Sure announces third quarter, 2007 financial and operating results



    CALGARY, Nov. 7 /CNW/ - Sure Energy Inc. (SHR, TSX) is pleased to present
its Q3 2007 financial and operating results.
    Sure Energy Inc. ("Sure Energy" or the "Company") was incorporated on
June 7, 2006 and commenced commercial operations on August 14, 2006 following
completion of a Plan of Arrangement dated July 11, 2006 between Clear Energy
Inc., NAV Energy Trust and the Company. Information presented in this report
under the following headings represents operations for the respective periods:

    
    Q3 2007   The 92-day quarter ended September 30, 2007
    Q2 2007   The 91-day quarter ended June 30, 2007
    Q1 2007   The 90-day quarter ended March 31, 2007
    Q4 2006   The 92-day quarter ended December 31, 2006
    Q3 2006   The 47-day period August 14, 2006 to September 30, 2006
    

    This report should be read in conjunction with previously released public
documents. Financial statements and notes to the financial statements can be
accessed on SEDAR or our website at www.sureenergyinc.com.
    In this report the calculation of barrels of oil equivalent (BOE) is
calculated at a conversion rate of 6,000 cubic feet (Mcf) of natural gas for
one barrel (bbl) of oil based on an energy equivalency conversion method. BOEs
may be misleading particularly if used in isolation. A BOE conversion ratio of
6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.

    
    During the third quarter of 2007, Sure Energy accomplished the following:
    -   Production averaged 283 BOE/d for the quarter
    -   Drilled a successful natural gas well at Chinook that tested
        1.30 MMcf/d at very low drawdown
    -   Company remains in strong financial shape with $4.2 million in
        working capital and no bank debt
    -   Increased its credit facility up from $3.5 million to $6.5 million


    HIGHLIGHTS                    Quarter Ended            Period Ended
                                  September 30,            September 30,
                               2007       2006(1)        2007       2006(1)
    -------------------------------------------------------------------------
    ($000 except share
     and per share amounts)

    Financial
    Petroleum and Natural
     Gas Revenues                 805          428        3,072          428
    Funds Flow from
     Operations(2)                232          100          954          100
      Per Share, Basic and
       Diluted                   0.01         0.01         0.03         0.01
    Loss                       (1,481)        (370)      (2,466)        (370)
      Per Share, Basic and
       Diluted                  (0.05)       (0.04)       (0.09)       (0.04)
    Capital Expenditures        1,361       15,503        4,823       15,503
    Total Assets                                         24,213       24,606
    Working Capital(2)                                    4,240        9,032
    Shareholders' Equity                                 22,353       23,520
    Common Shares Outstanding
      Basic                                          28,545,148   28,509,148
      Diluted                                        30,610,148   30,294,148
      Fully Diluted with
       Performance Rights                            35,572,148   35,294,148
    Weighted Average Common
     Shares Outstanding
      Basic and Diluted                              28,509,939    8,898,652

    Share Trading
      High                       1.40         1.40         1.40         1.40
      Low                        0.95         1.01         0.86         1.01
      Close                      0.96         1.05         0.96         1.05
    Trading Volume          1,362,237   10,641,252   11,318,588   10,641,252
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                  Quarter Ended            Period Ended
                                  September 30,            September 30,
    HIGHLIGHTS                 2007         2006         2007         2006
    -------------------------------------------------------------------------

    Operations
    Production
      Oil (bbls/d)                  2            -            4            -
      Natural Gas (Mcf/d)       1,687        1,692        1,684        1,692
      BOE/d                       283          282          284          282

    Average Selling Price
      Oil ($/bbl)               76.25            -        70.36            -
      Natural Gas ($/Mcf)        5.05         5.38         6.51         5.38
      BOE ($/BOE)               30.93        32.25        39.59        32.25

    Operating Netback
     ($/BOE)(2)                 15.26        16.30        20.80        16.30
    Funds Flow Netback
     ($/BOE)(2)                  9.01         7.52        12.33         7.52
    -------------------------------------------------------------------------
    (1)  Represents the period from commencement of operations on August 14,
         2006 to September 30, 2006.
    (2)  Please refer to Management's Discussion and Analysis for definition
         of Non-GAAP measures.
    

    OPERATIONAL REVIEW

    Drilling

    Sure Energy participated in two gross exploration wells in the three
months ended September 30, 2007 (1.60 wells net). One (0.6 net) was cased as a
new pool gas discovery and the other well (1.0 net) was drilled and abandoned.
    For the nine months ended September 30, 2007, Sure Energy participated in
eight gross wells (3.44 net). Three of these wells were successful shallow gas
development wells at Tweedie (0.61 net). Three wells were drilled and
abandoned (1.75 net). One well (0.49 net) was cased as a new pool gas
discovery and one (0.6 net) was cased and completed for gas production. The
following table summarizes drilling activity for this period:

    
                       Development         Exploration            Total
    ------------------------------------------------------------------------
                     Gross      Net      Gross      Net      Gross      Net
    ------------------------------------------------------------------------
    Gas                  3     0.61          2     1.08          5     1.69
    D&A                  -        -          3     1.75          3     1.75
    ------------------------------------------------------------------------
    Total                3     0.61          5     2.83          8     3.44
    ------------------------------------------------------------------------
    Success Rate      100%     100%        40%      38%        63%      49%
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------


                                   Quarter Ended             Period Ended
                                   September 30,             September 30,
    Capital Program Summary     2007         2006         2007         2006
    -------------------------------------------------------------------------
    ($000s)

    Land                          208            6          803            6
    Geological and geophysical    170           71          752           71
    Drilling                      539            -        1,632            -
    Completions                   116            -          331            -
    Production equipment and
     facilities                   229            -          971            -
    Capitalized exploration G&A    88           39          262           39
    -------------------------------------------------------------------------
                                1,350          116        4,751          116

    Asset acquisition               -           25            -           25
    Initial land, property and
     seismic acquisition for
     share consideration            -       15,341            -       15,341
    Asset retirement obligation
     on new drills                 11            -           72            -
    Other assets                    -           21            -           21
    -------------------------------------------------------------------------
                                1,361       15,503        4,823       15,503
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Tweedie

    Sure Energy owns 20,922 net undeveloped acres of land at its Tweedie
property, located 180 kilometres northeast of Edmonton. In Q3 2007 the Company
produced 1.5 MMcf/d from this property, equivalent to 89% of the Company's
total production. This is an area of mature shallow gas production with a base
decline rate of around 20%. Sure Energy has an inventory of 16 drillable
prospects, with various working interests, and intends to drill 3 - 4 wells
per season to maintain production in this area of winter only access.

