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FOR: NUVISTA ENERGY LTD.

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

NuVista Energy Ltd. Announces 2007 Year End Results

Mar 7, 2008 - 00:40 ET

CALGARY, ALBERTA--(Marketwire - March 6, 2008) - NuVista Energy Ltd. (TSX:NVA) is pleased to announce its financial and operating results for the three months and year ended December 31, 2007 as follows:



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Corporate Highlights
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Three months Years
ended ended
December 31, % December 31, %
2007 2006 Change 2007 2006 Change
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Financial
($ thousands, except per
share)
Production revenue 53,790 49,195 9 212,386 192,639 10
Funds from operations (1) 29,870 26,619 12 113,793 107,090 6
Per share - basic 0.57 0.54 6 2.21 2.20 -
Per share - diluted 0.57 0.53 8 2.19 2.15 2
Net earnings 11,063 5,765 92 26,327 35,284 (25)
Per share - basic 0.21 0.12 75 0.51 0.72 (29)
Per share - diluted 0.21 0.12 75 0.51 0.71 (28)
Total assets 683,165 590,084 16
Bank loan, net of working
capital 180,322 167,084 8
Shareholders' equity 370,292 296,513 25
Net capital expenditures 43,810 39,117 12 164,008 206,728 (21)
Weighted average common
shares outstanding
(thousands):
Basic 52,602 49,007 7 51,375 48,731 5
Diluted 52,835 49,872 6 51,962 49,870 4
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Operating
(boe conversion - 6:1
basis)
Production:
Natural gas (mmcf/d) 66.7 61.9 8 66.9 58.2 15
Oil and liquids (bbls/d) 3,138 2,296 37 2,698 2,264 19
Total oil equivalent
(boe/d) 14,251 12,612 13 13,851 11,962 16
Product prices: (2)
Natural gas ($/mcf) 6.30 6.97 (10) 6.77 7.11 (5)
Oil and liquids ($/bbl) 57.05 45.10 26 53.68 50.25 7
Operating expenses:
Natural gas ($/mcf) 1.09 0.90 21 1.09 0.83 31
Oil and liquids ($/bbl) 9.03 14.57 (38) 10.04 9.89 2
Total oil equivalent
($/boe) 7.11 7.09 - 7.23 5.91 22
General and
administrative
expenses ($/boe) 1.23 0.99 24 1.04 0.69 51
Funds from operations
netback
($/boe) (1) 22.78 22.94 (1) 22.51 24.53 (8)
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NOTES:

(1) Funds from operations, funds from operations per share and funds from
operations netback 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, realized
commodity derivative gains and losses, transportation, general and
administrative costs, interest and cash taxes calculated on a
boe basis. Total boe is calculated by multiplying the daily
production by the number of days in the period.

(2) Product prices include realized gains and losses on commodity
derivatives.
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December 31, %
2007 2006 Change
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Undeveloped land
Gross acres 796,000 780,000 2
Net acres 609,000 597,000 2
Average working interest 77% 77%

Wells drilled gross (net)
Total 138 (107.1) 159 (126.2) (13)
Natural gas 75 (57.8) 103 (79.5) (27)
Oil 46 (35.2) 28 (23.0) 64
Company interest reserves (NI51 - 101) -
December 31, 2007
Proved plus probable:
Natural gas (bcf) 181.4 158.9 14
Oil and liquids (mbbls) 9,560 6,890 39
Total barrels of oil equivalent (mboe) 39,795 33,367 19
% of Reserves proved producing 58% 66%
% of Reserves total proved 71% 73%
% of Reserves probable 29% 27%
Net present value of future cash flows
before tax ($millions):
@ 5% discount rate 813.3 695.0 17
@ 10% discount rate 660.7 561.9 18
Finding development and acquisition costs
($/boe) (1)
Total proved 20.63 27.60 (25)
Total proved plus probable 17.07 20.00 (15)

(1) Includes changes in future development 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, 2007. Over the past year NuVista has increased our production and reserves, both in aggregate and on a per share basis. We have added reserves at attractive finding, development and acquisition costs and we have maintained our financial flexibility, even as gas prices became under pressure. NuVista's management and Board of Directors are pleased how NuVista has positioned itself during a period with relatively weak natural gas prices and changing landscape within the Canadian oil and gas industry, to continue to grow profitably in the future.

On January 7, 2008, at a period of depressed natural gas prices, NuVista announced the business combination with Rider Resources Ltd. ("Rider") through a plan of arrangement. This transaction featured the issuance of equity to reduce debt levels in the combined entity through a private placement with a new strategic equity partner. The business combination and equity transactions closed on March 4, 2008 and will be reflected in NuVista's results as of this date.

Post announcement, the industry has seen a significant increase in realized prices for oil and natural gas. NuVista has taken advantage of the commodity price rise to hedge a significant portion of our gas production from April to October 2008, at a level which will allow NuVista to return significant financial flexibility to our balance sheet by the fourth quarter of 2008. The maintenance of our financial flexibility and the prudent stewardship of capital have become hallmarks of NuVista's business plan over the past four and one half years.

NuVista achieved record production levels in the fourth quarter of 2007 and for the year ended 2007. Our exit production rate of 15,000 boe/d was at the high end of our guidance range of 14,700 boe/d to 15,000 boe/d. NuVista drilled a total of 138 wells during 2007 with an average success rate of 88%. In addition, NuVista completed a property acquisition in our Central Alberta core area for approximately $35 million and five smaller complementary acquisitions totaling approximately $16 million. Production increases were achieved in our Central Alberta, Provost and Oyen core areas.

NuVista's 2007 capital program of $166 million resulted in proved plus probable finding, development and acquisition costs (including revisions and changes in future development capital expenditures) of $17.07/boe. Prior to revisions, NuVista's capital program resulted in proved plus probable finding, development and acquisition costs (including changes in future development capital) of $14.75/boe. During 2007, we continued to focus on our low cost of operations. Operating costs peaked in the first quarter and then trended lower through the remainder of the year, averaging $7.23/boe.

The business combination with Rider creates an intermediate natural gas focused company with an asset base and technical teams in place to continue to create shareholder value through continued production per share and reserves per share growth. The Rider asset base is well suited to NuVista's existing business strategy which emphasizes long-term sustainability based upon an acquire and develop business model in multi-zone areas with a focus on low operating costs and high working interests. The combination was completed at attractive acquisition metrics, at a time when natural gas was out of favour, and is accretive to NuVista on a cash flow, net asset value, reserves and production on a per share basis.

The business combination adds three new core areas in liquids rich natural gas prone regions of Alberta that are characterized by high netbacks and longer reserve life production, and adds a high impact deep natural gas drilling inventory to our exploration and development program. These assets complement NuVista's existing asset base with NuVista now having the flexibility to pursue shallow natural gas, deep natural gas and heavy oil targets both through exploration and development activities and acquisitions. Further, the combination allows for NuVista to implement a balanced capital program throughout the year.

Concurrent with the closing of the business combination with Rider, NuVista completed a private placement of units with the Ontario Teachers' Pension Plan ("OTPP") for proceeds of $84 million and we entered into a new $450 million credit facility. The private placement to OTPP consisted of six million units at a price of $14.00 per unit. Each unit consists of one common share and one-half of one common share purchase warrant of NuVista. Each full warrant will entitle the holder to purchase one common share for an exercise price of $15.50 prior to March 4, 2009. OTPP has become a significant shareholder in NuVista and we look forward to further developing our relationship with this strategic long-term equity partner.

We continue to employ a disciplined approach to financial leverage and are targeting a year end 2008 ratio of debt to funds from operation of less than 1.5:1. On March 5, 2008, NuVista repaid the US$99.5 million second lien term loan assumed from the Rider acquisition and terminated the related cross-currency interest rate swap, replacing this higher cost debt with bank borrowings. NuVista's 2008 capital expenditure program will be less than funds generated from operations and we are budgeting debt levels to decline throughout 2008. NuVista has entered into natural gas price risk management contracts totaling 70,000 gj/d for the April through October 2008 period with an average floor price of $7.32/gj, to protect cash flow and achieve debt reduction objectives.

Significant highlights for NuVista in the fourth quarter and for 2007 include:

- Increased average production for the three months ended December 31, 2007 to a record level 14,251 boe/d, an increase of 13% compared to the same period in 2006. In addition, increased 2007 average production to 13,851 boe/d, an increase of 16% compared to 2006;

- Reduced finding, development and acquisition costs on a proved and proved plus probable basis to $20.63/boe (2006 - $27.60/boe) and $17.07/boe (2006 - $20.00/boe) respectively;

- Expanded our Fir natural gas facility from 5 mmcf/d to 8 mmcf/d, drilled, completed and connected three multi zone wells and one standing cased well to increase production by 500 boe/d net to NuVista;

- Achieved year end exit rates of 15,000 boe/d with a 76% natural gas weighting;

- Drilled 35 wells resulting in 19 natural gas wells, 14 oil wells, 1 dry hole and 1 injection well in the fourth quarter of 2007. For the year ended December 2007, NuVista drilled 138 wells resulting in 75 natural gas wells, 46 oil wells, 16 dry holes and 1 injection well;

- Achieved to have low operating costs averaging $7.23/boe for the year that are expected to be in the top quartile for oil and natural gas companies in our peer group;

- Entered into an agreement to purchase 650 bbls/d high working interest operated heavy oil in our Provost area for approximately $24.5 million. This acquisition closed on January 8, 2008, and is forecasted to yield a proved plus probable recycle ratio of 2.7:1; and

- Maintained our financial flexibility with a debt to annualized fourth quarter funds from operations of 1.5:1.

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 NuVista's audited consolidated financial statements for the year ended December 31, 2007. The following MD&A of financial condition and results of operations was prepared at and dated, March 6, 2008. Our audited consolidated financial statements, Annual Report, annual information form and other disclosure documents for 2007 will be available on or before March 29, 2008 through our filings on SEDAR at www.sedar.com or can be obtained from our website atwww.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. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of one boe for six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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 changes in environmental regulations, tax laws and royalties 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 MD&A, references are made to terms commonly used in the oil and natural 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. Funds from operations netbacks equal total revenue less royalties, transportation, operating costs, general and administrative and interest expense and cash taxes. Total boe is calculated by multiplying the daily production by the number of days in the period.



