Verenex Energy Inc. Second Quarter 2007 Operating and Financial Results



    CALGARY, Aug. 8 /CNW/ - Verenex Energy Inc. ("Verenex" or the "Company")
(TSX - VNX) is pleased to report its unaudited interim operating and financial
results for the three and six months ended June 30, 2007.
    Verenex is a Canada-based international exploration and production
company with a world-class exploration portfolio in the Ghadames Basin in
Libya and in the Bay of Biscay offshore France.
    On July 31, 2007 the Company completed the sale, on a bought-deal basis,
of 7,935,000 common shares at $14.50 per share for gross proceeds of
$115.1 million. The net proceeds of the offering will be used primarily to
fund the Company's 2007 and 2008 exploration drilling and seismic activities
in Libya and France going forward and for general corporate purposes.

    
    Highlights

    Operations - Libya

    -   The Libyan National Oil Corporation ("NOC") officially announced that
        the Company's second new field wildcat exploration well B1-47/02 is
        an oil discovery, its second announced oil discovery in Area 47. The
        Company carried out extended flow tests on four intervals in the
        Lower Acacus Formation and one interval in the Middle Acacus
        Formation. These tests yielded a combined maximum measured flow rate,
        as restricted by test equipment capability, of approximately
        23,800 barrels of oil per day (gross) from 312 feet of perforations
        through choke sizes on particular intervals ranging from 40/64ths to
        96/64ths inch. Measured API gravity of the crude oil ranged from 37
        to 42 0. At the request of the NOC, rates were also measured
        through a smaller and more restrictive choke size of 32/64ths inch
        for their normalization purposes, which yielded a combined restricted
        rate of 9,150 barrels of oil per day.

    -   The Company completed flow tests on its third and final minimum
        commitment new field wildcat exploration well C1-47/02. The well
        flowed light sweet crude oil from 188 feet of perforations in five
        reservoir intervals, including four intervals in the Lower Acacus
        Formation and one interval in the Aouinet Ouenine Formation. The
        maximum combined measured flow rate was equivalent to the rate
        achieved in the B1-47/02 well. Measured API gravity of the crude oil
        ranged from 41 to 44 0. Additional flow test details will be
        released subject to NOC review and approval.

    -   The Company completed an extensive logging, coring and formation
        evaluation program on its fourth new field wildcat exploration well
        D1-47/02. The well found indications of multiple hydrocarbon-bearing
        sandstone reservoirs within the Lower Acacus Formation and in the
        shallower Middle Acacus and Aouinet Ouenine Formations and was cased
        to a final depth of 9,720 feet. Flow testing commenced in late July.

    -   The NOC approved the Company's fifth exploration well E1-47/02 which
        spudded on July 21. The well is expected be drilled to a depth of
        approximately 9,550 feet with the primary exploration target being
        the Lower Acacus Formation.

    -   The Company has submitted a preliminary appraisal report to the Area
        47 Management Committee ("Area 47 MC") and the NOC on its first oil
        discovery A1-47/02 as required under the Exploration and Production
        Sharing Agreement ("EPSA") for Area 47. The report incorporates
        results from the drilling, formation evaluation and flow testing
        programs and makes recommendations on additional seismic reprocessing
        and interpretation, reservoir analysis and additional appraisal
        drilling in areas adjacent to the A1-47/02 structure to determine the
        size of the discovery and potential recoverable resources.

    -   The acquisition phase of the Company's 2007/2008 3D seismic survey
        along the eastern side of Area 47 has commenced. The program is
        expected to cover an area of approximately 1,225 square kilometres
        and encompasses more than 20 prospects and leads identified from the
        Company's 2D seismic acquisition program completed in 2006. This will
        increase the total 3D seismic acquired by Verenex in 2006 and 2007
        to approximately 1,700 square kilometres covering about 27% of
        Area 47.

    France

    -   In the offshore Aquitaine Maritime Permit, the French authorities
        approved an extension of the drilling period for the planned Orca
        exploration well to September 30, 2007 and issued an amended drilling
        permit. The operator, Vermilion Rep SAS ("VREP"), a French subsidiary
        of Vermilion Energy Trust ("Vermilion"), is targeting to spud the
        well in late August 2007 and to complete drilling in September. The
        French military has a missile testing range in the area of the
        exploration permit and, as a result, completion of drilling
        operations must occur within the available window. The Byford Dolphin
        semi-submersible drilling rig contracted to drill the Orca 1 well was
        released from its drilling program in the North Sea on August 7 and
        is being towed to the wellsite in the Bay of Biscay. Vermilion
        Exploration SAS ("VEX"), a wholly owned subsidiary of Verenex, will
        hold a 22.5% interest in the permit after the well is drilled under
        the farm-out agreement negotiated with Bordeaux Energy Inc. and VREP.

    -   The French authorities have awarded the Aquila offshore exploration
        permit in the Bay of Biscay to VEX (50%) and VREP (50% - operator).
        The permit has an initial term of three years and provides the right
        to explore an area of 709 square kilometres adjacent to the eastern
        boundary of the Aquitaine Maritime permit.

    -   The Company has closed the sale of its 95% participating interest in
        the Marvilliers Permit, including the St. Lazare 2H well, and two
        drilling spacing units in the Parentis Concession, including the
        Parentis 222H well, which were held by VEX. These assets were sold to
        VREP effective July 1, 2006 for a consideration of $3.5 million.

    Financial

    -   Funds flow from operations in the second quarter of 2007 was
        $0.7 million compared to $1.0 million for the second quarter of 2006.
        The reduction was primarily a result of reduced production in France.

