Verenex Energy Inc. - Second Quarter 2008 Operating and Financial Results



    CALGARY, Aug. 12 /CNW/ - Verenex Energy Inc. ("Verenex" or the "Company")
(TSX - VNX) is pleased to report its unaudited interim operating and financial
results for the three and six months ended June 30, 2008.
    Verenex is a Canada-based international exploration and production
company with a world-class exploration portfolio in the Ghadames Basin in
Libya.

    
    Highlights

    Operations - Libya

    -   Announced results of DeGolyer and MacNaughton ("DM") independent
        assessment of oil and gas resources in Area 47 on August 5, 2008,
        expressed as a range of estimates. In summary, the aggregate of DM's
        best estimate of gross contingent resources and geologic risk-
        adjusted mean estimate of gross prospective resources effective
        February 1, 2008, is approximately 1.6 billion barrels of oil
        equivalent ("boe"). The full range of DM estimates are as follows:
        -  The best estimate of gross contingent resources is approximately
           396 million boe, with low and high estimates of 106 and 701
           million boe, respectively.
        -  The best estimate of additional gross prospective resources
           (unrisked) is approximately 2.3 billion boe, with low, high and
           mean estimates of 1.1, 4.8 and 2.7 billion boe, respectively.
        -  The geologic risk-adjusted mean estimate of gross prospective
           resources is approximately 1.2 billion boe.

    -   Announced the Company's seventh oil discovery in Area 47 at A1-47/04
        on July 28, 2008, the first in Block 4 in the northern part of Area
        47. The well flowed at a maximum aggregate rate of 6,603 barrels of
        oil per day ("bopd") of light sweet crude oil and 8.6 million cubic
        feet per day ("mmcf/day") of associated natural gas from 85 feet of
        perforations in the Lower Acacus and Memouniat formations. This
        significant result confirms the potential of a new Lower Acacus play
        fairway in the northern part of Area 47 and provides the first
        positive results in the deeper Memouniat Formation.

    -   Completed flow testing of A4-47/02 in Block 2, the third appraisal
        well on the A1-47/02 oil discovery. The well flowed at a maximum rate
        of 2,490 bopd of light sweet crude oil and 2.1 mmcf/day of associated
        natural gas from a 52 foot interval in Basal Sand 1 in the Lower
        Acacus Formation. The A4 well intersected a water oil contact in this
        basal sand at the same subsea depth as encountered in the A2 and A3
        appraisal wells, confirming an oil column height of at least 155 feet
        in a large structural and stratigraphic trap encompassing the A1,
        A2, A3 and A4 wells.

    -   The Libya National Oil Corporation ("NOC") advised that certain areas
        around pre-existing oil discoveries at A1-NC3A and G1-NC02 located
        within or on the boundary of Block 2 in Area 47 are unavailable to
        Verenex for exploration or exploitation. Resources associated with
        these pre-existing discoveries were excluded from the DM assessment.
        Resolution of this issue has cleared the way to drill in adjacent
        areas and the NOC has recently approved drilling of the I1-47/02 well
        south of the G1-NC02 discovery which is expected to spud before the
        end of August 2008.

    -   During the May to August 2008 period, drilled and cased three new
        field wildcat ("NFW") exploration wells (B1-47/04, C1-47/04 and G1-
        47/02) and one appraisal well (A4-47/02) thereby increasing the total
        number of drilled and cased wells to 14. A 15th well H1-47/02 was
        spudded in early August and a 16th well I1-47/02 is preparing to
        spud.

    -   The B1 and C1-47/04 NFW exploration wells in Block 4 were cased based
        on encouraging formation evaluation results which indicated the
        presence of hydrocarbons in the Lower Acacus and Memouniat
        Formations. The G1-47/02 NFW exploration well in Block 2 was also
        cased based on indicated hydrocarbons in the Lower Acacus Formation.

    -   To date, nine wells (seven exploration wells and two appraisal wells)
        have been successfully flow tested at an aggregate rate of
        approximately 92,500 bopd and have been suspended as potential future
        oil production wells. Flow testing of the C1-47/04 well is underway.

    -   Completed the interpretation of the 1,208 square kilometre 3D seismic
        survey carried out in late 2007 in the eastern part of Area 47,
        increasing total 3D seismic coverage to 1,708 square kilometres or
        28% of Area 47. Processing and interpretation of the 2,400 kilometre
        2D seismic survey carried out in early 2008 in the central and
        southern part of Area 47 is progressing and is expected to be
        completed by the end of September.



