Sure announces second quarter, 2007 financial and operating results



    CALGARY, Aug. 8 /CNW/ - Sure Energy Inc. (SHR, TSX) is pleased to present
its Q2 2007 financial and operating results.
    Sure Energy Inc. ("Sure Energy" or the "Company") was incorporated on
June 7, 2006 and commenced commercial operations on August 14, 2006 following
completion of a Plan of Arrangement dated July 11, 2006 between Clear Energy
Inc., NAV Energy Trust and the Company. Information presented in this report
under the following headings represents operations for the respective periods:

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

    This report should be read in conjunction with previously released public
documents. Financial statements and notes to the financial statements can be
accessed on SEDAR or our website at www.sureenergyinc.com.
    In this report the calculation of barrels of oil equivalent (BOE) is
calculated at a conversion rate of 6,000 cubic feet (Mcf) of natural gas for
one barrel (bbl) of oil based on an energy equivalency conversion method. BOEs
may be misleading particularly if used in isolation. A BOE conversion ratio of
6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.
    During the second quarter of 2007, Sure Energy accomplished the
following:

    
    -   Average production increased to 305 BOE/d, a 15% increase over Q1
        2007
    -   As a result of drilling success at Boundary Lake, Redwater and
        Chinook, the Company has over 200 BOE/d of production awaiting tie-in
    -   Funds flow netback was $14.59/BOE, a 10% increase over Q1 2007
    -   Sure remains in a strong financial position with $5.3 million of
        working capital and a $3.5 million undrawn credit facility
    -   Sure Energy shares closed at $1.30/share at June 30, 2007 versus
        $0.91/share at March 31, 2007

                                                 Three Months     Six Months
                                                        Ended          Ended
    HIGHLIGHTS                                  June 30, 2007  June 30, 2007
    -------------------------------------------------------------------------
    ($000 except share and per share amounts)
    Financial
    Petroleum and Natural Gas Revenues                  1,202          2,267
    Funds Flow from Operations(1)                         404            722
      Per Share, Basic  and Diluted                      0.01           0.03
    Loss                                                 (517)          (985)
      Per Share, Basic and Diluted                      (0.02)         (0.03)
    Capital Expenditures                                  980          3,463
    Total Assets                                       25,002         25,002
    Working Capital(1)                                  5,322          5,322
    Shareholders' Equity                               22,720         22,720
    Common Shares Outstanding
      Basic                                        28,509,148     28,509,148
      Diluted                                      30,574,148     30,574,148
      Fully Diluted with Performance Rights        35,551,148     35,551,148
    Weighted Average Common Shares Outstanding
      Basic and Diluted                            28,509,148     28,509,148

    Share Trading
      High                                               1.36           1.36
      Low                                                0.89           0.86
      Close                                              1.30           1.30
    Trading Volume                                  5,209,382      9,956,351
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                 Three Months     Six Months
                                                        Ended          Ended
    HIGHLIGHTS                                  June 30, 2007  June 30, 2007
    -------------------------------------------------------------------------
    Operations
    Production
      Oil (bbls/d)                                          3              4
      Natural Gas (Mcf/d)                               1,810          1,683
      BOE/d                                               305            285

    Average Selling Price
      Oil ($/bbl)                                       72.80          69.63
      Natural Gas ($/Mcf)                                7.17           7.26
      BOE ($/BOE)                                       43.33          43.96

    Operating Netback ($/BOE)(1)                        23.83          23.59
    Funds Flow Netback ($/BOE)(1)                       14.59          13.99
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Please refer to Management's Discussion and Analysis for definition
        of Non-GAAP measures.
    

    OPERATIONAL REVIEW

    Drilling

    Sure Energy participated in six gross wells in the six months ended
June 30, 2007 (1.85 wells net). Three of these were successful shallow gas
development wells at Tweedie. The remaining three were exploratory Peace River
Arch wells. Two were abandoned and one was cased and completed for gas
production.

