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

CALGARY, Nov. 9 /CNW/ - Verenex Energy Inc. ("Verenex" or the "Company") (TSX - VNX) is pleased to report its unaudited interim operating and financial results for the three and nine months ended September 30, 2009.

Verenex is a Canada-based international exploration and production company with a world-class discovered resource base and exploration portfolio in the Ghadames Basin in Libya.

Third Quarter 2009 Highlights

    
    -   On November 5, the Company announced it had entered into a definitive
        arrangement agreement with the Libyan Investment Authority (the
        "LIA") pursuant to which the LIA, through a subsidiary, has agreed to
        acquire all of the Verenex shares issued and outstanding upon
        completion of the transaction at a price per share in cash equal to
        $7.09 plus an additional amount per share (the "Working Capital
        Amount"). Based on preliminary estimates agreed to by the LIA,
        Verenex expects the Working Capital Amount to be a nominal amount of
        approximately $0.15 per share, assuming completion of the transaction
        in mid-December.
    

Financial

    
    -   Net loss in the third quarter of 2009 from continuing operations was
        ($3.5 million) compared to net income of $0.2 million in the third
        quarter of 2008.

    -   Funds flow from continuing operations in the third quarter of 2009
        was ($1.5 million) compared to ($1.1 million) for the third quarter
        of 2008.

    -   Working capital surplus at September 30, 2009 was $8.9 million
        compared to $29.8 million as at December 31, 2008, including cash
        amounting to $11.9 million (December 31, 2008 - $55.5 million) net of
        restricted cash amounting to $nil million (December 31, 2008 -
        $4.1 million). The decrease in working capital is due to the ongoing
        investments in the Company's Libya operations.
    

Highlights

    
                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
    (unaudited)                 30, 2009    30, 2008    30, 2009    30, 2008
    -------------------------------------------------------------------------

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

    Funds flow from
     continuing
     operations(1)                (1,539)     (1,122)     (4,145)     (2,775)
    Net Income/(loss) from
     continuing operations        (3,513)        191      (8,819)       (397)
    Capital expenditures           3,255      16,486      23,665      53,100
    Working capital surplus        8,897      46,362       8,897      46,362
    Common shares
     outstanding
      Basic                   44,677,291  44,267,891  44,677,291  44,267,891
      Diluted                 49,851,391  50,090,407  49,851,391  50,090,407
    Weighted average common
     shares outstanding
      Basic                   44,605,169  44,267,891  44,394,087  44,267,891
      Diluted                 44,605,169  47,326,910  47,172,681  47,454,810
    Share trading
      High                          7.73        9.94        9.70       11.24
      Low                           5.87        6.81        5.87        6.81
      Close                         6.40        8.10        6.40        8.10

    Discontinued Operations

    Petroleum and natural
     gas revenues (net)                -         267          (8)        794
    Production
      Crude oil (bbls/d)               -           -           -           -
      Natural gas liquids
       (bbls/d)                        -          10           -          11
      Natural gas (mcf/d)              -         216           -         234
      Boe/d (6:1)*                   -          46           -          51
    Average reference price
      WTI (US$ per bbl)                -      117.98           -      113.29
      Brent (US$ per bbl)              -      114.78           -      111.02
      AECO (Cdn$ per mcf)              -        7.74           -        8.62
    Average selling price
      Crude oil (Cdn$ per
       bbl)                            -           -           -           -
      Natural gas liquids
       (Cdn$ per bbl)                  -       90.36           -       78.18
      Natural gas (Cdn$ per
       mcf)                            -        9.19           -        8.53

    Average Operating
     Netback (Cdn$
     per BOE @ 6:1)                 -       63.08           -       57.27

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

Capital Expenditures (Cdn $)

During the third quarter of 2009, the Company invested approximately $3.3 million. Libya accounted for all of the investment activity level with approximately $1.7 million in drilling, $0.1 million in facilities, $0.1 in completions, $0.1 in G&G and $1.3 million in capitalized General and Administration ("G&A") and office costs.

Outlook

On November 5, the Company announced it had entered into a definitive arrangement agreement with the Libyan Investment Authority (the "LIA") pursuant to which the LIA, through a subsidiary, has agreed to acquire all of the Verenex shares issued and outstanding upon completion of the transaction at a price per share in cash equal to $7.09 plus an additional amount per share (the "Working Capital Amount" and, together with the $7.09 offer price, the "Cash Purchase Consideration") to be determined by the Board of Directors of Verenex and the LIA at the time of completion of the transaction based on the aggregate amount, if any, of positive net working capital in Verenex at such time (determined on a pro-forma basis in accordance with the provisions of the Agreement). It is a condition to the completion of the transaction that such pro-forma closing working capital amount not be negative. Based on preliminary estimates agreed to by the LIA, Verenex expects the Working Capital Amount to be a nominal amount of approximately $0.15 per share, assuming completion of the transaction in mid-December. The final determination of the Working Capital Amount is subject to a number of factors, primarily the period of time for completion of the transaction, the rate of ongoing expenditures (primarily general and administrative expenses) and closing costs.

An irrevocable letter of credit in the amount of $350 million, the aggregate purchase consideration payable by the LIA to acquire Verenex, has been deposited in escrow on behalf of the LIA as security for the availability of the aggregate purchase funds upon satisfaction or waiver of the conditions set out in the Agreement.

The transaction will be completed by way of plan of arrangement (the "Arrangement"), to be submitted to the holders of Verenex securities (Verenex shares, options and performance warrants) for approval at a meeting scheduled for December 11, 2009. In addition to the working capital condition mentioned above, the Arrangement is conditional upon, among other things, securityholder approval of 75% of the votes cast at the meeting, court and regulatory approvals and certain other customary conditions for an agreement of this nature. The parties have provided for a higher than normal voting approval threshold in lieu of granting dissent rights to shareholders. The LIA has represented in the Agreement that the Arrangement has received all necessary Libyan government approvals. The Agreement has been filed on SEDAR at www.sedar.com.

All of the members of the Verenex Board, its executive officers and its major shareholder, Vermilion Resources Ltd. (representing in aggregate approximately 45.2% of the common shares on a fully diluted basis), have entered into voting support agreements pursuant to which they have agreed to vote their securities in favour of the Arrangement.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is management's discussion and analysis (MD&A), dated November 9, 2009, of the operating and financial results of Verenex Energy Inc. ("Verenex" or the "Company") for the three and nine months ended September 30, 2009. The financial data has been prepared in Canadian dollars in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") applied consistently with prior periods. This discussion should be read in conjunction with the Company's unaudited consolidated financial statements for the three and nine months ended September 30, 2009 and the audited consolidated financial statements for the year ended December 31, 2008, together with the accompanying notes as contained in the Company's 2008 annual filings.