    Area 47 Drilling & Testing Results
    -------------------------------------------------------------------------
                                                           Tested
                                                           Maximum
                                          Form-   Perfor-  Aggregate
                                  Total   ations  ated     Oil Flow
    Well    Well Year   Well      Depth   Tested  Interval Rate(3.)
    Name     No. Spud   Type(1.)  (ft)    (2.)    (ft)     (bopd)    Status
    -------------------------------------------------------------------------
    A1-47/02  1  2006     NFW     11,550    LA     174    12,500   Discovery
    -------------------------------------------------------------------------
    B1-47/02  2  2007     NFW     11,030  LA, MA   312    23,800   Discovery
    -------------------------------------------------------------------------
    C1-47/02  3  2007     NFW     9,900   LA, AO   188    23,570   Discovery
    -------------------------------------------------------------------------
    D1-47/02  4  2007     NFW     9,720   LA, MA   157     7,742   Discovery
    -------------------------------------------------------------------------
    E1-47/02  5  2007     NFW     9,639     LA      11     1,216   Discovery
                                                                      (4.)
    -------------------------------------------------------------------------
    F1-47/02  6  2007     NFW     10,300    LA      18     7,215   Discovery
    -------------------------------------------------------------------------
    A2-47/02  7  2007  Appraisal  10,400    LA      48     7,352 Intersected
                                                                     WOC(5.)
    -------------------------------------------------------------------------
    D2-47/02  8  2007  Appraisal  9,850     LA       6     Trace  At WOC(5.)
    -------------------------------------------------------------------------
    A3-47/02  9  2008  Appraisal  10,500    LA      22     Trace  At WOC(5.)
    -------------------------------------------------------------------------
    A1-47/04  10 2008     NFW     10,400  LA, MEM   85     6,603   Discovery
    -------------------------------------------------------------------------
    A4-47/02  11 2008  Appraisal  10,380    LA      52     2,490 Intersected
                                                                     WOC(5.)
    -------------------------------------------------------------------------
    B1-47/04  12 2008     NFW     10,250     -       -       -      Awaiting
                                                                     testing
    -------------------------------------------------------------------------
    C1-47/04  13 2008     NFW     10,155     -       -       -       Testing
    -------------------------------------------------------------------------
    G1-47/02  14 2008     NFW     10,645     -       -       -      Awaiting
                                                                     testing
    -------------------------------------------------------------------------
    H1-47/02  15 2008     NFW        -       -       -       -      Drilling
    -------------------------------------------------------------------------
    I1-47/02  16 2008     NFW        -       -       -       -     Preparing
                                                                     to spud
    -------------------------------------------------------------------------
    Notes:
    1.  NFW (new field wildcat exploration well).
    2.  LA (Lower Acacus), MA (Middle Acacus), AO (Aouinet Ouenine), MEM
        (Memouniat).
    3.  Maximum aggregate well rate as measured through choke sizes of
        32/64ths to 128/64ths inch on particular reservoir intervals.
    4.  The NOC has not yet classified E1-47/02 as a "commercial discovery"
        under criteria described in the 1955 Petroleum Law Regulations. These
        require that a well produce 1,000 bopd from depths of 8,000 to 10,000
        ft on a 28/64ths inch choke (flowing or pumped). The E1-47/02 flowed
        782 bopd on a 28/64ths inch choke and 1,216 bopd on a 48/64ths inch
        choke without the assistance of a pump.
    5.  WOC (water oil contact).


    Financial

    -   Funds flow from operations in the second quarter of 2008 was ($0.3)
        million compared to 0.1 million for the second quarter of 2007.

    -   Net loss in the second quarter of 2008 was $2.3 million compared to
        net loss of $1.8 million in the second quarter of 2007.

    -   Working capital surplus at June 30, 2008 was $61.5 million compared
        to $95.4 million as at December 31, 2007, including cash amounting to
        $75.9 million (December 31, 2007 - $122.5 million) net of restricted
        cash amounting to $6.2 million (December 31, 2007 - $7.9 million).
        The decrease in working capital is due to the ongoing investments in
        the Company's Libya operations.



    Highlights
                                   Three       Three         Six         Six
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
    (unaudited)                     2008        2007        2008        2007
    -------------------------------------------------------------------------

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

    Petroleum and natural gas
     revenues (net)                  287         421         527         918
    Funds flow from
     operations(1)                  (253)        109      (1,154)      1,184
    Net income/(loss)             (2,314)     (1,846)       (251)     (2,144)
    Capital expenditures          20,944      11,721      36,605      23,665
    Working capital surplus       61,452      21,019      61,452      21,019
    Common shares outstanding
      Basic                   44,267,891  36,173,491  44,267,891  36,173,491
      Diluted                 50,063,924  41,491,391  50,063,924  41,491,391
    Weighted average common
     shares outstanding
      Basic                   44,177,670  36,173,491  44,166,547  36,168,605
      Diluted                 47,364,207  40,085,250  47,428,731  39,792,155
    Share trading
      High                         10.96       14.40       11.24       14.40
      Low                           8.06       10.80        7.25        6.00
      Close                         8.14       13.93        8.14       13.93

    Operations

    Production
      Crude oil (bbls/d)               -          29           -          42
      Natural gas liquids
       (bbls/d)                       11          15          12          15
      Natural gas (mcf/d)            228         278         246         295
      Boe/d (6:1)(*)                  49          90          53         106
    Average reference price
      WTI (US$ per bbl)           123.98       65.03      110.94       61.65
      Brent (US$ per bbl)         121.38       68.76      109.14       63.26
      AECO (Cdn$ per mcf)          10.21        7.07        9.06        7.23
    Average selling price
      Crude oil (Cdn$ per bbl)         -       66.10           -       62.61
      Natural gas liquids          74.91       56.90       72.86       51.12
       (Cdn$ per bbl)
      Natural gas (Cdn$ per mcf)   10.17        7.04        8.23        6.06

    Average Operating Netback
     (Cdn$ per BOE @ 6:1)       64.06       45.22       54.71       40.50

    (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 second quarter of 2008, the Company invested approximately
$20.9 million. Libya accounted for essentially all of the investment activity
level with approximately $10.9 million in drilling, $4.5 million in testing
and completions, $1.0 million in geological and geophysical costs,
$1.3 million in capitalized General and Administration ("G&A") and office
costs, inventory $2.9 million and $0.3 in pre-engineering facility costs.