A reconciliation of funds from operations is presented in the following
table:

For the three months Year ended
ended December 31, December 31,
-------------------- ------------
($ thousands) 2007 2006 2007 2006
----- ---- ---- ----
Cash provided by operating
activities $ 26,429 $ 29,517 $ 103,184 $ 113,487
Add back:
Asset retirement expenditures 787 319 1,589 1,259
Change in non-cash working
capital 2,654 (3,217) 9,020 (7,656)
-------- -------- ------- ---------
Funds from operations $ 29,870 $ 26,619 $ 113,793 $ 107,090
-------- -------- ------- ---------
-------- -------- ------- ---------

 


Operating activities - For the year ended December 31, 2007, NuVista drilled 138 (107.1 net) wells, resulting in 75 natural gas wells, 46 oil wells, 16 dry holes and 1 injection well, for an overall success rate of 88%. NuVista operated 136 of the wells drilled. During the fourth quarter of 2007, NuVista participated in 35 wells resulting in 19 natural gas wells, 14 oil wells, 1 dry hole and 1 injection well. During the fourth quarter, NuVista drilled 12 gas wells in our Oyen core area and four gas wells in our Central Alberta core area. NuVista drilled six oil wells in our Provost core area and six oil wells pursuing heavy oil prospects in our West Central Saskatchewan core area. During the fourth quarter, we completed the facility expansion at our Fir property within our Central Alberta core area, increasing production capability from 800 boe/d to approximately 1,300 boe/d. NuVista continues to actively drill in its core areas, with approximately 15 wells planned for the first quarter of 2008.

Reserves - NuVista's 2007 year end total proved reserves were 28.1 mmboe or a 15% increase over the closing balance at year end 2006. NuVista's proved plus probable reserves increased by 19% to 39.8 mmboe compared to 33.4 mmboe at year end 2006. Finding, development and acquisition costs in 2007, including an adjustment for the change in future development capital expenditures and after revisions, were $20.63/boe on a proved basis and $17.07/boe on a proved plus probable basis. 2007 finding and development costs (excluding acquisitions), on a proved plus probable basis after revisions and changes in future development capital expenditures, were $18.43/boe. Prior to revisions but including charges in future development capital expenditures, finding, development and acquisition costs for proved and proved plus probable reserves were $20.19/boe and $14.75/boe, respectively. Proved reserve revisions were less than one percent of the opening balance. Proved plus probable reserve revisions were due to technical and performance revisions on properties in several core areas and represented approximately 5 percent of the opening balance.

The capital program for 2007 resulted in a funds from operations netback recycle ratio of 1.3 on a proved plus probable basis. NuVista's reserve life index based upon production at December 31, 2007 was 5.1 years on total proved reserves and 7.3 years for proved plus probable reserves. This compares with 5.0 years and 6.9 years respectively at December 31, 2006. All of NuVista's reserves as at December 31, 2007, 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 2007 and from commencement of operations in July 2003:



2007 Since July 2003
---------------------------------
Proved Proved
plus plus
($/boe) Proved probable Proved probable
---------------------------------
After reserve revisions
Finding, development and acquisition cost
(1) 20.63 17.07 19.62 15.82
Finding and development costs (1) 21.16 18.43 19.68 16.00
Acquisition costs 19.37 14.10 19.55 15.63

Finding, development and acquisition
recycle ratio
Field netback 1.2 1.5 1.4 1.7
Funds from operations netback 1.1 1.3 1.3 1.6
Before reserve revisions
Finding, development and acquisition cost
(1) 21.09 14.75 20.29 15.25

(1) Including changes in future development capital expenditures.
(2) The aggregate of the exploration and development costs incurred in the
most recent year and the change during the year in estimated future
development costs will not reflect total finding and development costs
related to reserve additions for the year.

 


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 29, 2008. Consistent with industry practice, reserves have been calculated under the existing Alberta royalty regime due to uncertainties and lack of sufficient details to determine royalties under the proposed Alberta new royalty regime (NRF). The reserve estimates contained in the following table are NuVista's company interest reserves before the deduction of royalties:



Oil and
natural
gas Total oil
Natural gas liquids equivalent
-----------------------------------
(bcf) (mbbls) (mboe)
Total Proved:
Balance, December 31, 2006 115.1 5,231 24,406
Exploration and development 25.0 2,152 6,353
Revisions (1.8) 131 (191)
Acquisitions 13.5 378 2,625
Dispositions - - -
Production (24.4) (985) (5,056)
-----------------------------------

Balance, December 31, 2007 (1) 127.4 6,907 28,137
-----------------------------------
-----------------------------------

Total Proved plus Probable:
Balance, December 31, 2006 158.9 6,890 33,367
Exploration and development 39.5 3,099 9,680
Revisions (11.1) 41 (1,803)
Acquisitions 18.5 515 3,607
Dispositions - - -
Production (24.4) (985) (5,056)
-----------------------------------
Balance, December 31, 2007 (1) 181.4 9,560 39,795
-----------------------------------
-----------------------------------
(1) Numbers may not add due to rounding.

 


Reserve evaluation sensitivities were calculated for the proposed Alberta new royalty regime based on the Society of Petroleum Evaluation Engineers consensus methodology. Using the January 1, 2008 price forecast, these sensitivities resulted in proved plus probable reserve volumes less than one percent lower and proved plus probable net present values less than two percent lower than under the existing Alberta royalty regime.



Production Years ended December 31,
-----------------------------------
2007 2006 % Change
-----------------------------------
Natural gas (mcf/d) 66,919 58,192 15
Oil and liquids
(bbls/d) 2,698 2,264 19
-----------------------------------
Total oil equivalent
(boe/d) 13,851 11,962 16
-----------------------------------
-----------------------------------

For the three months ended December 31,
--------------------------------------
2007 2006 % Change
--------------- -------------- --------
Natural gas (mcf/d) 66,680 61,897 8
Oil and liquids
(bbls/d) 3,138 2,296 37
------- ------
Total oil equivalent
(boe/d) 14,251 12,612 13
-------- ------
-------- ------

 


For the year ended December 31, 2007 NuVista's average production was 13,851 boe/d, comprised of 66.9 mmcf/d of natural gas and 2,698 bbls/d of oil and liquids, which represents a 16% increase over the same period in 2006. The 16% increase is due primarily to the success of the 2007 drilling program, the acquisition of Central Alberta properties completed in April 2007 and five small complementary property acquisitions, which was offset by normal production declines. For the fourth quarter of 2007, NuVista's average production was 14,251 boe/d, comprised of 66.7 mmcf/d of natural gas and 3,138 bbls/d of oil and liquids, which represents a 13% increase over the same period in 2006. Production increases were primarily attributable to our Oyen core area, our Auburndale property in our Provost core area and our Fir property.



Revenues Years ended December 31,
---------------------------------------------------
2007 2006 % Change
---------------------------------------------------
Natural gas: $ thousands $/mcf $ thousands $/mcf $ $/mcf
---------------------------------------------------
Production revenue 160,145 6.56 151,114 7.11 6 (8)
Realized gains on
commodity derivatives 5,248 0.21 - - - -
---------------------------------------------------
Total 165,393 6.77 151,114 7.11 9 (5)
---------------------------------------------------
---------------------------------------------------

Years ended December 31,
---------------------------------------------------
2007 2006 % Change
---------------------------------------------------
Oil and liquids: $ thousands $/bbl $ thousands $/bbl $ $/bbl
---------------------------------------------------
Production revenue 52,241 53.05 41,525 50.25 26 6
Realized gains on
commodity derivatives 619 0.63 - - - -
---------------------------------------------------
Total 52,860 53.68 41,525 50.25 27 7
---------------------------------------------------
---------------------------------------------------

For the three months ended December 31,
---------------------------------------------------
2007 2006 % Change
---------------------------------------------------
Natural gas: $ thousands $/mcf $ thousands $/mcf $ $/mcf
---------------------------------------------------
Production revenue 37,543 6.12 39,668 6.97 (5) (12)
Realized gains on
commodity derivatives 1,132 0.18 - - - -
---------------------------------------------------
Total 38,675 6.30 39,668 6.97 (3) (10)
---------------------------------------------------
---------------------------------------------------

For the three months ended December 31,
---------------------------------------------------
2007 2006 % Change
---------------------------------------------------
Oil and liquids: $ thousands $/bbl $ thousands $/bbl $ $/bbl
---------------------------------------------------
Production revenue 16,247 56.28 9,527 45.10 71 25
Realized gains on
commodity derivatives 224 0.77 - - - -
---------------------------------------------------
Total 16,471 57.05 9,527 45.10 73 26
---------------------------------------------------
---------------------------------------------------

 


For the year ended December 31, 2007, revenues, before transportation costs were $212.4 million, a 10% increase from $192.6 million, for the same period in 2006. These revenues were comprised of $160.1 million of natural gas revenue and $52.2 million of oil and liquids revenue. The increase in revenues for the year ended December 31, 2007 compared to the same period of 2006 results from a 16% increase in production that was partially offset by a 5% decrease in average realized commodity prices. The decrease in averaged realized commodity prices is comprised of a 5% decrease in the natural gas price to $6.77/mcf from $7.11/mcf and a 7% increase in the oil and liquids price to $53.68/bbl from $50.25/bbl. Revenues for the three months ended December 31, 2007 were $53.8 million, a 9% increase from $49.2 million for the three months ended December 31, 2006, resulting from higher production volumes that were partially offset by lower realized gas prices.




Commodity price risk management
Year ended December 31, 2007
--------------------------------------------
Realized Unrealized Total
($ thousands) Gain Loss Gains/(Loss)
-------- ---------------------- ------------
Natural gas 5,248 - 5,248
Oil and liquids 619 (1,729) (1,110)
-------- ---------------------- ------------
Total gains/(loss) 5,867 (1,729) 4,138
-------- ---------------------- ------------
-------- ---------------------- ------------

For the three months ended December 31, 2007
--------------------------------------------
Realized Unrealized Total
($ thousands) Gain Loss Loss
-------- ---------------------- ------------
Natural gas 1,132 (1,181) (49)
Oil and liquids 224 (3,122) (2,898)
-------- ---------------------- ------------
Total gains/(loss) 1,356 (4,303) (2,947)
-------- ---------------------- ------------
-------- ---------------------- ------------

 


As part of our financial management strategy, NuVista has adopted a disciplined commodity price risk management program. The purpose of this 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 price risk management limit of up to 60% of forecast production, net of royalties, using fixed price and costless collar contracts. To achieve NuVista's price risk management objectives, we enter into both commodity derivative and physical sale contracts. NuVista's Board of Directors has approved an increase to the limit of 60% for the period April 2008 to October 2008. For this period the Board has approved natural gas hedges in the amount of 70,000 gj/day. For the year ended December 31, 2007, the commodity derivative price risk management program resulted in a gain of $4.1 million consisting of realized gains of $5.9 million and unrealized losses of $1.7 million. The gain of $4.1 million for 2007 consisted of a $5.2 million gain on natural gas hedges and a $1.1 million loss on crude oil hedges. In the fourth quarter of 2007, our commodity derivative price risk management program resulted in a loss of $2.9 million, primarily on crude oil contracts, consisting of realized gains of $1.4 million and unrealized losses of $4.3 million. In addition, we had physical natural gas prices risk management contracts that resulted in a gain of approximately $5.2 million for the year ended December 31, 2007.

