West Energy Ltd. - Second Quarter Report & News Release - Q2/07



    /NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION
    IN THE UNITED STATES/

    CALGARY, Aug. 13 /CNW/ -

    
    HIGHLIGHTS
                                         Three Months           Six Months
                                        Ended June 30,        Ended June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
                                 (unaudited)(unaudited)(unaudited)(unaudited)
    Operating
    Sales Volumes
      Crude oil (Bbls/d)              1,566      1,986      1,877      1,526
      NGLs (Bbls/d)                     595        495        577        488
      Natural gas (Mcf/d)             3,120      4,628      3,797      3,368
      Barrels of oil equivalent
       (Boe/d @ 6:1)               2,681      3,252      3,087      2,575

    Prices
      Crude oil (per Bbl)         $   67.75  $   76.32  $   66.49  $   69.32
      NGLs (per Bbl)              $   63.28  $   76.32  $   60.99  $   79.86
      Natural gas (per Mcf)       $    9.53  $    6.49  $    8.47  $    7.82
    Revenue (per Boe)             $   64.71  $   67.45  $   62.25  $   66.43
    Royalties (per Boe)           $   14.40  $   15.22  $   15.55  $   14.30
    Operating costs (per Boe)     $   13.25  $   12.91  $   12.67  $   13.50
                                  -------------------------------------------
    Operating netback (per Boe)   $   37.06  $   39.32  $   34.03  $   38.63
    General and
     administrative (per Boe)     $    4.61  $    2.25  $    3.59  $    3.00
    Interest expense (per Boe)    $    2.80  $    0.92  $    2.27  $    0.67
                                  -------------------------------------------
    Corporate netback (per Boe)   $   29.66  $   36.15  $   28.16  $   34.96
                                  -------------------------------------------
                                  -------------------------------------------
    Wells drilled - Gross (net)
      Oil                           1/(0.25)   1/(1.00)   2/(0.60)   3/(2.25)
      Gas                               -/-    3/(0.87)   4/(1.26)   6/(3.04)
      Service                           -/-        -/-        1/-    1/(1.00)
      Abandoned                     1/(1.00)   1/(0.08)   1/(1.00)   2/(1.08)
                                  -------------------------------------------
      Total                         2/(1.25)   5/(1.95)   7/(2.86)  12/(7.37)
      Drilling success rate -
       Gross (net) wells            50%(20%)    80%/96%   86%(65%)   75%(72%)
                                  -------------------------------------------

    Financial (000s, except per
     share amounts)
    Oil and gas revenues          $  16,010  $  19,855  $  35,273  $  31,320
    Funds from operations         $   7,438  $  10,621  $  16,208  $  16,591
      Per share  - basic          $    0.11  $    0.18  $    0.25  $    0.28
                 - diluted        $    0.11  $    0.17  $    0.23  $    0.26
    Cash flow from operating
     activities                   $  15,641  $  10,957  $  17,410  $  13,178
      Per share  - basic          $    0.23  $    0.18  $    0.26  $    0.22
                 - diluted        $    0.22  $    0.17  $    0.25  $    0.21
    Net income (loss)             $    (777) $   2,278  $  (2,277) $   2,719
      Per share  - basic          $   (0.01) $    0.04  $   (0.03) $    0.05
                 - diluted        $   (0.01) $    0.04  $   (0.03) $    0.04
    Working capital (deficiency)  $  30,158  $ (20,478) $  30,158  $ (20,478)
    Capital expenditures          $  11,192  $  12,033  $  33,608  $  37,369
    Total assets                  $ 273,917  $ 192,073  $ 273,917  $ 192,073
    Common shares
      Weighted average  - basic      67,766     59,873     66,086     59,330
                        - diluted    70,677     63,536     69,019     63,981
                                  -------------------------------------------
                                  -------------------------------------------
    


    REPORT TO SHAREHOLDERS

    To The Shareholders of West Energy Ltd.

    During the second quarter of 2007 West Energy completed the following
initiatives which will have a dramatic impact on the Company for the remainder
of the year;

    
    1.  In April, West disclosed that it had captured a large exploratory
        land position and shot extensive 3D seismic across the Puskwa
        Beaverhill Lake Formation sand play, which is one of Canada's more
        prolific light sweet oil prospect areas.

    2.  In May, the Company agreed with a competitor to resolve outstanding
        issues to coordinate enhanced oil recovery ("EOR") schemes for the
        Pembina Nisku WW and SS pools, maximize production from the KK pool
        and remove outstanding objections to each other's projects.

    3.  In June the Company completed an equity offering of 14,583,400 common
        shares at $4.80 per share for net proceeds of $65.6 million. A
        portion of the proceeds were initially used to eliminate the
        Company's bank indebtedness.

    4.  Late in June, West commenced development of the Crossfire discovery
        at 13-2-50-6W5 by acquiring a sour gas compressor station and gas
        pipeline and completed the design and associated applications of the
        Crossfire oil battery and pipelines. The location and design of the
        battery and related infrastructure will process new Nisku oil pool
        discoveries in the Crossfire area.
    

    The above steps have strengthened the Company and will allow it to face
the uncertainties and challenges of the oil and gas industry in western Canada
today. West will increase its exploratory efforts and assess opportunities
which will be available in the current industry environment.

    Production

    Second quarter production was severely curtailed because of suspension
notices received from the Alberta Energy and Utilities Board ("AEUB") on two
key producing oil pools. The AEUB mandated that industry competitors resolve
issues with producing wells in competitive EOR (water injection) schemes
before production could continue. In June, West received approval to restart
the pools upon reaching a minimum reservoir operating pressure and water
injection conditions. With the restart of the Nisku WW and SS pools, approval
to produce the 11-32 well (WTL 50%) in the Nisku KK pool and commencement of
GPP for the Nisku GGG pool (16-32 WTL 100%), the Company exited July, 2007
with a daily production of approximately 5,000 Boe/d. Production in August
will be lower due to a third party sour gas facility shutdown. Ongoing
operational issues with third party sour gas processing facilities may impact
the current quarter production but will be offset by the startup of production
at Crossfire in early September. With steady production through the Paddy
Creek battery system the Company will focus on optimization of production and
operating costs.

    Exploratory Drilling

    West operated exploration drilling during the second quarter was limited
to two wells due to spring break-up. The first well drilled by West in the
Pembina Nisku fairway was unsuccessful and the second well has been cased and
is waiting on completion. Drilling activity in the third quarter will increase
significantly with rigs running in both the Puskwa Beaverhill Lake sand and
Pembina Nisku fairways. The initial well at Puskwa was cased as a prospective
Beaverhill Lake well. At Crossfire well licensing continues to be delayed due
to ongoing resident consultations.