    Outlook

    The Company currently has two drilling rigs under long term contract
which enables the spudding of up to 11 to 12 wells during 2008. The Company is
on track to achieve this target with seven wells spudded to date in 2008. The
Company is currently seeking bids for a third drilling rig that could
potentially be deployed in 2009.
    Flow testing of the C1-47/04 NFW exploration well in Block 4 in the
northern part of Area 47 is underway and is expected to be completed by
mid-September utilizing the KCA DEUTAG Service Rig 32. Both the Memouniat and
Lower Acacus Formations are expected to be tested.
    The Company expects to complete the drilling and formation evaluation
program on the H1-47/02 NFW exploration well in Block 2 by late September
utilizing the Ensign 28 drilling rig. The H1 well is located approximately
18 kilometres northeast from the Verenex D1-47/02 oil discovery, with a target
depth of 10,500 feet.
    The I1-47/02 NFW exploration well is expected to spud in late August with
the KCA DEUTAG T-19 drilling rig. The I1 well is located in Block 2
approximately 6.5 kilometres south of the AGOCO G1-NC02 oil discovery and
22 kilometres northwest from the Verenex D1-47/02 oil discovery. This will be
the first well to be drilled in the Central 3D seismic survey area. The target
depth is 10,850 into the Memouniat Formation. Drilling and formation
evaluation results are expected by mid-October.
    The Company is targeting to complete the full interpretation of the 2008
2D seismic program by the end of the third quarter of 2008. The prospect and
lead inventory in Area 47 is being updated to incorporate results from the
2007 3D and 2008 2D seismic surveys to guide the drilling program and future
updates of the resource assessment for Area 47.
    The southern part of Area 47 is contemplated as the core for an initial
production phase of up to 50,000 bopd (gross) targeted for first oil
production in early 2010. The DM assessment confirms sufficient gross
contingent resources (best estimate 396 million boe) to underpin this initial
production phase. Excellent potential exists to grow production above this
floor given the assessment of gross geologic risk-adjusted mean prospective
resources (1.2 billion boe).
    Pre-engineering design and cost and schedule estimates are being prepared
for the proposed gathering lines, oil and gas export pipelines and processing
facilities associated with this development. This work is expected to be
completed by the end of August. The reservoir engineering and other subsurface
work to define the producing well completions and depletion mechanism,
including enhanced oil recovery, is well advanced and is also expected to be
completed by the end of August. All of this work will be incorporated into a
commerciality application planned for submission to the Area 47 Management
Committee and the NOC by the end of the third quarter of 2008.
    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 contains estimates of the Company's resources. The
estimates were prepared by DM pursuant to Canadian Securities National
Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The
contingent resources are defined as those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from known accumulations
using established technology or technology under development, but which are
not currently considered to be commercially recoverable due to one or more
contingencies. There is no certainty that it will be commercially viable to
produce any portion of the contingent resources. The prospective resources are
defined as those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from undiscovered accumulations by application of
future development projects. Prospective resources have both an associated
chance of discovery and a chance of development. There is no certainty that
any portion of the prospective resources will be discovered. If discovered,
there is no certainty that it will be commercially viable to produce any
portion of the prospective resources. The Company's material change report
filed on SEDAR at www.sedar.com and dated August 5, 2008 contains additional
detail on the resource estimate ranges and includes the risks and level of
uncertainty associated with the recovery of the resources, the significant
positive and negative factors relevant to the estimates and, in respect of the
contingent resources, the specific contingencies which prevent the
classification of the resources as reserves.
    This press release also contains forward-looking financial and
operational information, including but not limited to seismic and 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.
    Barrels of oil equivalent ("boe") may be misleading, particularly if used
in isolation. A boe conversion ratio of 6,000 cubic feet to one barrel is
based on an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following is management's discussion and analysis (MD&A), dated,
August 12, 2008, of the Company's operating and financial results for the
three and six months ended June 30, 2008. 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 interim unaudited
consolidated financial statements for the three and six months ended June
30, 2008 and the audited consolidated financial statements for the year ended
December 31, 2007, together with the accompanying notes as contained in the
Company's 2007 Annual Report.
    Additional information relating to the Company is available on SEDAR at
www.sedar.com.

    Forward-Looking Information

    This report contains forward-looking financial and operational
information, including but not limited to seismic and 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; and, health, safety and environmental risks), 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
reserves associated with certain wells and the outlook for world prices for
oil and natural gas.