    
    Drilling Activities Summary

                           Development        Exploration          Total
    -------------------------------------------------------------------------
                         Gross      Net     Gross      Net    Gross      Net
    -------------------------------------------------------------------------
    Gas                      3     0.61         1     0.49        4     1.10
    D&A                      -        -         2     0.75        2     0.75
    -------------------------------------------------------------------------
    Total                    3     0.61         3     1.24        6     1.85
    -------------------------------------------------------------------------
    Success Rate          100%     100%       33%      39%      67%      59%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                 Three Months     Six Months
                                                        Ended          Ended
    Capital Program Summary                     June 30, 2007  June 30, 2007
    -------------------------------------------------------------------------
    ($000s)
    Land                                                   71            595
    Geological and geophysical                            317            582
    Drilling                                              225          1,093
    Completions                                            53            215
    Production equipment and facilities                   227            743
    Capitalized exploration G&A                            87            174
    -------------------------------------------------------------------------
                                                          980          3,402

    Asset retirement obligation on new drills               -             61
    -------------------------------------------------------------------------
                                                          980          3,463
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Tweedie

    Sure Energy owns 16,761 net undeveloped acres of land at its Tweedie
property, located 180 kilometres northeast of Edmonton. In Q2 2007 the Company
produced 1.7 MMcf/d from this property, equivalent to 92% of the Company's
total production. This is an area of mature shallow gas production with a base
decline rate of around 20%. Sure Energy has an inventory of 16 drillable
prospects, with various working interests, and intends to drill 3 - 4 wells
per season to maintain production in this area of winter only access.

    Redwater

    Sure Energy holds 9,012 net undeveloped acres of land at its Redwater
property, located 35 kilometres north of Edmonton. The Company currently
produces approximately 25 BOE/d from two gas wells and one oil well in the
Viking formation. The Company has an inventory of four shallow gas wells
(approximately 900 metres) and numerous low risk, low rate, light oil wells.
The light oil project requires either horizontal wells or downspaced drilling
(8 wells per section) which would require intensive capital investment. Sure
Energy has a list of higher impact projects which the Company feels are a
better use of its capital at the current time.

    Peace River Arch

    Sure Energy owns 16,948 net undeveloped acres of land in three different
exploration areas on the Peace River Arch. The Arch represents the Company's
high risk, high reward exploration prospect component. In Q1 2007 the Company
drilled a successful Triassic test in the Boundary Lake area. The well tested
in excess of 4 MMcf/d but because the gas is slightly sour its production rate
will be restricted by facility constraints. The well is anticipated to come on
production by yearend.
    In the Gordondale area the Company is farming-out a Cretaceous gas
prospect to a third party. This well should be spudded by the end of August.
In addition the Company is seeking a partner to drill a high impact Triassic
test and is evaluating the potential of a further Triassic test on its
easterly most acreage offsetting a recent third party discovery.
    In the Girouxville area the Company owns 5,700 net undeveloped acres of
land on trend with the prolific Puskwa Beaverhill Lake oil pool. This trend is
a high risk, expensive exploration play but with very high reward. At this
point of the Company's development this type of project is outside its
financial scope. The Company is evaluating its options on this acreage and may
shoot a 3D seismic program this upcoming winter in an attempt to firm up a
drilling location. Should a prospect develop the Company will look for a
partner to drill the well to spread its capital risk.

    Central Alberta

    Sure Energy drilled and cased a gas well at Chinook early in Q3 2007. The
Company farmed-in on Sound Energy Trust and earned 60% with no payout. The
well has been production tested and is expected to come on production at
approximately 100 BOE/d net to the Company early in Q4 2007. The Company
recently acquired the adjacent section in an Alberta Crown landsale and
expects to drill an additional well, for a separate pool, also early in Q4
2007.

    Farm-in Opportunity

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

    Exploration Philosophy

    Sure Energy is focusing its exploration efforts on high quality
reservoirs which require limited stimulation to produce. The company is
attempting to limit its exposure to "winter-only" access areas and areas
remote from infrastructure. As a small company, Sure Energy is sensitive to
its cost exposure and actively seeks partners on its more risky ventures. From
inception, the company has drilled four development/exploration wells with a
100% success rate and five high risk exploration targets, two of which have
been successful, representing a 40% success rate.

