Gentry Announces First Half 2007 Financial and Operational Results



    CALGARY, Aug. 14 /CNW/ - Gentry Resources Ltd. ("Gentry") is pleased to
announce financial and operating results for the three and six months ended
June 30, 2007.

    Financial Highlights

    
    -   Gentry's gross revenue for the three months ended June 30, 2007 was
        $17,118,096 compared to $18,105,359 in the comparative period of
        2006. For the six months ended June 30, 2007, gross revenue was
        $32,841,629, compared to $35,761,357 recorded a year ago.

    -   Funds flow from operations for the second quarter of 2007 was
        $6,901,850 ($0.15 per share), compared to $9,481,076 ($0.25 per
        share) recorded in the second quarter of 2006. For the first half of
        2007, funds flow from operations was $13,342,359 ($0.32 per share),
        compared to $18,484,860 ($.048 per share) recorded in the first half
        of 2006.

    -   Gentry recorded a net loss of $410,794 ($0.01 per share) in the
        second quarter of 2007 versus a gain of $1,638,916 ($0.04 per share)
        in the second quarter of 2006. The Company's net loss for the six
        months ended June 30, 2007 was $256,427 ($0.01 per share) compared to
        a gain of $3,584,118 ($0.09 per share) recorded in the first six
        months of 2006.

    -   Gentry's capital expenditures for the three-month period ended
        June 30, 2007, were $7,832,678, excluding the corporate acquisition,
        versus $7,395,906 in the comparative period. Gentry's capital program
        for the first six months of the year was $18,380,122 compared to the
        $19,523,857 spent in the first six months of 2006.

    -   On April 30, 2007, Gentry announced a significant $74.25 million
        acquisition (the "Acquisition") which expanded the Company's
        operations into two new core geographic areas with high impact
        drilling potential - Central Alberta and the Peace River Arch. This
        transaction closed on May 31, 2007.

    -   In conjunction with the Acquisition, Gentry entered into a bought
        deal financing with a syndicate of underwriters under which
        12,500,000 subscription receipts were issued at $4.00 each, and
        3,750,000 common shares at $4.00 per common share, for gross proceeds
        of $65 million. The subscription receipts were converted into
        12,500,000 common shares concurrently with the closing of the
        Acquisition.

    Operational Highlights

    -   Average daily production for the second quarter of 2007 decreased by
        9% to 3,904 boe/d from 4,312 boe/d recorded in the comparative period
        of 2006. Average daily production for the first six months of 2007
        was 3,759 boe/d, down 11% from 4,214 boe/d recorded in the
        corresponding period in 2006.

    -   Production in the second quarter averaged 14,217 mcf/d for gas and
        1,534 bbls/d for crude oil and liquids. Production for the first six
        months of the year averaged 13,646 mcf/d, while crude oil and natural
        gas liquids were 1,485 bbls/d.

    -   The Company's current production is approximately 5,100 boe/d, with
        an additional 1,200 to 1,500 boe/d behind-pipe from recent activity.
        This new production will be brought on stream over the next four
        months allowing Gentry to achieve an exit rate of 6,200 to
        6,500 boe/d.

    -   Of the 27 wells drilled since breakup, 10 have individually tested at
        rates greater than 500 boe/d on short-term tests.

    -   Gentry achieved 100% success in its second quarter drilling program.
        Of the 14 wells drilled (12.8 net), eight were oil wells (7.4 net),
        three were cased for gas (2.4 net), and three (3.0 net) are cased
        wells awaiting completion. Seven of these 14 wells were classified as
        exploration wells.

    -   Key first-year earning commitments for the Company's Princess
        Exploration Block have been met and exceeded, allowing for the
        earning of 90 net sections of land by year end.

    -   The Company's acquisition in Central Alberta and the Peace River Arch
        at the end of May is performing very well and has added production,
        land, infrastructure and opportunities in areas that will be
        significant growth platforms for Gentry.

    -   Successful drilling at Princess resulted in the capital commitment to
        construct a new 8,000 barrels of fluid per day ("bfpd") oil emulsion
        and gas conservation battery.

    -   Gentry's oil production weighting will increase to 45% from 39% by
        year end as new oil discoveries, largely in the Princess area, are
        brought on stream.


                    Three months ended June 30       Six months ended June 30
                                              %                             %
                       2007        2006  change      2007        2006  change
    -------------------------------------------------------------------------
    Financial
    -------------------------------------------------------------------------
    Revenue       $17,118,096 $18,105,359   (5) $32,841,629 $35,761,357   (8)
    -------------------------------------------------------------------------
    Funds flow from
     operations     6,901,850   9,481,076  (27)  13,342,359  18,484,860  (28)
    -------------------------------------------------------------------------
      per share -
       basic             0.15        0.25  (40)        0.32        0.48  (33)
    -------------------------------------------------------------------------
      per share -
       diluted           0.15        0.23  (35)        0.32        0.46  (30)
    -------------------------------------------------------------------------
    Net income
     (loss)          (410,794)  1,638,916 (125)    (256,427)  3,584,118 (107)
    -------------------------------------------------------------------------
      per share -
       basic            (0.01)       0.04 (125)       (0.01)       0.09 (111)
    -------------------------------------------------------------------------
      per share -
       diluted          (0.01)       0.04 (125)       (0.01)       0.09 (111)
    -------------------------------------------------------------------------
    Net capital
     expenditures   7,832,678   7,395,906    6   18,380,122  19,523,857   (6)
    -------------------------------------------------------------------------
    Corporate
     acquisition   73,595,312           -  n/a   73,595,312           -  n/a
    -------------------------------------------------------------------------
    Net debt       52,448,426  42,818,118   22   52,448,426  42,818,118   22
    -------------------------------------------------------------------------
    Shares
     outstanding,
     weighted
     average       44,753,220  38,614,716   16   41,831,527  38,643,703    8
    -------------------------------------------------------------------------
    Shares
     outstanding,
     diluted       44,753,220  40,373,082   11   41,831,527  40,389,853    4
    -------------------------------------------------------------------------
    Production
    -------------------------------------------------------------------------
    Oil & liquids
     (bbls/d)           1,534       1,289   19        1,485       1,303   14
    -------------------------------------------------------------------------
    Gas (mcf/d)        14,217      18,139  (22)      13,646      17,469  (22)
    -------------------------------------------------------------------------
    Oil equivalent
     (per boe)          3,904       4,312   (9)       3,759       4,214  (11)
    -------------------------------------------------------------------------
    Average Prices
    -------------------------------------------------------------------------
    Oil & liquids
     (per bbl)         $55.49      $67.68  (18)      $54.74      $59.51   (8)
    -------------------------------------------------------------------------
    Gas (per mcf)        7.24        6.16   18         7.34        6.87    7
    -------------------------------------------------------------------------
    Oil equivalent
     (per boe)          48.19       46.14    4        48.27       46.88    3
    -------------------------------------------------------------------------
    Operating Netbacks
    -------------------------------------------------------------------------
    Oil & liquids
     (per bbl)         $29.30      $48.27  (39)      $30.68      $38.54  (20)
    -------------------------------------------------------------------------
    Gas (per mcf)        3.70        3.27   13         3.52        3.83   (8)
    -------------------------------------------------------------------------
    Oil equivalent
     (per boe)          24.99       28.18  (11)       24.91       27.80  (10)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note: Barrels of oil equivalent (boe) have been calculated by converting
    gas to boe at a ratio of 6:1.


    PRESIDENT'S MESSAGE TO SHAREHOLDERS

    During the second quarter Gentry Resources Ltd. closed its previously
announced $74.25 million corporate acquisition, and conducted an aggressive
and 100% successful drilling campaign, dominated by Pekisko oil drilling in
the Company's core area of Princess. While average production was down 11%
from the first six months last year, that trend has been reversed with current
production at approximately 5,100 boe/d, and an additional 1,200 to 1,500
boe/d behind-pipe from recent activity. When this new production is brought on
over the next four months, Gentry will be on track to meet an exit rate of
6,200 to 6,500 boe/d.