    Revenues

    Production in the second quarter was entirely attributable to the
Bottrel, Alberta gross overriding royalty (the "Bottrel GORR"). Total Company
oil and gas production was 49 barrels of oil equivalent per day ("boepd") in
the second quarter of 2008 resulting in oil and gas revenues of $0.3 million,
net of royalties, compared to 90 boepd and revenues of $0.4 million in the
second quarter of 2007 and 57 boepd and revenues of $0.2 million in the first
quarter of 2008. The decrease from the second quarter of 2007 is due to the
sale of the Company's participating interest in the Marvilliers Permit,
including the St. Lazare 2H well, and in two drilling spacing units in the
Parentis Concession, including the Parentis 222H well, located in France in
May 2007, which contributed 29 boepd of production in 2007.
    During the second quarter of 2008 the Bottrel GORR provided production of
approximately 49 boepd and revenues of $0.3 million compared to 61 boepd and
$0.3 million for the same period in 2007 and 57 boepd and $0.2 million of
royalty income during the first quarter of 2008. The decrease in production
compared to the second quarter of 2007 relates to natural production declines
in the producing wells together with a reduction in the number of producing
wells from 15 to 12. The decrease in production compared to the first quarter
of 2008 relates to natural production declines in the producing wells together
with a reduction in the number of producing wells from 15 to 12.
    There were no unusual cyclical or seasonal factors impacting the
Company's production in 2008.
    Average realized prices for the second quarter of 2008 were: oil $nil
(2007 - $66.10); natural gas $10.17 per mcf (2007 - $7.04); and NGL
$74.91 per bbl (2007 - $56.90). These compare to prices of $6.51 per mcf for
natural gas and $71.12 per bbl for NGL during the first quarter of 2008.
    Interest of $0.4 million was earned in the second quarter of 2008
(2007 - $0.4 million) compared to $0.8 million for the first quarter of 2008
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 second quarter of 2008.
    Foreign exchange loss for the second quarter of 2008 amounted to
$0.9 million as compared to $1.7 million for the second quarter in 2007.
Foreign exchange gain for the six months ended June 2008 amounted to
$1.5 million compared to a loss of $1.7 million for the six months ended June
2007. The loss compared to the first quarter of 2008 is due to the
strengthening of the US dollar versus the Canadian dollar over the period.

    Stock Compensation

    For the three and six months ended June 30, 2008, non-cash stock
compensation expense related to stock options, performance warrants and Stock
Appreciation Rights ("SAR's") was $1.0 million and $1.7 million
(2007 - $0.5 million and $1.0 million) . The increase in costs compared to
2007 is primarily related to the issuance of additional stock options during
2007 and the issuance of Performance Share Units ("PSU's") during the first
quarter of 2008.

    General and Administration ("G&A")

    The Company capitalized $1.3 million and $3.1 million of general and
administrative costs relating to exploration and development activities for
the three and six months ended June 30, 2008 (2007 - $1.0 million and
$2.1 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. The
higher net G&A in 2008 in comparison with 2007 is due to the timing of
expenditures and the application of an overhead recovery against these costs.
The overhead recovery is capped at US $1 million annually.

    Effects of Exchange Rate Fluctuations

    The Company's operations are conducted primarily in jurisdictions where
the United States dollar (US$) and the European Euro ((euro)) are the business
currencies. The majority of the Company's costs, assets and liabilities during
the quarter ended June 30, 2008 were denominated in US$. 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 and $0.4 million for the
three and six months ended June 30, 2008 (2007 - $0.3 million and
$0.7 million) relates primarily to the depletion of the Canadian assets.
Depletion and depreciation for the three and six months of 2007 included
depletion on the France assets, which have subsequently been sold. Depletion
during the second quarter of 2008 was reduced by the impact of a $0.1 million
adjustment to the final drilling costs for the Ocra 1 exploration well in
France.

    Related Party Transactions

    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 are
comprised of an amount due to VREP of $0.4 million (December 31, 2007 -
$1.1 million).
    The Bottrel GORR is a gross overriding royalty on VET's share of
production from specific wells at Bottrel, Alberta. The Bottrel GORR provided
$0.3 million and $0.5 million of royalty income during the three and six
months ended June 30, 2008 (2007 - $0.3 million and $0.5 million).
    Verenex entered into a Technical and Administrative Services Agreement
with Vermilion Resources Limited ("Vermilion") on June 28, 2004, whereby
Vermilion provides certain financial and administrative services 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 is automatically renewed for one-year periods, unless
one party provides three months notice not to renew. 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 six months ended June 30, 2008 Verenex was
billed forty-five thousand dollars (2007 - sixty thousand dollars) for
services provided under this Agreement.

    Liquidity and Capital Resources

    Verenex will continue to rely primarily on equity to fund future working
capital requirements and capital obligations and supplement this funding from
other sources including project debt financing as required.
    The Company has 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 contract call for the LC's to vary over the
period of the contract. The first LC expires on November 13, 2008 and is
exercisable by Oil Drilling & Exploration (Borneo) Pty Limited ("ODE"), a
subsidiary of Ensign Energy Services Inc. based in Calgary, Alberta. The ODE
contract required that cash collateral of US $4.8 million (gross) be put in
place by September 30, 2006. At June 30, 2008 this had been reduced to US
$1.9 million (gross). The second LC in favour of KCA DEUTAG Drilling GmbH
based in Germany ("KCA DEUTAG"), expires on April 30, 2009 and is supported by
cash collateral of US $7.2 million (gross) as at June 30, 2006. At
June 30, 2008 this had been reduced to US $4.1 million. The Company has
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 working capital surplus at June 30, 2008 was $61.5 million compared
to $95.4 million as at December 31, 2007, including cash amounting to
$75.9 million (December 31, 2007 - $122.5 million) net of restricted cash
amounting to $6.2 million (December 31, 2007 - $7.9 million). The decrease in
working capital is due to the ongoing investments in the Company's Libya
operations.
    The majority of the trade receivables relate to an accrual for revenues
associated with the Bottrel GORR. All trade receivables have been assessed for
credit risk and no allowance for doubtful accounts is necessary at this time.
The joint venture receivable relates to amounts owed by the Company's partner
in Libya.
    Accounts payable and accrued liabilities have decreased since December
31, 2007 due to the timing of activity levels in Libya.
    The Company has sufficient resources to fulfill its short-term
commitments.