    -   The Company had a net loss of $1.8 million in the second quarter of
        2007 compared to a net loss of $3.4 million in the second quarter of
        2006. The 2007 loss resulted primarily from a $1.7 million foreign
        exchange loss on the Company's US dollar cash positions due to the
        strengthening Canadian dollar. 2006 was impacted by a $3.0 million
        non-cash asset impairment write-down on the France properties.

    -   The Company had a working capital surplus of $21.0 million at
        June 30, 2007 compared to $40.6 million as at December 31, 2006,
        including cash and term deposits amounting to $24.4 million
        (December 31, 2006 - $49.4 million) net of restricted cash amounting
        to $10.2 million (December 31, 2006 - $13.6 million). The decrease in
        working capital is due to the ongoing activities in the Company's
        Libya operations.

    Highlights

                                Three       Three        Six         Six
                                Months      Months      Months      Months
                                Ended       Ended       Ended       Ended
                               June 30,    June 30,    June 30,    June 30,
    (unaudited)                  2007        2006        2007        2006
    -------------------------------------------------------------------------

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

    Petroleum and natural
     gas revenues (net)              421         848         918       2,039
    Funds flow from
     operations(1)                   668         984       1,183       1,919
    Net loss                      (1,849)     (3,361)     (2,144)     (3,639)
    Capital expenditures          11,721       2,836      23,665       5,465
    Working capital surplus       21,019      23,092      21,018      23,092

    Common shares outstanding
      Basic                   36,173,491  30,903,391  36,173,491  30,903,391
      Diluted                 41,491,391  35,290,891  41,491,391  35,290,891
    Weighted average common
     shares outstanding
      Basic                   36,173,491  30,903,391  36,168,605  30,868,957
      Diluted                 40,085,250  32,293,525  39,792,155  32,243,478
    Share trading
      High                         14.40        5.04       14.40        5.04
      Low                          10.80        3.05        6.00        3.05
      Close                        13.93        4.24       13.93        4.24


    Operations

    Production
      Crude oil (bbls/d)              29          90          42         113
      Natural gas liquids
       (bbls/d)                       15          19          15          19
      Natural gas (mcf/d)            278         339         295         348
      Boe/d (6:1)*                  90         166         106         190
    Average reference price
      WTI (US$ per bbl)            65.03       70.69       61.65       67.08
      Brent (US$ per bbl)          68.76       69.62       63.26       65.69
      AECO (Cdn$ per mcf)           7.07        6.01        7.23        6.78

    Average selling price
      Crude oil (Cdn$ per bbl)     66.10       81.24       62.61       75.07
      Natural gas liquids
       (Cdn$ per bbl)              56.90       43.82       51.12       49.04
      Natural gas (Cdn$ per mcf)    7.04        5.90        6.06        6.30

    Average Operating Netback
     (Cdn$ per BOE @ 6:1)          45.22       49.89       40.50       51.81

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


    Capital Expenditures (Cdn $)

    During the second quarter of 2007, the Company invested approximately
$11.7 million. Libya accounted for $12.3 million of the investment activity
level with approximately $6.2 million in drilling and, $4.2 million in testing
and completions, $0.5 million geological and geophysical costs and
$1.4 million in capitalized General and Administration ("G&A") and office
costs. In France, the Company received an adjustment of approximately
$0.6 million relating to the farm-out of the Aquitaine Maritime permit.

    Outlook

    Libya

    The Area 47 MC has endorsed a revised 2007 budget outlook of US $114 to
US $118 million (gross) ($62 to $65 million net), up from the original budget
of US $91 million (gross). The higher budget primarily reflects the increased
scope and advancement of the 3D seismic program, faster drilling program and
increased well logging, formation evaluation and flow testing work. This
budget includes the acquisition of the 2007/2008 1,225 square kilometres of 3D
seismic program, 6.5 completed wells (seven spudded), six multi-zone flow
tests, a workover and flow test on the suspended oil and gas discovery well
A1-NC3A, additional casing and tubing inventory for the drilling program and
general and administrative costs for the Tripoli office and technical support
from the Company's Calgary offices. The ultimate extent of operations and
expenditures will depend on several factors, including ongoing well and
seismic results, logistics and regulatory approvals.
    Flow testing at the Company's fourth exploration well D1-47/02 is
underway with the KCA DEUTAG Service Rig 32 and should be completed by late
August. The Company plans to release flow tests results at the conclusion of
the testing subject to NOC review and approval.
    Drilling at the Company's fifth exploration well D1-47/02 with Ensign Rig
28 is underway and drilling, logging and any additional formation evaluation
work should be completed by late September.
    The Company is targeting to begin drilling in Area 47 with its second
contracted drilling rig KCA DEUTAG Rig T-19 by mid-September 2007. The second
rig was newly built in Dubai in 2006 and arrived in Libya in January 2007. It
is currently drilling a second well for another operator in Libya under a
two-well assignment agreement negotiated by the Company with the drilling rig
contractor and the other operator.
    With two rigs operating by mid-September, the Company believes that at
least three new wells can be spudded between September and December 2007 which
would increase the well count to eight in total, including one in 2006 and
seven in 2007 (6.5 completed).
    The Company currently expects to complete the acquisition phase of the
2007/2008 3D seismic program by late December 2007. Completion of processing
and interpretation is targeted for the end of the first quarter of 2008.
    The Company has re-applied to the NOC, in the context of the preliminary
appraisal report for the A1-47/02 discovery and surrounding area, for approval
of a re-entry, workover and production test on the suspended oil and gas
discovery well A1-NC3A that was drilled in 1999 prior to the award of Area 47
to Verenex and Medco International Ventures Limited.
    The Company continues to progress preliminary engineering design and
associated cost and schedule estimating for a potential early production
system in the southern part of Area 47, where the first five wells have been
drilled, with a target of first oil at year-end 2009 at a production rate of
25,000 to 50,000 barrels of oil per day (gross). This work also includes
conceptual phased-development scenarios for a range of potential ultimate
resource base sizes in Area 47.

