Verenex Energy Inc. - Third Quarter 2007 Operating and Financial Results



    CALGARY, Oct. 31 /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 nine months ended September 30, 2007.
    Verenex is a Canada-based international exploration and production
company with a world-class exploration portfolio in the Ghadames Basin in
Libya.
    The Company continues to make excellent progress with its exploration
program in Area 47 in Libya and expects to meet its 2007 target to drill up to
seven exploration and appraisal wells and acquire 1,225 square kilometres of
3D seismic. Since drilling began in September 2006, six wells have been
drilled and cased as potential future oil production wells and a seventh is
drilling. Three of these wells are fully flow tested and flow tests have
commenced on two additional wells.

    
    Highlights

    Operations - Libya

    -   As previously reported on October 25, 2007, the Libyan National Oil
        Corporation ("NOC") officially announced that the Company's third new
        field wildcat exploration well C1-47/02 is an oil discovery, its
        third announced oil discovery in Area 47. The Company carried out
        extended flow tests on four intervals in the Lower Acacus Formation
        and one interval in the Aouinet Ouenine Formation. These tests
        yielded a combined maximum measured flow rate, as restricted by test
        equipment capability, of approximately 23,570 barrels of oil per day
        (gross) from 188 feet of perforations through choke sizes on
        particular intervals ranging from 32/64ths to 96/64ths inch. Measured
        API gravity of the crude oil ranged from 40 to 44 degrees. At the
        request of the NOC, rates were also measured through a smaller and
        more restrictive choke size of 32/64ths inch for their normalization
        purposes, which yielded a combined restricted rate of 8,718 barrels
        of oil per day.

    -   The Company spudded its seventh well A2-47/02 on October 7, 2007 with
        its second contracted drilling rig KCA DEUTAG T-19. The well is
        targeting the Lower Acacus Formation and will appraise the Company's
        first oil discovery A1-47/02 located 5.1 kilometres to the east. The
        well is expected to be drilled to a depth of 10,400 feet.

    -   The Company drilled and cased its sixth new field wildcat exploration
        well F1-47/02 in 40 days. The well is located 8.2 kilometres
        northeast of the Company's A1-47/02 oil discovery and 3.1 kilometres
        northwest of the A1-NC3A oil discovery. The well was drilled to a
        depth of 10,300 feet and found indications of hydrocarbons in the
        Lower Acacus Formation. The well is currently being flow tested with
        the drilling rig in order to accelerate the testing program of
        drilled wells.

    -   The Company drilled and cased its fifth new field wildcat exploration
        well E1-47/02 in 45 days. The well is located 17.5 kilometres east of
        the Company's D1-47/02 well which is currently testing. The well was
        drilled to a final depth of 9,639 feet and found indications of
        hydrocarbons in the Lower Acacus Formation. The well is awaiting flow
        testing which will commence with the service rig following the
        completion of the D1-47/02 testing program.

    -   Flow testing at the Company's fourth new field wildcat exploration
        well D1-47/02 was delayed due to a "fishing" operation to recover
        stuck tubing in the wellbore. The fishing operation was successful
        and preparations are underway to resume testing of up to three
        remaining intervals in the well.

    -   The acquisition phase of the Company's 1,225 square kilometre 3D
        seismic survey in the eastern part of Area 47 is approximately 65%
        complete and is on track for a mid-December completion.

    -   The Company has submitted preliminary appraisal reports to the Area
        47 Management Committee ("Area 47 MC") and the Libyan National Oil
        Corporation ("NOC") for its second and third oil discoveries at B1-
        47/02 and C1-47/02, respectively.

    France

    -   In the offshore Aquitaine Maritime Permit, the Orca 1 exploration
        well was drilled and abandoned in the third quarter. Although the
        well encountered a thick sandstone formation, no hydrocarbons were
        discovered. Evaluation of the data gathered from this well, together
        with further seismic evaluation, should provide a better
        understanding of any potential of the remaining structures on the
        permit.

    -   Vermilion Exploration SAS ("VEX"), a wholly owned subsidiary of
        Verenex, holds a 22.5% interest in the Aquitaine Maritime Permit
        following the drilling of the Orca 1 well. The net cost of VEX's
        participation in drilling the well is approximately $5.2 million
        based on an estimated final gross well cost of US $55 million.

    Financial

    -   Funds flow from operations in the third quarter of 2007 was
        $0.6 million compared to $0.5 million for the third quarter of 2006.
        The increase is a result of higher interest revenues on invested
        funds offset by reduced production in France after the sale of the
        producing assets in May 2007.

    -   The Company had a net loss of $11.7 million in the third quarter of
        2007 compared to a net loss of $0.3 million in the third quarter of
        2006. The 2007 loss resulted primarily from a $10.0 million non-cash
        impairment write-down on the France assets and a $1.5 million foreign
        exchange loss on the Company's US dollar cash positions due to the
        strengthening Canadian dollar.

    -   The Company had a working capital surplus of $110.8 million at
        September 30, 2007 compared to $40.6 million as at December 31, 2006,
        including cash and term deposits amounting to $130.7 million
        (December 31, 2006 - $49.4 million) net of restricted cash amounting
        to $8.9 million (December 31, 2006 - $13.6 million). The increase in
        working capital is due to the July 2007 equity financing which
        provided net proceeds of $110.0 million, partially offset by
        increasing operational accruals in Libya.


