Verenex Energy Inc. - First Quarter 2009 Operating and Financial Results



    CALGARY, May 5 /CNW/ - Verenex Energy Inc. ("Verenex" or the "Company")
(TSX - VNX) is pleased to report its unaudited interim operating and financial
results for the three month period ended March 31, 2009.
    Verenex is a Canada-based international exploration and production
company with a world-class discovered resource base and exploration portfolio
in the Ghadames Basin in Libya.

    
    First Quarter 2009 Highlights

    -   Announced on February 26, 2009 an acquisition agreement whereby a
        wholly-owned subsidiary of CNPC International Ltd. ("CNPCI") had
        agreed to make an offer to acquire all of the outstanding common
        shares of Verenex by way of a take-over bid for C$10.00 per share in
        cash.

    -   On February, 24, 2009, the Company formally requested consent and
        continues to actively seek the consent of the Libyan National Oil
        Corporation ("NOC") and the Libyan government for the offer as
        required under the terms of the Exploration and Production Sharing
        Agreement ("EPSA") for Area 47 and which is a condition precedent for
        mailing the take-over bid offer to shareholders under the acquisition
        agreement. The Chairman of the NOC has publicly stated that the NOC
        intends to exercise a preemptive right and purchase all of the shares
        of Verenex at $10 per share. Such intent has not as yet been formally
        communicated to Verenex and CNPCI.

    -   On January 28, 2009, the Company entered into an arrangement with
        Vermilion and its wholly owned France and Denmark subsidiaries to
        sell the Canadian Bottrel GORR and the Verenex Danish and French
        subsidiaries for $5.0 million. The transaction closed on February 27,
        2009.

    -   Confirmed the Company's tenth oil and gas discovery in Area 47 at the
        H1-47/02 new field wildcat ("NFW") exploration well in Block 2. The
        well flowed at a maximum aggregate rate of 1,315 bopd (gross) of
        light sweet crude oil and 16.2 mmcf/day (gross) of associated natural
        gas from 73 feet of perforations in the Memouniat Formation and
        82 feet in the Lower Acacus Formation.

    -   Confirmed the Company's eleventh oil and gas discovery at the
        I1-47/02 NFW exploration well in Block 2. The well flowed at a
        maximum aggregate rate of 3,354 bopd (gross) of light sweet crude oil
        and 6.8 mmcf/day (gross) of associated natural gas from 44 feet of
        perforations in the Memouniat Formation and 40 feet in the Lower
        Acacus Formation.

    -   Confirmed the Company's twelfth oil and gas discovery at the J1-47/02
        NFW exploration well in Block 2. The well flowed at a maximum
        aggregate rate of 7,307 bopd (gross) of light sweet crude oil and
        6.5 mmcf/day (gross) of associated natural gas from 65 feet of
        perforations in the Lower Acacus Formation.

    -   To date, 12 NFW exploration wells and two appraisal wells have tested
        at a maximum aggregate rate of approximately 109,981 bopd and
        106 mmcf/day of natural gas (gross). These wells have been suspended
        as potential future oil and gas production wells.

    -   Drilled and cased the K1 and L1-47/02 NFW exploration wells in
        Block 2. Formation evaluation results indicated the presence of
        hydrocarbons in the Lower Acacus, Basal Tanezzuft Hot Shale and
        Memouniat Formations in the K1 well, and in the Lower Acacus
        Formation in the L1 well.

    -   Drilled and abandoned the M1-47/02 NFW exploration well (well No. 20)
        which was drilled to a depth of 9,900 feet but failed to find
        hydrocarbons in the target Lower Acacus Formation. This is the first
        Verenex well to be plugged and abandoned in Area 47.

    -   Released the KCA DEUTAG Drilling Rig T-19 drilling rig and the KCA
        DEUTAG Service Rig 32 in early March under the reduced work program
        and budget for 2009. The Ensign Drilling Rig 28 continues to operate
        in Area 47.

    Financial

    -   Funds flow from operations in the first quarter of 2009 was
        ($1.9 million) compared to ($0.9 million) for the first quarter of
        2008.

    -   Net loss in the first quarter of 2009 was ($2.6 million) compared to
        net income of $2.1 million in the first quarter of 2008.

    -   Working capital surplus at March 31, 2009 was $19.7 million compared
        to $29.8 million as at December 31, 2008, including cash amounting to
        $35.1 million (December 31, 2008 - $55.5 million) net of restricted
        cash amounting to $3.8 million (December 31, 2008 - $4.1 million).
        The decrease in working capital is due to the ongoing investments in
        the Company's Libya operations.


    Highlights

                                                      Three         Three
                                                      Months        Months
                                                      Ended         Ended
                                                     March 31,     March 31,
    (unaudited)                                        2009          2008
    -------------------------------------------------------------------------

    Financial (thousands of Cdn $,
     except share and per share amounts)

    Petroleum and natural gas revenues (net)                (8)          240
    Funds flow from operations(1)                       (1,925)         (901)
    Net income/(loss)                                   (2,618)        2,063
    Capital expenditures                                13,663        15,661
    Working capital surplus                             19,672        83,141
    Common shares outstanding
      Basic                                         44,273,491    44,267,891
      Diluted                                       49,851,391    50,176,391
    Weighted average common shares outstanding
      Basic                                         44,273,491    44,267,891
      Diluted                                       44,273,491    47,551,625
    Share trading
      High                                                9.70         11.24
      Low                                                 6.95          7.25
      Close                                               8.93          9.10

    Operations

    Production
      Crude oil (bbls/d)                                     -             -
      Natural gas liquids (bbls/d)                           -            13
      Natural gas (mcf/d)                                    -           260
      Boe/d (6:1)(*)                                         -            57
    Average reference price
      WTI (US$ per bbl)                                      -         97.90
      Brent (US$ per bbl)                                    -         96.90
      AECO (Cdn$ per mcf)                                    -          7.90
    Average selling price
      Crude oil (Cdn$ per bbl)                               -             -
      Natural gas liquids (Cdn$ per bbl)                     -         71.12
      Natural gas (Cdn$ per mcf)                             -          6.51

    Average Operating Netback (Cdn$ per BOE at 6:1)          -         46.57

    (1) The above table includes non-GAAP measures, which may not be
        comparable to other companies. See MD&A for further discussion.
    