    
    Production              Three Months Ended          Six Months Ended
                               June 30, 2007              June 30, 2007
                         -------------------------  -------------------------
                            Oil      Gas    Total      Oil      Gas    Total
                         Bbls/d    Mcf/d    BOE/d   Bbls/d    Mcf/d    BOE/d
    ----------------------------------------------  -------------------------
    Tweedie                   -    1,678      280        -    1,567      262
    Redwater                  3      132       25        4      116       23
    ----------------------------------------------  -------------------------
    Total                     3    1,810      305        4    1,683      285
    ----------------------------------------------  -------------------------
    ----------------------------------------------  -------------------------
    

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    August 8, 2007

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

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

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

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

    Non-GAAP measures

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

SOURCES" section of the MD&A for a reconciliation of net debt and working capital. Forward-looking statements This management's discussion and analysis contains forward-looking financial and operational information including earnings, funds flow, production and capital expenditures projections. The projections are based on the Company's expectations and are subject to a number of risks and uncertainties that could materially affect the results. Actual results achieved during the forecast period may differ materially from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; fluctuations in oil and gas prices; the ability to produce and transport crude oil and natural gas to markets; the result of exploration and development drilling and related activities; fluctuation in foreign currency exchange rates; the imprecision of reserve estimates; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; decisions or approvals of administrative tribunals; change in environmental and other regulations; risks associated with oil and gas operations; the weather in areas of operation; and other factors, many of which are beyond the control of Sure Energy. Sure Energy disclaims any intention or obligation to publicly update or revise any forward-looking statements or information whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws. OVERVIEW Selected Quarterly Information Q2 2007 Q1 2007 Q4 2006 Q3 2006 ------------------------------------------------------------------------- Production Natural gas (Mcf/d) 1,810 1,555 1,548 1,692 Oil (bbls/d) 3 6 4 - BOE/d 305 265 262 282 Average Selling Price Natural gas ($/Mcf) 7.17 7.36 6.70 5.38 Oil ($/bbl) 72.80 67.83 62.99 - $/BOE 43.33 44.69 40.53 32.25 Operating Netback ($/BOE) 23.83 23.31 17.30 16.30 Funds Flow Netback ($/BOE) 14.59 13.29 10.22 7.52 Financial ($000s except share and per share amounts) Petroleum and natural gas revenue 1,202 1,065 976 428 Funds Flow from Operations 404 318 247 100 Per share, basic and diluted 0.01 0.01 0.01 0.01 Loss (517) (468) (485) (370) Per share, basic and diluted (0.02) (0.02) (0.02) (0.04) Capital Expenditures 980 2,483 1,290 15,503 Total assets 25,002 25,981 24,890 24,606 Working Capital and Net Debt 5,322 5,897 8,001 9,032 Shareholder's Equity 22,720 23,001 23,272 23,520 Common Shares Outstanding 28,509,148 28,509,148 28,509,148 28,509,148 Q2 2007 The quarter's revenue was favourably impacted by a production increase from 265 BOE/d in Q1 2007 to 305 BOE/d in the current quarter. Royalty expense for the quarter was favourably impacted by a Gas Cost Allowance credit received from Alberta Energy. G&A costs per BOE decreased reflecting the production increase in the quarter. Q1 2007 Revenue increased from Q4 2006 to Q1 2007 due to increased average selling prices. In Q1 2007, operating costs decreased to expected levels. Q4 2006 Revenue increased from Q3 2006 to Q4 2006 due mainly to an increase in gas sales prices offset partially by a decrease in production due to natural declines. Operating expenses per BOE increased from Q3 2006 to Q4 2006 due to initial costs of a Redwater