    Highlights

                              Three        Three        Nine         Nine
                              Months       Months       Months       Months
                              Ended        Ended        Ended        Ended
                            September    September    September    September
    (unaudited)              30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------

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

    Petroleum and natural
     gas revenues (net)           157          579        1,075        2,618
    Funds flow from
     operations(1)                590          460        1,773        2,379
    Net loss                   11,707          288       13,851        3,927
    Capital expenditures       20,446        7,292       44,111       12,757
    Working capital surplus   110,820       16,173      110,820       16,173
    Common shares
     outstanding
      Basic                44,266,991   30,903,391   44,266,991   30,903,391
      Diluted              49,661,391   35,510,891   49,661,391   35,510,891
    Weighted average
     common shares
     outstanding
      Basic                37,971,861   30,903,391   37,968,971   30,880,561
      Diluted              41,902,792   32,837,984   41,618,609   32,445,175
    Share trading
      High                      17.43         5.50        17.43         5.50
      Low                       10.45         3.90         6.00         3.05
      Close                     10.80         4.99        10.80         4.99

    Operations

    Production
      Crude oil (bbls/d)            -           71           28           96
      Natural gas
       liquids (bbls/d)            13            9           14           16
      Natural gas (mcf/d)         258          293          282          330
      Boe/d (6:1)(*)               56          129           90          167
    Average reference
     price
      WTI (US$ per bbl)         75.38        70.48        66.23        68.22
      Brent (US$ per bbl)       74.87        69.49        67.13        66.96
      AECO (Cdn$ per mcf)        5.18         5.64         6.55         6.40
    Average selling price
      Crude oil
       (Cdn$ per bbl)               -        62.71        62.61        71.93
      Natural gas liquids
       (Cdn$ per bbl)           60.43        76.40        53.97        54.38
      Natural gas
       (Cdn$ per mcf)            3.57         4.16         5.29         5.66

    Average Operating
     Netback
     (Cdn$ per BOE @ 6:1)    30.41        38.69        38.36        48.36

    (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 third quarter of 2007, the Company invested approximately
$20.4 million. Libya accounted for $15.7 million of the investment activity
level with approximately $7.9 million in drilling, $3.2 million in testing and
completions, $3.4 million geological and geophysical costs and $1.2 million in
capitalized General and Administration ("G&A") and office costs. In France,
the Company invested approximately $4.7 million relating to the drilling of
the Orca 1 well in the Aquitaine Maritime permit, net of recoveries of
approximately $0.5 million received under the farm-in agreement.

    Outlook

    On October 1, 2007, the Area 47 MC endorsed a revised 2007 budget outlook
of US $120 to US $124 million (gross) ($63 to $65 million net), up from the
original budget adopted in late 2006 of US $91 million (gross). The higher
budget primarily reflects the increased scope and advancement of the 3D
seismic program, faster drilling program and increased well logging, formation
evaluation and flow testing work associated with the successful drilling
program. This budget includes the acquisition of 1,225 square kilometres of 3D
seismic, 7.5 completed wells (eight spudded), six to seven multi-zone flow
tests, additional casing and tubing inventory for the drilling program and
general and administrative costs for the Tripoli office and technical support
from the Company's Calgary offices.
    Drilling of the Company's seventh well A2-47/02 well, and its first
appraisal well to a Verenex discovery, should be completed by mid-December
2007.
    The Company's sixth well F1-47/02 is currently being flow tested with the
drilling rig Ensign Rig 28 which should be completed by mid-November. Testing
with the drilling rig will permit the Company to offset some of the delays in
testing drilled wells associated with the fishing operation with the service
rig at the D1-47/02 well. Ensign Rig 28 requires its annual inspection and
some upgrades to its drilling mud system before it will be able to spud an
eighth well likely in early December 2007. The Company is currently finalizing
this location for review and approval by the NOC.
    Flow testing with the service rig at the Company's fourth and fifth
exploration wells D1-47/02 and E1-47/02, respectively, is expected to be
completed by the end of December 2007.
    The Company expects to complete the acquisition phase of its 1,225 square
kilometre 3D seismic program by mid-December 2007. Processing and
interpretation of the entire 3D survey should be completed in the second
quarter of 2008. However, processing and interpretation of the initial
northern section of the survey (approximately 40% of the total) is being
fast-tracked for a targeted year-end 2007 completion to guide potential
drilling in this area in the first quarter of 2008.
    The Company is preparing to kick-off front end engineering and design
("FEED") work for a potential early production system in the southern part of
Area 47 with a target of first oil by year-end 2009 at an initial production
rate of 25,000 to 50,000 barrels of oil per day. The Company has recruited a
Development Manager to lead this effort. The FEED work will support a planned
commerciality application in the first half of 2008 and a subsequent
application for project sanction by the NOC.
    Following partner and NOC budget meetings in Tripoli in late September,
the Area 47 MC endorsed a 2008 planning budget of US $158 million (gross)
($79 million net). The planned work program includes approximately 2,400
kilometres of 2D seismic, 11 to 12 exploration and appraisal wells and
associated testing and FEED work for the early production system.
    The ultimate extent of operations and expenditures in 2007 and 2008 will
depend on several factors, including ongoing well and seismic results,
logistics and regulatory approvals.
    The Company is very pleased with its drilling and testing results in
Libya and the cooperation it has received from the NOC to achieve a very
aggressive and successful drilling and testing campaign in 2006 and 2007. The
Company will continue to work in partnership with the NOC to execute its
exploration plans through the remaining exploration phase of the EPSA contract
through to the end of March 2010, to advance appraisal and pre-development
plans to facilitate achievement of first oil production by the end of 2009 and
to clarify and streamline procedures to achieve drilling approvals, release of
well results and development approvals.

