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CALGARY, Nov. 8 /PRNewswire-FirstCall/ -- (CNE.UN - TSX; CNE - NYSE) - Canetic Resources Trust ("Canetic" or the "Trust") is pleased to announce its operating and financial results for the three and nine months ended September 30, 2007. "We have achieved solid financial and operating results for the fourth consecutive quarter despite the challenges posed by the current natural gas pricing environment, continued cost escalation, facility turnarounds and the rapid appreciation of the Canadian to U.S. dollar exchange rate. We credit our strong performance this quarter to our ability to successfully operate and sustain production within our significant asset base," said J. Paul Charron, President and Chief Executive Officer of Canetic. "We are also very excited by our recently announced strategic combination with Penn West Energy Trust ("Penn West") as we believe this combination will strategically position our Trust and our unitholders for the future. The combination creates Canada's flagship energy trust and the premier independent light oil producer in Western Canada with initial production in excess of 200,000 barrels of oil equivalent ("boe") per day in 2008 and conventional proven plus probable reserves in excess of 800 million boe. The combined trust will have the size, financial strength and flexibility to be the dominant oil and natural gas trust in North America. Moving forward, we will continue to seek further growth opportunities, within the Western Canadian Sedimentary Basin and outside Canada, to enhance our portfolio for long-term sustainability." Highlights - Production volumes averaged 74,572 boe per day for the third quarter 2007, compared to 74,475 boe per day for the third quarter 2006, and reflect the impact of planned and unplanned turnarounds and outages as well as normal production declines. On a year-to-date basis, production volumes have averaged 77,435 boe per day in 2007 compared to 72,431 boe per day in 2006. These volumes reflect the impact of production related to the 2006 Samson acquisition offset by minor property dispositions of approximately 1,000 boe per day in the second quarter 2007, outages, and natural production declines. - During the third quarter 2007, Canetic generated cash flow from operating activities of $182.5 million, an increase of 32 percent compared with the same period of 2006. For the nine months ended September 30, 2007, cash flow from operating activities increased 18 percent to $574.0 million from $485.8 million during the comparable period of 2006. - Third quarter 2007 capital expenditures for development activities totalled $88.0 million as compared to $104.4 million for the same period in 2006. A total of 64 gross (27.4 net) wells were drilled during the quarter with a success rate of 100 percent. On a year-to-date basis we have drilled a total of 188 gross (96.6 net) wells, incurring approximately $325.3 million on exploitation and development activities. - On October 18, 2007, Canetic announced its agreement to acquire Titan Exploration Ltd. ("Titan") creating a dominant position in the emerging Lower Shaunavon play in Southwest Saskatchewan. Canetic will acquire production of approximately 1,800 boe per day, weighted 63 percent to oil, and a Canetic estimated 7.3 million boe of proved plus probable reserves with a Reserve Life Index ("RLI") of approximately 11 years. Canetic will also acquire approximately 73,000 net acres of undeveloped land including over 49,000 gross (23,700 net) acres in the Leitchville area overlaying the Lower Shaunavon trend. - On October 31, 2007, Canetic and Penn West announced that they had entered into a combination agreement (the "Combination Agreement") that would provide for the strategic combination of Penn West and Canetic. The combined trust will be the largest conventional oil and natural gas trust in North America with an enterprise value of approximately $15 billion and initial production in excess of 200,000 boe per day. The combined asset portfolio will include interests in a significant number of Western Canada's highest quality conventional oil and natural gas pools and will also include a number of non-conventional growth opportunities including oil sands, coalbed methane, shale gas and enhanced oil recovery. At closing, this merger of assets and people will operate under the Penn West name and will be led by a management team and board of directors drawn from each of Canetic and Penn West. Under the terms of the Combination Agreement, Canetic unitholders will receive 0.515 of a Penn West unit for each Canetic unit on a tax-deferred basis for Canadian and U.S. tax purposes. Immediately prior to the closing of the combination, a one-time special distribution of $0.09 per unit will be paid to Canetic unitholders. The special distribution is intended to keep Canetic unitholders whole, in cash distributions, for a period of six months. Based on the closing price of Penn West units on the Toronto Stock Exchange ("TSX") on October 30, 2007 Canetic unitholders will receive a premium of 7.1 percent to the closing price of Canetic units on the TSX on October 30, 2007. On completion of the combination, Penn West unitholders will own approximately 67 percent and Canetic unitholders will own approximately 33 percent of the combined trust. Penn West units will continue to be listed on both the TSX and the New York Stock Exchange ("NYSE"). The combination is subject to stock exchange, court and regulatory approval, and the approval of at least 66 2/3 percent of the votes cast by Canetic unitholders at a unitholder meeting to be held to approve the combination in mid January 2008 with closing to occur immediately thereafter. An Information Circular is expected to be mailed to unitholders of Canetic in early December 2007. A conference call will be held to discuss Canetic's third quarter operating and financial results on November 9, 2007, at 11:00am mountain time (1:00pm eastern time). The call number for participants is (416)644-3434 or toll-free (800)814-4861. A replay of the conference call will be made available approximately one hour following the call and remain accessible until 11:59pm on November 16, 2007. The replay number is (416)640-1917 or toll-free (877)289-8525 and the passcode is 21252717 followed by the pound key. FINANCIAL AND OPERATING SUMMARY As At And For The As At And For The Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------------------------------------------- ($millions except % % per unit amounts) 2007 2006 change 