Bankers Petroleum Demonstrates Strong Revenue and Funds from Operations Gains in Third Quarter 2006 Continued Momentum in U.S. Exploration Program While Expanding Scope of Albanian Development Unless otherwise noted, all figures contained in this release are in U.S. dollars. CALGARY, Nov. 9 /CNW/ - Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) today announced improved third quarter results. Revenue for the quarter more than doubled to $9.2 million compared to $3.7 million in the third quarter of 2005. Funds from operations were $3.0 million, compared to cash used in operations of $94,000 for the comparable period in 2005. "Our results in Albania continue to improve due to the activities of our strong operational team," said Richard Wadsworth, President. "Once again, production, revenue and netback improved over the quarter and we anticipate closing the year in a strong position. In addition, our enhanced oil pilot project study is progressing, which we believe can increase production and resource recovery beyond the primary development plan in place for the Patos Marinza oilfield. We anticipate concluding our study and obtaining approvals to proceed by year-end with first drilling in the second half of 2007." Mr. Wadsworth continued, "We've made significant steps in our U.S. exploration program in a fairly short period of time. It's taken time to work through the vast amount of data gained through the acquisition, but our operational plans are coming together as expected. We're currently testing in the Palo Duro basin in Texas, finished drilling our first well in Oklahoma and are about to start our drilling program in New York. I'm pleased to report that we are delivering on what we said we'd accomplish by year-end." Third Quarter Highlights: - Average production increased 123% to 4,000 bopd from 1,793 bopd for the same period in 2005, and 25% compared to 3,193 bopd for the second quarter of 2006. - Oil and gas revenue rose 149% to $9.2 million from $3.7 million in the comparable period in 2005, and 24% from $7.4 million in the second quarter of 2006. - The netback in Albania improved to $12.44 per barrel from $11.09 in the preceding quarter and $6.49 per barrel for the same period in 2005. - Funds from operations decreased slightly to $3.0 million from $3.3 million for the three months ended June 30, 2006, due to a large foreign exchange gain recorded during the second quarter. The Company used $94,000 of cash in operations for the third quarter of 2005. - The $20.0 million debt financing was closed subsequent to the quarter with Raiffeisen Bank Sh. A., an Austrian bank based in Albania. The proceeds of this financing will be used in funding the on-going capital program in the Patos Marinza oilfield. - Approximately 43% of the Company's crude oil was exported during the third quarter at an average of $30.81 per barrel. - The Company expects its 2006 exit production rate will average between 4,400 to 4,600 bopd. - The Misener No. 1 well has been successfully fracture stimulated in the upper 150 feet of the Bend Shale in Palo Duro, Texas, after a second stimulation attempt. The well is currently being tested. Bankers is currently isolating and testing individual zones in the Cogdell No.1-1 well to gather additional data to be incorporated into the fracture stimulation. - In Oklahoma, the Nickel Hill No. 1-26 well reached its total target depth of 9,979 feet on November 3, 2006. Electric logs and sidewall cores are currently being analyzed so that a fracture stimulation program can be designed for perforation and fracture stimulation in December. The drilling rig is moving to Bankers' next well in Hughes County. - The Company's first Trenton-Black River and Utica shale well, the Butler Creek No. 1, is expected to be spudded during the next week in New York. Conference Call: A conference call to discuss these results will be held Friday, November 10 at 9:00 a.m. Mountain time, 11:00 a.m. Eastern time. To participate in the conference call, please dial 1-800-814-4860 or 1-416-644-3415 approximately 10 minutes prior to the call. A live and archived audio webcast of the conference call will also be available on Bankers' website at www.bankerspetroleum.com. About Bankers Petroleum Ltd. Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration and production company focused on opportunities in unconventional petroleum assets. Bankers holds interests in four prospects in the Northern and Central regions of the United States, where it is currently pursuing the exploration of shale gas plays. It also operates in the Patos-Marinza oilfield in Albania pursuant to a license agreement, producing heavy oil. Bankers shares are traded on the Toronto Stock Exchange and the AIM Market in London, England under the ticker symbol BNK. MANAGEMENT'S DISCUSSION AND ANALYSIS The following is management's discussion and analysis (MD&A) of Bankers Petroleum Ltd's (Bankers or the Company) operating and financial results for the three and nine month periods ended September 30, 2006, compared to the preceding quarter and the corresponding period in the prior year, as well as information and expectations concerning the Company's outlook based on currently available information. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the three and nine month periods ended September 30, 2006 and the audited consolidated financial statements and MD&A for the year ended December 31, 2005. Additional information relating to Bankers, including its Annual Information Form, is on SEDAR at www.sedar.com or on the Company's website at www.bankerspetroleum.com. All dollar values are expressed in U.S. dollars, unless otherwise indicated. This report is prepared as of November 9, 2006. NON-GAAP MEASURES Funds from operations is a non-GAAP measure that represents cash provided by (used in) operating activities, as per consolidated statements of cash flows, before changes in non-cash working capital. The Company considers this a key measure as it demonstrates its ability to generate the funds necessary for future growth. Netback per barrel and its components are calculated by dividing revenue, royalties, operating, sales and transportation expenses by the gross sales volume during the period. Netback per barrel is a non-GAAP measure but it is commonly used by oil and gas companies to illustrate the unit contribution of each barrel produced. Net operating income is similarly a non-GAAP measure that represents revenue net of royalties and operating expenses. The Company believes that net operating income is a useful supplemental measure to analyze operating performance and provides an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. The non-GAAP measures referred to above do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures used by other companies. CAUTION REGARDING FORWARD-LOOKING INFORMATION Certain information contained in this news release and MD&A respecting the Company and the Company's properties