period ended June 30, 2006, which were
to $1,197,315 and $2,137,147, respectively.
    The substantial components of general and administrative expenses are as
follows:

                                 June 30, 2007             June 30, 2006
    -------------------------------------------------------------------------
                              Three         Six         Three         Six
                              Months       Months       Months       Months
                              ended        ended        ended        ended
                                $           $             $            $

    General office            158,482      217,076      482,437      708,015
    Salaries & Benefits       707,559    1,506,934      465,598      752,263
    Professional fees         135,429      212,503      115,506      319,647
    Public company cost       156,548      202,160      129,813      265,179
    Consulting fees           161,345      242,241        3,961       92,043
                            -------------------------------------------------
                            1,319,363    2,380,667    1,197,315    2,137,147
                            -------------------------------------------------
                            -------------------------------------------------
    

    General office expenses decreased in 2007 mainly due to the recovery of
overhead from partners and office cost optimization initiatives. Salaries &
Benefits significantly increased due to labor contract termination costs
resulting from the Company's restructuring process. Professional fees and
public company costs are mainly related with finance and legal expenses, which
were higher in the previous year due to the issuance of capital in April.
Consulting fees are related to more external technical support and increased
in accordance with Company activity levels.
    Depletion, depreciation and accretion amounted to $945,635 and $2,212,543
for the three and six month periods ended June 30, 2007, compared to the same
periods in 2006, which were $957,026 and $2,012,567 respectively. The variance
is due mainly to a substantial increase in the depletable base partially
compensated by the impact of the booking of additional reserves.
    The foreign exchange loss amounted to $199,233 and $224,888 for the three
and six month periods ended June 30, 2007, reflecting variations of the
Canadian dollar against the U.S. dollar during the three and the six month
periods ended June 30, 2007, compared to $870,581 and $1,118,542 for same
periods ended June 30, 2006. The main reason for this variance is related to
the adoption of the US dollar as reporting currency from October 1, 2006 and
the implementation of a foreign exchange protection strategy in 2007.
    Stock-based compensation amounted to $59,823 and $528,958 for the three
and six month period ended June 30 2007, respectively, as compared to $228,640
and $519,830 for same periods ended June 30, 2006. The decrease in the first
half of 2007, in comparison with the first half of 2006 is due to both lower
market value and less outstanding options resulting from the termination and
expiry of options associated with the labor contracts terminated in 2007.
    Other income and expenses relate to interest income amounting to $339,285
and $470,399 for the three and six month periods ended June 30, 2007,
respectively, compared to $382,474 and $730,475 for the same periods ended
June 30, 2006. The decrease is due to the lower cash balances held throughout
the current period.
    The resulting net losses, amounting to $2,802,217 and $5,934,815 for the
three and six month periods ended June 30, 2007, respectively, compared with
$1,236,674 and $1,521,060 for the same periods ended June 30, 2006, are
representative of the higher operations activity level of operations in
Colombia and are affected mainly by significantly higher depletion charges and
the amortization of intangible assets, as a consequence of the Breakaway
acquisition in October last year.

    Selected Quarterly Financial Information

    The following table sets out selected unaudited quarterly financial
information of Solana and is derived from unaudited quarterly financial
statements prepared by management. Solana's interim financial statements
prepared in accordance with Canadian generally accepted accounting principles
and are expressed in US dollars.

    
    -------------------------------------------------------------------------
                              June 30,      Mar 31,      Dec 31,      Sep 30,
                                 2007         2007         2006         2006

    Additions to Petroleum
     and Natural Gas
     properties            10,486,480    7,420,560    7,902,112    4,402,811

    Total revenues          1,726,827    1,545,040    2,049,754    3,652,608

    General and
     administrative
     expenses               1,319,363    1,061,304    2,042,166      423,640

    Depletion,
     depreciation
     and accretion            945,635    1,266,908    3,958,215      886,985

    Impairment                      -            -   29,822,544            -

    Foreign exchange
     (gain) loss              199,233       25,655      160,105   (3,424,333)
    Stock-based
     compensation              59,823      469,135      783,233      209,875
    Loss after
     income tax            (2,802,217)  (3,132,598) (31,076,705)  (4,989,157)

    Loss per share
     (basic and diluted)        (0.03)       (0.03)       (0.34)       (0.09)



                               Jun 30,      Mar 31,      Dec 31,      Sep 30,
                                 2006         2006         2005         2005

    Additions to
     Petroleum and
     Natural Gas
     properties             8,876,927    6,406,280   10,275,878    5,864,257

    Total revenues          2,797,670    2,511,910    3,145,166    2,008,396

    General and
     administrative
     expenses               1,197,315      939,831      960,537      591,813

    Depletion,
     depreciation
     and accretion            957,026    1,055,540    3,976,602      324,854