Prior to January 1, 2007, we accounted for our financial price risk management contracts as hedges and included realized gains and losses as production revenues. For year ended December 31, 2006, hedging gains were $11.9 million.

The following is a summary of commodity price risk management contracts in place as at December 31, 2007:

a) Financial instruments:



As at December 31, 2007, NuVista has hedged by way of costless collars the
following crude oil contracts:

WTI Average Price ($/bbl) Term
--------------------------------------------------------------------------
January 1, 2008
1,000 bbls/d CDN. $70.47 - CDN. $92.45 - WTI - March 31, 2008
April 1, 2008
1,000 bbls/d CDN. $70.47 - CDN. $90.61 - WTI - June 30, 2008
July 1, 2008
750 bbls/d CDN. $70.01 - CDN. $86.68 - WTI - December 31, 2008

As at December 31, 2007, NuVista has not entered into any natural gas
contracts.

As at December 31, 2007, the market value of the financial instruments was
approximately $1.7 million.

(b) Physical sale contracts:

As at December 31, 2007, NuVista has entered into direct sale costless
collars to sell natural gas as follows:

AECO Average Price (Cdn$/gj) Term
---------------------------------------------------------------------
January 1, 2008
10,000 gj/d $8.13 - $10.38 - AECO - March 31, 2008

Subsequent to December 31, 2007, the following commodity contracts have been
entered into:

(a) Financial instruments

Volume Fixed Price (Cdn$/bbl) Term
---------------------------------------------------------------------
April 1, 2008
500 bbls/d CDN. $66.50 - Bow River - December 31, 2008
January 1, 2009
1,000 bbls/d CDN. $64.00 - Bow River - December 31, 2009
2009

Volume Average Price (Cdn$/gj) Term
---------------------------------------------------------------------
April 1, 2008
20,000 gj/d CDN. $7.50 - $8.42 - AECO - October 31,
November 1, 2008
5,000 gj/d CDN. $7.50 - $9.25 -AECO - March 31, 2009

(b) Physical sale contracts

Volume Average Price (Cdn$/gj) Term

---------------------------------------------------------------------
April 1, 2008
50,000 gj/d CDN. $7.27 - $7.43 - AECO October 31,2008
November 1, 2008
20,000 gj/d CDN. $7.75 - $9.69 - AECO - March 31, 2009


Royalties
For the three months Years ended
ended December 31, December 31,
-------------------------------------------
Royalty rates (%) 2007 2006 2007 2006
-------------------------------------------
Natural gas 21 24 25 28
Oil and liquids 17 13 16 15
Weighted average rate 20 22 23 25

 


Royalties of $48.7 million for the year ended December 31, 2007 were 2% higher than the $47.9 million for the same period of 2006. The increase in royalties for the year ended December 31, 2007 resulted from revenues that were 10% higher compared to the same period of 2006. Royalty rates by product for the year ended December 31, 2007 were 25% for natural gas and 16% for oil and liquids compared to 28% for natural gas and 15% for oil and liquids for the same period in 2006. The decrease in natural gas royalty rates results from the impact of gains on price risk management contracts and crown royalty credits received in the second quarter of 2007. Royalties for the three months ended December 31, 2007 were $10.7 million, a decrease of 1% over the $10.8 million reported for the three months ended December 31, 2006. As a percentage of revenue, the average royalty rate for the fourth quarter of 2007 was 20% compared to 22% for the comparative period of 2006. Royalty rates by product for the fourth quarter of 2007 were 21% for natural gas and 17% for oil and liquids compared to 24% for natural gas and 13% for oil and liquids for the similar period in 2006.

Netbacks - The table below summarizes field netbacks by product for the year ended December 31, 2007:



Natural gas Oil and liquids 2007 Total
----------------------------------------------------------------------------
2007
production 66.9 mmcf/d 2,698 bbls/d 13,851 boe/d
----------------------------------------------------------------------------
(thousands) ($/mcf) (thousands) ($/bbl) (thousands) ($/boe)
Production
revenue $160,145 $6.56 $52,241 $53.05 $212,386 $42.01
Realized
gains on
commodity
derivatives 5,248 0.21 619 0.63 5,867 1.16
----------------------------------------------------------------------------
165,393 6.77 52,860 53.68 218,253 43.17
Royalties (40,534) (1.66) (8,190) (8.32) (48,724) (9.64)
Transportation
on costs (3,049) (0.12) (1,373) (1.39) (4,422) (0.87)
Operating
expenses (26,667) (1.09) (9,883) (10.04) (36,550) (7.23)
----------------------------------------------------------------------------
Field
netbacks $95,143 $3.90 $33,414 $33.93 $128,557 $25.43
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


The tables below summarize funds from operations netbacks for the year ended December 31, 2007, compared to the year ended December 31, 2006, and the three months ended December 31, 2007, compared to the three months ended December 31, 2006.



For the years ended December 31,
----------------------------------------------------------------------------
($ thousands) 2007 2006 % Change
----------------------------------------------------------------------------
$ $/boe $ $/boe $ $/boe
----------------------------------------------------------------------------
Production revenues 212,386 42.01 192,639 44.12 10 (5)
Realized gains on
commodity
derivatives 5,867 1.16 - - - -
------------------------------------
218,253 43.17 192,639 44.12 13 (2)
Royalties (48,724) (9.64) (47,861) (10.96) 2 (12)
Transportation costs (4,422) (0.87) (3,194) (0.73) 38 19
Operating costs (36,550) (7.23) (25,804) (5.91) 42 22
------------------------------------
Field netbacks 128,557 25.43 115,780 26.52 11 (4)
General and administrative (5,254) (1.04) (3,032) (0.69) 73 51
Interest (9,510) (1.88) (5,658) (1.30) 68 45
------------------------------------
Funds from operations
netbacks 113,793 22.51 107,090 24.53 6 (8)
------------------------------------
------------------------------------

For the three months ended December 31,
----------------------------------------------------------------------------
($ thousands) 2007 2006 % Change
----------------------------------------------------------------------------
$ $/boe $ $/boe $ $/boe
----------------------------------------------------------------------------
Production revenues 53,790 41.03 49,195 42.40 9 (3)
Realized gains on
commodity derivatives 1,356 1.03 - - - -
------------------------------------
55,146 42.06 49,195 42.40 12 (1)
Royalties (10,725) (8.18) (10,845) (9.35) (1) (13)
Transportation costs (1,222) (0.93) (500) (0.43) 144 116
Operating costs (9,316) (7.11) (8,230) (7.09) 13 -
------------------------------------
Field netbacks 33,883 25.84 29,620 25.53 14 1
General and
administrative (1,619) (1.23) (1,150) (0.99) 41 24
Interest (2,394) (1.83) (1,851) (1.60) 29 14
------------------------------------
Funds from operations
netbacks 29,870 22.78 26,619 22.94 12 (1)
------------------------------------
------------------------------------

 


Transportation - For the year ended December 31, 2007, transportation costs were $4.4 million ($0.87/boe) compared to $3.2 million ($0.73/boe) for the same period in 2006. The increase in transportation costs in 2007 compared to 2006 is primarily due to the 16% increase in production volumes. Transportation costs were $1.2 million ($0.93/boe) for the three months ended December 31, 2007 as compared to $500,000 ($0.43/boe) for the fourth quarter of 2006. Transportation costs in the fourth quarter of 2006 were lower on a total dollar and boe basis due to positive prior period adjustments.

Operating - Operating expenses were $36.6 million for the year ended December 31, 2007 compared to $25.8 million for the same period in 2006, an increase of 42%. This increase resulted from 16% higher production volumes and a 22% increase in per unit costs in 2007 compared to 2006. The increase in 2007 per unit costs resulted primarily from increasing cost pressures facing NuVista and the entire industry. For the year ended, December 31, 2007, natural gas operating expenses averaged $1.09/mcf and oil and liquids operating expenses were $10.04/bbl compared to $0.83/mcf and $9.89/bbl respectively for the same period of 2006. On a boe basis, operating costs increased 22% to $7.23/boe for the year ended December 31, 2007 as compared to $5.91/boe for the same period of 2006. Operating expenses were $9.3 million ($7.11/boe) for the three months ended December 31, 2007, a 13% increase when compared to $8.2 million ($7.09/boe) for the three months ended December 31, 2006. This increase resulted from 13% higher production volumes and a slight increase in per unit costs in the fourth quarter of 2007 compared to the fourth quarter of 2006.

General and administrative - General and administrative expenses, net of overhead recoveries, for the year ended December 31, 2007 were $5.3 million ($1.04/boe), an increase of 73% over the $3.0 million ($0.69/boe) for the year ended December 31, 2006. This increase is directly attributable to the higher production base in NuVista, increased staffing levels associated with less reliance on Bonavista Petroleum ("Bonavista") for the provision of services and higher costs being experienced throughout the energy industry. For the year ending December 31, 2007, NuVista paid Bonavista $1.4 million (2006 - $2.3 million) in fees relating to general and administrative services provided by Bonavista. In 2007, NuVista charged Bonavista management fees for jointly owned partnerships totaling $1.4 million (2006 - nil). General and administrative expenses were $1.6 million ($1.23/boe) net of overhead recoveries for the three months ended December 31, 2007, as compared to the charge of $1.2 million ($0.99/boe) for the same period in 2006. Higher per boe general and administration expenses in the fourth quarter of 2007 were primarily due to bonus accruals.



For the three months Years ended
ended December 31, December 31,
--------------------------------------------
(thousands) 2007 2006 2007 2006
--------------------------------------------
Gross $ 3,022 $ 2,384 $ 10,643 $ 6,748
Overhead recoveries (1,403) (1,234) (5,389) (3,716)
--------------------------------------------
Net general and administrative
expenses $ 1,619 $ 1,150 $ 5,254 $ 3,032
--------------------------------------------
--------------------------------------------
Per boe $ 1.23 $ 0.99 $ 1.04 $ 0.69
--------------------------------------------
--------------------------------------------

 


Stock-based compensation - NuVista recorded a stock-based compensation charge of $2.8 million for the year ended December 31, 2007 compared to $2.3 million for the same period in 2006, relating to both stock options and Class B performance shares. The increase in the expense in 2007 relates to stock options granted in the year and the increase in the cumulative number of stock options outstanding. NuVista recorded a stock-based compensation charge of $608,000 for the three months ended December 31, 2007 compared to $246,000 for the same period in 2006.