    Capital Expenditures (Cdn $)

    During the first quarter of 2009, the Company invested approximately
$13.7 million. Libya accounted for all of the investment activity level with
approximately $10.0 million in drilling, $1.9 million in testing and
completions, $0.2 million in geological and geophysical costs and $1.6 million
in capitalized General and Administration ("G&A") and office costs.

    Outlook

    The Company will continue to actively seek the consent of the NOC and the
Libyan government for the sale of Verenex. While this process is underway,
operations will continue in Libya.
    The Company is seeking NOC approval to drill the N1-47/02 NFW exploration
well in the northern part of Block 2 (well No. 21). The Company expects to
spud the N1 well by mid-May 2009 subject to NOC approval.
    The Company plans to redeploy a service rig to Area 47 in the third
quarter of 2009 to test the K1 and L1-47/02 wells and any other successful
wells drilled in the second quarter.
    The Company is awaiting feedback from the NOC on the A1-47/02 Final
Appraisal Report, which was submitted to the Area 47 Management Committee and
to the NOC in November 2008. The report requests a declaration of
commerciality and provides a preliminary development plan for a 50,000 bopd
(gross) Phase 1 development that also includes the nearby fields at B1, C1, D1
and F1-47/02. In mid-March 2009 the Company presented a management summary of
the report to a multi-function team established by the NOC to review and make
recommendations on the report. Formal feedback from the NOC is expected by the
end of May.
    Final Appraisal Reports are also nearing completion for the B1, C1, D1
and F1-47/02 fields which are expected to be submitted to the NOC before the
middle of 2009.
    The Company has sufficient cash reserves to fund its programs over the
next few months, given lower than expected spending in the first quarter of
2009. The Company continues to explore financing options, in the normal
course, to bridge to a sale closing if this proves necessary.

    The maximum combined measured flow rates in each of the tested wells in
Libya contained in this press release are not necessarily indicative of the
ultimate production rate and may be lower in any commercial development, which
will be determined from reservoir engineering studies that constitute part of
the appraisal and development planning activities currently underway.
    This press release also contains forward-looking financial and
operational information, including but not limited to drilling operations,
proposed budgets, earnings, funds flow, production and capital investment
projections. These projections are based on current expectations and are
subject to a number of risks and uncertainties that could materially affect
the results. These risks include, but are not limited to, risks associated
with the oil and gas industry (e.g. financing; operational risks in
development, exploration and production; delays or changes in plans with
respect to exploration or development projects or capital expenditures; the
uncertainty of estimates and projections in relation to production, costs and
expenses; health, safety and environmental risks; and, the uncertainty of
resource estimates), drilling equipment availability and efficiency, the
ability to attract and retain key personnel, the risk of commodity price and
foreign exchange rate fluctuations, the uncertainty associated with dealing
with governments and obtaining regulatory approvals and the risk associated
with international activity. Due to the risks, uncertainties and assumptions
inherent in forward-looking statements, prospective investors in the company's
securities should not place undue reliance on these forward-looking
statements.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following is management's discussion and analysis (MD&A), dated May
4, 2009, of the operating and financial results of Verenex Energy Inc.
("Verenex" or the "Company") for the three months ended March 31, 2009. The
financial data has been prepared in Canadian dollars in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP") applied
consistently with prior periods. This discussion should be read in conjunction
with the Company's unaudited consolidated financial statements for the three
months ended March 31, 2009 and the audited consolidated financial statements
for the year ended December 31, 2008, together with the accompanying notes as
contained in the Company's 2008 annual filings.
    Additional information relating to the Company is available on SEDAR at
www.sedar.com.

    PROPOSED TRANSACTION

    On February 26, 2009, the Company announced it had entered into an
acquisition agreement whereby a wholly-owned subsidiary of CNPC International
Ltd. ("CNPCI") had agreed to make an offer to acquire all the outstanding
common shares of the Company by way of a take-over bid for $10.00 per share in
cash. Mailing of the offer to the Company's shareholders is subject to,
amongst other conditions, receipt from the Libyan National Oil Corporation
(the "NOC") of written consent to the acquisition of Verenex by CNPCI and
certain related matters. The Company formally requested the requisite consents
from the NOC on February 24, 2009 and continues to actively seek the consent.
No formal decision by the NOC has been communicated as yet to Verenex.
However, the Chairman of the NOC has publicly stated on several occasions that
the NOC intends to exercise a pre-emptive right to buy all of the outstanding
shares of Verenex at $10 per share.
    Signing of the acquisition agreement with CNPCI was the culmination of a
process that began in early September 2008 when the Company advised the NOC
and the public that it had initiated a process to review strategic
alternatives including a potential sale of the Company. Guidelines for such a
sale process under the terms of the EPSA contract in Libya were communicated
to the Company by the NOC in early October 2008. Physical data rooms were
opened in the offices of Standard Chartered Bank in London in mid-November for
a five-week period and the data set was reviewed by the NOC. All of the
companies that entered the data room were pre-qualified by the NOC and each
signed a confidentiality agreement that was also endorsed by the NOC. Bids
were submitted in late January 2009 and based on its superior offer an
acquisition agreement was signed with CNPCI on February 24, 2009.

    FORWARD-LOOKING INFORMATION

    This MD&A contains forward-looking financial and operational information,
including but not limited to drilling operations, proposed budgets, earnings,
funds flow, production and capital investment projections. These projections
are based on current expectations and are subject to a number of risks and
uncertainties that could materially affect the results. These risks include,
but are not limited to, risks associated with the oil and gas industry (e.g.
financing; operational risks in development, exploration and production;
delays or changes in plans with respect to exploration or development projects
or capital expenditures; the uncertainty of estimates and projections in
relation to production, costs and expenses; health, safety and environmental
risks; and, the uncertainty of resource estimates), drilling equipment
availability and efficiency, the ability to attract and retain key personnel,
the risk of commodity price and foreign exchange rate fluctuations, the
uncertainty associated with dealing with governments and obtaining regulatory
approvals and the risk associated with international activity. Due to the
risks, uncertainties and assumptions inherent in forward-looking statements,
prospective investors in the company's securities should not place undue
reliance on these forward-looking statements.