    Foreign exchange
     (gain) loss              870,581      247,961     (282,610)     196,813

    Stock-based
     compensation             228,640      291,191      653,304      361,237

    Loss after income tax  (1,236,674)    (284,386)  (1,951,707)    (627,040)

    Loss per share
     (basic and diluted)        (0.01)       (0.01)       (0.05)       (0.01)
    -------------------------------------------------------------------------
    

    LIQUIDITY

    Solana's working capital decreased from $29,587,287 at March 31, 2007, to
$18,039,839 June 30, 2007, largely due to expenditure on the Company's 
petroleum and natural gas properties.
    The Company's cash balances at June 30, 2007 amounting to $18,158,274 and
$1,026,937 in restricted cash are committed to the Company's planned capital
expenditure program in Colombia. The Company may require additional financing
in order to fund its ongoing exploration, appraisal and development programs.
Management intends to cover the exploration shortfall through strategic
farm-outs or other means, and the costs of the ongoing appraisal and
development program through debt or by other means.
    The Company does not have any long term debt.

    SUMMARY OF CASH INFLOWS AND OUTFLOWS

    The company incurred cash outflows from operations amounting to $696,437
and $804,160 for the three and six month periods ended June 30, 2007, compared
to the same periods in 2006 which incurred cash inflows amounting to $7,265
and $1,606,186. This is substantially due to the impact of lower international
oil prices these periods in comparison with the previous ones.
    Solana's net cash inflow from financing activities amounted to $23,711
for the six month period ended June 30, 2007, compared to $34,440,170 for the
six month period ended June 30, 2006, due to the private placement completed
in April 2006.
    The Company incurred cash outflows from its investing activities of
$10,108,756 and $14,056,375 for the three and six month periods ended June 30,
2007 as compared to $8,315,692 and $16,139,492 for the three and six month
periods ended June 30, 2006. The most significant cash outflow component for
the six month period ended June 30, 2007 was $17,907,040 of expenditures for
petroleum and natural gas properties.

    RELATED PARTY TRANSACTIONS

    The Company paid $28,158 in management fees in the current six month
period ended June 30, 2007 to a company controlled by a director of the
Company. These fees are included in general and administrative expense.

    CAPITALIZATION

    Authorized share capital consists of an unlimited number of common
shares.

    
    Continuity of common shares                        Shares       Amount
                                                         No.           $
    -------------------------------------------------------------------------
    Balance, December 31, 2006                       95,876,792  130,998,659

    Share options exercised                                   -            -

    -------------------------------------------------------------------------
    Balance, June 30, 2007                           95,876,792  130,998,659
    -------------------------------------------------------------------------


    Continuity of stock options                                      Number

    -------------------------------------------------------------------------
    Balance, December 31, 2006                                     4,350,000
    Issued                                                           200,000
    Exercised                                                              -
    Expired                                                        1,065,000
    -------------------------------------------------------------------------
    Balance, June 30, 2007                                         3,485,000
    -------------------------------------------------------------------------


    Continuity of warrants                                            Number

    -------------------------------------------------------------------------
    Balance, December 31, 2006                                    10,000,000
    Issued                                                                 -
    Exercised                                                              -
    Expired                                                                -
    -------------------------------------------------------------------------
    Balance, June 30, 2007                                        10,000,000
    -------------------------------------------------------------------------
    

    DISCLOSURE CONTROLS AND PROCEDURES

    Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of June 30, 2007. Based on this evaluation,
management has concluded that the Company's disclosure controls and
procedures, as defined in Multilateral Instrument 52-109, are effective to
ensure that the information required to be disclosed in reports that are filed
or submitted under Canadian securities legislation are recorded, processed,
summarized and reported within the time periods specified in those rules.

    BUSINESS RISK AND UNCERTAINTIES

    The Company's business is subject to risks inherent in oil and gas
exploration and development operations and the foreign jurisdiction in which
it operates. The company has identified certain risks pertinent to its
business, including: exploration and reserve risks, drilling and operating
risks, costs and availability of materials and services, capital markets and
the requirement for additional capital, loss or changes to production sharing,
joint venture or related agreements, economic and sovereign risks, possibly of
less developed legal systems, reliance on strategic relationships, market
risk, volatility of future oil and gas prices and foreign currency risk.
    Solana attempts to monitor, assess and mitigate certain of these risks by
retaining an experienced team of professionals and using modern technology.
Further, the Company has focused its activities in a known hydrocarbon basin
in a jurisdiction that has previously established long-term oil and gas
ventures with foreign oil and gas companies existing infrastructure and oil an
gas transportation facilities, and reasonable proximity to markets. The
Company also retains consultants resident in Colombia to monitor economic and
political developments and to assist with operation, administrative and legal
matters. There are certain risks, however, over which the Company has little
or no control.

