News Releases

Bonterra Oil & Gas Ltd. Announces Third Quarter 2009 Results

Nov 12, 2009 - 12:00 ET

CALGARY, ALBERTA--(Marketwire - Nov. 12, 2009) - Bonterra Oil & Gas Ltd. ("Bonterra" or the "Company") (www.bonterraenergy.com) (TSX:BNE) is pleased to announce its financial and operational results for the three months and nine months ended September 30, 2009.


Highlights

                              Three months ended       Nine Months Ended
-------------------------------------------------------------------------
($ 000 except $ per         Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
 share/unit)                    2009        2008        2009        2008
-------------------------------------------------------------------------

FINANCIAL

Revenue - realized oil
 and gas sales                20,965      34,226      60,766      99,117
Funds flow(1)                 10,753      21,158      28,909      60,568
  Per share/unit - basic        0.58        1.24        1.62        3.56
  Per share/unit - diluted      0.57        1.22        1.62        3.53
  Payout ratio(2)                76%         77%         75%         70%
Cash flow from operations      9,350      22,492      25,225      59,234
  Per share/unit - basic        0.50        1.31        1.42        3.48
  Per share/unit - diluted      0.50        1.30        1.42        3.45
  Payout ratio(2)                87%         73%         85%         72%
Cash dividends per
 share/unit(2)                  0.44        0.96        1.20        2.50
Net earnings                   5,790      21,125      16,427      44,841
  Per share/unit - basic        0.31        1.23        0.92        2.63
  Per share/unit - diluted      0.31        1.22        0.92        2.61
Capital expenditures and
 acquisitions                 17,660       6,038      22,616      15,002
Total assets                                         273,543     150,120
Working capital deficiency                            14,455      47,499
Long-term bank debt                                   81,386           -
Shareholders'/Unitholders'
 equity                                               74,025      57,623
-------------------------------------------------------------------------

OPERATIONS(3)

Oil and NGLs
  - barrels per day            3,084       2,998       3,126       3,053
  - average price
     ($ per barrel)            65.38      103.36       56.90       97.29
Natural gas - MCF per day     10,881       7,233      11,433       7,215
            - average price
               ($ per MCF)      3.13        8.20        3.97        8.71
Total barrels of oil
 equivalent per day (BOE)(4)   4,898       4,204       5,032       4,256
-------------------------------------------------------------------------
(1) Funds flow is not a recognized measure under GAAP. For these
    purposes, the Company defines funds flow as funds provided by
    operations before changes in non-cash operating working capital items
    excluding gain on sale of property, restricted cash and asset
    retirement expenditures.
(2) Cash payments per share/unit are based on payments made in respect of
    production months within the quarter.
(3) Prior period volumes have been adjusted for prior period adjustments
    related to various 13th month reviews and joint venture audits
    completed during the third quarter. Total 2008 volume adjustments are
    a negative 7,328 barrels of liquids and a negative 6,853 MCF of
    natural gas.
(4) BOE is calculated using a conversion ratio of 6 MCF to 1 barrel of
    oil. The conversion is based on an energy equivalency conversion
    method primarily applicable at the burner tip and does not represent
    a value equivalency at the wellhead and as such may be misleading if
    used in isolation.



The TSX does not accept responsibility for the accuracy of this release.

REPORT TO SHAREHOLDERS

Bonterra Oil & Gas Ltd. ("Bonterra" or "the Company") is pleased to report its operating and financial results for the three months and nine months ended September 30, 2009.

Bonterra is committed to a long-term approach in both operating its business and creating additional value for its shareholders. As a result, the Company has continued its strong dividend policy while focusing on maintaining a sustainable pace of development and a conservative capital structure. Bonterra is always looking to develop new long-term growth opportunities and is currently developing the very promising extension of the Pembina Cardium pool using horizontal multi-stage frac technology.

Operations

Bonterra's operations are highly-focused with approximately 83 percent of corporate reserves and approximately 85 percent of production from the Pembina Cardium field, Canada's largest original-oil-in-place pool (17 percent recovered to date). The Company's 2009 capital development program of $35 million is focused on unlocking additional value from the Pembina field and includes a targeted drilling program of horizontal multi stage fractured wells and vertical wells and land and corporate acquisitions.