    France

    The current estimate to drill and log the Orca exploration well in the
offshore Aquitaine Maritime permit, based on bids for services, has now
increased to approximately US $40 to US $45 million (gross). Under the
farm-out agreement, VEX will be required to fund 22.5% of the exploration well
costs in excess of US $34 million which at the current cost estimate level, is
approximately $1.5 to $2.7 million net to VEX.


    The maximum combined measured flow rates in each of the tested wells in
Libya contained in this press release are not necessarily indicative of the
ultimate production rate and may be lower in any commercial development, which
will be determined from reservoir engineering studies that constitute part of
the appraisal and development planning activities currently underway.

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


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following is management's discussion and analysis (MD&A), dated
August 7, 2007, of the Company's operating and financial results for the three
and six months ended June 30, 2007. The financial data has been prepared in
Canadian dollars in accordance with Canadian Generally Accepted Accounting
Principles ("GAAP") applied consistently with prior periods. This discussion
should be read in conjunction with the Company's interim unaudited
consolidated financial statements for the three and six months ended June 30,
2007 and the restated audited consolidated financial statements for the year
ended December 31, 2006, together with the accompanying notes as contained in
the Company's 2006 Annual Report.
    Additional information relating to the Company, including its Annual
Information Return, NI 51-101 disclosure and details of outstanding share data
and the Company's Stock Option Plan, is available on SEDAR at www.sedar.com.

    Forward-Looking Information

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

    Non-GAAP Measures

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

    Operating Results

    Asset Valuation

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

    Revenues

    Oil and gas production was 90 barrels of oil equivalent per day ("boepd")
in the second quarter of 2007 resulting in oil and gas revenues of
$0.4 million, net of royalties, compared to 166 boepd and revenues of
$0.8 million in the second quarter of 2006. Production was down 27% to
90 boepd and revenues were down $0.1 million compared to 123 boepd and
$0.5 million in revenues for the first quarter of 2007 due to the closing of
the sale of the Company's participating interest in the Marvilliers Permit,
including the St. Lazare 2H well, and in two drilling spacing units in the
Parentis Concession, including the Parentis 222H well, located in France.
    During the second quarter of 2007 the Bottrel, Alberta gross overriding
royalty (the "Bottrel GORR") provided production of approximately 61 boepd and
revenues of $0.3 million compared to 76 boepd and $0.3 million for the same
period in 2006 and 67 boepd and $0.2 million of royalty income during the
first quarter of 2007. For the six months ended June 30, 2007 the Bottrel GORR
provided 64 boepd and revenues of $0.5 million compared to 77 boepd and
$0.6 million for the same period in 2006.
    There were no other unusual cyclical or seasonal factors impacting the
Company's production in 2007.
    Average realized prices for the second quarter of 2007 were: oil
$66.10 per bbl (2006 - $81.24); natural gas $7.04 per mcf (2006 - $5.90); and
NGL $56.90 per bbl (2006 - $43.82). These compare to prices of $60.82 per bbl
for oil, $5.19 per mcf for natural gas and $44.98 per bbl for NGL during the
first quarter ended March 31, 2007.
    Interest of $0.4 million was earned in the second quarter of 2007 (2006 -
$0.2 million) compared to $0.5 million for the first quarter of 2007 on cash
balances invested in excess of expenditure requirements. The decrease versus
the first quarter is mainly due to the increased funding requirements for the
Libya operations. The increase in interest revenues versus 2006 is due to the
increased cash balance resulting from the December 2006 financing of
approximately $31.7 million (net of issue costs).

    Stock Compensation

    For the three and six months ended June 30, 2007, non-cash stock
compensation expense related to stock options, performance warrants and Stock
Appreciation Rights ("SAR's") was $0.5 million and $1.0 million respectively
(2006 - $0.3 million and $0.8 million respectively). The increase in costs is
related to the issuance of stock options at the December 31, 2006 year-end.

    General and Administration ("G&A")

    The Company capitalized $1.0 million and $2.1 million of general and
administrative costs relating to exploration and development activities for
the three months and six months ended June 30, 2007 respectively (2006 -
$0.6 million and $1.0 million respectively). The net G&A amounts that are
expensed represent salaries, employee benefits, office costs, legal and
related party services not directly attributable to ongoing exploration and
development capital projects. The significantly lower net G&A in the second
quarter of 2007 in comparison with 2006 is due to the timing of the capital
expenditures in Libya and the application of a 2% overhead recovery charge, to
the Company's partner, against these costs. This will normalize over the total
year.

    Effects of Exchange Rate Fluctuations

    The Company's operations are conducted primarily in jurisdictions where
the United States dollar (US$) and the European Euro (€) are the
business currencies. A large proportion of the Company's costs, assets and
liabilities during the quarter ended June 30, 2007 were denominated in US$. As
the Canadian dollar fluctuates during the period, foreign exchange gains and
losses are reflected in both the earnings and funds flow amounts.

    Depletion and Depreciation

    Depletion and depreciation was $0.3 and $0.7 million for the three and
six months ended June 30, 2007 respectively (2006 - $0.5 million and
$1.1 million respectively) and relates to the depletion of the France and
Canadian assets. The lower depletion costs were due to the closing of the sale
of the France properties in May 2007.