    CRITICAL ACCOUNTING POLICIES AND ESTIMATES

    Petroleum and Natural Gas Operation

    The Company follows the full cost method of accounting for petroleum and
natural gas operations, whereby all costs of exploring for and developing
petroleum and natural gas reserves are capitalized in country-by-country cost
centres. Such costs include land acquisition costs, geological and geophysical
costs, carrying charges on non-producing properties, costs of drilling both
productive and non-productive wells, interest costs on major development
projects and overhead charges directly related to acquisition, exploration and
development activities.
    The costs (including exploratory dry holes) in cost centres from which
there has been no commercial production are not subject to depletion until
commercial production commences. The capitalized costs are assessed to
determine whether it is likely such costs will be recovered in the future. To
the extent there are costs which are not likely to be recovered in the future,
they are written-off.
    The costs in cost centres from which there is production, together with
the cost of production facilities, are depleted and depreciated on the
unit-of-production method, based on the estimated proved reserves after
royalties. Petroleum and natural gas reserves and production are converted
into equivalent units, based upon estimated relative energy content. Costs of
acquiring and evaluating significant unproved properties are excluded from the
depletion calculations. These unproved properties are assessed to determine
whether impairment has occurred. When proved reserves are assigned or the
carrying value of the property is considered to be impaired, the cost of the
property or the amount of the impairment is added to costs subject to
depletion.
    Petroleum and natural gas properties are subject to a ceiling test in
each reporting period to determine that the cost are not impaired and do not
exceed the fair value of the properties. The cost are assessed to be not
impaired if the sum of the undiscounted cash flows expected from the
production of proved reserves and the cost of unproved properties, net of
impaired allowances of unproved properties exceed the carrying value of the
petroleum and natural gas properties. If the carrying value of the petroleum
and natural gas properties is determined to be impaired, an impairment loss is
recognized to the extent that the carrying value exceeds an estimated fair
value. The fair value estimate is normally based on the sum of the discounted
cash flows expected from the production of proved and probable reserves plus
the cost of unproved properties, net of impairment allowances. The cash flows
are estimated using forecast products prices and costs and are discounted
using a risk-free interest rate.
    Proceeds from the sale of petroleum and natural gas properties are
applied against capitalized costs, with no gain or loss recognized, unless
such a sale would alter the depletion rate by more than 20%.

    ADVISORY REGARDING FORWARD-LOOKING STATEMENTS

    This discussion and analysis contains forward-looking statements.
Forward-looking statements are subject to numerous known and unknown risks and
uncertainties, some of which are beyond Solana's control, including the impact
of general economic conditions, industry conditions, volatility of commodity
prices, currency exchange rate fluctuations, reserve estimates, environmental
risks, and competition from other explorers, stock market volatility and
ability to access sufficient capital. Solana's actual costs could differ
materially from those anticipated in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements.

    
                          SOLANA RE

SOURCES LIMITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six-Month Periods Ended June 30, 2007 and 2006 (Unaudited) Restated The attached interim consolidated financial statements have been restated to reduce depletion, depreciation and accretion expense by $800,000 for the three month period ended June 30, 2007, which results in a decrease in the net loss for the same period by $800,000, from $3,602,217 to $2,802,217; and by $1,600,000 for the six month period ended June 30, 2007, which results in a decrease in the net loss for the same period by $1,600,000 from $7,534,815 to $5,934,815. SOLANA RE

SOURCES LIMITED CONSOLIDATED BALANCE SHEET (Unaudited) Expressed in US Dollars June 30 December 31 2007 2006 $ $ -------------------------- ASSETS Current: Cash and cash equivalents 18,158,274 29,909,168 Cash in trust 1,026,937 3,274,262 Accounts receivable - trade 2,726,014 1,472,209 - cash calls 1,260,222 4,825,589 Prepaid expenses 500,765 1,030,308 ------------- ------------ 23,672,212 40,511,536 Deposits (Note 3) 3,046,750 3,041,509 Petroleum and natural gas properties 70,078,418 54,313,189 Intangible assets 5,750,626 8,036,403 Other capital assets 789,360 543,080 Investment (Note 4) 298,021 206,227 ------------- ------------ 79,963,175 66,140,408 ------------- ------------ 103,635,387 106,651,944 LIABILITIES Current: Accounts payable and accrued liabilities - trade 3,282,103 3,404,607 - cash calls 2,350,272 - ------------- ------------ 5,632,375 3,404,607 Asset retirement obligations (Note 5) 1,668,356 1,556,823 Income tax liability 50,000 - ------------- ------------ 7,350,731 4,961,430 SHAREHOLDERS' EQUITY Share capital (Note 6) 130,998,659 130,998,659 Contributed surplus (Note 6) 5,564,033 5,035,075 Accumulated other comprehensive income (Note 2) 5,791,923 5,791,923 Deficit (46,069,959) (40,135,143) ------------- ------------ 96,284,656 101,690,514 ------------- ------------ 103,635,387 106,651,944 SOLANA RE