2007 2006 change ------------------------------------------------------------------------- FINANCIAL Petroleum and natural gas sales 346.1 368.5 -6% 1,084.7 1,060.1 2% Funds flow(1) from operations 181.6 200.3 -9% 564.0 580.1 -3% Per unit - basic 0.80 0.95 -17% 2.48 2.91 -15% Per unit - diluted 0.79 0.93 -15% 2.48 2.85 -13% Net earnings (loss) 15.7 102.7 -85% (293.0) 244.7 -220% Per unit - basic 0.07 0.49 -86% (1.29) 1.23 -205% Per unit - diluted 0.07 0.48 -86% (1.29) 1.21 -206% Cash distributions 130.0 144.9 -10% 397.5 417.0 -5% Distributions declared per unit 0.57 0.69 -17% 1.71 2.07 -17% ------------------------------------------------------------------------- Capital expenditures Net development expenditures 88.0 104.4 -16% 325.3 257.2 26% Net capital expenditures 101.5 1,078.4 -91% 303.7 3,773.0 -92% Total assets 5,578.4 5,853.2 -5% 5,578.4 5,853.2 -5% Long-term debt 1,374.0 1,223.0 12% 1,374.0 1,223.0 12% Net debt(1) 1,404.2 1,254.4 12% 1,404.2 1,254.4 12% Unitholders' equity 2,887.7 3,662.5 -21% 2,887.7 3,662.5 -21% ------------------------------------------------------------------------- Weighted average trust units outstanding (000s) 228,328 210,226 9% 227,389 199,640 14% Trust units outstanding at period end (000s) 230,108 224,530 2% 230,108 224,530 2% ------------------------------------------------------------------------- OPERATING Production Natural gas (mmcf/d) 205.7 181.4 13% 212.2 174.5 22% Crude oil (bbl/d) 34,578 38,314 -10% 35,636 37,765 -6% Natural gas liquids (bbl/d) 5,711 5,925 -4% 6,426 5,577 15% Crude oil and NGLs (bbl/d) 40,289 44,239 -9% 42,062 43,342 -3% Barrels of oil equivalent (boe/d) @ 6 mcf:1 bbl 74,572 74,475 0% 77,435 72,431 7% ------------------------------------------------------------------------- Average prices Natural gas ($/mcf) 5.33 6.21 -14% 6.91 7.04 -2% Natural gas ($/mcf) (including financial instruments) 6.64 7.23 -8% 7.51 7.72 -3% Crude oil ($/bbl) 68.38 67.27 2% 61.79 63.03 -2% Crude oil ($/bbl) (including financial instruments) 64.42 62.67 3% 59.88 58.63 2% Natural gas liquids ($/bbl) 50.60 50.60 0% 46.65 48.81 -4% ------------------------------------------------------------------------- Total ($/boe) 50.45 53.78 -6% 51.31 53.61 -4% Total ($/boe) (including financial instruments) 52.22 53.91 -3% 52.09 52.96 -2% ------------------------------------------------------------------------- Drilling activity (gross) Natural gas 33 55 - 84 150 - Oil 31 34 - 92 101 - Other - 1 - 7 5 - Dry and abandoned - 2 - 5 7 - ------------------------------------------------------------------------- Total gross wells 64 92 - 188 263 - ------------------------------------------------------------------------- Total net wells 27.4 43.2 - 96.6 125.6 - ------------------------------------------------------------------------- Success rate (%) 100% 98% - 97% 97% - ------------------------------------------------------------------------- (1) Please see Non-GAAP measures in this news release. See also the Non- GAAP measures section of Canetic Management's Discussion and Analysis ("MD&A") available at http://www.sedar.ca/ or http://www.sec.gov/ Note: All references are to Canadian dollars unless otherwise indicated. Natural gas volumes recorded in thousand cubic feet ("mcf") or million cubic feet ("mmcf") are converted to barrels of oil equivalent ("boe") using the ratio of six (6) thousand cubic feet to one (1) barrel of oil ("bbl"). BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of six (6) mcf: one (1) bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. PRESIDENT'S MESSAGE We are pleased with the operational and production performance of our existing high quality asset base and continue to be encouraged by the strong results of our ongoing exploitation and development activities undertaken to date. The solid performance of our assets helped to partially mitigate the impact of both planned and unplanned third party facility turnarounds and outages experienced during the quarter. The combined impact of turnaround activity, facility outages, weather, and extended spring break-up related factors resulted in the loss of an estimated 1,100 boe per day of production over the quarter. Minor property dispositions in Northeast Alberta, effective April 30, 2007, accounted for an additional loss of approximately 1,100 boe per day of production during the quarter. In addition to our continued focus on operations we have renewed our efforts on the acquisition front. On October 18, 2007, Canetic announced its agreement with Titan pursuant to which Canetic will acquire production of approximately 1,800 boe per day, weighted 63 percent to oil, and a Canetic estimated 7.3 million boe of proved plus probable reserves with an RLI of approximately 11 years. More importantly, Canetic will also acquire over 49,000 gross (23,700 net) acres of land, in the Leitchville area of Southwest Saskatchewan, in close proximity to Canetic's existing 45,100 gross (41,200 net) acres, to create a dominant position in the emerging and strategically significant Lower Shaunavon trend. Current Titan production in Southwest Saskatchewan exceeds 900 boe per day. In addition to the production and lands in Southwest Saskatchewan, Canetic will also acquire approximately 900 boe per day of production located in the northern regions of Alberta and British Columbia. Approximately two-thirds of this production is located in the Peace River Arch region in close proximity to Canetic's existing lands. On October 31, 2007, Canetic announced our agreement to complete a strategic combination with Penn West that will create Canada's flagship energy trust and the dominant independent light oil producer in Western Canada with production in excess of 200,000 boe per day in 2008 and conventional proven plus probable reserves in excess of 800 million boe. The combination will provide Canetic unitholders with exposure to a significantly enhanced portfolio of unconventional development opportunities including the multi-billion barrel (discovered heavy oil resources in place) Peace River Oil Sands Project, a significant area for potential future growth now available to Canetic unitholders. The combination also serves to provide significantly greater exposure to growth opportunities from coalbed methane, shale gas and enhanced recovery from some of Canada's largest legacy light oil pools. The increased size and financial strength of the combined trust will help to accelerate the future development of both its conventional and unconventional growth opportunities and will provide added flexibility in positioning for 2011 and