    Redwater

    Sure Energy holds 8,373 net undeveloped acres of land at its Redwater
property, located 35 kilometres north of Edmonton. The Company currently
produces approximately 31 BOE/d from two gas wells and one oil well in the
Viking formation. One of the gas wells requires compression which will be
added in Q4 2007 and should increase its rate by 10 - 15 BOE/d. The Company
has an inventory of four shallow gas wells (approximately 900 metres) and
numerous low risk, low rate, light oil wells. The light oil project requires
either horizontal wells or downspaced drilling (8 wells per section) which
would require intensive capital investment. Sure Energy has a list of higher
impact projects which the Company feels are a better use of its capital at the
current time.

    Peace River Arch

    Sure Energy owns 16,948 net undeveloped acres of land in three different
exploration areas on the Peace River Arch. The Arch represents the Company's
high risk, high reward exploration prospect component. In Q1 2007 the Company
drilled a successful Triassic test in the Boundary Lake area. The well tested
at an average rate over 5 MMcf/d. Due to the gas containing approximately 1%
Hydrogen Sulphide (H2S), production will be facility constrained. Negotiations
regarding capacity and ownership of new facilities for this pool are ongoing
with partners and area operators. Until resolved, production from the well
will be delayed.
    In the Gordondale area the Company is farming-out a Cretaceous gas
prospect to a third party. This well should be spudded by the end of the year.
In addition the Company is seeking a partner to drill a high impact Triassic
test and is evaluating the potential of a further Triassic test on its
easterly most acreage offsetting a recent third party discovery.
    In the Girouxville area the Company owns 7,620 net undeveloped acres of
land on trend with the prolific Puskwa Beaverhill Lake oil pool. This trend is
a high risk, expensive exploration play but with very high reward. At this
point of the Company's development this type of project is outside its
financial scope. The Company is evaluating its options on this acreage and is
looking for a partner to shoot a 3D seismic program this upcoming winter in an
attempt to firm up a drilling location.

    Central Alberta

    Sure Energy drilled and cased a gas well at Chinook early in Q3 2007. The
Company farmed-in on Sound Energy Trust and earned 60% with no payout. The
well production tested 1.3 MMcf/d at low drawdown. The well is has been tied
into low pressure gathering system and limited to 250 Mcf/d (150 Mcf/d net)
until the Company can gauge the extent of the reserves. The Company recently
acquired the adjacent section in an Alberta Crown landsale and expects to
drill an additional well, for a separate pool, in Q4 2007.

    Farm-in Opportunity

    Sure had a first right of refusal to farm-in on any of the prospects on
Sound Energy Trust 's 390,000 net acres that the Trust considered to be too
high risk for it's own business model. Although Advantage Energy Trust
acquired Sound Energy Trust the deal will continue on with Advantage, but the
term will be halved from the two years remaining to one year.

    Exploration Philosophy

    Sure Energy is focusing its exploration efforts on high quality
reservoirs which require limited stimulation to produce. The company is
attempting to limit its exposure to "winter-only" access areas and areas
remote from infrastructure. As a small company, Sure Energy is sensitive to
its cost exposure and actively seeks partners on its more risky ventures.
Operationally the Company had a quiet Q3 2007 but it has been actively
generating prospects based on extensive regional exploration mapping. These
prospects are in the seismic and land acquisition stage. They are mostly aimed
at light oil and will make up the exploration component of the Company's
prospect portfolio in 2008. From inception, the company has drilled four
development/exploration wells with a 100% success rate and five high risk
exploration targets, two of which have been successful, representing a 40%
success rate.

    Alberta Royalty Changes

    On October 25, 2007 the Government of Alberta introduced the framework
for a new Alberta royalty structure. The basis of the new framework was on
recommendations made by the Alberta Royalty Review Panel. The government
estimates that the overall effect will be a 20% increase in Alberta royalties.
The implementation date for most of the framework is January 1, 2009.
    All of Sure's production is in Alberta and the majority is subject to
Alberta crown royalties.
    During the next 14 months the government will issue regulations built on
the new framework. Until the details of the new royalty structure are made
known, we are unable to calculate the actual effect of the changes to Sure
Energy. However, Sure Energy wells are generally low volume gas producers and
initial estimates show minimal impact to current net asset value and future
cash flow as a result of the new royalty regime.

