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FOR: NUVISTA ENERGY LTD.

TSX SYMBOL: NVA - |  View Quote |  View Chart |  View Financials | 

NuVista Energy Ltd. Announces 2006 Year End Results

Mar 1, 2007 - 19:57 ET

CALGARY, ALBERTA--(CCNMatthews - March 1, 2007) - NuVista Energy Ltd. (TSX:NVA) is pleased to announce its financial and operating results for the three months and year ended December 31, 2006 as follows:



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Corporate Highlights
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Three Months ended Year ended
December 31, % December 31, %
2006 2005 Change 2006 2005 Change
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Financial
($ thousands, except
per share)
Production revenue 49,195 63,315 (22) 192,639 169,680 14
Funds from operations (1) 26,619 39,258 (32) 107,090 104,881 2
Per share - basic 0.54 0.81 (33) 2.20 2.40 (8)
Per share - diluted 0.53 0.78 (32) 2.15 2.31 (7)

Net income 5,765 16,247 (65) 35,284 39,506 (11)
Per share - basic 0.12 0.34 (65) 0.72 0.90 (20)
Per share - diluted 0.12 0.32 (63) 0.71 0.87 (18)

Total assets 590,084 432,432 36

Bank loan, net of
working capital 167,084 69,903 139

Shareholders' equity 296,513 255,604 16

Net capital
expenditures 39,117 15,259 156 206,728 238,506 (13)

Weighted average common
shares
outstanding (thousands):
Basic 49,007 48,351 1 48,731 43,765 11
Diluted 49,872 50,055 - 49,870 45,389 10
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Operating
(boe conversion
- 6:1 basis)

Production:
Natural gas (mmcf/day) 61.9 52.0 19 58.2 40.5 44
Oil and liquids
(bbls/day) 2,296 2,365 (3) 2,264 2,281 (1)
Total oil equivalent
(boe/day) 12,612 11,031 14 11,962 9,024 33

Product prices:
Natural gas ($/mcf) 6.97 11.35 (39) 7.11 9.02 (21)
Oil and liquids ($/bbl) 45.10 41.39 9 50.25 43.85 15

Operating expenses:
Natural gas ($/mcf) 0.90 0.74 22 0.83 0.72 15
Oil and liquids ($/bbl) 14.57 7.24 101 9.89 7.22 37
Total oil equivalent
($/boe) 7.09 5.04 41 5.91 5.07 17

Field netback ($/boe) (2) 25.53 40.38 (37) 26.52 33.27 (20)

General and
administrative expenses
($/boe) 0.99 0.71 39 0.69 0.55 25

Cash costs ($/boe)(3) 9.68 6.74 44 7.90 6.50 22

Funds from operations
netback ($/boe) (1) 22.94 38.68 (41) 24.53 31.84 (23)
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Operating (continued)
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Year ended
December 31, %
2006 2005 Change
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Undeveloped land:
Gross acres 780,000 525,000 49
Net acres 597,000 428,000 39
Average working interest 77% 81%
Wells drilled gross (net)
Total 159 (126.2) 106 (81.4)
Natural Gas 103 (79.5) 75 (56.8)
Oil 28 (23.0) 16 (11.0)

Reserves (NI 51 - 101) - December 31, 2006
Proved plus probable:
Natural gas (bcf) 158.9 128.3 24
Oil and liquids (mbbls) 6,890 5,564 24
Total barrels of oil equivalent (mboe) 33,367 26,953 24
% of Reserves proved producing 66% 72% (8)
% of Reserves total proved 73% 78% (6)
% of Reserves probable 27% 22% 23
Net present value of future cash flows
before tax ($millions):
@ 5% discount rate 695.0 585.6 19
@ 10% discount rate 561.9 486.8 16

Finding, development and acquisition
costs ($/boe): (4)
Total proved 27.60 18.17 52
Proved plus probable 20.00 15.07 33

NOTES:
(1) Funds from operations and funds from operations per share and per boe
are not defined by GAAP in Canada and are referred to as non-GAAP
measures. Funds from operations are based on cash flow from operating
activities before changes in non-cash working capital and abandonment
expenditures. Funds from operations per share is calculated based on
the weighted average number of common shares outstanding consistent
with the calculation of net income per share. Funds from operations
netback equals the total of revenues less royalties, transportation,
and cash costs calculated on a boe basis. Total boe is calculated by
multiplying the daily production by the number of days in the period.
(2) Field netbacks equal total revenues less royalties, transportation and
operating expenses calculated on a boe basis.
(3) Cash costs equal the total of operating, general and administrative and
interest expenses and cash taxes calculated on a per boe basis.
(4) Includes changes in future capital expenditures.

 


MESSAGE TO SHAREHOLDERS

NuVista Energy Ltd. ("NuVista") is pleased to report to shareholders its financial and operating results for the three months and year ended December 31, 2006. NuVista has now completed three and one half years of operations and considering the volatility in the industry environment, the Board of Directors and management are very pleased with the results, accomplishments and corresponding value created to date. The results of the fourth quarter of 2006 represent the fourteenth consecutive quarter of continuous profitable growth for NuVista since its creation on July 2, 2003. During 2006, NuVista's profitability was impacted by lower natural gas prices but we remained focused on our disciplined approach to business, continued to increase production volumes, improved our ability to generate new drilling prospects, and we have put plans in place to deliver significant organic growth in 2007.