Interest - Interest expense for the year ended December 31, 2007 was $9.5 million ($1.88/boe) versus $5.7 million ($1.30/boe) for the same period of 2006 due primarily to higher average debt levels and higher average interest rates. Cash paid for interest for the year ended December 31, 2007 was $8.8 million compared to $5.5 million for 2006. For the three months ended December 31, 2007, interest expense was $2.4 million ($1.83/boe), up 29% from $1.9 million ($1.60/boe) in the same period of 2006. Currently, NuVista's borrowing rate is 5.0%.

Depreciation, depletion and accretion - Depreciation, depletion and accretion expenses for the year ended December 31, 2007, were $85.2 million, an increase of 30% over the $65.3 million for the year ended December 31, 2006. The average cost per unit was $16.86/boe for the twelve months ended December 31, 2007 compared to $14.96/boe in the same period in 2006. Per unit costs have increased in 2007 compared to 2006 due to the cost of property acquisitions completed in June 2006 and April 2007 coupled with higher industry exploitation and development costs. Depreciation, depletion and accretion expenses were $21.1 million for the fourth quarter of 2007 compared to $17.7 million for the same period in 2006, an increase of 19%. The average cost per unit was $16.08/boe in the fourth quarter of 2007 compared to $15.21/boe for the same period in 2006.

Income taxes - For the year ended December 31, 2007 income taxes were a recovery of $2.3 million as compared to a provision of $4.2 million in 2006. The income tax recovery for 2007 includes a recovery of $11.4 million due to federal and provincial tax rate reductions. For the fourth quarter of 2007, the recovery of income and other taxes was $7.2 million, as compared to a $3.0 million expense with an effective tax rate of 34% for the fourth quarter of 2006. The fourth quarter is lower due primarily to the reduced federal and provincial tax rates.

Capital expenditures - Capital expenditures were $164.0 million for the year ended December 31, 2007 consisting of exploration and development spending of $113.3 million and $50.7 million of acquisitions. This compares to $206.7 million incurred for the twelve months ended December 31, 2006 with $123.3 million on exploration and development spending and $83.4 million spent on acquisitions. 2007 acquisitions included a property acquisition in central Alberta in April 2007 and the residual amount is comprised of minor property acquisitions carried out during 2007. Capital expenditures were $43.8 million during the fourth quarter of 2007 compared to $39.1 million in the same period of 2006, with $32.8 million of exploration and development spending and $11.0 million spent on smaller complementary property acquisitions.



For the three months Years ended
ended December 31, December 31,
---------------------------------------------
($ thousands) 2007 2006 2007 2006
---------------------------------------------
Exploration and development:
Land and retention costs $ 2,311 $ 4,199 $ 6,145 $ 17,012
Seismic 3,310 4,267 11,961 13,091
Drilling and completion 16,577 20,402 60,305 63,172
Facilities and equipment 10,435 8,142 33,866 29,542
Corporate and other 183 347 1,043 451
---------------------------------------------
Subtotal 32,816 37,357 113,320 123,268
Acquisitions:
Property 10,994 1,760 50,688 83,460
---------------------------------------------
Subtotal 10,994 1,760 50,688 83,460
---------------------------------------------
Total capital expenditures $ 43,810 $ 39,117 $ 164,008 $ 206,728
---------------------------------------------
---------------------------------------------

 


Funds from operations and net earnings - For the year ended December 31, 2007, NuVista's funds from operations were $113.8 million ($2.21/share, basic), a 6% increase from $107.1 million ($2.20/share, basic) for the year ended December 31, 2006. Funds from operations for the year ended 2007 were slightly higher than 2006 primarily due to higher production volumes and associated revenues, partially offset by increased operating and general and administrative costs. In the fourth quarter of 2007, funds from operations were $29.9 million ($0.57/share, basic), a 12% increase over the $26.6 million ($0.54/share, basic) for the same period in 2006.

For the year ended December 31, 2007, net earnings decreased 25% to $26.3 million ($0.51/share, basic) from $35.3 million ($0.72/share, basic) for the same period in 2006. 2007 net earnings were lower when compared against 2006 net earnings for the same factors impacting funds from operations as well higher depletion, depreciation and accretion costs. Net earnings increased during the fourth quarter of 2007 to $11.1 million ($0.21/share, basic) from the $5.8 million ($0.12/share, basic) for the same period in 2006. 2007 net earnings for the fourth quarter were higher, compared to the same period in 2006, for the same factors impacting funds from operations as well as future income tax recoveries and higher depletion, depreciation and accretion costs.

Tax pools - NuVista had approximately $355 million of estimated tax pools as at December 31, 2007 available for deduction against future years' taxable income. Based on these estimated tax pools forecasted funds flow from operations and capital expenditures, NuVista does not forecast paying cash income taxes in 2008. The following table summarizes the estimated tax pool balances:



Maximum
Available Annual
Balance Deduction
----------------------
(thousands) (%)

Canadian exploration expense $ 11,000 100
Canadian development expense 60,000 30
Canadian oil and natural gas property expense 191,000 10
Undepreciated capital cost 89,000 25
Other 4,000 -
----------------------

Total $ 355,000
----------------------
----------------------

 


Liquidity and capital resources - As at December 31, 2007, bank debt (including working capital) was $180.3 million, resulting in a debt to annualized fourth quarter funds from operations ratio of approximately 1.5:1. At December 31, 2007, NuVista had a working capital deficiency $3.2 million. This deficiency is due to increased accounts payable and accrued liabilities and will be funded through available bank lines. At December 31, 2007, NuVista had approximately $39.7 million of unused bank borrowing capability based on the current line of credit of $220 million.

On March 4, 2008, NuVista completed the business combination with Rider Resources Ltd. ("Rider") and the private placement of units for proceeds of $84.0 million. Concurrently, NuVista increased the maximum borrowing amount of the credit facility to $450 million. On March 5, 2008, Nuvista repaid the US$99.5 million second lien term loan that Rider had outstanding with bank borrowings. NuVista also terminated the cross-currency interest swap related to the second lien term loan.

NuVista anticipates that 2008 funds from operations will provide NuVista with the flexibility to fund its planned 2008 capital program and provide for debt reduction. NuVista is targeting a year end 2008 debt to annualized fourth quarter funds from operations of less than 1.5 times. NuVista's capital program and debt reduction targets will be monitored and adjusted based on the outlook for commodity prices and funds from operations.

As at March 6, 2008, there were 58.7 million common shares, 3.0 common share purchase warrants and no Class B Performance Shares outstanding. In addition, there were 4.1 million stock options outstanding, with an average exercise price of $13.46 per share.

Subsequent events - On March 4, 2008, NuVista closed a business combination (the "Acquisition") with Rider Resources Ltd. ("Rider") and a private placement financing with the Ontario Teachers' Pension Plan Board (OTTP). The Acquisition resulted in the combination of NuVista and Rider, pursuant to which all of the issued and outstanding Rider shares were exchanged for common shares of NuVista. Pursuant to the Acquisition, Rider shareholders received, for each Rider share held, 0.3540 of a NuVista share. The total estimated cost of the combination is $261 million net of assumed debt, working capital deficiency and transaction costs totaling approximately $310 million. In connection with the Acquisition, OTPP subscribed by way of private placement (the "Investment") for 6,000,000 units of NuVista ("Units") at a price of $14.00 per Unit for gross proceeds of $84,000,000. Each Unit consists of one NuVista share and one-half of a warrant of NuVista ("NuVista Warrants"), each of which NuVista Warrant entitles the holder thereof to acquire, subject to adjustment, one NuVista share for $15.50, expiring twelve months from the date of closing of the private placement.

On March 4, 2008, NuVista's credit facility was increased to a maximum borrowing amount $450 million. Terms and conditions remain the same as disclosed in note 7. On March 5, 2008, NuVista repaid the US$99.5 million second lien term loan that Rider had outstanding with bank borrowings. NuVista also terminated the cross-currency swap related to the second lien term loan.

NuVista's Board of Directors has approved a price risk management limit of up to 60% of forecast production, net of royalties, using fixed price and costless collar contracts. In 2008, NuVista's Board of Directors has approved an increase to the limit of 60% for the period April 2008 to October 2008. For this period the Board has approved natural gas hedges in the amount of 70,000 gj/day.

Related party activities - In 2003, as part of the Plan of Arrangement with Bonavista Petroleum Ltd. ("Bonavista"), NuVista entered into a Technical Services Agreement ("TSA"). Under the TSA, Bonavista received payment for certain services provided by it to NuVista. Effective January 1, 2007, the terms of the TSA were amended to reflect the reduced level of services provided by Bonavista. On August 31, 2007, the TSA was terminated and replaced with a new services agreement that reflects the remaining ongoing services that will be provided by Bonavista. 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 the year ending December 31, 2007, NuVista paid Bonavista $1.4 million (2006 - $2.3 million) in fees relating to general and administrative services provided by Bonavista. In 2007, NuVista charged Bonavista management fees for jointly owned partnerships totalling $1.4 million (2006 - nil). In addition, during 2007 Bonavista charged NuVista $975,000 for costs that are outside of the TSA relating to NuVista's share of direct charges from third parties. As at December 31, 2007, the amount payable to Bonavista was $700,000 (2006 - $2.7 million).

Contractual obligations and commitments - NuVista enters into many contract obligations as part of conducting day-to-day business. As NuVista continues to spend money as part of its capital program we will draw on our bank facility and will have the related contractual obligation. In the event that NuVista's credit facility is not extended at any time before the maturity date, the loan balance of $177 million will become payable on the maturity date which is May 1, 2009.

Annual financial information - The following table highlights selected annual financial information for the years ended December 31, 2007, 2006 and 2005:



December 31, 2007 2006 2005
-----------------------------
(thousands, except per share amounts)
Production revenue $ 212,386 $ 192,639 $ 169,880
Net earnings 26,327 35,284 39,506
Per share - basic 0.51 0.72 0.90
Per share - diluted 0.51 0.71 0.87
-----------------------------

Balance sheet information:
Total assets $ 683,165 $ 590,084 $ 432,432
Bank loan 177,109 152,485 70,524
Shareholders' equity 370,292 296,513 255,604

 


Quarterly financial information - The following table highlights NuVista's performance for the eight quarterly reporting periods from March 31, 2006 to December 31, 2007:



2007
--------------------------------------------
December 31 September 30 June 30 March 31
----------- ------------- --------- --------
Production (boe/d) 14,251 13,590 14,147 13,409

($ thousands, except per share amounts)
Production revenue $ 53,790 $ 48,138 $ 56,832 $ 53,626
Net earnings $ 11,063 $ 754 $ 9,678 $ 4,832
Net earnings
per share:
Basic 0.21 0.01 0.19 0.10
Diluted 0.21 0.01 0.18 0.10


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 earnings $ 5,765 $ 4,082 $ 15,986 $ 9,451
Net earnings
per share:
Basic 0.12 0.08 0.33 0.20
Diluted 0.12 0.08 0.32 0.19

 


NuVista has seen growth in quarterly production volumes over the prior eight quarters except for a 4% decline in the quarter ended September 30, 2007. This decline was primarily due to plant turnarounds that occur during the summer months. Over the prior eight quarters, quarterly revenue has been in a range of $45 million to $57 million with revenue primarily influenced by production volumes and natural gas prices in the quarter. Net earnings have been in a range of $1 million to $16 million primarily influenced by production volumes and natural gas prices but also higher operating costs and depletion, depreciation and accretion. Net earnings were higher in the second quarters of 2006 and 2007, and the fourth quarter of 2007 due to the recognition of reductions in corporate income tax rates.