    Major acquisition

    The Acquisition of properties in the Central Alberta and Peace River Arch
areas of Alberta, which closed on May 31, added core growth areas that are
familiar to Gentry's resource staff. Based on that technical expertise, Gentry
has already drilled or participated in four wells, three of which are oil
wells (net 100 boe/d) and, at time of writing, one well has just completed
drilling operations and has been cased as an oil well.
    In other activity on these new lands, Gentry recently tied-in one well in
the Spirit River area of the Arch (net 100 boe/d) and, in Central Alberta, has
started construction to equip and tie-in a well in Gilby and is surveying the
tie-in of a well in Mikwan. To complement drilling operations, Gentry has
acquired additional lands in key operating areas at recent Crown land sales.

    Operational Review

    For the 10 weeks from the close of the extended spring breakup to the end
of July 2007, Gentry has drilled and cased 27 wells (24.6 net), of which
24 wells (23.4 net) were drilled in the Princess area. Of these 24 Princess
wells, 10 wells (10 net) have individually tested at rates greater than
500 boe/d. Oil wells were tested for approximately eight hours and gas wells
were tested for up to 48 hours. Each of the 10 wells has confirmed virgin
reservoir pressures. Five were drilled in Gentry's Exploration Block and an
additional two tested the northern extension of a gas discovery drilled by
Gentry in the first quarter. The remaining three high-rate wells were drilled
as pool extensions or outposts to existing trends in the lucrative Tilley to
West Tide Lake corridor.
    Although all of these wells have exhibited excellent production
capability, the Company plans to produce the wells at production rates between
75 to 100 boe/d per well. Past experience has shown that, with its strong
aquifer support, producing the Pekisko at rates greater than 150 boe/d could
encourage premature water influx. Although premature water influx does not
affect the ultimate recoverable reserves from the reservoir, it does tax the
Company's water disposal infrastructure.

    Exploration Block drilling

    Of the 10 high-rate wells, five were drilled in the Company's Princess
farm-in Exploration Block providing the production and reserve base to justify
building a new oil battery at Alderson. This Exploration Block, where Gentry
has recently made new oil pool discoveries, will see multi-well follow-up
drilling immediately and in the first half of 2008.

    New gas pool discovery

    Twelve kilometers to the north of the newly discovered oil pools, two new
high production rate wells tested the northern limit of a high deliverability,
recently discovered gas pool which the Company estimates to be just under
three square miles in size. Average pay for the wells drilled into the pool is
7.2 metres while the average porosity in this limestone reservoir is 17%.
    Each of the wells producing from this gas pool will be choked back to
approximately 600 mcf/d (600 mcf/d net) to minimize drawdown, which will also
reduce the risk of water influx in this fractured limestone reservoir. This
reduced production rate applies to the 10-12-19-12W4 well, discussed in
Gentry's March 26, 2007 press release, which was drilled into this pool in the
first quarter and tested at rates in excess of 7 mmcf/d.

    Wells coming on production

    Aside from the 10 high-rate wells, 14 wells have been drilled at Princess
since spring breakup; five are undergoing completion and nine wells are
expected to be average Pekisko producers capable of 30 to 60 boe/d. All 24 of
the wells drilled at Princess over the past 10 weeks are expected to be on
production by the fourth quarter. Gentry is currently applying for 24 pipeline
permits and the licensing of a new 8,000 bfpd battery. The time lag to
production is largely due to the lengthy process for AEUB regulatory approval
for facility and water disposal applications which has begun to negatively
impact Gentry's production in the Princess area. Currently, Gentry has at
least 200 boe/d shut-in due to water disposal applications waiting for
approval.

    Second Quarter and Year-to-date Drilling

    Despite the extended spring breakup, which limited drilling to 34 of the
91 days in the second quarter, Gentry drilled 14 wells (12.8 net) resulting in
eight oil wells (7.4 net), three gas wells (2.4 net) and three wells cased and
waiting on completion (3.0 net) for an overall success rate of 100%. The main
focus was in the Princess area where the wells were evenly distributed between
earning wells in the Exploration Block and wells drilled on Company lands.
Seven of the 14 wells were classified as exploration wells.
    For the first half of 2007, Gentry drilled 24 wells (22.3 net) resulting
in 10 oil wells (9.4 net), five gas wells (4.4 net), seven wells cased and
awaiting completion (6.5 net) and two abandoned wells (2.0 net). The Company
also drilled one injection well (1.0 net) in the Bantry area for which it
expects a full cost recovery. The Princess area was the main focus of drilling
capturing 23 wells (21.9 net) with one (0.4 net) drilled in Central Alberta.
Drilling success for the first half of the year was 92% (91.0% net).
    During the second quarter, Gentry drilled a well offsetting its Nisku gas
production in the northern portion of the large Princess block. The well was
drilled for potential Nisku gas and encountered a tighter than expected
reservoir that eventually produced water. The Company has downgraded gas
production and reserves from this pool as a result of the poor test results.
The Company anticipates additional work will be done on this Nisku pool at a
later date when gas prices are expected to recover, and after all test results
are analyzed and incorporated into the pool and well database.

    Outlook

    Farm-in lands being added

    Gentry has been successful in executing its aggressive capital
expenditure program for the development of the Princess area. The first of two
key earning commitments for the Exploration Block, where the Company has the
ability to earn 203 sections (203 net), has been largely met and exceeded in
some areas. The first commitment required Gentry to drill 13 wells prior to
August 31, 2007. To the end of July, Gentry had exceeded this commitment by
drilling 14 earning wells in this large farm-in block.
    The large Exploration Block was divided into roughly seven township
blocks and the second key commitment requires at least one test well to be
drilled in each block. The Company has two remaining blocks to drill, both of
which are expected to be drilled by the end of October. At year end, Gentry
will add at least another 90 sections (90 net sections or 57,600 net acres) of
earned land to its land base.

    New battery under construction; infill drilling

    As a result of the highly successful Princess drilling program, the
Company has begun construction of a previously announced battery which will
add oil emulsion and gas conservation capacity in the Alderson area of
Princess. This new facility will be situated well into the Exploration Block,
approximately 15 kilometers south of existing facilities in the Tilley and
West Tide Lake development areas. As with Tilley and West Tide Lake, the
Company anticipates a capture area of approximately 50 square kilometers
feeding into this new fluid handling and gas conservation facility which could
handle 30 to 50 producing wells. Pipelines and satellites are being licensed
and installed to tie-in the five high deliverability Exploration Block wells
into this facility to handle the high volumes of oil emulsion and associated
gas. Infill and step-out wells to these wells will be drilled within easy
reach of this facility during the second half of the year. A major benefit of
the Alderson facility will be lower production costs in this huge land block
by limiting trucking costs, which have been the largest single operating cost
item associated with the numerous single-well batteries the Company has been
operating.

    Other second-half 2007 activity

    During the second half of the year, in addition to the continuing oil
development focus in the Princess area, the Company anticipates drilling four
to six wells on prospects in the recently acquired Central Alberta and Peace
River Arch assets. Due to recent drilling success and upcoming land
acquisition programs and industry competition, the Company will not be
commenting on these areas until the fourth quarter.
    Also in the second half, Gentry will initiate planning for large-scale
holding applications in the Princess area to the AEUB. These holdings are a
natural step to field optimization and will allow the Company to develop the
Pekisko reservoirs at a well spacing that will maximize hydrocarbon recovery.
To maximize individual pool recoveries the Company has initiated studies
evaluating the benefits of water flooding the Pekisko reservoirs. Results from
these studies are expected by the end of the third quarter.
    With the focus on oil drilling, Gentry's oil weighting is anticipated to
increase by year end approaching 45%, up from the first half average of 39%.

    Sale of Stratic Energy shares

    At the end of July the Company sold five million shares of Stratic Energy
Corporation ("Stratic") realizing net proceeds of $5.20 million. Due to
Gentry's ongoing capital programs these shares were sold in order to maintain
healthy debt levels. Gentry holds a remaining 5.68 million shares of Stratic.