    Verenex is listed on the Toronto Stock Exchange under the stock symbol 
VNX.

    Critical Accounting Estimates

    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
reserves associated with certain wells and the outlook for world prices for
oil and natural gas.

    
    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 will adopt the
new standards 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 Company has evaluated
the impact of the adoption of this new Section on its consolidated financial
statements. The Company does not expect that the adoption of this new Section
will have a material impact on its 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 June 30, 2008, 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
Multilateral 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, except as noted below:
    Given the small size of the Company, the evaluation of internal controls
over financial reporting for the Company resulted in the identification of the
following 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 second quarter of 2008 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.




    Verenex Energy Inc.
    Consolidated Balance Sheets
    (thousands of Cdn $)
    unaudited

                                                        June 30, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Assets

    Current assets
      Cash                                           $   75,928   $  122,502
      Accounts receivable                                   394          474
      Joint venture receivable                              761            -
      Prepaid expenses and other                            398          595
                                                     ------------------------
                                                         77,481      123,571

    Restricted cash (Note 11)                             6,177        7,890
    Capital assets (Note 4)                             119,811       83,556
                                                     ------------------------
                                                     $  203,469   $  215,017
                                                     ------------------------
                                                     ------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accrued liabilities       $   15,659   $   22,611
      Joint venture payable                                   -        4,513
      Due to related party (Note 6)                         370        1,055
                                                     ------------------------
                                                         16,029       28,179

    Joint venture payables related to restricted
     cash (Note 11)                                       3,088        3,944

    Stock compensation liability (Note 8)                   303            -
                                                     ------------------------
                                                         19,420       32,123
                                                     ------------------------

    Shareholders' equity
      Share capital (Note 7)                            203,431      203,431
      Contributed surplus (Note 7)                        8,998        7,592
                                                        (28,380)     (28,129)
      Deficit                                        ------------------------
                                                        184,049      182,894
                                                     ------------------------
                                                     $  203,469   $  215,017
                                                     ------------------------
                                                     ------------------------

    See accompanying notes to the Consolidated Financial Statements


    Verenex Energy Inc.
    Consolidated Statements of Loss and Comprehensive Loss and Deficit
    (thousands of Cdn $, except share and per share amounts)
    unaudited

                                Three        Three          Six          Six
                               Months       Months       Months       Months
                                Ended        Ended        Ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Revenue
      Petroleum & natural
       gas, net            $      287   $      421   $      527   $      918
      Interest income             399          370        1,180          847
                           --------------------------------------------------
                           $      686   $      791   $    1,707   $    1,765
                           --------------------------------------------------

    Expenses
      Production           $        -   $       46   $        -   $      127
      Transportation                -            5            -           11
      General and
       administration           1,009           64        1,363          433
      Stock based
       compensation (Note 8)      955          515        1,710        1,015
      Depletion and
       depreciation (Note 4)      107          303          351          687
      Gain on assets
       held for sale
       (Note 12)                    -          (27)           -          (27)
      Foreign exchange
       loss/(gain)                928        1,723       (1,467)       1,652
                           --------------------------------------------------
                           $    2,999   $    2,629   $    1,957   $    3,898
                           --------------------------------------------------

    Loss before taxes          (2,313)      (1,838)        (250)      (2,133)
    Taxes                           1            8            1           11
                           --------------------------------------------------
    Loss and comprehensive
     loss                      (2,314)      (1,846)        (251)      (2,144)

    Deficit, beginning of
     period                   (26,066)     (16,409)     (28,129)     (16,111)
                           --------------------------------------------------

    Deficit, end of period $  (28,380)  $  (18,255)  $  (28,380)  $  (18,255)
                           --------------------------------------------------
                           --------------------------------------------------

    Net loss per share
     basic and diluted
     (Note 9)              $    (0.05)  $    (0.05)  $    (0.01)  $    (0.06)
                           --------------------------------------------------
                           --------------------------------------------------

    Weighted average number
     of shares outstanding
     (Note 9):
      Basic                44,267,891   36,173,491   44,267,891   36,168,605
                           --------------------------------------------------
                           --------------------------------------------------
      Diluted              47,454,427   40,085,250   47,530,075   39,792,155
                           --------------------------------------------------
                           --------------------------------------------------

    See accompanying notes to the Consolidated Financial Statements



    Verenex Energy Inc.
    Consolidated Statements of Cash Flows
    (thousands of Cdn $)
    unaudited

                                Three        Three          Six          Six
                               Months       Months       Months       Months
                                Ended        Ended        Ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Loss                 $   (2,314)  $   (1,846)  $     (251)  $   (2,144)
      Items not affecting
       cash:
        Stock based
         compensation             955          515        1,710        1,015
        Depletion and
         depreciation             107          303          351          687
        Gain on assets held
         for sale                   -          (27)           -          (27)
        Foreign exchange
         (gain)/loss              968        1,866       (3,239)       2,089
                           --------------------------------------------------
                                 (284)         811       (1,429)       1,620
      Changes in non-cash
       operating working
       capital                     31         (702)         275         (436)
                           --------------------------------------------------
                                 (253)         109       (1,154)       1,184
                           --------------------------------------------------