Bonterra has developed a drilling inventory of over 14 years comprised of 400 primarily oil locations, including 80 to 100 horizontal locations in the Pembina field outside of the traditional producing area and numerous horizontal wells in the existing producing area (the number will be determined when there is a longer history from wells already drilled in this area by other oil companies). To date, Bonterra has drilled five gross (3.409 net) Pembina Cardium horizontal oil wells, all outside of the traditional producing area.

The first well was placed on production in February of this year with cumulative production to the end of October of 39,000 BOE. The second well was placed on production in August of this year with cumulative production of 17,200 BOE, also to the end of October. The two wells are currently producing at a combined rate of approximately 235 BOE per day of clean oil.

The third well came on production in mid-October and is currently producing approximately 40 BOE per day. This well was drilled further from the edge of the main Cardium pool (where the reservoir quality is poorer) as part of a farm-in to earn additional potential lands. Bonterra is currently monitoring the well's productivity to ensure there are no mechanical issues with the well and will be evaluating if remedial work may be required to improve the well's productivity.

The fourth well was completed and tested at significant rates after recovery of all its load oil. This well is expected to produce at rates similar to the first two wells. The well is currently shut-in for a required pressure build-up and tie-in. The well should be on production by mid-November.

The fifth well has been drilled and will be completed in November and placed on production by early December. Initial well information is encouraging. The drilling rig, after a brief weather delay, has commenced drilling the sixth well in early November.

Bonterra has also expanded its land holding in the Pembina field with the acquisition of mineral rights at a cost of approximately $4.8 million. In addition, the acquisition of Cobalt Energy Ltd., effective July 1, 2009, included interest in approximately 11 sections of land with Cardium horizontal potential in the Pembina area and an additional 40 BOE per day of production. The company's current land position totals approximately 150 gross sections in the Pembina area (93 net) of which the Company operates approximately 110 of these sections.

The horizontal development program at Pembina has exceeded Company expectations and as such the Board of Directors and management have approved an acceleration of the program. The Company intends to add a second rig to the project in mid-November. A total of at least 10 additional horizontal wells are planned to be drilled prior to spring break-up.

Subsequent to quarter-end, Bonterra completed a disposition of non-core producing assets in the Shaunavon area of Saskatchewan to Eagle Rock Exploration for $24 million in cash and approximately 30.8 million common shares in Eagle Rock. The disposition consisted of approximately 200 BOE per day of medium gravity oil and 18.5 sections of land. Proceeds from the disposition will be used for the acceleration of the horizontal drill program in the Pembina area.

Production

Bonterra's production volumes have increased approximately 18 percent in the first nine months of 2009 from the same period last year to 5,032 BOE per day. As anticipated, production was slightly lower quarter over quarter due to longer than usual gas plant turnarounds which resulted in over 1,000 MCF per day shut in for a two week period in July. In addition, approximately 400 MCF per day was shut in at the beginning of August due to low natural gas prices. The Company will be reactivating these wells as natural gas prices continue to improve.

Production guidance for the year has been lowered to approximately 5,100 BOE per day from 5,200 BOE per day to reflect the shut-in production mentioned above, deferring of capital expenditures to the second half of the year, the Shaunavon disposition and a net negative adjustment to 2009 resulting from underpayment of joint venture parties in 2008 after the Company completed several 13th month adjustments and joint venture audits. However, this still represents an approximate 20 percent increase in 2009 average daily production rates over the previous year.

Financial

Financial results during the third quarter of 2009 continued to be negatively impacted by the low commodity price environment. Revenue and cash flow from operations in the first nine months of 2009 decreased 39 percent and 57 percent, respectively when compared to the same period in 2008 primarily due to a 42 percent decrease in crude oil prices and a 54 percent decrease in natural gas prices over the same time frame.

However, quarter over quarter revenue and cash flow from operations began to show modest improvements due mainly to the healthier crude oil prices being received. Subsequent to quarter-end, prices continued to increase with WTI crude oil averaging approximately U.S. $76.00 per barrel and AECO natural gas averaging $4.68 per MCF in the month of October.

The nine month 2009 increase in G&A to $2,835,000 from $2,577,000 in the 2008 nine month period is extremely perplexing. Despite reducing G&A costs by approximately $1,000,000, mainly from reductions in compensation paid to employees and consultants, the overall costs increased by $150,000. The $1,150,000 cost is almost entirely attributable to increases in fees for banks and the professional fees needed to deal with changes to financial and regulatory reporting requirements. These costs are out of control and contribute nothing towards Company operations. Individual companies have no control over these types of costs and something needs to be done on a united front to be able to intervene in the annual, very substantial increases that are taking place in these areas.