Additional information relating to the Company is available on SEDAR at www.sedar.com.

PROPOSED TRANSACTION

On November 5, the Company announced it had entered into a definitive arrangement agreement with the Libyan Investment Authority (the "LIA") pursuant to which the LIA, through a subsidiary, has agreed to acquire all of the Verenex shares issued and outstanding upon completion of the transaction at a price per share in cash equal to $7.09 plus an additional amount per share (the "Working Capital Amount" and, together with the $7.09 offer price, the "Cash Purchase Consideration") to be determined by the Board of Directors of Verenex and the LIA at the time of completion of the transaction based on the aggregate amount, if any, of positive net working capital in Verenex at such time (determined on a pro-forma basis in accordance with the provisions of the Agreement). It is a condition to the completion of the transaction that such pro-forma closing working capital amount not be negative. Based on preliminary estimates agreed to by the LIA, Verenex expects the Working Capital Amount to be a nominal amount of approximately $0.15 per share, assuming completion of the transaction in mid-December. The final determination of the Working Capital Amount is subject to a number of factors, primarily the period of time for completion of the transaction, the rate of ongoing expenditures (primarily general and administrative expenses) and closing costs.

An irrevocable letter of credit in the amount of $350 million, the aggregate purchase consideration payable by the LIA to acquire Verenex, has been deposited in escrow on behalf of the LIA as security for the availability of the aggregate purchase funds upon satisfaction or waiver of the conditions set out in the Agreement.

The transaction will be completed by way of plan of arrangement (the "Arrangement"), to be submitted to the holders of Verenex securities (Verenex shares, options and performance warrants) for approval at a meeting scheduled for December 11, 2009. In addition to the working capital condition mentioned above, the Arrangement is conditional upon, among other things, securityholder approval of 75% of the votes cast at the meeting, court and regulatory approvals and certain other customary conditions for an agreement of this nature. The parties have provided for a higher than normal voting approval threshold in lieu of granting dissent rights to shareholders. The LIA has represented in the Agreement that the Arrangement has received all necessary Libyan government approvals. The Agreement has been filed on SEDAR at www.sedar.com.

All of the members of the Verenex Board, its executive officers and its major shareholder, Vermilion Resources Ltd. (representing in aggregate approximately 45.2% of the common shares on a fully diluted basis), have entered into voting support agreements pursuant to which they have agreed to vote their securities in favour of the Arrangement.

FORWARD-LOOKING INFORMATION

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

NON-GAAP MEASURES

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

OPERATING RESULTS

Asset Valuation

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

Revenues

On January 28, 2009 the Company entered into an arrangement with Vermilion Resources Ltd. ("Vermilion") to sell the Canadian Bottrel GORR effective December 31, 2008. All oil and gas revenues for 2009 relate to differences between accruals for the Bottrel GORR at December 31, 2008 and the actuals reported in 2009.

Interest of $10 thousand was earned in the third quarter of 2009 (2008 - $0.3 million) compared to $21 thousand for the second quarter of 2009 on cash balances invested in excess of expenditure requirements. The decrease versus the third quarter of 2008 is due to the decreased cash position and lower interest rates during the third quarter of 2009.

The foreign exchange loss for the third quarter of 2009 was $0.7 million as compared to a gain of $2.0 million for the third quarter of 2008, and a loss of $0.7 million in the second quarter of 2009. The foreign exchange loss in the third quarter of 2009 compared to the third quarter of 2008 is due to the decline in the US dollar denominated cash balances and the strengthening of the Canadian dollar versus the US dollar during the period.

Stock Compensation

For the three and nine months ended September 30, 2009, non-cash stock compensation expense related to stock options and performance warrants was $0.6 million and $1.6 million (2008 - $0.4 million and $1.9 million). For the three and nine months ended September 30, 2009, the stock compensation liability related to SAR's, PSU's and RSU's first issued in 2008, was $0.8 million and $2.0 million (2008 - $0.2 million and $0.5 million).

The Company received approval from the Shareholders at its August 10, 2009 AGM to modify the terms of 896,200 options previously granted. The life of these options was extended by 20 months to March 1, 2011. The Company has completed a calculation of the incremental value of this extension and recognized a $0.2 million stock compensation expense during the third quarter ending September 30, 2009.

General and Administration ("G&A")

The Company capitalized $1.3 million and $4.3 million of general and administrative costs relating to exploration and development activities for the three and nine months ended September 30, 2009 (2008 - $1.1 million and $4.2 million). The net G&A amounts that are expensed represent salaries, employee benefits, office costs, legal and related party services not directly attributable to ongoing exploration and development capital projects.

Effects of Exchange Rate Fluctuations

The Company's operations are conducted primarily in jurisdictions where the United States dollar (US$) is the business currency. A large proportion of the Company's costs, assets and liabilities during the quarter ended September 30, 2009 were denominated in US$. As the Canadian dollar fluctuates during the period, foreign exchange gains and losses are reflected in both the earnings and funds flow amounts.

Depletion and Depreciation

Depletion and depreciation of $0.1 million and $0.2 million for the three and nine months ended September 30, 2009 (2008 - $0.2 million and $0.6 million) relate to the depreciation of the Canadian and Libyan leasehold improvements, furniture and equipment.

RELATED PARTY TRANSACTIONS

On January 28, 2009, the Company entered into an arrangement with Vermilion and its wholly owned France and Denmark subsidiaries to sell the Canadian Bottrel GORR and the Verenex Danish and French subsidiaries for $5.0 million resulting in a gain on disposition of $1.3 million. The transaction closed on February 27, 2009. All oil and gas revenues for 2009 relate to the differences between accruals for the Bottrel GORR at December 31, 2008 and actuals reported in 2009. (see note 12)

Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion Energy Trust ("VET"), which is a significant shareholder in Verenex. VREP, as contract operator in France, paid for various expenditures on behalf of Verenex in 2008. These transactions were measured at the exchange amount being the consideration established and agreed to by the related parties. All transactions were undertaken under the same terms and conditions as transactions with non-related parties. Amounts due to related parties at September 30, 2009 are comprised of an amount due to VREP of $nil (December 31, 2008 - $0.1 million).