oil well that commenced production in Q4 2006. Results for Q3 2006 were for 47 days whereas results for Q4 2006 were for 92 days. RESULTS OF OPERATIONS Revenues Six Months Ended Petroleum and Natural Gas Revenue June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Natural gas 1,181 1,031 2,211 Oil 21 34 56 ------------------------------------------------------------------------- 1,202 1,065 2,267 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Average Benchmark Prices ------------------------------------------------------------------------- AECO (daily) natural gas ($/Mcf) 6.70 7.01 6.86 WTI Crude oil (US$/bbl) 65.00 58.13 61.58 Edmonton par price (Cdn $/bbl) 71.92 67.07 69.51 Exchange rate (US$/Cdn$) 1.0983 1.1716 1.1349 The Company's petroleum and natural gas revenues were $1,202,000 in Q2 2007 and $1,065,000 for Q1 2007. Daily production for Q2 2007 averaged 305 BOE/d. At inception, the production from properties acquired from Clear Energy and NAV was 268 BOE/d. The Company's quarterly realized price for gas decreased slightly from $7.36/Mcf in Q1 2007 to $7.17/Mcf in Q2 2007 due to decreasing benchmark prices. Sure Energy's only oil well came on stream in November, 2006. The Company has not hedged or entered into any fixed price arrangements during 2007 or for any subsequent period. Royalties Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Royalties 215 246 461 ------------------------------------------------------------------------- Average royalty as a % of revenue 17.9 23.1 20.3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The royalty expense was $215,000 for Q2 2007 and represents 17.9% of revenues. Q2 2007 royalties include a gas cost allowance credit received from Alberta Energy during the quarter. The royalty expense was $246,000 for Q1 2007 and represented 23.1% of revenues. The acquired properties are restricted properties and are not eligible for ARTC. The average royalty rate is generally higher due to the Tweedie properties, a portion of which are subject to Indian royalties. Production expenses Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Production expenses 292 235 527 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Lifting costs were $292,000 representing $10.53 per BOE in Q2 2007. Lifting costs for Q1 2007 were $235,000 representing $9.86 per BOE. Lifting costs per BOE increased slightly during the quarter due to property taxes paid in June. Transportation Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Transportation 33 29 62 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Transportation costs were $33,000 for Q2 2007, or $1.20 per BOE. For Q1 2007 transportation costs were $29,000 or $1.21 per BOE. Transportation expense relates to the costs of transporting Sure Energy's natural gas production on major pipelines and trucking Sure Energy's oil to the point of transfer. General and Administrative Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Gross general and administrative 403 399 801 Capitalized overhead (87) (87) (173) ------------------------------------------------------------------------- 316 312 628 ------------------------------------------------------------------------- ------------------------------------------------------------------------- General and administrative ("G&A") costs were $316,000, or $11.33 per BOE, for Q2 2007 and $312,000 or $13.17 per BOE for Q1 2007. G&A costs will decrease on a per BOE basis as the Company grows its production. As activity increases, the Company will apply overhead charges, which are charged to specific well operations, and reduce G&A as is customary in the industry. Interest Income Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Interest income 58 75 133 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Sure Energy did not utilize its available $3.5 million debt facility during the first half of 2007 or during 2006 and as a result incurred no interest expense. During Q2 2007, interest income was $58,000 or $2.09 per BOE and $75,000 or $3.15 per BOE for Q1 2007. Excess cash was invested in bankers acceptances to earn interest income. Stock Compensation Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Stock compensation 236 197 433 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Stock compensation expense was $236,000 in Q2 2007 and $197,000 for Q1 2007. This amount is made up of the