    France

    Vermilion Rep SAS, as operator of the Aquitaine Maritime Permit, has
applied to the French authorities to extend the permit into the third term
commencing December 2007 and to relinquish 25% of the permit as required for
such an extension.

    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 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.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following is management's discussion and analysis (MD&A), dated
October 22, 2007, of the Company's operating and financial results for the
three and nine months ended September 30, 2007. 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 nine months ended
September 30, 2007 and the restated audited consolidated financial statements
for the year ended December 31, 2006, together with the accompanying notes as
contained in the Company's 2006 Annual Report.
    Additional information relating to the Company, including its Annual
Information Return, NI 51-101 disclosure and details of outstanding share data
and the Company's Stock Option Plan, 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.
    During the current quarter, the Company drilled the Orca 1 exploration
well in the Aquitaine Maritime permit in the Bay of Biscay in France. On
October 1, 2007 Verenex announced that the well had been abandoned. In
addition, the Company relinquished the St. Valerien exploration permit in the
Paris Basin in France because the Company was unable to define a drillable
prospect. Consequently, the Company completed a review for asset impairment
for the France full cost pool and determined that a $10.0 million non-cash
ceiling test write-down was required to reflect an impairment in these assets.
This includes drilling costs on the Orca 1 well of approximately $5.2 million,
which is offset by recoveries of approximately $0.5 million received under the
farm-in agreement.

    Revenues

    Total Company oil and gas production was 56 barrels of oil equivalent per
day ("boepd") in the third quarter of 2007 resulting in oil and gas revenues
of $0.2 million, net of royalties, compared to 129 boepd and revenues of
$0.6 million in the third quarter of 2006. Production was down 38% to 56 boepd
and revenues were down $0.2 million compared to 90 boepd and $0.4 million in
revenues for the second quarter of 2007 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. Production in the third
quarter was entirely attributable to the Bottrel, Alberta gross overriding
royalty (the "Bottrel GORR").
    During the third quarter of 2007 the Bottrel GORR provided production of
approximately 56 boepd and revenues of $0.2 million compared to 58 boepd and
$0.2 million for the same period in 2006 and 61 boepd and $0.3 million of
royalty income during the second quarter of 2007. For the nine months ended
September 30, 2007 the Bottrel GORR provided 62 boepd and revenues of
$0.6 million compared to 71 boepd and $0.7 million for the same period in
2006.
    There were no other unusual cyclical or seasonal factors impacting the
Company's production in 2007.
    Average realized prices for the third quarter of 2007 were: oil $nil
(2006 - $62.71); natural gas $3.57 per mcf (2006 - $4.16); and NGL
$60.43 per bbl (2006 - $76.40). These compare to prices of $66.10 per bbl for
oil, $7.04 per mcf for natural gas and $44.98 per bbl for NGL during the
second quarter of 2007.
    Interest of $1.0 million was earned in the third quarter of 2007 (2006 -
$0.3 million) compared to $0.4 million for the second quarter of 2007 on cash
balances invested in excess of expenditure requirements. The increase versus
the second quarter is mainly due to the increased cash balances resulting from
the July 2007 financing which provided net proceeds of approximately
$110.0 million (net of issue costs).

    Stock Compensation

    For the three and nine months ended September 30, 2007, non-cash stock
compensation expense related to stock options, performance warrants and Stock
Appreciation Rights ("SAR's") was $0.6 million and $1.6 million respectively
(2006 - $0.4 million and $1.2 million respectively). The increase in costs is
primarily related to the issuance of additional stock options in December
2006.

    General and Administration ("G&A")

    The Company capitalized $0.9 million and $3.0 million of general and
administrative costs relating to exploration and development activities for
the three months and nine months ended September 30, 2007 respectively (2006 -
$0.8 million and $1.8 million respectively). 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 the third quarter of 2007
in comparison with 2006 is due to the timing of the capital expenditures in
Libya and the application of a 2% overhead recovery charge, to the Company's
partner, against these costs. This will normalize over the total year.

    Effects of Exchange Rate Fluctuations

    The Company's operations are conducted primarily in jurisdictions where
the United States dollar (US$) and the European Euro ((euro)) are the business
currencies. A large proportion of the Company's costs, assets and liabilities
during the quarter ended September 30, 2007 were denominated in US$. 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 $0.2 million and $0.9 million for the
three and nine months ended September 30, 2007 respectively (2006 -
$0.4 million and $1.5 million respectively) relates to the depletion of the
France producing properties, prior to the closing date of the sale in May
2007, and the Canadian assets. These amounts exclude a $10.0 million non-cash
impairment write-down related to France in the third quarter of 2007 and a
$3.0 million non-cash impairment write-down related to France in the second
quarter of 2006.