    
    Production              Quarter Ended               Nine Months Ended
                          September 30, 2007           September 30, 2007
    --------------------------------------------  ---------------------------
                        Oil       Gas     Total      Oil       Gas     Total
                     Bbls/d     Mcf/d     BOE/d   Bbls/d     Mcf/d     BOE/d
    --------------------------------------------  ---------------------------
    Tweedie               -     1,511       252        -     1,548       258
    Redwater              2       176        31        4       136        26
    --------------------------------------------  ---------------------------
    Total                 2     1,687       283        4     1,684       284
    --------------------------------------------  ---------------------------
    --------------------------------------------  ---------------------------
    

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    November 7 , 2007

    The following management's discussion and analysis ("MD&A") includes
operating and financial results for Sure Energy Inc. ("Sure Energy" or the
"Company"). Sure Energy was incorporated on June 7, 2006 and commenced
commercial operations on August 14, 2006 following completion of a plan of
arrangement dated July 11, 2006 between Clear Energy Inc. ("Clear Energy"),
NAV Energy Trust ("NAV") and the Company. In exchange for certain producing
properties, undeveloped land, and seismic assets conveyed by each of Clear
Energy and NAV to Sure Energy, Clear Energy shareholders received 0.1667
Common Shares and 0.0425 Arrangement Warrants of Sure Energy and NAV
unitholders received 0.333 Common Shares and 0.085 Arrangement Warrants of
Sure Energy. Production from the acquired properties was 268 BOE/d at the
commencement of operations. Sure Energy commenced trading on the Toronto Stock
Exchange on August 15, 2006 under the symbol "SHR".

    Information presented in this MD&A under the following headings
    represents operations for the respective periods:

    
    Heading   Represents operations for:
    -------------------------------------------------------------------------
    Q3 2007   The 92-day quarter ended September 30, 2007
    Q2 2007   The 91-day quarter ended June 30, 2007
    Q1 2007   The 90-day quarter ended March 31, 2007
    Q4 2006   The 92-day quarter ended December 31, 2006
    Q3 2006   the 47-day period August 14, 2006 to September 30, 2006
    

    This MD&A should be read in conjunction with the audited financial
statements of the Company as at December 31, 2006 and for the period from
commencement of operations on August 14, 2006 to December 31, 2006 together
with the accompanying notes. Additional information relating to the Company
can be viewed or downloaded at www.sureenergyinc.com or www.sedar.com.
    Throughout the report BOE, or barrel of oil equivalent, is defined as
6 Mcf to 1 bbl. BOEs may be misleading particularly if used in isolation. A
BOE conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
    The financial information presented has been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP").

    Non-GAAP measures

    Sure Energy management uses and reports certain non-GAAP measures in the
evaluation of operating and financial performance. These measures do not have
any standardized meanings prescribed by Canadian GAAP and therefore may not be
comparable with the calculation of similar measures for other companies.
    Funds flow from operations is used by the Company to analyze operating
performance, leverage and liquidity. Readers should refer to the "FUNDS FLOW
FROM OPERATIONS" section of the MD&A for a reconciliation of funds flow from
operations.
    We use the terms Operating Netbacks and Cash Flow Netbacks to evaluate
operational performance of the Company. Operating netback, which is calculated
as average unit sales price less royalties, transportation costs and operating
expenses and cash flow netback, which further deducts administrative and
interest expense and current income tax represents the cash margin for every
barrel of oil equivalent sold. Readers should refer to the "Netbacks" section
of the MD&A for the calculations of operating and cash flow netbacks.
    Net debt and working capital, which is current assets less debt and
current liabilities, is used to assess efficiency and financial strength.
Readers should refer to the "LIQUIDITY AND CAPITAL RE