constitute forward-looking statements. The use of any of the words "target", "plans", "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. Such forward-looking information, including but not limited to statements as to production targets, timing of the Company's planned work program and management's belief as to the potential of certain properties, involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company and its operations to be materially different from estimated costs or results expressed or implied by such forward-looking statements. Such factors include, among others general risks and uncertainties associated with exploration, petroleum operations and risks associated with equipment procurement and equipment failure as well as those described under "Risk Factors" in the Company's Annual Information Form and in each management discussion and analysis. Although the Company has attempted to take into account important factors that could cause actual costs or results to differ materially, there may be other factors that cause costs of the Company's program or results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. OVERVIEW Three months ended Nine months ended September 30 September 30 ------------------------ ------------------------ Results at a Glance 2006 2005 % 2006 2005 % ------------------------------------------------------------------------- Financial ($000s, except as noted) Oil and gas revenue 9,240 3,670 152 22,336 9,065 146 Net operating income 4,316 1,405 207 9,417 2,595 263 Loss for the period (208) (315) 34 (1,454) (2,743) 47 Funds from (used in) operations 2,950 (94) 3,238 6,925 (821) 943 Additions to property, plant and equipment 12,853 5,745 124 55,353 24,238 128 Total assets 127,106 53,083 139 Shareholders' equity 115,002 50,749 127 Operating Average daily production (bopd) 4,000 1,793 123 3,263 1,516 115 Average sales volume (bopd) 3,776 1,791 111 3,149 1,490 111 Average price ($/barrel) 26.63 22.28 20 25.97 22.27 17 Netback ($/barrel) 12.44 6.49 92 10.95 5.72 91 Bankers continued to increase its production, revenues and funds from operations during the third quarter of 2006: - Average production during the quarter was 4,000 bopd compared to 3,193 bopd for the preceding quarter and 1,793 bopd for the same period in 2005, increases of 25% and 123% respectively. - Exit production for September 2006 was approximately 4,210 bopd. - The netback in Albania improved to $12.44 per barrel from $11.09 per barrel in the preceding quarter and $6.49 per barrel for the same period in 2005, increases of 12% and 91% respectively. - Higher production and prices resulted in increased revenues of $9.2 million for the quarter compared to $7.4 million in the preceding quarter and $3.7 million for the same period in 2005. - Funds from operations were $3.0 million during the quarter compared to $3.3 million for the preceding quarter. The moderate decline in funds flow from operations related to a large foreign exchange gain recorded in the second quarter. The Company used $94,000 of its cash resources in operations for the same period in 2005. Albania The Company exported 43% of its crude during the third quarter at an average price of $30.81 per barrel. In comparison, export made up 26% of the sales during the second quarter at an average price of $31.61 per barrel. The increased exports helped Bankers to weather declining oil prices. As a result, the Company averaged $26.63 per barrel during the third quarter compared to $25.64 per barrel for the second quarter. Other significant events during the quarter included: - A scoping study for an Enhanced Oil Recovery (EOR) project was initiated in the Patos Marinza field. The evaluation, economic analysis and modeling of a thermal pilot project for the southern part of the field is progressing with approvals required to proceed with the project expected by year-end. - Subsequent to the quarter, Bankers closed its $20.0 million debt financing with Raiffeisen Bank Sh. A. in Albania. The proceeds of this financing will be used in funding the on-going capital program in the Patos Marinza oilfield. United States - In Palo Duro, Texas, the Misener No. 1 well has been successfully fracture stimulated in the upper 150 feet of the Bend Shale after a second stimulation attempt. The well is currently being tested as most of the fracture fluid has been recovered. Production rates have not been stable due to mechanical issues with the pumping unit; therefore a long enough test to determine sustained rates has not yet occurred. - Previously, Bankers had initiated a small fracture stimulation in a lower Granite Wash sand interval. The testing of this interval resulted in the recovery of uneconomic quantities of oil. - After an extended production test of the currently producing shale interval, the Company will decide whether to perforate and stimulate additional Bend Shale intervals in this well or whether a follow up horizontal well is warranted. - Bankers is currently isolating and testing individual zones in the Cogdell No. 1-1 well to gather additional data. This data is being incorporated into the fracture stimulation of the Cogdell No. 1-1 well along with information obtained from the Misener No. 1 well. After the Cogdell work is completed, it is expected that the Jones well will be perforated and a stimulation will be designed for the Bend Shale interval in the next two months. - In Oklahoma, the Nickel Hill No. 1-26 well was spudded in October and reached its total target depth of 9,979 feet on November 3. While the main target is the Woodford shale, the Caney shale as well as other secondary target zones are also being evaluated. Electric logs and sidewall cores are currently being analyzed so that a fracture stimulation program can be designed. It is anticipated that the well will be perforated and fracture stimulated in December. - The drilling rig that Bankers has under contract is moving to Hughes County to begin drilling the Lake Holdenville No. 35-1 well. This well is also primarily targeting the Woodford shale and will have an expected total depth of 6,500 feet. - The Company is about to spud its first Trenton-Black River and Utica shale well, the Butler Creek No. 1, during the next week in upstate New York. This well has an expected total depth of 3,700 feet. - In addition, Bankers is currently waiting on equipment to be able to fracture stimulate two existing wells in New York. One of the wells had an initial unstimulated production rate of 300 mcf/d of gas, which declined to a 30 day stabilized rate of about 15 mcf/d after nine months of production. DISCUSSION OF OPERATING RESULTS Production and Revenue During the quarter, production continued to increase as more wells were re-activated in Albania, bringing the active well count to 114 from 85 in the preceding quarter. As at September 30, 2006, the Company also had 41 wells waiting for servicing and reactivation. Average production increased 25% to 4,000 