    New appointments

    Gentry's management is pleased to announce the appointment of Mr. Ken
Wilson to the position of Vice President, Operations and Production.
Mr. Wilson has been with the Company for approximately three years and
replaces Mr. Rob Poole who has resigned his position to pursue other
opportunities. The Company would like to thank Rob for his contribution to
Gentry in his tenure as Vice President, Operations. Gentry would also like to
welcome Mr. Jason Robinson as Area Geologist - Peace River Arch. Mr. Robinson
is well acquainted with Gentry's Peace River Arch assets through employment
with the prior asset owner.

    Production guidance on track

    Early in the fourth quarter production is forecast to increase by 1,200
to 1,500 boe/d based on drilling success in the first half of the year and
current tie-in projects. Production of 550 boe/d will come from the new
Alderson facility, 600 boe/d will come from infill and delineation wells in
the Tilley/West Tide Lake production corridor and 200 boe/d is from well tie-
ins and recompletions. Gentry anticipates average 2007 production to be
4,500 boe/d.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    Management's discussion and analysis ("MD&A") should be read in
conjunction with the unaudited interim consolidated financial statements for
the three and six months ended June 30, 2007 and the audited consolidated
financial statements and MD&A for the year ended December 31, 2006.
    Where amounts are expressed on a barrel of oil equivalent ("boe") basis,
natural gas has been converted at a ratio of six thousand cubic feet of
natural gas to one boe. This ratio is based upon an energy equivalent
conversion method primarily applicable at the burner tip and does not
represent economic equivalence at the wellhead or point of sale. Boe figures
may be misleading, particularly if used in isolation.
    Included in the MD&A are references to financial measures commonly used
in the oil and gas industry such as funds flow from operations, funds flow
from operations per share and operating netbacks. These measures have no
standardized meaning, are not defined by Canadian generally accepted
accounting principles ("GAAP"), and accordingly are referred to as non-GAAP
measures. These supplemental measures are used by management to assess
operating results between years and between peer companies as they provide an
indication of the results generated by the Company's principal business
activities before the consideration of how these activities are financed or
how the results are taxed.
    Gentry determines funds flow from operations as net income prior to
provisions for depletion, depreciation and accretion, stock-based
compensation, future income taxes, and after asset retirement expenditures.
Funds flow from operations per share is calculated using the weighted average
basic and diluted shares used in the calculation of net income per share.
Operating netbacks are calculated by deducting royalty and production expenses
from production revenue. Gentry's reported amounts may not be comparable to
similarly titled measures reported by other companies. Funds flow from
operations should not be considered an alternative to, or more meaningful
than, cash provided by operating, investing, and financing activities or net
income as determined by Canadian GAAP as an indicator of the Company's
performance or liquidity.

    Certain disclosure in this MD&A contains forward-looking statements that
involve risks and uncertainties. Such information, although considered
reasonable by Gentry at the time of preparation, may prove to be incorrect and
actual results may differ materially from those anticipated in the statements
made. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Such risks and uncertainties include, but are not limited to: exploration,
development and production risks; insurance; prices, markets and marketing of
crude oil and natural gas; substantial capital requirements; liquidity;
competition; environmental risks; reserves replacement; reliance on operators
and key employees; corporate matters; permits and licenses; additional funding
requirements; aboriginal claims; issuance of debt; availability of drilling
equipment, access restrictions and cost inflation; title defects; uncertainty
of reserve information; Kyoto protocol; and government regulation and
taxation.
    This MD&A has been prepared as of August 10th 2007.

    Revenue, Production and Pricing

    Gross production revenue was $17.12 million in the second quarter of
2007, down 5% from $18.11 million recorded in the second quarter last year.
Higher oil and ngls volumes increased revenue by $1.51 million but this was
more than offset by the lower gas volumes which caused a decline of
$2.20 million. The decrease in crude oil and ngls pricing caused revenue to
decrease by $1.70 million, which could not quite offset the extra
$1.40 million realized due to the higher gas prices.
    For the six month period ended June 30, 2007, gross revenue was
$32.84 million, down from the $35.76 million recorded in the comparative
period. An increase of $1.96 million due to higher oil and ngls volumes could
not offset the $4.76 million lost due to lower gas volumes. The decrease in
crude oil and ngls pricing caused revenue to decrease by $1.28 million,
exceeding the $1.16 million realized from higher gas prices.

                       Three months ended June 30   Six months ended June 30
    -------------------------------------------------------------------------
                                                %                          %
                           2007     2006   change     2007     2006   change
    -------------------------------------------------------------------------
    Oil and Liquids
    -------------------------------------------------------------------------
    Revenue ($000s)       7,748    7,939       (2)  14,712   14,034        5
    -------------------------------------------------------------------------
    Volumes (bbls/d)      1,534    1,289       19    1,485    1,303       14
    -------------------------------------------------------------------------
    Pricing ($/bbl)       55.49    67.68      (18)   54.74    59.51       (8)
    -------------------------------------------------------------------------
    Natural Gas
    -------------------------------------------------------------------------
    Revenue ($000s)       9,370   10,166       (8)  18,130   21,727      (17)
    -------------------------------------------------------------------------
    Volumes (mcf/d)      14,217   18,139      (22)  13,646   17,469      (22)
    -------------------------------------------------------------------------
    Pricing ($/mcf)        7.24     6.16       18     7.34     6.87        7
    -------------------------------------------------------------------------
    Oil Equivalent
    -------------------------------------------------------------------------
    Revenue ($000s)      17,118   18,105       (5)  32,842   35,761       (8)
    -------------------------------------------------------------------------
    Volumes (boe/d)       3,904    4,312       (9)   3,759    4,214      (11)
    -------------------------------------------------------------------------
    Pricing ($/boe)       48.19    46.14        4    48.27    46.88        3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Royalties

    Gentry's royalty expenses, which were net of Alberta Royalty Tax Credit
("ARTC") in 2006, decreased 6% to $3.92 million in the second quarter of 2007
from $4.18 million in the comparative period. Expressed as a percentage of
production, royalties were relatively consistent at 22.9% versus 23.1% a year
ago.
    For the six month period ended June 30, 2007, royalties were
$7.62 million, down 6% from the $8.12 million recorded a year ago. As a
percentage of production, royalties were 23.2% in 2007 versus 22.7% in the
first six months of 2006.

    Production Expenses

    In the second quarter of 2007, production expenses increased to
$4.32 million from $2.87 million a year ago. On a unit basis, costs increased
to $12.17/boe versus $7.32/boe a year earlier. The high level of industry
activity and tight oilfield services markets resulted in a general increase in
field operating costs. Also contributing to the rise in expenses were greater
repair and maintenance costs, increased gas gathering and processing fees at
third party facilities, and higher trucking and transportation costs as the
Company took an opportunity to increase some of its crude oil netbacks.
    For the first six months of 2007, production expenses were $8.28 million
compared to $6.43 million a year earlier. On a boe basis, costs were
$12.17/boe in 2007 and $8.44/boe in 2006. While unit measurement costs
increased over the comparative period for similar reasons to those stated
above, they have been consistent through the first two quarters of 2007 but
are expected to decline in the later part of the year as additional volumes
are tied in and new gathering and processing agreements are executed.

    General and Administrative Expenses

    Gentry's general and administrative expenses increased to $1.20 million
in the second quarter of 2007 from $848 thousand in the second quarter of
2006, with additional staffing and compensation costs accounting for one-third
of this increase. Increases in consulting and professional fees also
contributed to overall rise in expenditures. On a barrel of oil equivalent
basis, general and administrative expenses were $3.36/boe versus $2.16/boe in
the comparative quarter. Going forward, while Gentry expects its gross
administrative expenditures to increase, the per unit figures should fall as
additional production volumes are added.
    For the six month period ended June 30, 2007, general and administrative
costs were $2.16 million versus $1.58 million a year ago. On a unit
measurement basis, this equates to $3.18/boe in 2007 and $2.07/boe in 2006.
Again, additional staffing and compensation costs were the largest
contributing factor to this increase.