    Related Party Transactions

    Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion Energy
Trust ("VET"), which is a significant shareholder in Verenex. VREP, as
contract operator in France, paid for various expenditures on behalf of
Verenex. These transactions were measured at the exchange amount being the
consideration established and agreed to by the related parties. These
transactions were undertaken under the same terms and conditions as
transactions with non-related parties. Amounts due to related parties are
comprised of an amount due to VREP.
    The Bottrel GORR is a gross overriding royalty on VET's share of
production from specific wells at Bottrel, Alberta. The Bottrel GORR provided
$0.3 million and $0.5 million of royalty income during the three and six
months ended June 30, 2007 (2006 - $0.3 million and $0.6 million
respectively).
    Verenex entered into a Technical and Administrative Services Agreement
with Vermilion Resources Limited ("Vermilion") on June 28, 2004, whereby
Vermilion provides certain financial and administrative services at a cost of
twenty thousand dollars per month and certain technical, marketing and other
services at cost plus 5%, for a period of eighteen months ending December 31,
2005. The Agreement is automatically renewed for one-year periods, unless one
party provides three months notice not to renew. Effective January 1, 2006,
the monthly charge was amended to eliminate the services provided for the
Canadian financial and administrative services, reducing the monthly charge to
ten thousand dollars per month in support of the France operations. During the
six months ended June 30, 2007 Verenex was billed sixty thousand dollars (2006
- sixty thousand dollars) for services provided under this Agreement.
    On October 12, 2006, the Company's wholly owned subsidiary, Vermilion
Exploration SAS ("VEX"), entered into an agreement with VREP, a French
subsidiary of Vermilion Energy Trust, for the sale of its 95% participating
interest in the Marvilliers Permit, including the St. Lazare 2H well, and in
two drilling spacing units in the Parentis Concession, including the Parentis
222H well, located in France for $3.5 million.
    The transaction closed on May 30, 2007. The following table outlines the
final transaction details:

    
    Proceeds on disposition                                        $   3,500
    Less purchase price adjustment related to
     operating results between the effective date
     (July 1, 2006) and closing                                         (820)
                                                               --------------
    Adjusted proceeds                                                  2,680

    Net book value of assets disposed                                 (2,690)
    Asset retirement obligation related to assets disposed                37
                                                               --------------

    Gain on disposition of assets                                  $      27
                                                               --------------
                                                               --------------
    

    Liquidity and Capital Resources

    Verenex will continue to rely primarily on equity to fund future working
capital requirements and capital obligations.
    The Company has issued two letters of credit ("LC's") relating to the
signing of two long-term drilling contracts that back-stop early termination
provisions. The terms of the contract call for the LC's to vary over the
period of the contract. The first LC expires on November 13, 2008 and is
exercisable by Oil Drilling & Exploration (Borneo) Pty Limited ("ODE"), a
subsidiary of Ensign Energy Services Inc. based in Calgary, Alberta. The ODE
contract requires that cash collateral of US $4.6 million (gross) to be put in
place by June 30, 2006. At June 30, 2007 this had been reduced to US
$4.0 million. The second LC in favour of KCA DEUTAG Drilling GmbH based in
Germany ("KCA DEUTAG"), expires on April 30, 2009 and is supported by cash
collateral of US $7.2 million (gross) as at June 30, 2006. At June 30, 2007
this had been reduced to US $5.6 million. The Company has received funds from
its partner, Medco International Ventures Limited, for its 50% share of the
cash collateral and all cash provided as support for the LC's has been
reflected as restricted cash on the balance sheet.
    On July 31, 2007, in accordance with the assignment agreement between the
Company and RWE, a corporate guarantee was provided by RWE AG in the amount of
US $1.4 million representing 25% of the outstanding KCA DEUTAG LC as at that
date. The guarantee will remain in place during the period in which the
assignment agreement is in force. This reduces that amount of restricted cash
by US $1.4 million (net Verenex 50% share $0.8 million).
    The Company had a working capital surplus of $21.0 million at June 30,
2007 compared to $40.6 million as at December 31, 2006, including cash and
term deposits amounting to $24.4 million (December 31, 2006 - $49.4 million)
net of restricted cash amounting to $10.2 million (December 31, 2006 -
$13.6 million). The decrease in working capital is due to the increased
activities in the Company's Libya operations.
    The majority of the trade receivables relate to amounts associated with
the joint venture operations in France and an accrual for revenues associated
with the Bottrel GORR. All trade receivables have been assessed for credit
risk and no allowance for doubtful accounts is necessary at this time.
    Accounts payable and accrued liabilities have decreased since
December 31, 2006 due to the timing of activity levels in Libya.
    On July 31, 2007 the Company completed the sale, on a bought-deal basis,
of 7,935,000 common shares at $14.50 per share resulting in gross proceeds of
$115.1 million (net, approximately $110.4 million after issue costs).
    The Company has sufficient resources to fulfill its short-term
commitments.
    Verenex is listed on the Toronto Stock Exchange under the stock symbol
VNX.

    Critical Accounting Estimates

    The amounts recorded for depletion and depreciation of property, plant
and equipment are based on estimates. By their nature, these estimates are
subject to measurement uncertainty and the effect on the consolidated
financial statements from changes in such estimates in future years could be
significant.
    The Company performs a review for asset impairment as required by the
Full Cost Accounting Guideline, AcG-16. Any impairment in value is dependent
upon an independent reservoir engineer's assessment of the deliverability and
reserves associated with certain wells and the outlook for world prices for
oil and natural gas.