beyond. The larger size of the combined trust is also expected to enhance liquidity on the Toronto and New York stock exchanges and increase its weighting in major indices, including the S&P/TSX 60 Index. Thus leading to greater attention and potentially better valuation from both equity and income investors. The increased liquidity and enhanced financial flexibility is expected to facilitate further expansion both within the Western Canadian Sedimentary Basin and outside of Canada, further bolstering the competitiveness of the combined trust beyond 2011. The combined trust will initially boast tax pools in excess of $5.5 billion and safe harbour capacity for growth, under the Undue Expansion rules set out for income trusts, of approximately $8.7 billion on an equity basis in 2008, and approximately $15 billion on an equity basis in total. Going forward, we believe that unitholders of the combined trust will benefit from the strength and experience of the combined board of directors, management team and personnel. On the development front we have continued to focus a significant proportion of our 2007 capital program on the exploitation and development of our extensive inventory of high quality crude oil prospects, many of which were acquired as part of the StarPoint transaction completed early in 2006. Year-to-date we have operated or participated in the drilling of 188 gross (96.6 net) wells at a total exploitation and development cost of approximately $325.3 million. Highlights of the third quarter 2007 development program include the successful drilling of our first operated multi-lateral horizontal Mannville coalbed methane well in the Corbett Creek area. Canetic holds a 100 percent working interest in this well which also served to validate a 21 section exploration license in the active Mannville coalbed methane play. We expect to complete the well and begin production in 2008. Other activity included the successful drilling and completion of two high rate oil wells in the strategically important Leitchville area of Southwest Saskatchewan. Year-to-date, Canetic has actively participated at Saskatchewan land sales amassing approximately 20,000 acres on the Lower Shaunavon trend, at a cost of approximately $24 million. This targeted activity culminated in the highlighted announcement of our intention to acquire Titan to create a dominant position in the Southwest Saskatchewan trend, an area anticipated to provide significant growth and development opportunity for Canetic. We continue to see upward pressure on our cost base, primarily from increasing field service costs, specifically power and labour. As we continue to experience higher field costs through our asset base, considerable effort and focus is being given to improving operational efficiencies which are expected to help control operating costs on a unit-of-production basis, including the divestiture of assets which have a high cost base. Further challenges facing our industry include the continued and rapid appreciation of the Canadian dollar. The Canadian dollar continued to appreciate and moved above par with the U.S. dollar by the end of the third quarter of 2007. This will continue to impact our revenues as prices for both oil and natural gas are based on U.S. dollar benchmarks thus reducing overall margins we receive in Canadian dollars. Our commodity price risk management program is primarily designed to provide price protection on a portion of our future production in the event of adverse commodity price movements, while retaining some participation in favourable price movements. Canetic remains well hedged in light of continuing weakness in natural gas prices. Approximately 40 percent of natural gas production volumes are hedged to March 31, 2008 under costless collars with a floor price of approximately $7.00 per Gigajoule. In light of challenges posed by today's changing economic and political environments we believe the combination of Penn West and Canetic will create a platform able to deliver incremental value for our unitholders and having the financial strength to embark on strategic acquisitions and initiatives that will optimize the combined trust's diverse portfolio of oil and gas properties. We also believe it will help to attract new talent and access to opportunities which will further contribute to the foundation of world-class assets and expertise. We believe our current course positions the combined trust well to compete in today's environment and provide our unitholders with a sustainable source of income. FINANCIAL Revenue for the nine months ended September 30, 2007 totalled $1,084.7 million, an increase of two percent from $1,060.1 million for the comparable period of 2006. Revenue for the third quarter 2007 totalled $346.1 million, a decrease of six percent compared to $368.5 million during the same period of 2006. The decrease in quarterly revenue year-over-year is largely attributable to declines in crude oil volumes, softer natural gas prices and the appreciation in the Canadian dollar relative to the U.S. dollar. Funds flow from operations totalled $564.0 million or $2.48 per diluted unit, down three percent from $580.1 million reported for the corresponding period in 2006. Funds flow from operations, during the third quarter totalled $181.6 million or $0.79 per diluted unit, a decrease of nine percent from $200.3 million or $0.93 per diluted unit in the same period of 2006 and a five percent decrease from $192.0 million or $0.84 per diluted unit during the second quarter of 2007. The net loss for the nine months ended September 30, 2007, totalled $293.0 million or $1.29 per diluted unit as compared to net income of $244.7 million reported for the same period in 2006. Net income for the third quarter was $15.7 million or $0.07 per diluted unit, as compared to $102.7 million or $0.48 per diluted unit in 2006. The net loss for the nine months ended September 30, 2007, results from a one time charge to future tax expense associated with the enactment of Bill C-52 (Budget Implementation Act, 2007) which incorporated the Specified Investment Flow-Through Rules (the "SIFT Rules") which became law on June 22, 2007. The price of West Texas Intermediate ("WTI") crude averaged US$75.33 (Cdn$78.71) per bbl during the third quarter 2007, compared to US$70.55 (Cdn$79.10) per bbl for the same period in 2006. For the first nine months of 2007, WTI crude averaged US$66.26 (Cdn$73.22) per bbl compared to US$68.29 (Cdn$77.32) per bbl for the same period in 2006. Crude oil prices remain strong with global