bopd from 3,193 bopd for the preceding quarter and 123% from 1,793 bopd from the same period a year ago. The exit production rate was approximately 4,210 bopd at September 30, 2006, and further production increases are continuing into the fourth quarter although at a lesser rate due to the impact of more difficult seasonal weather conditions. Bankers sells a portion of its crude oil to Armo Sh. A., an Albanian state owned refining and marketing organization (ARMO) pursuant to an agreement under which the price per barrel is determined by reference to Brent crude oil with caps and collars adjusted for quality. The average price received from ARMO during the quarter ended September 30, 2006 was $23.48 per barrel compared to $23.58 per barrel for the preceding quarter and $22.28 per barrel for the same period a year earlier. Bankers has the right to export all of its production. The Company exported approximately 43% of its crude oil to Italy during the quarter at an average price of $30.81 per barrel. During the preceding quarter, the Company exported 26% of its crude at an average price of $31.61 per barrel. The Company intends to maintain the current level of exports however increasing production will result in declines in the proportionate share of exports until arrangements are made to further increase export capability. The Company's average oil price for the quarter was $26.63 per barrel, up from $25.64 per barrel for the preceding quarter. The increased exports helped the Company to increase its average oil price at a time of declining oil prices. Oil and gas revenues for the quarter were $9.2 million up from $7.4 million for the quarter ended June 30, 2006, and $3.7 million for the corresponding quarter a year ago, increases of 24% and 149% respectively. The revenues for the nine months ended September 30, 2006, were $22.3 million compared to $9.1 million for the same period a year ago, an increase of 145%. Royalties, Direct Expenses and Netbacks Royalties are calculated pursuant to the Petroleum Agreement with Albpetrol Sh. A (Albpetrol) in Albania, and consist of Albpetrol's pre-existing production and a 1% gross overriding royalty on production. Royalties increased slightly to $3.04 per barrel from $2.98 per barrel in the preceding quarter. The royalties averaged $2.59 per barrel for the corresponding period in 2005. The increase in royalties over the last year was related to the greater number of wells being taken over from Albpetrol which resulted in higher pre-existing production. Operating expenses per barrel declined moderately to $9.05 per barrel from $9.91 per barrel in the preceding quarter and $12.23 per barrel for the same period in 2005. The Company successfully reduced unit operating costs from $15.68 per barrel in March 2005 to its current levels through operating efficiencies and economies of scale. A significant portion of Bankers' operating costs are well servicing related costs, which will fluctuate from period to period. However, it is anticipated that economies of scale resulting from higher production will continue to impact unit operating costs positively into the future. Sales and transportation expenses increased to $2.10 per barrel from $1.66 per barrel in the preceding quarter and $0.97 per barrel for the same period in 2005. This increase was directly related to incremental costs of additional transportation, inspection and port fees associated with crude oil exports. During the quarter ended September 30, 2006, the Company exported 43% of its crude compared to 26% for the preceding quarter. Bankers had not yet commenced exports during the corresponding period in 2005. The Company's netback per barrel improved to $12.44 per barrel from $11.09 per barrel in the preceding quarter and $6.49 per barrel for the same period in 2005. The improvements in netbacks resulted from higher oil prices received as a result of exports and the reduction in unit operating costs. Three months ended Nine months ended September 30 September 30 ------------------------ ------------------------ Netback ($/bopd) 2006 2005 % 2006 2005 % ------------------------------------------------------------------------- Average price ($/barrel) 26.63 22.28 20 25.97 22.27 17 Royalties 3.04 2.59 17 3.02 2.29 32 Sales and transportation 2.10 0.97 116 1.84 1.00 84 Operating 9.05 12.23 (26) 10.17 13.26 (23) ------------------------- ------------------------- Netback ($/barrel) 12.44 6.49 92 10.95 5.72 91 ------------------------- ------------------------- ------------------------- ------------------------- General and Administrative Expenses General and administrative expenses for the quarter were $1.4 million compared to 1.5 million for the preceding quarter and $1.4 million for the same period in 2005, which included non-recurring charges of approximately $594,000 related to the listing of the Company's common shares on the AIM Market. The increase in general and administrative expenses reflects higher personnel costs with the addition of new employees and higher consulting fees and travel expenses related to the Company's operating and financing activities. During the quarter, the Company capitalized general and administrative expenses of $325,000 compared to $269,000 for the preceding quarter and $143,000 for the same period in 2005 in Albania and the United States. These expenses were directly related to acquisition, exploration and development activities. Depletion, Depreciation and Accretion Depletion, depreciation and accretion expenses for the quarter ended September 30, 2006, were $1.2 million compared to $961,000 for the preceding quarter and $649,000 for the same period in 2005. The increase in depletion, depreciation and accretion expenses reflects higher production and increase in depletable assets. Future Income Tax Expense The net book value of the Albanian assets exceed their tax values by $6.1 million due to depletion and depreciation expenses not being deductible for income tax purposes in Albania. Future income tax expense was calculated at the rate of 50% on the incremental difference between the net book and tax values of the Albanian assets. Loss for the Period and Funds from Operations The Company recorded a loss of $208,000 ($0.00 per share) during the quarter compared to a loss of $253,000 ($0.00 per share) for the preceding period and $315,000 ($0.00 per share) for the same period in 2005. The loss for the nine month period was $1.5 million ($0.00 per share) compared to a loss of $2.7 million ($0.01 per share) for the same period in 2005. Bankers generated funds from operations of $3.0 million during the third quarter compared to $3.3 million for the preceding quarter. The moderate decline in funds flow from operations was related to a $1.3 million foreign exchange gain recorded in the second quarter. The Company used $94,000 of its cash resources in operations for the same period in 2005. Funds from operations for the nine month period ended