    NON-GAAP MEASURES

    Included in this report are references to terms commonly used in the oil
and gas industry, such as funds flow and funds flow per share which is
expressed before changes in non-cash working capital and are used by the
Company to analyze operating performance, leverage and liquidity. These terms
are not defined by GAAP. Consequently, these are referred to as non-GAAP
measures.

    
    OPERATING RESULTS

    Asset Valuation
    

    The Company performs a review for asset impairment as required by the
Full Cost Accounting Guideline, AcG-16. Any impairment in value is dependent
upon an independent reservoir engineer's assessment of the deliverability and
resources associated with certain wells and the outlook for world prices for
oil and natural gas.

    Revenues

    On January 28, 2009 the Company entered into an arrangement with
Vermilion to sell the Canadian Bottrel GORR effective December 31, 2008. All
oil and gas revenues for 2009 relate to differences between accruals for the
Bottrel GORR at December 31, 2008 and the actuals reported in 2009.
    Interest of $0.1 million was earned in the first quarter of 2009 (2008 -
$0.8 million) on cash balances invested in excess of expenditure requirements.
The decrease versus the first quarter of 2008 is due to the decreased cash
position and lower interest rates during the first quarter of 2009.
    The foreign exchange gain for the first quarter of 2009 was $11 thousand
as compared to a gain of $2.4 million for the first quarter of 2008, and $4.4
million in the fourth quarter of 2008. The decrease in the foreign exchange
gain in the first quarter of 2009 compared to the first quarter of 2008 is due
to the decline in the US dollar denominated cash balances offset by the
strengthening of the US dollar versus the Canadian dollar during the period.

    Stock Compensation

    For the three months ended March 31, 2009, non-cash stock compensation
expense related to stock options and performance warrants was $2.2 million
(2008 - $0.8 million). For the three months ended March 31, 2009, the stock
compensation liability related to Stock Appreciation Rights ("SAR's"),
Performance Share Units ("PSU's") and Restricted Share Units ("RSU's") first
issued in 2008, was $1.8 million (December 31, 2008 - $1.8 million).

    General and Administration ("G&A")

    The Company capitalized $1.6 million of general and administrative costs
relating to exploration and development activities for the three months ended
March 31, 2009 (2008 - $1.7 million). The net G&A amounts that are expensed
represent salaries, employee benefits, office costs, legal and related party
services not directly attributable to ongoing exploration and development
capital projects.

    Effects of Exchange Rate Fluctuations

    The Company's operations are conducted primarily in jurisdictions where
the United States dollar (US$) is the business currency. A large proportion of
the Company's costs, assets and liabilities during the quarter ended March 31,
2009 were denominated in US$. As the Canadian dollar fluctuates during the
period, foreign exchange gains and losses are reflected in both the earnings
and funds flow amounts.

    Depletion and Depreciation

    Depletion and depreciation of $0.1 million for the three months ended
March 31, 2009 (2008 - $0.2 million) relate to the depreciation of the
Canadian and Libyan leasehold improvements, furniture and equipment. The 2008
expense includes depletion on the Bottrel GORR.

    RELATED PARTY TRANSACTIONS

    On January 28, 2009, the Company entered into an arrangement with
Vermilion and its wholly owned France and Denmark subsidiaries to sell the
Canadian Bottrel GORR and the Verenex Danish and French subsidiaries for $5.0
million. The transaction closed on February 27, 2009.
    The following tables outline the final transaction details:

    
    1)  Canadian Bottrel GORR
        ---------------------

        Proceeds on disposition                                   $    4,500

        Net book value of assets disposed                             (3,657)
                                                                 ------------

        Gain on disposition of assets                             $      843
                                                                 ------------

    2)  Danish and French Subsidiaries
        ------------------------------

        Proceeds on disposition                                   $      500

        Net book value of assets disposed                                (27)
                                                                 ------------

        Gain on disposition of assets                             $      473
                                                                 ------------

        Total Gain on disposition of assets                       $    1,316
                                                                 ------------
                                                                 ------------
    

    The Bottrel GORR is a gross overriding royalty on Vermilion Energy
Trust's ("VET") share of production from specific wells at Bottrel, Alberta.
These wells were sold back to Vermilion effective December 31, 2008. Revenues
for 2009 reflect the difference between accruals at December 31, 2008 and
actuals booked in 2009.
    Vermilion REP SAS ("VREP") is a 100% owned subsidiary of VET, which is a
significant shareholder in Verenex. VREP, as contract operator in France, paid
for various expenditures on behalf of Verenex. These transactions were
measured at the exchange amount being the consideration established and agreed
to by the related parties. These transactions were undertaken under the same
terms and conditions as transactions with non-related parties. Amounts due to
related parties at March 31, 2009 are comprised of an amount due to VREP of
$nil (December 31, 2008 - $0.1 million).
    Verenex entered into a Technical and Administrative Services Agreement
with Vermilion Resources Limited ("Vermilion") on June 28, 2004, for the
provision of certain financial and administrative services by Vermilion at a
cost of twenty thousand dollars per month and certain technical, marketing and
other services at cost plus 5%, for a period of eighteen months ending
December 31, 2005. The Agreement was automatically renewed for one-year
periods, subject to termination on three months notice. Effective January 1,
2006, the monthly charge was amended to eliminate the services provided for
the Canadian financial and administrative services, reducing the monthly
charge to ten thousand dollars per month in support of the France operations.
Effective April 1, 2008 the monthly charge was reduced to five thousand
dollars per month. During the three months ended March 31, 2009 Verenex was
billed ten thousand dollars (March 31, 2008 - thirty thousand dollars) for
services provided under this Agreement. The Agreement was terminated effective
February 27, 2009.