    Financial Resources

    In the second quarter West realized higher commodity prices which
partially offset the effects of the shut-in production discussed earlier.
Revenues and funds from operations were below those of the first quarter and
the Company experienced a loss for the quarter of $0.8 million or $0.01 per
share. West has eliminated its bank debt and has positioned itself for
expansion of drilling activity in both the Pembina and Puskwa areas. In
addition to an equity issue of $70 million in June, the Company renegotiated
its revolving line of credit increasing the facility to $55 million.
    During the remainder of the year, West will focus on drilling prospects
along its high impact exploration programs in both the Pembina Nisku and
Puskwa Beaverhill Lake fairways. West will continue to look for other
opportunities to complement its exploration program.
    We are thankful for the continued support and confidence we have received
from our shareholders and for the efforts of the West team.

    On behalf of the Board of Directors

    Ken McCagherty
    President and CEO

    August 13, 2007


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following discussion and analysis ("Management's Discussion and
Analysis") is dated and based on information at August 10, 2007, and is
provided by the management of West Energy Ltd. ("West" or the "Company") and
prepared in accordance with the requirements of National Instrument 51-102 and
Form 51-102F1. It should be read in conjunction with the unaudited
consolidated financial statements and notes thereto for the six months ended
June 30, 2007, included in this Interim Report, the Annual Information Form
dated March 30, 2007 and the audited annual financial statements and
Management's Discussion and Analysis of the Company as at and for the year
ended December 31, 2006.
    The Company's financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). The reporting and
the measurement currency is the Canadian dollar.

    Additional Information

    The information contained in this Interim Report represents only a
portion of the current information available on West Energy Ltd. Readers are
encouraged to read West's 2006 Annual Report, Annual Information Form dated
March 30, 2007, and the Management Information Circular. These documents
together with prior annual and quarterly reports, news releases and corporate
presentations are available by visiting the Company's website at
www.westenergy.ca. Additional information regarding the Company, including all
continuous disclosure documents, can be obtained on SEDAR at www.sedar.com. If
you require a hard copy of any of these documents please call the Company's
main office number (403)265-5202.

    Special Note

    Disclosure provided herein in respect of barrel of oil equivalent ("Boe")
may be misleading, particularly if used in isolation. A Boe conversion ratio
for natural gas of 6 Mcf: 1 Boe has been used which is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalence at the wellhead.

    Non-GAAP Measures

    Management's Discussion and Analysis contains the term "funds from
operations", which should not be considered an alternative to, or more
meaningful than "cash flow from operating activities" as determined in
accordance with GAAP as an indicator of the Company's financial performance.
Funds from operations is determined by adding non-cash expenses to the net
income or loss for the period, deducting asset retirement expenditures and
does not include the change in working capital applicable to operating
activities. Management believes that in addition to cash flow from operating
activities, funds from operations is a useful supplemental measure as it
provides an indication of the results generated by West's principal business
activities before the consideration of how such activities are financed. The
Company's determination of funds from operations may not be comparable to that
reported by other companies. Management's Discussion and Analysis also
contains the terms operating netback and corporate netback, which are not
considered to be GAAP. Operating netbacks are calculated by deducting
royalties and operating costs from revenues and corporate netbacks are
calculated by deducting general and administrative and interest expenses from
operating netbacks. The Company's determination of operating and corporate
netbacks may not be comparable to that reported by other companies.

    Evaluation of Effectiveness of Disclosure Controls and Procedures

    Management has established and maintains disclosure controls and
procedures for the Company in order to provide reasonable assurance that
material information relating to the Company is made known to it in a timely
manner. The Chief Executive Officer and the Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures as of June 30, 2007, and have concluded that the Company's
disclosure controls and procedures provide reasonable assurance that material
information relating to the Company, including its consolidated subsidiaries
and partnership, would be made known to them by others within those entities,
particularly during the period in which this report was being prepared.

    Internal Controls Over Financial Reporting

    Management is responsible for the design of internal controls over
financial reporting within the Company in order to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP.
Management has designed the Company's internal controls and procedures over
financial reporting as of the end of the period covered by this interim filing
and believes the design to be sufficient to provide such reasonable assurance.
The design of the internal controls and procedures by their nature have
inherent limitations and may be restricted due to lack of segregation of
duties, caused by a lack of human resources, and the employees and consultants
the Company utilizes in its operations are not experts in all areas of their
individual responsibility. In addition the Company utilizes the services of
third party experts to evaluate and provide certain data which is integral to
the preparation and reporting of financial information. This information is
reviewed by Company personnel for reasonableness, however there is no
assurance of the accuracy or completeness of the information. There have been
no changes in the Company's internal controls over financial reporting during
the six months ended June 30, 2007, that have materially affected or are
reasonably likely to materially affect the internal controls over financial
reporting.

    Forward-looking Statements

    Certain statements contained in this Interim Report constitute forward-
looking statements. These statements relate to future events or the Company's
future performance. All statements other than statements of historical fact
may be forward-looking statements. Forward-looking statements are often, but
not always, identified by the use of words such as "seek", "anticipate",
"plan", "continue", "estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe" and
similar expressions. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking statements.
The Company believes that the expectations reflected in those forward-looking
statements are reasonable but no assurance can be given that these
expectations will prove to be correct and such forward-looking statements
included in this Interim Report should not be unduly relied upon. These
statements speak only as of the date of this Interim Report. The Company does
not intend, and does not assume any obligation, to update these forward-
looking statements.
    In particular, this Interim Report contains forward-looking statements
pertaining to the following:

    
    -   oil and natural gas production levels;
    -   capital expenditure programs;
    -   market prices and costs;
    -   supply and demand for oil and natural gas;
    -   operating, general and administrative, interest and income tax
        expenses;
    -   operating and corporate netbacks;
    -   expectations regarding the Company's ability to raise capital and to
        continually add to reserves through acquisitions and development; and
    -   treatment under government regulatory and taxation regimes.

    The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Interim Report:

    -   volatility in market prices for oil and natural gas;
    -   liabilities and risks inherent in oil and natural gas operations;
    -   uncertainties associated with estimating reserves;
    -   competition for, among other things, capital, acquisitions of
        reserves, undeveloped lands and skilled personnel;
    -   incorrect assessments of the value of acquisitions; and
    -   geological, technical, drilling and processing problems.
    