September 30, 2006 were $6.9 million compared to funds used in operations of $821,000 for the same period a year ago, a turn around of $7.7 million. CAPITAL EXPENDITURES Three months ended Nine months ended September 30 September 30 ------------------------------------------------------------------------- ($000) 2006 2005 2006 2005 ------------------------------------------------------------------------- Albania 9,467 3,054 31,014 11,742 United States 2,948 2,297 23,861 12,102 Canada 438 394 478 394 --------------------------------------- 12,853 5,745 55,353 24,238 --------------------------------------- --------------------------------------- The Company incurred $7.9 million on well reactivations in Albania during the quarter. The balance of the expenditures was incurred as follows: construction of the pad facilities - $495,000; the central treatment facilities - $609,000; and miscellaneous asset acquisitions and capitalized G&A. The Company spent $3.0 million in capital expenditures in Albania for the same period in 2005 which were primarily incurred on well re-activations. In the United States, Bankers spent $2.1 million on the drilling and evaluation costs of the Misener No. 1, Jones No. 1, Stansell No. 1 and Nickel Hill No. 1-26 wells. Approximately $865,000 was related to lease acquisition costs, including bonus and rental payments and other asset acquisitions. The balance was capitalized general and administrative expenses. Bankers spent $2.3 million on lease acquisitions in the United States for the same period in 2005. ASSET RETIREMENT OBLIGATIONS Bankers estimated its undiscounted asset retirement obligations in Albania as $9.0 million based on the 195 wells taken over from Albpetrol to date. This amount will be settled at the end of the Company's 25-year license. The net present value of $1.0 million of asset retirement obligations was estimated based on a credit-adjusted risk free rate of 9%. Asset retirement obligations were increased to 1.1 million at September 30, 2006, as a result of accretion. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2006, Bankers had a working capital of $7.7 million and no debt. In addition, the Company had $10.3 million in field inventory and prepayments to suppliers of $2.4 million in Albania, which were reported as part of the property, plant and equipment. The capital expenditures for the balance of the year are estimated at $8.0 million for Albania and $6.0 million for the U.S. The current field inventory levels and the outstanding prepaid orders are expected to be more than sufficient for well reactivations in Albania during the balance of 2006. The cash capital expenditures in Albania will be payments to local contractors in Albania estimated at $3.0 to $4.0 million, which will be largely financed by funds from operations. In October 2006, Bankers completed its $20.0 million debt financing with an Austrian financial institution based in Albania to fund the ongoing capital expenditures in the country. The facility is comprised of a $15.0 million term loan payable over five years bearing an interest rate of one year London Interbank Overnight Rate (LIBOR) plus 4.5%; and a $5.0 million revolving line of credit bearing an interest rate of LIBOR plus 3.5%. The facility is secured by all of the assets of Bankers Petroleum Albania Ltd., the Company's wholly owned subsidiary, assignment of proceeds from the domestic and export crude oil sales contracts, a pledge of the common shares of Bankers Petroleum Albania Ltd., and a guarantee by the Company. The Company expects that the funds to be generated by operations in Albania during 2007, the current levels of field inventory, and the available debt facility will be sufficient to fund Albanian capital expenditures for fiscal 2007. The U.S. capital expenditures for the balance of the year will be funded by the current working capital. The 2007 capital expenditure program will be geared towards the results of current activities. The funding for these activities may be generated from a combination of equity and debt financing or joint venture arrangements. There is no assurance that Bankers will be able to secure the necessary funds through these means. RELATED PARTY TRANSACTIONS Bankers contracts with Simmons Drilling (Overseas) Limited, (Simmons) for the provision of rigs and other oil well services at industry competitive rates. Victor Redekop, a Director of Bankers, is a principal shareholder and officer of Simmons. During the quarter ended September 30, 2006, the Company transacted $2.1 million of services with Simmons as compared to $2.5 million for the preceding quarter and $1.3 million for the corresponding period in 2005. The services of Simmons can be terminated upon 60 days notice at the election of the Company. During the quarter ended September 30, 2006, Bankers incurred legal fees of $33,000 in transactions with the firm of DuMoulin Black LLP, of which the corporate secretary of the Company is a partner. The legal fees charged by DuMoulin Black were $207,000 for the preceding quarter and $60,000 for the three months ended September 30, 2005. Bankers also paid $13,000 (three months ended June 30, 2006 - $13,000; three months ended September 30, 2005 - $Nil) for rent and office services to a company related by way of common directors. COMMITMENTS In March 2006, the Company's Plan of Development for the Patos Marinza heavy oilfield in Albania was approved by the National Petroleum Agency of Albania (NPA). Under the Plan of Development, the Company estimated the remaining capital expenditures as at January 1, 2006 between $155.0 million to $213.0 million during the life of the Patos Marinza project. The estimated capital expenditures during the next five years are as follows: ($ millions) Low Case High Case ------------------------------------------------------- 2006 30.2 29.7 2007 38.3 42.2 2008 31.6 29.4 2009 9.5 41.6 2010 10.9 15.5 Remaining 34.5 54.6 ------------------------------------------------------- 155.0 213.0 ------------------------------------------------------- ------------------------------------------------------- Under the Petroleum Agreement, Bankers is required to submit an annual program to NPA which includes the nature and the amount of capital expenditures to be incurred during that year. Significant deviations in this annual program from the Plan of Development will be subject to NPA approval. The Petroleum Agreement provides that disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retains and the future capital expenditures will be adjusted accordingly. In the event that Bankers is not able to generate sufficient capital resources, it may be required to renegotiate the Plan of Development or relinquish all or part of the contract area. The Company has so far incurred $31.0 million in capital expenditures towards the 2006 program. The Company has no commitments under operating leases for office space and equipment. QUARTERLY SUMMARY Below is a