demand growth continuing to tighten the supply-demand situation as inventories decline. As the year has progressed there has been a continued call for OPEC production to increase as Non-OPEC supply growth has not been able to meet this increased demand. For the nine months ended September 30, 2007, we received an average oil price of $61.79 per bbl as compared to $63.03 per bbl for the comparable period in 2006. Our differentials from the WTI crude oil prices fluctuate as premiums for our light sweet crude oil are offset by increases in the differentials on heavy crude oil. The AECO Monthly Index gas price averaged $5.61 per mcf in the third quarter of 2007, compared to $6.03 per mcf in the third quarter 2006. Year-to-date, the AECO Monthly Index price has averaged $6.81 per mcf, compared to $7.19 per mcf for the same period in 2006. The AECO price continues to remain weak, consistent with 2006 levels. We believe that the primary factors influencing the AECO gas price are high inventory levels in North America caused by robust drilling activity in the United States, growth in liquefied natural gas spot cargos redirected into North America from Europe due to weak gas prices there, and the lack of significant weather patterns to draw down gas storage. The Western Canadian Sedimentary Basin's ("WCSB") activity levels are expected to remain weak until prices appreciate to a level where natural gas margins improve to begin to drive supply. Our average realized natural gas price was $6.91 per mcf for the nine months ended September 30, 2007 as compared to $7.04 per mcf during the same period in 2006. Our average natural gas price for the quarter was $5.33 per mcf compared to $6.21 per mcf in the third quarter in 2006. During the third quarter of 2007, Canetic paid cash distributions of $130.0 million or $0.57 per unit. For the nine months ended September 30, 2007 our cash distributions totalled $397.5 million. For 2007, we estimate that for Canadian taxpayers, 100 percent of cash distributions will be taxable and no portion of the distributions will be a tax-deferred return of capital. We estimate that for U.S. taxpayers, 100 percent of cash distributions paid during the year will be taxable as "Qualified Dividends" and no portion of the distributions will be a tax-deferred return of capital. Actual taxable amounts may vary and is dependant upon the Trust's current and accumulated earnings and profits as determined under U.S. tax laws. REVIEW OF OPERATIONS Production For the nine months ended September 30, 2007, production volumes averaged 77,435 boe per day as compared to 72,431 boe per day for the same period in 2006. The seven percent increase in average production volumes for the nine months ended September 30, 2007 reflect the full impact of the Samson acquisition which closed on August 31, 2006. Production in 2007 has been impacted by planned and unplanned turnaround activity, weather related downtime in the second and third quarter and minor property dispositions. We continue to add new production volumes through our active drilling and optimization programs which focused in the Rocky, Central and Southern Alberta areas during the third quarter. Third quarter volumes were negatively impacted by planned and unplanned outages, with a resulting impact of approximately 1,200 boe per day. Major outages occurred at the non-operated Kaybob South and Keyera plants, with smaller non-operated outages in Saskatchewan. In addition, our third quarter volumes were impacted by minor property dispositions totalling approximately 1,000 boe per day in Northeastern Alberta, primarily natural gas. Looking forward to the fourth quarter, we are anticipating a number of outages that will impact production. We expect that each outage individually will not be significant and will impact production for only a few days. These turnarounds are designed to take advantage of the softness in natural gas prices prior to the winter heating season. Exploitation and Development Operational highlights during the third quarter reflect our continued active exploitation and optimization program. We continued to target high quality opportunities, high graded from our growing inventory list of prospects. Specific program highlights include: - The completion of our first ever operated multi-lateral horizontal Mannville CBM well in Corbett. This well validates a 21 section exploration license in the Mannville play and is expected to begin producing in 2008. - Canetic followed its first quarter success in the Hoadley, Ferrybank area with an additional four well program targeting high quality glauconite and Ellerslie gas. This asset was acquired in the Samson deal and has yielded results that to date have exceeded expectations. One of our first wells, drilled in the first quarter of 2007, was brought on stream during the third quarter and is currently producing at approximately 1.8 mmcf/d. In addition, production tests from recent wells are encouraging with high initial test rates from multiple zones. We expect all wells from this program to be tied in and on stream by year-end, following the addition of incremental compression to handle the higher than planned rates. - Canetic effectively brought on production two high rate oil wells in the Leitchville area of Southwest Saskatchewan. Production is from horizontal wells targeting the Lower Shaunavon formation and initial production volumes are strong from this medium crude reservoir. Following these successful tests, we have embarked on a larger drilling program through to the end of 2007. - Canetic drilled an eight well oil program in Southern Alberta targeting medium crude from the Sunburst formation, six of which are currently on stream and producing. - Canetic continued to have good success in the Greater Queensdale area of Southeast Saskatchewan with one horizontal well targeting the Alida formation. Initial production from the well was approximately 300 boe per day. Continued drilling in this region is planned, with a three well program planned for execution in the fourth quarter. - Non-operated highlights include participation with Centrica in Mannville CBM wells in the Corbett area, participation with Conoco in Homeglen-Rimbey area targeting Leduc oil, and participation with Penn West and BP Amoco in the Pembina and Pine Creek areas targeting prolific gas production from the Glauconite and Bluesky formations. During the third quarter, Canetic drilled and cased 18 gross (16.7 net)operated wells while participating in 46 gross (10.7 net) non-operated wells. Operated wells