Verenex entered into a Technical and Administrative Services Agreement with Vermilion on June 28, 2004, for the provision of certain financial and administrative services by Vermilion. Effective April 1, 2008 the monthly charge was five thousand dollars per month. The Agreement was terminated effective February 27, 2009. During the nine months ended September 30, 2009 Verenex was billed ten thousand dollars (2008 - sixty thousand dollars) for services provided under this Agreement.

LIQUIDITY AND CAPITAL RESOURCES

The Company has completed a review of its 2009 operating and investment programs and, in consultation with its Libya Area 47 partner, Medco International Ventures Limited, reduced its go forward drilling activities and suspended all drilling activities in Area 47 as at the end of June 2009 pending the resolution of the commerciality application for the A1-47/02 field and the Verenex sale process. Verenex has sufficient cash reserves to fund its short-term working capital requirements and capital obligations.

The Company issued two letters of credit ("LC's") relating to the signing of two long-term drilling contracts that back-stop early termination provisions, both of which have now expired. The first LC to ODE required cash collateral of US $4.8 million (gross) be put in place by September 30, 2006. The ODE LC expired on November 13, 2008. The second LC to KCA DEUTAG Drilling GmbH required cash collateral of US $7.2 million (gross) in place by June 30, 2006. The KCA LC expired on April 30, 2009. The Company received funds from its partner, Medco International Ventures Limited, for its 50% share of the cash collateral and all cash provided as support for the LC's was reflected as restricted cash on the balance sheet.

The Company had a working capital surplus of $8.9 million at September 30, 2009 compared to $29.8 million as at December 31, 2008, including cash amounting to $11.9 million (December 31, 2008 - $55.5 million) net of restricted cash amounting to $nil (December 31, 2008 - $4.1 million). The decrease in working capital is due to the ongoing investments in the Company's Libya operations.

All accounts receivable have been assessed for credit risk and no allowance for doubtful accounts is necessary at this time.

Accounts payable and accrued liabilities have decreased since December 31, 2008 due to the timing of activity levels in Libya.

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

CRITICAL ACCOUNTING ESTIMATES

Depletion and Depreciation

The amounts recorded for depletion and depreciation of property, plant and equipment are based on estimates. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements from changes in such estimates in future years could be significant.

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

Stock-Based Compensation

The Company accounts for all employee stock-based compensation pursuant to the amended recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments. The stock-based compensation recorded by the Company is a critical accounting estimate because of the value of compensation recorded and assumptions required to calculate the compensation expense.

NEW ACCOUNTING STANDARDS AND CHANGES IN ACCOUNTING STANDARDS FOR 2008 AND 2009

On January 1, 2008, the Company adopted the following new Handbook Sections, which were effective for interim periods beginning on or after October 1, 2007 except for amendment on Canadian Institute of Chartered Accountants ("CICA") 1400 which was effective for interim periods beginning on or after January 1, 2008:

    
    -   Section 3862 - "Financial Instruments - Disclosures", describes the
        required disclosure for the assessment of the significance of
        financial instruments for an entity's financial position and
        performance and of the nature and extent of risks arising from
        financial instruments to which the entity is exposed and how the
        entity manages those risks. This section and Section 3863, "Financial
        Instruments - Presentation" replaced Section 3861, "Financial
        Instruments - Disclosure and Presentation".

    -   Section 3863 - "Financial Instruments - Presentation", establishes
        standards for presentation of financial instruments and non-financial
        derivatives.

    -   Section 1535 - "Capital Disclosures", establishes standards for
        disclosing information about an entity's capital and how it is
        managed. It describes the disclosure requirements of the entity's
        objectives, policies and processes for managing capital, the
        quantitative data relating to what the entity regards as capital,
        whether the entity has complied with capital requirements, and, if it
        has not complied, the consequences of such non-compliance.

    -   The CICA has amended Section 1400, "General Standards of Financial
        Statement Presentation", to include requirements to assess and
        disclose the Company's ability to continue as a going concern. The
        adoption of this new section did not have an impact on the
        consolidated financial statements.
    

Goodwill and Intangible Assets

In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standard for its fiscal year beginning January 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The adoption of this new Section has no material impact on Company's consolidated financial statements at this time.

DISCLOSURE CONTROLS AND PROCEDURES OVER FINANCIAL REPORTING

The Company evaluated the effectiveness and design of its disclosure controls and procedures for the three months ended September 30, 2009, and based on this evaluation have determined these controls to be effective.

The Company's financial reporting procedures and practices have enabled the certification of Verenex Energy Inc.'s annual filings in compliance with National Instrument 52-109 "Certification of Disclosure in Issuer's Annual and Interim Filings". Management has designed such internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements and other annual filings in accordance with Canadian Generally Accepted Accounting Principles.

There have been no significant changes in the third quarter of 2009 to the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company's management, including the CEO and CFO, conducted an evaluation of the effectiveness of its internal controls over financial reporting as of September 30, 2009 and has concluded that the internal controls as of September 30, 2009 were effective.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

On February 13, 2008, the AcSB confirmed that effective for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, International Financial Reporting Standards (IFRS) will replace Canada's current Generally Accepted Accounting Principles for all publicly accountable profit oriented enterprises.

The Company commenced its IFRS conversion project in 2008, which consists of three phases - scoping, evaluation and design, implementation and review. The Company has commenced its first phase of the project, which includes project initiation and awareness, identification of high-level differences between Canadian GAAP and IFRS and project planning and resourcing. A high level scoping exercise has been completed which has identified priority areas and a high-level plan has been prepared.

A detailed assessment of the impact of adopting IFRS on the Company's consolidated financial statements, accounting policies, information technology and data systems, internal controls over financial reporting, disclosure controls and procedures has not been completed. The impact of such elements will depend on the particular circumstances prevailing at the adoption date and the IFRS accounting policy choices the Company makes. The Company has not completed its quantification of the effects of adopting IFRS.

The financial performance and financial position as disclosed in our Canadian GAAP financial statements may be significantly different when presented in accordance with IFRS.