    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.
    The Bottrel GORR is a gross overriding royalty on VET's share of
production from specific wells at Bottrel, Alberta. The Bottrel GORR provided
$0.2 million and $0.6 million of royalty income during the three and nine
months ended September 30, 2007 (2006 - $0.2 million and $0.7 million
respectively).
    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. During the
nine months ended September 30, 2007 Verenex was billed ninety thousand
dollars (2006 - ninety 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.
    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 requires that cash collateral of US $4.6 million (gross) be put in
place by June 30, 2006. At September 30, 2007 this had been reduced to US
$3.7 million. 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. The corporate
guarantee provided by RWE AG on July 31, 2007 in accordance with the
assignment agreement between the Company and RWE, in the amount of US
$1.4 million was officially released on September 25, 2007 with the return of
the rig to Verenex.
    The Company is required to back-stop the outstanding KCA DEUTAG LC with
an equivalent cash balance. At September 30, 2007 this had been reduced to US
$5.2 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 Company had a working capital surplus of $110.8 million at
September 30, 2007 compared to $40.6 million as at December 31, 2006,
including cash and term deposits amounting to $130.7 million (December 31,
2006 - $49.4 million) net of restricted cash amounting to $8.9 million
(December 31, 2006 - $13.6 million). The increase in working capital is due to
the July 2007 equity financing.
    The majority of the trade receivables relate to amounts associated with
the joint venture operations in France and 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.
    Accounts payable and accrued liabilities have increased since
December 31, 2006 due to the addition of the second drilling rig and the
timing of activity levels in Libya.
    On July 31, 2007 the Company completed the sale, on a bought-deal basis,
of 7,935,000 common shares at $14.50 per share resulting in gross proceeds of
$115.1 million and net proceeds of approximately $110.0 million (net of issue
costs).
    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 2007

    Financial Instruments and Hedging Activities

    Effective January 1, 2007 the Company adopted the Canadian Institute of
Chartered Accountants ("CICA") Section 1530, Comprehensive Income; Section
3251, Equity; Section 3855, Financial Instruments - Recognition and
Measurement; Section 3861, Financial Instruments - Disclosure and Presentation
and Section 3865, Hedges. These standards have been adopted prospectively. See
Note 2 to the Consolidated Financial Statements.
    These new accounting standards for Canadian GAAP converge more closely
with the US GAAP as all financial instruments will be recorded on the balance
sheet at fair value and changes in fair value will be included in earnings,
except for derivative financial instruments designated as hedges, for which
changes in fair value will be included in comprehensive income.

    Accounting Changes

    In July 2006, the CICA issued a revised section 1506, Accounting Changes.
These amendments were made to harmonize section 1506 with current
International Financial Reporting Standards. The changes covered by this
section include changes in accounting policy, changes in accounting estimates
and correction of errors. Under CICA section 1506, voluntary changes in
accounting policy are only permitted if they result in financial statements
that provide more reliable and relevant information. When a change in
accounting policy is made, this change is applied retrospectively unless
impractical to do so. Changes in accounting estimates are generally applied
prospectively and material prior period errors are corrected retrospectively.
This section also outlines additional disclosure requirements when accounting
changes are applied including justification for voluntary changes, complete
description of the policy, primary source of GAAP and detailed effect on
financial statement line items. CICA section 1506 is effective for fiscal
years beginning on or after January 1, 2007.

    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 September 30, 2007, 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 small scale of
        operations there is a lack of segregation of duties due to the
        limited number of employees dealing with accounting and financial
        matters. However, 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 third quarter of 2007 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

                                                 September 30,  December 31,
                                                     2007           2006
    -------------------------------------------------------------------------

    Assets

    Current assets
      Cash                                        $   130,654    $    49,369
      Accounts receivable                                 620            352
      Joint venture receivable                          2,284          2,292
      Inventory                                             -             61
      Prepaid expenses and other                          520            136
                                               ------------------------------
                                                      134,078         52,210

    Restricted cash (Note 12)                           8,863         13,625
    Capital assets (Note 4)                            64,992         31,322
    Assets held for sale (Note 13)                          -          3,117
                                               ------------------------------
                                                  $   207,933    $   100,274
                                               ------------------------------
                                               ------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accrued liabilities    $    22,728    $    11,049
      Due to related party (Note 6)                       530            519
                                               ------------------------------
                                                       23,258         11,568

    Joint venture payables related to
     restricted cash (Note 12)                          4,432          6,812

    Asset retirement obligations (Notes 5 & 13)             -             37
                                               ------------------------------
                                                       27,690         18,417
                                               ------------------------------

    Shareholders' equity
      Share capital (Note 7)                          203,433         92,566
      Contributed surplus (Note 7)                      6,772          5,402
      Deficit                                         (29,962)       (16,111)
                                               ------------------------------
                                                      180,243         81,857
                                               ------------------------------
                                                  $   207,933    $   100,274
                                               ------------------------------
                                               ------------------------------

    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       Nine        Nine
                                 Months      Months      Months      Months
                                 Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Revenue
      Petroleum & natural
       gas, net               $      157  $      579  $    1,075  $    2,618
      Interest income              1,007         296       1,854         809
      Lease inducement
       payment                         -           -           -         400
                           --------------------------------------------------
                              $    1,164  $      875  $    2,929  $    3,827

    Expenses
      Production              $        -  $       85  $      127  $      286
      Transportation                   -          19          11          69
      General and
       administration                574         311       1,007       1,050
      Stock based compensation
       (Note 8)                      596         381       1,611       1,205
      Depletion and depreciation
       (Note 4)                      211         406         898       1,534
      Impairment write-down
       (Note 4)                    9,969           -       9,969       2,979
      Gain on assets held
       for sale (Note 13)              -           -         (27)          -
      Foreign exchange
       loss/(gain)                 1,521         (39)      3,173         588
                           --------------------------------------------------
                              $   12,871  $    1,163  $   16,769  $    7,711
                           --------------------------------------------------