    FINANCIAL RESULTS

    In the first half of 2007, West recorded a net loss of $2.3 million
($0.03 per share) compared to net income of $2.7 million ($0.05 per share) for
the corresponding period in 2006. Funds from operations were $16.2 million
($0.25 per share) versus $16.6 million or ($0.28 per share). Cash flow from
operating activities, determined in accordance with GAAP, was $17.4 million
($0.26 per share) for 2007 and $13.2 million ($0.22 per share) for 2006. The
above 2007 per share amounts are based on a weighted average number of shares
outstanding of 66.1 million and for 2006 based on 59.3 million.
    For the three months ended June 30, 2007, the Company recorded a net loss
of $0.8 million ($0.01 per share) and net income of $2.3 million ($0.04 per
share) for the similar period in 2006. Funds from operations for the second
quarter of 2007 were $7.5 million ($0.11 per share) compared to the
$10.6 million ($0.18 per share) reported for the second quarter of 2006. Cash
flow from operating activities was $15.6 million ($0.23 per share) for 2007
and $11.0 million ($0.18 per share) for 2006.

    Revenues, Production and Prices

    Oil and gas revenues for the first six months of 2007, were $35.3 million
compared to the $31.3 million for the corresponding period in 2006. The
increase is due to increased sales volumes partially offset by lower commodity
prices. The Company received average prices of $66.49 per barrel of oil,
$60.99 per barrel of NGLs and $8.47 per Mcf of natural gas during the six
months ended June 30, 2007. For the same period in 2006, West received an
average of $71.87 per barrel of oil and NGLs and $7.82 per Mcf of natural gas.
Light oil and the high heat content of gas production from the Pembina fairway
attract premium prices in the market place.
    Sales volumes for the six months ended June 30, 2007 were 3,087 Boe/d
consisting of 1,877 Bbls/d of oil, 577 Bbls/d of NGLs and 3,797 Mcf/d of
natural gas. For the corresponding period in 2006 sales volumes were
1,526 Bbls/d of oil, 488 Bbls/d of NGLs and 3,368 Mcf/d of natural gas for an
equivalent of 2,575 Boe/d. Natural gas has been converted to a barrel of oil
equivalent at a ratio of 6 Mcf to 1 Boe.
    For the quarter ended June 30, 2007, sales volumes were 2,681 Boe/d
consisting of 1,566 Bbls/d of oil, 595 Bbls/d of NGLs and 3,120 Mcf/d of
natural gas and for the three months ended June 30, 2006 volumes were
3,252 Boe/d or 1,986 Bbls/d of oil, 495 Bbls/d of NGLs and 4,628 Mcf/d of
natural gas. Corresponding revenues decreased to $16.0 million for 2007 from
$19.9 million in 2006 as certain production was shut-in during the three
months ended June 30, 2007. West received average prices of $67.75 per barrel
of oil, $63.28 per barrel of NGLs and $9.53 per Mcf of natural gas during the
three months ended June 30, 2007 and $76.32 per barrel of oil and NGLs and
$6.49 per Mcf of natural gas for the corresponding period in 2006.
    The following table provides details of revenues for 2007 and 2006:

    
                                         Three Months           Six Months
                                        Ended June 30,        Ended June 30,
    (000s)                             2007       2006       2007       2006
    -------------------------------------------------------------------------
    Oil                           $   9,657  $  12,095  $  22,593  $  19,149
    NGLs                              3,424      5,028      6,366      7,046
    Natural gas                       2,705      2,732      5,819      4,765
    Gross overrides, processing
     and salt water disposal fees       224        104        495        360
                                  -------------------------------------------
    Total                         $  16,010  $  19,855  $  35,273  $  31,320
                                  -------------------------------------------
                                  -------------------------------------------

    In Q3, 2007, the Company anticipates volumes will increase due to the
recent approvals by the AEUB granting the following:

    -   good production practice at Lodgepole 16-32-047-09W5 (W.I. 100%);
    -   re-establishing production at 05-35-048-08W5 (W.I. 60%) as minimum
        operating pressure was attained for the reservoir;
    -   the SS pool consisting of 3 wells (W.I. 2 @ 100%, 1 @ 15%)
        attaining minimum operating pressure and being placed back on
        production; and
    -   Crossfire production coming on stream.
    

    In June, 2007, prior to GPP, the Lodgepole 16-32 well was contributing
approximately 150 Boe/d to West's production and is currently contributing
approximately 825 Boe/d. The 05-35 well and the SS pool were shut-in on
April 19 and were granted approval by AEUB to be placed back on production in
early July, 2007  Prior to being shut-in the 05-35 well and SS pool were
contributing approximately 1,500 Boe/d to West's production.
    The Company has no control over commodity prices and currency exchange
rates and therefore we cannot predict the prices it will receive for its
future production. The Company does not have any plans to hedge product prices
in 2007.

    Royalties

    Royalties averaged 25.0% of gross revenues or $15.55 per Boe for the six
months ended June 30, 2007 compared to 21.5% or $14.30 per Boe for 2006. For
the second quarter of 2007 royalties averaged 22.3% or $14.40 per Boe versus
22.6% or $15.22 per Boe for the similar period in 2006. West expects to
continue to be eligible and benefit from royalty holidays for its new pool
discoveries. The amount and term of royalty holidays is determined by Alberta
Energy on a pool by pool basis. The Company benefited from the Alberta Royalty
Tax Credit in 2006, however the program was rescinded after 2006.

    Operating Expenses

    Operating expenses for the first six months of 2007 were $7.1 million
($12.67 per Boe) compared to $6.3 million ($13.50 per Boe) for the six months
ended June 30, 2006. For the quarter ended June 30, 2007 operating expenses
were $3.2 million ($13.25 per Boe) versus $3.8 million ($12.91 per Boe) for
the second quarter of 2006. Shut-in production during the second quarter of
2007 contributed to the higher operating costs for the quarter of
approximately $3.25 per Boe. Unutilized capacity at the Company's battery
facility in the Pembina area is expected to decline as additional production
is brought on stream throughout 2007 and expected to reduce the per Boe rate
for operating costs.

    Netbacks

    During the first half of 2007, operating netbacks (oil and gas revenues
net of royalties and operating costs) averaged $34.03 per Boe versus
$38.63 per Boe for the corresponding period in 2006. For the quarters ended
June 30, 2007 and 2006 operating netbacks were $37.06 per Boe and $39.32 per
Boe respectively. Corporate netbacks (operating netbacks less general and
administrative and interest expenses) were $28.16 for the six months ended
June 30, 2007 and $34.96 for 2006. For the three month period ended June 30,
2007 the corporate netback was $29.66 compared to $36.15 for the same period
in 2006. The netback decreases are primarily due to a decline in oil and NGL
prices and increases in costs. Throughout the balance of 2007 commodity prices
are expected to fluctuate, however operating and corporate netbacks are
expected to increase as additional production comes on stream resulting in
declines in the per Boe rate for operating, general and administrative and
interest expenses.