    Interest Expense

    Gentry's interest expense was $758 thousand in the second quarter of 2007
versus $642 thousand in the second quarter of 2006. An increase in interest
rates and a higher utilization of the credit facility were the reasons behind
the change.
    For the first half of 2007, Gentry's interest expense was $1.34 million
versus $913 thousand in the comparative period. As with the second quarter
figures, an increase in interest rates and a higher utilization of the credit
facility were the reasons behind the growth of this expense.

    Stock-based Compensation

    Gentry's stock-based compensation expense for the second quarter of 2007
was $620 thousand. Of this amount, $592 thousand related to the amortization
and vesting of stock options and $28 thousand related to the Company's
Employee Share Ownership Plan ("ESOP"). This compares to stock-based
compensation of $490 thousand a year ago, $462 thousand of which related to
stock options and $28 thousand to the ESOP.
    For the six month period ended June 30, 2007, stock-based compensation
expense was $971 thousand versus $649 thousand a year ago. In June 2007,
1.20 million stock options were granted at an average price of $3.99, the cost
of which will be amortized over the vesting period of the options.

    Depletion, Depreciation and Accretion

    Depletion, depreciation and accretion charges for the second quarter of
this year decreased to $6.60 million from $7.19 million a year ago. This
amounts to $18.57/boe in 2007 versus $18.31/boe a year ago. The addition of
reserves in May 2007 from the corporate acquisition and a lower depletion rate
contributed to the reduction in these costs.
    For the six month periods, depletion, depreciation, and accretion charges
were $12.33 million in 2007 and $12.75 million in 2006, or $18.12/boe and
$16.71/boe respectively.

    Income Taxes

    Gentry's current income tax expense for the second quarter of 2007
decreased to $21 thousand from $58 thousand in the comparative period of 2006.
Future taxes also fell, decreasing to $96 thousand from $194 thousand in the
comparative period.
    For the first half of 2007, current taxes were $76 thousand versus
$175 thousand a year ago. Future taxes were $329 thousand for the first six
months of 2007 compared to $1.56 million in the first six months of 2006. The
reduced pre-tax profitability was the primary reason for the overall decrease
in taxes.

    Funds Flow from Operations and Net Income

    Funds flow from operations for the second quarter of 2007 decreased to
$6.90 million from $9.48 million in the comparative quarter. This amounts to
$0.15 per share ($0.15 diluted) in 2007 versus $0.25 per share ($0.23 diluted)
during the second quarter of 2006. Lower than anticipated volumes and an
increase in production expenses contributed to the lower amounts in 2007.
    For the first six months of 2007, funds flow from operations was
$13.34 million compared to $18.48 million for the first six months of 2006.
This amounts to $0.32 per share ($0.32 diluted) in 2007 and $0.48 per share
($0.46 diluted) in 2006. The 2007 figures were impacted by the lower volumes
and higher expenses.
    The Company recorded a net loss of $411 thousand in the second quarter of
2007 versus net income of $1.64 million in the second quarter of 2006. This
loss amounts to $0.01 per share ($0.01 diluted) in 2007 versus a gain of $0.04
per share ($0.04 diluted) in 2006. The decline in fund flows from operations
was the primary cause of the net loss.
    For the first six months of 2007, Gentry recorded a net loss of
$256 thousand compared to a gain of $3.58 million for the first six months of
2006. As with the second quarter figures, the decline in fund flows from
operations was the primary cause of the net loss and this was only partially
offset by the reduction in future taxes.

    Operating Netbacks

                                    Three months ended      Six months ended
                                               June 30               June 30
    ($/boe)                            2007       2006       2007       2006
    -------------------------------------------------------------------------
    Selling price                     48.19      46.14      48.27      46.88
    -------------------------------------------------------------------------
    Royalties (net of ARTC)          (11.03)    (10.64)    (11.19)    (10.64)
    -------------------------------------------------------------------------
    Operating cost                   (12.17)     (7.32)    (12.17)     (8.44)
    -------------------------------------------------------------------------
    Operating netback                 24.99      28.18      24.91      27.80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital Expenditures and Corporate Acquisition

    Capital expenditures were $81.43 million in the most recently completed
quarter versus $7.40 million incurred in the comparative three-month period.
The 2007 figure includes $73.60 million for the purchase of 1317010 Alberta
Ltd. which closed May 31, 2007 with an effective date of April 1, 2007 (the
"Acquisition"). The Acquisition brought Gentry certain oil and gas assets in
Central Alberta and the Peace River Arch of northern Alberta which produce
approximately 1,600 boe/d.

                                    Three months ended      Six months ended
                                               June 30               June 30
    ($000s)                            2007       2006       2007       2006
    -------------------------------------------------------------------------
    Drilling and completions          4,378      2,228      9,527      7,528
    -------------------------------------------------------------------------
    Facilities and equipping          2,591      1,672      6,713      5,276
    -------------------------------------------------------------------------
    Land and seismic                    327      3,185      1,134      5,918
    -------------------------------------------------------------------------
    Asset acquisitions, net              73          -         73          -
    -------------------------------------------------------------------------
    Corporate acquisition            73,595          -     73,595          -
    -------------------------------------------------------------------------
    Capitalized expenses                444        306        882        765
    -------------------------------------------------------------------------
    Other                                20          5         51         37
    -------------------------------------------------------------------------
                                     81,428      7,396     91,975     19,524
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liquidity and Capital Resources

    Consideration for the Acquisition, as described above, was
$74.25 million, subject to normal closing adjustments, and was financed
through a subscription receipts offering, as well as increased credit
facilities.
    As part of the financing, Gentry issued 3,750,000 shares at $4.00 per
share and 12,500,000 subscription receipts at $4.00 per receipt. The
subscription receipts were converted into 12,500,000 common shares on May 31,
2007 concurrently with the closing of the Acquisition. At the same time, the
Company increased its credit facility from $50 million to $72.50 million to
capture some additional lending value associated with the newly acquired
assets.
    Gentry began the second quarter of 2007 with 38,858,091 common shares
outstanding. During the second quarter, Gentry issued 85,000 common shares
pursuant to the exercise of stock options ($2.17 per share), 14,268 shares
pursuant to the ESOP ($3.89 per share) and 16,250,000 common shares pursuant
to the aforementioned equity financing ($4.00 per share). As a result, Gentry
ended the quarter with 55,207,359 common shares issued and outstanding.
    As of the date of this MD&A, 55,233,208 common shares are outstanding. A
further 4,085,000 shares are reserved for issuance pursuant to outstanding
stock option agreements (at an average exercise price of $3.48 per share).
    Gentry's net debt (current liabilities in excess of current assets) was
$52.45 million at June 30, 2007 and the credit facility currently stands at
$72.50 million.
    In the first quarter of 2007, the Company reclassified its Investments to
short-term investments as it contemplated the disposition of these assets.
Subsequent to the end of the second quarter, Gentry sold five million of its
10.68 million shares in Stratic Energy Corporation for net proceeds of
$5.20 million. Gentry continues to monitor this investment in light of its own
ongoing exploration funding requirements.