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

                                                  September 30,  December 31,
                                                        2009        2008
    -------------------------------------------------------------------------

    Assets

    Current assets
      Cash                                            $   11,889  $   55,522
      Accounts receivable                                    262         402
      Prepaid expenses and others                            297         753
                                                     ------------------------
                                                          12,448      56,677

    Restricted cash (Note 11)                                  -       4,144
    Capital assets (Note 4)                              176,716     156,980
                                                     ------------------------
                                                      $  189,164  $  217,801
                                                     ------------------------
                                                     ------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accrued liabilities        $    2,687  $   23,950
      Joint venture payable                                  864       2,916
      Due to related party (Note 5)                            -          37
                                                     ------------------------
                                                           3,551      26,903

    Joint venture payables related to
     restricted cash (Note 11)                                 -       2,072

    Stock compensation liability (Note 7)                  3,168       1,835
                                                     ------------------------
                                                           6,719      30,810
                                                     ------------------------

    Shareholders' equity
      Share capital (Note 6)                             205,432     203,431
      Contributed surplus (Note 6)                        10,634       9,646
      Deficit                                            (33,621)    (26,086)
                                                     ------------------------
                                                         182,445     186,991
                                                     ------------------------
                                                      $  189,164  $  217,801
                                                     ------------------------
                                                     ------------------------


    See accompanying notes to the Consolidated Financial Statements


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

                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008
    -------------------------------------------------------------------------

                                            Restated                Restated
                                            (Note 12)               (Note 12)
                             ------------------------------------------------
    Revenue
      Interest income         $       10  $      301  $      112  $    1,481
                             ------------------------------------------------
                              $       10  $      301  $      112  $    1,481
                             ------------------------------------------------

    Expenses
      General and
       administration         $    1,326  $    1,340  $    3,607  $    2,675
      Stock based
       compensation (Note 7)       1,403         644       3,620       2,354
      Depletion and
       depreciation (Note 4)          74          96         246         283
      Foreign exchange
       loss/(gain)                   720      (1,983)      1,410      (3,448)
                             ------------------------------------------------
                              $    3,523  $       97  $    8,883  $    1,864
                             ------------------------------------------------

    (Loss)/income before
     taxes and discontinued
     operations                   (3,513)        204      (8,771)       (383)
    Taxes                              -          13          48          14
                             ------------------------------------------------

    Net (loss)/income from
     continuing operations        (3,513)        191      (8,819)       (397)

    Net income from
     discontinued operations
     (Note 12)                         -         124       1,284         461
                             ------------------------------------------------

    Net (loss)/Income and
     comprehensive (loss)/
     Income                       (3,513)        315      (7,535)         64

    Deficit, beginning
     of period                   (30,108)    (28,380)    (26,086)    (28,129)
                             ------------------------------------------------

    Deficit, end of period    $  (33,621) $  (28,065) $  (33,621) $  (28,065)
                             ------------------------------------------------
                             ------------------------------------------------

    Per share amounts
     (Note 8)

    Net (loss)/income from
     continuing operations
    Basic                     $    (0.08) $     0.01  $    (0.20) $    (0.01)
    Diluted                   $    (0.08) $     0.01  $    (0.20) $    (0.01)

    Net income from
     discontinued operations
    Basic and Diluted         $        -  $        -  $     0.03  $     0.01

    Net (loss)/income
     per share
    Basic and Diluted         $    (0.08) $     0.01  $    (0.17) $        -

    Weighted average number
     of shares outstanding
     (Note 8):
      Basic                   44,605,169  44,267,891  44,394,087  44,267,891
                             ------------------------------------------------
                             ------------------------------------------------
      Diluted                 44,605,169  47,326,910  47,172,681  47,454,810
                             ------------------------------------------------
                             ------------------------------------------------


    See accompanying notes to the Consolidated Financial Statements


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

                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008
    -------------------------------------------------------------------------

    Cash (used in) provided by:

    Operating activities:
      Net (loss)/income from
       continuing operations  $   (3,513) $      191  $   (8,819) $     (397)
      Items not affecting cash:
        Stock based
         compensation              1,403         644       3,620       2,354
        Depletion and
         depreciation                 74          96         246         283
        Unrealized foreign
         exchange gain(loss)         458      (1,542)        861      (4,779)
                             ------------------------------------------------
                                  (1,578)       (611)     (4,092)     (2,539)

      Cash Settlement
       - RSU/PSU                    (162)          -        (649)          -
      Changes in non-cash
       operating working
       capital (Note 10)             201        (511)        596        (236)
                             ------------------------------------------------
    Cash used in continuing
     operations                   (1,539)     (1,122)     (4,145)     (2,775)
                             ------------------------------------------------
    Cash provided/(used)
     by discontinued
     operations                        -         248         (32)        747
                             ------------------------------------------------
    Cash used in operations       (1,539)       (874)     (4,177)     (2,028)
                             ------------------------------------------------

    Investing activities:
      Acquisition and
       expenditures on
       petroleum and natural
       gas properties             (3,255)    (16,486)    (23,665)    (53,100)
      Changes in non-cash
       investing working
       capital (Note 10)          (5,629)     (4,429)    (23,315)    (16,655)
      Restricted cash                  -       1,037       4,144       2,928
      Joint venture payables
       related to restricted cash      -        (371)     (2,072)     (1,227)
      Discontinued
       operations (Note 12)            -        (154)      5,000        (145)
                             ------------------------------------------------
                                  (8,884)    (20,403)    (39,908)    (68,199)
                             ------------------------------------------------

    Financing activities:
      Issue of common shares
       for cash                      958           -       1,352           -
      Changes in  non-cash
       financing working
       capital (Note 10)               -        (361)        (37)     (1,046)
                             ------------------------------------------------
                                     958        (361)      1,315      (1,046)
                             ------------------------------------------------

    Foreign exchange gain/
     (loss) on cash held in a
     foreign currency               (458)      1,248        (863)      4,309
                             ------------------------------------------------

    Net decrease in cash          (9,923)    (20,390)    (43,633)    (66,964)
    Cash, beginning of period     21,812      75,928      55,522     122,502
                             ------------------------------------------------

    Cash, end of period       $   11,889  $   55,538  $   11,889  $   55,538
                             ------------------------------------------------
                             ------------------------------------------------

    Cash taxes paid           $        -  $        3  $        8  $       14
                             ------------------------------------------------
                             ------------------------------------------------

    Cash interest received    $       10  $      301  $      112  $    1,481
                             ------------------------------------------------
                             ------------------------------------------------


    See accompanying notes to the Consolidated Financial Statements

    Verenex Energy Inc.
    Notes to the Consolidated Financial Statements
    For the Three and Nine Months ended September 30, 2009
    (thousands of Cdn $, except as noted)
    unaudited

    1.  Summary of Significant Accounting Policies and Basis of Presentation

        Verenex Energy Inc. (the "Company" or "Verenex") was established on
        June 29, 2004, by way of a "reverse takeover" pursuant to an
        amalgamation agreement dated May 27, 2004. Verenex is a public
        company listed on the Toronto Stock Exchange on April 19, 2005.