    Loss before taxes            (11,707)       (288)    (13,840)     (3,884)
    Taxes                              -           -          11          43
                           --------------------------------------------------

    Net loss and
     comprehensive loss          (11,707)       (288)    (13,851)     (3,927)
                           --------------------------------------------------

    Deficit, beginning
     of period                   (18,255)    (15,886)    (16,111)    (12,247)
                           --------------------------------------------------

    Deficit, end of period    $  (29,962) $  (16,174) $  (29,962) $  (16,174)
                           --------------------------------------------------
                           --------------------------------------------------

    Net loss per share
     basic and diluted
     (Note 9)                 $    (0.31) $    (0.01) $    (0.36) $    (0.13)
                           --------------------------------------------------
                           --------------------------------------------------

    Weighted average number
     of shares outstanding
     (Note 9):
      Basic                   37,971,861  30,903,391  37,968,971  30,880,561
                           --------------------------------------------------
                           --------------------------------------------------
      Diluted                 41,902,792  32,837,984  41,618,609  32,445,175
                           --------------------------------------------------
                           --------------------------------------------------

    See accompanying notes to the Consolidated Financial Statements



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

                                             Three                   Nine
                                             Months                  Months
                                 Three       Ended       Nine        Ended
                                 Months    September     Months    September
                                 Ended      30, 2006     Ended      30, 2006
                               September (as restated  September (as restated
                                30, 2007     Note 3)    30, 2007    Note 3)
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net loss                $  (11,707) $     (288) $  (13,851) $   (3,927)
      Items not affecting cash:
        Stock based
         compensation                596         381       1,611       1,205
        Depletion and
         depreciation                211         406         898       1,534
        Impairment write-down      9,969           -       9,969       2,979
        Gain on assets held
         for sale (Note 13)            -           -         (27)          -
        Unrealized foreign
         exchange loss/(gain)      1,521         (39)      3,173         588
                           --------------------------------------------------
                                     590         460       1,773       2,379
      Changes in non-cash
       operating working
       capital                      (259)         30        (693)         66
                           --------------------------------------------------
                                     331         490       1,080       2,445
                           --------------------------------------------------

    Investing activities:
      Acquisition and
       expenditures on
       petroleum and natural
       gas properties            (20,446)     (7,292)    (44,111)    (12,757)
      Changes in non-cash
       investing working
       capital                    17,029      (2,508)     12,842       1,014
      Restricted cash                756        (252)      3,569     (13,390)
      Joint venture payables
       related to
       restricted cash              (662)        126      (2,380)      6,695
                           --------------------------------------------------
                                  (3,323)     (9,926)    (30,080)    (18,438)
                           --------------------------------------------------

    Financing activities:
      Issue of common shares
       for cash                  115,529           -     115,661         186
      Share issue costs           (5,013)          -      (5,035)        (17)
      Due to related party
       (Note 6)                      284           7          11      (1,660)
      Proceeds from
       disposition of assets
       held for sale
       (Note 13)                       -           -       2,680           -
                           --------------------------------------------------
                                 110,800           7     113,317      (1,491)
                           --------------------------------------------------

    Foreign exchange loss
     on cash held in a
     foreign currency             (1,566)          5      (3,032)       (495)
                           --------------------------------------------------

    Net increase/(decrease)
     in cash                     106,242      (9,424)     81,285     (17,979)
    Cash, beginning of
     period                       24,412      26,991      49,369      35,546
                           --------------------------------------------------

    Cash, end of period       $  130,654  $   17,567  $  130,654  $   17,567
                           --------------------------------------------------
                           --------------------------------------------------

    Cash taxes paid           $        -  $        -  $       11  $      108
                           --------------------------------------------------
                           --------------------------------------------------

    Cash interest received    $    1,007  $      296  $    1,854  $      809
                           --------------------------------------------------
                           --------------------------------------------------

    See accompanying notes to the Consolidated Financial Statements



    Verenex Energy Inc.
    Notes to the Consolidated Financial Statements
    For the three and nine months ended September 30, 2007
    (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, 2006. 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, 2006.

    2.  Changes in Accounting Policies

        Effective January 1, 2007 the Company adopted the Canadian Institute
        of Chartered Accountants ("CICA") Section 1530, Comprehensive Income;
        Section 3251, Equity; Section 3855, Financial Instruments -
        Recognition and Measurement; Section 3861, Financial Instruments -
        Disclosure and Presentation and Section 3865, Hedges. The Company has
        adopted these standards prospectively and the comparative interim
        consolidated financial statements have not been restated.

        a) Financial instruments

        Under the new standards, financial assets and financial liabilities
        are initially recognized at fair value and are subsequently accounted
        for based on their classification as described below. The
        classification depends on the purpose for which the financial
        instruments were acquired and their characteristics. Except in very
        limited circumstances, the classification is not changed subsequent
        to initial recognition.

        Held-for-trading

        Financial assets that are purchased and incurred with the intention
        of generating profits in the near term are classified as held-for-
        trading. These instruments are accounted for at fair value with the
        change in the fair value recognized in net income during the period.
        Cash and restricted cash are classified as held-for-trading as at
        January 1, 2007.

        Available-for-sale

        Financial assets classified as available-for-sale are carried at fair
        value with the changes in fair value recorded in other comprehensive
        income. When a decline in fair value is determined to be other than
        temporary, the cumulative loss included in accumulated other
        comprehensive income is removed and recognized in net income. Gains
        and losses realized on disposal of available-for-sale securities are
        recognized in other income. There are no financial assets classified
        as available-for-sale.