    New Accounting Standards and Changes in Accounting Standards for 2007

    Financial Instruments and Hedging Activities

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

    Accounting Changes

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

    Disclosure Controls and Procedures Over Financial Reporting

    The Company evaluated the effectiveness and design of its disclosure
controls and procedures for the three months ended June 30, 2007, and based on
this evaluation have determined these controls to be effective.
    The Company's financial reporting procedures and practices have enabled
the certification of Verenex Energy Inc.'s annual filings in compliance with
Multilateral Instrument 52-109 "Certification of Disclosure in Issuer's Annual
and Interim Filings". Management has designed such internal controls over
financial reporting to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements and other
annual filings in accordance with Canadian Generally Accepted Accounting
Principles, except as noted below:
    Given the small size of the Company, the evaluation of internal controls
over financial reporting for the Company resulted in the identification of the
following weaknesses:

    
    -   Management is aware that due to its relatively small scale of
        operations there is a lack of segregation of duties due to the
        limited number of employees dealing with accounting and financial
        matters. However, management has concluded that considering the
        employees involved and the control procedures in place, including
        management and Audit Committee oversight, risks associated with such
        lack of segregation are not significant enough to justify the expense
        associated with adding employees to clearly segregate duties.
    -   Management is aware that in-house expertise to deal with complex
        taxation, accounting and reporting issues may not be sufficient. The
        Company requires outside assistance and advice on taxation, new
        accounting pronouncements and complex accounting and reporting
        issues, which is common with companies of a similar size.
    -   Management is aware that in-house expertise to deal with information
        technology and information systems may not be sufficient. The Company
        has engaged a third party to provide the required expertise and
        support.

    There have been no significant changes in the second quarter of 2007 to
the Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.



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

                                                       June 30,  December 31,
                                                         2007        2006
    -------------------------------------------------------------------------

    Assets

    Current assets
      Cash and cash equivalents                     $    24,412  $    49,369
      Accounts receivable                                   493          352
      Joint venture receivable                            5,351        2,292
      Inventory                                               -           61
      Prepaid expenses and other                            450          136
                                                 ----------------------------
                                                         30,706       52,210
                                                 ----------------------------

    Restricted cash (Note 12)                            10,188       13,625
    Capital assets (Note 4)                              54,725       31,322
    Assets held for sale (Note 13)                            -        3,117
                                                 ----------------------------
                                                    $    95,619  $   100,274
                                                 ----------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Accounts payable and accrued liabilities      $     9,441  $    11,049
      Due to related party (Note 6)                         246          519
                                                 ----------------------------
                                                          9,687       11,568

    Joint venture payables related to
     restricted cash (Note 12)                            5,094        6,812

    Asset retirement obligations (Notes 5 & 13)               -           37
                                                 ----------------------------
                                                         14,781       18,417
                                                 ----------------------------
                                                 ----------------------------


    Shareholders' equity
      Share capital (Note 7)                             92,740       92,566
      Contributed surplus (Note 7)                        6,353        5,402
      Deficit                                           (18,255)     (16,111)
                                                 ----------------------------
                                                         80,838       81,857
                                                 ----------------------------
                                                    $    95,619  $   100,274
                                                 ----------------------------
                                                 ----------------------------

    See accompanying notes to the Consolidated Financial Statements



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

                                   Three       Three         Six         Six
                                  Months      Months      Months      Months
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue
      Petroleum & natural
       gas, net               $      421  $      848  $      918  $    2,039
      Interest income                370         243         847         513
      Lease inducement
       payment                         -         400           -         400
                              -----------------------------------------------
                              $      791  $    1,491  $    1,765  $    2,952
                              -----------------------------------------------

    Expenses
      Production                      46  $      116         127  $      201
      Transportation                   5          19          11          50
      General and
       administration                 64         348         433         739
      Stock based
       compensation (Note 8)         515         269       1,015         824
      Depletion and
       depreciation (Note 4)         303         476         687       1,128
      Impairment write-down
       (Note 4)                        -       2,979           -       2,979
      Gain on assets held
       for sale (Note 13)            (27)          -         (27)          -
      Foreign exchange loss        1,723         621       1,652         627
                              -----------------------------------------------
                              $    2,629  $    4,828  $    3,898  $    6,548
                              -----------------------------------------------

    Loss before taxes             (1,838)     (3,337)     (2,133)     (3,596)
    Taxes                              8          24          11          43

    Net loss and
     comprehensive loss           (1,846)     (3,361)     (2,144)     (3,639)

    Deficit, beginning
     of period                   (16,409)    (12,525)    (16,111)    (12,247)
                              -----------------------------------------------

    Deficit, end of period    $  (18,255) $  (15,886) $  (18,255) $  (15,886)
                              -----------------------------------------------
                              -----------------------------------------------

    Net loss per share basic
     and diluted (Note 9)     $    (0.05) $    (0.11) $    (0.06) $    (0.12)
                              -----------------------------------------------
                              -----------------------------------------------

    Weighted average number
     of shares outstanding
     (Note 9):
      Basic                   36,173,491  30,903,391  36,168,605  30,868,957
                              -----------------------------------------------
                              -----------------------------------------------
      Diluted                 40,085,250  32,293,525  39,792,155  32,243,478
                              -----------------------------------------------
                              -----------------------------------------------

    See accompanying notes to the Consolidated Financial Statements



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

                                   Three       Three         Six         Six
                                  Months      Months      Months      Months
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
                                                 (as                     (as
                                            restated                restated
                                              Note 3)                 Note 3)
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net loss                $   (1,846) $   (3,361) $   (2,144) $   (3,639)
      Items not affecting
       cash:
        Stock based
         compensation                515         269       1,015         824
        Depletion and
         depreciation                303         476         687       1,128
        Impairment write-down          -       2,979           -       2,979
        Gain on assets held
         for sale (Note 13)          (27)          -         (27)          -
        Unrealized foreign
         exchange loss             1,723         621       1,652         627
                              -----------------------------------------------
                                     668         984       1,183       1,919
      Changes in non-cash
       operating
       working capital              (702)       (267)       (434)         36
                              -----------------------------------------------
                                     (34)        717         749       1,955
                              -----------------------------------------------