2006 was a challenging business environment for natural gas weighted junior producers in Western Canada with record costs for acquisitions, rising cost pressures within the industry, the delayed onset of winter drilling, scarcity of equipment early in the year, and declining natural gas prices following the warmest winter in 100 years. Despite a late start to our drilling program, NuVista managed to rise above these challenges, successfully implementing our planned capital program. In 2006, NuVista conducted an active drilling program of 159 wells comprised of 103 gas, 28 oil and 28 abandoned wells. In addition, we added a new core area in West Central Saskatchewan and expanded our talented team of employees, significantly reducing our dependence on the technical service agreement with Bonavista Petroleum Ltd. ("Bonavista").

NuVista's production for the three months ended December 31, 2006 averaged 12,612 boe/d and was slightly lower than anticipated due to the delayed tiein of new production. NuVista's exit production rate of approximately 13,300 boe/d was reduced by the curtailment of two new high deliverability wells at third party facilities (300 boe/d) and an unusually high level of downtime (400 boe/d). In late January, production at one of the shut-in wells was restored adding 200 boe/d net to NuVista. NuVista's current production is approximately 13,500 boe/d and is 83% weighted to natural gas. The curtailment of the two wells continues but plans are currently underway to tie one well into a second facility and to conduct facility modifications for the second well. Both wells are expected to be flowing at capability prior to the end of March 2007, adding 300-500 boe/d net to NuVista.

Other significant highlights for NuVista in 2006 include:

- Increased year over year production by 33% to 11,962 boe/d, from 9,024 boe/d in 2005. NuVista's current production level is approximately 13,500 boe/d.

- Increased undeveloped land by 39% to approximately 597,000 net acres, compared to 428,000 net acres at the end of 2005, providing NuVista with over 250 near ready drilling prospects, the largest inventory in our history. NuVista's technical teams are currently adding 175 new prospects each year to inventory;

- Added over 4,000 kilometers of 2D and 230 square kilometers of 3D seismic to further enhance the prospectivity of NuVista's undeveloped land;

- Increased proved plus probable reserves to 33.4 mmboes; a 24% increase on both a gross and per share basis;

- Achieved proved plus probable finding and development costs of $20.00/boe (including changes in future capital and after technical revisions) in a highly competitive environment with increased industry costs;

- Completed a significant acquisition of properties in West Central Saskatchewan creating a new core area and improving our ability to organically generate new drilling opportunities; and

- Increased employee count to 56 office and 18 field staff, increasing the size of our technical teams and establishing new teams in the land, accounting and human resources areas, enabling us to operate more independently and efficiently.

For 2007, NuVista's Board of Director's has approved a capital program of $160 million heavily weighted to exploitation and development activities. The exploitation and development program anticipates that NuVista will participate in 140-160 new wells. To date in 2007, NuVista had an active first quarter and is on track to participate in 40-45 wells.

NuVista's current production guidance of between 14,300 to 14,900 boe/d for 2007 remains on track with the implementation of our planned capital program. Based upon the current commodity price assumptions of $US8.00 per mmbtu Nymex for natural gas and $US60 WTI for crude oil, NuVista is forecasting funds from operations of $135 million to $145 million for 2007. NuVista controls over 95% of our planned capital program and will monitor the capital program based upon acquisition opportunities and commodity prices.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis ("MD&A") of financial conditions and results of operations should be read in conjunction with the interim consolidated financial statements for the three months and year ended December 31, 2006 and NuVista's audited consolidated financial statements and MD&A for the year ended December 31, 2005. The following MD&A of financial condition and results of operations was prepared at, and is dated, March 1, 2007. Our audited consolidated financial statements, current annual information form and other disclosure documents are filed on SEDAR at www.sedar.com, and other corporate documentation can be obtained from our website at www.nuvistaenergy.com.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of NuVista's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond NuVista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management and services, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. NuVista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits that NuVista will derive therefrom. NuVista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Measurements - Within Management's discussion and analysis, references are made to terms commonly used in the oil and gas industry. Management uses funds from operations to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. Funds from operations per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of net income per share. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.

Operating activities - During the fourth quarter of 2006, NuVista participated in 48 wells with an average working interest of 77% operating 44 of these wells. The success rate of 79% in this drilling program resulted in 30 natural gas wells and 8 oil wells. For the year ended December 31, 2006, NuVista drilled 159 (126.2 net) wells, operating 143, resulting in 103 natural gas wells, 28 oil wells and 28 dry holes. NuVista has commenced its 2007 first quarter drilling program of 40 to 45 wells, participating in 24 wells.