summary of Bankers' performance for the third quarter of 2006, with comparative data for the preceding seven quarters. ($000s, except Sept 30 June 30 March 31 Dec 31 Sept 30 as noted) 2006 2006 2006 2005 2005 ------------------------------------------------------------------------- Average daily production (bopd) 4,000 3,193 2,579 2,173 1,793 Average sales volume (bopd) 3,776 3,175 2,474 2,184 1,791 Average price ($/barrel) 26.63 25.64 25.55 23.13 22.28 Royalties 3.04 2.98 3.05 2.77 2.59 Sales and transportation 2.10 1.66 1.68 1.20 0.97 Operating 9.05 9.91 12.31 12.46 12.23 ------------------------------------------------- Netback ($/barrel) 12.44 11.09 8.51 6.69 6.49 ------------------------------------------------- ------------------------------------------------- Oil and gas revenues 9,240 7,407 5,689 4,644 3,670 Royalties 1,055 860 679 564 426 Sales and transportation 728 480 373 241 161 Operating 3,141 2,862 2,741 2,246 1,946 ------------------------------------------------- Net operating income 4,316 3,205 1,896 1,593 1,138 ------------------------------------------------- ------------------------------------------------- General and administrative 1,422 1,450 972 904 1,415 Funds from (used in) operations 2,950 3,251 723 650 (94) Loss for the period (208) (253) (993) (755) (315) Basic and diluted loss per share - - - - - Total assets 127,106 124,321 98,930 56,846 53,083 June 30 March 31 Dec 31 ($000s, except as noted) 2005 2005 2004 ------------------------------------------------------------------------- Average daily production (bopd) 1,527 1,243 1,157 Average sales volume (bopd) 1,475 1,210 1,120 Average price ($/barrel) 22.23 22.15 22.29 Royalties 2.20 1.95 1.09 Sales and transportation 0.99 1.04 1.00 Operating 13.00 15.68 11.87 ----------------------------- Netback ($/barrel) 6.04 3.48 8.33 ----------------------------- ----------------------------- Oil and gas revenues 2,983 2,412 2,296 Royalties 295 213 112 Sales and transportation 132 113 103 Operating 1,744 1,707 1,223 ----------------------------- Net operating income 811 379 858 ----------------------------- ----------------------------- General and administrative 1,008 751 1,253 Funds from (used in) operations (200) (526) (611) Loss for the period (1,355) (1,073) (1,355) Basic and diluted loss per share - - ($0.01) Total assets 52,533 52,340 23,072 OUTSTANDING SHARE DATA There were approximately 411 million shares outstanding on September 30, 2006 and November 8, 2006. In addition, the Company had approximately 39 million stock options, warrants and compensation options outstanding as of the same dates. PRINCIPAL BUSINESS RISKS Bankers' business and results of operations are subject to a number of risks and uncertainties, including but not limited to the following: Exploration, development, production and marketing of oil and natural gas involves a wide variety of risks which include but are not limited to the uncertainty of finding oil and gas in commercial quantities, securing markets for existing reserves, commodity price fluctuations, exchange and interest rate exposure and changes to government regulations, including regulations relating to prices, taxes, royalties and environmental protection. The oil and gas industry is intensely competitive and the Company competes with a large number of companies with greater resources. Bankers' ability to increase its reserves in the future will depend not only on its ability to develop its current properties but also on its ability to acquire new prospects and producing properties. The acquisition, exploration and development of new properties also require that sufficient capital from outside sources will be available to the Company in a timely manner. The availability of equity or debt financing is affected by many factors many of which are beyond the control of the Company. Bankers has a significant investment in Albania. There are a number of risks associated with conducting foreign operations over which the Company has no control, including political instability, potential and actual civil disturbances, ability to repatriate funds, changes in laws affecting foreign ownership and existing contracts, environmental regulations, oil and gas prices, production regulations, royalty rates, income tax law changes, potential expropriation of property without fair compensation and restriction on exports. Additional risks that may affect the Company and its operations are set out in its AIF filed under the Company's profile on www.sedar.com. OUTLOOK The continued success in well re-completions indicates that Bankers' exit production for 2006 will exceed the previously revised target of 4,200 bopd and will likely average between 4,400 to 4,600 bopd. Well activity tends to be lower during the first and fourth quarters of the year due to winter weather conditions in Albania. The recent decline in the crude oil prices since July 2006 will impact the Company's export price negatively. Export crude oil prices are expected to average around $27.00 to $28.00 per barrel during the fourth quarter as compared to the nearly $31.00 per barrel realized during the third quarter. As a result, Bankers expects its net back to decline to approximately $11.00 per barrel in the fourth quarter from $12.44 per barrel in the current quarter. This decline in netback will be somewhat offset by production increases. The overall decline in the Company's net operating income in the fourth quarter as a result of lower oil prices is not expected to be material. In the United States, Bankers continues to explore its newly acquired basins by drilling the first wells in Oklahoma and New York. No revenue is currently estimated to be generated from the U.S. operations during the year. The Company is projecting to be able to outline a comprehensive plan for its U.S. properties in the first quarter of 2007. Future plans will be based on the results of the exploration programs currently underway in Texas, Oklahoma and New York. BANKERS PETROLEUM LTD. CONSOLIDATED BALANCE SHEETS (Unaudited and Expressed in Thousands of United States dollars) ------------------------------------------------------------------------- ASSETS September 30 December 31 2006 2005 --------------------------- Current assets Cash and cash equivalents $ 9,003 $ 13,529 Accounts receivable 4,847 3,846 Crude oil inventory 590 335 Deposits and prepaid expenses 1,212 1,016 --------------------------- 15,652 18,726 Property, plant and equipment (Note 2) 111,454 38,120 --------------------------- $ 127,106 $ 56,846 --------------------------- --------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 7,912 $ 5,766 Asset retirement obligations (Note 3) 1,119 - Future income tax liability 3,073 282 SHAREHOLDERS' EQUITY Share capital (Note 4) 116,413 53,205 Contributed surplus (Note 4) 4,464 2,014 Deficit (5,875) (4,421) --------------------------- 115,002 50,798 --------------------------- $ 127,106 $ 56,846 --------------------------- --------------------------- Commitment (Note 7) Subsequent event (Note 9) See accompanying notes to consolidated financial statements. BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited, expressed in Thousands of United States dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 --------------------- --------------------- 2006 2005 2006 2005 --------------------- --------------------- Revenue Oil and gas revenue $ 9,240 $ 3,670 $ 22,336 $ 9,065 Royalties (1,055) (426) (2,594) (934) ------------------------------------------- 8,185 3,244 19,742 8,131 ------------------------------------------- Expenses Operating 3,141 1,679 8,744 5,130 Sales and transportation 728 160 1,581 406 General and administrative 1,422 1,415 3,844 3,174 Stock-based compensation (Note 4) 706 375 2,450 1,288 Depletion, depreciation and accretion 1,226 649 3,138 1,163 ------------------------------------------- 7,223 4,278 19,757 11,161 ------------------------------------------- 962 (1,034) (15) (3,030) ------------------------------------------- Other income (Expenses) Interest 88 164 482 396 Foreign exchange gain (loss) (32) 259 870 (638) Gain on sale of investment - 557 - 689 ------------------------------------------- 56 980 1,352 447 ------------------------------------------- Earnings (loss) before income taxes 1,018 (54) 1,337 (2,583) Future income tax expense 1,226 261 2,791 160 ------------------------------------------- Loss for the period (208) (315) (1,454) (2,743) Deficit, beginning of period (5,667) (3,351) (4,421) (923) ------------------------------------------- Deficit, end of period $ (5,875) $ (3,666) $ (5,875) $ (3,666) ------------------------------------------- ------------------------------------------- Basic and diluted loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00) ------------------------------------------- ------------------------------------------- See accompanying notes to consolidated financial statements. BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited, expressed in Thousands of United States dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 --------------------- --------------------- Cash provided by (used in) 2006 2005 2006 2005 --------------------- --------------------- Operating activities Loss for the period $ (208) $ (315) $ (1,454) $ (2,743) Items not involving cash: Depletion, depreciation and accretion 1,226 649 3,138 1,163 Foreign exchange gain - (507) - - Future income tax expense 1,226 261 2,791 160 Stock-based compensation (Note 4) 706 375 2,450 1,288 Gain on sale of investment - (557) - (689) ------------------------------------------- Funds from operations 2,950 (94) 6,925 (821) Change in non-cash working capital (Note 8) 2,038 206 (2,791) (123) ------------------------------------------- 4,988 112 4,134 (944) ------------------------------------------- Investing activities Additions to property, plant and equipment (12,853) (5,745) (55,353) (24,238) Proceeds from sale of investment - 1,070 - 2,033 Purchase of investments - (513) - (513) Restricted cash - - - 1,144 Change in non-cash working capital (Note 8) (1,339) - 3,485 - ------------------------------------------- (14,192) (5,188) (51,868) (21,574) ------------------------------------------- Financing activities Issue of common shares, net of share issue costs (Note 4) 2,274 990 43,208 31,577 ------------------------------------------- Increase (decrease) in cash and cash equivalents (6,930) (4,086) (4,526) 9,059 Cash and cash equivalents, beginning of period 15,933 27,666 13,529 14,521 ------------------------------------------- Cash and cash equivalents, end of period (Note 8) $ 9,003 $ 23,580 $ 9,003 $ 23,580 ------------------------------------------- ------------------------------------------- See accompanying notes to consolidated financial statements. Notes to the Consolidated Financial Statements (unaudited, expressed in U.S. dollars) ------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The preparation of interim financial statements is based on accounting principles and practices consistent with those used in the preparation of annual financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with Canadian GAAP have been condensed or omitted. These interim consolidated financial statements should be read together with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2005. In the opinion of the Company, its unaudited interim consolidated financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented. The unaudited consolidated financial statements include the accounts of the Company, Bankers Petroleum Albania Ltd. (formerly Bankers International Energy Ltd), and Bankers Petroleum (U.S.) Inc., its wholly-owned subsidiaries. Unless where otherwise noted, the unaudited interim consolidated financial statements and their accompanying notes are presented in thousands of United States dollars. Certain prior period figures have been re-classified to conform to the current period's presentation. 2. PROPERTY, PLANT AND EQUIPMENT The following tables summarize the Company's property, plant and equipment as at September 30, 2006 and December 31, 2005: 2006 2005 -------------------------------------------- Accumulated Depletion and Net Book Net Book Cost depreciation Value Value --------------------------------------------------------------------- Oil and gas properties - Albania $ 55,615 $ 4,952 $ 50,663 $ 21,543 Oil and gas properties - United States 59,923 - 59,923 16,062 Equipment, furniture and fixtures 1,080 212 868 515 -------------------------------------------- $ 116,618 $ 5,164 $ 111,454 $ 38,120 -------------------------------------------- -------------------------------------------- In March 2006, the Company's Plan of Development in Albania for the Patos Marinza field was approved by the National Petroleum Agency (NPA). This approval allows Bankers to take-over the remaining wells in the field on a basis consistent with the Plan of Development and produce and sell oil under the existing license agreement for a period of 25 years with an option to extend at the Company's election for further five year increments. In May 2006, the Company closed an acquisition of oil and gas properties in the United States. The purchase price for the assets was $30 million of which $20 million was satisfied by the issuance of 25,971,715 common shares of the Company with a fair market value of CAD $0.877 per share. The balance was paid in cash. As part of the transaction an additional $1 million cash payment was made to third parties to settle competing claims in respect of some of the acquired acreage. The Company capitalized general and administrative expenses of $325,000 and $825,000 during the three and nine months period ended September 30, 2006 ($143,000 and $418,000 for the corresponding periods in 2005) in Albania and the United States that were directly related to exploration and development activities. Depletion for the three months ended September 30, 2006 included $81 million (2005- $123 million) for estimated future development costs associated with proved undeveloped reserves in Albania. 