    Selected Quarterly Information

    The following table summarizes selected quarterly information from the
past eight quarters:

                                    2007                                2006
    Three months ended       Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Production
    -------------------------------------------------------------------------
    bbls/d                1,534    1,435    1,447    1,538    1,289    1,317
    -------------------------------------------------------------------------
    mcf/d                14,217   13,069   17,331   14,388   18,139   16,792
    -------------------------------------------------------------------------
    boe/d                 3,904    3,613    4,335    3,936    4,312    4,116
    -------------------------------------------------------------------------
    Financial ($000s except
     per share amounts)
    -------------------------------------------------------------------------
    Production revenue  $17,118  $15,724  $17,924  $16,147  $18,105  $17,656
    -------------------------------------------------------------------------
    Funds flow from
     operations           6,902    6,441    4,875    7,085    9,481    9,004
    -------------------------------------------------------------------------
      per share - basic    0.15     0.17     0.13     0.18     0.25     0.23
    -------------------------------------------------------------------------
      per share -
       diluted             0.15     0.16     0.12     0.18     0.23     0.22
    -------------------------------------------------------------------------
    Net income (loss)      (411)     154     (931)     104    1,639    1,945
    -------------------------------------------------------------------------
      per share - basic   (0.01)       -    (0.02)       -     0.04     0.05
    -------------------------------------------------------------------------
      per share -
       diluted            (0.01)       -    (0.02)       -     0.04     0.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                    2005
    Three months ended       Q4       Q3
    -------------------------------------
    Production
    -------------------------------------
    bbls/d                1,486    1,291
    -------------------------------------
    mcf/d                14,189   11,177
    -------------------------------------
    boe/d                 3,851    3,154
    -------------------------------------
    Financial ($000s except
     per share amounts)
    -------------------------------------
    Production revenue  $22,165  $17,685
    -------------------------------------
    Funds flow from
     operations          12,652   10,071
    -------------------------------------
      per share - basic    0.33     0.26
    -------------------------------------
      per share -
       diluted             0.31     0.25
    -------------------------------------
    Net income (loss)     2,737    4,336
    -------------------------------------
      per share - basic    0.07     0.11
    -------------------------------------
      per share -
       diluted             0.07     0.11
    -------------------------------------
    -------------------------------------

    While production increases are typically stronger in the first and fourth
quarters as wells drilled in previous quarters are tied in or begin to produce
to single well batteries, production in the first quarter of 2007 was
adversely affected by operational issues including line freezing, higher than
average declines with a significant producing well and third party gas plant
capacity issues. The second quarter is typically characterized by wet weather
and break-up conditions, making access to certain locations difficult. The
impact of these issues on second quarter 2007 volumes was somewhat mitigated
by June volumes accruing to Gentry as a result of the Acquisition. Volumes in
the third quarter of 2006 were directly impacted by downtime at three third
party operating facilities which curtailed production at both Princess and
Sedalia.
    Generally speaking, production revenue and funds flow from operations are
largely a function of production volumes and commodity prices. In the last
half of 2005, Gentry's average sales price was $60.95/boe in the third quarter
and $62.56/boe in the fourth quarter. In 2006, although both crude oil and gas
prices were quite volatile, most of the change in production revenue was
volume based, as Gentry's average sales price of $45.83/boe did not vary by
more than $2/boe in any one quarter. Funds flow from operations was lower than
expected in the fourth quarter of 2006 due to increased production expenses
and additional royalties recorded in the period.
    In the fourth quarter of 2005, net income dropped relative to prior
quarters due to increased depletion charges and higher future income taxes.
The depletion charges increased as a result of a larger capital asset base and
a higher depletion rate, while future income taxes went up as Gentry utilized
a greater proportion of its tax pools to reduce its taxable income and current
taxes. In the fourth quarter of 2006, the net loss was largely attributable to
reduced funds flow from operations, while the biggest contributor to the
recording of the net loss in the second quarter of 2007 versus a small net
income in the first quarter of 2007 was the increased depletion charges, in
part associated with the Acquisition.

    Changes in Accounting Policies

    Effective January 1, 2007, the Company adopted the following new Canadian
Institute of Chartered Accountants ("CICA") sections:

    -   Section 1530, Comprehensive Income;
    -   Section 3855, Financial Instruments - Recognition and Measurement;
        and
    -   Section 3865, Hedges.

    These new accounting standards provide requirements for the recognition
and measurement of financial instruments and the use of hedge accounting. The
standards have been adopted prospectively and as such the comparative
financial statements have not been restated. Note 2 to the Company's unaudited
interim consolidated financial statements for the three months ended June 30,
2007 further describes these new policies.
    The adoption of these standards had the effect of increasing the
January 1, 2007 Accumulated Other Comprehensive Income balance to
$10.76 million from $nil, and the recording of $718 thousand and $1.62 million
as losses to Comprehensive Income and Accumulated Other Comprehensive Income
during the three and six month periods ended June 30, 2007 respectively. These
changes are required as a result of the Company classifying its short-term
investments as available-for-sale and recognizing the gains and losses from
the changes in fair value of those investments. Gentry determines the fair
value of its short-term investments by multiplying the bid price per share of
those investments by the number of shares it holds. The largest risk
associated with these short-term investments is fluctuations in share price,
as they impact fair value and cause volatility in the value of the asset and
Comprehensive Income until such time as the Company elects to dispose of those
shares. Gentry monitors its short-term investments on a regular basis and,
subsequent to June 30, 2007, has sold approximately 50% of its investments.
    Also effective January 1, 2007, the Company adopted the revised
recommendations of CICA Section 1506, Accounting Changes. Under the revised
standards, voluntary changes in accounting policies are permitted 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. These standards are effective for all changes in accounting
policies, changes in accounting estimates and corrections of prior period
errors initiated in periods beginning on or after January 1, 2007.
    In conjunction with the Acquisition, the Company recorded an amount for
Goodwill. Goodwill represents the excess of the purchase price of the business
combination acquired over the fair value of the assets acquired at the date of
acquisition. Goodwill is not amortized but is subject to an annual impairment
review or more frequent if circumstances exist that might indicate the value
is impaired. Should the carrying value exceed the fair value of Goodwill, the
carrying value will be written down to the fair value.
    On June 1, 2007, the Company amalgamated with its wholly-owned
subsidiaries, 1317010 Alberta Ltd. ("1317010") and Gentry Resources (West
Africa) Inc. The consolidated financial statements include the amounts of
these subsidiaries up until their amalgamation.

    Disclosure and Internal Controls over Financial Reporting

    The Chief Executive Officer and Chief Financial Officer have designed or
caused to be designed under their supervision a process of disclosure and
internal controls over financial reporting. The process was designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with Canadian GAAP. There were no changes in the Company's
disclosure and internal controls over financial reporting during the three and
six months ended June 30, 2007 that materially affected, or is reasonably
likely to affect, the Company's disclosure and internal controls over
financial reporting. It should be noted that a control system, no matter how
well conceived or operated, can only provide reasonable, not absolute,
assurance that the objectives of the control system are met.

    CONSOLIDATED BALANCE SHEETS
                                                     June 30,    December 31,
                                                        2007            2006
                                                  (unaudited)       (audited)
    -------------------------------------------------------------------------

    ASSETS

    Current
    -------------------------------------------------------------------------
      Cash and cash equivalents                $       6,307   $      18,406
    -------------------------------------------------------------------------
      Accounts receivable                         15,966,667      11,992,126
    -------------------------------------------------------------------------
      Prepaid expenses                               940,500         580,361
    -------------------------------------------------------------------------
      Short-term investments                      11,970,700               -
    -------------------------------------------------------------------------
                                                  28,884,174      12,590,893
    -------------------------------------------------------------------------
    Investments                                            -       1,809,583
    -------------------------------------------------------------------------
    Property and equipment (note 4)              210,595,521     127,425,551
    -------------------------------------------------------------------------
    Goodwill (note 3)                              5,706,628               -
    -------------------------------------------------------------------------
                                               $ 245,186,323   $ 141,826,027
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & SHAREHOLDERS' EQUITY

    Current
    -------------------------------------------------------------------------
      Accounts payable and accrued
       liabilities                             $  21,452,260   $  18,858,031
    -------------------------------------------------------------------------
      Income taxes payable                           100,340         294,859
    -------------------------------------------------------------------------
      Bank debt (note 5)                          59,780,000      40,750,000
    -------------------------------------------------------------------------
                                                  81,332,600      59,902,890
    -------------------------------------------------------------------------
    Asset retirement obligations (note 6)          9,626,541       5,104,300
    -------------------------------------------------------------------------
    Future income taxes                           17,882,456      12,393,282
    -------------------------------------------------------------------------
                                                 108,841,597      77,400,472
    -------------------------------------------------------------------------
    Share capital (note 7)                       106,032,677      43,515,360
    -------------------------------------------------------------------------
    Contributed surplus (note 7)                   3,146,177       2,335,783
    -------------------------------------------------------------------------
    Accumulated other comprehensive income         9,147,155               -
    -------------------------------------------------------------------------
    Retained earnings                             18,018,717      18,574,412
    -------------------------------------------------------------------------
                                                 136,344,726      64,425,555
    -------------------------------------------------------------------------
                                               $ 245,186,323   $ 141,826,027
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Please refer to the accompanying notes.