amortization of the expense relating to the options granted to employees, officers and directors, and the performance inventive rights ("PIR's") granted to Sure Energy and Sound employees, directors and consultants. The PIR's vest no sooner than August 14, 2007 and then in two tranches once certain stock performance criteria are met. Once a tranche vests, the entire unamortized amount of stock compensation related to that tranche is expensed, which can result in a significant expense at that time. Furthermore, those PIR's issued to consultants and employees and directors of Sound Energy through the private placement will be re-valued at the current value at each period end and this may result in significant variance of the expense. The weighted average grant date fair value of the options issued in 2006 was $0.545. The weighted average grant date fair value of the PIR's issued to Sure Energy employees and directors was $0.438 and $0.534 for those issued to consultants and Sound Energy employees and consultants. Depletion, Depreciation and Accretion Six Months Ended June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Depletion and depreciation 673 574 1,247 Accretion 12 15 27 ------------------------------------------------------------------------- 685 589 1,274 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Company's depletion, depreciation and accretion ("DD&A") provision for Q2 2007 was $685,000, or $24.69 per BOE and $589,000 or $24.71 per BOE for Q1 2007. The assets acquired pursuant to the Plan of Arrangement were acquired at fair value and established the starting point for the depletable base. $4.4 million in costs related to the Company's undeveloped land base was excluded from the depletion calculation. Accretion of the asset retirement obligation is calculated at the Company's credit-adjusted, risk-free rate of 8 percent. The Company has estimated the net present value of their asset retirement obligation to be $732,000. Income and future taxes The Company does not expect to pay current income tax in 2007 or 2008. Estimated income tax pools at June 30, 2007 are as follows: ($000s) ------------------------------------------------------------------------- Canadian oil and gas property expenses 12,057 Canadian development expenses 1,511 Canadian Exploration expenses 1,404 Undepreciated capital costs 2,719 Non-capital losses 1,216 Financing costs 12 ------------------------------------------------------------------------- 18,919 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Netbacks Components of the Company's operating, funds flow and loss netbacks are as follows: Six Months Ended June 30, ($/BOE) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Price 43.33 44.69 43.96 Royalties (7.77) (10.31) (8.94) Operating costs (10.53) (9.86) (10.22) Transportation (1.20) (1.21) (1.21) ------------------------------------------------------------------------- Operating Netback 23.83 23.31 23.59 General & administrative (11.33) (13.17) (12.18) Interest income 2.09 3.15 2.58 ------------------------------------------------------------------------- Funds Flow Netback 14.59 13.29 13.99 Stock compensation (8.51) (8.25) (8.39) Depletion, depreciation & accretion (24.69) (24.71) (24.70) ------------------------------------------------------------------------- Loss Netback (18.61) (19.67) (19.10) ------------------------------------------------------------------------- CAPITAL EXPENDITURES Six Months Ended Capital Program Summary June 30, ($000s) Q2 2007 Q1 2007 2007 ------------------------------------------------------------------------- Land 71 524 595 Geological & geophysical 317 265 582 Drilling 225 868 1,093 Completions 53 162 215 Production equipment and facilities 227 516 743 Capitalized exploration G&A 87 87 174 ------------------------------------------------------------------------- 980 2,422 3,402 Asset retirement obligation on new drills - 61 61 ------------------------------------------------------------------------- 980 2,483 3,463 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Sure participated in 6 gross wells in the six months ended June 30, 2007 (1.87 wells net). Three of these were successful shallow gas development wells at Tweedie. The remaining three were exploratory Peace River Arch wells. Two were abandoned and one was cased and completed for gas production. LIQUIDITY AND CAPITAL RE