Reserves - NuVista's 2006 year end total proved reserves were 24.4 mmboe or a 16% increase over the closing balance at year end 2005. NuVista's proved plus probable reserves increased by 24% to 33.4 mmboe when compared to the equivalent opening balance of 27.0 mmboe at year end 2005. Finding, development and acquisition costs in 2006, including an adjustment for future capital and after revisions, amounted to $27.60 per barrel of oil equivalent on a proved basis and $20.00 per barrel of oil equivalent on a proved plus probable basis. 2006 finding and development costs, on a proved plus probable basis, for exploitation and development activities were $17.85/boe and the cost of NuVista's strategic acquisition in Saskatchewan was $24.19/boe. The capital program for 2006 resulted in a funds from operations netback recycle ratio of 1.2:1 on a proved plus probable basis. NuVista's reserve life index based upon production at December 31, 2006 was 5.0 years on total proved reserves and 6.9 years for proved plus probable reserves. This compares with 5.0 years and 6.5 years respectively at December 31, 2005. All of NuVista's reserves as at December 31, 2006, were evaluated by NuVista's independent engineering consultants, GLJ Petroleum Consultants Ltd.

The following table outlines NuVista's finding, development and acquisition costs and recycle ratios for 2006 and from commencement of operations in July 2003:



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2006 Since July 2003
-------------------------- ----------------------
Proved plus Proved plus
($/boe) Proved Probable Proved Probable

Finding, development and
acquisition cost(1) 27.60 20.00 19.32 15.44
Finding and development
costs(1) 24.36 17.85 19.02 14.92
Acquisition costs 34.09 24.19 19.58 15.91

Finding, development and
acquisition recycle ratio
Field netback 1.0 1.3
Funds from operations netback 0.9 1.2

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(1) Including changes in future capital expenditures.

 


Additional reserve disclosure tables, as required under NI 51-101, will be contained in the Annual Information Form to be filed on SEDAR on or before March 31, 2007. The reserve estimates contained in the following table are NuVista's working interest reserves before the deduction of royalties:



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Oil and
Natural Gas Total Oil
Natural Gas Liquids Equivalent
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(bcf) (mbbls) (mboe)
Total Proved:
Balance, December 31, 2005 99.7 4,410 21,025
Exploration and development 23.0 1,234 5,076
Revisions (1.3) 315 90
Acquisitions 14.9 99 2,582
Dispositions - - -
Production (21.2) (826) (4,366)
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Balance, December 31, 2006(1) 115.1 5,231 24,406
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Proved plus Probable:
Balance, December 31, 2005 128.3 5,564 26,953
Exploration and development 35.1 1,646 7,500
Revisions (4.5) 381 (376)
Acquisitions 21.2 126 3,657
Dispositions - - -
Production (21.2) (826) (4,366)
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Balance, December 31, 2006(1) 158.9 6,890 33,367
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(1) Numbers may not add due to rounding.

 


Production - For the three months ended December 31, 2006, NuVista's average production was 12,612 boe/d, comprised of 61.9 mmcf/d of natural gas and 2,296 bbls/d of oil and liquids, which represents a 14% increase over the same period in 2005. For the year ended December 31, 2006 NuVista's average production 11,962 boe/d, comprised of 58.2 mmcf/d of natural gas and 2,264 bbls/d of oil and liquids, which represents a 33% increase over the same period in 2005. The 33% increase is primarily due to the success of the 2006 drilling program, the acquisition of Saskatchewan properties completed in June 2006, a full year of production from the northwest Saskatchewan properties purchased in August 2005 and was offset by normal production declines. Current production is approximately 13,500 boe/d with 300-500 boe/d being brought on production in early March with the removal of facility constraints on 2 wells.

Revenues - Revenues for the three months ended December 31, 2006 were $49.2 million, a 22% decrease from $63.3 million for the three months ended December 31, 2005. For the year ended December 31, 2006, revenues were $192.6 million, a 14% increase from $169.7 million, for the same period in 2005. Revenues for the year ended December 31, 2006 were comprised of $151.1 million of natural gas revenue and $41.5 million of oil and liquids revenue. The increase in revenues for the year ended December 31, 2006 compared to the same period of 2005 results from a 33% increase in production, partially offset by a 14% decrease in average realized commodity prices. The decrease in average realized commodity prices is made up of a 21% decrease in the natural gas price to $7.11/mcf from $9.02/mcf, offset by a 15% increase in the oil and liquids price to $50.25/bbl from $43.85/bbl.

Commodity hedging - As part of our financial management strategy, NuVista has adopted a disciplined commodity-hedging program. The purpose of the hedging program is to reduce volatility in the financial results, protect acquisition economics and stabilize cash flow against the unpredictable commodity price environment. NuVista's Board of Directors has approved a hedging limit of 60% of forecast production, net of royalties, primarily using costless collars. Our strategy of using costless collars limits NuVista's exposure to downturns in commodity prices while allowing for participation in commodity price increases. In the fourth quarter of 2006, our hedging program resulted in a gain of $3.5 million primarily on natural gas contracts, as compared to a loss of $0.9 million in the same period in 2005. For the year ended December 31, 2006, the hedging program resulted in a gain of $11.9 million as compared to a loss of $1.7 million for the year ended December 31, 2005. The gain of $11.9 million for 2006 consisted of a $11.8 million gain on natural gas hedges and a $0.1 million gain on crude oil hedges. A summary of hedging contracts in place as at December 31, 2006 is included in note 5 of the Notes to the Interim Consolidated Financial Statements.