    General and Administrative Expenses

    General and administrative expenses for the six months ended June 30,
2007, net of capitalized costs, were $2.0 million ($3.59 per Boe) compared to
$1.4 million ($3.00 per Boe) for the corresponding period of 2006. Capitalized
general and administrative costs related to exploration and development
activities for the first half of 2007 and 2006 were $0.6 million and
$0.4 million, respectively. For the quarters ended June 30, 2007 and 2006
general and administrative expenses were $1.1 million ($4.61 per Boe) and
$0.7 million ($2.25 per Boe) respectively, net of costs associated with
exploration and development activities of $0.3 million for 2007 and
$0.2 million for 2006. Shut-in production during the second quarter of 2007
was a significant contributor to the higher per Boe rate in the second
quarter. The capitalized costs associated with exploration and development
activities are geological and geophysical costs that are incurred in the
development of future drillable prospects.
    As additional production comes on stream general and administrative
costs, on a per Boe basis, are expected to decline throughout the balance of
2007.

    Interest Expense

    West incurred interest expense of $1.3 million during the first half of
2007 versus $0.3 million for the similar period in 2006. The cost relates to
draws on the Company's lines of credit to fund capital expenditure activities
and in 2007 interest associated with unexpended flow-through share proceeds.
    West expects to incur significantly less interest expense throughout the
balance of 2007 and the amount of interest will be dictated by credit facility
draw downs to fund future capital expenditures, interest rates and the time it
takes the Company to expend the balance of the flow-through share proceeds.

    Stock Based Compensation Expense

    Stock based compensation expense represents the amortization of the fair
value of stock options and warrants, issued to employees, directors and
consultants, over the vesting period of the options and warrants. The Company
recorded net stock based compensation expense of $0.7 million in the first
half of 2007 compared to $1.0 million in 2006 and $0.2 million and
$0.4 million respectively, for the second quarter of 2007 and 2006. During the
three and six months ended June 30, 2007, the Company capitalized stock based
compensation of $0.4 million and $0.7 million respectively. The Company did
not capitalize any stock based compensation in the first half of 2006.

    Depletion, Depreciation and Accretion

    Depletion, depreciation and accretion expense for the six months ended
June 30, 2007 was $19.2 million ($34.45 per Boe) compared to $13.7 million
($29.50 per Boe) for 2006. For the quarters ended June 30, 2007 and 2006 the
expense was $8.7 million ($35.68 per Boe) and $8.9 million ($29.94 per Boe),
respectively. The increase in the depletion and depreciation rate per Boe is
reflective of the rising cost of finding oil and gas reserves and the
substantial infrastructure costs associated with bringing on stream a new
discovery. As the Pembina Nisku fairway is developed future reserve additions
are expected reduce the per Boe rate.

    Income Taxes

    The Company did not incur current taxes in either 2007 or 2006 other than
Large Corporation Tax in 2006, which was later rescinded effective January 1,
2006. Future income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The impact of recent
income tax rate reductions has been reflected in the financial statements.