    Investing activities:
      Acquisition and
       expenditures on
       petroleum and
       natural gas
       properties             (20,944)     (11,721)     (36,605)     (23,665)
      Changes in non-cash
       investing working
       capital                 (6,075)       1,193      (12,226)      (4,623)
      Restricted cash           1,050        2,355        1,891        2,814
      Joint venture payables
       related to
       restricted cash           (509)      (1,488)        (856)      (1,718)
                           --------------------------------------------------
                              (26,478)      (9,661)     (47,796)     (27,192)
                           --------------------------------------------------

    Financing activities:
      Issue of common shares
       for cash                     -            -            -          132
      Share issue costs             -            -            -          (22)
      Due to related party       (826)        (186)        (685)        (273)
      Proceeds from
       disposition of assets
       held for Sale
       (Note 12)                    -        2,680            -        2,680
                           --------------------------------------------------
                                 (826)       2,494         (685)       2,517
                           --------------------------------------------------

    Foreign exchange
     gain/(loss) on cash
     held in a foreign
     currency                  (1,001)      (1,243)       3,061       (1,466)
                           --------------------------------------------------

    Net decrease in cash      (28,558)      (8,301)     (46,574)     (24,957)
    Cash, beginning of
     period                   104,486       32,713      122,502       49,369
                           --------------------------------------------------

    Cash, end of period    $   75,928   $   24,412   $   75,928   $   24,412
                           --------------------------------------------------
                           --------------------------------------------------

    Cash taxes paid        $        1   $        8   $        1   $       11
                           --------------------------------------------------
                           --------------------------------------------------

    Cash interest received $      399   $      370   $    1,180   $      847
                           --------------------------------------------------
                           --------------------------------------------------

    See accompanying notes to the Consolidated Financial Statements



    Verenex Energy Inc.
    Notes to the Consolidated Financial Statements
    For the three and six months ended June 30, 2008
    (thousands of Cdn $, except as noted)
    unaudited

    1.  Summary of Significant Accounting Policies and Basis of Presentation

        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, 2007, except as
        described in Note 2 below. 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, 2007.

    2.  Changes in Accounting Policies

        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.

        Accounting Pronouncements Issued But Not Yet Adopted

        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 will adopt the new
        standards 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 Company has evaluated the impact of the
        adoption of this new Section on its consolidated financial
        statements.

        The Company does not expect that the adoption of this new Section
        will have a material impact on its consolidated financial statements
        at this time.

    3.  Financial and Capital Risk Management

        Financial Risk

        The Company is exposed to financial risk on its financial instruments
        including cash, accounts receivable, joint venture
        receivable/payable, deposits, accounts payable and due to 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 ageing profile of its receivables.

        The majority of the Company's financial assets are cash and
        restricted cash. 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 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 if 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 financial
        assets as at June 30, 2008.

        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
        and acts accordingly.

        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 June 30, 2008, the carrying amount of the Company's foreign
        currency denominated net monetary assets was approximately
        $56.9 million and net monetary liabilities were $22.5 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 (decrease) on profit or loss of
        approximately $0.3 million.

        The prices received by the Company for the production of natural gas
        and natural gas liquids are primarily determined in reference to U.S.
        dollars but are settled with the Company in Canadian dollars. The
        Company's cash flow from commodity sales would not be materially
        impacted by fluctuations in foreign currency.

        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.

        A 1% increase or decrease is used when reporting interest rate risk
        internally to key management personnel and represents management's
        assessment of the reasonably possible change in interest rates.
        Assuming all other variables remain constant, a fluctuation of 1% in
        the interest rates would result in an increase on profit or loss of
        approximately $0.2 million during the quarter.

        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 an appropriate 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 to 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.

        Capital Risk

        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 cash and debt. Total
        equity is comprised of share capital, options and warrants. The
        Company currently has no debt. The Company is not subject to any
        externally imposed capital requirements.

    4.  Capital Assets

                                                    June 30, 2008
        ---------------------------------------------------------------------
                                                     Accumulated
                                                       Depletion,        Net
                                                   Depreciation &       Book
                                              Cost  Amortization       Value
                                        -------------------------------------
        Petroleum and natural gas
         properties and equipment       $  130,431   $   12,005   $  118,426
        Furniture and equipment              2,193          808        1,385
                                        -------------------------------------
                                        $  132,624   $   12,813   $  119,811
                                        -------------------------------------
                                        -------------------------------------

                                                  December 31, 2007
        ---------------------------------------------------------------------
                                                     Accumulated
                                                       Depletion,        Net
                                                   Depreciation &       Book
                                              Cost  Amortization       Value
                                        -------------------------------------
        Petroleum and natural gas
         properties and equipment       $   93,950   $   11,842   $   82,108
        Furniture and equipment              2,069          621        1,448
                                        -------------------------------------
                                        $   96,019   $   12,463   $   83,556
                                        -------------------------------------
                                        -------------------------------------

        The Company capitalized $1.3 million and $3.1 million of general and
        administrative costs directly related to exploration and development
        activities for the three and six months ended June 30, 2008 (2007 -
        $1.0 million and $2.1 million).