    LIQUIDITY AND CAPITAL RE

SOURCES Verenex has sufficient cash reserves to fund its short-term working capital requirements and capital obligations. The Company issued two letters of credit ("LC's") relating to the signing of two long-term drilling contracts that back-stop early termination provisions. The terms of the contracts called for the LC's to vary over the period of the contract. The ODE contract required that cash collateral of US $4.8 million (gross) be put in place by September 30, 2006. The ODE LC expired on November 13, 2008. The second LC in favour of KCA DEUTAG Drilling GmbH based in Germany ("KCA DEUTAG"), expired on April 30, 2009 and was supported by cash collateral of US $7.2 million (gross) as at June 30, 2006. The Company was required to back-stop the outstanding KCA DEUTAG LC with an equivalent cash balance. At March 31, 2009 this had been reduced to US $3.0 million (Cdn $3.8 million). The Company received funds from its partner, Medco International Ventures Limited, for its 50% share of the cash collateral and all cash provided as support for the LC's has been reflected as restricted cash on the balance sheet. The Company had a working capital surplus of $19.7 million at March 31, 2009 compared to $29.8 million as at December 31, 2008, including cash amounting to $35.1 million (December 31, 2008 - $55.5 million) net of restricted cash amounting to $3.8 million (December 31, 2008 - $4.1 million). The decrease in working capital is due to the ongoing investments in the Company's Libya operations. All accounts receivables have been assessed for credit risk and no allowance for doubtful accounts is necessary at this time. Accounts payable and accrued liabilities have decreased since December 31, 2008 due to the timing of activity levels in Libya. Verenex is listed on the Toronto Stock Exchange under the stock symbol VNX. CRITICAL ACCOUNTING ESTIMATES Depletion and Depreciation The amounts recorded for depletion and depreciation of property, plant and equipment are based on estimates. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements from changes in such estimates in future years could be significant. The Company performs a review for asset impairment as required by the Full Cost Accounting Guideline, AcG-16. Any impairment in value is dependent upon an independent reservoir engineer's assessment of the deliverability and resources associated with certain wells and the outlook for world prices for oil and natural gas. Stock-Based Compensation The Company accounts for all employee stock-based compensation pursuant to the amended recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments. The stock-based compensation recorded by the Company is a critical accounting estimate because of the value of compensation recorded and assumptions required to calculate the compensation expense. NEW ACCOUNTING STANDARDS AND CHANGES IN ACCOUNTING STANDARDS FOR 2008 AND 2009 On January 1, 2008, the Company adopted the following new Handbook Sections, which were effective for interim periods beginning on or after October 1, 2007 except for amendment on Canadian Institute of Chartered Accountants ("CICA") 1400 which was effective for interim periods beginning on or after January 1, 2008: - Section 3862 - "Financial Instruments - Disclosures", describes the required disclosure for the assessment of the significance of financial instruments for an entity's financial position and performance and of the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. This section and Section 3863, Financial Instruments - Presentation" replaced Section 3861, "Financial Instruments - Disclosure and Presentation". - Section 3863 - "Financial Instruments - Presentation", establishes standards for presentation of financial instruments and non-financial derivatives. - Section 1535 - "Capital Disclosures", establishes standards for disclosing information about an entity's capital and how it is managed. It describes the disclosure requirements of the entity's objectives, policies and processes for managing capital, the quantitative data relating to what the entity regards as capital, whether the entity has complied with capital requirements, and, if it has not complied, the consequences of such non-compliance. - The CICA has amended Section 1400, "General Standards of Financial Statement Presentation", to include requirements to assess and disclose the Company's ability to continue as a going concern. The adoption of this new section did not have an impact on the consolidated financial statements. Goodwill and Intangible Assets In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standard for its fiscal year beginning January 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The adoption of this new Section has no material impact on Company's consolidated financial statements at this time. DISCLOSURE CONTROLS AND PROCEDURES OVER FINANCIAL REPORTING The Company evaluated the effectiveness and design of its disclosure controls and procedures for the three months ended March 31, 2009, and based on this evaluation have determined these controls to be effective. The Company's financial reporting procedures and practices have enabled the certification of Verenex Energy Inc.'s annual filings in compliance with National Instrument 52-109 "Certification of Disclosure in Issuer's Annual and Interim Filings". Management has designed such internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements and other annual filings in accordance with Canadian Generally Accepted Accounting Principles. The evaluation of internal controls over financial reporting for the Company resulted in the identification of the following weaknesses which in management's view are not material weaknesses: - Management is aware that due to its relatively limited staffing levels there is a lack of segregation of duties due to the limited number of employees dealing with accounting and financial matters. Management has concluded that considering the employees involved and the control procedures in place, including management and Audit Committee oversight, risks associated with such lack of segregation are not significant enough to justify the expense associated with adding employees to clearly segregate duties. - Management is aware that in-house expertise to deal with complex taxation, accounting and reporting issues may not be sufficient. The Company requires outside assistance and advice on taxation, new accounting pronouncements and complex accounting and reporting issues, which is common with companies of a similar size. - Management is aware that in-house expertise to deal with information technology and information systems may not be sufficient. The Company has engaged a third party to provide the required expertise and support. There have been no significant changes in the first quarter of 2009 to the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company's management, including the CEO and CFO, conducted an evaluation of the effectiveness of its internal controls over financial reporting as of March 31, 2009 and has concluded that the internal controls as of March 31, 2009 were effective. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) On February 13, 2008, the AcSB confirmed that effective for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, International Financial Reporting Standards (IFRS) will replace Canada's current Generally Accepted Accounting Principles for all publicly accountable profit oriented enterprises. The Company commenced its IFRS conversion project in 2008, which consists of three phases - scoping, evaluation and design, implementation and review. The Company has commenced its first phase of the project, which includes project initiation and awareness, identification of high-level differences between Canadian GAAP and IFRS and project planning and resourcing. A high level scoping exercise has been completed which has identified priority areas and a high-level plan has been prepared. A detailed assessment of the impact of adopting IFRS on the Company's consolidated financial statements, accounting policies, information technology and data systems, internal controls over financial reporting, disclosure controls and procedures has not been completed. The impact of such elements will depend on the particular circumstances prevailing at the adoption date and the IFRS accounting policy choices the Company makes. The Company has not completed its quantification of the effects of adopting IFRS. The financial performance and financial position as disclosed in our Canadian GAAP financial statements may be significantly different when presented in accordance with IFRS. Verenex Energy Inc. Consolidated Balance Sheets (thousands of Cdn $) unaudited March 31, December 31, 2009 2008 ------------------------------------------------------------------------- Assets Current assets Cash $ 35,144 $ 55,522 Accounts receivable 391 402 Prepaid expenses and other 598 753 -------------------------- 36,133 56,677 Restricted cash (Note 11) 3,832 4,144 Capital assets (Note 4) 166,837 156,980 -------------------------- $ 206,802 $ 217,801 -------------------------- -------------------------- Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities $ 11,765 $ 23,950 Joint venture payable 4,696 2,916 Due to related party (Note 5) - 37 -------------------------- 16,461 26,903 Joint venture payables related to restricted cash (Note 11) 1,916 2,072 Stock compensation liability (Note 7) 3,675 1,835 -------------------------- 22,052 30,810 -------------------------- Shareholders' equity Share capital (Note 6) 203,455 203,431 Contributed surplus (Note 6) 9,999 9,646 Deficit (28,704) (26,086) -------------------------- 184,750 186,991 -------------------------- $ 206,802 $ 217,801 -------------------------- -------------------------- See accompanying notes to the Consolidated Financial Statements Verenex Energy Inc. Consolidated Statements of (Loss)/Income and Comprehensive (Loss)/Income and Deficit (thousands of Cdn $, except share and per share amounts) unaudited Three Three Months Months Ended Ended March 31, March 31, 2009 2008 ------------------------------------------------------------------------- Revenue Petroleum & natural gas, net $ (8) $ 240 Interest income 81 781 -------------------------- $ 73 $ 1,021 -------------------------- Expenses General and administration 1,676 354 Stock based compensation (Note 7) 2,192 755 Depletion and depreciation (Note 4) 91 244 Disposal of fixed assets gain (Note 12) (1,316) - Foreign exchange gain (11) (2,395) -------------------------- $ 2,632 $ (1,042) -------------------------- (Loss)/income before taxes (2,559) 2,063 Taxes 59 - -------------------------- Net (loss)/income and comprehensive loss/income (2,618) 2,063 Deficit, beginning of period (26,086) (28,129) -------------------------- Deficit, end of period $ (28,704) $ (26,066) -------------------------- -------------------------- Net (loss)/income per share (Note 8) Basic $ (0.06) $ 0.05 -------------------------- -------------------------- Diluted $ (0.06) $ 0.04 -------------------------- -------------------------- Weighted average number of shares outstanding (Note 8): Basic 44,273,491 44,267,891 -------------------------- -------------------------- Diluted 44,273,491 47,551,625 -------------------------- -------------------------- See accompanying notes to the Consolidated Financial Statements Verenex Energy Inc. Consolidated Statements of Cash Flows (thousands of Cdn $) unaudited Three Three Months Months Ended Ended March 31, March 31, 2009 2008 ------------------------------------------------------------------------- Cash (used in) provided by: Operating activities: Net (loss)/income $ (2,618) $ 2,063 Items not affecting cash: Stock based compensation 2,192 755 Depletion and depreciation 91 244 Disposal of fixed assets gain (1,316) - Unrealized foreign exchange gain (440) (4,207) -------------------------- (2,091) (1,145) Changes in non-cash operating working capital (Note 10) 166 244 -------------------------- (1,925) (901) -------------------------- Investing activities: Acquisition and expenditures on petroleum and natural gas properties (13,633) (15,661) Changes in non-cash investing working capital (Note 10) (10,405) (6,151) Restricted cash 497 841 Joint venture payables related to restricted cash (156) (347) Proceeds from disposition of assets held for sale (Note 12) 5,000 - -------------------------- (18,697) (21,318) -------------------------- Financing activities: Issue of common shares for cash 24 - Changes in non-cash financing working capital (Note 10) (37) 141 -------------------------- 13 141 -------------------------- Foreign exchange gain/(loss) on cash held in a foreign currency 257 4,062 -------------------------- Net decrease in cash (20,378) (18,016) Cash, beginning of period 55,522 122,502 -------------------------- Cash, end of period $ 35,144 $ 104,486 -------------------------- -------------------------- Cash taxes paid $ - $ - -------------------------- -------------------------- Cash interest received $ 81 $ 781 -------------------------- -------------------------- See accompanying notes to the Consolidated Financial Statements Verenex Energy Inc. Notes to the Consolidated Financial Statements For the Three Months ended March 31, 2009 (thousands of Cdn $, except as noted) unaudited 1. Summary of Significant Accounting Policies and Basis of Presentation Verenex Energy Inc. (the "Company" or "Verenex") was established on June 29, 2004, by way of a "reverse takeover" pursuant to an amalgamation agreement dated May 27, 2004. Verenex is a public company listed on the Toronto Stock Exchange on April 19, 2005. The interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles on a consistent basis with the audited consolidated financial statements for the year ended December 31, 2008. Certain disclosures in the interim financial statements may not conform in all respects to the requirements of generally accepted accounting principles for annual financial statements. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements as at and for the year ended December 31, 2008. 2. Changes in Accounting Policies Goodwill and Intangible Assets In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standard for its fiscal year beginning January 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The adoption of this new Section has no material impact on the Company's consolidated financial statements at this time. 3. Financial Risk and Capital Management Financial Risk The Company is exposed to financial risk on its financial instruments including cash, restricted cash, accounts receivable, joint venture receivable/payable, deposits, accounts payable and due to/from related party. The Company manages its exposure to financial risks by operating in a manner that minimizes its exposure to the extent practical. The main financial risks affecting the Company are discussed below: Credit Risk Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date. The Company has policies in place to ensure that transactions are made to parties with an appropriate credit history and monitors on a continuous basis the aging profile of its receivables. Accounts receivables are presented in the balance sheet net of any allowances for doubtful receivables. In addition, when joint operations are conducted on behalf of a joint venture partner relating to capital expenditures, the costs of such operations are paid for in advance to the Company by way of a cash call by the partner of the operations being conducted. The majority of the Company's financial assets are cash and restricted cash. The credit risk on cash and restricted cash is considered by management to be limited because the counterparties are financial institutions with high credit ratings assigned by international credit rating agencies. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. On a quarterly basis, the Company assesses whether there should be any impairment of the financial assets. There are no material financial assets that the Company considers past due and there is no impairment of any financial assets as at March 31, 2009. Market Risk Foreign Exchange Risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company's measurement currency. The Company is exposed to foreign exchange risk arising from various currency exposures primarily the US dollar in relation to the Canadian dollar. The Company's management monitors the exchange rate fluctuations on a regular basis. The Company operates in three geographic areas and is exposed to foreign currency risk due to changes in foreign currency exchange rates, primarily as measured against the US dollar. The Company does not use currency derivative instruments to manage the Company's exposure to foreign currency fluctuations. At March 31, 2009, the carrying amount of the Company's foreign currency denominated monetary assets was approximately $20.2 million and monetary liabilities were $13.1 million. Assuming all other variables remain constant, a fluctuation of one cent in the exchange rate of the US dollar to the Canadian dollar would result in an increase or decrease on profit or loss of approximately $0.1 million. Interest Rate Risk Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Company is exposed to interest rate risk as it maintains significant cash balances in interest bearing bank accounts. The Company monitors these risks on a regular basis. The Company currently does not use interest rate hedges or fixed interest rate contracts to manage the Company's exposure to interest rate fluctuations. Assuming all other variables remain constant, a fluctuation of 1% in the interest rates would result in an annual increase or decrease on profit or loss of approximately $0.4 million. Liquidity Risk Liquidity risk includes the risk that, as a result of the Company's operational liquidity requirements: - The Company will not have sufficient funds to settle a transaction on the due date; - The Company will be forced to sell financial assets at a value which is less than what they are worth; or - The Company may be unable to settle or recover a financial asset at all. The ultimate responsibility for liquidity risk rests with the Board of Directors, which has built a liquidity risk management framework for the management of the Company's short, medium and long-term funding and liquidity management requirements. The Company's cash requirements and balances are projected based on forecasted operations and capital expenditures. The Company plans to meet these requirements through the mix of available funds, equity financing on a required basis, project debt financing and cash, which may be provided by the exercise of warrants and share options in the future. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses. Financial liabilities are comprised of accounts payable, accrued liabilities, joint venture payable, due to related party and stock compensation liability. Accounts payable, accrued liabilities, joint venture payable and due to related party are expected to mature in less than one year. The stock compensation liability is expected to be settled over the periods consistent with the Stock Appreciation Rights, Performance Share Unit and Restricted Share Unit vesting periods. While Verenex manages its operations in order to minimize exposure to these risks, the Company has not entered into any derivatives or contracts to hedge or otherwise mitigate these fluctuations. Capital Management The Company manages its capital to ensure that the Company and its subsidiaries will be able to continue as a going concern and to provide a return to shareholders through exploring, appraising and developing its assets. As the Company is in the early stages of these activities, it will meet its capital requirements though the sale of common shares and issuance of debt. The Company defines capital as total equity plus debt, which totals $185 million as at March 31, 2009. Total equity is comprised of share capital, contributed surplus and deficit. The Company currently has no debt. The Company is not subject to any externally imposed capital requirements. 4. Capital Assets March 31, 2009 --------------------------------------------------------------------- Accumulated Depletion, Depreciation & Net Book Cost Amortization Value ------------------------------------ Petroleum and natural gas properties and equipment $ 165,613 $ - $ 165,613 Furniture and equipment 2,305 1,081 1,224 ------------------------------------ $ 167,918 $ 1,081 $ 166,837 ------------------------------------ ------------------------------------ December 31, 2008 --------------------------------------------------------------------- Accumulated Depletion, Depreciation & Net Book Cost Amortization Value ------------------------------------ Petroleum and natural gas properties and equipment $ 168,065 $ 12,393 $ 155,672 Furniture and equipment 2,296 988 1,308 ------------------------------------ $ 170,361 $ 13,381 $ 156,980 ------------------------------------ ------------------------------------ The Company capitalized $1.6 million of general and administrative costs directly related to exploration and development activities for the three months ended March 31, 2009 (March 31, 2008 - $1.7 million). On January 28, 2009, the Company entered into an arrangement with Vermilion and its wholly owned France and Denmark subsidiaries to sell the Bottrel GORR and the Verenex Danish and French subsidiaries for $5.0 million. The transaction closed on February 27, 2009. Depletion and depreciation of $0.1 million for the three months ended March 31, 2009 (March 31, 2008 - $0.2 million) relate to the depreciation of the Canadian and Libyan furniture and equipment. The 2008 expense includes depletion on the Bottrel GORR. At March 31, 2009, approximately $165.6 million of undeveloped properties in Libya (December 31, 2008 - $152 million) were excluded from the depletion calculation. 5. Related Party Transactions On January 28, 2009, the Company entered into an arrangement with Vermilion and its wholly owned France and Denmark subsidiaries to sell the Bottrel GORR and the Verenex Danish and French subsidiaries for $5.0 million. The transaction closed on February 27, 2009. (See Note 12) Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion Energy Trust ("VET"), which is a significant shareholder in Verenex. VREP, as contract operator in France, paid for various expenditures on behalf of Verenex. These transactions were measured at the exchange amount being the consideration established and agreed to by the related parties. These transactions were undertaken under the same terms and conditions as transactions with non-related parties. Amounts due to related parties at March 31, 2009 are $nil (December 31, 2008 - $0.1 million). On January 28, 2009, the Company entered into an arrangement with Vermilion to sell the Canadian Bottrel GORR effective December 31, 2008. All oil and gas revenues for 2009 relate to differences between accruals for the Bottrel GORR at December 31, 2008 and the actuals reported in 2009. Verenex entered into a Technical and Administrative Services Agreement with Vermilion Resources Limited ("Vermilion") on June 28, 2004, for the provision of certain financial and administrative services by Vermilion. The Agreement was automatically renewed for one-year periods, subject to termination or three months notice. Effective April 1, 2008 the monthly charge was reduced to five thousand dollars per month. During the three months ended March 31, 2009 Verenex was billed ten thousand dollars (March 31, 2008 - thirty thousand dollars) for services provided under this Agreement. The Agreement was terminated effective February 27, 2009. 