Critical accounting estimates - The consolidated financial statements have been prepared in accordance with Canadian GAAP. A summary of significant accounting policies are presented in note 1 of the Notes to the Consolidated Financial Statements. Certain accounting policies are critical to understanding the financial condition and results of operations of NuVista.

(a) Proved oil and natural gas reserves - Proved oil and natural gas reserves, as defined by the Canadian Securities Administrators in National Instrument 51-101 with reference to the Canadian Oil and Natural Gas Evaluation Handbook, are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

An independent reserve evaluator using all available geological and reservoir data as well as historical production data has prepared NuVista's oil and natural gas reserve estimates. Estimates are reviewed and revised as appropriate. Revisions occur as a result of changes in prices, costs, fiscal regimes, reservoir performance or a change in the Company's development plans. The effect of changes in proved oil and natural gas reserves on the financial results and position of the Company is described below.

(b) Depreciation and depletion expense - NuVista uses the full cost method of accounting for exploration and development activities whereby all costs associated with these activities are capitalized, whether successful or not. The aggregate of capitalized costs, net of certain costs related to unproved properties, and estimated future development costs is amortized using the unit-of-production method based on estimated proved reserves. Changes in estimated proved reserves or future development costs have a direct impact on depreciation and depletion expense.

Certain costs related to unproved properties and major development projects may be excluded from costs subject to depletion until proved reserves have been determined or their value is impaired. These properties are reviewed quarterly to determine if proved reserves should be assigned, at which point they would be included in the depletion calculation, or for impairment, for which any writedown would be charged to depreciation and depletion expense.

(c) Full cost accounting ceiling test - The carrying value of property, plant and equipment is reviewed at least annually for impairment. Impairment occurs when the carrying value of the assets is not recoverable by the future undiscounted cash flows. The cost recovery ceiling test is based on estimates of proved reserves, production rates, petroleum and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material. Any impairment would be charged as additional depletion and depreciation expense.

(d) Asset retirement obligations - The asset retirement obligations are estimated based on existing laws, contracts or other policies. The fair value of the obligation is based on estimated future costs for abandonment's and reclamations discounted at a credit adjusted risk free rate. The costs are included in property, plant and equipment and amortized over its useful life. The liability is adjusted each reporting period to reflect the passage of time, with the accretion charged to earnings and for revisions to the estimated future cash flows. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material.

(e) Income taxes - The determination of income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded.

Update on regulatory matters:

On October 25, 2007, the Alberta government announced the New Alberta Royalty Framework ("NRF") which proposes changes to the current royalty regime in Alberta. These proposed changes, at prices in effect at January 1, 2008, are not expected to materially impact NuVista's royalty rates. Although, in a rising natural gas price environment, NuVista's royalty rates would increase as a result of these proposed changes. In addition, the royalty rates associated with the assets acquired through the Rider combination would be impacted to a greater degree as the majority of these assets are higher productivity deep natural gas wells.

Update on financial reporting matters:

(a) Financial instruments, hedging activities and other comprehensive income

Effective January 1, 2007, NuVista adopted the Canadian Institute of Chartered Accountants ("CICA") section 3855, "Financial Instruments - Recognition and Measurement", section 3865, "Hedges", section 1530, "Comprehensive Income", and section 3861, "Financial Instruments - Disclosure and Presentation". NuVista has adopted these standards prospectively and the comparative consolidated financial statements have not been restated. Transition amounts have been recorded in accumulated other comprehensive income.

At January 1, 2007, the following adjustments were made to the consolidated balance sheet to adopt the new standards:



Amount
---------
(thousands)
Accounts receivable - commodity derivatives $ 1,350
Future income taxes (445)
Accumulated other comprehensive income (905)

 


(b) Capital disclosures

The CICA issued the new accounting standard; Section 1535 capital disclosures which takes effect on January 1, 2008. Section 1535 specifies the disclosure of an entity's objectives, policies and processes for managing capital, quantitative data about what it manages as capital, any externally imposed capital requirements, and the consequences of non-compliance. This section is expected to have minimal impact on NuVista's financial statements.

(c) Financial instruments

The CICA issued new accounting standard; Section 3862, financial instruments disclosures and section 3863, financial instrument presentation which takes effect on January 1, 2008. These sections require NuVista to increase disclosure on the nature, extent and risk arising from the financial instruments and how the entity manages those risks.

(d) Goodwill

The CICA issued the new accounting standard; Section 3064 goodwill and intangible assets replacing Section 3062, goodwill and other intangible assets. This new section will be effective on January 1, 2009. This section applies to goodwill subsequent to initial recognition and establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This new standard is not expected to have a material impact on NuVista's consolidated financial statements.

Internal control reporting:

NuVista's President and Chief Executive Officer ("CEO") and Vice President, Finance and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in MI 52-109.

Disclosure controls and procedures have been designed to ensure that information to be disclosed by NuVista is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. NuVista's CEO and CFO have evaluated the effectiveness of the disclosure controls and procedures as at December 31, 2007 and have concluded that they provide reasonable assurance that all material information relating to the Company is disclosed in a timely manner.

Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the NuVista's financial reporting and compliance with generally accepted accounting principles. The CEO and CFO have evaluated the NuVista's internal controls over financial reporting as at December 31, 2007 based on the framework in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and have concluded they are effectively designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. During the quarter ended December 31, 2007, there have been no changes to the Company's internal controls over financial reporting that have materially, or are reasonably likely to, materially affect the internal controls over financial reporting.

Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, errors or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control systems are met.

Assessment of business risks:

The following are the primary risks associated with the business of NuVista. These risks are similar to those affecting others in the conventional oil and natural gas sector. NuVista's financial position, results of operations are directly impacted by these factors and include:

Operational risk associated with the production of oil and natural gas;

- Reserve risk in respect to the quantity and quality of recoverable reserves;

- Market risk relating to the availability of transportation systems to move the product to market;

- Commodity risk as crude oil and natural gas prices fluctuate due to market forces;

- Financial risk such as volatility of the Canadian/US dollar exchange rate, interest rates and debt service obligations;

- Environmental and safety risk associated with well operations and production facilities;

- Changing government regulations relating to royalty legislation, income tax laws, incentive programs, operating practices and environmental protection relating to the oil and natural gas industry; and

- Continued participation of NuVista's lenders.

NuVista seeks to mitigate these risks by:

- Acquiring properties with established production trends to reduce technical uncertainty as well as undeveloped land with development potential;

- Maintaining a low cost structure to maximize product netbacks and reduce impact of commodity price cycles;

- Diversifying properties to mitigate individual property and well risk;

- Maintaining product mix to balance exposure to commodity prices;

- Conducting rigorous reviews of all property acquisitions;

- Monitoring pricing trends and developing a mix of contractual arrangements for the marketing of products with creditworthy counterparties;

- Maintaining a hedging program to hedge commodity prices and foreign exchange currency rates with creditworthy counterparties;

- Ensuring strong third-party operators for non-operated properties;

- Adhering to NuVista's safety program and keeping abreast of current operating best practices;

- Keeping informed of proposed changes in regulations and laws to properly respond to and plan for the effects that these changes may have on our operations;

- Carrying industry standard insurance to cover losses; and

- Establishing and maintaining adequate cash resources to fund future abandonment and site restoration costs.

OUTLOOK

NuVista continues to believe in the longer term favourable outlook for natural gas prices due to the improving supply and demand fundamentals and the relative valuation of natural gas compared to crude oil, although this will be offset by higher royalties in 2009 and beyond at these higher prices. The completion of the business combination with Rider on March 4, 2008 creates an intermediate natural gas focused company with a track record of meeting expectations, prudent capital management and profitable per share growth. We will continue to employ the same disciplined approach to our business in 2008 as we have over the past four and one half years. With the successful integration of the Rider assets, we now have eight core areas with shallow natural gas, deep natural gas and heavy oil, high working interest multi horizon opportunities. We will continue to pursue growth through our exploration and development program and will continue to pursue complementary acquisitions that meet our criteria.

NuVista's financial and operating results for 2008 will include the business combination of Rider effective March 4, 2008. For 2008, NuVista's Board of Directors has approved a capital program, in addition to the business combination with Rider, ranging from $155 million to $175 million. NuVista anticipates drilling 140 to 150 wells in 2008 and spending approximately 30% of its capital program on complementary acquisitions. The portion of expenditures allocated to exploration and development activities is balanced between NuVista and Rider properties. As a combined company, NuVista expects to have an expanded opportunity inventory heading into 2009. NuVista will continue to adjust and redistribute capital based on market conditions and available acquisition opportunities.

NuVista is currently forecasting 2008 average production of 24,000 boe/d to 24,500 boe/d and is forecasting production of 26,000 boe/d to 26,500 boe/d for the combined operations after March 4, 2008. Production for the second quarter will be reduced by approximately 800 boe/d due to known scheduled turnarounds in June at the Wapiti and Nordegg facilities. Based on current commodity price assumptions of C$8.00/mcf AECO for natural gas and US$90.00/bbl for WTI, and incorporating our price risk management contracts, NuVista is forecasting funds from operations of $250 million - $260 million for 2008 ($3.35/share to $3.50/share) . NuVista expects operating costs to average between $7.25/boe and $7.50/boe. NuVista is forecasting fourth quarter debt to annualized funds from operations to be less than 1.5:1.

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 on a per share basis consistently and profitably. We have the team, the land base and the prospect generation ability to continue to create value for shareholders. We are poised for continued growth and well positioned to post strong operational and financial results for 2008 and beyond. 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.

Sincerely,



Alex G. Verge Robert F. Froese
President & CEO Vice-President, Finance & CFO
March 6, 2008



NUVISTA ENERGY LTD.