    Approved by the Board:

    Director: (signed) "A. Bruce Macdonald"
              -----------------------------

    Director: (signed) "Dean Prodan"
              ----------------------


    CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
    (unaudited)

                      Three months ended June 30    Six months ended June 30

                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
      Production      $ 17,118,096  $ 18,105,359  $ 32,841,629  $ 35,761,357
    -------------------------------------------------------------------------
      Less: royalties,
       net of ARTC      (3,918,386)   (4,176,356)   (7,615,405)   (8,117,065)
    -------------------------------------------------------------------------
                        13,199,710    13,929,003    25,226,224    27,644,292
    -------------------------------------------------------------------------
    Expenses
    -------------------------------------------------------------------------
      Depletion,
       depreciation &
       accretion         6,597,636     7,185,508    12,326,495    12,746,191
    -------------------------------------------------------------------------
      Production         4,322,448     2,873,670     8,279,688     6,434,748
    -------------------------------------------------------------------------
      General &
       administrative    1,195,271       847,526     2,160,903     1,582,023
    -------------------------------------------------------------------------
      Interest             758,389       642,323     1,339,773       912,896
    -------------------------------------------------------------------------
      Stock-based
       compensation
       (note 7)            619,775       489,589       971,382       648,737
    -------------------------------------------------------------------------
                        13,493,519    12,038,616    25,078,241    22,324,595
    -------------------------------------------------------------------------
    Income (loss)
     before income
     taxes                (293,809)    1,890,387       147,983     5,319,697
    -------------------------------------------------------------------------
    Income taxes
    -------------------------------------------------------------------------
      Current               20,975        57,647        75,631       175,336
    -------------------------------------------------------------------------
      Future                96,010       193,824       328,779     1,560,243
    -------------------------------------------------------------------------
                           116,985       251,471       404,410     1,735,579
    -------------------------------------------------------------------------
    Net income (loss)     (410,794)    1,638,916      (256,427)    3,584,118
    -------------------------------------------------------------------------
    Retained earnings,
     start of period    18,429,511    19,068,553    18,574,412    18,333,893
    -------------------------------------------------------------------------
    Less: excess of
     cost of shares
     acquired over
     stated value                -    (1,024,104)     (299,268)   (2,234,646)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period    $ 18,018,717  $ 19,683,365  $ 18,018,717  $ 19,683,365
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income (loss)
     per share
     (note 7)
    -------------------------------------------------------------------------
      Basic           $      (0.01) $       0.04  $      (0.01) $       0.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Diluted         $      (0.01) $       0.04  $      (0.01) $       0.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Please refer to accompanying notes.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED
    OTHER COMPREHENSIVE INCOME
    (unaudited)

                      Three months ended June 30    Six months ended June 30

                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME

    -------------------------------------------------------------------------
    Net income (loss) $   (410,794) $  1,638,916  $   (256,427) $  3,584,118
    -------------------------------------------------------------------------
    Other
     comprehensive
     income (loss)

    Change in unrealized
     losses on
     available-for-sale
     assets, net of tax
     of $137,363 (six
     months ended
     June 30, 2007 -
     $309,137)            (717,944)            -    (1,615,754)            -
    -------------------------------------------------------------------------
    Comprehensive
     income (loss)    $ (1,128,738) $  1,638,916  $ (1,872,181) $  3,584,118
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ACCUMULATED OTHER COMPREHENSIVE INCOME
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income, start of
     period           $  9,865,099  $          -  $          -  $          -
    -------------------------------------------------------------------------
    Change in
     accounting policy
     (note 2)                    -             -    10,762,909             -
    -------------------------------------------------------------------------
    Change in unrealized
     losses on
     available-for-sale
     assets, net of tax
     of $137,363 (six
     months ended
     June 30, 2007 -
     $309,137)            (717,944)            -    (1,615,754)            -
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income, end of
     period           $ 9,147,155    $         -  $  9,147,155  $          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Please refer to the accompanying notes.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)

                      Three months ended June 30    Six months ended June 30

                             2007           2006          2007          2006
    -------------------------------------------------------------------------
    Operating
     activities
    -------------------------------------------------------------------------
    Net income (loss) $  (410,794)   $ 1,638,916  $   (256,427) $  3,584,118
    -------------------------------------------------------------------------
    Adjustments for:
    -------------------------------------------------------------------------
      Depletion,
       depreciation &
       accretion        6,597,636      7,185,508    12,326,495    12,746,191
    -------------------------------------------------------------------------
      Stock-based
      compensation
      (note 7)            619,775        489,589       971,382       648,737
    -------------------------------------------------------------------------
      Future income
       taxes               96,010        193,824       328,779     1,560,243
    -------------------------------------------------------------------------
      Asset retirement
       expenditures          (777)       (26,761)      (27,870)      (54,429)
    -------------------------------------------------------------------------
                        6,901,850      9,481,076    13,342,359    18,484,860
    -------------------------------------------------------------------------
      Changes in
       non-cash working
       capital items   (2,666,703)    (6,580,222)   (5,772,972)    1,934,344
    -------------------------------------------------------------------------
                        4,235,147      2,900,854     7,569,387    20,419,204
    -------------------------------------------------------------------------
    Investing
     activities
    -------------------------------------------------------------------------
    Capital
     expenditures      (7,832,678)    (7,395,906)  (18,380,122)  (19,523,857)
    -------------------------------------------------------------------------
    Corporate
     acquisition
     (note 3)         (73,595,312)             -   (73,595,312)            -
    -------------------------------------------------------------------------
    Acquisition of
     investments                -       (102,125)            -      (102,125)
    -------------------------------------------------------------------------
    Changes in non-cash
     working
     capital items        932,217     (1,175,022)    4,647,148    (3,098,282)
    -------------------------------------------------------------------------
                      (80,495,719)    (8,673,053)  (87,328,286)  (22,724,264)
    -------------------------------------------------------------------------
    Financing
     activities
    -------------------------------------------------------------------------
    Proceeds from
     bank debt, net    15,380,000      6,839,119    19,030,000     4,690,000
    -------------------------------------------------------------------------
    Redemption of share
     capital                    -     (1,318,069)     (406,615)   (2,820,255)
    -------------------------------------------------------------------------
    Proceeds on issuance
     of share capital,
     net                60,875,598       265,384    61,119,377       317,688
    -------------------------------------------------------------------------
    Changes in non-cash
     working capital
     items                 (1,608)       (17,966)        4,038       122,352
    -------------------------------------------------------------------------
                       76,253,990      5,768,468    79,746,800     2,309,785
    -------------------------------------------------------------------------
    Increase (decrease)
     in cash               (6,582)        (3,731)      (12,099)        4,725
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     start of period       12,889         21,546        18,406        13,090
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of period    $     6,307    $    17,815  $      6,307  $     17,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash
     flows disclosure:
    -------------------------------------------------------------------------
      Interest paid   $   758,389    $   642,323  $  1,339,773  $    912,896
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes
       paid               272,505    $    78,926  $    272,505  $    292,998
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Please refer to the accompanying notes.



    NOTES TO THE JUNE 30, 2007 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)

    1.  Accounting Policies

        The interim consolidated financial statements of Gentry Resources
        Ltd. ("Gentry" or the "Company") have been prepared in accordance
        with generally accepted accounting principals in Canada, which were
        the same accounting policies and methods of computation as the
        consolidated financial statements as at December 31, 2006, except as
        disclosed in Note 2. The disclosure which follows is incremental to
        the disclosure included in the annual consolidated financial
        statements. The interim consolidated financial statements should be
        read in conjunction with the Company's consolidated financial
        statements and notes thereto for the year ended December 31, 2006.