SOURCES LIMITED CONSOLIDATED STATEMENT OF LOSS AND DEFICIT (Unaudited) Expressed in US Dollars June 30, 2007 June 30, 2006 Three months Six months Three months Six months ended ended ended ended $ $ $ $ ------------ ------------ ------------ ------------ Revenue Oil and gas revenues, net of royalties 1,387,542 2,801,468 2,415,196 4,579,105 Interest 339,285 470,399 382,474 730,475 ------------ ------------ ------------ ------------ 1,726,827 3,271,867 2,797,670 5,309,580 ------------ ------------ ------------ ------------ Expenses Operating 817,675 1,474,253 734,771 996,544 General and administrative 1,319,363 2,380,667 1,197,315 2,137,147 Depletion, depreciation and accretion 945,635 2,212,543 957,026 2,012,567 Amortization of intangible assets 1,148,058 2,296,116 - - Foreign exchange loss 199,233 224,888 870,582 1,118,542 Stock-based compensation (Note 6) 59,823 528,958 228,640 519,830 ------------ ------------ ------------ ------------ 4,489,787 9,117,425 3,988,334 6,784,630 ------------ ------------ ------------ ------------ Loss before taxes (2,762,960) (5,845,558) (1,190,664) (1,475,050) Taxes 39,257 89,257 46,010 46,010 ------------ ------------ ------------ ------------ Net loss (2,802,217) (5,934,815) (1,236,674) (1,521,060) Deficit, beginning of period (43,267,742) (40,135,144) (12,810,922) (12,526,536) ------------ ------------ ------------ ------------ Deficit, end of period (46,069,959) (46,069,959) (14,047,596) (14,047,596) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Loss per share (Note 7) (0.03) (0.06) (0.01) (0.02) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ SOLANA RE

SOURCES LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) Expressed in US Dollars June 30, 2007 June 30, 2006 Three months Six months Three months Six months ended ended ended ended $ $ $ $ ------------ ------------ ------------ ------------ Net loss (2,802,217) (5,934,815) (1,236,674) (1,521,060) Other comprehensive loss - - - - ------------ ------------ ------------ ------------ Comprehensive income (2,802,217) (5,934,815) (1,236,674) (1,521,060) --------------------------------------------------- SOLANA RE

SOURCES LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Expressed in US Dollars June 30, 2007 June 30, 2006 Three months Six months Three months Six months ended ended ended ended $ $ $ $ ------------ ------------ ------------ ------------ Operating activities Net loss (2,802,217) (5,934,815) (1,236,674) (1,521,060) Items not involving cash: Unrealized foreign exchange loss (gain) (47,736) 93,038 58,273 594,849 Depletion, depreciation and accretion 945,635 2,212,543 957,026 2,012,567 Stock-based compensation 59,823 528,958 228,640 519,830 Amortization of intangibles 1,148,058 2,296,116 - - ------------ ------------ ------------ ------------ (696,437) (804,160) 7,265 1,606,186 Changes in non-cash working capital (769,540) (680,556) (4,531,979) (4,286,240) ------------ ------------ ------------ ------------ (1,465,977) (1,484,716) (4,524,714) (2,680,054) ------------ ------------ ------------ ------------ Financing activities Proceeds from the exercise of options - - - 12,127 Proceeds from the issuance of shares - - 36,725,684 36,725,684 Cost of issuance - - (2,297,641) (2,297,641) Sale of capital assets 23,711 23,711 - - ------------ ------------ ------------ ------------ 23,711 23,711 34,428,043 34,440,170 ------------ ------------ ------------ ------------ Investing activities Additions to petroleum and natural gas properties (10,486,480) (17,907,040) (8,876,927) (16,352,129) Additions to investments (91,794) (91,794) - - Changes in non- cash working capital 2,266,859 5,749,428 522,467 523,344 Additions to capital assets (349,834) (340,723) (95,017) (95,017) Deposits (5,241) (5,241) 133,785 (215,690) ------------ ------------ ------------ ------------ (8,666,490) (12,595,370) (8,315,692) (16,139,492) ------------ ------------ ------------ ------------ Foreign exchange on cash balances 58,626 58,156 - - ------------ ------------ ------------ ------------ Net increase (decrease) in cash (10,050,130) (13,998,219) 21,587,637 15,620,624 Cash and cash equivalents, beginning of period (Note 9) 29,235,341 33,183,430 15,946,996 21,914,009 ------------ ------------ ------------ ------------ Cash and cash equivalents, end of period (Note 9) 19,185,211 19,185,211 37,534,633 37,534,633 ------------ ------------ ------------ ------------ SOLANA RE