Bonterra's netbacks have also shown improvements with a 12 percent increase to $23.96 per BOE in the third quarter of 2009 compared with $21.45 per BOE in the second quarter of 2009. Netbacks have been positively impacted by the continued increase in crude oil prices and improving natural gas prices. In addition, Bonterra has decreased both field operating costs and general and administrative costs quarter over quarter which has contributed to the enhanced netback levels.

As a result, Bonterra was able to increase the dividend to shareholders to $0.16 per share beginning with the October 30, 2009 dividend payment (September 2009 production month) from $0.14 per share previously.

Cash payments to shareholders during the second quarter of 2009 totaled $0.44 per share with a payout ratio of 76 percent of fund flow. The Board of directors and management will continue to monitor dividend levels, payout ratios and capital expenditures on a monthly basis and will adjust the payment if necessary.

Outlook

To ensure sustainability, the Company continues to develop new long-term, lower-risk opportunities with a particular focus on the acceleration of its Pembina Cardium horizontal play. The lower pricing environment may still provide opportunities for the Company in acquiring additional land and producing properties or additional corporate acquisitions for further growth of its asset base. As well, Bonterra will continue to seek out opportunities to strengthen its financial position through cost-reduction initiatives, project reviews and the implementation of further operational efficiencies across the company.

Subject to commodity prices and regulatory policies such as the Alberta competition review, Bonterra is projecting 2010 capital expenditures of $40,000,000 to $50,000,000, production volumes of 5,700 BOE per day to 6,000 BOE per day and a debt to cash flow ratio of approximately 1.5 to 1.

Bonterra remains well-positioned to continue paying a high dividend, maintaining the long-term sustainability of its business and providing superior value to its shareholders.



(signed)                             (signed)

George F. Fink                       Randy M. Jarock
Chief Executive Officer and          President and Chief Operating
Director                             Officer



A DISCUSSION OF FINANCIAL AND OPERATIONAL RESULTS

The following press release is a review of the operations and current financial position for Bonterra Oil & Gas Ltd. ("Bonterra" or the "Company") and should be read in conjunction with the unaudited financial statements for the nine months ended September 30, 2009, including the notes related thereto, and the audited financial statements for the fiscal year ended December 31, 2008, together with the notes related thereto.

Non-GAAP Measures

Throughout the press release we use the terms "payout ratio" and "cash netback" to analyze operating performance. Payout ratio is calculated by dividing cash distributions/dividends to unitholders/shareholders by cash flow from operating activities both of which are measures prescribed by GAAP which appear on our consolidated statements of cash flows. Cash netback is calculated by dividing various operation and deficit statement items as determined by GAAP by total production on a barrel of oil equivalent basis. The above terms do not have standardized meaning or definition as prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other entities."

Forward-looking Information

Certain statements contained in this press release include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this press release includes, but is not limited to: expected cash provided by continuing operations; cash dividends; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and gas industry; business strategy and outlook; expansion and growth of our business and operations; and maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; credit risks; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, and may include, without limitation: foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived there from. Except as required by law, Bonterra disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

The forward-looking information contained herein is expressly qualified by this cautionary statement.



Quarterly Comparisons

                                            2009
-------------------------------------------------------------
Financial ($ 000 except
 $ per share)                     Q3          Q2          Q1
-------------------------------------------------------------
Revenue - realized oil
 and gas sales                20,965      20,501      19,300
Cash flow from operations      9,350       9,238       6,632
  Per share - basic             0.50        0.52        0.38
  Per share - fully diluted     0.50        0.52        0.38
Cash payments per share(1)      0.44        0.40        0.36
Payout Ratio(1)                  87%         77%         94%
Net earnings                   5,790       4,544       6,093
  Per share - basic             0.32        0.26        0.35
  Per share - fully diluted     0.32        0.26        0.35
Capital expenditures
 and acquisitions             17,660       2,255       2,696
Total assets                 273,543     258,393     260,732
Working capital deficiency    14,455      13,989      14,909
Long-term bank debt           81,386      71,573      89,383
Shareholders' equity          74,025      72,332      56,377
-------------------------------------------------------------
Operations(2)
Oil and NGLs
 (barrels per day)             3,084       3,029       3,268
Natural gas (MCF per day)     10,881      11,551      11,877
Total BOE per day(3)           4,898       4,954       5,245
------------------------------------------------------------- 