        The interim consolidated financial statements have been prepared by
        management in accordance with Canadian Generally Accepted Accounting
        Principles on a consistent basis with the audited consolidated
        financial statements for the year ended December 31, 2008. Certain
        disclosures in the interim financial statements may not conform in
        all respects to the requirements of generally accepted accounting
        principles for annual financial statements. The interim consolidated
        financial statements should be read in conjunction with the
        consolidated financial statements as at and for the year ended
        December 31, 2008.

    2.  Changes in Accounting Policies

        Goodwill and Intangible Assets

        In February 2008, the CICA issued Section 3064, Goodwill and
        intangible assets, replacing Section 3062, Goodwill and other
        intangible assets and Section 3450, Research and development costs.
        Various changes have been made to other sections of the CICA Handbook
        for consistency purposes. The new Section will be applicable to
        financial statements relating to fiscal years beginning on or after
        October 1, 2008.  Accordingly, the Company adopted the new standard
        for its fiscal year beginning January 1, 2009. It establishes
        standards for the recognition, measurement, presentation and
        disclosure of goodwill subsequent to its initial recognition and of
        intangible assets by profit-oriented enterprises. Standards
        concerning goodwill are unchanged from the standards included in the
        previous Section 3062. The adoption of this new Section has no
        material impact on the Company's consolidated financial statements at
        this time.

    3.  Financial Risk and Capital Management

        Financial Risk

        The Company is exposed to financial risk on its financial instruments
        including cash, restricted cash, accounts receivable, joint venture
        receivable/payable, deposits, accounts payable and due to/from
        related party. The Company manages its exposure to financial risks by
        operating in a manner that minimizes its exposure to the extent
        practical. The main financial risks affecting the Company are
        discussed below:

        Credit Risk

        Credit risk arises when a failure by counter parties to discharge
        their obligations could reduce the amount of future cash inflows from
        financial assets on hand at the balance sheet date. The Company has
        policies in place to ensure that transactions are made to parties
        with an appropriate credit history and monitors on a continuous basis
        the aging profile of its receivables.

        Accounts receivables are presented in the balance sheet net of any
        allowances for doubtful receivables. In addition, when joint
        operations are conducted on behalf of a joint venture partner
        relating to capital expenditures, the costs of such operations are
        paid for in advance to the Company by way of a cash call by the
        partner of the operations being conducted.

        The majority of the Company's financial assets are cash. The credit
        risk on cash is considered by management to be limited because the
        counterparties are financial institutions with high credit ratings
        assigned by international credit rating agencies.

        The maximum exposure to credit risk is represented by the carrying
        amount of each financial asset in the balance sheet. On a quarterly
        basis, the Company assesses whether there should be any impairment of
        the financial assets. There are no material financial assets that the
        Company considers past due and there is no impairment of any
        financial assets as at September 30, 2009.

        Market Risk

        Foreign Exchange Risk

        Currency risk is the risk that the value of financial instruments
        will fluctuate due to changes in foreign exchange rates. Currency
        risk arises when future commercial transactions and recognized assets
        and liabilities are denominated in a currency that is not the
        Company's measurement currency. The Company is exposed to foreign
        exchange risk arising from various currency exposures primarily the
        US dollar in relation to the Canadian dollar. The Company's
        management monitors the exchange rate fluctuations on a regular
        basis.

        The Company operated in three geographic areas and is exposed to
        foreign currency risk due to changes in foreign currency exchange
        rates, primarily as measured against the US dollar. The Company does
        not use currency derivative instruments to manage the Company's
        exposure to foreign currency fluctuations.

        At September 30, 2009, the carrying amount of the Company's foreign
        currency denominated monetary assets was approximately $4.5 million
        and monetary liabilities were $2.3 million. Assuming all other
        variables remain constant, a fluctuation of one cent in the exchange
        rate of the US dollar to the Canadian dollar would result in an
        increase or decrease on profit or loss of approximately $0.1 million.

        Interest Rate Risk

        Interest rate risk refers to the risk that the value of a financial
        instrument or cash flows associated with the instrument will
        fluctuate due to changes in market interest rates. The Company is
        exposed to interest rate risk as it maintains significant cash
        balances in interest bearing bank accounts. The Company monitors
        these risks on a regular basis. The Company currently does not use
        interest rate hedges or fixed interest rate contracts to manage the
        Company's exposure to interest rate fluctuations.

        Assuming all other variables remain constant, a fluctuation of 1% in
        the interest rates would result in an annual increase or decrease on
        profit or loss of approximately $0.1 million.

        Liquidity Risk

        Liquidity risk includes the risk that, as a result of the Company's
        operational liquidity requirements:

        -  The Company will not have sufficient funds to settle a transaction
           on the due date;

        -  The Company will be forced to sell financial assets at a value
           which is less than what they are worth; or

        -  The Company may be unable to settle or recover a financial asset
           at all.

        The ultimate responsibility for liquidity risk rests with the Board
        of Directors, which has built a liquidity risk management framework
        for the management of the Company's short, medium and long-term
        funding and liquidity management requirements.

        The Company's cash requirements and balances are projected based on
        forecasted operations and capital expenditures. The Company plans to
        meet these requirements through the mix of available funds, equity
        financing on a required basis, project debt financing and cash, which
        may be provided by the exercise of warrants and share options in the
        future. The Company also mitigates liquidity risk by maintaining an
        insurance program to minimize exposure to insurable losses.

        Financial liabilities are comprised of accounts payable, accrued
        liabilities, joint venture payable, due to related party and stock
        compensation liability. Accounts payable, accrued liabilities, joint
        venture payable and due to related party are expected to mature in
        less than one year. The stock compensation liability is expected to
        be settled over the periods consistent with the Stock Appreciation
        Rights, Performance Share Unit and Restricted Share Unit vesting
        periods. The Stock Appreciation Rights, Performance Share Unit and
        Restricted Share Unit are valued at the end of each period based on
        the closing share price.

        While Verenex manages its operations in order to minimize exposure to
        these risks, the Company has not entered into any derivatives or
        contracts to hedge or otherwise mitigate these fluctuations.