    2.  Changes in Accounting Policies

        Financial Instruments and Hedging Activities

        Effective January 1, 2007, the Company adopted the following new
        Canadian Institute of Chartered Accountants ("CICA") sections:

           -  Section 1530, Comprehensive Income;
           -  Section 3855, Financial Instruments - Recognition and
              Measurement; and
           -  Section 3865, Hedges.

        These new accounting standards provide requirements for the
        recognition and measurement of financial instruments and the use of
        hedge accounting. The standards have been adopted prospectively and
        comparative financial statements have not been restated.

        Comprehensive Income

        Section 1530 establishes standards for the reporting and presenting
        of comprehensive income and other comprehensive income. Comprehensive
        income is defined as the change in equity from transactions and other
        events from non-owner sources and other comprehensive income
        comprises revenues, expenses, gains and losses that, in accordance
        with generally accepted accounting principles, are recognized in
        comprehensive income but excluded from net income.

        Financial Instruments - Recognition and Measurement

        Section 3855 prescribes when a financial asset, financial liability
        or non-financial derivative is to be recognized on the balance sheet
        and at what amount, requiring fair value or cost-based measures under
        different circumstances. All financial instruments must be classified
        as one of the following five categories: held-for-trading;
        held-to-maturity instruments; loans and receivables;
        available-for-sale financial assets; or other financial liabilities.
        All financial instruments, with the exception of loans and
        receivables, held-to-maturity investments and other financial
        liabilities measured at amortized cost, are reported on the balance
        sheet at fair value. Subsequent measurement and changes in fair value
        will depend on their initial classification. Available-for-sale
        financial assets are measured at fair value with changes in fair
        value recorded in other comprehensive income until the investment is
        derecognized or impaired at which time the amounts would be recorded
        in earnings.

        Derivatives

        All derivative instruments, including embedded derivatives, are
        recorded on the balance sheet at fair value unless they qualify for
        the normal sale and purchase exception. All changes in fair value are
        included in earnings unless cash flow hedge or net investment
        accounting is used, in which case, changes in fair value are recorded
        in other comprehensive income to the extent the hedge is effective,
        and in earnings to the extent it is ineffective.

        The Company has not identified any material embedded derivatives in
        any of its financial instruments. The Company has elected to account
        for its commodity sales contracts and other non-financial contracts,
        held for the purpose of receipt or delivery of non-financial items in
        accordance with its expected purchase, sale or usage requirements on
        an accrual basis.

        Hedge Accounting

        Section 3865 established standards for when and how hedge accounting
        may be applied. Hedge accounting continues to be optional and the
        Company does not currently apply hedge accounting.

        Effect of Changes in Accounting Policies
        As a result of adopting these new standards, on January 1, 2007, the
        Company classified its short-term investments as available-for-sale
        financial assets and as a result, short-term investments were
        increased by $12,086,008, future income taxes liability was increased
        by $1,323,099 and accumulated other comprehensive income was
        increased by $10,762,909.

        Accounting Changes

        Effective January 1, 2007, the Company adopted the revised
        recommendations of CICA Section 1506, Accounting Changes. Under the
        revised standards, voluntary changes in accounting policies are
        permitted 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. These standards are effective for all changes in accounting
        policies, changes in accounting estimates and corrections of prior
        period errors initiated in periods beginning on or after
        January 1, 2007.

        Goodwill

        Goodwill represents the excess of the purchase price of the business
        combination acquired over the fair value of the net assets acquired
        at the date of acquisition.

        Goodwill is not amortized but is subject to an annual impairment
        review or more frequent if circumstances exist that might indicate
        the value is impaired. Should the carrying value exceed the fair
        value of Goodwill, the carrying value will be written down to the
        fair value.

        Principles of Consolidation

        The consolidated financial statements include the accounts of the
        Company and its wholly-owned subsidiaries until June 1, 2007, at
        which time the subsidiaries were amalgamated with the Company.

        Future Accounting Pronouncements

        As of January 1, 2008, the Company will be required to adopt two new
        CICA standards, Section 3862 "Financial Instruments - Disclosures"
        and Section 3863 "Financial Instruments - Presentation" which will
        replace Section 3861 "Financial Instruments - Disclosure and
        Presentation". The new disclosure standard increases the emphasis on
        the risks associated with both recognized and unrecognized financial
        instruments and how those risks are managed. The new presentation
        standard carries forward the former presentation requirements. The
        new financial instruments presentation and disclosure requirements
        were issued in December 2006 and the Company is assessing the impact
        on its financial statements.

        As of January 1, 2008, the Company will be required to adopt CICA
        Section 1535 "Capital Disclosures" which will require additional
        disclosures of objectives, policies and processes for managing
        capital. In addition, disclosures will include whether companies have
        complied with externally imposed capital requirements. The new
        capital disclosure requirements were issued in December 2006 and the
        Company is assessing the impact on its financial statements.

        In January 2006, the CICA Accounting Standards Board adopted a
        strategic plan for the direction of accounting standards in Canada.
        As part of the plan, accounting standards in Canada for public
        companies are expected to converge with International Financial
        Reporting Standards ("IFRS") by the end of 2011. The Company
        continues to monitor and assess the impact of the convergence of
        Canadian GAAP and IFRS.

    3.  Business Combination

        On April 30, 2007, the Company entered into a Share Purchase and Sale
        Agreement to acquire all of the issued and outstanding shares of
        1317010 for total cash consideration of $73,595,312, including costs
        of $942,807 (the "Acquisition"). The Acquisition had an effective
        date of April 1, 2007 and closed May 31, 2007, with the closing being
        subject to customary industry conditions. The earnings of 1317010
        have been included in these financial statements commencing
        June 1, 2007.

        The costs of the acquisition were allocated as follows:

        ---------------------------------------------------------------------
        Petroleum and natural gas properties                    $ 76,934,709
        ---------------------------------------------------------------------
        Goodwill                                                   5,706,628
        ---------------------------------------------------------------------
        Working capital                                              813,182
        ---------------------------------------------------------------------
        Asset retirement obligations                              (4,368,476)
        ---------------------------------------------------------------------
        Future income taxes                                       (5,490,731)
        ---------------------------------------------------------------------
                                                                $ 73,595,312
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At the date of preparation of these financial statements, the final
        statement of adjustments for the Acquisition has not been received
        and the above amounts are subject to revision at the time the final
        statement is received.

        No amount of the Goodwill is expected to be deductible for income tax
        purposes.

    4.  Property and Equipment

                                                      June 30,   December 31,
                                                         2007           2006
                                                   (unaudited)      (audited)
        ---------------------------------------------------------------------
        Petroleum and natural gas properties
         including exploration and development
         thereon                                $ 220,181,929  $ 149,592,699
        ---------------------------------------------------------------------
        Production equipment and facilities        78,903,309     54,190,215
        ---------------------------------------------------------------------
        Other                                       1,024,602        973,488
        ---------------------------------------------------------------------
                                                  300,109,840    204,756,402
        ---------------------------------------------------------------------
        Accumulated depletion and depreciation    (89,514,319)   (77,330,851)
        ---------------------------------------------------------------------
                                                $ 210,595,521  $ 127,425,551
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As at June 30, 2007, costs of unproved petroleum and natural gas
        properties amounting to $21,894,130 (December 31, 2006 - $22,054,459)
        have been excluded from the depletion calculation. During the
        six months ended June 30, 2007, the Company capitalized $881,772
        (2006 - $764,496) in general and administrative expenses.

    5.  Bank Debt

        The Company has an uncommitted demand revolving credit facility to a
        maximum of $72.5 million. The facility is available to the Company by
        way of prime rate based loans, bankers' acceptances and letters of
        credit. Interest is payable monthly. Effective January 1, 2008, the
        interest rate will be determined quarterly on a grid system based
        upon the Company's debt to cash flow ratio. Currently the interest
        rate is at the bank's prime lending rate plus 0.125%. The facility is
        secured by a general assignment of book debts, a $100 million demand
        debenture with a floating charge over all assets with a Negative
        Pledge and Undertaking to provide fixed charges upon request. The
        Company must comply with certain financial and other reporting
        requirements and may not breach certain financial tests without the
        prior consent of the bank. The credit facility may be reviewed
        periodically by the bank, with the next review being scheduled on or
        before May 31, 2008.