Royalties - Royalties for the three months ended December 31, 2006 were $10.8 million, a decrease of 33% over the $16.3 million reported for the three months ended December 31, 2005. The decrease in royalties resulted from lower revenues in the fourth quarter of 2006 compared to the same period in 2005. As a percentage of revenue, the average royalty rate for the fourth quarter of 2006 was 22% compared to 26% for the comparative period of 2005. Royalty rates by product for the fourth quarter of 2006 were 24% for natural gas and 13% for oil and liquids compared to 27% for natural gas and 16% for oil and liquids for the same period in 2005. The decrease in the natural gas royalty rate resulted primarily from hedging gains that are not included in the calculation of royalties. Royalties of $47.9 million for the year ended December 31, 2006 were 19% higher than the $40.3 million for the same period of 2005. The increase in royalties for the year ended December 31, 2006 resulted primarily from revenues that were 14% higher compared to the same period of 2005. Royalty rates by product for the year ended December 31, 2006 were 28% for natural gas and 15% for oil and liquids compared to 26% for natural gas and 17% for oil and liquids for the same period in 2005. The increase in the average 2006 natural gas royalty rate was primarily due to higher royalties rates associated with increased Saskatchewan natural gas production, partially offset by the impact of hedging gains not included in the calculation of royalties. The decrease in the average 2006 oil and liquids royalty rate was primarily due the lower average quality crude oil produced which has a lower associated royalty rate.

Operating - Operating expenses were $8.2 million ($7.09/boe) for the three months ended December 31, 2006, a 61% increase when compared to $5.1 million ($5.04/boe) for the three months ended December 31, 2005. This increase resulted from 14% higher production volumes and a 41% increase in per unit costs in the fourth quarter of 2006 compared to the fourth quarter of 2005. The increase in per unit costs for the three months ended December 31, 2006 was due to higher electricity costs, the timing of property taxes, higher operating costs associated with the start-up of heavy oil production and overall cost pressures facing the oil and gas industry. Operating expenses were $25.8 million ($5.91/boe) for the year ended December 31, 2006 compared to $16.7 million (5.07/boe) for the same period in 2005, an increase of 54%. This increase resulted from 33% higher production volumes and a 17% increase in per unit costs in 2006 compared to 2005. The increase in 2006 per unit costs resulted primarily from higher per unit costs in the three months ended December 31, 2006 and generally higher industry costs throughout 2006. For the three months December 31, 2006, natural gas operating expenses averaged $0.90/mcf and oil and liquids operating expenses were $14.57/bbl as compared to $0.74/mcf and $7.24/bbl respectively for the same period of 2005. For the year ended, December 31, 2006, natural gas operating expenses averaged $0.83/mcf and oil and liquids operating expenses were $9.89/bbl as compared to $0.72/mcf and $7.22/bbl respectively for the same period of 2005. Despite the increase in per unit operating costs, NuVista remains in the top quartile for oil and natural gas companies in its peer group. For 2007, NuVista's operating costs are expected to trend lower than the fourth quarter of 2006 and are forecasted to average approximately $6.00/boe. In particular, oil and liquid per unit operating costs are forecast to average $10.00/bbl in 2007.

Transportation - Transportation costs were $500,000 ($0.43/boe) for the three months ended December 31, 2006 as compared to $895,000 ($0.88/boe) for the fourth quarter of 2005. In the fourth quarter of 2006, transportation costs are lower due primarily to positive adjustments relating to the prior periods. For the year ended December 31, 2006, transportation costs were $3.2 million ($0.73/boe) as compared to $3.1 million ($0.93/boe) for the same period in 2005.

General and administrative - For the three months ended December 31, 2006, general and administrative expenses were $1.2 million ($0.99/boe) net of overhead recoveries, as compared to $721,000 ($0.71/boe) for the three months ended December 31, 2005. This increase in costs in the fourth quarter of 2006 resulted primarily from the accrual of the year end bonuses and additional staff added in the accounting, land and administrative areas. For the year ended December 31, 2006, general and administrative expenses, net of overhead recoveries were $3.0 million ($0.69/boe) which represents an increase of 67% over the $1.8 million ($0.55/boe) for the year ended December 31, 2005. This increase is directly attributable to the higher production base in NuVista, hiring of NuVista's own staff as it reduced reliance on the Technical Services Agreement (the "TSA"), higher employee costs experienced throughout the energy industry and the allocation of higher overhead costs in accordance with the TSA. For the year ended December 31, 2006, Bonavista charged $2.3 million, as compared to $1.2 million in 2005, to NuVista for general and administrative services under the TSA. The TSA has allowed NuVista to operate with a low overhead cost structure until it attained the level of activity that required and could financially support its stand-alone general and administrative staff. As NuVista has achieved this level of operation in 2007, we will be reducing our reliance on the TSA and will be conducting most of our activities with our own staff.