    Investing activities:
      Acquisition and
       expenditures on
       petroleum and natural
       gas properties            (10,385)     (4,118)    (27,852)     (1,943)
      Restricted cash              2,355      (6,364)      2,813     (13,138)
      Joint venture payables
       related to restricted
       cash                       (1,488)      3,182      (1,718)      6,569
                              -----------------------------------------------
                                  (9,518)     (7,300)    (26,757)     (8,512)
                              -----------------------------------------------

    Financing activities:
      Issue of common shares
       for cash                        -           -         132         186
      Share issue costs                -          (7)        (22)        (17)
      Due to related party
       (Note 6)                     (186)       (562)       (273)     (1,667)
      Proceeds from disposition
       of petroleum and natural
       gas properties              2,680           -       2,680           -
                              -----------------------------------------------
                                   2,494        (569)      2,517      (1,498)
                              -----------------------------------------------

    Foreign exchange loss on
     cash held in a foreign
     currency                     (1,243)       (606)     (1,466)       (500)
                              -----------------------------------------------

    Net decrease in cash          (8,301)     (7,758)    (24,957)     (8,555)
    Cash, beginning of period     32,713      34,749      49,369      35,546
                              -----------------------------------------------

    Cash, end of period       $   24,412  $   26,991  $   24,412  $   26,991
                              -----------------------------------------------
                              -----------------------------------------------


    Cash taxes paid               $    8      $   24      $   11      $  108
                              -----------------------------------------------
                              -----------------------------------------------

    Cash interest received        $  370      $  243      $  847      $  513
                              -----------------------------------------------
                              -----------------------------------------------

    See accompanying notes to the Consolidated Financial Statements



    Verenex Energy Inc.
    Notes to the Consolidated Financial Statements
    For the three and six months ended June 30, 2007
    (thousands of Cdn $, except as noted)
    unaudited

    1.  Summary of Significant Accounting Policies and Basis of Presentation

        The interim consolidated financial statements have been prepared by
        management in accordance with Canadian Generally Accepted Accounting
        Principles on a consistent basis with the audited consolidated
        financial statements for the year ended December 31, 2006. Certain
        disclosures in the interim financial statements may not conform in
        all respects to the requirements of generally accepted accounting
        principles for annual financial statements. The interim consolidated
        financial statements should be read in conjunction with the
        consolidated financial statements as at and for the year ended
        December 31, 2006.

    2.  Changes in Accounting Policies

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

        a) Financial instruments

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

        Held-for-trading

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

        Available-for-sale

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

        Held-to-maturity

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

        Loans and receivables

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

        Other liabilities

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

        Embedded derivatives

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

        Derivative instruments and hedging activities

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

        Determination of fair value

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

        Comprehensive income

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

        b) Accounting Changes

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

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

    3.  Correction of an Error

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

    4.  Capital Assets

                                                     June 30, 2007
        ---------------------------------------------------------------------
                                                        Accumulated
                                                          Depletion,     Net
                                                     Depreciation &     Book
                                               Cost    Amortization    Value
                                            ---------------------------------
        Petroleum and natural gas
         properties and equipment           $54,940       $1,801     $53,139
        Furniture and equipment               1,994          408       1,586
                                            ---------------------------------
                                            $56,934       $2,209     $54,725
                                            ---------------------------------
                                            ---------------------------------

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

        The Company capitalized $1.0 million and $2.1 million of general and
        administrative costs directly related to exploration and development
        activities for the three and six months ended June 30, 2007
        respectively (2006 - $0.6 million and $1.0 million respectively).

        Depletion and depreciation, of $0.3 and $0.7 million for the three
        and six months ended June 30, 2007 respectively (2006 - $0.5 million
        and $1.1 million respectively, excluding a $3.0 million non-cash
        impairment write-down related to France) relates to the depletion of
        the France producing properties to the closing date of the sale and
        Canadian assets. At June 30, 2007 approximately, $5.3 million in
        undeveloped properties (2006 - $4.9 million) in France and
        $43.8 million in Libya (2006 - $6.0 million) were excluded from the
        depletion calculation.

    5.  Asset Retirement Obligations

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

        Verenex had recognized a thirty-seven thousand dollar liability
        associated with the St. Lazare 2H and Parentis 222H wells. These
        costs were assumed to be paid in 40 to 45 years. The Company used a
        credit risk adjusted risk-free rate of 8% and an inflation rate of
        1.5% to calculate the net present value of the future retirement
        obligation. The Company's obligation was removed as a result of the
        disposition of the France assets (see Note 13).

    6.  Related Party Transactions

        Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion
        Energy Trust ("VET"), VET is a significant shareholder in Verenex.
        VREP, as contract operator in France, paid for various expenditures
        on behalf of Verenex. These transactions were measured at the
        exchange amount being the consideration established and agreed to by
        the related parties. These transactions were undertaken under the
        same terms and conditions as transactions with non-related parties.
        Amounts due to related parties are comprised of an amount due to VREP
        $0.2 million. The balance has declined as a result of payments made
        to date.

        The Bottrel GORR is a gross overriding royalty on VET's share of
        production from specific wells at Bottrel, Alberta. The Bottrel GORR
        provided $0.3 million and $0.5 million of royalty income during the
        three and six months ended June 30, 2007 (2006 - $0.3 million and
        $0.6 million respectively).

        Verenex entered into a Technical and Administrative Services
        Agreement with Vermilion Resources Limited ("Vermilion") on June 28,
        2004, whereby Vermilion provides certain financial and administrative
        services and certain technical, marketing and other services. The
        Agreement is automatically renewed for one-year periods, unless one
        party provides three months notice not to renew. During the six
        months ending June 30, 2007, Verenex was billed sixty thousand
        dollars (2006- sixty thousand dollars) for services provided under
        this Agreement.