        Depletion and depreciation of $0.1 million and $0.4 million for the
        three and six months ended June 30, 2008 (2007 - $0.3 million and
        $0.7 million) relates primarily to the depletion of the Canadian
        assets. At June 30, 2008, approximately $114.5 million of costs in
        Libya (December 31, 2007 - $78.0 million) were excluded from the
        depletion calculation.

    5.  Asset Retirement Obligations

        The Company records the fair value of legal obligations associated
        with the retirement of all of its long-lived tangible assets,
        including its producing well sites but excluding the assets
        associated with the Bottrel royalty for which the Company has no
        retirement obligations. The estimation of these costs is based on
        engineering estimates using current costs and technology and in
        accordance with current legislation and industry practice. During
        2007, the Company sold its only producing assets in France resulting
        in the elimination of the asset retirement obligations associated
        with these assets.

    6.  Related Party Transactions

        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 are comprised of an amount due to VREP
        of $0.4 million (December 31, 2007 - $1.1 million).

        The Bottrel GORR is a gross overriding royalty on VET's share of
        production from specific wells at Bottrel, Alberta. The Bottrel GORR
        provided $0.3 million and $0.5 million of royalty income during the
        three and six months ended June 30, 2008 (2007 - $0.4 million and
        $0.9 million).

        Verenex entered into a Technical and Administrative Services
        Agreement with Vermilion Resources Limited ("Vermilion") on June 28,
        2004, whereby Vermilion provides certain financial and administrative
        services and certain technical, marketing and other services. The
        Agreement is automatically renewed for one-year periods, unless one
        party provides three months notice not to renew. Effective April 1,
        2008, the monthly charge was reduced to five thousand dollars per
        month. During the six months ended June 30, 2008, Verenex was billed
        forty-five thousand dollars (2007 - sixty thousand dollars) for
        services provided under this Agreement.

    7.  Share Capital

        Authorized

        Unlimited number of common shares
        Unlimited number of preferred shares

                                                         Number
        Issued                                        of Shares       Amount
        ---------------------------------------------------------------------
        Opening balance as at January 1, 2008        44,267,891   $  203,431

        Issued for cash on warrants and options
         exercised                                            -            -
        Share issue costs                                     -            -
        Transferred from contributed surplus on
         warrants and options exercised                       -            -
                                                     ------------------------

        Balance as at June 30, 2008                  44,267,891   $  203,431
                                                     ------------------------
                                                     ------------------------

        Contributed Surplus

                                                        June 30, December 31,
                                                           2008         2007
        ---------------------------------------------------------------------

        Opening balance                              $    7,592   $    5,402

        Stock compensation expense                        1,710        2,431
        Reversed on cancellation of unvested options       (304)           -
        Reversed on cancellation of warrants                  -            -
        Reversed on cancellation of Stock
         Appreciation Rights                                  -            -
        Transferred to share capital on warrant and
         option exercise                                      -         (241)
                                                     ------------------------
        Ending balance                               $    8,998    $   7,592
                                                     ------------------------
                                                     ------------------------

    8.  Stock Compensation Plans

        The following table summarizes information about the stock option
        plan:

        ---------------------------------------------------------------------
                                                                    Weighted
                                                      Number of      Average
                                                          Stock     Exercise
                                                        Options        Price
                                                     ------------------------

        Opening balance, January 1, 2008              4,031,000   $     5.64

        Granted                                         750,000         8.90
        Exercised                                             -            -
        Cancelled                                      (862,467)       11.89
                                                     ------------------------

        Closing balance, June 30, 2008                3,918,533   $     4.80
                                                     ------------------------
                                                     ------------------------

        The following table summarizes information about the performance
        warrants:

        ---------------------------------------------------------------------
                                                                    Weighted
                                                      Number of      Average
                                                    Performance     Exercise
                                                       Warrants        Price
                                                     ------------------------
        Opening balance, January 1, 2008              1,877,500   $     2.55

        Exercised                                             -            -
        Cancelled                                             -            -
                                                     ------------------------

        Balance, June 30, 2008                        1,877,500   $     2.55
                                                     ------------------------
                                                     ------------------------

        For the three and six months ended June 30, 2008, non-cash stock
        compensation expense related to stock options, performance warrants
        and Stock Appreciation Rights ("SAR's") was $1.0 million and
        $1.7 million (2007 - $0.5 million and $1.0 million).

        The Company has a Performance Share Unit Award Incentive Plan for
        directors, officers, employees and consultants. The Company issued
        81,500 Performance Share Units ("PSU's") during the quarter ended
        March 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, 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 on the
        rights as the excess of the market price over the exercise price of
        the rights at the end of each reporting period and is deferred and
        recognized in income over the vesting period of the rights.

    9.  Per Share Amounts

                              For the      For the      For the      For the
                                Three        Three          Six          Six
                               Months       Months       Months       Months
                                Ended        Ended        Ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------
        Weighted average
         number of common
         shares
         outstanding       44,267,891   36,173,491   44,267,891   36,168,605

        Shares issuable
         pursuant to stock
         options            1,837,638    2,393,786    1,897,988    2,185,823

        Shares issuable
         pursuant to
         performance
         warrants           1,348,899    1,517,973    1,364,196    1,437,727
                           --------------------------------------------------

        Weighted average
         number of diluted
         common shares
         outstanding       47,454,427   40,085,250   47,530,075   39,792,155
                           --------------------------------------------------
                           --------------------------------------------------

        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 as they would be anti-dilutive.