6. Share Capital Authorized Unlimited number of common shares Unlimited number of preferred shares Number Issued of Shares Amount --------------------------------------------------------------------- Opening balance as at January 1, 2009 44,267,891 $ 203,431 Issued for cash on options exercised 5,600 24 -------------------------- Balance as at March 31, 2009 44,273,491 $ 203,455 -------------------------- Contributed Surplus March 31, December 31, 2009 2008 --------------------------------------------------------------------- Opening balance $ 9,646 $ 7,592 Stock compensation expense related to options, warrants and stock appreciation rights 509 2,678 Reversed on forfeiture of options - (624) Reversed on exercise of stock appreciation rights (132) - Transferred to share capital on options exercised (24) - -------------------------- Ending balance $ 9,999 $ 9,646 -------------------------- -------------------------- 7. Stock Compensation Plans The Company has a stock option plan that allows the directors, officers and employees of the Company to be granted rights to acquire common shares of the Company. The Company has a "rolling" stock option plan that reserves a maximum of 10% of the aggregate number of issued and outstanding common shares. The term of option grants to up to ten years. Stock option exercise prices are equal to the market price for the common shares on the date immediately prior to the date the stock option is granted. Stock options currently granted vest over three years and expire five years after the grant date. There were no options granted during 2008 or 2009. The following table summarizes information about the stock option plan: --------------------------------------------------------------------- Weighted Number of Average Stock Exercise Options Price -------------------------- Opening balance, January 1, 2009 3,706,000 $ 4.57 Granted - - Exercised (5,600) 4.35 Forfeited - - -------------------------- Closing balance, March 31, 2009 3,700,400 $ 4.57 -------------------------- -------------------------- The Company has also issued 1,877,500 performance warrants with a weighted average exercise price of $2.55. All of the performance warrants have vested and are exercisable. They expire on June 28, 2011. No performance warrants were issued in 2008 or 2009. On January 29, 2008, the Company repriced the existing stock options granted to non-officers' and non-insiders' to $8.90 from exercise prices ranging from $12.75 to $14.45 to reflect the market condition and pricing and to retain key employees. No changes were made to the vesting dates of these options. 750,000 options were repriced to $8.90. For the three months ended March 31, 2009, non-cash stock compensation expense related to stock options and performance warrants was $0.5 million (March 31, 2008 - $0.8 million). The Company has a Stock Appreciation Rights ("SAR's") Plan for directors, officers, employees and consultants adopted in 2005 with first awards issued in December 2005. The Company issued 495,000 SAR's during the year ended December 31, 2008. Under the terms of the SAR's Plan, the Company will pay a cash amount to any grantee of the cash value of the market appreciation of such SAR's exercised, measured as the difference between the SAR exercise price and the average closing price of the common shares of the Company for the five trading days preceding the date of exercise to a maximum defined price under the SAR's agreement. Compensation expense on unexercised rights is determined based on the market price at the end of each reporting period and is deferred and recognized in income over the vesting period of the rights. 110,000 SAR's were exercised during the first quarter 2009. As at March 31, 2009, there were 558,333 SAR's outstanding. The Company has a Performance Share Unit Award Incentive Plan for directors, officers, employees and consultants adopted in 2007 with first awards issued in January 2008. The Company issued 71,000 Performance Share Units ("PSU's") during the year ended December 31, 2008. Under the terms of the PSU Plan, the Board may elect, in its sole discretion, to pay to any grantee of a Unit Award in lieu of delivering all or any part of the Common Shares that would be otherwise delivered to the grantee on such vesting date (multiplied by a performance factor which is reviewed on a quarterly basis), a cash amount equal to the aggregate fair market value of such Common Shares that would otherwise be issued on such vesting date in consideration for surrender by the grantee to the Corporation of the right to receive all or any part of the Common Shares under such Unit Award. Compensation expense on unexercised rights is determined based on the market price at the end of each reporting period and is deferred and recognized in income over the vesting period of the rights. 35,500 PSU's vested during the first quarter 2009. As at March 31, 2009, there were 35,500 PSU's outstanding. The Company has a Restricted Share Unit Award Incentive Plan for directors, officers, employees and consultants adopted in 2008 with first awards issued in October 2008. The Company issued 513,000 Restricted Share Units ("RSU's") during the year ended December 31, 2008. Under the terms of the RSU Plan, the Company will pay a cash amount to any grantee of a Unit Award equal to the aggregate fair market value of an equivalent number of Common Shares on the vesting date multiplied by a performance factor, which is reviewed on a quarterly basis. Compensation expense on unexercised rights is determined based on the market price at the end of each reporting period and is deferred and recognized in income over the vesting period of the rights. 7,500 RSU's vested and were paid out during the first quarter 2009. As at March 31, 2009, there were 505,500 RSU's outstanding. For the three months ended March 31, 2009, the stock compensation expense related to SAR's, PSU's and RSU's was $1.8 million (March 31, 2008 - $0.1 million). 8. Per Share Amounts For the For the Three Three Months Months Ended Ended March 31, March 31, 2009 2008 --------------------------------------------------------------------- Weighted average number of common shares outstanding 44,273,491 44,267,891 Shares issuable pursuant to stock options - 1,916,258 Shares issuable pursuant to performance warrants - 1,367,476 -------------------------- Weighted average number of diluted common shares outstanding 44,273,491 47,551,625 -------------------------- -------------------------- The weighted average diluted shares outstanding include all stock options in the money from the date of grant or the beginning of the period. The weighted average diluted shares include the performance warrants which are treated as contingently issuable shares and are included from the beginning of the period that all of the conditions for issue were satisfied. The impact of options and performance warrants is not included in the calculation of net loss per share in 2009 as they would be anti- dilutive. 