        Held-to-maturity

        Financial assets that have a fixed maturity date and which the
        Company has the intention and the ability to hold to maturity are
        classified as held-to-maturity and accounted for at amortized cost
        using the effective interest rate method. There were no financial
        assets classified as held-to-maturity.

        Loans and receivables

        Loans and receivables are accounted for at amortized cost. This
        classification is consisent with the classification under the prior
        accounting standards. Accounts receivable and joint venture
        receivable are classified as loans and receivables as at January 1,
        2007.

        Other liabilities

        Other liabilities are accounted for at amortized cost and include all
        liabilities, other than derivatives. This classification is consisent
        with the classification under the prior accounting standards.
        Accounts payable and accrued liabilities, due to related party and
        joint venture payables related to restricted cash are classified as
        other liabilities.

        Embedded derivatives

        Derivatives may be embedded in other financial and non-financial
        instruments or contracts ("host contracts"). Prior to the adoption of
        the new standards, embedded derivatives were not accounted for
        separately from the host contract except in certain circumstances
        which were not applicable to the Company. Under the new standards,
        embedded derivatives are treated as separate derivatives when their
        economic characteristics and risks are not clearly and closely
        related to those of the host contact, the terms of the embedded
        derivative are the same as those of a stand-alone derivative, and the
        combined contract is not designated as held for trading or accounted
        for at fair value. These embedded derivatives are measured at fair
        value with subsequent changes reocognized in the Statements of Loss,
        Deficit and Accumulated Other Comprehensive Income. The Company
        selected June 29, 2004, the date of its establishment, as the
        transition date for embedded derivatives. Contracts or financial
        instruments entered into or modified after the transition date were
        examined for embedded derivatives. As at September 30, 2007 and
        January 1, 2007, the Company did not have any outstanding contracts
        or financial instruments with embedded derivatives.

        Derivative instruments and hedging activities

        The Company does not have any outstanding derivative or hedging
        contracts as at September 30, 2007 and January 1, 2007.

        Determination of fair value

        The fair value of a financial instrument is the amount of
        consideration that would be agreed upon in an arm's length
        transaction between knowledgeable, willing parties who are under no
        compulsion to act. The fair value of a financial instrument on
        initial recognition is the transaction price, which is the fair value
        of the consideration given or received. Subsequent to initial
        recognition, the fair values of financial instruments that are quoted
        in active markets are based on bid prices for financial assets held
        and offer prices for financial liabilities. When independent prices
        are not available, fair values are determined by using valuation
        techniques which refer to observable market data. These include
        comparisons with similar instruments where market observable prices
        exist, discounted cash flow analysis, option pricing models and other
        valuation techniques commonly used by market participants. For
        certain derivatives, fair values may be determined in whole or in
        part from valuation techniques using non-observable market data or
        transaction prices. A number of factors such as bi-offer spread,
        credit profile and model uncertainty are taken into account, as
        appropriate, when values are calculated using valuation techniques.

        Comprehensive income

        Comprehensive income consists of net earnings and other comprehensive
        income. Other comprehensive income comprises the change in fair value
        of the effective portion of the derivatives used as hedging items in
        a cash flow or net investment hedge and the change in fair value of
        any available-for-sale financial instruments. Amounts included in
        other comprehensive income are shown net of tax.

        b) Accounting Changes

        In July 2006, the CICA issued a revised section 1506, Accounting
        Changes.

        The new recommendations permit voluntary changes in accounting policy
        only if they result in financial statements which provide more
        reliable and relevant information. Accounting policy changes are
        applied retrospectively unless it is impractical to determine the
        period or cumulative impact of the change. Corrections of prior
        period errors are applied retrospectively and changes in accounting
        estimates are applied prospectively by including these changes in
        earnings. The guidance was effective for all changes in accounting
        policies, changes in accounting estimates and corrections of prior
        periods errors initiated in periods beginning on or after January 1,
        2007.

    3.  Correction of an Error

        The Consolidated Statements of Cash Flows for the three and
        nine months ended September 30, 2006 have been restated. The Company
        incorrectly classified the change in "restricted cash" and "joint
        venture payables related to restricted cash" as financing activities
        instead of investing activities, therefore a restatement is required
        to classify the amounts to the proper category. The correction of the
        error did not impact the Consolidated Balance Sheets or the
        Consolidated Statements of Loss and Deficit.

    4.  Capital Assets

                                                    September 30, 2007
        ---------------------------------------------------------------------
                                                       Accumulated
                                                        Depletion,     Net
                                                      Depreciation &   Book
                                               Cost    Amortization    Value
                                            ---------------------------------
        Petroleum and natural gas
         properties and equipment            $72,489      $8,903     $63,586
        Furniture and equipment                1,891         485       1,406
                                            ---------------------------------
                                             $74,380      $9,388     $64,992
                                            ---------------------------------
                                            ---------------------------------

                                                     December 31, 2006
        ---------------------------------------------------------------------
                                                       Accumulated
                                                        Depletion,     Net
                                                      Depreciation &   Book
                                               Cost    Amortization    Value
                                            ---------------------------------
        Petroleum and natural gas
         properties and equipment            $31,444      $1,508     $29,936
        Furniture and equipment                1,633         247       1,386
                                            ---------------------------------
                                             $33,077      $1,755     $31,322
                                            ---------------------------------
                                            ---------------------------------

        The Company capitalized $0.9 million and $3.0 million of general and
        administrative costs directly related to exploration and development
        activities for the three and nine months ended September 30, 2007
        respectively (2006 - $0.8 million and $1.8 million respectively).