    LIQUIDITY AND CAPITAL RE

SOURCES West had working capital of $30.2 million as at June 30, 2007. The Company has a $55.0 million revolving operating demand loan credit facility with a Canadian bank, which bears interest at the bank's prime rate plus 0.10% per annum. The assets of the Company are pledged as security for amounts drawn on the credit facility under a general security agreement. At June 30, 2007, the Company had not drawn on its revolving operating loan. Under the terms of the lending agreement with its bank the Company is required to maintain a working capital ratio of greater than one, using a calculation designated by the bank. Under the bank's formula, West's working capital ratio was 6.21 at June 30, 2007. Commitments In November, 2006, the Company issued 4.1 million shares on a flow-through basis for gross proceeds of $30.0 million and effective December 31, 2006, renounced $30.0 million of capital expenditures to the subscribers of the flow-through shares. As at June 30, 2007, the Company had incurred $12.2 million of Canadian exploration expenditures. Capital Expenditures For the six months ended June 30, 2007, West incurred capital expenditures of $33.6 million. This compares to $37.4 million, during the same period in 2006. West participated in 7 (2.86 net) wells in the first half of 2007 compared to 12 (7.37 net) in the corresponding period in 2006. Capital expenditures for the three and six months ended June 30, 2007 and 2006 were as follows: Three Months Six Months Ended June 30, Ended June 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Land $ 2,515 $ 243 $ 5,515 $ 1,368 Seismic 551 108 7,941 344 Drilling and intangibles 1,128 5,081 4,887 17,784 Facilities and equipment 6,278 6,395 14,227 17,381 Capitalized general and administrative 717 194 1,024 440 Furniture and equipment 3 12 14 52 ------------------------------------------- Total $ 11,192 $ 12,033 $ 33,608 $ 37,369 ------------------------------------------- ------------------------------------------- SHARE CAPITAL DATA The Company is authorized to issue an unlimited number of common voting shares. Share capital at June 30, 2007, is detailed in note 6 of the Company's June 30, 2007 consolidated financial statements. On June 12, 2007, the Company completed a public offering of 14,583,400 common shares at $4.80 per share for net proceeds of $65.6 million. A portion of the proceeds were used to eliminate the Company's bank indebtedness and the balance is being invested and will be used to fund the Company's capital program. During the period June 30, 2007 to August 10, 2007, 75,000 options were exercised. As at August 10, 2007 the Company had issued 79,382,373 common shares and had 4,645,500 options outstanding. OFF BALANCE SHEET ARRANGEMENTS The Company does not have any special purpose entities nor is it party to any arrangement that would be excluded from the balance sheet. SELECTED QUARTERLY INFORMATION The following table sets forth selected information of the Company for each financial quarter for the period July 1, 2005 to June 30, 2007. 2007 2006 Q2 Q1 Q4 Q3 Q2 Q1 ------------------------------------------------------------------------- Sales Volumes Oil (Bbls/d) 1,566 2,192 1,592 1,777 1,986 1,062 NGLs (Bbls/d) 595 559 747 754 495 480 Natural gas (Mcf/d) 3,120 4,482 2,908 3,224 4,628 2,093 Barrels of oil equivalent (Boe/d) 2,681 3,498 2,791 3,068 3,252 1,891 ----------------------------------------------------------- Financial (000, except per share amounts) Oil and gas revenues $ 16,010 $ 19,263 $ 14,730 $ 20,879 $ 19,855 $ 11,465 Funds from operations $ 7,438 $ 8,770 $ 6,058 $ 12,529 $ 10,621 $ 5,970 Per Share Basic $ 0.11 $ 0.14 $ 0.10 $ 0.21 $ 0.18 $ 0.10 Diluted $ 0.11 $ 0.13 $ 0.09 $ 0.20 $ 0.17 $ 0.08 Cash flow from operating activities $ 15,641 $ 1,769 $ 5,095 $ 11,166 $ 10,956 $ 2,221 Per Share Basic $ 0.23 $ 0.03 $ 0.08 $ 0.19 $ 0.18 $ 0.04 Diluted $ 0.22 $ 0.03 $ 0.08 $ 0.18 $ 0.17 $ 0.03 Net income (loss) $ (777) $ (1,500) $ (1,710) $ 3,531 $ 2,278 $ 441 Per Share Basic $ (0.01) $ (0.02) $ (0.00) $ 0.06 $ 0.04 $ 0.00 Diluted $ (0.01) $ (0.02) $ (0.00) $ 0.06 $ 0.04 $ 0.00 Capital expenditures $ 11,192 $ 22,416 $ 21,781 $ 22,948 $ 12,033 $ 25,337 Shares outstanding 79,307 64,717 64,212 60,041 60,021 58,958 ----------------------------------------------------------- Per Unit Information Prices Oil and NGLs ($/Bbl) $ 66.52 $ 64.15 $ 58.84 $ 76.94 $ 76.32 $ 64.63 Natural gas ($/Mcf) $ 9.53 $ 7.72 $ 7.57 $ 6.94 $ 6.49 $ 10.79 Oil equivalent ($/Boe) $ 64.71 $ 60.34 $ 56.50 $ 70.58 $ 67.45 $ 64.65 ----------------------------------------------------------- Operating netback ($/Boe) $ 37.06 $ 31.67 $ 27.06 $ 44.46 $ 39.32 $ 37.42 ----------------------------------------------------------- Wells Drilled Gross 2 5 7 7 5 7 Net 1.25 1.61 4.11 4.83 2.09 5.42 Drilling Results Oil 1 1 1 5 1 2 Natural gas - 4 2 1 3 1 Service - - 4 - - 1 Dry 1 - - 1 1 3 ----------------------------------------------------------- Total 2 5 7 7 5 7 ----------------------------------------------------------- ----------------------------------------------------------- 2005 Q4 Q3 ---------------------------------- Sales Volumes Oil (Bbls/d) 1,218 505 NGLs (Bbls/d) 387 392 Natural gas (Mcf/d) 1,651 1,475 Barrels of oil equivalent (Boe/d) 1,880 1,143 ------------------- Financial (000, except per share amounts) Oil and gas revenues $ 11,960 $ 7,212 Funds from operations $ 5,797 $ 4,416 Per Share Basic $ 0.11 $ 0.09 Diluted $ 0.10 $ 0.08 Cash flow from operating activities $ 7,586 $ 4,086 Per Share Basic $ 0.15 $ 0.08 Diluted $ 0.13 $ 0.07 Net income (loss) $ 1,098 $ 769 Per Share Basic $ 0.02 $ 0.01 Diluted $ 0.02 $ 0.01 Capital expenditures $ 36,274 $ 29,296 Shares outstanding 58,661 51,655 ------------------- Per Unit Information Prices Oil and NGLs ($/Bbl) $ 66.83 $ 71.15 Natural gas ($/Mcf) $ 12.45 $ 10.07 Oil equivalent ($/Boe) $ 67.98 $ 68.84 ------------------- Operating netback ($/Boe) $ 38.55 $ 47.10 ------------------- Wells Drilled Gross 4 4 Net 2.17 1.31 Drilling Results Oil 1 1 Natural gas 2 1 Service - 2 Dry 1 - ------------------- Total 4 4 ------------------- ------------------- APPLICATION OF CRITICAL ACCOUNTING ESTIMATES West's consolidated financial statements have been prepared in accordance with Canadian GAAP. Certain of West's accounting policies require that we make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. For a discussion about those accounting policies, please refer to our Management's Discussion and Analysis for the year ended December 31, 2006 and note 2 to our consolidated financial statements for the year ended December 31, 2006 available at www.sedar.com. NEW ACCOUNTING STANDARDS On January 1, 2007, the Corporation adopted the new Canadian accounting standards for financial instruments - recognition and measurement, financial instruments - presentation and disclosures, hedging and comprehensive income. The adoption of these accounting standards had no material impact on the Corporation's net income or cash flows. Financial Instruments - recognition and measurement This new standard requires all financial instruments within its scope, including all derivatives, to be recognized on the balance sheet initially at fair value. Subsequently measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired. Embedded Derivatives The Corporation did not identify any material embedded derivatives which required separate recognition and measurement. Other Comprehensive Income The new standards require a new statement of comprehensive income, which is comprised of net income and other comprehensive income. Comprehensive income is the change in equity of an entity during a period from transactions and other events from non-owner sources. The Corporation currently has no items requiring separate disclosure in a statement of comprehensive income. Two new Canadian accounting standards have been issued which will require additional disclosure in the Corporation's consolidated financial statements commencing January 1, 2008 about the Corporation's financial instruments as well as its capital and how it is managed. BUSINESS RISKS Environmental Regulation and Risk All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial and local laws and regulations. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. In 2002, the Government of Canada ratified the Kyoto Protocol (the "Protocol"), which calls for Canada to reduce its greenhouse gas emissions to specified levels. There has been much public debate with respect to Canada's ability to meet these targets and the Government's strategy or alternative strategies with respect to climate change and the control of greenhouse gases. Implementation of strategies for reducing greenhouse gases whether to meet the limits required by the Protocol or as otherwise determined, could have a material impact on the nature of oil and natural gas operations, including those of the Company. The Federal Government released on April 26, 2007, its Action Plan to Reduce Greenhouse Gases and Air Pollution (the "Action Plan"), also known as ecoACTION and which includes the Regulatory Framework for Air Emissions. This Action Plan covers not only large industry, but regulates the fuel efficiency of vehicles and the strenghthening of energy standards for a number of energy- using products. Regarding large industry and industry related projects the Government's Action Plan intends to achieve the following: (i) an absolute reduction of 150 megatonnes in greenhouse gas emissions by 2020 by imposing mandatory targets; and (ii) air pollution from industry is to be cut in half by 2015 by setting certain targets. New facilities using cleaner fuels and technologies will have a grace period of three years. In order to facilitate the companies' compliance of the Action Plan's requirements, while at the same time allowing them to be cost-effective, innovative and adopt cleaner technologies, certain options are provided. These are: (i) in-house reductions; (ii) contributions to technology funds; (iii) trading of emissions with below-target emission companies; (iv) offsets; and (v) access to Kyoto's Clean Development Mechanism. On March 8, 2007, the Alberta Government introduced Bill 3, the Climate Change and Emissions Management Amendment Act, which intends to reduce greenhouse gas emission intensity from large industries. Bill 3 states that facilities emitting more than 100,000 tonnes of greenhouse gases a year must reduce their emissions intensity by 12% starting July 1, 2007; if such reduction is not initially possible the companies owning the large emitting facilities will be required to pay $15 per tonne for every tonne above the 12% target. These payments will be deposited into an Alberta-based technology fund that will be used to develop infrastructure to reduce emissions or to support research into innovative climate change solutions. As an alternate option, large emitters can invest in projects outside of their operations that reduce or offset emissions on their behalf, provided that these projects are based in Alberta. Prior to investing, the offset reductions, offered by a prospective operation, must be verified by a third party to ensure that the emission reductions are real. Given the evolving nature of the debate related to climate change and the control of greenhouse gases and resulting requirements, it is not possible to predict the impact of those requirements on the Company and its operations and financial condition. Review of Alberta Royalty and Tax Regime On February 16, 2007, the Alberta Government announced that a review of the province's royalty and tax regime (including income tax and freehold mineral rights tax) pertaining to oil and gas resources, including oil sands, conventional oil and gas and coalbed methane, will be conducted by a panel of experts, with the assistance of individual Albertans and key stakeholders. The review panel is to produce a final report that will be presented to the Minister of Finance by August 31, 2007. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS June 30, December (000s) 2007 31, 2006 ------------------------------------------------------------------------- (unaudited) ASSETS Current assets Cash and cash equivalents $ 31,684 $ - Accounts receivable 13,509 20,037 Prepaid expenses and deposits 1,309 1,305 --------------------- 46,502 21,342 Property, plant and equipment (note 2) 212,732 197,166 Goodwill 14,683 14,683 --------------------- $ 273,917 $ 233,191 --------------------- --------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank indebtedness (note 3) $ - $ 13,599 Accounts payable and accrued liabilities 16,344 26,267 --------------------- 16,344 39,866 Asset retirement obligation (note 4) 3,699 3,438 Future income taxes 18,625 12,251 --------------------- 38,668 55,555 --------------------- Shareholders' equity Share capital (note 6) 224,090 165,497 Contributed surplus (note 6) 5,235 3,938 Retained earnings 5,924 8,201 --------------------- 235,249 177,636 --------------------- $ 273,917 $ 233,191 --------------------- --------------------- Commitments (note 9) See accompanying notes to financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (unaudited) Three Months Six Months Ended June 30, Ended June 30, (000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Revenue Oil and gas revenues $ 16,010 $ 19,855 $ 35,273 $ 31,320 Royalties 3,512 4,503 8,687 6,665 ------------------------------------------- 12,498 15,352 26,586 24,655 ------------------------------------------- Expenses Operating 3,232 3,819 7,081 6,291 General and administrative 1,125 668 2,007 1,398 Interest 682 271 1,268 314 Stock based compensation (note 6) 200 404 684 961 Depletion, depreciation and accretion 8,704 8,861 19,249 13,749 ------------------------------------------- 13,943 14,023 30,289 22,713 ------------------------------------------- Income (loss) before income taxes (1,445) 1,329 (3,703) 1,942 ------------------------------------------- Income taxes (reduction) (note 5) Current - (34) - - Future (668) (915) (1,426) (777) ------------------------------------------- (668) (949) (1,426) (777) ------------------------------------------- Net income (loss) for the period (777) 2,278 (2,277) 2,719 Retained earnings, beginning of period 6,701 2,398 8,201 1,957 ------------------------------------------- Retained earnings, end of period $ 5,924 $ 4,676 $ 5,924 $ 4,676 ------------------------------------------- ------------------------------------------- Net income (loss) per share: Basic $ (0.01) $ 0.04 $ (0.03) $ 0.05 Diluted $ (0.01) $ 0.04 $ (0.03) $ 0.04 Weighted average common shares outstanding 67,766 59,873 66,086 59,330 Diluted shares outstanding 70,677 63,536 69,019 63,981 See accompanying notes to financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Six Months Ended June 30, Ended June 30, (000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Operating activities Net income (loss) for the period $ (777) $ 2,278 $ (2,277) $ 2,719 Items not affecting cash: Depletion, depreciation and accretion 8,704 8,861 19,249 13,749 Stock based compensation expense 200 404 684 961 Future income taxes (reduction) (668) (915) (1,426) (777) Asset retirement costs incurred (21) (7) (22) (61) ------------------------------------------- 7,438 10,621 16,208 16,591 Change in non-cash working capital (note 7) 8,203 336 1,202 (3,413) ------------------------------------------- 15,641 10,957 17,410 13,178 ------------------------------------------- Financing activities Issue of share capital, net of issue costs 65,571 1,082 66,082 1,546 Bank debt (30,165) (1,082) (13,599) 11,388 Change in non-cash working capital (note 7) 133 260 133 132 ------------------------------------------- 35,539 260 52,616 13,066 ------------------------------------------- Investing activities Property, plant and equipment (11,192) (12,033) (33,608) (37,369) Proceeds from property dispositions - 10,328 - 10,328 Change in non-cash working capital (note 7) (8,304) (9,512) (4,734) (4,689) ------------------------------------------- (19,496) (11,217) (38,342) (31,730) ------------------------------------------- Increase (decrease) in cash and cash equivalents 31,684 - 31,684 (5,486) Cash and cash equivalents, beginning of period - - - 5,486 ------------------------------------------- Cash and cash equivalents, end of period $ 31,684 $ - $ 31,684 $ - ------------------------------------------- ------------------------------------------- Supplementary information Interest paid $ 339 $ 271 $ 662 $ 318 See accompanying notes to financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Three months ended March 31, 2007 - (000s) 1. Basis of presentation (A) ACCOUNTING POLICIES The interim consolidated financial statements of West Energy Ltd. (the "Corporation") have been prepared following the same accounting policies and methods of computation as the consolidated financial statements of the Corporation as at December 31, 2006, except as noted below. The disclosures included below are incremental to those included with the annual consolidated financial statements. The interim consolidated financial statements should be read in conjunction with the Corporation's consolidated financial statements and notes thereto for the year ended December 31, 2006. On January 1, 2007, the Corporation adopted the new Canadian accounting standards for financial instruments - recognition and measurement, financial instruments - presentation and disclosures, hedging and comprehensive income. The adoption of these accounting standards had no material impact on the Corporation's net income or cash flows. Financial Instruments - recognition and measurement This new standard requires all financial instruments within its scope, including all derivatives, to be recognized on the balance sheet initially at fair value. Subsequently measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired. Embedded Derivatives The Corporation did not identify any material embedded derivatives which required separate recognition and measurement. Other Comprehensive Income The new standards require a new statement of comprehensive income, which is comprised of net income and other comprehensive income. Comprehensive income is the change in equity of an entity during a period from transactions and other events from non-owner sources. The Corporation currently has no items requiring separate disclosure in a statement of comprehensive income. Two new Canadian accounting standards have been issued which will require additional disclosure in the Corporation's consolidated financial statements commencing January 1, 2008 about the Corporation's financial instruments as well as its capital and how it is managed. 2. Property, plant and equipment June 30, 2007 Accumulated Net Depletion and Book ($000s) Cost Depreciation Value ------------------------------------------------------------------------- Petroleum and natural gas properties and equipment $ 279,135 $ (66,542) $ 212,593 Furniture and equipment 321 (182) 139 -------------------------------------- Total $ 279,456 $ (66,724) $ 212,732 -------------------------------------- -------------------------------------- December 31, 2006 Accumulated Net Depletion and Book ($000s) Cost Depreciation Value ------------------------------------------------------------------------- Petroleum and natural gas properties and equipment $ 244,471 $ (47,459) $ 197,012 Furniture and equipment 307 (153) 154 -------------------------------------- Total $ 244,778 $ (47,612) $ 197,166 -------------------------------------- -------------------------------------- During the six months ended June 30, 2007, the Corporation capitalized general and administration and stock based compensation costs of $1.3 million (2006 - $0.4 million) in addition to $0.3 million (2006 - nil) for the future income tax effect of capitalizing stock based compensation, which are included in property, plant and equipment. The cost of unproved properties excluded from the depletion base as at June 30, 2007 was $16.7 million (2006 - $16.8 million). Drilling in progress at June 30, 2007 of $2.1 million (2006 - $0.8 million) was excluded from the depletable base. Estimated future development costs associated with proved reserves of $10.2 million (2006 - nil) are included in the depletable base. 3. Bank indebtedness The Corporation has a $55.0 million revolving operating demand loan credit facility with a Canadian bank, which bears interest at the bank's prime rate plus 0.10% per annum. The assets of the Company are pledged as security for amounts drawn on the credit facility under a general security agreement. At June 30, 2007, the Company had not drawn on its revolving operating loan. 4. Asset retirement obligation The following table sets forth the changes in the asset retirement obligation: Six months Year ended ended June 30, December 2007 31, 2006 ------------------------------------------------------------------------- Balance beginning of period $ 3,438 $ 2,441 Increase in obligation for wells drilled and facilities constructed 147 989 Current period accretion 136 214 Disposed properties - (58) Costs incurred in period (22) (148) ------------------------- Balance end of period $ 3,699 $ 3,438 ------------------------- ------------------------- 5. Future income taxes The provision for income taxes recorded in the financial statements differs from the amount which would be obtained by applying the statutory income tax rate of 32.1% (2006 - 34.5%) to the loss for the periods as follows: Three Months Six Months Ended June 30, Ended June 30, (000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Income (loss) before income taxes $ (1,445) $ 1,329 $ (3,703) $ 1,942 --------------------------------------------------- Expected income tax provision $ (464) $ 459 $ (1,189) $ 670 Non-deductible crown royalties - 127 - 165 Resource allowance - (202) - (180) Non-deductible stock based compensation expense 65 133 220 331 Utilization of non-capital loss - - - - Enacted rate change and other (269) (1,432) (457) (1,763) --------------------------------------------------- Future taxes (reduction) $ (668) $ (949) $ (1,426) $ (777) --------------------------------------------------- --------------------------------------------------- 6. Share capital (A) COMMON SHARES (i) Authorized Unlimited number of common voting shares. (ii) Issued and outstanding Number of ($000s, except share amounts) Shares Amount ------------------------------------------------------------------------- Balance, December 31, 2006 64,212,473 $ 165,497 Transactions during the period: Public offering for cash 14,583,400 70,000 Exercise of options 11,500 20 Exercise of financing warrants 500,000 500 Contributed surplus associated with exercise of options and warrants - 42 Share issue costs, net of tax effect of $1,273 - (3,165) Tax effect of flow-through shares - (8,804) ------------------------- Balance June 30, 2007 79,307,373 $ 224,090 ------------------------- ------------------------- On June 12, 2007, the Company completed a public offering of 14,583,400 common shares at $4.80 per share for net proceeds of $65.6 million. Basic earnings per share is computed by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated using the treasury stock method to determine the dilutive effect of stock options. The treasury stock method assumes that the proceeds received from the exercise of "in the money" stock options are used to repurchase common shares at the average market price during the period. At June 30, 2007, 1,224,000 (2006 - 725,000) options were excluded from determining the dilutive effect of stock options as their impact would be anti- dilutive to this calculation. (B) STOCK BASED COMPENSATION PLANS (i) Performance common share purchase warrants The Corporation reserved for issuance performance common share purchase warrants ("performance warrants") to purchase up to 5,000,000 common shares. The Corporation granted 4,500,000 performance warrants in 2003 and 500,000 in 2004. On November 8, 2004, 100% of the performance common share purchase warrants vested. In 2007, nil (2006 - 1,200,000) were exercised. Each performance warrant entitles the holder to acquire one common share at a price of $1.00 until November 7, 2008. The fair value of the 5,000,000 performance warrants granted was $907,200 based on the date of grant. At June 30, 2007, the Corporation had 2,800,000 performance warrants outstanding for which shares have been reserved. (ii) Common share purchase warrants Financing Warrants In January, 2004, the Corporation agreed to grant 500,000 