consisted of 9 gross (8.8 net) oil wells, 8 gross (6.8 net) gas wells and 1 gross (1 net) CBM well. We are planning to drill approximately 12 to 14 operated wells over the remainder of the year, depending on well type and depth, focused primarily in the Leitchville and Queensdale areas of Saskatchewan. Due to the strong crude oil prices and continued weakness in natural gas prices, Canetic will remain focused on our large inventory of oil prospects for the remainder of 2007 and into 2008. Areas of activity for the remainder of the year will be in Williston Basin and Southwest Saskatchewan targeting medium to light crude. Limited capital will be spent developing shallower natural gas opportunities until Canetic sees strengthening in the natural gas market. However, we expect to continue to develop and execute on our Hoadley natural gas program beginning in late 2007 or early 2008. Capital Expenditures Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------------------------------------------- Capital Expenditures ($000s) 2007 2006 2007 2006 ------------------------------------------------------------------------- Land 3,582 3,812 7,527 12,615 Geological and geophysical (38) 154 2,112 2,109 Drilling and completion 69,873 79,595 256,386 212,923 Production equipment and facilities 14,614 20,863 59,253 29,566 ------------------------------------------------------------------------- Net development expenditures 88,031 104,424 325,278 257,213 StarPoint acquisition - - - 2,511,746 Acquisition of property interests - 967,204 - 967,204 Property acquisitions 14,465 4,480 16,637 28,349 Property dispositions (6,005) - (55,768) (5,000) ------------------------------------------------------------------------- Net capital expenditures 96,491 1,076,108 286,147 3,759,512 Office 1,609 3,780 6,557 6,843 Asset retirement obligation change in estimate 593 767 2,086 2,239 Capitalized compensation 2,785 (2,240) 8,884 4,414 ------------------------------------------------------------------------- Total capital expenditures 101,479 1,078,415 303,674 3,773,008 ------------------------------------------------------------------------- During the nine months ended September 30, 2007, expenditures for development activities totalled $325.3 million as compared to $257.2 million for the same period in 2006. A total of 188 gross (96.6 net) wells have been drilled, including 84 gross (41.1 net) natural gas wells and 92 gross (53.0 net) oil wells, 7 gross (1.0 net) service wells, and 5 gross (1.5 net) dry and abandoned wells. The increase in development expenditures reflects the inventory of locations associated with our asset base resulting from the acquisitions made in previous years and a decision by Canetic to become more focused on internal growth opportunities. Of the total wells drilled to September 30, 2007, 69 gross (63.6 net) were operated by Canetic resulting in 46 gross (43.5 net) oil wells, 22 gross (19.1 net) natural gas wells, and 1 gross (1.0 net) dry and abandoned ("D&A") well. Canetic has also changed the profile of its operated drilling program in 2007 over 2006, targeting deeper more prolific horizons and consequently higher cost wells. During the nine months ended September 30, 2007, we completed net property dispositions totalling $55.8 million representing approximately 1,000 boe per day, primarily natural gas, in Northeast Alberta. Proceeds from the dispositions have been utilized to fund a portion of our 2007 capital expenditure program. COMMODITY PRICE RISK MANAGEMENT The prices we receive for petroleum and natural gas can fluctuate significantly due to supply and demand fundamentals which are influenced by weather patterns, the economic environment, or political uncertainty. Our commodity price risk management program is designed to provide price protection on a portion of our future production in the event of adverse commodity price movements, while retaining the opportunity to participate in favourable price movements. This practice is designed to allow us to generate stable funds flow for distributions and achieve positive economic returns on capital development and acquisition activities. Given appropriate market conditions we may hedge up to 50 percent of our production at any given time. For the nine months ended September 30, 2007 we have realized a gain on financial derivatives of $16.5 million compared to a loss of $12.8 million for the same period in 2006. During the third quarter 2007, we recorded a realized financial derivative gain of $12.2 million as compared to a gain of $0.8 million for the same period in 2006. The following commodity commitments have been put in place for the remainder of 2007 and beyond: ------------------------------------------------------------------------- Annual Annual Average Average Commodity Contracts Q4 2007 2008 2009 ------------------------------------------------------------------------- Natural Gas ------------------------------------------------------------------------- Fixed Price Volume (Gj/d) 20,000 11,667 - Fixed Price Average ($/Gj) $ 7.51 $ 6.53 - Collars Volume (Gj/d) 86,667 22,500 - Collar Floors ($/Gj) $ 6.92 $ 7.00 - Collar Caps ($/Gj) $ 10.74 $ 11.23 - ------------------------------------------------------------------------- Total Volume Hedged (Gj/d) 106,667 34,167 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Crude Oil ------------------------------------------------------------------------- CDN Denominated Fixed Price Volumes (bbl/d) 8,000 250 - CDN Denominated Fixed Price Average ($CDN/bbl) $ 67.26 $ 72.20 - U.S. Denominated Fixed Price Volume (bbl/d) 1,500 - - U.S. Denominated Fixed Price Average ($US/bbl) $ 48.11 - - Collars Volume (bbl/d) 6,000 12,000 - Collar Floors ($US/bbl) $ 58.00 $ 64.17 - Collar Caps ($US/bbl) $ 80.76 $ 81.49 - ------------------------------------------------------------------------- Total Volume Hedged (bbl/d) 15,500 12,250 - ------------------------------------------------------------------------- CANADIAN TAX LEGISLATION AFFECTING INCOME TRUSTS Under the SIFT Rules, certain of our future distributions that would have otherwise been deductible by the Trust for tax purposes will be subject to a special tax at a rate of 31.5 percent (the "Distribution Tax"). As expected, the Distribution Tax will not apply to the Trust until January 1, 2011. Currently, the Trust has approximately $1.7 billion of tax pools that may be used to offset future taxes. In the period leading to 2011, our objective will be to preserve and maximize tax pools that will be available to reduce or defer the incidence of cash taxes