        During the third quarter 2007, the Company drilled the Orca 1
        exploration well in the Aquitaine Maritime permit in the Bay of
        Biscay in France. On October 1, 2007 Verenex announced that the well
        had been abandoned. In addition, the Company relinquished the St.
        Valerien exploration permit in the Paris Basin in France. The Company
        completed a review for asset impairment for the France full cost pool
        and determined that a $10.0 million non-cash ceiling test write-down
        was required to reflect an impairment in these assets. This includes
        drilling costs on the Orca 1 well of approximately $5.2 million,
        which is offset by recoveries of approximately $0.5 million received
        under the farm-in agreement.

        Depletion and depreciation, of $0.2 million and $0.9 million for the
        three and nine months ended September 30, 2007 respectively (2006 -
        $0.4 million and $1.5 million respectively) relates to the depletion
        of the France producing properties, prior to the closing date of the
        sale in May 2007, and the Canadian assets. These amounts exclude a
        $10.0 million non-cash impairment write-down related to France in the
        third quarter of 2007 and a $3.0 million non-cash impairment write-
        down related to France in the second quarter of 2006. At
        September 30, 2007 approximately, $0.1 million in undeveloped
        properties (2006 - $5.0 million) in France and $59.6 million in Libya
        (2006 - $12.2 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.

    6.  Related Party Transactions

        Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion
        Energy Trust ("VET"), VET 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
        $0.5 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 $0.2 million and $0.6 million of royalty income during the
        three and nine months ended September 30, 2007 (2006 - $0.2 million
        and $0.7 million respectively).

        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. During the
        nine months ending September 30, 2007, Verenex was billed ninety
        thousand dollars (2006 - ninety thousand dollars) for services
        provided under this Agreement.

        On October 12, 2006, the Company's wholly owned subsidiary, Vermilion
        Exploration SAS ("VEX"), entered into an agreement with VREP for the
        sale of its 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 (see Note 13).

    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, 2007         36,120,891  $   92,566

        Issued for cash                                7,935,000     115,058
        Issued for cash on warrants and options
         exercised                                       211,100         603
        Share issue costs                                      -      (5,035)
        Transferred from contributed surplus on
         warrant and option exercise                           -         241
                                                     ------------------------

        Balance as at September 30, 2007              44,266,991  $  203,433
                                                     ------------------------
                                                     ------------------------

        Contributed Surplus

                                                       September    December
                                                        30, 2007    31, 2006
        ---------------------------------------------------------------------

        Opening balance                               $    5,402  $    3,592

        Stock compensation expense                         1,611       2,071
        Reversed on cancellation of unvested options           -         (89)
        Reversed on cancellation of warrants                   -         (26)
        Reversed on cancellation of Stock
         Appreciation Rights                                   -          (9)
        Transferred to share capital on warrant
         and option exercise                                (241)       (137)
                                                     ------------------------

        Ending balance                                $    6,772  $    5,402
                                                     ------------------------
                                                     ------------------------

    8.  Stock Compensation Plan

        a) The following table summarizes information about the stock option
           plan:

                                                    For The Nine Months Ended
                                                        September 30, 2007
        ---------------------------------------------------------------------
                                                                   Weighted
                                                       Number of    Average
                                                         Stock     Exercise
                                                        Options      Price
                                                     ------------------------

        Opening balance, January 1, 2007               3,423,000  $     3.87

        Granted                                          305,000       12.27
        Exercised                                       (211,100)       2.86
                                                     ------------------------
                                                     ------------------------

        Closing balance, September 30, 2007            3,516,900  $     4.65
                                                     ------------------------
                                                     ------------------------

        b) The following table summarizes information about the performance
           warrants:

                                                    For The Nine Months Ended
                                                        September 30, 2007
        ---------------------------------------------------------------------
                                                                   Weighted
                                                      Number of     Average
                                                     Performance   Exercise
                                                       Warrants      Price
                                                     ------------------------

        Balance, January 1, 2007                       1,877,500  $     2.55

        Granted                                                -           -
        Exercised                                              -           -
                                                     ------------------------

        Closing balance, September 30, 2007            1,877,500  $     2.55
                                                     ------------------------
                                                     ------------------------

        For the three and nine months ended September 30, 2007, non-cash
        stock compensation expense related to stock options, performance
        warrants and Stock Appreciation Rights ("SAR's") was $0.6 million and
        $1.6 million respectively (2006 - $0.4 million and $1.2 million
        respectively). The increase in expense is primarily related to the
        issuance of stock options at the December 31, 2006 year-end.

        The fair value of the options and performance warrants is determined
        using the Black-Scholes option-pricing model that takes into account,
        as of the grant date: exercise price, expected life, current price,
        expected volatility, expected dividends, and risk-free interest
        rates.

        At the Annual General Meeting on May 2, 2007, shareholders approved
        implementation of a Performance Share Unit Plan ("PSU") to supplement
        the Option Plan. Common Shares reserved for issuance from time to
        time pursuant to Unit Awards may not exceed 5% of the aggregate
        number of outstanding Common Shares. The vesting date for the
        Performance Share Units issued under the Unit Award shall be
        determined at the discretion of the Board. 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. No Units have been issued under this
        Plan.