common share purchase warrants to a director of the Corporation in consideration for providing a guarantee in respect of a demand loan bridge facility. Each common share purchase warrant entitles the holder to purchase one common share at a price of $1.00 per share on or before March 3, 2007. The fair value of the common share purchase warrants granted was $36,128 based on the date of grant using the Black-Scholes option pricing model with the following assumptions: average risk-free rate of 2.50%, average expected life of 3 years, expected volatility of 1% and no expected dividends. On March 1, 2007, all 500,000 financing warrants were exercised. (iii) Options The Corporation has a stock option plan for its directors, officers, employees and consultants which provides options to purchase up to a rolling maximum number of common shares equal to 10% of the issued and outstanding shares of the Corporation. In accordance with the Corporation's stock option plan the exercise price of the options is equal to the volume weighted average trading price of the common shares for the five (5) trading days prior to the date of grant and have a maximum term of five years. The vesting provisions of options are determined by the Board of Directors at the time of the grant. The options are generally exercisable one-third on each of the three following anniversary dates of the grant. The fair value of the 534,000 options granted in the six months ended June 30, 2007 is $892,282 based on the date of grant using the Black- Scholes option pricing model with the following assumptions: average risk-free rate of 4.04%, expected life of 3 years, expected volatility of 59% and no expected dividends. During the six months ended June 30, 2007, 11,500 options were exercised at a price of $1.75 per option. At June 30, 2007, the Corporation had 4,745,500 stock options outstanding for which shares have been reserved. Weighted Average Exercise Price Quantity ------------------------------------------------------------------------- Balance December 31, 2006 $ 3.98 4,411,500 Issued 4.32 534,000 Exercised 1.75 (11,500) Forfeited 4.45 (188,500) ------------ Balance June 30, 2007 $ 3.97 4,745,500 ------------------------- ------------------------- (C) OPTIONS AND WARRANTS OUTSTANDING AT JUNE 30, 2007 Options and Warrants Options and Warrants Outstanding Exercisable Number of Weighted Weighted Options Weighted Average Number of Average and Average Remaining Options and Remaining Exercise Warrants Exercise Contractual Warrants Contractual prices (000) Price ($) Life (years) (000) Life (years) ------------------------------------------------------------------------- Warrants $1.00 2,800 1.00 1.3 2,800 1.3 ------------------------------------------------------------- Options $1.00 150 1.00 1.3 150 1.3 $1.75 745 1.75 1.9 745 1.9 $3.60 60 3.60 4.8 - 4.8 $3.65 174 3.65 4.8 - 4.8 $3.85 36 3.85 4.8 - 4.8 $4.10 500 4.10 2.9 500 2.9 $4.13 1,857 4.13 3.7 672 3.7 $4.52 90 4.52 4.1 - 4.1 $5.02 258 5.02 4.3 80 4.3 $5.06 21 5.06 4.4 - 4.4 $5.22 130 5.22 4.3 - 4.3 $5.54 400 5.54 2.5 267 2.5 $6.15 100 6.15 3.0 33 3.0 $6.70 225 6.70 3.1 75 3.1 ------------------------------------------------------------- 4,746 3.97 3.8 2,522 2.7 ------------------------------------------------------------- Total 7,546 2.87 2.6 5,322 2.1 ------------------------------------------------------------- ------------------------------------------------------------- (D) CONTRIBUTED SURPLUS Amount ------------------------------------------------------------------------- Balance December 31, 2006 $ 3,938 Current period stock based compensation 1,339 Allocated to share capital on exercise of options and warrants (42) ------------ Balance June 30, 2007 $ 5,235 ------------ ------------ 7. Supplemental disclosure of cash flow information Changes in non-cash working capital were comprised of the following: Three Months Six Months Ended June 30, Ended June 30, (000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Accounts receivable $ 9,121 $ (187) $ 6,528 $ (2,846) Prepaid expenses and deposits 38 (121) (4) (105) Accounts payable and accrued liabilities (9,127) (8,608) (9,923) (5,019) --------------------------------------------------- Net Change $ 32 $ (8,916) $ (3,399) $ (7,970) --------------------------------------------------- --------------------------------------------------- Net change by activity: Operating $ 8,203 $ 336 $ 1,202 $ (3,413) Financing 133 260 133 132 Investing (8,304) (9,512) (4,734) (4,689) --------------------------------------------------- Net Change $ 32 $ (8,916) $ (3,399) $ (7,970) --------------------------------------------------- --------------------------------------------------- 8. Financial Instruments CREDIT RISK MANAGEMENT Accounts receivable include amounts receivable for oil and gas sales, which are generally made to large credit worthy purchasers and amounts receivable from joint venture partners. Accordingly, the Corporation views credit risk on these amounts as normal for the industry. Of the Corporation's production, 75% is sold to one marketer. Included in accounts receivable from this marketer at June 30, 2007 is $4.0 million (2006 - $6.0 million). FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and bank indebtedness. The carrying amount of these financial instruments approximate their fair value due to their short term nature or because they bear interest at a floating rate. INTEREST RATE RISK The Corporation is exposed to fluctuations in interest rates on its bank debt. Interest rate risk is mitigated through short-term fixed rate borrowings using bankers' acceptances. COMMODITY PRICE RISK As at June 30, 2007, the Corporation had no fixed price contracts associated with future production. FOREIGN CURRENCY EXCHANGE RISK The Corporation is exposed to foreign currency fluctuations as petroleum prices received are referenced in U.S. dollar dominated prices. 9. Commitments The Corporation is committed to office lease payments to the end of May, 2009 in the total amount of $0.5 million In November, 2006, the Corporation issued 4.1 million shares on a flow- through basis for gross proceeds of $30.0 million. As at June 30, 2007, the Corporation had incurred $12.2 million of Canadian exploration expenditures and plans to incur a minimum of $17.8 million of Canadian exploration expenditures by December 31, 2007. SHAREHOLDER INFORMATION BOARD OF DIRECTORS LEGAL COUNSEL Michael Columbos (1)(3) Burnet Duckworth & Chairman, Palmer LLP Independent Businessman Calgary Ken McCagherty (2) AUDITORS President and Chief Executive Officer KPMG LLP West Energy Ltd. Calgary M. Bruce Chernoff (1)(3) BANKERS President, Caribou Capital Corp. National Bank of Canada Keith MacDonald (2)(3) Calgary President and Chief Executive Officer INDEPENDENT RESERVES Venturian Natural Resources ENGINEERS Limited GLJ Petroleum Consultants Ltd. Larry Evans (1)(2) Calgary Chairman and Chief Executive Officer TRANSFER AGENT 32 Degrees Energy Management CIBC Mellon Trust Company (1) Member of the Audit Committee. STOCK EXCHANGE LISTING (2) Member of the Reserves Committee. The Toronto Stock Exchange (3) Member of the Compensation Symbol: WTL Committee. SUBSIDIARIES OFFICERS West Asset Corporation Ken McCagherty West Energy Corporation President and West Energy Partnership Chief Executive Officer HighWest Acquisition Corp. 665157 BC Ltd Jack Lane Vice President Operations CORPORATE OFFICES Rick Jaggard 600, 333 - 5th Avenue S.W. Vice President Finance and Calgary, Alberta, Canada Chief Financial Officer T2P 3B6 Phone: (403) 265-5202 Chris Bennett Fax: (403) 263-7007 Vice President Land and Contracts Website: www.westenergy.ca Inquiries: rjaggard@westenergy.ca Graeme Bloy Vice President Exploration Keith Greenfield Corporate Secretary %SEDAR: 00018134E

For further information:

For further information: Ken McCagherty, President and Chief Executive
Officer, Email: mccagherty@westenergy.ca, Direct Phone: (403) 716-3458; Or
Rick Jaggard, Vice-President Finance and Chief Financial Officer, Email:
rjaggard@westenergy.ca, Direct Phone: (403) 716-3457

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WEST ENERGY LTD.

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