Stock-based compensation - NuVista recorded a stock-based compensation charge of $246,000 for the three months ended December 31, 2006 compared to $389,000 for the same period in 2005. NuVista recorded a stock-based compensation charge of $2.3 million for the year ended December 31, 2006 compared to $1.5 million for the same period in 2005. Stock-based compensation relates primarily to the granting of stock options. The increase in the expense in 2006 relates to stock options granted in the year and the increase in the cumulative number of stock options outstanding.

Interest - For the three months ended December 31, 2006, interest expense was $1.9 million ($1.59/boe), up 122% from $834,000 ($0.82/boe) in the same period of 2005, due primarily to higher average debt levels in the fourth quarter of 2006 associated with the acquisition completed in June 2006. Interest expense for the year ended December 31, 2006 was $5.7 million ($1.30/boe) compared to $2.2 million ($0.68/boe) for the same period of 2005 due to higher average debt levels. Currently, NuVista's borrowing rate is 5.28%.

Depreciation, depletion and accretion - Depreciation, depletion and accretion expenses were $17.6 million for the three months ended 2006 compared to $13.2 million for the same period in 2005, an increase of 33%. The average cost per unit was $15.21/boe for the three moths ended 2006 compared to $12.98/boe for the same period in 2005. Depreciation, depletion and accretion expenses for the year ended December 31, 2006 were $65.3 million, an increase of 62% over the $40.4 million for the year ended December 31, 2005. The average cost per unit was $14.96/boe for the twelve months ended December 31, 2006 compared to $12.27/boe in the same period in 2005. Per unit costs have increased in 2006 compared to 2005 due the cost of property acquisitions completed in August 2005 and June 2006 coupled with higher industry exploitation and development costs.

Income and other taxes - For the three months ended 2006, the provision for income and other taxes was $3.0 million for an effective tax rate of 34%, as compared to $9.6 million with an effective tax rate of 37% for the same period in 2005. For the year ended December 31, 2006, the provision for income and other taxes was $4.2 million for an effective tax rate of 11%, as compared to $24.1 million for an effective tax rate of 38% for the same period in 2005. The income tax provision for 2006 includes an recovery of $9.6 million recognized in the second quarter due to federal and provincial income tax rate reductions and the repealing of the Large Corporations Tax.

Capital expenditures - Capital expenditures were $39.1 million during the fourth quarter of 2006 primarily allocated to exploitation and development. For the year ended December 31, 2006, capital expenditures were $206.7 million consisting of exploitation and development spending of $120.7 million and $86.0 million of acquisitions, compared to $238.5 million incurred for the year ended December 31, 2005 with $65.9 exploitation and development spending and $172.6 million on acquisitions. 2006 acquisitions include an $81.7 million business acquisition in Northwest and West Central Saskatchewan in June 2006 (see note 1). The residual amount is comprised of minor property acquisitions carried out during 2006.

Funds from operations and net income - For the three months ended December 31, 2006, funds from operations were $26.6 million ($0.54/share, basic), a 32% decrease over the $39.3 million ($0.81/share, basic) for the same period in 2005. For the year ended December 31, 2006, NuVista's funds from operations were $107.1 million ($2.20/share, basic), a 2% increase from $104.9 million ($2.40/share, basic) for the year ended December 31, 2005. Net income for the three months ended December 31, 2006 was $5.8 million ($0.12/share, basic) compared to $16.3 million ($0.34/share, basic) for the same period in 2005. For the year ended December 31, 2006 net income was $35.3 million ($0.72/share, basic) compared to $39.5 million ($0.90/share, basic) for the same period in 2005. The reduction in net income for the fourth quarter and year ended December 31, 2006 compared to the same periods in 2005 was primarily due to the same reasons that funds from operations were lower and higher depreciation, depletion and accretion expenses.

Liquidity and capital resources - As at December 31, 2006, bank debt (including working capital) was $167.1 million, resulting in a debt to annualized fourth quarter funds from operations ratio of approximately 1.5 to 1.0. NuVista has approximately $22.7 million of unused bank borrowing capability based on its current line of credit of $180 million. These undrawn bank lines and funds from operations provide NuVista with the flexibility to fund our planned 2007 capital program. NuVista's capital program will continue to be monitored and, if required, adjusted based on the outlook for commodity prices and funds from operations. As at March 1, 2007, there were 49,027,358 common shares and 270,789 Class B Performance Shares outstanding. In addition, there were 3,743,545 stock options outstanding, with an average exercise price of $11.99/share.