3. ASSET RETIREMENT OBLIGATIONS Prior to the approval of its Plan of Development, the Company did not make a provision for asset retirement obligations in Albania as there was no legal obligation during the evaluation period. Subsequent to approval in March 2006, the Company estimated the total undiscounted amount required to settle the asset retirement obligations at $9,038,000. These obligations will be settled at the end of the Company's 25-year license. The undiscounted liability has been discounted using a credit-adjusted risk-free interest rate of 9%. Currently the Company has no significant asset retirement obligations for its oil and gas properties in the United States. --------------------------------------------------------------------- Asset retirement obligations, December 31, 2005 $ - Liabilities incurred during the period 1,048 Accretion 71 ----------- Asset retirement obligations, September 30, 2006 $ 1,119 ----------- ----------- 4. SHAREHOLDERS' EQUITY (a) Share capital and Contributed surplus Authorized Unlimited number of common shares with no par value. Issued Number of Contributed Common Shares Amount Surplus --------------------------------------------------------------------- Balance, December 31, 2004 286,295,739 $ 20,956 $ 593 Shares issued pursuant to private placement 31,000,000 29,588 - Share issuance costs - (1,557) - Exercise of warrants and options 9,219,248 3,282 (247) Exercise of compensation options 1,071,546 679 (155) Finder's fee 400,000 256 - Stock-based compensation - - 1,823 ---------------------------------------- Balance, December 31, 2005 327,986,533 53,204 2,014 Shares issued pursuant to private placement 50,000,000 43,200 - Issue of common shares for oil and gas properties 25,971,715 20,000 Share issuance costs - (2,698) - Shares issued on exercise of warrants 7,523,750 2,707 - Stock-based compensation - - 2,450 ---------------------------------------- Balance, September 30, 2006 411,481,998 $ 116,413 $ 4,464 ---------------------------------------- ---------------------------------------- The weighted average number of common shares used in the calculation of basic and diluted loss per share was 408,909,069 and 381,048,029 for the three and nine month periods ended September 30, 2006 (326,141,372 and 315,435,916 for the same periods in 2005). In March 2006, the Company completed a financing with a syndicate on a bought-deal basis pursuant to which the Underwriters purchased for resale to the public, an aggregate of 50,000,000 common shares of the Company at a price of CAD$1.00 per common share. The net proceeds of the offering were $40,783,000. In May 2006, the Company issued 25,971,715 common shares at a fair market value of CAD $0.877 per share, valued at $20,000,000 as partial consideration for the acquisition of oil and gas properties in the United States (Note 2). (b) Warrants Weighted Average Number of Exercise Warrants Price (CAD $) --------------------------------------------------------------------- Balance, December 31, 2005 23,554,705 0.76 Warrants exercised 7,323,750 0.40 Warrants expired 721,250 0.40 --------------------------- Balance, September 30, 2006 15,509,705 0.95 --------------------------- --------------------------- The following table summarizes the outstanding and exercisable warrants at September 30, 2006. Weighted Average Exercise Number of Warrants Expiry Date Price (CAD $) --------------------------------------------------------------------- 15,509,705 November 10, 2009 0.95 (c) Stock Options Weighted Average Number of Exercise Options Price (CAD $) --------------------------------------------------------------------- Balance, December 31, 2005 14,605,000 0.70 Options granted 8,800,000 1.05 --------------------------- Balance, September 30, 2006 23,405,000 0.83 --------------------------- --------------------------- (d) Compensation Options In connection with the November 2004 private placement, the brokers were issued 1,856,182 compensation options exercisable to purchase units of the Company at a price of $0.55 per unit. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at $0.95 until November 10, 2009. As at September 30, 2006, 584,636 of the compensation options issued were outstanding. (e) Stock-based Compensation Using the fair value method for stock-based compensation, the Company recorded a charge to earnings of $706,000 and $2,450,000 for the three and nine month periods ended September 30, 2006 ($375,000 and $1,288,000 for the same periods in 2005) for the stock options vested and/or granted to officers, directors, employees and service providers. The Company determined these amounts using the Black- Scholes option pricing model assuming no dividends were paid. The weighted average fair market value per option granted in the three and nine month periods ended September 30, 2006 and 2005 and the assumption used in their determination were as follows: Three months ended Nine months ended September 30 September 30 --------------------------------------------------------------------- 2006 2005 2006 2005 --------------------------------------------------------------------- Weighted average fair value per option $0.42 $0.47 $0.46 $0.23 Risk-free interest rate (%) 3.66 3.65 3.63 3.65 Average volatility (%) 63 28 54 28 Expected life (years) 5 5 5 5 5. SEGMENTED INFORMATION The Company defined its reportable segments based on geographic locations. Nine months ended United September 30, 2006 Albania States Canada Total --------------------------------------------------------------------- Revenue Oil and gas revenue, net of royalties $ 19,742 $ - $ - $ 19,742 --------------------------------------- Expenses Operating 8,744 - - 8,744 Sales and transportation 1,581 - - 1,581 General and administrative 1,534 410 1,900 3,844 Stock-based compensation 576 560 1,314 2,450 Depletion, depreciation and accretion 3,099 10 29 3,138 --------------------------------------- 15,534 980 3,243 19,757 --------------------------------------- Segment earnings (loss) 4,208 (980) (3,243) (15) ----------------------------- Other income 1,352 Future income tax expense (2,791) --------------------------------------- Loss for the period $ (1,454) --------------------------------------- --------------------------------------- Assets, September 30, 2006 $ 57,415 $ 61,352 $ 8,339 $127,106 --------------------------------------- --------------------------------------- Additions to property, plant and equipment $ 31,386 $ 23,905 $ 62 $ 55,353 --------------------------------------- --------------------------------------- Nine months ended United September 30, 2005 Albania States Canada Total --------------------------------------------------------------------- Revenue Oil and gas revenue, net of royalties $ 8,131 $ - $ - $ 8,131 Expenses Operating 5,130 - - 5,130 Sales and transportation 