                                                   2008
-------------------------------------------------------------------------
Financial ($ 000 except
 $ per share/unit)                Q4          Q3          Q2          Q1
-------------------------------------------------------------------------
Revenue - realized oil
 and gas sales                22,613      34,226      34,398      30,493
Cash flow from operations     10,336      22,492      20,530      16,212
  Per share/unit - basic        0.59        1.31        1.21        0.96
  Per share/unit -
   fully diluted                0.59        1.30        1.20        0.96
Cash payments per
 share/unit(1)                  0.62        0.96        0.84        0.70
Payout Ratio(1)                 105%         73%         69%         73%
Net earnings                  10,585      21,125      12,912      10,804
  Per share/unit - basic        0.62        1.23        0.76        0.64
  Per share/unit -
   fully diluted                0.62        1.22        0.75        0.64
Capital expenditures
 and acquisitions             30,405       6,038       2,543       6,421
Total assets                 265,301     150,120     153,247     150,169
Working capital deficiency    23,878      47,499      57,148      57,810
Long-term bank debt           79,910           -           -           -
Shareholders'/unitholders'
 equity                       56,777      57,623      46,612      48,136
-------------------------------------------------------------------------
Operations(3)
Oil and NGLs
 (barrels per day)             3,055       2,998       3,009       3,153
Natural gas (MCF per day)      8,817       7,233       7,272       7,139
Total BOE per day(2)           4,525       4,204       4,221       4,343
------------------------------------------------------------------------- 


                                                   2007
-------------------------------------------------------------------------
Financial ($ 000 except
 $ per unit)                      Q4          Q3          Q2          Q1
-------------------------------------------------------------------------
Revenue - realized oil
 and gas sales                26,573      23,794      23,462      22,602
Cash flow from operations     13,369      11,886      13,413      12,765
  Per unit - basic              0.79        0.70        0.79        0.76
  Per unit - fully diluted      0.79        0.70        0.79        0.76
Cash distributions(1)           0.66        0.66        0.66        0.66
Payout Ratio(1)                  84%         94%         84%         87%
Net earnings                   8,372       8,945       5,371       7,662
  Per unit - basic              0.49        0.53        0.32        0.45
  Per unit - fully diluted      0.49        0.53        0.32        0.45
Capital expenditures
 and acquisitions              7,213       2,763       1,699       7,625
Total assets                 143,239     138,140     139,432     140,926
Working capital deficiency    58,766      50,041      49,595      49,288
Long-term bank debt                -           -           -           -
Unitholders' equity           44,218      50,820      51,920      57,646
-------------------------------------------------------------------------
Operations
Oil and NGLs
 (barrels per day)             3,098       3,054       3,074       3,227
Natural gas (MCF per day)      7,176       6,196       6,663       6,470
Total BOE per day(3)           4,295       4,086       4,184       4,305
-------------------------------------------------------------------------
(1) Cash payments per share/unit are based on payments made in respect of
    production months within the quarter.
(2) 2009 and 2008 quarterly volumes have been adjusted for prior period
    adjustments related to various 13th month reviews and joint venture
    audits that were completed during the third quarter of 2009.
(3) BOE is calculated using a conversion ratio of 6 MCF to 1 barrel of
    oil. The conversion is based on an energy equivalency conversion
    method primarily applicable at the burner tip and does not represent
    a value equivalency at the wellhead and as such may be misleading if
    used in isolation. 


Production
                       Three months ended             Nine months ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
                    2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Crude oil and
 NGLs (barrels
 per day)          3,084       3,029       2,998       3,126       3,053
Natural gas
 (MCF per day)    10,881      11,551       7,233      11,433       7,215
-------------------------------------------------------------------------
Average BOE
 per day           4,898       4,954       4,204       5,032       4,256
-------------------------------------------------------------------------



Barrels of oil equivalent (BOE) are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation.