SOURCES In exchange for certain producing properties, undeveloped land, and seismic assets conveyed by each of Clear Energy and NAV to Sure Energy, Clear Energy shareholders received 0.1667 Common Shares and 0.0425 Arrangement Warrants of Sure Energy and NAV unitholders received 0.333 Common Shares and 0.085 Arrangement Warrants of Sure Energy. On August 14, 2006, the Company issued 19,402,007 Common Shares and 4,947,512 Arrangement Warrants in exchange for assets pursuant to the Plan of Arrangement. 4,107,141 of the 4,947,512 Arrangement Warrants were exercised. On August 14, 2006, the Company completed a private placement of common shares to issue 5,000,000 common shares and 5,000,000 Performance Incentive Rights at a price of $1.00 per share for total proceeds of $5,000,000. On June 30, 2007, the Company had a $3.5 million demand revolving operating credit facility with a Canadian chartered bank. During the period ended December 31, 2006 and the six months ended June 30, 2007, Sure Energy did not draw on the credit facility. As at June 30, 2007 the Company had net debt and working capital of $5.3 million. Net debt and working capital is calculated as follows: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Cash and cash equivalents 6,236 8,237 Accounts receivable 610 658 Prepaid expenses 26 81 Accounts payable and accrued liabilities (1,550) (975) ------------------------------------------------------------------------- Working capital 5,322 8,001 Bank debt - - ------------------------------------------------------------------------- Net debt 5,322 8,001 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FUNDS FLOW FROM OPERATIONS Funds flow from operations is calculated as follows: Three Months Six Months Ended Ended June 30, 2007 June 30, 2007 ------------------------------------------------------------------------- Loss (517) (985) Add items not affecting cash: Depletion, depreciation and accretion 685 1,274 Stock compensation 236 433 ------------------------------------------------------------------------- 404 722 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONTRACTUAL OBLIGATIONS AND FINANCIAL INSTRUMENTS Sure Energy had no contractual obligations at June 30, 2007, nor did the Company enter into any financial contracts. OUTSTANDING SHARES, OPTIONS AND PERFORMANCE INCENTIVE RIGHTS The following common shares, options and PIR's were outstanding: June 30, August 8, Outstanding at: 2007 2007 ------------------------------------------------------------------------- Common shares 28,509,148 28,509,148 Options 2,065,000 2,065,000 PIR's 4,977,000 4,977,000 CHANGES IN ACCOUNTING POLICIES Effective January 1, 2007, Sure Energy adopted the requirements of the Canadian Institute of Chartered Accountants ("CICA") related to the new financial instruments accounting framework, which encompasses the following new CICA Handbook sections: 3855 Financial Instruments - Recognition and Measurement, 1530 Comprehensive Income, and 3861 Financial Instruments - Disclosure and Presentation. There was no impact on the financial statements of adopting the new requirements. For a description of the new accounting rules, see note 2 to the unaudited financial statements for the quarter ending June 30, 2007. OUTLOOK Sure Energy's second quarter production increased 15% quarter over quarter to 305 BOE/d. In addition successful natural gas exploration drilling at Chinook, Boundary Lake and Redwater has resulted in over 200 BOE/d of net production behind pipe. This production is expected to be on stream prior to yearend. The Company continues to remain in a strong financial position with $5.3 million of working capital and a $3.5 million credit facility undrawn. The Company has approximately $4.5 million of capital remaining to be spent from its $8 million capital budget for 2007. The Company continues to build on its extensive drilling inventory from its owned assets as well as the Sound Energy Trust farmin lands and continues to sift through acquisition opportunities during this weak period of natural gas pricing and oil and gas equities. Sure Energy expects this weakness to continue for the foreseeable future which should bode well for reduced service costs and opportunities for companies who remain in a strong financial position such as ours. GLOSSARY OF ABBREVIATIONS $000s Thousands of dollars Mbbls Thousands of barrels AECO Alberta Energy Co. MBOE Thousand barrels of oil equivalent AEUB Alberta Energy Mcf Thousand cubic feet Utilities Board bbls Barrels Mcf/d Thousand cubic feet per day bbls/d Barrels per day MMcf Million cubic feet Bcf Billion cubic feet MMcf/d Million cubic feet per day BOE Barrel of oil MMbtu Millions of British thermal equivalent (6 Mcf units = 1 bbl) BOE/d Barrels of oil NGLs Natural gas liquids equivalent per day GJ Gigajoules NPV Net present value G&A General and TSX Toronto Stock Exchange administrative WTI West Texas Intermediate SURE ENERGY INC. BALANCE SHEETS As at June 30, December 31, ($000's) 2007 2006 ------------------------------------------------------------------------- (unaudited) Assets Current assets Cash and cash equivalents 6,236 8,237 Accounts receivable 610 658 Prepaid expenses 26 81 ------------------------------------------------------------------------- 6,872 8,976 Property, plant and equipment (note 3) 18,130 15,914 ------------------------------------------------------------------------- 25,002 