Consolidated Balance Sheets

---------------------------------------------------------------------------

December 31, 2007 2006
---------------------------------------------------------------------------
(thousands)

Assets

Current assets:
Accounts receivable and prepaids $ 30,463 $ 25,953

Oil and natural gas properties and equipment (notes 4
and 5) 598,263 509,692

Goodwill 54,439 54,439
---------------------------------------------------------------------------
$ 683,165 $ 590,084
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities (note 10) $ 33,676 $ 40,552

Bank loan (note 7) 177,109 152,485

Asset retirement obligations (note 6) 26,574 22,683

Future income taxes (note 9) 75,514 77,851

Shareholders' equity:
Share capital (note 8) 240,245 194,030
Contributed surplus (note 8) 4,967 3,747
Accumulated other comprehensive income (note 8) 17 -
Retained earnings 125,063 98,736
---------------------------------------------------------------------------

Subsequent events (note 12) 370,292 296,513
---------------------------------------------------------------------------

$ 683,165 $ 590,084
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



NUVISTA ENERGY LTD.

Consolidated Statements of Earnings, Comprehensive Income and Retained
Earnings

Three months Years
ended ended
(thousands, except per share December 31, December 31,
amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
Revenues
Production $ 53,790 $ 49,195 $ 212,386 $ 192,639
Royalties (10,725) (10,845) (48,724) (47,861)
Realized and unrealized
gains(losses)on commodity
derivatives, net (note 10) (2,947) - 4,138 -
----------------------------------------------------------------------------
40,118 38,350 167,800 144,778
----------------------------------------------------------------------------
Expenses
Operating 9,316 8,230 36,550 25,804
Transportation 1,222 500 4,422 3,194
General and administrative 1,619 1,150 5,254 3,032
Interest 2,394 1,851 9,510 5,658
Stock-based compensation 608 246 2,833 2,276
Depreciation, depletion and
accretion 21,089 17,648 85,246 65,336
----------------------------------------------------------------------------
36,248 29,625 143,815 105,300
----------------------------------------------------------------------------
Earnings before income and
other taxes 3,870 8,725 23,985 39,478
Future income tax (reduction) (7,193) 2,960 (2,342) 4,194
----------------------------------------------------------------------------
Net earnings 11,063 5,765 26,327 35,284
Other comprehensive income
Amortization of fair value of
financial instruments (note 8) (36) - (888) -
----------------------------------------------------------------------------
Comprehensive income $ 11,027 $ 5,765 $ 25,439 $ 35,284
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, beginning
of period $ 114,000 $ 92,971 $ 98,736 $ 63,452
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, end of
period $ 125,063 $ 98,736 $ 125,063 $ 98,736
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share - basic $ 0.21 $ 0.12 $ 0.51 $ 0.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share -
diluted $ 0.21 $ 0.12 $ 0.51 $ 0.71
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



NUVISTA ENERGY LTD.

Consolidated Statements of Cash Flows

Three months Years
ended ended
December 31, December 31,
(thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)

Cash provided by (used in):
Operating Activities
Net earnings $ 11,063 $ 5,765 $ 26,327 $ 35,284
Items not requiring cash from
operations:
Depreciation, depletion and
accretion 21,089 17,648 85,246 65,336
Stock-based compensation 608 246 2,833 2,276
Unrealized (gains)/losses on
commodity derivatives, net
(note 10) 4,303 - 1,729 -
Future income taxes (reduction) (7,193) 2,960 (2,342) 4,194
Asset retirement expenditures (787) (319) (1,589) (1,259)
Decrease (Increase) in non-cash
working capital items (2,654) 3,217 (9,020) 7,656
----------------------------------------------------------------------------

26,429 29,517 103,184 113,487
----------------------------------------------------------------------------

Financing Activities
Issue of share capital, net of
share issuance costs 1,511 94 42,871 2,676
Increase in bank loan 16,085 7,072 24,624 81,961
----------------------------------------------------------------------------

17,596 7,166 67,495 84,637
----------------------------------------------------------------------------

Investing Activities
Property acquisitions (note 4) (10,994) - (50,688) (81,700)
Deposit on capital asset
acquisition (2,600) - (2,600) -
Oil and natural gas properties
and equipment (32,816) (37,980) (113,320) (123,891)
Decrease (Increase) in non-cash
working capital items 2,385 1,297 (4,071) 7,467
----------------------------------------------------------------------------
(44,025) (36,683) (170,679) (198,124)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Decrease (Increase) in cash - - - -
Cash, beginning of period - - - -
----------------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

 


NUVISTA ENERGY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2007 and 2006.

1. Significant accounting policies:

NuVista Energy Ltd. ("NuVista") was established with an effective date of July 2, 2003 under a Plan of Arrangement entered into by Bonavista Energy Trust (the "Trust"), Bonavista Petroleum Ltd. ("Bonavista") and NuVista. Under the Plan of Arrangement, various assets of Bonavista comprising of certain producing and exploration assets were transferred to NuVista.

Management has prepared its consolidated financial statements in accordance Canadian Generally Accepted Accounting Principles and all amounts are stated in Canadian dollars. As a determination of many assets, liabilities, revenue and expenses is dependent upon future events, the preparation of these consolidated financial statements requires the use of estimates and assumptions, which have been made using careful judgment. In particular, the amounts recorded for depreciation and depletion of oil and natural gas properties and equipment, the provision for asset retirement obligations and stock-based compensation are based on estimates. The ceiling test is based on estimates of proved reserves, production rates, oil and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant.

(a) Principles of consolidation:

The consolidated financial statements include the accounts of NuVista and its wholly owned subsidiaries and proportionate share of its partnerships, which are jointly owned with Bonavista.

(b) Oil and natural gas properties and equipment:

NuVista follows the full cost method of accounting, whereby all costs associated with the exploration for and development of oil and natural gas reserves are capitalized in cost centres on a country-by-country basis. Such costs include land acquisitions, drilling, well equipment and geological and geophysical activities. Gains or losses are not recognized upon disposition of oil and natural gas properties unless crediting the proceeds against accumulated costs would result in a change in the rate of depletion by 20% or more.

Costs capitalized in the cost centres, including well equipment, together with estimated future capital costs associated with proved reserves, are depreciated and depleted using the unit-of-production method which is based on gross production and estimated proved oil and natural gas reserves as determined by independent engineers. The cost of unproven properties is excluded from the depreciation and depletion base. For purposes of the depreciation and depletion calculations, oil and natural gas reserves are converted to a common unit of measure on the basis of their relative energy content, being six thousand cubic feet of natural gas for one barrel of oil. Facilities are depreciated using the declining balance method over their useful lives, which range from 12 to 15 years.

Oil and natural gas properties and equipment are evaluated in each reporting period to determine whether the carrying amount in a cost centre is recoverable and does not exceed the fair value of the properties in the cost centre. The carrying amounts are assessed to be recoverable when the sum of the undiscounted cash flows expected from the production of proved reserves, the lower of cost and market of unproved properties and the cost of major development projects exceeds the carrying amount of the cost centre. When the carrying amount is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying amount of the cost centre exceeds the sum of the discounted cash flows expected from the production of proved plus probable reserves, the lower of cost and market of unproved properties and the cost of major development projects of the cost centre. The cash flows are estimated using expected future product prices and costs, and are discounted using a risk-free interest rate.

(c) Joint interest operations:

A portion of NuVista's oil and natural gas operations is conducted jointly with others. Accordingly, the consolidated financial statements reflect only NuVista's proportionate interest in such activities.

(d) Goodwill:

Goodwill is tested for impairment on an annual basis in the fourth quarter of each year. If indications of impairment are present, a loss would be charged to earnings for the amount that the carrying value of goodwill exceeds its fair value.

(e) Asset retirement obligations:

NuVista records a liability for the fair value of legal obligations associated with the retirement of long-lived tangible assets in the period in which they are incurred, normally when the asset is purchased or developed. On recognition of the liability there is a corresponding increase in the carrying amount of the related asset known as the asset retirement cost, which is depleted on a unit-of-production basis over the life of the reserves. The liability is adjusted each reporting period to reflect the passage of time, with the accretion charged to earnings, and for revisions to the estimated future cash flows. Actual costs incurred upon settlement of the obligations are charged against the liability.

(f) Revenue recognition:

Revenues from the sale of oil and natural gas are recorded when title passes to an external party.

(g) Financial instruments:

(i) Financial instruments - recognition and measurement

All financial instruments within its scope, including all derivatives are to be recognized on the consolidated balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired. NuVista has classified its accounts receivable as loans and receivables which are measured at amortized cost. Accounts payable and accrued liabilities and bank loans are classified as other liabilities which are measured at amortized cost, which is measured using the effective interest rate method. Financial derivatives are designated as held for trading which are measured at fair value. Changes to the measurement of existing financial assets and liabilities at the date of adoption were adjusted to either opening retained earnings or opening accumulated other comprehensive income. The company immediately expenses all transaction costs incurred in relation to the acquisition of a financial asset or liability.

(ii) Derivatives

NuVista continues to utilize financial derivatives and non-financial derivatives, such as commodity sales contracts requiring physical delivery, to manage the price risk attributable to anticipated sale of oil and natural gas production.

NuVista has elected to account for its commodity sales contracts which were entered into and continue to be held for the purpose of receipt or delivery of non-financial items in accordance with its expected purchase, sale or usage requirements as executory contracts on an accrual basis rather than as non-financial derivatives. Prior to adoption of the new standards, physical receipt and delivery contracts did not fall within the scope of the definition of a financial instrument and were also accounted for as executory contracts.

Prior to January 1, 2007, NuVista applied hedge accounting to its financial derivatives. On January 1, 2007, NuVista discontinued hedge accounting for all existing commodity derivatives. Net derivative gains in accumulated other comprehensive income at January 1, 2007 will be reclassified to earnings in future periods as the original hedged transactions affect net earnings. From that date forward, the changes in fair value of such derivatives will be recognized in net earnings as incurred.

(iii) Embedded derivatives

Embedded derivatives are derivatives embedded in a host contract. NuVista has elected January 1, 2003, as its transition date for accounting for any potential embedded derivatives. NuVista did not identify any material embedded derivatives which required separate recognition and measurement.

(iv) Other comprehensive income

The new standards require a new statement of comprehensive income, which is comprised of net earnings and other comprehensive income which, for NuVista, to date relate to changes in gains or losses on derivatives designated as cash flow hedges. NuVista has prepared a statement showing the changes in accumulated other comprehensive income.

(h) Stock-based compensation:

NuVista has equity incentive plans, which are described in note 8. These stock-based compensation plans for employees do not involve the direct award of stock, or call for the settlement in cash or other assets. Upon the exercise of stock options, consideration received together with the amount previously recognized in contributed surplus is recorded as an increase to share capital. Compensation costs are recognized in the financial statements for the performance shares. NuVista uses the fair value method for valuing stock option grants. Under this method, the compensation cost attributable to all share options granted is measured at fair value at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus.