Production volumes for the first nine months of 2009 were up 18.2 percent over the corresponding 2008 period. Added production related to the Silverwing Energy Inc. (Silverwing) acquisition, Bonterra's 2009 drilling program including the production from the Company's first two Pembina Cardium horizontal wells, new gas wells drilled and optimization of existing wells. These additions more than offset Bonterra's average corporate production decline.

During the third quarter the Company completed several 13th month adjustments and joint venture audits. The result of these audits was a net negative adjustment to 2008 volumes of 7,328 barrels of oil and natural gas liquids and 6,853 MCF of natural gas. These volumes and adjustments to quarters one and two of 2009 have been adjusted to each respective quarter.

Q3 2009 production was down 56 BOE per day from Q2 2009. The modest production declines per day during Q3 2009 compared with Q2 and Q1 2009 is mainly due to the lack of capital expenditures in the first two quarters of 2009 (Q3 2009 - $17,660,000; Q2 2009 - $2,255,000; Q1 2009 - $2,701,000) and reductions in natural gas production resulting from shut-in gas wells due to extensive plant maintenance and shut-in wells due to low gas prices.

The Company did not drill any wells in 2009 before June when it commenced with this year's drill program. Since June, Bonterra has drilled four horizontal wells (net 2.72) and five vertical wells (net 4.75). The Company's first horizontal well was drilled in 2008 and was completed in Q1 2009. All of the drilled wells to date started producing during the latter part of Q3 or in Q4. In November, the Company engaged the serves of a second rig and will continue its horizontal drill program with both rigs for the balance of 2009 and until road bans are imposed in March 2010. Bonterra's first two wells have been producing for 9.5 months and 3.5 months, respectively and the Company is pleased with results to date. The acquisition of Cobalt Energy Ltd. (Cobalt) effective July 1, 2009 resulted in only a modest increase in production but provided the Company with additional ownership in potential horizontal drilling opportunities including the horizontal wells drilled during the third quarter.

Subject to commodity prices and regulatory policies such as the Alberta competition review, Bonterra is projecting 2010 production volumes of 5,700 BOE per day to 6,000 BOE per day.



Revenue
                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($)                 2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Revenue - oil
 and gas sales
 (000's)          20,965      20,501      34,226      60,766      99,117
Average Realized
 Prices:
Crude oil and
 NGLs (per
 barrel)           65.38       59.77      103.36       56.90       97.29
Natural gas
 (per MCF)          3.13        3.64        8.20        3.97        8.71
-------------------------------------------------------------------------



Revenue from petroleum and natural gas sales decreased $38,351,000 in the first nine months of 2009 from the corresponding period in 2008 primarily due to a 42 percent drop in crude oil prices and a 54 percent drop in natural gas prices. The drop in commodity prices was partially offset with the above mentioned production increases.

Quarter over quarter the Company saw an increase in revenues of $464,000 due to improved crude oil prices offset partially by reduced gas prices and production volumes. Due to the above mentioned production adjustments, third quarter revenues were reduced by $578,000 relating to prior period items.



Royalties

                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($ 000)             2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Crown royalties    1,248         674       3,523       3,286      11,399
Freehold
 royalties,
 gross overriding
 royalties and
 net carried
 interests           697         587       1,134       1,785       2,921
-------------------------------------------------------------------------
Total royalty
 expense           1,945       1,261       4,657       5,071      14,320
-------------------------------------------------------------------------
% of total revenue   9.3         6.2        13.6         8.3        14.4
-------------------------------------------------------------------------



Royalties paid by the Company consist primarily of Crown royalties paid to the Provinces of Alberta, Saskatchewan and British Columbia. Most of the Company's wells are low productivity wells and therefore have low Crown royalty rates. The Company's average Crown royalty rate is approximately 5.4 percent (2008 - 10.6 percent) of gross revenue and approximately 2.9 percent (2008 - 2.7 percent) for other royalties. The increase in percent of other royalties is due to the new horizontal oil wells being drilled on freehold mineral right lands.

The recently announced new Alberta Crown royalty rates vary by prices as well as productivity levels. With recent declines in commodity prices and the Silverwing acquisition (mostly BC production with lower Crown royalty rates) the Company has experienced a significant reduction in Crown royalties in the first nine months of 2009.

The third quarter royalties have increased $684,000 over second quarter due primarily to higher crude oil pricing and increased production resulting from the Company's new horizontal oil well which has a higher royalty rate.