24,890 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities 1,550 975 ------------------------------------------------------------------------- Asset retirement obligations (note 4) 732 643 ------------------------------------------------------------------------- Shareholders' equity Share capital 23,779 23,779 Contributed surplus 781 348 Deficit (1,840) (855) ------------------------------------------------------------------------- 22,720 23,272 ------------------------------------------------------------------------- 25,002 24,890 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes. SURE ENERGY INC. STATEMENTS OF OPERATIONS AND DEFICIT Three Months Six Months Ended Ended ($000's, except per share amounts) June 30, 2007 June 30, 2007 ------------------------------------------------------------------------- (unaudited) Revenue Petroleum and natural gas revenue 1,202 2,267 Royalties (215) (461) Interest income 58 133 ------------------------------------------------------------------------- 1,045 1,939 ------------------------------------------------------------------------- Expenses Operating 292 527 Transportation 33 62 General and administration 316 628 Stock compensation 236 433 Depletion, depreciation and accretion 685 1,274 ------------------------------------------------------------------------- 1,562 2,924 ------------------------------------------------------------------------- Loss (517) (985) Other comprehensive income (note 2) - - ------------------------------------------------------------------------- Comprehensive income (517) (985) Deficit, beginning of period (1,323) (855) ------------------------------------------------------------------------- Deficit, end of period (1,840) (1,840) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per common share (note 5) Basic and diluted (0.02) (0.03) ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes. SURE ENERGY INC. STATEMENT OF CASH FLOWS Three Months Six Months Ended Ended ($000's) June 30, 2007 June 30, 2007 ------------------------------------------------------------------------- (unaudited) Cash provided by (used in): Operating Loss (517) (985) Items not affecting cash: Depletion, depreciation and accretion 685 1,274 Stock compensation 236 433 Changes in non-cash working capital (note 6) 730 385 ------------------------------------------------------------------------- 1,134 1,107 ------------------------------------------------------------------------- Investing Drilling and development of petroleum and natural gas properties (979) (3,401) Changes in non-cash working capital (note 6) (402) 293 ------------------------------------------------------------------------- (1,381) (3,108) ------------------------------------------------------------------------- Net change in cash and cash equivalents (247) (2,001) Cash and cash equivalents, beginning of period 6,483 8,237 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 6,236 6,236 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes. Supplementary Cash Flow information (note 6) SURE ENERGY INC. Notes to the Financial Statements For the three and six months ended June 30, 2007 Unless otherwise stated, amounts presented in these notes are in Canadian dollars and tabular amounts are in thousands of Canadian dollars, except number of shares and per share amounts. 1. Summary of Significant Accounting Policies Business and Basis of Presentation Sure Energy Inc. ("Sure Energy" or the "Company") is a Calgary based oil and natural gas exploration and production company whose business activities are focused primarily in Alberta. The Company was incorporated on June 7, 2006 and commenced operations on August 14, 2006 when certain assets of Clear Energy Inc. ("Clear") and NAV Energy Trust ("NAV") were transferred into Sure Energy under a Plan of Arrangement dated July 11, 2006. The Plan of Arrangement resulted in the shareholders of Clear and the unitholders of NAV becoming unitholders of Sound Energy Trust ("Sound") and shareholders of Sure Energy. Sure Energy is a public company and commenced trading on the Toronto Stock Exchange on August 15, 2006. 2. Changes in Accounting Policies a) Financial Instruments Effective January 1, 2007, Sure Energy adopted the requirements of the Canadian Institute of Chartered Accountants ("CICA") related to the new financial instruments accounting framework, which encompasses the following new CICA Handbook sections: 3855 Financial Instruments - Recognition and Measurement, 1530 Comprehensive Income, and 3861 Financial Instruments - Disclosure and Presentation. These new Handbook sections provide comprehensive requirements for the recognition and measurement of financial instruments, and introduce a new component of equity referred to as accumulated other comprehensive income ("AOCI"). In accordance with the transitional provisions of all the new sections, comparative interim financial statements are not to be restated. Under these new standards, all financial instruments, including derivatives, are to be recognized on the balance sheet. Derivatives are to be measured at fair value with unrealized gains and losses reported in the statement of operations unless the "normal sale and purchase" exemption on the derivatives are designated as cash flow or net investment hedges. The Company's other financial instruments (accounts receivable and accounts payable) are measured at amortized cost