        Capital Management

        The Company manages its capital to ensure that the Company and its
        subsidiaries will be able to continue as a going concern and to
        provide a return to shareholders through exploring, appraising and
        developing its assets. As the Company is in the early stages of these
        activities, it will meet its capital requirements though the sale of
        common shares and issuance of debt.

        The Company defines capital as total equity plus debt, which totals
        $182.4 million as at September 30, 2009. Total equity is comprised of
        share capital, contributed surplus and deficit. The Company currently
        has no debt. The Company is not subject to any externally imposed
        capital requirements.

    4.  Capital Assets

                                           September 30, 2009
    -------------------------------------------------------------------------
                                                  Accumulated
                                                    Depletion,
                                               Depreciation &            Net
                                          Cost   Amortization     Book Value
                                 --------------------------------------------
    Petroleum and natural gas
     properties and equipment      $   175,650    $         -    $   175,650
    Furniture and equipment              2,300          1,234          1,066
                                 --------------------------------------------
                                   $   177,950    $     1,234    $   176,716
                                 --------------------------------------------
                                 --------------------------------------------



                                            December 31, 2008
    -------------------------------------------------------------------------
                                                  Accumulated
                                                    Depletion,
                                               Depreciation &            Net
                                          Cost   Amortization     Book Value
                                 --------------------------------------------
    Petroleum and natural gas
     properties and equipment      $   168,065    $    12,393    $   155,672
    Furniture and equipment              2,296            988          1,308
                                 --------------------------------------------
                                   $   170,361    $    13,381    $   156,980
                                 --------------------------------------------
                                 --------------------------------------------


        The Company capitalized $1.3 million and $4.3 million of general and
        administrative costs directly related to exploration and development
        activities for the three and nine months ended September 30, 2009
        (2008 - $1.3 million and $3.1 million).

        On January 28, 2009, the Company entered into an arrangement with
        Vermilion and its wholly owned France and Denmark subsidiaries to
        sell the Bottrel GORR and the Verenex Danish and French subsidiaries
        for $5.0 million. The transaction closed on February 27, 2009. (See
        Note 12)

        Depletion and depreciation of $0.1 million and $0.2 million for the
        three and nine months ended September 30, 2009 (2008 - $0.2 million
        and $0.6 million) relate to the depreciation of the Canadian and
        Libyan furniture and equipment. The 2008 expense includes depletion
        on the Bottrel GORR. At September 30, 2009, approximately $175.7
        million of undeveloped properties in Libya (December 31, 2008 - $152
        million) were excluded from the depletion calculation.

    5.  Related Party Transactions

        On January 28, 2009, the Company entered into an arrangement with
        Vermilion and its wholly owned France and Denmark subsidiaries to
        sell the Bottrel GORR and the Verenex Danish and French subsidiaries
        for $5.0 million. The transaction closed on February 27, 2009. All
        oil and gas revenues for 2009 relate to differences between accruals
        for the Bottrel GORR at December 31, 2008 and the actuals reported in
        2009. (See Note 12)

        Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion
        Energy Trust ("VET"), which is a significant shareholder in Verenex.
        VREP, as contract operator in France, paid for various expenditures
        on behalf of Verenex in 2008. These transactions were measured at the
        exchange amount being the consideration established and agreed to by
        the related parties. All transactions were undertaken under the same
        terms and conditions as transactions with non-related parties.
        Amounts due to related parties at September 30, 2009 are $nil
        (December 31, 2008 - $0.1 million).

        Verenex entered into a Technical and Administrative Services
        Agreement with Vermilion Resources Limited ("Vermilion") on June 28,
        2004, for the provision of certain financial and administrative
        services by Vermilion. The Agreement was automatically renewed for
        one-year periods, subject to termination or three months notice.
        Effective April 1, 2008 the monthly charge was reduced to five
        thousand dollars per month. During the nine months ended September
        30, 2009 Verenex was billed ten thousand dollars (September 30, 2008
        - sixty thousand dollars) for services provided under this Agreement.
        The Agreement was terminated effective February 27, 2009.

    6.  Share Capital

        Authorized

           Unlimited number of common shares
           Unlimited number of preferred shares

        Issued                                  Number of Shares      Amount
        ---------------------------------------------------------------------

        Opening balance as
         at January 1, 2009                           44,267,891  $  203,431

        Issued for cash on options exercised             409,400       1,352
        Transferred from contributed surplus on
         option exercise                                       -         649
                                                -----------------------------

        Balance as at September 30, 2009              44,677,291  $  205,432
                                                -----------------------------
                                                -----------------------------


                                                  September 30,  December 31,
                                                       2009          2008
        ---------------------------------------------------------------------

        Opening balance                               $    9,646  $    7,592

        Stock compensation expense related to
         options and warrants                              1,637       2,678
        Reversed on forfeiture of options                      -        (624)
        Transferred to share capital on
         options exercised                                  (649)          -
                                                -----------------------------

        Ending balance                                $   10,634  $    9,646
                                                -----------------------------
                                                -----------------------------


    7.  Stock Compensation Plans

        The Company has a stock option plan that allows the directors,
        officers and employees of the Company to be granted rights to acquire
        common shares of the Company. The Company has a "rolling" stock
        option plan that reserves a maximum of 10% of the aggregate number of
        issued and outstanding common shares. The term of option grants is up
        to ten years.

        Stock option exercise prices are equal to the market price for the
        common shares on the date immediately prior to the date the stock
        option is granted. Stock options currently granted vest over three
        years and expire five years after the grant date.

        There were no options granted during 2008 or 2009.

        The following table summarizes information about the stock option
        plan:


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

        Opening balance, January 1, 2009               3,706,000  $     4.57

        Exercised                                       (409,400)       3.30
                                                -----------------------------

        Closing balance, September 30, 2009            3,296,600  $     4.73
                                                -----------------------------
                                                -----------------------------


        The Company has also issued 1,877,500 performance warrants with a
        weighted average exercise price of $2.55. All of the performance
        warrants have vested and are exercisable. They expire on June 28,
        2011.

        The Company received approval from the Shareholders at its August 10,
        2009 AGM to modify the terms of 896,200 options previously granted.
        The life of these options was extended by 20 months to March 1, 2011.
        The Company has completed a calculation of the incremental value of
        this extension and recognized a $0.2 million stock compensation
        expense during the third quarter ending September 30, 2009.