SOURCES" section of the MD&A for a reconciliation of net debt and working capital. Forward-looking statements This management's discussion and analysis contains forward-looking financial and operational information including earnings, funds flow, production and capital expenditures projections. The projections are based on the Company's expectations and are subject to a number of risks and uncertainties that could materially affect the results. Actual results achieved during the forecast period may differ materially from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; fluctuations in oil and gas prices; the ability to produce and transport crude oil and natural gas to markets; the result of exploration and development drilling and related activities; fluctuation in foreign currency exchange rates; the imprecision of reserve estimates; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; decisions or approvals of administrative tribunals; change in environmental and other regulations; risks associated with oil and gas operations; the weather in areas of operation; and other factors, many of which are beyond the control of Sure Energy. Sure Energy disclaims any intention or obligation to publicly update or revise any forward-looking statements or information whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws. OVERVIEW Selected Quarterly Information Q3 2007 Q2 2007 Q1 2007 ------------------------------------------------------------------------- Production Natural gas (Mcf/d) 1,687 1,810 1,555 Oil (bbls/d) 2 3 6 BOE/d 283 305 265 Average Selling Price Natural gas ($/Mcf) 5.05 7.17 7.36 Oil ($/bbl) 76.25 72.80 67.83 $/BOE 30.93 43.33 44.69 Operating Netback ($/BOE) 15.26 23.83 23.31 Funds Flow Netback ($/BOE) 9.01 14.59 13.29 Financial ($000s except share and per share amounts) Petroleum and natural gas revenue 805 1,202 1,065 Funds Flow from Operations 232 404 318 Per share, basic and diluted 0.01 0.01 0.01 Loss (1,481) (517) (468) Per share, basic and diluted (0.05) (0.02) (0.02) Capital Expenditures 1,361 980 2,483 Total assets 24,213 25,002 25,981 Working Capital and Net Debt 4,240 5,322 5,897 Shareholder's Equity 22,353 22,720 23,001 Common Shares Outstanding 28,545,148 28,509,148 28,509,148 OVERVIEW Selected Quarterly Information Q4 2006 Q3 2006 ------------------------------------------------------------- Production Natural gas (Mcf/d) 1,548 1,692 Oil (bbls/d) 4 - BOE/d 262 282 Average Selling Price Natural gas ($/Mcf) 6.70 5.38 Oil ($/bbl) 62.99 - $/BOE 40.53 32.25 Operating Netback ($/BOE) 17.30 16.30 Funds Flow Netback ($/BOE) 10.22 7.52 Financial ($000s except share and per share amounts) Petroleum and natural gas revenue 976 428 Funds Flow from Operations 247 100 Per share, basic and diluted 0.01 0.01 Loss (485) (370) Per share, basic and diluted (0.02) (0.04) Capital Expenditures 1,290 15,503 Total assets 24,890 24,606 Working Capital and Net Debt 8,001 9,032 Shareholder's Equity 23,272 23,520 Common Shares Outstanding 28,509,148 28,509,148 Q3 2007 Revenue decreased in the quarter as a result of a decline in the average selling price of natural gas offset partially by a decrease in royalties. The loss for the quarter includes an increase in non-cash stock compensation expense as half of the performance rights vested. Q2 2007 The quarter's revenue was favourably impacted by a production increase from 265 BOE/d in Q1 2007 to 305 BOE/d in the current quarter. Royalty expense for the quarter was favourably impacted by a Gas Cost Allowance credit received from Alberta Energy. G&A costs per BOE decreased reflecting the production increase in the quarter. Q1 2007 Revenue increased from Q4 2006 to Q1 2007 due to increased average selling prices. In Q1 2007, operating costs decreased to expected levels. Q4 2006 Revenue increased from Q3 2006 to Q4 2006 due mainly to an increase in gas sales prices offset partially by a decrease in production due to natural declines. Operating expenses per BOE increased from Q3 2006 to Q4 2006 due to initial costs of a Redwater oil well that commenced production in Q4 2006. Results for Q3 2006 were for 47 days whereas results for Q4 2006 were for 92 days. RESULTS OF OPERATIONS Revenues Quarter Ended Period Ended Petroleum and Natural Gas September 30, September 30, Revenue ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Natural gas 784 428 2,996 428 Oil 21 - 76 - ------------------------------------------------------------------------- 805 428 3,072 428 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Average Benchmark Prices ------------------------------------------------------------------------- AECO (daily) natural gas ($/Mcf) 4.91 5.21 6.21 5.21 WTI Crude oil (US$/bbl) 75.33 67.05 66.18 67.05 Edmonton par price (Cdn $/bbl) 79.95 75.81 72.99 75.81 Exchange rate (US$/Cdn$) 1.0448 1.1155 1.1048 1.1155 The Company's petroleum and natural gas revenues were $805,000 in Q3 2007 and $428,000 for Q3 2006 which represented only 47 days of operation. Daily production for Q3 2007 averaged 283 BOE/d. At inception, the production from properties acquired from Clear Energy and NAV was 268 BOE/d. The Company's quarterly realized price for gas decreased from $5.38/Mcf in Q3 2006 to $5.05/Mcf in Q3 2007 due to decreasing benchmark prices. Sure Energy's only oil well came on stream in November, 2006. The Company has not hedged or entered into any fixed price arrangements during 2007 or for any subsequent period. Royalties Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Royalties 123 85 584 85 ------------------------------------------------------------------------- Average royalty as a percent of revenue 15.3 19.9 19.0 19.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Royalties as a percentage of revenue decreased to 15.3 percent for Q3 2007 versus 19.9 percent for Q3 2006. The decrease was due to a decrease in gas benchmark prices and gas cost allowance credits received in 2007. The royalty rate for the nine months ended September 30, 2007 was 19.0 percent. Alberta Royalty Changes On October 25, 2007 the Government of Alberta introduced the framework for a new Alberta royalty structure. The basis of the new framework was on recommendations made by the Alberta Royalty Review Panel. The government estimates that the overall effect will be a 20% increase in Alberta royalties. The implementation date for most of the framework is January 1, 2009. All of Sure's production is in Alberta and the majority is subject to Alberta crown royalties. During the next 14 months the government will issue regulations built on the new framework. Until the details of the new royalty structure are made known, we are unable to calculate the actual effect of the changes to Sure Energy. However, Sure Energy wells are generally low volume gas producers and initial estimates show minimal impact to current net asset value and future cash flow as a result of the new royalty regime. Operating