(i) Income taxes:

NuVista follows the asset and liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the consolidated financial statements of NuVista and its respective tax base using substantively enacted future income tax rates. The effective change in income tax rates on future tax liabilities and assets is recognized in income in the period in which the change occurs. Temporary differences arising on acquisitions result in future tax assets and liabilities.

(j) Per share amounts:

Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common shares. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments.

2. Changes in accounting policies:

(a) Financial instruments, hedging activities and other comprehensive income:

Effective January 1, 2007, NuVista adopted the Canadian Institute of Chartered Accountants ("CICA") section 3855, "Financial Instruments - Recognition and Measurement", section 3865, "Hedges", section 1530, "Comprehensive Income", and section 3861, "Financial Instruments - Disclosure and Presentation". NuVista has adopted these standards prospectively and the comparative consolidated financial statements have not been restated. Transition amounts have been recorded in accumulated other comprehensive income.

At January 1, 2007, the following adjustments were made to the consolidated balance sheet to adopt the new standards:



Amount
---------------------------------------------------------------------------
(thousands)
Accounts receivable - commodity derivatives $ 1,350
Future income taxes (445)
Accumulated other comprehensive income (905)
---------------------------------------------------------------------------

 


3. Future accounting changes:

(a) Capital disclosures:

The CICA issued the new accounting standard; Section 1535 capital disclosures which takes effect on January 1, 2008. Section 1535 specifies the disclosure of an entity's objectives, policies and processes for managing capital, quantitative data about what it manages as capital, any externally imposed capital requirements, and the consequences of non-compliance. This section is expected to have minimal impact on NuVista's financial statements.

(b) Financial instruments:

The CICA issued new accounting standard; Section 3862, financial instruments disclosures and section 3863, financial instrument presentation which takes effect on January 1, 2008. These sections require NuVista to increase disclosure on the nature, extent and risk arising from the financial instruments and how the entity manages those risks.

(c) Goodwill:

The CICA issued the new accounting standard; Section 3064 goodwill and intangible assets replacing Section 3062, goodwill and other intangible assets. This new section will be effective on January 1, 2009. This section applies to goodwill subsequent to initial recognition and establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This new standard is not expected to have a material impact on NuVista's consolidated financial statements.

4. Acquisitions:

(a) Central Alberta properties:

On April 2, 2007, NuVista completed the acquisition of certain natural gas properties in central Alberta for a net purchase price of $34.6 million which includes asset retirement obligations of $166,000. The acquisition has been accounted for at the fair value, with results from operations included from the closing date of the acquisition. The purchase equation is as follows:



Amount
---------------------------------------------------------------------------
(thousands)
Net assets acquired:
Oil and natural gas properties $ 34,811
Asset retirement obligations (166)
---------------------------------------------------------------------------

Net assets acquired $ 34,645
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Purchase consideration:
Cash $ 34,645
---------------------------------------------------------------------------

Total purchase consideration $ 34,645
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


(b) 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. The acquisition has been accounted for at the fair value, 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
---------------------------------------------------------------------------
---------------------------------------------------------------------------

5. Oil and natural gas properties and equipment:

Accumulated
depreciation and
December 31, 2007 Cost depletion Net book value
---------------------------------------------------------------------------
(thousands)

Oil and natural gas properties $ 670,104 $ 194,838 $ 475,266

Facilities 140,446 17,449 122,997
---------------------------------------------------------------------------

$ 810,550 $ 212,287 $ 598,263
---------------------------------------------------------------------------
---------------------------------------------------------------------------

December 31, 2006
(thousands)

Oil and natural gas properties $ 529,863 $ 118,603 $ 411,260

Facilities 108,711 10,279 98,432
---------------------------------------------------------------------------

$ 638,574 $ 128,882 $ 509,692
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


Unproved property costs of $60.9 million were excluded from the depreciation and depletion calculation for the year ended December 31, 2006 (2006 - $52.6 million). Future development costs of $29.7 million (2006 - $12.2 million) were included in the depreciation and depletion calculation. For 2007, NuVista capitalized $2.7 million (2006 - $2.6 million) in general and administrative expenses and $1.2 million (2006 - $0.8 million) in stock compensation expense related to exploration and development activities. Related future tax was $0.5 million (2006 - $0.3 million).

NuVista has performed the ceiling test under AcG-16 as of December 31, 2007 and no adjustment was required. The impairment test was calculated using the benchmark reference prices at January 1 for the years 2008 to 2013 and thereafter, adjusted for commodity differentials specific to NuVista.

Benchmark Reference Price Forecasts:



Year 2008 2009 2010 2011 2012 2013 Thereafter (1)
----------------------------------------------------------------------------
WTI (US$/bbl) 92.00 88.00 84.00 82.00 82.00 82.00 82.42
AECO (Cdn$/mmbtu) 6.75 7.55 7.60 7.60 7.60 7.60 8.14
----------------------------------------------------------------------------

(1) Escalated at 2% per year thereafter.

 


6. Asset retirement obligations:

NuVista's asset retirement obligations result from net ownership interests in oil and natural gas assets including well sites, gathering systems and processing facilities. NuVista estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $143.3 million (2006 - $122.2 million), which will be incurred over the next 51 years. The majority of the costs will be incurred between 2010 and 2036. The well reclamation cost assumptions were revised upwards in 2007 to reflect the overall increase in costs experienced in 2007. A credit-adjusted risk-free rate of 8% (2006 - 8%) and an inflation rate of 2% (2006 - 2%) were used to calculate the fair value of the asset retirement obligations.

A reconciliation of the asset retirement obligations is provided below:



December 31, 2007 2006
---------------------------------------------------------------------------
(thousands)
Balance, beginning of year $ 22,683 $ 14,790

Accretion expense 1,841 1,407
Liabilities incurred 2,429 4,069
Liabilities acquired (see note 4) 166 2,502
Liabilities settled (1,589) (1,259)
Changes in assumptions 1,044 1,174
---------------------------------------------------------------------------

Balance, end of year $ 26,574 $ 22,683
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


7. Bank loan:

NuVista's revolving bank loan facility is $220 million (2006 - $180 million) and provides that borrowing may be made by prime loans, bankers' acceptances and/or US libor advances. These advances bear interest at the bank's prime rate and/or at money market rates plus a stamping fee. The loan is secured by a first floating charge debenture, general assignment of book debts and NuVista's oil and natural gas properties and equipment. The facility is subject to an annual review by the lenders, at which time a lender can request conversion to a term loan for one year. Under the term period, no principal payments would be required until May 1, 2009 or later, after the annual review. As such, this loan facility is classified as a long-term liability. Cash paid for interest was $8.7 million for the year ended December 31, 2007 (2006 -$5.5 million). See subsequent event (note 12).

8. 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 of $15 - (34)
---------------------------------------------------------------------------

Balance, December 31, 2006 49,015 $ 194,027
Issued for cash 2,750 39,875
Conversion of Class B Performance Shares 231 3
Exercise of stock options 708 4,991
Stock-based compensation - 2,788
Reacquired and cancelled - -
Cost associated with shares issued, net of future tax
benefit of $557 - (1,439)
---------------------------------------------------------------------------

Balance, December 31, 2007 52,704 $ 240,245
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


(ii) Class B Performance Shares:

Each Class B Performance Share was issued for a price of $0.01 per share and is convertible into the fraction of a Common Share equal to the closing trading price of the Common Shares on the Toronto Stock Exchange on the day prior to such conversion less $2.00, if positive, divided by the Common Share closing price. The Class B Performance Shares will automatically convert into Common Shares as to 25% of the Class B Performance Shares outstanding on a pro-rata basis from holders on each of July 1, 2004, 2005, 2006 and 2007. If the NuVista Closing Price less $2.00 is not positive on any conversion date, NuVista will, subject to applicable law, redeem the Class B Performance Shares that would have otherwise been converted at the redemption price of $0.01 per share. The fair value of each Class B Performance Share was $2.41 per share, at date of issuance, using the Black-Scholes model. This amount is amortized over the life of the Class B Performance Shares and is included in stock-based compensation expense. Upon conversion or exercise the related charge to stock- based compensation is reclassified to Common Shares.

On July 1, 2007, the remaining 270,789 Class B Performance Shares were converted into 230,327 Common 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
----------------------------------------------------------------------------
Converted to Common Shares (271) (3)
Reacquired and cancelled - -
----------------------------------------------------------------------------
Balance, December 31, 2007 - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(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
Stock-based compensation 4,008
Conversion of Class B Performance Shares and exercise of stock
options (2,788)
----------------------------------------------------------------------------

Balance, December 31, 2007 $ 4,967
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(d) Accumulated other comprehensive income:

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

Balance, December 31, 2006 $ -
Transition adjustment for discontinuance of hedge accounting net
of tax of $445 905
Reclassification to net earnings during the period, net of tax of
$437 (888)
----------------------------------------------------------------------------

Balance, December 31, 2007 $ 17
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


(e) Per share amounts:

During the year ended December 31, 2007, there were 51,375,406 (2006 - 48,731,322) weighted average shares outstanding. On a diluted basis, there were 51,961,713 (2006 - 49,869,565) weighted average shares outstanding after giving effect for dilutive stock options. The number of anti-dilutive options totaled 3,224,150 at December 31, 2007 (2006 - 1,460,711).

(f) Stock options:

NuVista has established a stock option plan whereby officers, directors, employees and service providers may be granted options to purchase Common Shares. Options granted vest at the rate of 25% per year and expire two years after the date of vesting to a maximum term of six years. The total stock options outstanding plus the Class B
Performance Shares cannot exceed 10% of the outstanding Common Shares. The summary of stock options transactions for the years ended December 31, 2007 and 2006 is as follows:



2007 2006
---------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
---------------------------------------------------------------------------

Outstanding, beginning of year 3,653,711 $ 11.94 2,433,537 $ 8.87
Granted 1,373,100 $ 14.38 1,730,500 $ 14.96
Exercised (707,961)$ 6.35 (417,639) $ 6.51
Cancelled (272,450)$ 14.34 (92,687) $ 12.36
---------------------------------------------------------------------------

Outstanding, end of year 4,046,400 $ 13.46 3,653,711 $ 11.94
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 


The following table summarizes stock options outstanding and exercisable under the plan at December 31, 2007:



Options outstanding Options exercisable
----------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of Number remaining average Number average
exercise outstanding contractual exercise exercisable exercise
prices at year-end life price at year-end price
----------------------------------------------------------------------------
$6.30 to $9.99 488,100 1.0 years $ 7.25 414,700 $ 7.01
$10.00 to $14.99 2,914,700 3.6 years $ 13.75 594,075 $ 13.24
$15.00 to $18.80 643,600 3.5 years $ 16.87 120,625 $ 17.36
----------------------------------------------------------------------------
$6.30 to $18.10 4,046,400 3.3 years $ 13.46 1,129,400 $ 11.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


(g) Stock-based compensation:

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 4.5%; average volatility of 33%; an expected life of 4.5 years; an estimated forfeiture rate of 10%; and dividends of nil. On May 3, 2007, NuVista's shareholder approved an amendment to the stock option plan converting the plan into a "rolling" 10% plan. Under a rolling stock option plan the number of options available to issue are automatically increased as the Company issues new common shares whereas under non-rolling plans the options available must be increased through resolutions approved by the Board of Directors. The weighted average fair value of stock options granted for the year ended December 31, 2007 was $4.77 per share (2006 - $4.88 per share).