SOURCES LIMITED Notes to the Consolidated Financial Statements June 30, 2007 (Unaudited) Note 1. Basis of Presentation The interim consolidated financial statements of Solana Resources Limited ("Solana" or the "Company") for the three and six-month periods ended June 30, 2007 and 2006 have been prepared by management in accordance with accounting principles generally accepted in Canada on the same basis as the audited consolidated financial statements as at and for the year ended December 31, 2006 except for new standards adopted as described in Note 2. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in Solana's annual report for the year ended December 31, 2006, as the interim consolidated financial statements do not conform in all respects to the note disclosure requirements of Generally Accepted Accounting Principles for annual financial statements. Note 2. Changes in Accounting Policies Effective January 1, 2007, the Company adopted the new Canadian Institute of Chartered Accountants ("CICA") standards related to Section 1530, "Comprehensive Income," Section 3855, "Financial Instruments - Recognition and Measurement," Section 3861, "Financial Instruments - Disclosure and Presentation" and Section 3865, "Hedges." As required by the standards the Company has adopted these standards prospectively. Therefore, the comparative interim consolidated financial statements have not been restated, except for the amount relating to the cumulative translation adjustment as described below. The Section 1530 of the CICA Handbook describes how to report and disclose comprehensive income and its components. Comprehensive income is the change in a company's net assets that results from transactions, events and circumstances from sources other than the company's shareholders. It includes items that would not normally be included in net earnings. Upon adoption of Section 1530, amounts previously recognized on the balance sheet as cumulative translation adjustment have been reclassified as accumulated other comprehensive income. Upon adoption of Section 3855, all financial instruments are classified into one of the following five categories: held-for-trading, loans and receivables, held-to-maturity investments, available-for-sale financial assets or other financial liabilities. Subsequent measurement of the financial instruments is based on their initial classification. Held-for- trading financial assets are measured at fair value and changes in fair value are recognized in net income. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired. All derivative instruments are recorded in the balance sheet at fair value unless they qualify for the normal sale and normal purchase exemption. All changes in their fair value are recorded in net income. The other categories of financial instruments are recognized at amortized cost using the effective interest rate method. Upon adoption of these standards, the Company classified its cash and cash equivalents as held-for-trading, which are measured at fair value which equals the carrying value. Accounts receivable and deposits are classified as loans and receivables, which are measured at amortized cost. Investments has been classified as held-to-maturity investments. Accounts payable are classified as other financial liabilities, which are measured at amortized cost. For financial assets and financial liabilities that are not classified as held-for-trading, the transaction costs that are directly attributable to the acquisition or issue of a financial asset or financial liability are adjusted to the fair value initially recognized for that financial instrument. These costs are expensed using the effective interest rate method and are recorded within interest expense. The Section 3865 of the CICA Handbook describes when and how hedge accounting can be used. Hedging is an activity that may be used by a company to change an exposure to one or more risks by creating an offset between changes in the cash flows attributable to a hedge item or changes resulting from a risks exposure relating to a hedge item and a hedging item. Hedge accounting allows gains, losses, revenues and expenses from the derivative and the item it hedges to be recorded in the statement of loss in the same period. The Company currently does not utilize hedges or other derivative financial instruments in its operations; as a result the adoption of Section 3865 currently has no material impact on the consolidated financial statements of the Company. On October 1, 2006, the Company changed its reporting currency from Canadian dollars (Cdn$) to United States dollars ($). Financial statements for prior periods presented have been translated from Canadian dollars into United States dollars using the current rate method. Using this method, all consolidated assets and liabilities have been translated using the exchange rate at the balance sheet dates, while shareholders' equity has been translated using the historical rates of exchange in effect on the dates of the corresponding transactions. Consolidated Statements of Loss and Deficit have been translated using the prevailing average exchange rate for the period, except for equity transactions which have been translated using the historical rates of exchange in effect at the dates of the corresponding transactions. All comparative financial information being presented has been restated to reflect the Company's financial statements as if they had been historically reported in