406 - - 406 General and administrative 1,116 - 2,058 3,174 Stock-based compensation 162 442 684 1,288 Depletion, depreciation and accretion 1,152 - 11 1,163 --------------------------------------- 7,966 442 2,753 11,161 --------------------------------------- Segment earnings (loss) 165 (442) (2,753) (3,030) ----------------------------- Other income 447 Future income tax expense (160) --------------------------------------- Loss for the period $ (2,743) --------------------------------------- --------------------------------------- Assets, September 30, 2005 $ 18,725 $ 13,352 $ 21,006 $ 53,083 --------------------------------------- --------------------------------------- Additions to property, plant and equipment $ 12,139 $ 12,099 $ - $ 24,238 --------------------------------------- --------------------------------------- Three months ended United September 30, 2006 Albania States Canada Total --------------------------------------------------------------------- Revenue Oil and gas revenue, net of royalties $ 8,185 $ - $ - $ 8,185 --------------------------------------------------------------------- Expenses Operating 3,141 - - 3,141 Sales and transportation 728 - - 728 General and administrative 567 195 660 1,422 Stock-based compensation 313 129 264 706 Depletion, depreciation and accretion 1,210 5 11 1,226 --------------------------------------- 5,959 329 935 7,223 --------------------------------------- Segment earnings (loss) 2,226 (329) (935) 962 ----------------------------- Other income 56 Future income tax expense (1,226) --------------------------------------- Loss for the period $ (208) --------------------------------------- --------------------------------------- Additions to property, plant and equipment $ 9,839 $ 2,992 $ 22 $ 12,853 --------------------------------------- --------------------------------------- Three months ended United September 30, 2005 Albania States Canada Total --------------------------------------------------------------------- Revenue Oil and gas revenue, net of royalties $ 3,244 $ - $ - $ 3,244 --------------------------------------- Expenses Operating 1,679 - - 1,679 Sales and transportation 160 - - 160 General and administrative 396 - 1,019 1,415 Stock-based compensation 56 155 164 375 Depletion, depreciation and accretion 645 - 4 649 --------------------------------------- 2,936 155 1,187 4,278 --------------------------------------- Segment earnings (loss) 308 (155) (1,187) (1,034) ----------------------------- Other income 980 Future income tax expense (261) --------------------------------------- Loss for the period $ (315) --------------------------------------- --------------------------------------- Additions to property, plant and equipment $ 3,451 $ 2,294 $ - $ 5,745 --------------------------------------- --------------------------------------- 6. RELATED PARTY TRANSACTIONS During the three and nine month periods ended September 30, 2006 and 2005, the Company incurred the following expenses with companies related by way of common directors and/or officers: Three months ended Nine months ended September 30 September 30 --------------------------------------------------------------------- 2006 2005 2006 2005 --------------------------------------------------------------------- Legal fees $33,000 $60,000 $296,000 $147,000 Rent and office services 13,000 - 43,000 - Oil well servicing 2,123,000 1,227,000 6,421,000 3,059,000 At September 30, 2006 and 2005, the following amounts payable to companies related by way of common directors and/or officers were included in accounts payable and accrued liabilities. These balances bear no interest and have no fixed terms of repayment: ($) 2006 2005 --------------------------------------------------------------------- Legal fees $ 56,000 $ 26,000 Oil well servicing 1,145,000 732,000 These transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 7. COMMITMENT In March 2006, the Company's Plan of Development for the Patos Marinza heavy oilfield in Albania was approved by the NPA. Under the Plan of Development submitted to NPA, the Company estimated the remaining capital expenditures as at January 1, 2006 between $155 million to $213 million during the life of the Patos Marinza project. The estimated capital expenditures during the next five years are as follows: ($ millions) Case I Case II --------------------------------------------------------------------- 2006 30.2 29.7 2007 38.3 42.2 2008 31.6 29.4 2009 9.5 41.6 2010 10.9 15.5 Remaining 34.5 54.6 --------------------------------------------------------------------- 155.0 213.0 --------------------------------------------------------------------- --------------------------------------------------------------------- The Petroleum Agreement stipulates that the Company submit to NPA each year an annual program which includes the nature and the amount of capital expenditures to be incurred in that year. Significant deviations in this annual program from the Plan of Development will be subject to NPA approval. Disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retained and the future capital expenditures will be adjusted accordingly. The Company spent $31 million towards its 2006 commitment during the nine month period ended September 30, 2006. 8. SUPPLEMENTAL CASH FLOW INFORMATION September 30 September 30 Nine months ended 2006 2005 --------------------------------------------------------------------- Operating activities Decrease (increase) in current assets Accounts receivable $ (1,001) $ 343 Inventory (255) (336) Deposits and prepaid expenses (196) 141 Increase (decrease) in current liabilities Accounts payable and accrued liabilities (1,339) (271) --------------------------- $ (2,791) $ (123) --------------------------- --------------------------- Investing activities Increase in current liabilities Accounts payable and accrued liabilities $ 3,485 $ - --------------------------- --------------------------- Cash and cash equivalents Cash $ 3,365 $ 13,579 Fixed income investments 5,638 10,001 --------------------------- $ 9,003 $ 23,580 --------------------------- --------------------------- 9. SUBSEQUENT EVENT Subsequent to September 30, 2006, the Company closed a $20 million debt financing with a European financial institution based in Albania. The facility is comprised of a $15 million 5 year term loan bearing interest at one year LIBOR plus 4.5% and a $5 million revolving line of credit bearing interest at one year LIBOR plus 3.5%. The facility is secured by all of the assets of Bankers Petroleum Albania Ltd., the Company's wholly owned subsidiary, assignment of proceeds from the domestic and export crude oil sales contracts, a pledge of the common shares of Bankers Petroleum Albania Ltd., and a guarantee by the Company. For further information: Susan J. Soprovich, VP, Investor Relations and Corporate Governance, Ph: (403) 541-5313, Email: investorrelations(at)bankerspetroleum.com, Website: www.bankerspetroleum.com BNK END