expenses Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Operating expenses 253 111 780 111 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating expenses were $9.72 per BOE in Q3 2007 versus $8.36 per BOE in Q3 2006. Operating expenses were $780,000 or $10.05 per BOE for the nine months ended September 30, 2007. The increase in cost per BOE is due to the increasing cost of field supplies and services, which are currently in an escalating trend. Transportation Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Transportation 33 16 95 16 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Transportation costs were $1.25 per BOE in Q3 2007 and $1.20 for Q3 2006. For the nine months ended September 30, 2007, transportation costs were $95,000 or $1.22 per BOE. Transportation expense relates to the costs of transporting Sure Energy's natural gas production on major pipelines and trucking Sure Energy's oil to the point of transfer. General and Administrative Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Gross general and administrative 312 168 1,114 168 Capitalized overhead (88) (39) (262) (39) ------------------------------------------------------------------------- 224 129 852 129 ------------------------------------------------------------------------- ------------------------------------------------------------------------- General and administrative ("G&A") costs were $8.59 per BOE for Q3 2007 and $9.73 per BOE for Q3 2006. G&A costs were $852,000 and $10.97 per BOE for the nine months ended September 30, 2007. G&A costs will decrease on a per BOE basis as the Company grows its production. As activity increases, the Company will apply overhead charges, which are charged to specific well operations, and reduce G&A as is customary in the industry. Interest Income Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Interest income 60 13 193 13 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Sure Energy did not utilize its available $3.5 million debt facility during the nine months ended September 30, 2007 or during 2006 and as a result incurred no interest expense. During Q3 2007, interest income was $60,000 or $2.34 per BOE versus $0.95 per BOE for Q3 2006. Excess cash was invested in bankers acceptances to earn interest income. Stock Compensation (non-cash) Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Stock compensation 1,078 99 1,511 99 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Stock compensation (non-cash) expense was $1,078,000 in Q3 2007 and $99,000 for Q3 2006. Stock compensation (non-cash) expense was $1,511,000 for the nine month period ended September 30, 2007. On August 14, 2007, 2,488,500 Performance Incentive Rights ("PIR's") vested as the 21 day weighted average trading price of Sure Energy exceeded $1.25. Once a tranche vests, the remaining unamortized amount of stock compensation related to that tranche is expensed, which can result in a significant non-cash expense at that time. On October 5, 2007, 415,000 of the vested PIR's issued to Sound were cancelled. GAAP does not permit a reversal of compensation expense for vested PIR's that are cancelled. The remaining PIR's vest when the 21 day weighted average trading price of Sure Energy exceeds $1.50. Depletion, Depreciation and Accretion Quarter Ended Period Ended September 30, September 30, ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Depletion and depreciation 620 364 1,867 364 Accretion 15 7 42 7 ------------------------------------------------------------------------- 635 371 1,909 371 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Company's depletion, depreciation and accretion ("DD&A") provision for Q3 2007 was $635,000, or $24.41 per BOE and $371,000 or $27.98 per BOE for Q3 2006. The assets acquired pursuant to the Plan of Arrangement were acquired at fair value and established the starting point for the depletable base. $4.3 million in costs related to the Company's undeveloped land base was excluded from the depletion calculation. Accretion of the asset retirement obligation is calculated at the Company's credit-adjusted, risk-free rate of 8 percent. The Company has estimated the net present value of their asset retirement obligation to be $757,000. Income and future taxes The Company does not expect to pay current income tax in 2007 or 2008. Estimated income tax pools at September 30, 2007 are as follows: ($000s) ------------------------------------------------------------------------- Canadian oil and gas property expenses 11,945 Canadian development expenses 2,016 Canadian Exploration expenses 1,574 Undepreciated capital costs 2,757 Non-capital losses 1,652 Financing costs 11 ------------------------------------------------------------------------- 19,955 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Netbacks Components of the Company's operating, funds flow and loss netbacks are as follows: Quarter Ended Period Ended September 30, September 30, ($/BOE) 2007 2006 2007 2006 ------------------------------------------------------------------------- Price 30.93 32.25 39.59 32.25 Royalties (4.70) (6.39) (7.52) (6.39) Operating costs (9.72) (8.36) (10.05) (8.36) Transportation (1.25) (1.20) (1.22) (1.20) ------------------------------------------------------------------------- Operating Netback 15.26 16.30 20.80 16.30 General & administrative (8.59) (9.73) (10.97) (9.73) Interest income 2.34 0.95 2.50 0.95 ------------------------------------------------------------------------- Funds Flow Netback 9.01 7.52 12.33 7.52 Stock compensation (41.42) (7.45) (19.48) (7.45) Depletion, depreciation & accretion (24.41) (27.98) (24.60) (27.98) ------------------------------------------------------------------------- Loss Netback (56.82) (27.91) (31.75) (27.91) ------------------------------------------------------------------------- CAPITAL EXPENDITURES Quarter Ended Period Ended September 30, September 30, Capital Program Summary 2007 2006 2007 2006 ------------------------------------------------------------------------- ($000s) Land 208 6 803 6 Geological and geophysical 170 71 752 71 Drilling 539 - 1,632 - Completions 116 - 331 - Production equipment and facilities 229 - 971 - Capitalized exploration G&A 88 39 262 39 ------------------------------------------------------------------------- 1,350 116 4,751 116 Asset acquisition - 25 - 25 Initial land, property and seismic acquisition for share consideration - 15,341 - 15,341 Asset retirement obligation on new drills 11 - 72 - Other assets - 21 - 21 ------------------------------------------------------------------------- 1,361 15,503 4,823 15,503 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Sure Energy participated in two gross exploration wells in the three months ended September 30, 2007 (1.60 wells net). One (0.6 net) was cased as a new pool gas discovery and the other well (1.0 net) was drilled and abandoned. LIQUIDITY AND CAPITAL RE