9. Segmented Information The Company operates in three different geographical locations and has chosen to disclose key financial data based on those jurisdictions. Where not specifically identified, income statement line items, such as interest revenue, relate to Canada. Any allocations of costs between segments are done at cost and based on time allocated to the various projects. For Three For Three Months Months Ended Ended March 31, March 31, 2009 2008 --------------------------------------------------------------------- Petroleum & natural gas revenues, net: Canada $ (8) $ 240 France/Barbados - - -------------------------- $ (8) $ 240 -------------------------- -------------------------- Interest Income: Canada $ 71 $ 643 France/Barbados - - Libya 10 138 -------------------------- $ 81 $ 781 -------------------------- -------------------------- Depletion & depreciation: Canada $ 50 $ 202 France/Barbados - - Libya 41 42 -------------------------- $ 91 $ 244 -------------------------- -------------------------- For Three For Three Months Months Ended Ended March 31, March 31, 2009 2008 Foreign exchange (gain)/loss: Canada $ (62) $ (1,973) France/Barbados 12 24 Libya 39 (446) -------------------------- $ (11) $ (2,395) -------------------------- -------------------------- Net income/(loss): Canada $ (2,886) $ 1,587 France/Barbados 322 (60) Libya (54) 536 -------------------------- $ (2,618) $ 2,063 -------------------------- -------------------------- Cash flows generated (used in) from operations: Canada $ (1,334) $ 541 France/Barbados (165) (137) Libya (426) (1,305) -------------------------- $ (1,925) $ (901) -------------------------- -------------------------- Capital expenditures: Canada $ - $ 50 France/Barbados - - Libya 13,633 15,611 -------------------------- $ 13,633 $ 15,661 -------------------------- -------------------------- All costs related to production, transportation and impairment write-downs relate to the France properties. March 31, December 31, 2009 2008 --------------------------------------------------------------------- Identifiable assets: Canada $ 15,061 $ 28,856 France/Barbados 548 1,512 Libya 191,193 187,433 -------------------------- $ 206,802 $ 217,801 -------------------------- -------------------------- 10. Statements of Cash Flow Changes in non-cash working capital: Three Three Months Months ended Ended March 31, March 31, 2009 2008 --------------------------------------------------------------------- Accounts receivable $ 11 $ 84 Prepaid expenses and other 155 160 Joint venture receivable/payable 1,780 873 Accounts payable and accrued liabilities (12,185) (7,024) Due to related party (37) 141 -------------------------- $ (10,276) $ (5,766) -------------------------- -------------------------- Changes in non-cash working capital relating to: Operating activities $ 166 $ 244 Investing activities (10,405) (6,151) Financing activities (37) 141 -------------------------- $ (10,276) $ (5,766) -------------------------- -------------------------- 11. Restricted Cash On April 11, 2006, the Company announced it had executed contracts for two drilling rigs for its operations in Area 47 in Libya. The first rig ODE Rig 28 spudded the Company's first well on September 29, 2006. The Company's second contracted drilling rig, KCA DEUTAG Rig T-19, arrived in Libya in January 2007 and was sub- contracted to a third party for approximately eight months. It commenced drilling in Area 47 on October 7, 2007. The Company released the KCA DEUTAG Rig T-19 in March 2009. The contracts require that Letters of Credit ("LC's") be entered into in support of maximum termination amounts, which vary over the life of the contract. As a result, the Company had issued two letters of credit ("LC's") relating to the signing of the drilling contracts that back-stop early termination provisions. The terms of the contracts called for the LC's to vary over the period of the contracts. The first LC required that cash collateral of US $4.8 million (gross) be put in place as at September 30, 2006. The first LC expired November 13, 2008. The second LC expired on April 30, 2009 and was supported by cash collateral of US $7.2 million (gross) as at December 31, 2006. At March 31, 2009, this had reduced to US $3.0 million (gross) (Cdn $3.8 million). The Company has received funds from its partner, Medco, for its 50% share of the cash collateral support the LC's. The joint venture payable related to restricted cash amounting to US$1.5 million due to Medco, as at December 31, 2008 has also been segregated on the balance sheet. 12. Gain on Assets Sold to Related Party On January 28, 2009, the Company entered into an arrangement with Vermilion and its wholly owned France and Denmark subsidiaries to sell the Bottrel GORR and the Verenex Danish and French subsidiaries for $5.0 million. The transaction closed on February 27, 2009. The following tables outline the final transaction details: 1) Canadian Bottrel GORR --------------------- Proceeds on disposition $ 4,500 Net book value of assets disposed (3,657) ------------ Gain on disposition of assets $ 843 ------------ 2) Danish and French Subsidiaries ------------------------------ Proceeds on disposition $ 500 Net book value of assets disposed (27) ------------ Gain on disposition of assets $ 473 ------------ Total Gain on disposition of assets $ 1,316 ------------ ------------ 13. Proposed Transaction On February 24, 2009, the Company entered into a definitive agreement (the "Acquisition Agreement") whereby a wholly-owned subsidiary of CNPC International Ltd. ("CNPCI") has agreed, subject to the terms of the Acquisition Agreement, to make an offer to acquire all the outstanding Shares by way of a take-over bid (the "Offer") for $10.00 per share in cash. Mailing of the Offer to Verenex shareholders is subject to the fulfillment of certain conditions for the benefit of CNPCI which, if not satisfied, will result in the Offer not proceeding. The primary condition precedent to the mailing of the Offer is the receipt from the NOC of written consent to the acquisition of Verenex by CNPCI (and certain other related matters including a waiver by the NOC of any pre-emption rights or other rights of first refusal it may have in connection with the Acquisition Agreement) in the form contemplated by the Acquisition Agreement. In order for the transaction to proceed, consent from the NOC is required under the terms of the EPSA. Such written consent has been requested but not yet received and no assurance can be given that the consent will be given, or, if given, will be in the form required by the Acquisition Agreement. The Offer, if made, will be conditional upon, among other things, valid acceptance of the Offer by Verenex shareholders owning not less than 66 2/3% of the outstanding Shares (calculated on a fully-diluted basis). In addition, the Offer will be subject to certain customary conditions, regulatory approvals (including all required approvals from the Libyan Government) and the absence of any material adverse change with respect to Verenex. No formal decision by the NOC has been communicated to Verenex. However, the Chairman of the NOC has publicly stated that the NOC intends to exercise a pre-emptive right to buy all of the outstanding shares of Verenex at $10 per share.

For further information:

For further information: Jim McFarland, President & CEO, Verenex Energy
Inc., Telephone: (403) 536-8009; or Ken Hillier, Chief Financial Officer,
Verenex Energy Inc., Telephone: (403) 536-8005, www.verenexenergy.com

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VERENEX ENERGY INC.

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