        The assumptions used in the computation of the fair value of the
        stock options and performance warrants for 2007 and 2006 are as
        follows:

                                                        Stock    Performance
                                                       Options     Warrants

        Risk free interest rate                           4.5%          4.5%
        Expected dividends                                 nil           nil
        Expected life                                  5 years       7 years
        Volatility                                         50%           50%


        The remaining weighted average contractual life of the stock options
        and performance warrants is 3.3 years and 4.0 years respectively.

    9.  Per Share Amounts

                                For The     For The     For The     For The
                                 Three       Three       Nine        Nine
                                 Months      Months      Months      Months
                                 Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
        ---------------------------------------------------------------------
        Weighted average
         number of common
         shares outstanding   37,971,861  30,903,391  37,968,971  30,880,561

        Shares issuable
         pursuant to stock
         options               2,398,718   1,012,006   2,179,376     774,965

        Shares issuable
         pursuant to
         performance warrants  1,532,213     922,587   1,470,262     789,649
                              -----------------------------------------------

        Weighted average
         number of diluted
         common shares
         outstanding          41,902,792  32,837,984  41,618,609  32,445,175
                              -----------------------------------------------
                              -----------------------------------------------

        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       Nine        Nine
                                 Months      Months      Months      Months
                                 Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
        ---------------------------------------------------------------------
        Petroleum & natural
         gas revenues, net:
          Canada              $      157  $      176  $      619  $      743
          France                       -         403         456       1,875
                              -----------------------------------------------
                              $      157  $      579  $    1,075  $    2,618
                              -----------------------------------------------
                              -----------------------------------------------

        Interest Income:
          Canada              $      897  $      180  $    1,471  $      622
          France                       -           8          56           9
          Libya                      110         108         327         178
                              -----------------------------------------------
                              $    1,007  $      296  $    1,854  $      809
                              -----------------------------------------------
                              -----------------------------------------------

        Depletion &
         depreciation:
          Canada              $      190  $      182  $      608  $      575
          France                   9,970         213      10,204       3,902
          Libya                       20          11          55          36
                              -----------------------------------------------
                              $   10,180  $      406  $   10,867  $    4,513
                              -----------------------------------------------
                              -----------------------------------------------

        Foreign exchange
         loss/(gain):
          Canada              $    1,241  $        -  $    2,366  $      408
          France                      99           7         155        (165)
          Libya                      181         (46)        652         345
                              -----------------------------------------------
                              $    1,521  $      (39) $    3,173  $      588
                              -----------------------------------------------
                              -----------------------------------------------

        Net earnings (loss):
          Canada              $   (1,354) $     (306) $   (3,182) $   (1,551)
          France                 (10,251)         18     (10,250)     (2,376)
          Libya                     (102)          -        (419)          -
                              -----------------------------------------------
                              $  (11,707) $     (288) $  (13,851) $   (3,927)
                              -----------------------------------------------
                              -----------------------------------------------

        Funds flow generated
         from (used in)
         operations :
          Canada              $      674  $      257  $    1,405  $      637
          France                    (183)        237          81       1,362
          Libya                       99         (34)        287         380
                              -----------------------------------------------
                              $      590  $      460  $    1,773  $    2,379
                              -----------------------------------------------
                              -----------------------------------------------

        Capital expenditures:
          Canada              $       15  $      988  $       28  $    1,296
          France                   4,750          90       4,216         (42)
          Libya                   15,681       6,214      39,867      11,503
                              -----------------------------------------------
                              $   20,446  $    7,292  $   44,111  $   12,757
                              -----------------------------------------------
                              -----------------------------------------------

        All costs related to production, transportation and non-cash
        impairment write-downs relate to the France properties.

                                        September 30, December 31,
                                                2007         2006
        ----------------------------------------------------------
        Identifiable assets:
          Canada                          $  114,861   $   46,142
          France                               3,848       10,048
          Libya                               89,224       44,084
                                          ------------------------
                                          $  207,933   $  100,274
                                          ------------------------
                                          ------------------------

    11. Financial Instruments

        As described in Note 2, on January 1, 2007, the Company adopted the
        new CICA requirements relating to financial instruments.

        The oil and gas industry is subject to risks including fluctuations
        in foreign exchange rates and commodity prices. The Company's
        operating results and financial condition will be dependent on the
        prices it receives for oil and natural gas production. Oil and
        natural gas prices have fluctuated during recent years and are
        determined by supply and demand factors, including weather and
        general economic conditions as well as conditions in other oil and
        natural gas regions. 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.

    12. 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 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 $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 September 30, 2007 this had reduced to
        US $3.7 million (gross). The second LC expires on April 30, 2009 and
        is supported by cash collateral of US $7.2 million (gross) as at
        December 31, 2006. At September 30, 2007 this had reduced to
        US $5.2 million (gross). The corporate guarantee provided by RWE AG
        on July 31, 2007 in accordance with the assignment agreement between
        the Company and RWE, in the amount of US $1.4 million was officially
        released on September 25, 2007 with the return of the rig to Verenex.
        The Company is required to back-stop the outstanding KCA DEUTAG LC
        with an equivalent cash balance.

        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, in the amount of $8.9 million, has been
        reflected as restricted cash on the balance sheet. The joint venture
        payable related to restricted cash amounting to $4.4 million due to
        Medco has also been segregated on the balance sheet.

    13. 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
                                                                  -----------
                                                                  -----------
    

    %SEDAR: 00020996E




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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