SOURCES In exchange for certain producing properties, undeveloped land, and seismic assets conveyed by each of Clear Energy and NAV to Sure Energy, Clear Energy shareholders received 0.1667 Common Shares and 0.0425 Arrangement Warrants of Sure Energy and NAV unitholders received 0.333 Common Shares and 0.085 Arrangement Warrants of Sure Energy. On August 14, 2006, the Company issued 19,402,007 Common Shares and 4,947,512 Arrangement Warrants in exchange for assets pursuant to the Plan of Arrangement. 4,107,141 of the 4,947,512 Arrangement Warrants were exercised. On August 14, 2006, the Company completed a private placement of common shares to issue 5,000,000 common shares and 5,000,000 Performance Incentive Rights at a price of $1.00 per share for total proceeds of $5,000,000. On September 30, 2007, the Company had a $3.5 million demand revolving operating credit facility with a Canadian chartered bank. During the period ended December 31, 2006 and the nine months ended September 30, 2007, Sure Energy did not draw on the credit facility. On October 18, 2007, Sure Energy increased its credit facilities to $6.5 million consisting of a $5.0 million revolving operating demand loan and a $1.5 million non-revolving acquisition/development demand loan. The facility is provided by a Canadian chartered bank, is subject to periodic review by the bank and is secured by a $50.0 million first floating charge debenture over all of the Company's assets. These credit facilities replace Sure Energy's $3.5 million of credit facilities which Sure had received from another Canadian chartered bank. As at September 30, 2007, the Company had net debt and working capital of $4.2 million. Net debt and working capital is calculated as follows: September 30, December 31, 2007 2006 ------------------------------------------------------------------------- Cash and cash equivalents 4,701 8,237 Accounts receivable 444 658 Prepaid expenses 198 81 Accounts payable and accrued liabilities (1,103) (975) ------------------------------------------------------------------------- Working capital 4,240 8,001 Bank debt - - ------------------------------------------------------------------------- Net debt 4,240 8,001 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FUNDS FLOW FROM OPERATIONS Funds flow from operations is calculated as follows: Quarter Ended Period Ended September 30, September 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Loss (1,481) (370) (2,466) (370) Add items not affecting cash: Stock compensation 1,078 99 1,511 99 Depletion, depreciation and accretion 635 371 1,909 371 ------------------------------------------------------------------------- 232 100 954 100 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONTRACTUAL OBLIGATIONS AND FINANCIAL INSTRUMENTS Sure Energy had no contractual obligations at September 30, 2007, nor did the Company enter into any financial contracts. On October 3, 2007, the Company signed an agreement to lease office premises. Minimum lease payments under the lease are as follows: ------------------------------------------------------------------------- 2007 58 ------------------------------------------------------------------------- 2008 347 ------------------------------------------------------------------------- 2009 357 ------------------------------------------------------------------------- 2010 367 ------------------------------------------------------------------------- 2011 375 ------------------------------------------------------------------------- 2012 312 ------------------------------------------------------------------------- The Company plans to sublease approximately one quarter of the new office premises. OUTSTANDING SHARES, OPTIONS AND PERFORMANCE INCENTIVE RIGHTS The following common shares, options and PIR's were outstanding: September 30, November 7, Outstanding at: 2007 2007 ------------------------------------------------------------------------- Common shares 28,545,148 28,545,148 Options 2,065,000 2,667,500 PIR's 4,962,000 4,075,000 ------------------------------------------------------------------------- 35,572,148 34,287,648 ------------------------------------------------------------------------- ------------------------------------------------------------------------- On October 10, 2007, the Company issued 602,500 options at an exercise price of $0.95 per share. The options awarded have a maximum term of five years and vest over three years on the basis of one-third per year. On September 5, 2007, Sound Energy Trust was acquired by Advantage Energy Trust. 887,000 performance rights, including 415,000 vested performance rights, were cancelled on October 5, 2007 for the Sound employees that were terminated. CHANGES IN ACCOUNTING POLICIES Effective January 1, 2007, Sure Energy adopted the requirements of the Canadian Institute of Chartered Accountants ("CICA") related to the new financial instruments accounting framework, which encompasses the following new CICA Handbook sections: 3855 Financial Instruments - Recognition and Measurement, 1530 Comprehensive Income, and 3861 Financial Instruments - Disclosure and Presentation. There was no impact on the financial statements of adopting the new requirements. For a description of the new accounting rules, see note 2 to the unaudited financial statements for the quarter ending September 30, 2007. Outlook General market conditions continue to remain weak for junior oil and gas companies. Low natural gas prices; higher cost structure; weak and uncertain equity markets; and the negative impact of higher Crown royalty rates creates a very difficult position. Despite all of the negative challenges, Sure Energy has been able to weather the storm and at the same time preserve value in its Company. This has happened as a result of a more conservative and strategic approach to its capital spending over the last year. Despite this more conservative approach we have aggressively built our prospective inventory and at the same time discovered two natural gas exploration discoveries at Chinook and Boundary Lake. In addition the Company remains in a strong financial position with $4.2 million in positive working capital and no debt, while at the same time increasing its bank line from $3.5 million to $6.5 million. The Company has not raised any flow through financing to date and has abstained from any asset or corporate acquisition during the last year. The new Crown Royalty rates are expected to come into effect in January 2009 and will have minimal impact on the Company's future cash flow and net asset value due to the fact that the majority of Sure Energy's production comes from lower volume gas wells. Capital spending for 2007 is estimated to be $6.5 million a little lower than our original $8 million budget. The 2008 capital budget is currently being reviewed in light of recent royalty changes and a formal budget will be released in the near future. Production is currently 300 BOE/d and we are working on a pooling and tie-in of our Boundary gas well that would add approximately 75 BOE/d net to the Company. Sure Energy continues to develop a significant prospect inventory including some new oil projects in Saskatchewan that will be drilled in 2008. Also the Company continues to evaluate acquisition opportunities that could accelerate its growth during these volatile times. GLOSSARY OF ABBREVIATIONS $000s Thousands of dollars Mbbls Thousands of barrels AECO Alberta Energy Co. MBOE Thousand barrels of oil equivalent AEUB Alberta Energy Mcf Thousand cubic feet Utilities Board bbls Barrels Mcf/d Thousand cubic feet per day bbls/d Barrels per day MMcf Million cubic feet Bcf Billion cubic feet MMcf/d Million cubic feet per day BOE Barrel of oil MMbtu Millions of British thermal equivalent (6 Mcf units = 1 bbl) BOE/d Barrels of oil NGLs Natural gas liquids equivalent per day GJ Gigajoules NPV Net present value G&A General and TSX Toronto Stock Exchange administrative SURE ENERGY INC. BALANCE SHEETS As at September 30, December 