United States dollars and this resulted in an accumulated other comprehensive income of $5,791,923. The adoption of these new standards had no impact on the Company's retained earnings as at January 1, 2007. The Company also adopted Section 3251, "Equity" and Section 1506, "Accounting Changes." Section 3251 replaces Section 3250, "Surplus," and describes standards for the presentation of equity and changes in equity for reporting period as a result of the application of Section 1530, "Comprehensive Income." The only impact of Section 1506, "Accounting Changes," is to provide disclosure of when an entity has not applied a new source of GAAP that has been issued but is not yet effective. This is the case with Section 3862, "Financial Instruments Disclosures" and Section 3863, "Financial Instruments Presentations" which are required to be adopted for fiscal years beginning on or after October 1, 2007. The Company will adopt these standards on January 1, 2008 and it is expected the only effect on the Company will be additional disclosures regarding the significance of financial instruments for the entity's financial position and performance; and the nature, extent and management of risks arising from financial instruments to which the entity is exposed. Section 1535, "Capital Disclosures" is effective for annual periods beginning on or after October 1, 2007 and establishes standards for disclosing information about the Company's capital and how it is managed. It requires disclosures of the Company's objectives, policies and processes for managing capital, the quantitative data about what the Company regards as capital, whether the Company has complied with any capital requirements and if it has not complied, the consequences of such non-compliance. The Company is currently evaluating the impact of the adoption of this section on the consolidated financial statements. Note 3. Deposits The Company has funds on deposit totaling $3,046,750 at the end of June 30, 2007 with the Colombian Agency of National Hydrocarbons ("ANH") reflecting a percentage of the work commitments on certain ANH exploration blocks. These funds will be returned to the Company by ANH on completion of the work commitments on the Guachiria Norte, Catguas, Guachiria Sur and Garibay Blocks. Note 4. Investment The Company has invested $298,021 in the Colombian Hydrocarbon Investment Fund (the "Fund"), and expects to invest a maximum of US $500,000. The Fund is managed by a U.S. based fund manager, who specializes in South American natural resources sector investments. The Fund is expected to have an investment period of four years. After this period, the Fund will be wound up, and any capital and earned profits will be returned and distributed to the investors over a maximum period of seven years. Note 5. Asset Retirement Obligations The following table represents the reconciliation of the beginning and ending obligations associated with the retirement of oil and gas properties: ------------------------------------------------------------------------- Asset retirement obligations December 31, 2006 $1,556,823 Liabilities incurred during period - Liabilities settled during period - Accretion 111,533 ------------------------------------------------------------------------- Asset retirement obligations, June 30,2007 $1,668,356 ------------------------------------------------------------------------- At June 30, 2007, the estimated total undiscounted amount required to settle the asset retirement obligations was $2,100,000 (2006 - $2,100,000). These obligations will be settled at the end of the useful lives of the underlying assets, which currently extend up to seven years into the future. This amount has been discounted using a credit-adjusted risk-free discount rate of 10% and an inflation rate of 2.5%. Note 6. Share Capital Authorized share capital consists of an unlimited number of common shares. Continuity of common shares Number of Amount shares $ ------------------------------------------------------------------------- Balance, December 31, 2006 and June 30, 2007 95,876,792 130,998,659 ------------------------------------------------------------------------- Continuity of contributed surplus Amount $ ------------------------------------------------------------------------- Balance, December 31, 2006 5,035,075 Stock based compensation expense 528,958 ------------------------------------------------------------------------- Balance, June 30, 2007 5,564,033 ------------------------------------------------------------------------- Continuity of stock options Number ------------------------------------------------------------------------- Balance, December 31, 2006 4,350,000 Issued 200,000 Exercised - Expired 1,065,000 ------------------------------------------------------------------------- Balance, June 30, 2007 3,485,000 ------------------------------------------------------------------------- Continuity of warrants Number ------------------------------------------------------------------------- Balance, December 31, 2006 10,000,000 Issued - Exercised - Expired - ------------------------------------------------------------------------- Balance, June 30, 2007 10,000,000 ------------------------------------------------------------------------- Warrant terms ------------------------------------------------------------------------- Strike price CDN$2.00/share Activation price Share price must exceed CDN$2.75 for 45 days Expiry April 4, 2010 Stock-based