Production Costs

                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($ 000)             2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Production costs   6,585       7,355       6,148      20,978      18,554
  $ per BOE(1)     15.79       16.12       15.84       15.66       15.87
-------------------------------------------------------------------------

(1) Excludes impact of production adjustments



Total production costs in the first nine months of 2009 have increased by $2,424,000 over the first nine months of 2008. The increase is due to increased production volumes (see Production). On a per BOE basis, production costs have declined in the first nine months of 2009 compared to the same period in 2008 mainly due to a general decline in service and material costs resulting from decreased industry demand and field optimization.

During the third quarter, Bonterra recorded a reduction of $531,000 in production costs related to the above mentioned adjustments related to prior period operations.

The Company's production comes primarily from low productivity wells. These wells generally result in higher production costs on a per unit-of-production basis as costs such as municipal taxes, surface leases, power and personnel costs are not variable with production volumes. The higher production costs for the Company are substantially offset by current low royalty rates of 8.3 percent, which is much lower than industry average for conventional production and results in high cash netbacks on a combined basis despite higher than industry average production costs.



General and Administrative (G&A) Expense

                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($ 000)             2009        2009        2008        2009        2008
-------------------------------------------------------------------------
G&A Expense          788       1,108         845       2,835       2,577
  $ per BOE(1)      1.75        2.43        2.18        2.06        2.20
-------------------------------------------------------------------------

(1) Excludes impact of production adjustments



The increase in G&A expense in the first nine months of 2009 compared to the first nine months of 2008 was due to increased contract accounting personnel costs ($160,000) related to temporary staffing needs in place of full time personnel; professional service costs ($186,000) related to various legal and accounting services dealing with changes to annual filing requirements, IFRS and internal control reviews; computer services fees ($289,000) related to additional monthly geological software licensing fees, service costs related to new production accounting software, and the contracting of a new IT manager position; bad debt expense ($65,000) due to numerous accounts with small oil and gas organizations which have become delinquent; bank charges ($488,000) related to cancelling the old banking facility and setting up the new banking facility, offset partially by reduced employee compensation ($973,000).

Quarter over quarter saw a decrease of $320,000 related primarily to an increase of $258,000 in administrative charges to capital projects. The balance of the decrease was attributable to reduced costs associated with continuous disclosure and general cost reductions.



Interest Expense

                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($ 000)             2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Interest Expense     815         915         545       2,556       1,994
-------------------------------------------------------------------------



Interest charges increased in the first nine months of 2009 as the average outstanding debt balance (including related party balances) increased by approximately $49 million over the first nine months of 2008. The acquisitions of Silverwing and Cobalt as well as the reorganization into a corporation resulted in approximately $47 million of additional debt. In addition the Company has incurred approximately $19 million in capital expenditures during this period. These increases were partially offset by net proceeds of $16,985,000 from a 2009 second quarter private equity issue. Offsetting the increased debt balance was an average reduction of one percent (4.5 percent in 2008 to 3.5 percent in 2009) in interest rates paid on the outstanding debt balance. Quarter over quarter saw a marginal decrease in interest charges due to reduced interest on the loan to related parties as well as timing of debt renewals.

Effective April 29, 2009, the Company entered into a new bank facility with new terms and conditions. The new facility consists of a $100,000,000 syndicated revolving credit facility and a $20,000,000 non-syndicated revolving credit facility. The interest rate on the new credit facility is calculated as follows:



-------------------------------------------------------------------------
                     Level I   Level II  Level III   Level IV    Level V
-------------------------------------------------------------------------
Consolidated Total
 Funded Debt(1) to                 Over       Over       Over
 Consolidated Cash     Under   1.0:1 to   1.5:1 to   2.0:1 to       Over
 flow Ratio            1.0:1      1.5:1      2.0:1      2.5:1      2.5:1
-------------------------------------------------------------------------
Canadian Prime Rate
 Plus(2)                 125        150        175        200        250
-------------------------------------------------------------------------
Bankers' Acceptances
 Rate Plus(2)            275        300        325        350        400
-------------------------------------------------------------------------

(1) Consolidated total funded debt excludes related party amounts but

    includes working capital.

(2) Numbers in table represent basis points.



Consolidated total funded debt to consolidated cash flow ratio shall be adjusted effective as of the first day of the next fiscal quarter following the end of each fiscal quarter, with each such adjustment to be effective until the next such adjustment.