31, ($000's) 2007 2006 ------------------------------------------------------------------------- (unaudited) Assets Current assets Cash and cash equivalents 4,701 8,237 Accounts receivable 444 658 Prepaid expenses 198 81 ------------------------------------------------------------------------- 5,343 8,976 Property, plant and equipment (note 3) 18,870 15,914 ------------------------------------------------------------------------- 24,213 24,890 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities 1,103 975 ------------------------------------------------------------------------- Asset retirement obligations (note 4) 757 643 ------------------------------------------------------------------------- Shareholders' equity Share capital 23,815 23,779 Contributed surplus 1,859 348 Deficit (3,321) (855) ------------------------------------------------------------------------- 22,353 23,272 ------------------------------------------------------------------------- 24,213 24,890 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes. SURE ENERGY INC. STATEMENTS OF OPERATIONS AND DEFICIT Quarter Ended Period Ended ($000's, except per share September 30, September 30, amounts) 2007 2006(1) 2007 2006(1) ------------------------------------------------------------------------- (unaudited) Revenue Petroleum and natural gas revenue 805 428 3,072 428 Royalties (123) (85) (584) (85) Interest income 60 13 193 13 ------------------------------------------------------------------------- 742 356 2,681 356 ------------------------------------------------------------------------- Expenses Operating 253 111 780 111 Transportation 33 16 95 16 General and administration 224 129 852 129 Stock compensation 1,078 99 1,511 99 Depletion, depreciation and accretion 635 371 1,909 371 ------------------------------------------------------------------------- 2,223 726 5,147 726 ------------------------------------------------------------------------- Loss (1,481) (370) (2,466) (370) Other comprehensive income (note 2) - - - - ------------------------------------------------------------------------- Comprehensive loss (1,481) (370) (2,466) (370) Deficit, beginning of period (1,840) - (855) - ------------------------------------------------------------------------- Deficit, end of period (3,321) (370) (3,321) (370) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per common share (note 6) Basic and diluted (0.05) (0.04) (0.09) (0.04) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents the period from commencement of operations on August 14, 2006 to September 30, 2006 See accompanying notes. SURE ENERGY INC. STATEMENTS OF CASH FLOWS Quarter Ended Period Ended September 30, September 30, ($000's) 2007 2006(1) 2007 2006(1) ------------------------------------------------------------------------- (unaudited) Cash provided by (used in): Operating Loss (1,481) (370) (2,466) (370) Items not affecting cash: Depletion, depreciation and accretion 635 371 1,909 371 Stock compensation 1,078 99 1,511 99 Changes in non-cash working capital (note 7) 55 (182) 440 (182) ------------------------------------------------------------------------- 287 (82) 1,394 (82) ------------------------------------------------------------------------- Investing Drilling and development of petroleum and natural gas properties (1,350) (116) (4,751) (116) Acquisition of petroleum and natural gas properties - (25) - (25) Other asset purchases - (21) - (21) Changes in non-cash working capital (note 7) (508) 7 (215) 7 ------------------------------------------------------------------------- (1,858) (155) (4,966) (155) ------------------------------------------------------------------------- Financing Issue of common shares for cash, net 36 9,093 36 9,093 Change in non-cash working capital - 13 - 13 ------------------------------------------------------------------------- 36 9,106 36 9,106 ------------------------------------------------------------------------- Net change in cash and cash equivalents (1,535) 8,869 (3,536) 8,869 Cash and cash equivalents, beginning of period 6,236 - 8,237 - ------------------------------------------------------------------------- Cash and cash equivalents, end of period 4,701 8,869 4,701 8,869 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents the period from commencement of operations on August 14, 2006 to September 30, 2006 See accompanying notes. Supplementary Cash Flow information (note 7) SURE ENERGY INC. Notes to the Financial Statements For the three and nine months ended September 30, 2007 Unless otherwise stated, amounts presented in these notes are in Canadian dollars and tabular amounts are in thousands of Canadian dollars, except number of shares and per share amounts. 1. Summary of Significant Accounting Policies Business and Basis of Presentation Sure Energy Inc. ("Sure Energy" or the "Company") is a Calgary based oil and natural gas exploration and production company whose business activities are focused primarily in Alberta. The Company was incorporated on June 7, 2006 and commenced operations on August 14, 2006 when certain assets of Clear Energy Inc. ("Clear") and NAV Energy Trust ("NAV") were transferred into Sure Energy under a Plan of Arrangement dated July 11, 2006. The Plan of Arrangement resulted in the shareholders of Clear and the unitholders of NAV becoming unitholders of Sound Energy Trust ("Sound") and shareholders of Sure Energy. Sure Energy is a public company and commenced trading on the Toronto Stock Exchange on August 15, 2006. 2. Changes in Accounting Policies a) Financial Instruments Effective January 1, 2007, Sure Energy adopted the requirements of the Canadian Institute of Chartered Accountants ("CICA") related to the new financial instruments accounting framework, which encompasses the following new CICA Handbook sections: 3855 Financial Instruments - Recognition and Measurement, 1530 Comprehensive Income, and 3861 Financial Instruments - Disclosure and Presentation. These new Handbook sections provide comprehensive requirements for the recognition and measurement of financial instruments, and introduce a new component of equity referred to as accumulated other comprehensive income ("AOCI"). In accordance with the transitional provisions of all the new sections, comparative interim financial statements are not to be restated. Under these new standards, all financial instruments, including derivatives, are to be recognized on the balance sheet. Derivatives are to be measured at fair value with unrealized gains and losses reported in the statement of operations unless the "normal sale and purchase" exemption on the derivatives are designated as cash flow or net investment hedges. The Company's other financial instruments (accounts receivable and accounts payable) are measured at amortized cost using the effective interest rate method. Transaction costs are added to the amount of the associated financial instrument and amortized accordingly. There was no impact on the financial statements of adopting the new requirements. As at September 30, 2007, the Company did not have any derivatives. There were no items that needed to be recognized in other comprehensive income for the three and nine months ended September 30, 2007. b) Accounting Changes Effective January 1, 2007 the Company adopted the revised CICA section 1506 "Accounting Changes". Under the revised section, voluntary changes in accounting policy are permitted only if they result in financial statements that provide more reliable and relevant information to the reader. Changes in accounting policy must be applied retrospectively, while changes in accounting estimates are to be applied prospectively. The revised section also outlines additional disclosure required when accounting changes are applied, including the justification for the change, a complete description of the policy, the primary source of GAAP and the detailed effect on financial statement line items. 