        No performance warrants were issued in 2008 or 2009.

        On January 29, 2008, the Company repriced the existing stock options
        granted to non-officers and non-insiders to $8.90 from exercise
        prices ranging from $12.75 to $14.45 to reflect the market condition
        and pricing and to retain key employees. No changes were made to the
        vesting dates of these options. 750,000 options were repriced to
        $8.90.

        For the three and nine months ended September 30, 2009, non-cash
        stock compensation expense related to stock options and performance
        warrants was $0.6 million and $1.6 million (2008 - $0.4 million and
        $1.9 million).

        The Company has a Stock Appreciation Rights ("SAR's") Plan for
        directors, officers, employees and consultants adopted in 2005 with
        first awards issued in December 2005. The Company issued 495,000
        SAR's during the year ended December 31, 2008. Under the terms of the
        SAR's Plan, the Company will pay a cash amount to any grantee of the
        cash value of the market appreciation of such SAR's exercised,
        measured as the difference between the SAR exercise price and the
        average closing price of the common shares of the Company for the
        five trading days preceding the date of exercise to a maximum defined
        price under the SAR's agreement. Compensation expense on unexercised
        rights is determined based on the market price at the end of each
        reporting period and is deferred and recognized in income over the
        vesting period of the rights. For the three and nine months ended
        September 30, 2009, 5,000 and 115,000 SAR's were exercised. As at
        September 30, 2009, there were 553,333 SAR's outstanding.

        The Company has a Performance Share Unit Award Incentive Plan for
        directors, officers, employees and consultants adopted in 2007 with
        first awards issued in January 2008. The Company issued 71,000
        Performance Share Units ("PSU's") during the year ended December 31,
        2008. Under the terms of the PSU Plan, the Board may elect, in its
        sole discretion, to pay to any grantee of a Unit Award in lieu of
        delivering all or any part of the Common Shares that would be
        otherwise delivered to the grantee on such vesting date (multiplied
        by a performance factor which is reviewed on a quarterly basis), a
        cash amount equal to the aggregate fair market value of such Common
        Shares that would otherwise be issued on such vesting date in
        consideration for surrender by the grantee to the Corporation of the
        right to receive all or any part of the Common Shares under such Unit
        Award. Compensation expense on unexercised rights is determined based
        on the market price at the end of each reporting period and is
        deferred and recognized in income over the vesting period of the
        rights. For the three and nine months ended September 30, 2009, nil
        and 35,500 were exercised. As at September 30, 2009, there were
        35,500 PSU's outstanding.

        The Company has a Restricted Share Unit Award Incentive Plan for
        directors, officers, employees and consultants adopted in 2008 with
        first awards issued in October 2008. The Company issued 513,000
        Restricted Share Units ("RSU's") during the year ended December 31,
        2008. Under the terms of the RSU Plan, the Company will pay a cash
        amount to any grantee of a Unit Award equal to the aggregate fair
        market value of an equivalent number of Common Shares on the vesting
        date multiplied by a performance factor, which is reviewed on a
        quarterly basis. Compensation expense on unexercised rights is
        determined based on the market price at the end of each reporting
        period and is deferred and recognized in income over the vesting
        period of the rights. For the three and nine months ended September
        30, 2009, 13,000 and 20,500 were exercised. As at September 30, 2009,
        there were 492,500 RSU's outstanding.

        For the three and nine months ended September 30, 2009, the stock
        compensation expense related to SAR's, PSU's and RSU's was $0.8
        million and $2.0 million (2008 - $0.2 million and $0.5 million).

    8.  Per Share Amounts

                                 For the     For the     For the     For the
                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008
         --------------------------------------------------------------------
         Weighted average
          number of common
          shares outstanding  44,605,169  44,267,891  44,394,087  44,267,891

         Shares issuable
          pursuant to stock
          options                      -   1,740,996   1,515,873   1,837,437

         Shares issuable
          pursuant to
          performance
          warrants                     -   1,318,023   1,262,721   1,349,482
                             ------------------------------------------------

         Weighted average
          number of diluted
          common shares
          outstanding         44,605,169  47,326,910  47,172,681  47,454,810
                             ------------------------------------------------
                             ------------------------------------------------


        The weighted average diluted shares outstanding include all stock
        options in the money from the date of grant or the beginning of the
        period. The weighted average diluted shares include the performance
        warrants which are treated as contingently issuable shares and are
        included from the beginning of the period that all of the conditions
        for issue were satisfied.

        The impact of options and performance warrants is not included in the
        calculation of net loss from continuing operations and net loss per
        share in 2009 as they would be anti-dilutive.

    9.  Segmented Information

        The Company operated in three different geographical locations until
        the sale of assets in the first quarter of 2009 (see Note 12) and
        previously disclosed key financial data based on those jurisdictions.
        With the sale of the assets resulting in there being discontinued
        operations for the Canada and France/Barbados subsidiaries, the
        historical segmented information has been restated to reflect the
        Canadian corporate operations separate from the Libyan operations.
        Where not specifically identified, income statement line items, such
        as interest revenue, relate to Canada. Any allocations of costs
        between segments are done at cost and based on time allocated to the
        various projects.


                                 For the     For the     For the     For the
                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008
        ---------------------------------------------------------------------

        Interest Income:
          Canada              $       10  $      264  $      102  $    1,244
          Libya                        -          37          10         237
                             ------------------------------------------------
                              $       10  $      301  $      112  $    1,481
                             ------------------------------------------------
                             ------------------------------------------------

        Depletion &
         depreciation:
          Canada              $        4  $      182  $      103  $      449
          Libya                       70          38         143         120
                             ------------------------------------------------
                              $       74  $      220  $      246  $      569
                             ------------------------------------------------
                             ------------------------------------------------



                                 For the     For the     For the     For the
                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008

        Foreign exchange
         (gain)/loss:
          Canada              $      635  $     (987) $      638  $   (1,959)
          Barbados                  (861)       (304)       (838)         16
          Libya                      946        (692)      1,610      (1,505)
                             ------------------------------------------------
                              $      720      (1,983) $    1,410  $   (3,448)
                             ------------------------------------------------
                             ------------------------------------------------

        Net income/(loss):
          Canada              $   (3,381) $     (741) $   (7,825) $   (1,889)
          Barbados                   854         233         720        (136)
          Libya                     (986)        699      (1,714)      1,628
                             ------------------------------------------------
                              $   (3,513) $      191  $   (8,819) $     (397)
                             ------------------------------------------------
                             ------------------------------------------------