in 2011 and subsequent years. Given our current tax pool position and our expectations for growth of these pools leading to 2011, we currently anticipate our effective tax rate will be significantly less than the 31.5 percent statutory rate in 2011 and subsequent years. Estimated Income Tax Pools ($000s) September 30, 2007 ------------------------------------------------------------------------- Undepreciated capital costs 561,600 Canadian oil and gas property expense 505,736 Canadian exploration expense 23,390 Canadian development expense 349,832 Non-capital losses 270,960 Other 38,016 ------------------------------------------------------------------------- Total estimated income tax pools 1,749,534 ------------------------------------------------------------------------- Please refer to the section of Canetic's Management's Discussion and Analysis ("MD&A"), dated September 30, 2007, entitled "Income Taxes" for a more complete discussion of the potential impacts and changes anticipated to result from implementation of the SIFT Rules and related Distribution Tax. OUTLOOK Looking forward, we are very excited about the opportunity presented by our announced strategic combination with Penn West. Through this combination we will have created what we believe to be Canada's flagship energy trust and a world-class platform to compete in Canadian and global energy markets. The combination will form the largest conventional oil and natural gas trust in North America and the dominant independent light oil producer in the Western Canadian Sedimentary Basin with anticipated production in 2008 of over 200,000 boe per day and conventional proven plus probable reserves in excess of 800 million boe. The increased size of the combined entity will facilitate the future development of its extensive inventory of conventional and unconventional opportunities including the multi-billion barrel (discovered heavy oil resources in place) Peace River Oil Sands Project, coalbed methane, shale gas and enhanced oil recovery from some of Canada's largest legacy light oil pools. We anticipate that the larger size of the combined trust will not only increase the opportunity base for future growth but will also enhance the liquidity of its units on both the Toronto and New York stock exchanges, increase its weighting in major indices, including the S&P/TSX 60 Index, and lead to greater attention from both equity and income investors. We also expect that the increased liquidity and enhanced financial strength of the combined trust will enable meaningful expansion both domestically and outside Canada as we look to position the trust for 2011 and beyond. At closing the combined trust will have tax pools in excess of $5.5 billion and safe harbour capacity for the issuance of new units under the undue expansion rules of approximately $8.7 billion in 2008 and approximately $15 billion in total. We believe that the combined trust will have the size and scale needed to develop and grow in today's dynamic market. The combination brings together two organizations with complementary strategies, asset bases and management teams which should translate into a strong shared future. We believe the combined trust will be greater than the sum of its parts and look forward to unlocking its potential and delivering upon the value proposition it represents for our unitholders. We encourage our unitholders to read all information pertaining to the strategic business combination (press releases, presentations and information circular). These items and additional information as it arises will be posted to our website at http://www.canetictrust.com/. If you have any questions regarding released information please do not hesitate to contact our investor relations department at 1-877-539-6300. (signed) (signed) Jack C. Lee J. Paul Charron Chairman President & Chief Executive Officer November 8, 2007 Canetic's complete third quarter 2007 unaudited Financial Statements and Notes and Management's Discussion and Analysis ("MD&A") are available on Canetic's website at http://www.canetictrust.com/ or on SEDAR at http://www.sedar.com/ or on EDGAR at http://www.sec.gov/. All references are to Canadian dollars unless otherwise indicated. Natural gas volumes recorded in thousand cubic feet ("mcf") or million cubic feet ("mmcf") are converted to barrels of oil equivalent ("boe") using the ratio of six (6) thousand cubic feet to one (1) barrel of oil ("bbl"). BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of six (6) mcf: one (1) bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. ADVISORY Certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities law. These statements relate to future events or future performances. All statements other than statements of historical fact may be forward-looking statements. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described can be profitably produced in the future. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "could", "should", "believe", "intend", "propose", "budget", and similar expressions are intended to identify forward-looking statements. 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. We believe the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements are not guarantees of future performance and should not be unduly relied upon. These statements speak only as of the date of this news release. In particular, this news release contains or references documents containing forward-looking statements pertaining to the following: business strategies; production volumes; reserves volumes; drilling plans; expected outages and impact thereof; operating and other costs and expenses; commodity prices; future cash distribution levels and taxability; payout ratios; capital spending including timing, allocation and amounts of capital expenditures and the sources of funding thereof; sources of funding operations and distributions and the sufficiency thereof; estimates of funds flow from operations; royalty rates; interest rates; asset retirement obligations; hedging and other risk management programs; debt levels, future tax treatment of income trusts such as the Trust and unitholders; the acquisition of Titan and strategic combination with Penn West and the benfits to be derived there from and timing thereof; income tax pools, and liquidity and financial capacity. The forward-looking statements contained in this news release and referenced documents are based on a number of expectations and assumptions that may prove to be incorrect. In addition to other assumptions identified in this