        On October 12, 2006, the Company's wholly owned subsidiary, Vermilion
        Exploration SAS ("VEX"), entered into an agreement with VREP for the
        sale of its 95% participating interest in the Marvilliers Permit,
        including the St. Lazare 2H well, and in two drilling spacing units
        in the Parentis Concession, including the Parentis 222H well, located
        in France for $3.5 million less adjustments on closing (see Note 13).

    7.  Share Capital

        Authorized

        Unlimited number of common shares
        Unlimited number of preferred shares

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

        Opening balance as at January 1, 2007        36,120,891     $ 92,566

        Issued for cash on warrants and options
         exercised                                       52,600          132
        Share issue costs                                     -          (22)
        Transferred from contributed surplus on
         warrants and options exercised                       -           64
                                                     ------------------------

        Balance as at June 30, 2007                  36,173,491     $ 92,740
                                                     ------------------------
                                                     ------------------------

        Contributed Surplus

                                                        June 30, December 31,
                                                           2007         2006
        ---------------------------------------------------------------------

        Opening balance                                $  5,402     $  3,592

        Stock compensation expense                        1,015        2,071
        Reversed on cancellation of unvested options          -          (89)
        Reversed on cancellation of warrants                  -          (26)
        Reversed on cancellation of Stock
         Appreciation Rights                                  -           (9)
        Transferred to share capital on warrant
         and option exercise                                (64)        (137)
                                                     ------------------------

        Ending balance                                $  6,353     $  5,402
                                                     ------------------------
                                                     ------------------------

    8.  Stock Compensation Plan

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

                                                    For the six months Ended
                                                          June 30, 2007
        ---------------------------------------------------------------------
                                                                    Weighted
                                                      Number of      Average
                                                          Stock     Exercise
                                                        Options        Price
                                                      -----------------------

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

        Granted                                          70,000         7.50
        Exercised                                       (52,600)        2.50
                                                      -----------------------

        Closing balance, June 30, 2007                3,440,400       $ 3.96
                                                      -----------------------
                                                      -----------------------

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

                                                    For the six months Ended
                                                          June 30, 2007
        ---------------------------------------------------------------------
                                                                    Weighted
                                                       Number of     Average
                                                     Performance    Exercise
                                                        Warrants       Price
                                                     ------------------------
        Balance, January 1, 2007                       1,877,500      $ 2.55

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

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

        For the three and six months ended June 30, 2007, non-cash stock
        compensation expense related to stock options, performance warrants
        and Stock Appreciation Rights ("SAR's") was $0.5 million and
        $1.0 million respectively (2006 - $0.3 million and $0.8 million
        respectively). The increase in expense is related to the issuance of
        stock options at the December 31, 2006 year-end.

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

        At the Annual General Meeting on May 2, 2007, shareholders approved
        implementation of a Performance Share Unit Plan ("PSU") to supplement
        the Option Plan. Common Shares reserved for issuance from time to
        time pursuant to Unit Awards may not exceed 5% of the aggregate
        number of outstanding Common Shares. The vesting date for the
        Performance Share Units issued under the Unit Award shall be
        determined at the discretion of the Board. Under the terms of the PSU
        Plan, the Board may elect, in its sole discretion, to pay to any
        grantee of a Unit Award in lieu of delivering all or any part of the
        Common Shares that would be otherwise delivered to the grantee on
        such vesting date, a cash amount equal to the aggregate fair market
        value of such Common Shares that would otherwise be issued on such
        vesting date in consideration for surrender by the grantee to the
        Corporation of the right to receive all or any part of the Common
        Shares under such Unit Award. No Units have been issued under this
        Plan.

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

                                                         Stock   Performance
                                                       Options      Warrants
          Risk free interest rate                         4.5%          4.5%
          Expected dividends                               nil           nil
          Expected life                                5 years       7 years
          Volatility                                       50%           50%

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

    9.  Per Share Amounts

                                 For the     For the     For the     For the
                                   Three       Three         Six         Six
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Weighted average
         number of common
         shares outstanding   36,173,491  30,903,391  36,168,605  30,868,957

        Shares issuable
         pursuant to stock
         options               2,393,786     654,712   2,185,823     651,124

        Shares issuable
         pursuant to
         performance
         warrants              1,517,973     735,422   1,437,727     723,397
                              -----------------------------------------------

        Weighted average
         number of diluted
         common shares
         outstanding          40,085,250  32,293,525  39,792,155  32,243,478
                              -----------------------------------------------
                              -----------------------------------------------

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

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

    10. Segmented Information

        The Company operates is three different geographical locations and
        has chosen to disclose key financial data based on those
        jurisdictions. Where not specifically identified, income statement
        line items, such as interest revenue, relate to Canada. Any
        allocations of costs between segments are done at cost and based on
        time allocated to the various projects.

                                 For the     For the     For the     For the
                                   Three       Three         Six         Six
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------

        Petroleum & natural
        gas revenues, net:
          Canada              $      257  $      256  $      462  $      567
          France                     164         592         456       1,472
                              -----------------------------------------------
                              $      421  $      848  $      918  $    2,039
                              -----------------------------------------------
                              -----------------------------------------------

        Interest Income:
          Canada              $      218  $      173  $      574  $      442
          France                      56           -          56           1
          Libya                       96          70         217          70
                              -----------------------------------------------
                              $      370  $      243  $      847  $      513
                              -----------------------------------------------
                              -----------------------------------------------

        Depletion &
        depreciation:
          Canada              $      205  $      181  $      418  $      393
          France                      79         282         234         711
          Libya                       19          13          35          24
                              -----------------------------------------------
                              $      303  $      476  $      687  $    1,128
                              -----------------------------------------------
                              -----------------------------------------------