    10. 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 the      For the      For the      For the
                                Three        Three          Six          Six
                               Months       Months       Months       Months
                                Ended        Ended        Ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------
        Petroleum & natural
         gas revenues, net:
          Canada           $      287   $      257   $      527   $      462
          France                    -          164            -          456
                           --------------------------------------------------
                           $      287   $      421   $      527   $      918
                           --------------------------------------------------
                           --------------------------------------------------
        Interest Income:
          Canada           $      337   $      218   $      980   $      574
          France                    -           56            -           56
          Libya                    62           96          200          217
                           --------------------------------------------------
                           $      399   $      370   $    1,180   $      847
                           --------------------------------------------------
                           --------------------------------------------------
        Depletion &
         depreciation:
          Canada           $      184   $      205   $      386   $      418
          France                 (117)          79         (117)         234
          Libya                    40           19           82           35
                           --------------------------------------------------
                           $      107   $      303   $      351   $      687
                           --------------------------------------------------
                           --------------------------------------------------

        Foreign exchange
         loss/(gain):
          Canada           $      999   $    1,180   $     (974)  $    1,126
          France                  296           72          320           55
          Libya                  (367)         471         (813)         471
                           --------------------------------------------------
                           $      928   $    1,723   $   (1,467)  $    1,652
                           --------------------------------------------------
                           --------------------------------------------------

        Net income/(loss):
          Canada           $   (2,488)  $   (1,457)  $     (901)  $   (1,828)
          France                 (219)          31         (279)           2
          Libya                   393         (420)         929         (318)
                           --------------------------------------------------
                           $   (2,314)  $   (1,846)  $     (251)  $   (2,144)
                           --------------------------------------------------
                           --------------------------------------------------
        Cash flows
         generated from
         (used in)
         operations:
          Canada           $     (733)  $   (1,025)  $     (210)  $     (382)
          France                 (322)          85         (427)         209
          Libya                   802        1,049         (517)       1,357
                           --------------------------------------------------
                           $     (253)  $      109   $   (1,154)  $    1,184
                           --------------------------------------------------
                           --------------------------------------------------
        Capital
         expenditures:
          Canada           $      145   $       10   $      195   $       13
          France                 (117)        (620)        (117)        (534)
          Libya                20,916       12,331       36,527       24,186
                           --------------------------------------------------
                           $   20,944   $   11,721   $   36,605   $   23,665
                           --------------------------------------------------
                           --------------------------------------------------

        All costs related to production and transportation relate to the
        France properties.

                              June 30, December 31,
                                 2008         2007
        -------------------------------------------
        Identifiable assets:
          Canada           $   63,788   $   92,906
          France                1,469        1,388
          Libya               138,212      120,723
                           ------------------------
                           $  203,469   $  215,017
                           ------------------------
                           ------------------------

    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.

        Both contracts include an initial two-year term, with two one-year
        extension options exercisable by the Company. Under the contract
        terms, the Company retains the ability to assign the rigs to third
        parties, with the approval of the contractor, if circumstances
        warrant. Maximum early termination exposure under the two contracts
        in aggregate was US $12.0 million (net Verenex 50% share Cdn
        $6.8 million) at the respective spud dates for each rig.

        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 has 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
        contract call for the LC's to vary over the period of the contract.
        The first LC expires on November 13, 2008 and requires that cash
        collateral of US $4.8 million (gross) be put in place as at September
        30, 2006. At June 30, 2008 this had reduced to US $1.9 million
        (gross). The second LC expires on April 30, 2009 and was supported by
        cash collateral of US $7.2 million (gross) as at December 31, 2006.
        At June 30, 2008 this had reduced to US $4.1 million (gross).

        The Company has received funds from its partner, Medco, for its 50%
        share of the cash collateral and the total amount of cash provided as
        support for the LC's. The joint venture payable related to restricted
        cash amounting to $3.1 million due to Medco, as at June 30, 2008, has
        also been segregated on the balance sheet.

    12. Assets Held for Sale

        On October 12, 2006, the Company's wholly owned subsidiary, VEX,
        entered into an agreement with VREP for the sale of the Company's 95%
        participating interest in the Marvilliers Permit, including the
        St. Lazare 2H well, and in two drilling spacing units in the Parentis
        Concession, including the Parentis 222H well, located in France for
        $3.5 million, less adjustments on closing.

        The transaction closed on May 30, 2007. The following table outlines
        the final transaction details:

        Proceeds on disposition                                   $    2,680
        Net book value of assets disposed                             (2,690)
        Asset retirement obligation related to assets disposed            37
                                                                  -----------
        Gain on disposition                                       $       27
                                                                  -----------
                                                                  -----------


    /NOTE TO PHOTO EDITORS: A photo accompanying this release is available on
    the CNW Photo Network and archived at http://photos.newswire.ca.
    Additional archived images are also available on the CNW Photo Archive
    website at http://photos.newswire.ca. Images are free to accredited
    members of the media/
    




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

Organization Profile

VERENEX ENERGY INC.

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