Quarterly financial information - The following table highlights NuVista's performance for the eight quarterly reporting periods from March 31, 2005 to December 31, 2006:



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2006
----------------------------------------------------
December 31 September 30 June 30 March 31
------------ ------------ ------------ -------------
Production (boe/d) 12,612 12,577 11,357 11,303
($ thousands, except
per share amounts)
Production revenue $49,195 $47,530 $45,375 $50,540
Net income $ 5,765 $ 4,082 $15,986 $ 9,451
Net income per share:
Basic 0.12 0.08 0.33 0.20
Diluted 0.12 0.08 0.32 0.19
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2005
----------------------------------------------------
December 31 September 30 June 30 March 31
------------ ------------ ------------ -------------
Production (boe/d) 11,031 9,874 7,783 7,358
($ thousands, except
per share amounts)
Production revenue $63,315 $48,474 $30,626 $27,265
Net income $16,247 $11,339 $ 6,335 $ 5,585
Net income per share:
Basic 0.34 0.25 0.16 0.14
Diluted 0.32 0.24 0.15 0.13
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NuVista has seen growth in its production volumes over the prior eight quarter periods. During the four quarter reporting periods ended December 31, 2005, revenues and net income increased primarily due to increases in production and commodity prices. Since December 31, 2005, production growth continued but has not offset lower average realized commodity prices, resulting in lower revenues and net income. Net income during the three months ended June 30, 2006 increased due to a $9.6 million future income tax recovery relating to changes in tax rates.

BUSINESS RISKS AND OUTLOOK

NuVista continues to employ the same core philosophy in 2007 as we have in the past three and one half years. We have the team, the land base and the prospect generation ability to continue to create value for shareholders. We are poised for growth and well positioned to continue post strong operational and financial results for 2007 and beyond.

For 2007, NuVista's Board of Directors have approved a capital program of $160 million. The 2007 capital program is heavily weighted to our internally generated exploitation and development program. This capital program will see NuVista participating in approximately 140-160 wells, 40-45 of which are expected to be completed in the first quarter of 2007. The portion of our capital program allocated to acquisitions may be expanded in 2007 if the acquisition market proves to be more favourable.

NuVista is currently forecasting first quarter of 2007 production to increase throughout the period and average approximately 13,500 boe per day. NuVista's current guidance of 14,300 to 14,900 boe/d for 2007 with the implementation of our planned capital program remains unchanged. Based upon the current commodity price assumptions of US$8.00 per mmbtu Nymex for natural gas and US$62.00 for WTI, NuVista is forecasting funds from operations of $135 - 145 million for 2007 ($2.75/share to $2.95/share).

NuVista will continue to focus on its core strategy of cost control and applying the expertise of its own technical staff to its current operating regions, through both the drilling and strategic acquisitions. The execution of these strategies will enable NuVista to continue to grow its production, cash flow and net income consistently and profitably. We remain unwavering in our commitment to enhance shareholder value over the long-term in a diligent and prudent manner by accessing the broad depth and expertise of our team.

We thank our loyal shareholders for your patience and confidence in 2006, and look forward to providing improved returns in 2007.

On Behalf of the Board of Directors

Alex G. Verge, President and Chief Executive Officer

Robert F. Froese, Vice President, Finance and Chief Financial Officer

March 1, 2007, Calgary, Alberta



Consolidated Balance Sheets

December 31, December 31,
(thousands) 2006 2005
---------------------------------------------------------------------------

Assets
Current assets:
Accounts receivable and prepaids $ 25,953 $ 18,844
Oil and natural gas properties and equipment 509,692 359,149
Goodwill 54,439 54,439
---------------------------------------------------------------------------
$ 590,084 $ 432,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 40,552 $ 18,223
Bank loan (note 3) 152,485 70,524
Asset retirement obligations (note 2) 22,683 14,790
Future income taxes 77,851 73,291

Shareholders' equity:
Share capital (note 4) 194,030 189,831
Contributed surplus (note 4) 3,747 2,321
Retained earnings 98,736 63,452
---------------------------------------------------------------------------
296,513 255,604
---------------------------------------------------------------------------
$ 590,084 $ 432,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Consolidated Statements of Operations and Retained Earnings

Three Months ended Year ended
(thousands, except per December 31, December 31,
share amounts) 2006 2005 2006 2005
---------------------------------------------------------------------------

Revenues:
Production $ 49,195 $ 63,315 $ 192,639 $ 169,680
Royalties, net of Alberta
Royalty Tax Credit (10,845) (16,326) (47,861) (40,331)
---------------------------------------------------------------------------
38,350 46,989 144,778 129,349
---------------------------------------------------------------------------
Expenses:
Operating 8,230 5,111 25,804 16,696
Transportation 500 895 3,194 3,064
General and administrative 1,150 721 3,032 1,823
Stock-based compensation 246 389 2,276 1,516
Interest 1,851 834 5,658 2,231
Depreciation, depletion and
accretion 17,648 13,168 65,336 40,411
---------------------------------------------------------------------------
29,625 21,118 105,300 65,741
---------------------------------------------------------------------------
Income before income and other
taxes 8,725 25,871 39,478 63,608
Income and other taxes 2,960 9,624 4,194 24,102
---------------------------------------------------------------------------
Net income 5,765 16,247 35,284 39,506
Retained earnings, beginning of
period 92,971 47,205 63,452 23,946
---------------------------------------------------------------------------
Retained earnings, end of
period $ 98,736 $ 63,452 $ 98,736 $ 63,452
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income per share - basic $ 0.12 $ 0.34 $ 0.72 $ 0.90
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income per share - diluted $ 0.12 $ 0.32 $ 0.71 $ 0.87
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Consolidated Statements of Cash Flows