                                 For the     For the     For the     For the
                                   Three       Three         Six         Six
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------

        Foreign exchange
         gain/(loss):
          Canada              $   (1,180) $     (465) $   (1,126) $     (408)
          France                     (72)        181         (55)        172
          Libya                     (471)       (337)       (471)       (391)
                             ------------------------------------------------
                              $   (1,723) $     (621) $   (1,652) $     (627)
                             ------------------------------------------------
                             ------------------------------------------------

        Net earnings (loss):
          Canada              $   (1,457) $     (659) $   (1,828) $   (1,245)
          France                      31      (2,702)          2      (2,394)
          Libya                     (420)          -        (318)          -
                             ------------------------------------------------
                              $   (1,846) $   (3,361) $   (2,144) $   (3,639)
                             ------------------------------------------------
                             ------------------------------------------------

        Funds flow generated
         from (used in)
         operations :
          Canada              $      461  $      605  $      732  $      795
          France                     136         379         265       1,124
          Libya                       71           -         189           -
                             ------------------------------------------------
                              $      668  $      984  $    1,186  $    1,919
                             ------------------------------------------------
                             ------------------------------------------------

        Capital expenditures:
          Canada              $       10  $      120  $       13  $      308
          France                    (620)       (318)       (534)       (132)
          Libya                   12,331       3,034      24,186       5,289
                             ------------------------------------------------
                              $   11,721  $    2,836  $   23,665  $    5,465
        Changes in non-cash
         investing working
         capital                  (1,336)      1,282       4,187      (3,522)
                             ------------------------------------------------

        Net capital
         expenditures         $   10,385  $    4,118  $   27,852  $    1,943
                             ------------------------------------------------
                             ------------------------------------------------

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

                                            June 30, December 31,
                                               2007         2006
        ---------------------------------------------------------
        Identifiable assets:
        Canada                            $   22,882  $   46,142
        France                                 9,712      10,048
        Libya                                 63,025      44,084
                                         ------------------------
                                          $   95,619  $  100,274
                                         ------------------------

    11. Financial Instruments

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

        The oil and gas industry is subject to risks including fluctuations
        in foreign exchange rates and commodity prices. The Company's
        operating results and financial condition will be dependent on the
        prices it receives for oil and natural gas production. Oil and
        natural gas prices have fluctuated during recent years and are
        determined by supply and demand factors, including weather and
        general economic conditions as well as conditions in other oil and
        natural gas regions. While Verenex manages its operations in order to
        minimize exposure to these risks, the Company has not entered into
        any derivatives or contracts to hedge or otherwise mitigate these
        fluctuations.

    12. Restricted Cash

        On April 11, 2006, the Company announced it had executed contracts
        for two drilling rigs for its operations in Area 47 in Libya. The
        first rig ODE Rig 28 spudded the Company's first well on
        September 29, 2006. The Company's second contracted drilling rig, KCA
        DEUTAG Rig T-19, arrived in Libya in January 2007 and has been
        assigned to another operator, which spudded its first well on
        April 13, 2007. The rig is expected to return to Verenex in the third
        quarter of 2007.

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

        The contracts require that Letters of Credit ("LC's") be entered into
        in support of maximum termination amounts, which vary over the life
        of the contract. As a result, the Company has issued two letters of
        credit ("LC's") relating to the signing of the drilling contracts
        that back-stop early termination provisions. The terms of the
        contract call for the LC's to vary over the period of the contract.
        The first LC expires on November 13, 2008 and requires that cash
        collateral of US $4.8 million (gross) be put in place as at
        September 30, 2006. At June 30, 2007 this had reduced to
        US $4.0 million (gross). The second LC expires on April 30, 2009 and
        is supported by cash collateral of US $7.2 million (gross) as at
        December 31, 2006. At June 30, 2007 this had reduced to
        US $5.6 million (gross).

        The Company has received funds from its partner, Medco, for its 50%
        share of the cash collateral and the total amount of cash provided as
        support for the LC's, in the amount of $10.2 million, has been
        reflected as restricted cash on the balance sheet. The joint venture
        payable related to restricted cash amounting to $5.1 million due to
        Medco has also been segregated on the balance sheet. Discussions are
        currently underway to provide other forms of security for the Letters
        of Credit to free up the restricted cash.

        On September 22, 2006, the Company signed a Letter of Intent ("LOI")
        with RWE Dea NA/ME GmbH ("RWE") to sub-contract the KCA DEUTAG Rig
        T-19. The LOI contains provision for RWE and Verenex to negotiate
        terms to effect the assumption by RWE of up to 25% of the security
        provided in support of the second LC noted above. A formal assignment
        agreement was executed between Verenex, RWE and KCA DEUTAG with an
        effective date of January 15, 2007.

        On July 31, 2007, in accordance with the assignment agreement between
        the Company and RWE, a corporate guarantee was provided by RWE AG in
        the amount of US $1.4 million representing 25% of the outstanding KCA
        DEUTAG LC as at that date. The guarantee will remain in place during
        the period in which the assignment agreement is in force. This
        reduces that amount of restricted cash by US $1.4 million (net
        Verenex 50% share $0.8 million).

    13. Assets Held for Sale

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

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

        Proceeds on disposition                                    $   2,680

        Net book value of assets disposed                             (2,690)
        Asset retirement obligation related to assets disposed            37
                                                                -------------

        Gain on disposition                                        $      27
                                                                -------------
                                                                -------------

    14. Subsequent Events

        On July 31, 2007 the Company completed the sale, on a bought-deal
        basis, of 7,935,000 common shares at $14.50 per share resulting in
        gross proceeds of $115.1 million (net approximately $110.4 million
        after issue costs).
    





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

Organization Profile

VERENEX ENERGY INC.

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