        Cash flows
         generated (used in)
         from operations :
          Canada              $   (1,901) $   (1,353) $   (4,109) $   (2,199)
          Barbados                   860         218         736        (193)
          Libya                     (498)         13        (772)       (383)
                             ------------------------------------------------
                              $   (1,539) $   (1,122) $   (4,145) $   (2,775)
                             ------------------------------------------------
                             ------------------------------------------------

        Capital expenditures:
          Canada              $        -  $      154  $        -  $      145
          Libya                    3,255      16,486      23,665      53,100
                             ------------------------------------------------
                              $    3,255  $   16,640  $   23,665  $   53,245
                             ------------------------------------------------
                             ------------------------------------------------


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


                                                  September 30,  December 31,
                                                      2009          2008
        ---------------------------------------------------------------------
        Identifiable assets:
          Canada                                      $    9,570  $   28,856
          France/Barbados                                      -       1,512
          Libya                                          179,594     187,433
                                                     ------------------------
                                                      $  189,164  $  217,801
                                                     ------------------------
                                                     ------------------------

    10. Statements of Cash Flow

        Changes in non-cash working capital:

                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008
        ---------------------------------------------------------------------


        Accounts receivable   $        1  $      (51) $      140  $       30
        Prepaid expenses
         and other                   200        (460)        456        (266)
        Joint venture
         receivable/payable       (2,916)     (5,250)     (2,052)    (10,524)
        Accounts payable and
         accrued liabilities      (2,713)        821     (21,263)     (6,131)
        Due to related party           -        (361)        (37)     (1,046)
                             ------------------------------------------------
                              $   (5,428) $   (5,301) $  (22,756) $  (17,937)
                             ------------------------------------------------

        Changes in non-cash
         working capital
         relating to:
          Operating
           activities         $      201  $     (511) $      596  $     (236)
          Investing
           activities             (5,629)     (4,429)    (23,315)    (16,655)
          Financing
           activities                  -        (361)        (37)     (1,046)
                             ------------------------------------------------
                              $   (5,428) $   (5,301) $  (22,756) $  (17,937)
                             ------------------------------------------------

    11. Restricted Cash

        The Company issued two letters of credit ("LC's") relating to the
        signing of two long-term drilling contracts that back-stop early
        termination provisions, both of which have now expired. The first LC
        to ODE required cash collateral of US $4.8 million (gross) be put in
        place by September 30, 2006.The ODE LC expired on November 13, 2008.
        The second LC to KCA DEUTAG Drilling GmbH required cash collateral of
        US $7.2 million (gross) in place by June 30, 2006. The KCA LC expired
        on April 30, 2009. The Company received funds from its partner, Medco
        International Ventures Limited, for its 50% share of the cash
        collateral and all cash provided as support for the LC's was
        reflected as restricted cash on the balance sheet.

    12. Discontinued Operations

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

        The following tables outline the final transaction details:

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

             Proceeds on disposition                              $    4,500

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

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

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

             Proceeds on disposition                              $      500

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

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

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



        Income from discontinued operations

                                   Three       Three        Nine        Nine
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                               September   September   September   September
                                30, 2009    30, 2008    30, 2009    30, 2008

        Revenue
          Petroleum & natural
           gas, net           $        -  $      267  $       (8) $      794

                             ------------------------------------------------
                              $        -  $      267  $       (8) $      794

        Expenses
          General and
           administration     $        -  $       19  $       24  $       47
          Depletion and
           depreciation
           (Note 4)                    -         124           -         286
          Disposal of fixed
           assets gain                 -           -      (1,316)          -
                             ------------------------------------------------
                              $        -  $      143  $   (1,292) $      334
                             ------------------------------------------------

        Income from
         discontinued
         operations           $        -  $      124  $    1,284  $      461
                             ------------------------------------------------

    13. Proposed Transaction

        On November 5, the Company announced it had entered into a definitive
        arrangement agreement with the Libyan Investment Authority (the
        "LIA") pursuant to which the LIA, through a subsidiary, has agreed to
        acquire all of the Verenex shares issued and outstanding upon
        completion of the transaction at a price per share in cash equal to
        $7.09 plus an additional amount per share (the "Working Capital
        Amount" and, together with the $7.09 offer price, the "Cash Purchase
        Consideration") to be determined by the Board of Directors of Verenex
        and the LIA at the time of completion of the transaction based on the
        aggregate amount, if any, of positive net working capital in Verenex
        at such time (determined on a pro-forma basis in accordance with the
        provisions of the Agreement). It is a condition to the completion of
        the transaction that such pro-forma closing working capital amount
        not be negative. Based on preliminary estimates agreed to by the LIA,
        Verenex expects the Working Capital Amount to be a nominal amount of
        approximately $0.15 per share, assuming completion of the transaction
        in mid-December. The final determination of the Working Capital
        Amount is subject to a number of factors, primarily the period of
        time for completion of the transaction, the rate of ongoing
        expenditures (primarily general and administrative expenses) and
        closing costs.

        An irrevocable letter of credit in the amount of $350 million, the
        aggregate purchase consideration payable by the LIA to acquire
        Verenex, has been deposited in escrow on behalf of the LIA as
        security for the availability of the aggregate purchase funds upon
        satisfaction or waiver of the conditions set out in the Agreement.

        The transaction will be completed by way of plan of arrangement (the
        "Arrangement"), to be submitted to the holders of Verenex securities
        (Verenex shares, options and performance warrants) for approval at a
        meeting scheduled for December 11, 2009. In addition to the working
        capital condition mentioned above, the Arrangement is conditional
        upon, among other things, securityholder approval of 75% of the votes
        cast at the meeting, court and regulatory approvals and certain other
        customary conditions for an agreement of this nature. The parties
        have provided for a higher than normal voting approval threshold in
        lieu of granting dissent rights to shareholders. The LIA has
        represented in the Agreement that the Arrangement has received all
        necessary Libyan government approvals. The Agreement has been filed
        on SEDAR at www.sedar.com.

        All of the members of the Verenex Board, its executive officers and
        its major shareholder, Vermilion Resources Ltd. (representing in
        aggregate approximately 45.2% of the common shares on a fully diluted
        basis), have entered into voting support agreements pursuant to which
        they have agreed to vote their securities in favour of the
        Arrangement.
    

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

Organization Profile

VERENEX ENERGY INC.

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