Three Months ended Year ended
December 31, December 31,
(thousands) 2006 2005 2006 2005
---------------------------------------------------------------------------

Cash provided by (used in):
Operating Activities:
Net income $ 5,765 $ 16,247 $ 35,284 $ 39,506
Items not requiring cash from
operations:
Depreciation, depletion and
accretion 17,648 13,168 65,336 40,411
Stock-based compensation 246 389 2,276 1,516
Future income taxes 2,960 9,454 4,194 23,448
Asset retirement expenditures (319) - (1,259) (233)
Decrease (Increase) in non-cash
working capital items 3,217 188 7,656 (2,929)
---------------------------------------------------------------------------
29,517 39,446 113,487 101,719
---------------------------------------------------------------------------
Financing Activities:
Issue of share capital 94 99 2,676 97,760
Increase (Decrease) in bank
loan 7,072 (22,365) 81,961 42,172
---------------------------------------------------------------------------
7,166 (22,266) 84,637 139,932
---------------------------------------------------------------------------

Investing Activities:
Business acquisition - - (81,700) (150,716)
Oil and natural gas properties
and equipment additions (37,980) (15,831) (123,891) (88,362)
Proceeds on disposal of oil
and natural gas properties and
equipment - 572 - 572
Decrease (Increase) in
non-cash working capital items 1,297 (1,921) 7,467 (3,145)
---------------------------------------------------------------------------
(36,683) (17,180) (198,124) (241,651)
---------------------------------------------------------------------------
Decrease in cash - - - -
Cash, beginning of period - - - -
---------------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2006.

The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), using the same accounting policies as those set out in note 1 to the consolidated financial statements for the year ended December 31, 2005. The interim consolidated financial statements for the three months and year ended December 31, 2006 are incremental to the consolidated financial statements for the year ended December 31, 2005 and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2005. Certain amounts have been reclassified to conform with the current year's presentation.

1. Acquisition of Northwest Saskatchewan Properties:

On June 1, 2006, NuVista completed the acquisition of certain natural gas properties in northwest and west central Saskatchewan for a total purchase price of $81.7 million. Two directors of NuVista are related parties of the vendor. NuVista purchased these properties through a series of transactions, with the assets being acquired in an existing partnership owned approximately 76% by NuVista and 24% by Bonavista (see Note 6). The acquisition has been accounted for at the exchange amount, with results of operations included from the date of acquisition. The purchase equation, which reflects NuVista's portion of the acquisition, is as follows:



---------------------------------------------------------------------------
Amount
---------------------------------------------------------------------------
(thousands)
Net assets acquired:
Oil and natural gas properties $ 84,202
Asset retirement obligations (2,502)
---------------------------------------------------------------------------

Net assets acquired $ 81,700
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Purchase consideration:
Cash 81,700
---------------------------------------------------------------------------

Total purchase consideration $ 81,700
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


On August 4, 2005, NuVista completed the acquisition of certain natural gas weighted properties in northwest Saskatchewan for a total purchase price of approximately $150.7 million. NuVista purchased these properties through a series of transactions, with the assets being acquired in an existing partnership, owned approximately 76% by NuVista and 24% by Bonavista. The acquisition has been accounted for using the purchase method, with results of operations included from the date of acquisition. The purchase equation, which reflects the NuVista portion of the acquisition, is as follows:



---------------------------------------------------------------------------
Amount
---------------------------------------------------------------------------
(thousands)
Net assets acquired:
Oil and natural gas properties $ 153,635
Goodwill 45,000
Asset retirement obligations (2,919)
Future income taxes (45,000)
---------------------------------------------------------------------------

Net assets acquired $ 150,716
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Purchase consideration:
Cash 150,716
---------------------------------------------------------------------------

Total purchase consideration $ 150,716
---------------------------------------------------------------------------
---------------------------------------------------------------------------


2. Asset retirement obligations:

A reconciliation of the asset retirement obligations is provided below:

---------------------------------------------------------------------------
As at December 31, 2006 2005
---------------------------------------------------------------------------
(thousands)

Balance, beginning of year $ 14,790 $ 5,990

Accretion expense 1,407 767
Liabilities incurred 4,069 2,795
Liabilities acquired 2,502 4,271
Liabilities settled (1,259) (233)
Changes in assumptions 1,174 1,200
---------------------------------------------------------------------------
Balance, end of year $ 22,683 $ 14,790
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


3. Bank loan:

On May 31, 2006, NuVista and its lenders agreed to amend the Company's bank loan facilities to increase the maximum borrowing to $180 million. In addition, the revolving period of the facility has been extended to June 27, 2007, with a one year term period. Under the term period, no principal payments would be required until June 28, 2008. All other key terms and conditions of the bank loan facility remain unchanged from December 31, 2005.



4. Share capital:

(a) Authorized:

Unlimited number of voting Common Shares and 1,200,000 Class B
Performance Shares.