3. Property Plant and Equipment September 30, December 31, 2007 2006 ------------------------------------------------------------------------- Petroleum & natural gas properties 21,595 16,772 Furniture, fixtures and leaseholds 21 21 ------------------------------------------------------------------------- 21,616 16,793 Accumulated depletion and depreciation (2,746) (879) ------------------------------------------------------------------------- Net book value 18,870 15,914 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unproved oil and gas properties of $4.3 million have been excluded from costs subject to depletion and depreciation. These costs relate to the Company's undeveloped land base. Capitalized exploration and development general and administrative expenses of $473,000 are included in property, plant and equipment (December 31, 2006 - $211,000). 4. Asset Retirement Obligations The following table reconciles the Company's total asset retirement obligations: September 30, December 31, 2007 2006 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Carrying amount, beginning of period 643 - Acquisition of liabilities in the period - 611 Additions 72 12 Accretion expense 42 20 ------------------------------------------------------------------------- Carrying amount, end of period 757 643 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. Share Capital a) Issued and Outstanding Common Shares Number of shares Amount ------------------------------------------------------------------------- Balance, December 31, 2006 28,509,148 $ 23,779 Exercise of performance rights 36,000 36 ------------------------------------------------------------------------- Balance, September 30, 2007 28,545,148 $ 23,815 ------------------------------------------------------------------------- ------------------------------------------------------------------------- b) Performance Incentive Rights Total activity related to the performance incentive rights was as follows: Outstanding Vested ------------------------------------------------------------------------- At inception, August 14, 2006 - - Issued to Sure Energy employees and directors 3,630,000 - Issued to consultants and Sound employees and directors 1,370,000 - Cancelled (2,000) - ------------------------------------------------------------------------- December 31, 2006 4,998,000 - Vested 2,488,500 Exercised (36,000) (36,000) Cancelled - - ------------------------------------------------------------------------- September 30, 2007 4,962,000 2,452,500 ------------------------------------------------------------------------- Half of the performance rights vested on August 14, 2007 as the 21 day weighted average trading price of Sure Energy shares exceeded $1.25. On September 5, 2007, Sound Energy Trust was acquired by Advantage Energy Trust. 887,000 performance rights, including 415,000 vested performance rights, were cancelled on October 5, 2007 for the Sound employees that were terminated. 6. Per Share Amounts For the three and nine months ended September 30, 2007 the calculation of basic and diluted net loss per share is based on the following weighted average number of common shares outstanding: Quarter Ended Period Ended September 30, September 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Loss (1,481) (370) (2,466) (370) Loss per share Basic and diluted (0.04) (0.04) (0.08) (0.04) Weighted average shares outstanding Basic and Diluted(1)(2) 28,511,496 8,898,652 28,509,939 8,898,652 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The diluted shares outstanding exclude 2,037,500 unvested performance rights, which are not exercisable and are treated as contingently issuable shares as all of the conditions for issue have not been satisfied as at September 30, 2007. (2) 2,065,000 options and 2,037,500 vested performance rights have been excluded from the weighted average diluted shares outstanding for the period ended September 30, 2007 as they are anti-dilutive. 7. Supplemental Cash Flow Information Cash and cash equivalents include the following: September 30, December 31, 2007 2006 ------------------------------------------------------------------------- Cash on deposit 717 3,254 Bankers acceptance 3,984 4,983 ------------------------------------------------------------------------- 4,701 8,237 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Changes in non-cash working capital items increased (decreased) cash and cash equivalents as follows: Quarter Ended Period Ended September 30, September 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Accounts receivable 166 (446) 214 (446) Prepaid expenses (172) (151) (117) (151) Accounts payable and accrued liabilities (447) 435 128 435 ------------------------------------------------------------------------- (453) (162) 225 (162) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating activities 55 (182) 440 (182) Investing activities (508) 7 (215) 7 Financing activities - 13 - 13 (453) (162) 225 (162) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other Cash Flow Information: ------------------------------------------------------------------------- Cash taxes paid - - - - Cash interest received 68 2 200 2 Cash interest paid - - - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- 8. Related Party Transactions The joint venture operator of the majority of the oil and gas properties owned by Sure Energy is Sound. Sound was a related party as three directors of Sound were on the Board of Directors of Sure Energy and a common director served as Chairman of both companies. On September 5, 2007, Sound Energy Trust was acquired by Advantage Energy Trust, therefore, Sound is no longer a related party. During the nine months ended September 30, 2007, Sure Energy paid $223,000 (Q3 2006 - $44,000) for rent, parking and business taxes to Sound. During the nine months ended September 30, 2007 legal fees of $52,000 (Q3 2006 - $nil) were paid to a law firm of which the Corporate Secretary is a partner. These transactions were measured at the exchange amount. 9. Subsequent Events On October 18, 2007, Sure Energy increased its credit facilities to $6.5 million consisting of a $5.0 million revolving operating demand loan and a $1.5 million non-revolving acquisition/development demand loan. The facility is provided by a Canadian chartered bank, is subject to periodic review by the bank and is secured by a $50.0 million first floating charge debenture over all of the Company's assets. The facility bears interest at a rate of bank prime plus half a percent on the revolving operating demand loan and bank prime plus three-quarters of a percent on the non-revolving acquisition/development demand loan. These credit facilities replace Sure Energy's $3.5 million of credit facilities which Sure had received from another Canadian chartered bank. On October 3, 2007, the Company signed an agreement to lease office premises. Minimum lease payments under the lease are as follows: ------------------------------------------------------------------------- 2007 58 ------------------------------------------------------------------------- 2008 347 ------------------------------------------------------------------------- 2009 357 ------------------------------------------------------------------------- 2010 367 ------------------------------------------------------------------------- 2011 375 ------------------------------------------------------------------------- 2012 312 ------------------------------------------------------------------------- On October 10, 2007, the Company issued 602,500 options at an exercise price of $0.95 per share. The options awarded have a maximum term of five years and vest over three years on the basis of one-third per year. %SEDAR: 00024118E

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For further information: please visit our website at or contact: Mr.
Jeff Boyce, President and CEO, or Mr. Lance Wirth, Vice President Finance and
CFO, Phone: (403) 410-3100, Email: info@sureenergyinc.com

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