    6.  Asset Retirement Obligations

        The following table summarizes changes in the asset retirement
        obligations:


                                                      June 30,   December 31,
                                                         2007           2006
                                                   (unaudited)      (audited)
        ---------------------------------------------------------------------
        Asset retirement obligations, start of
         period                                 $   5,104,300  $   3,473,144
        ---------------------------------------------------------------------
        Liabilities related to business
         combination (note 3)                       4,368,476              -
        ---------------------------------------------------------------------
        Liabilities incurred                           38,607      1,684,394
        ---------------------------------------------------------------------
        Liabilities settled                           (27,870)      (126,137)
        ---------------------------------------------------------------------
        Accretion expense                             143,028        204,337
        ---------------------------------------------------------------------
        Liabilities disposed                                -       (131,438)
        ---------------------------------------------------------------------
        Asset retirement obligations, end of
         period                                 $   9,626,541  $   5,104,300
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The inflated, undiscounted amount of the estimated future cash flows
        required to settle the obligations is $17,817,951 (December 31, 2006 -
        $9,809,550). These obligations are expected to be paid over the next
        several years with a weighted average life of approximately 11 years
        (2006 - 11 years). The estimated future cash flows have been
        discounted at the credit-adjusted risk free rate of 6.00%. As at
        June 30, 2007, no funds have been set aside to settle these
        obligations.

    7.  Share Capital

        Authorized

        Gentry's authorized share capital consists of an unlimited number of
        voting common shares and an unlimited number of non-voting preferred
        shares. No preferred shares have been issued.

        Issued

        Common Shares                        Number of Shares   Stated Value
        ---------------------------------------------------------------------
        Balance - December 31, 2006                38,811,130  $  43,515,360
        ---------------------------------------------------------------------
        Shares issued for cash                     16,250,000     65,000,000
        ---------------------------------------------------------------------
        Share issuance costs, net of tax
         of $1,344,298                                      -     (2,992,147)
        ---------------------------------------------------------------------
        Stock options exercised for cash              214,400        400,751
        ---------------------------------------------------------------------
        Transferred from contributed surplus
         on options exercised                               -        105,915
        ---------------------------------------------------------------------
        Employee share ownership plan                  27,329        110,145
        ---------------------------------------------------------------------
        Normal course issuer bid purchases            (95,500)      (107,347)
        ---------------------------------------------------------------------
        Balance - June 30, 2007                    55,207,359  $ 106,032,677
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        On April 30, 2007, Gentry entered into a bought deal equity issue of
        12,500,000 subscription receipts of Gentry at a price of $4.00 per
        subscription receipt and 3,750,000 common shares for aggregate
        proceeds of $65 million. Each subscription receipt was converted into
        one common share without further payment or action on the part of the
        holder concurrently with the closing of the Acquisition (note 3).
        Transaction costs were estimated to be $4.34 million with an
        associated future tax effect of $1.34 million.


        Stock Options
                                                                Weighted Avg.
                                                    Number of       Exercise
                                                      Options          Price
        ---------------------------------------------------------------------
        Balance - December 31, 2006                 3,226,900  $        3.24
        ---------------------------------------------------------------------
        Granted                                     1,277,500           4.02
        ---------------------------------------------------------------------
        Exercised                                    (214,400)          1.87
        ---------------------------------------------------------------------
        Cancelled                                     (65,000)          5.74
        ---------------------------------------------------------------------
        Balance - June 30, 2007                     4,225,000  $        3.51
        ---------------------------------------------------------------------
        Exercisable - June 30, 2007                 2,125,832  $        2.43
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Stock-based Compensation Expense

        The fair value of stock options granted during 2007 was estimated on
        the dates of grant using the Black-Scholes option pricing model with
        the following assumptions:

        -  Risk free interest rate of 4.02% to 4.73%
        -  Expected life of options of 4.0 years
        -  Expected volatility of 71.34% to 72.29%
        -  Expected dividend rate of 0%
        -  Weighted average fair value per option granted of $2.12

        Compensation costs of $592,031 for the three months ended June 30,
        2007 (2006 - $461,624) and $916,309 for the six months ended June 30,
        2007 (2006 - $596,768) have been expensed and have resulted in
        corresponding increases in contributed surplus in the respective
        periods.

        Contributed Surplus

                                                                      Amount
        ---------------------------------------------------------------------
        Balance - December 31, 2006                            $   2,335,783
        ---------------------------------------------------------------------
        Stock-based compensation expense                             916,309
        ---------------------------------------------------------------------
        Transferred to share capital on options exercised           (105,915)
        ---------------------------------------------------------------------
        Balance - June 30, 2007                                $   3,146,177
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net Income Per Share

        The following table reconciles the denominators used for the basic
        and diluted net income per share calculations:

                                  Three months ended        Six months ended
                                             June 30                 June 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Basic weighted
         average shares       44,753,220  38,614,716  41,831,527  38,643,703
        ---------------------------------------------------------------------
        Effect of dilutive
         stock options                 -   1,758,366           -   1,746,150
        ---------------------------------------------------------------------
        Dilutive weighted
         average shares       44,753,220  40,373,082  41,831,527  40,389,853
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The calculation of diluted net income per share for the three and six
        months ended June 30, 2007 does not include any outstanding stock
        options (2006 - 1,055,000) as the inclusion of these options would
        have been anti-dilutive.

    8.  Subsequent Event

        On July 5, 2007, the Company sold 5,000,000 shares of Stratic Energy
        Corporation for net proceeds of $5.20 million.


                            CORPORATE INFORMATION

    Directors                           Head Office

    Hugh G. Ross                        2500, 101 - 6th Avenue S.W.
    President and Chief Executive       Calgary, Alberta, Canada T2P 3P4
     Officer                            Telephone: (403) 264-6161
    Gentry Resources Ltd.               Facsimile: (403) 266-3069
    Calgary, Alberta                    Website: www.gentryresources.com
                                        Email: gentry@gentryresources.com
    Michael Halvorson
    President, Halcorp Capital Ltd.
    Edmonton, Alberta                   Auditors

    A. Bruce Macdonald                  Collins Barrow Calgary LLP
    Chairman, Jayhawk Resources Ltd.    Chartered Accountants, Calgary,
    Calgary, Alberta                     Alberta

    Walter O'Donoghue
    Independent Director                Bankers
    Calgary, Alberta
                                        National Bank of Canada
    Dean G. Prodan                      Energy Group, Calgary, Alberta
    President, UTA Asset Management
     Corporation
    Calgary, Alberta                    Solicitors

    Robert R. Rooney                    Blake Cassels & Graydon, LLP
    Independent Director                Calgary, Alberta; Toronto, Ontario
    Calgary, Alberta

    Officers                            Engineers

    Hugh G. Ross                        Sproule Associates Limited
    President and Chief Executive       Calgary, Alberta
     Officer

    Ketan Panchmatia                    Registrar and Transfer Agent
    VP Finance and Chief Financial
     Officer                            Computershare Trust Company
                                         of Canada
    R. Gordon McKay                     Calgary, Alberta; Toronto, Ontario
    Chief Operating Officer

    Ken Wilson                          Stock Exchange
    Vice President, Operations &
     Production                         The Toronto Stock Exchange
                                        Trading Symbol: GNY
    Harley Kempthorne
    Vice President, Engineering
                                        Investor Relations
    Greg Groten
    Vice President, Exploration         Roger Fullerton
                                        Manager, Investor Relations
    Lawrence B. Buzan                   Telephone: (952)929-7243
    Vice President, Land &              Email: roger@gentryresources.com
     Negotiations


    





For further information:

For further information: Please contact Hugh Ross, (403) 264-6161; OR 
Ketan Panchmatia, (403) 264-6161; OR Roger Fullerton, (952) 929-7243

Organization Profile

GENTRY RESOURCES LTD.

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