9. Income and other taxes:

The provision for income tax differs from the result of which would have been obtained by applying the combined Federal and Provincial income tax rate to the income before taxes. This difference results from the following items:



December 31, 2007 2006
---------------------------------------------------------------------------

Expected tax rate 33.8% 37.1%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands)
Expected tax expense $ 8,124 $ 14,642
Effect of change in tax rate (11,425) (11,327)
Stock-based compensation 959 844
Non deductible crown payments, net - 4,654
Resource allowance - (4,619)
----------------------------------------------------------------------------

Provision for income and other taxes $ (2,342) $ 4,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The provision for taxes consists of:
Capital taxes $ - $ -
Future income taxes(reduction) (2,342) 4,194
----------------------------------------------------------------------------

Provision for income and other taxes $ (2,342) $ 4,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


The significant components of the future income taxes as at December 31, 2007 and 2006 are as follows:



2007 2006
----------------------------------------------------------------------------
(thousands)

Oil and natural gas properties $ 77,292 $ 77,346
Facilities and well equipment 7,152 8,977
Asset retirement obligations (7,441) (7,485)
Share issue costs (1,015) (987)
Other (474) -
----------------------------------------------------------------------------

Future income taxes $ 75,514 $ 77,851
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


Cash paid for taxes for the year ended December 31, 2007 was nil (2006 - $409,000).

10. Risk management activities:

(a) Price risk

(i) Financial instruments

NuVista's financial instruments recognized in the consolidated balance sheet consist of cash and cash equivalents, accounts receivable, derivative contracts, substantially all current liabilities, and long term debt. Unless otherwise noted, carrying values reflect the current fair value of the company's financial instruments. The estimated fair values of recognized financial instruments have been determined based on NuVista's assessment of available market information and appropriate methodologies, through comparisons to similar instruments, or third party quotes.

As at December 31, 2007, NuVista has entered into by way of costless collars the following crude oil contracts:



WTI Average Price ($/bbl) Term
---------------------------------------------------------------------------
1,000 bbls/d CDN$70.47 - CDN$92.45 - WTI January 1, 2008 - March 31, 2008
1,000 bbls/d CDN$70.47 - CDN$90.61 - WTI April 1, 2008 - June 30, 2008
750 bbls/d CDN$70.01 - CDN$86.68 - WTI July 1, 2008 - December 31, 2008
---------------------------------------------------------------------------

 


As at December 31, 2007, NuVista has not entered into any costless collars natural gas contracts.

The fair market value of these contracts at December 31, 2007 was an unrealized loss of $1.7 million and is recorded in accounts payable and accrued liabilities.

(ii) Physical sale contracts:

As at December 31, 2007, NuVista has entered into direct sale costless collars to sell natural gas as follows:



AECO Average Price ($/bbl) Term
-----------------------------------------------------------------------
January 1, 2008 -
10,000 gj/d $8.13 - $10.38 - AECO March 31, 2008
-----------------------------------------------------------------------

(iii) Realized and unrealized gains/(losses) on commodity derivatives:

2007 2006
----------------------------------------------------------------------------
(thousands)

Realized gains $ 5,867 $ -
Unrealized losses (1,729) -
----------------------------------------------------------------------------

Total realized and unrealized gains on commodity
derivatives $ 4,138 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


(b) Credit risk

NuVista's accounts receivable are with customers and joint venture partners in the petroleum and natural gas business and are subject to normal credit risks. Concentration of credit risk is mitigated by marketing production to numerous purchasers under normal industry sale and payment terms. NuVista routinely assesses the financial strength of its customers. NuVista may be exposed to certain losses in the event of non-performance by counterparties to financial derivative contracts. NuVista mitigates this risk by entering into transactions with major financial institutions.

(c) Foreign risk

While substantially all of NuVista's sales are denominated in Canadian dollars, the market prices in Canada for oil and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar.

(d) Fair value of financial instruments

Financial instruments comprise accounts receivable, accounts payable and accrued liabilities, bank loan and financial derivatives. The fair values of accounts receivable and accounts payable and accrued liabilities approximate their carrying amounts due to their short-term maturities. NuVista's bank loan bears interest at a floating market rate and accordingly the fair market value approximates the carrying value. The fair value of financial derivatives is disclosed above.

(e) Interest rate risk

The Company is exposed to interest rate risk to the extent that changes in market interest rates will impact NuVista's bank loan. The Company had no interest rate swaps or hedges at December 31, 2007.

11. Relationship with Bonavista Petroleum Ltd:

In 2003, as part of the Plan of Arrangement with Bonavista Petroleum Ltd. ("Bonavista"), NuVista entered into a Technical Services Agreement ("TSA"). Under the TSA, Bonavista received payment for certain services provided by it to NuVista. Effective January 1, 2007, the terms of the TSA were amended to reflect the reduced level of services provided by Bonavista. On August 31, 2007, the TSA was terminated and replaced with a new services agreement that reflects the remaining ongoing services that will be provided by Bonavista. These services are accounted for at the exchange value. 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 the year ending December 31, 2007, NuVista paid Bonavista $1.4 million (2006 - $2.3 million) in fees relating to general and administrative services provided by Bonavista. In 2007, NuVista charged Bonavista management fees for jointly owned partnerships totalling $1.4 million (2006 - nil). In addition, during 2007 Bonavista charged NuVista $975,000 for costs that are outside of the TSA relating to NuVista's share of direct charges from third parties. As at December 31, 2007, the amount payable to Bonavista was $700,000 (2006 - $2.7 million). Bonavista reimbursed NuVista a total of $98,000 in stock-based compensation in 2006.

12. Subsequent events:

(a) Business combination with Rider Resources Ltd. and private placement financing with Ontario Teachers' Pension Plan Board:

On March 4, 2008, NuVista closed a business combination (the "Acquisition") with Rider Resources Ltd ("Rider") and a private placement financing with the Ontario Teachers' Pension Plan Board (OTTP). The Acquisition resulted in the combination of NuVista and Rider, pursuant to which all of the issued and outstanding Rider shares were exchanged for common shares of NuVista. Pursuant to the Acquisition, Rider shareholders received, for each Rider share held, 0.3540 of a NuVista share. The total estimated cost of the combination is $261 million net of assumed debt, working capital deficiency and transaction costs totaling approximately $310 million. In connection with the Acquisition, OTPP subscribed by way of private placement (the "Investment") for 6,000,000 units of NuVista ("Units") at a price of $14.00 per Unit for gross proceeds of $84,000,000. Each Unit consists of one NuVista share and one-half of a warrant of NuVista ("NuVista Warrants"), each of which NuVista Warrant entitles the holder thereof to acquire, subject to adjustment, one NuVista share for $15.50, expiring twelve months from the date of closing of the private placement.

(b) Bank loan and Rider's second lien term loan:

On March 4, 2008, NuVista's credit facility was increased to a maximum borrowing amount $450 million. Terms and conditions remain the same as disclosed in note 7. On March 5, 2008, NuVista repaid the US$99.5 million second lien term loan that Rider had outstanding with bank borrowings. NuVista, also terminated the cross-currency swap related to the second lien term loan.

(c) Commodity price risk management:

NuVista's Board of Directors has approved a price risk management limit of up to 60% of forecast production, net of royalties, using fixed price and costless collar contracts. In 2008, NuVista's Board of Directors has approved an increase to the limit of 60% for the period April 2008 to October 2008. For this period the Board has approved natural gas hedges in the amount of 70,000 gj/day.

Subsequent to December 31, 2007, the following commodity contracts have been entered into:

(i) Financial instruments



Volume Fixed Price (Cdn$/bbl) Term
---------------------------------------------------------------------------

500 bbls/d CDN. $66.50 - Bow River April 1, 2008 - December 31, 2008
1,000 bbls/d CDN. $64.00 - Bow River January 1, 2009 - December 31, 2009


Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------

20,000 gj/d CDN. $7.50 - $8.42 - AECO April 1, 2008 - October 31, 2008
5 000 gj/d CDN $7.50 - $9.25 - AECO November 1 2008 - March 31 2009

(ii) Physical sale contracts

Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------

50,000 gj/d CDN. $7.27 - $7.43 - AECO April 1, 2008 - October 31, 2008
20,000 gj/d CDN. $7.75 - $9.69 - AECO November 1, 2008 - March 31, 2009


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Corporate Information

Directors
Keith A. MacPhail, Chairman
W. Peter Comber, Barrantagh Investment Management Inc.
Pentti O. Karkkainen, KERN Partners
Ronald J. Poelzer, Bonavista Energy Trust
Alex G. Verge, President and CEO
Clayton H. Woitas, Range Royalty Management Ltd.
Grant A. Zawalsky, Burnet, Duckworth & Palmer LLP
Craig W. Stewart, Director

Management
Keith A. MacPhail, Chairman
Alex G. Verge, President and CEO
Robert F. Froese, Vice President, Finance and CFO
D. Chris McDavid, Vice President, Production
Daniel B. McKinnon, Vice President, Engineering
Gordon Timm, Vice President, Land
Patrick Miles, Vice President, Exploration
Steven J. Dalman, Vice President, Business Development
Glenn A. Hamilton, Corporate Secretary

Head Office
700, 311 - 6th Avenue SW
Calgary, Alberta T2P 3H2
Telephone: (403) 538-8500
Facsimile: (403) 538-8505
Email: inv_rel@nuvistaenergy.com
www.nuvistaenergy.com

Auditors
KPMG LLP
Chartered Accountants
Calgary, Alberta

Bankers
Canadian Imperial Bank of Commerce
Bank of Montreal
Royal Bank of Canada
Toronto-Dominion Bank
Bank of Nova Scotia
Alberta Treasury Branches
Union Bank of California, Canada Branch
Calgary, Alberta

Engineering Consultants
GLJ Petroleum Consultants Ltd.
Calgary, Alberta

Legal Counsel
Burnet, Duckworth & Palmer LLP

Registrar and Transfer Agent
Valiant Trust Company
Calgary, Alberta

Stock Exchange Listing
Toronto Stock Exchange
Trading Symbol "NVA"

 
 


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
Email: inv_rel@nuvistaenergy.com
Website: www.nuvistaenergy.com