(b) Issued:

(i) Common Shares:

---------------------------------------------------------------------------
Number Amount
---------------------------------------------------------------------------
(thousands)

Balance, December 31, 2005 48,360 $189,825

Issued for cash
Conversion of Class B Performance Shares 239 3
Exercise of stock options 418 2,733
Stock-based compensation 1,508
Reacquired and cancelled (2) (8)
Cost associated with shares issued, net of future
tax benefit - (34)
---------------------------------------------------------------------------

Balance, December 31, 2006 49,015 $194,027
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(ii) Class B Performance Shares:

---------------------------------------------------------------------------
Number Amount
---------------------------------------------------------------------------
(thousands)

Balance, December 31, 2005 560 $6

Converted to Common Shares (278) (3)
Reacquired and cancelled (11) -
---------------------------------------------------------------------------

Balance, December 31, 2006 271 $3
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(c) Contributed Surplus:

---------------------------------------------------------------------------
Amount
---------------------------------------------------------------------------
(thousands)

Balance, December 31, 2005 $2,321

Stock-based compensation 2,934
Conversion of Class B Performance shares and
exercise of stock options (1,508)
---------------------------------------------------------------------------
Balance, December 31, 2006 $3,747
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


(d) Stock options and stock-based compensation:

For the year ended December 31, 2006, there were 1,730,500 options granted with an average exercise price of $14.96/share and an estimated fair value of $4.88/share using the Black-Scholes option pricing model. There were 3,653,711 stock options outstanding, with an average exercise price of $11.94/share as at December 31, 2006.

The Company uses the fair value based method for the determination of the stock-based compensation costs. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model. In the pricing model, the risk free interest rate was 3.5%; average volatility of 33%; and an expected life of 4.5 years.

5. Hedging activities:

(a) Financial instruments:

As at December 31, 2006, NuVista has hedged by way of costless collars the following crude oil:



---------------------------------------------------------------------------
Volume Average Price Term
---------------------------------------------------------------------------
250 bbls/d CDN$76.14 - CDN$100.19 - WTI January 1, 2007 - March 31, 2007
250 bbls/d CDN$75.92 - CDN$100.19 - WTI April 1, 2007 - June 30, 2007
250 bbls/d CDN$75.25 - CDN$100.19 - WTI July 1, 2007 - September 30, 2007
250 bbls/d CDN$74.25 - CDN$100.19 - WTI October 1, 2007 - December 31, 2007
250 bbls/d CDN$71.86 - CDN$99.77 - WTI January 1, 2008 - March 31, 2008
250 bbls/d CDN$71.86 - CDN$98.77 - WTI April 1, 2008 - June 30, 2008
---------------------------------------------------------------------------

As at December 31, 2006, NuVista has hedged by way of costless collars the
following gas contracts:

---------------------------------------------------------------------------
Volume Average Price (Cdn $/gj) Term
---------------------------------------------------------------------------
5,000 gjs/d $ 8.50 - $ 12.25 - AECO November 1, 2006 - March 31, 2007
---------------------------------------------------------------------------

As at December 31, 2006, the market value of these financial instruments
was approximately $1.4 million.

(b) Physical purchase contracts:

As at December 31, 2006, NuVista has entered into direct sale costless
collars to sell natural gas as follows:

---------------------------------------------------------------------------
Volume Average Price (Cdn $/gj) Term
---------------------------------------------------------------------------
7,500 gjs/d $ 8.50 - $ 11.37 - AECO November 1, 2006 - March 31, 2007
---------------------------------------------------------------------------

 


6. Relationship with Bonavista Petroleum Ltd.:

Under the Plan of Arrangement with Bonavista, NuVista entered into a Technical Services Agreement ("TSA") with Bonavista. Under this Agreement, Bonavista receives payment for certain technical and administrative services provided by it to NuVista on a cost recovery basis. NuVista and Bonavista are considered related as two directors of NuVista, one of whom is NuVista's chairman, are also directors and officers of Bonavista and a director and an officer of NuVista are also officers of Bonavista. For year ended December 31, 2006, fees of $2.3 million (2005 - $1.7 million) relating to general and administrative activities and $180,000 (2005 - $180,000) of fees relating to capital expenditure activities were charged pursuant to the TSA. As at December 31, 2006 amounts payable to Bonavista were $2.7 million (2005 - $1.3 million).



7. Supplemental information:

---------------------------------------------------------------------------
Year ended December 31,
(thousands) 2006 2005
---------------------------------------------------------------------------
Cash paid on interest $5,493 $2,222
Cash paid on income and other taxes $ 409 $ 369
---------------------------------------------------------------------------

 


FOR FURTHER INFORMATION PLEASE CONTACT:

NuVista Energy Ltd.
Alex G. Verge
President and CEO
(403) 538-8501

or

NuVista Energy Ltd.
Robert F. Froese
Vice President, Finance and CFO
(403) 538-8530

or

NuVista Energy Ltd.
700, 311 - 6th Avenue SW
Calgary, Alberta T2P 3H2
(403) 538-8500
(403) 538-8505 (FAX)
Email: inv_rel@nuvistaenergy.com
Website: www.nuvistaenergy.com