compensation For the first half of 2007, stock based compensation expense of $528,958 has been recorded in the Consolidated Statement of Loss and Deficit (2006 - $519,830). The fair values of all common share options granted are estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of options granted and the assumptions used in their determination are as noted below: Six months ended June 30, 2007 ----------------- Risk-free interest rate (percent) 3.99 Expected life (years) 5 Volatility (percent) 96% Expected annual dividend per share - Fair value per option granted $0.91 Note 7. Per-Share Amounts The weighted average number of common shares, basic and diluted, outstanding during the six month period ended June 30, 2007 was 95,876,792 (June 30, 2006 - 68,547,423), and was 95,876,792 (2006 - 68,547,423) during the three month period ended June 30, 2007. Note 8. Segmented Information Three month period ended June 30, 2007 Canada Colombia Total $ $ $ -------------------------------------- Revenue - 1,387,542 1,387,542 Operating costs - 817,675 817,675 -------------------------------------- - 569,867 569,867 -------------------------------------- General and administrative expenses 259,262 1,060,101 1,319,363 Depletion, depreciation, and accretion 3,359 942,276 945,635 Amortization of intangibles 1,148,058 - 1,148,058 Foreign exchange loss 3,101 196,132 199,233 Stock-based compensation 59,823 - 59,823 Interest income (328,744) (10,541) (339,285) -------------------------------------- 1,144,859 2,187,968 3,332,827 -------------------------------------- Loss before taxes (1,144,859) (1,618,101) (2,762,960) Income taxes - 39,257 39,257 -------------------------------------- Net loss (1,144,859) (1,657,358) (2,802,217) -------------------------------------- -------------------------------------- Identifiable assets 44,334,039 59,301,348 103,635,387 Capital expenditures - 10,486,480 10,486,480 -------------------------------------- -------------------------------------- Six month period ended June 30, 2007 Canada Colombia Total $ $ $ -------------------------------------- Revenue - 2,801,468 2,801,468 Operating costs - 1,474,253 1,474,253 -------------------------------------- - 1,327,215 1,327,215 -------------------------------------- General and administrative expenses 723,215 1,657,452 2,380,667 Depletion, depreciation, and accretion 7,644 2,204,899 2,212,543 Amortization of intangibles 2,296,116 - 2,296,116 Foreign exchange loss 35,994 188,894 224,888 Stock-based compensation 528,958 - 528,958 Interest income (448,122) (22,277) (470,399) -------------------------------------- 3,143,805 4,028,968 7,172,773 -------------------------------------- Loss before taxes (3,143,805) (2,701,753) (5,845,558) Income taxes - 89,257 89,257 -------------------------------------- Net loss (3,143,805) (2,791,010) (5,934,815) -------------------------------------- -------------------------------------- Identifiable assets 44,334,039 59,301,348 103,635,387 Capital expenditures - 17,907,040 17,907,040 -------------------------------------- -------------------------------------- Three month period ended June 30, 2006 Canada Colombia Total $ $ $ -------------------------------------- Revenue - 2,415,196 2,415,196 Operating costs - 734,771 734,771 -------------------------------------- - 1,680,425 1,680,425 -------------------------------------- General and administrative expenses 377,485 819,830 1,197,315 Depletion, depreciation, and accretion 1,912 955,114 957,026 Foreign exchange loss 128,585 741,996 870,581 Stock-based compensation 228,640 - 228,640 Interest income (379,132) (3,341) (382,473) -------------------------------------- 357,490 2,513,599 2,871,089 -------------------------------------- Loss before taxes (357,490) (833,174) (1,190,664) Capital taxes - 46,010 46,010 -------------------------------------- Net loss (357,490) (879,184) (1,236,674) -------------------------------------- -------------------------------------- Identifiable assets 40,316,100 99,055,028 139,371,128 -------------------------------------- -------------------------------------- Capital expenditures - 8,876,927 8,876,927 -------------------------------------- -------------------------------------- Six month period ended June 30, 2006 Canada Colombia Total $ $ $ -------------------------------------- Revenue - 4,579,105 4,579,105 Operating costs - 996,544 996,544 -------------------------------------- - 3,582,561 3,582,561 -------------------------------------- General and administrative expenses 801,240 1,335,907 2,137,147 Depletion, depreciation, and accretion 798 2,011,769 2,012,567 Foreign exchange loss 1,738,438 (619,897) 1,118,541 Stock-based compensation 519,830 - 519,830 Interest income (703,128) (27,347) (730,475) -------------------------------------- 2,357,178 2,700,432 5,057,610 -------------------------------------- Income (loss) before taxes (2,357,178) 882,129 (1,475,049) Capital taxes - 46,011 46,011 -------------------------------------- Net (loss) income (2,357,178) 836,118 (1,521,060) -------------------------------------- -------------------------------------- Identifiable assets 40,316,100 99,055,028 139,371,128 -------------------------------------- -------------------------------------- Capital expenditures - 16,352,129 16,352,129 -------------------------------------- -------------------------------------- Note 9. Supplemental cash flow information At June 30, 2007, cash and cash equivalents includes $13,469,000 (December 31, 2006 - $23,213,000) in term deposits. Cash interest paid - - ------------ ------------ Cash taxes paid - - ------------ ------------ Note 10. Related party transactions Management fees in the amount of $28,158 (2006 - $26,877) were paid to a company controlled by a director of the Company and are included in general and administrative expenses. These fees are for services rendered in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Note 11. Income taxes Subject to confirmation from taxation authorities, the Company has approximately Cdn$9.9 million ($10 million) of Canadian non-capital loss carry forwards which expire between 2007 and 2026. Additionally, the Company had Colombian tax losses totaling Col 65 billion ($30 million) which are available to be carried forward and used to offset future Colombian taxable income up to a maximum of 25% per year. The consolidated financial statements do not reflect the potential tax benefit of these losses, as they do not meet the more likely than not criteria, to be recognized. Provision for current income taxes are based on presumptive income calculated as a percentage of Colombian equity levels and can be recovered against future income taxes for up to five years. Note 12. Commitments The Company has remaining commitments to be met during 2007 of $13.5 million. Note 13. Financial instruments The nature of crude oil and natural gas operations in Colombia expose the Company to fluctuations in commodity prices and foreign currency exchange rates. The Company does not manages these risks through the use of derivative instruments. Credit risk A substantial portion of the Company's accounts receivable are with customers in the oil industry and are subject to normal industry credit risks. The carrying amount of accounts receivable reflects management's assessment of the credit risk associated with these customers. Crude oil production is sold, as determined by market based prices adjusted for quality differentials, the Colombian state oil company, Ecopetrol. Revenues are denominated in United States dollars. Typically, the Company's maximum credit exposure to customers is revenue from two months' sales. Foreign currency exchange risk The Company is exposed to foreign currency fluctuations as certain expenditures and expenses are denominated in Colombian pesos and Canadian dollars. Fair value of financial instruments The Company's financial instruments are classified as cash and cash equivalents, cash in trust, accounts receivable and deposits and accounts payable on the balance sheet. The carrying values and fair values of these financial instruments at June 30, 2007 are not significantly different due to the short term to maturity of these financial instruments. Corporate Information Directors Nominated Adviser Raymond P. Antony, Chair(1)(3)(4) Nabarro Wells & Co. Limited Stan Grad, Director(2)(4) Grant Howard, Director(1)(4) UK Broker Roy H. Hudson, Director(3)(4) Tristone Capital Limited Keith J. Jackson, Director(1)(4) Joaquin Moreno Uribe, Director(2)(3)(4) J. Scott Price, Director, President & CEO(2)(4) (1)Audit Committee (2)Reserves Committee (3)Corporate Governance and Compensation Committee (4)Health, Environment and Safety Committee Management J. Scott Price, President & CEO Glenn Van Doorne, COO Ricardo Montes, CFO Trading Symbols TSX-V: SOR LSE (AIM): SORL Transfer Agents Valiant Trust Company Auditor Deloitte & Touche LLP Legal Counsel Davis LLP Banker Royal Bank of Canada Offices Head Office: Subsidiary: Suite 640, 340 - 12th Avenue S.W. Solana Petroleum Exploration (Colombia) Limited Calgary, Alberta, T2R 1L5 Regatta Office Park, West Bay Road, SMB P.O.Box 31106 Canada Tel.: 403-770-1822 Gran Cayman, KYl-1205, Fax.: 403-770-1826 Cayman Islands Fax.: 345-945-7566 Tel.: 345-949-3977 Branch: Solana Petroleum Exploration Colombia Limited Calle 113 No. 7-21, Of 706 Torre A, Edificio Teleport Bogota, D.C. Colombia Tel: +571 629 1636 Fax: +571 629 1704 www.solanaresources.com Abbreviations CDN Canadian U.S. United States Col. Colombian Pesos WTI West Texas Intermediate Bbl barrel Bopd barrels of oil per day MBbls thousand barrels MMBbls million barrels Mcf thousand cubic feet Mcfpd thousand cubic feet per day MMcf million cubic feet MMcfpd million cubic feet per day Boe (*)barrel of oil equivalent Boepd (*)barrel of oil equivalent per day MBoe (*)thousand barrels of oil equivalent NGL natural gas liquids $MM million dollars TSX-V TSX Venture Exchange LSE London Stock Exchange AIM Alternative Investment Market of the London Stock Exchange MD&A Management's Discussion and Analysis GAAP Generally Accepted Accounting Principles G&A General and Administrative Expenses (*) A Boe conversion ratio of 6 Mcf = 1 Bbl has been used. Boe's may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf to 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

For further information:

For further information: Solana Resources: Scott Price,
jsp@solanaresources.com, (403) 770-1822; Ricardo Montes,
rmontes@solanacolombia.com, (403) 668-6604; Nabarro Wells & Co. Limited
(Nominated Adviser): John Wilkes, solana@nabarro-wells.co.uk, +44 20 7710
7400; Tristone Capital Limited (UK Broker): Nick Morgan,
nmorgan@tristonecapital.com, +44 207 355 5800; Pelham Public Relations:
Charles Vivian, charles.vivian@pelhampr.com, +44 207 743 6672; Philip Dennis,
philip.dennis@pelhampr.com, +44 207 743 6363

Organization Profile

SOLANA RESOURCES LIMITED

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890