using the effective interest rate method. Transaction costs are added to the amount of the associated financial instrument and amortized accordingly. There was no impact on the financial statements of adopting the new requirements. As at June 30, 2007, the Company did not have any derivatives. There were no items that needed to be recognized in other comprehensive income for the three and six months ended June 30, 2007. b) Accounting Changes Effective January 1, 2007 the Company adopted the revised CICA section 1506 "Accounting Changes". Under the revised section, voluntary changes in accounting policy are permitted only if they result in financial statements that provide more reliable and relevant information to the reader. Changes in accounting policy must be applied retrospectively, while changes in accounting estimates are to be applied prospectively. The revised section also outlines additional disclosure required when accounting changes are applied, including the justification for the change, a complete description of the policy, the primary source of GAAP and the detailed effect on financial statement line items. 3. Property Plant and Equipment June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Petroleum & natural gas properties 20,235 16,772 Furniture, fixtures and leaseholds 21 21 ------------------------------------------------------------------------- 20,256 16,793 Accumulated depletion and depreciation (2,126) (879) ------------------------------------------------------------------------- Net book value 18,130 15,914 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unproved oil and gas properties of $4,371,000 have been excluded from costs subject to depletion and depreciation. These costs relate to the Company's undeveloped land base. Capitalized exploration and development general and administrative expenses of $385,000 are included in property, plant and equipment (December 31, 2006 - $211,000). 4. Asset Retirement Obligations The following table reconciles the Company's total asset retirement obligations: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Carrying amount, beginning of period 643 - Acquisition of liabilities in the period - 611 Additions 61 12 Accretion expense 28 20 ------------------------------------------------------------------------- Carrying amount, end of period 732 643 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. Per Share Amounts For the three and six months ended June 30, 2007 the calculation of basic and diluted net loss per share is based on the following weighted average number of common shares outstanding: Three Months Six Months Ended Ended June 30, 2007 June 30, 2007 ------------------------------------------------------------------------- Loss (517) (985) Loss per share Basic and diluted (0.02) (0.03) Weighted average shares outstanding Basic and Diluted(1)(2) 28,509,148 28,509,148 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The diluted shares outstanding exclude 4,977,000 unvested performance rights, which are not exercisable and are treated as contingently issuable shares as all of the conditions for issue have not been satisfied as at June 30, 2007. (2) 2,065,000 options have been excluded from the weighted average diluted shares outstanding for the period ended June 30, 2007 as they are anti-dilutive. 6. Supplemental Cash Flow Information Cash and cash equivalents include the following: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Cash on deposit 1,755 3,254 Bankers acceptance 4,481 4,983 ------------------------------------------------------------------------- 6,236 8,237 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Changes in non-cash working capital items increased (decreased) cash and cash equivalents as follows: Three Months Six Months Ended Ended Period ended June 30, 2007 June 30, 2007 ------------------------------------------------------------------------- Accounts receivable 811 48 Prepaid expenses 228 55 Accounts payable and accrued liabilities (711) 575 ------------------------------------------------------------------------- 328 678 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating activities 730 385 Investing activities (402) 293 ------------------------------------------------------------------------- 328 678 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other Cash Flow Information: ------------------------------------------------------------------------- Cash taxes paid - - Cash interest received 57 132 Cash interest paid - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. Related Party Transactions The joint venture operator of the majority of the oil and gas properties owned by Sure Energy is Sound. Sound is a related party as three directors of Sound are on the Board of Directors of Sure Energy and a common director serves as Chairman of both companies. During the six months ended June 30, 2007, Sure Energy paid $148,000 (Q1 2007 - $82,000) for rent, parking and business taxes to Sound. During the six months ended June 30, 2007 legal fees of $32,000 (Q2 2007 - $4,000) were paid to a law firm of which an officer is a partner. These transactions were measured at the exchange amount. %SEDAR: 00024118E

For further information:

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

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Sure Energy Inc.

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