news release and referenced documents, assumptions have been made regarding, among other things: that the Trust will continue to conduct its operations in a manner consistent with past operations; the continuance of existing (and in certain circumstances, proposed) tax and royalty regimes; the general continuance of current industry conditions; the accuracy of the estimates of the Trust's reserves volumes; the ability of Canetic to obtain equipment, services and supplies in a timely manner to carry out our activities; the ability of Canetic to market oil and natural gas successfully; the timely receipt of required regulatory and other approvals; the ability of Canetic to obtain financing on acceptable terms; currency, exchange and interest rates; future oil and gas prices; the failure of Canetic to obtain the required approvals for mergers and acquisitions and future cost assumptions. No assurance can be given that these factors, expectations and assumptions will prove to be correct. The 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 news release and referenced documents: volatility in market prices for oil and natural gas; risks and liabilities inherent in oil and natural gas including operations, exploration, development, exploitation, production, marketing and transportation risks; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, and skilled personnel; incorrect assessments of the value of acquisitions; geological, technical, drilling and processing problems; risks and uncertainties involving geology of oil and gas deposits; unanticipated operating results or production declines; fluctuations in foreign exchange, currency or interest rates, and stock market volatility; general economic conditions; changes in laws and regulations including but not limited to those pertaining to income tax, environmental and regulatory matters; changes in royalty rates including the implementation of "The New Royalty Framework" in Alberta discussed above; failure to realize the anticipated benefits of acquisitions; health, safety and environmental risks; and the other factors described in Canetic's public filings from time to time (including under "Risk Factors" in our Annual Information Form) available in Canada at http://www.sedar.com/ and in the United States at http://www.sec.gov/. Readers are cautioned that this list of risk factors should not be construed as exhaustive. The forward-looking statements contained in this news release and referenced documents are expressly qualified by the following cautionary statement: Canetic undertakes no obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities law. NON-GAAP MEASURES Throughout this news release certain supplemental financial measures that are not specifically determined in accordance with GAAP are used to assist in analyzing the operations of the Trust. In addition to the primary measures of net earnings (loss) and net earnings (loss) per unit and cash flows from operating activities determined in accordance with GAAP, we believe that certain measures not determined in accordance with GAAP assist the reader in assessing performance and understanding the Trusts results. These non-GAAP measures as presented do not have any standardized meaning prescribed by GAAP and therefore may not be comparable with calculations of similar measures for other companies or trusts. These measures should not be considered alternatives to net earnings (loss) and net earnings (loss) per unit or cash flows from operating activities as calculated in accordance with GAAP. - Funds flow from operations - defined as net earnings (loss) plus non-cash items before deducting changes in non-cash working capital and asset retirement costs incurred. We use this measure to analyze operating performance and leverage. This measure is an indicator of the Trust's ability to generate funds flow in order to fund distributions, working capital, principal debt repayments and capital expenditures. Readers should refer to the "Funds Flow From Operations" section of Canetic's MD&A for a reconciliation of funds flow from operations to net earnings (loss). - Net debt - defined as long-term debt and working capital excluding financial derivatives. This measure is used to analyze liquidity and capital resources in order to meet the Trusts' financing needs to fund capital expenditures, acquisitions and short term funding needs. Readers should refer to the "Liquidity and Capital Resources" section of Canetic's MD&A for a reconciliation of net debt. - Operating and cash netbacks - defined as revenue and expense items divided by production per boe per day. This measure is used throughout the Oil and Gas industry to analyze margin and cash flow on each boe of production. Readers should refer to the "Netbacks" section of Canetic's MD&A for the calculation of operating and cash netbacks. - Total capitalization - defined as net debt including convertible debentures plus unitholders' equity. Similar to net debt, this measure is an indictor of the Trust's ability to analyze liquidity and capital resources in order to meet the Trust's financing needs to fund capital expenditures, acquisitions and short term funding needs. This measure is an indicator of overall Trust leverage. Total capitalization is not intended to represent the total funds from equity and debt received by the Trust. Readers should refer to the "Liquidity and Capital Resources" section of Canetic's MD&A for a reconciliation of total capitalization. ADDITIONAL INFORMATION Additional information regarding the Trust and its business operations, including the Trust's Annual Information Form for the year ended December 31, 2006, is available on the Trust's SEDAR company profile at http://www.sedar.com/ or the EDGAR company profile at http://www.sec.gov/. Canetic is one of Canada's largest oil and gas royalty trusts. Canetic trust units and debentures are listed on the Toronto Stock Exchange under the symbols CNE.UN, CNE.DB.A, CNE.DB.B, CNE.DB.C, CNE.DB.D, and CNE.DB.E and the trust units are listed on the New York Stock Exchange under the symbol CNE. CONSOLIDATED BALANCE SHEETS As At As At September 30, December 31, ($CDN thousands) unaudited 2007 2006 ------------------------------------------------------------------------- ASSETS Current Assets Accounts receivable $ 228,946 $ 261,498 Prepaid expenses and deposits 33,694 34,647 Financial derivative asset (Note 11) 23,641 - ------------------------------------------------------------------------- 286,281 296,145 Property, plant and equipment, net of amortization (Note 5) 4,370,061 4,597,654 Goodwill (Note 3) 922,024 922,024 Deferred financing charges, net of amortization (Note 2) - 8,996 Financial derivative asset (Note 11) - 6,157 ------------------------------------------------------------------------- Total assets $ 5,578,366 $ 5,830,976 ------------------------------------------------------------------------- LIABILITIES AND UNITHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 230,636 $ 260,206 Income taxes payable 11,632 10,979 Distributions payable 43,720 51,933 Convertible debentures (Note 6) 6,863 1,697 Financial derivative liability (Note 11) 25,204 1,124 ------------------------------------------------------------------------- 318,055 325,939 Bank debt 1,374,002 1,289,678 Convertible debentures, net of deferred transaction costs (Note 6) 245,128 258,959 Other long-term liabilities (Note 9) 8,040 7,272 Financial derivative liability (Note 11) 1,742 - Future income taxes (Note 14) 549,296 250,339 Asset retirement obligations (Note 7) 194,410 191,874 ------------------------------------------------------------------------- 2,690,673 2,324,061 Commitments and guarantees (Note 13) UNITHOLDERS' EQUITY Capital (Note 8) 4,287,538 4,224,470 Convertible debentures (Note 6) 6,584 6,584 Deficit (Note 10) (1,406,429) (724,139) ------------------------------------------------------------------------- 2,887,693 3,506,915 ------------------------------------------------------------------------- Total liabilities and unitholders' equity $ 5,578,366 $ 5,830,976 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF EARNINGS (LOSS), COMPREHENSIVE INCOME (LOSS) AND DEFICIT Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------------------------------------------- ($CDN thousands except per unit amounts) unaudited 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUE Petroleum and natural gas sales $ 346,092 $ 368,502 $ 1,084,686 $ 1,060,053 Royalty expense (60,499) (62,432) (194,788) (194,651) ------------------------------------------------------------------------- 285,593 306,070 889,898 865,402 ------------------------------------------------------------------------- EXPENSES Operating 72,401 66,713 215,004 178,226 Transportation 5,909 4,980 17,816 13,716 General and administrative 12,891 9,628 41,396 28,163 Interest on bank debt 18,340 13,908 50,053 34,197 Interest on convertible debentures 4,515 1,908 13,936 4,024 Depletion, depreciation and amortization 179,043 168,639 531,267 469,129 Accretion of asset retirement obligations (Note 7) 3,870 2,851 11,609 7,759 (Gain) loss on financial derivatives (Note 11) (2,347) (73,297) (8,115) (66,928) ------------------------------------------------------------------------- 294,622 195,330 872,966 687,848 ------------------------------------------------------------------------- Earnings before taxes (9,029) 110,740 16,932 177,554 Current income taxes (recovery) 596 2,540 3,043 2,268 Capital taxes 3,276 5,113 7,903 9,167 Future income tax expense (recovery) (Note 14) (28,599) 424 298,956 (78,614) ------------------------------------------------------------------------- (24,727) 8,077 309,902 (67,179) ------------------------------------------------------------------------- NET (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME 15,698 102,663 (292,970) 244,733 Deficit, beginning of period (1,291,621) (499,843) (724,139) (363,712) Distributions declared (130,505) (149,918) (389,320) (428,119) ------------------------------------------------------------------------- Deficit, end of period $(1,406,429) $ (547,098) $(1,406,429) $ (547,098) ------------------------------------------------------------------------- Net (loss) earnings per unit (Note 12) Basic $ 0.07 $ 0.49 $ (1.29) $ 1.23 Diluted $ 0.07 $ 0.48 $ (1.29) $ 1.21 Weighted average units outstanding (Note 12) Basic 228,328 210,226 227,389 199,640 Diluted 231,002 217,337 227,389 204,415 ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------------------------------------------- ($CDN thousands) unaudited 2007 2006 2007 2006 ------------------------------------------------------------------------- OPERATING ACTIVITIES Net (loss) earnings $ 15,698 $ 102,663 $ (292,970) $ 244,733 Adjustments for: Unit-based compensation 1,606 (1,856) 6,048 16,814 Depletion, depreciation and amortization 179,043 168,639 531,267 469,129 Accretion of asset retirement obligations 3,870 2,851 11,609 7,759 Unrealized (gain) loss on financial derivatives 9,827 (72,453) 8,342 (79,759) Future income tax expense (recovery) (28,599) 424 298,956 (78,614) Accretion of deferred transaction costs 159 - 763 - Asset retirement costs incurred (4,096) (4,639) (11,160) (10,563) Changes in non-cash operating working capital 4,654 (56,985) 21,128 (83,676) ------------------------------------------------------------------------- 182,462 138,644 573,983 485,823 ------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from (repayment of) bank debt 31,264 329,224 84,324 479,747 Proceeds from issuance of units, net of issue costs 30,087 453,016 51,466 469,366 Proceeds from issuance of convertible debentures, net of issue costs - 220,800 - 220,800 Distributions to unitholders (130,017) (144,859) (397,534) (416,974) ------------------------------------------------------------------------- (68,666) 858,181 (261,744) 752,939 ------------------------------------------------------------------------- INVESTING ACTIVITIES Acquisition of petroleum and natural gas properties (14,465) (4,480) (16,637) (28,349) Disposition of petroleum and natural gas properties 6,005 - 55,768 5,000 Corporate acquisitions, net of cash - (897,458) - (933,458) Capital expenditures (105,036) (94,887) (351,370) (281,955) ------------------------------------------------------------------------- (113,496) (996,825) (312,239) (1,238,762) ------------------------------------------------------------------------- Cash beginning and end of period $ - $ - $ - $ - ------------------------------------------------------------------------- The Trust paid the following cash amounts: Interest paid $ 20,040 $ 14,986 $ 65,058 $ 41,881 Income and capital taxes paid $ 1,022 $ 4,413 $ 9,779 $ 14,888 ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. DATASOURCE: Canetic Resources Trust CONTACT: or to receive a complete copy of Canetic's third quarter operating and financial results, including the MD&A and Financial Statements free of charge, please visit our website at http://www.canetictrust.com/ or contact Canetic investor relations by email at: or toll free telephone at 1-877-539-6300

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