The above rate schedule combined with current bank prime and interest rates on the related party debt is expected to result in average borrowing costs of approximately three and a quarter percent for the balance of the fiscal year.

Stock-Based Compensation

Stock-based compensation is a statistically calculated value representing the estimated expense of issuing employee stock options. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees, directors and consultants. Based on currently outstanding options, the Company anticipates that an expense of approximately $210,000 will be recorded for the balance of 2009, $425,000 in 2010 and $160,000 in 2011.

Depletion, Depreciation, Accretion and Dry Hole Costs

Provision for depletion, depreciation and accretion was $14,714,000 and $10,611,000, respectively for the nine month periods ending September 30, 2009 and September 30, 2008. The increase in the depletion amount was due primarily to increased production volumes and an increase in the average cost of reserves resulting from the Silverwing and Cobalt acquisitions.

Depletion, depreciation and accretion expense for Q3 2009 compared to Q2 2009 increased by $282,000 due to the additional capital cost associated with the Cobalt acquisition offset partially by reduced production volumes.

Taxes

On November 12, 2008, the Company converted from a trust to a corporation. Due to the conversion and the acquisition of Silverwing, the Company increased its usable tax pools to approximately $468,000,000. As a result of the reorganization, the Company has recorded a future income tax asset and a corresponding deferred tax credit. These amounts will be amortized into future tax expense as the associated tax pools are consumed.

The current tax provision relates to a resource surcharge of $211,000 payable to the Province of Saskatchewan as well as a capital tax amount of $269,000 payable to the Province of Quebec. The resource surcharge is calculated as a flat percent of revenues generated from the sale of petroleum products produced in Saskatchewan. The resource surcharge rate is three percent in 2009. The capital tax payable to the Province of Quebec is a one-time charge that resulted from the Company's conversion to a corporation.



Net Earnings

                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($ 000)             2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Net Earnings       5,790       4,544      21,125      16,427      44,841
-------------------------------------------------------------------------



Net earnings decreased in the first nine months of 2009 by $28,414,000 from the corresponding 2008 period. Reduced revenues resulting from decreased commodity prices were the main reason for the reduction. This reduction was partially offset by production volume gains. The Company continues to return in excess of 25 percent of its gross realized revenues in net earnings. The Company's low capital costs per BOE of reserves combined with the Company's low production decline rates should allow for continued positive earnings.

The three months ended September 30, 2009 saw an increase of $1,246,000 in net earnings from the three months ended June 30, 2009. The increase was primarily due to reduced operating and administration costs.

Comprehensive Income

Other comprehensive income for 2009 consists of an unrealized gain on investment in a related party of $1,078,000 (2009 - ($488,000)) due to an increase in the related company's fair value.



Cash Flow from Operations

                       Three months ended             Nine Months Ended
                Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
($ 000)             2009        2009        2008        2009        2008
-------------------------------------------------------------------------
Cash flow from
 operations        9,350       9,238      22,492      25,225      59,234
-------------------------------------------------------------------------



Nine month 2009 cash flow from operations decreased 57 percent compared to first nine months of 2008 mainly due to decreased commodity prices received. Q3 cash flow increased by $112,000 from Q2 due primarily to reduced operating and administration costs offset by the reduction in operating accounts payable.

Cash Netback

The following table illustrates the Company's cash netback from operations for the nine month periods ended September 30:



$ per Barrel of Oil Equivalent (BOE)                    2009        2008
-------------------------------------------------------------------------
Production volumes (BOE)                           1,373,736   1,166,144
Gross production revenue                          $    44.65  $    91.94
Realized gain (loss) on risk management contracts          -       (7.13)
Royalties                                              (3.69)     (12.25)
Field operating costs                                 (15.66)     (15.87)
-------------------------------------------------------------------------
Field netback                                          25.30       56.69
General and administrative                             (2.06)      (2.20)
Interest and taxes                                     (2.21)      (2.03)
-------------------------------------------------------------------------
Cash netback                                      $    21.03  $    52.46
-------------------------------------------------------------------------


The following table illustrates the Company's cash netback from operations
 for the three month periods ended:

                                                    Sept. 30,    June 30,
$ per Barrel of Oil Equivalent (BOE)                    2009        2009
-------------------------------------------------------------------------
Production volumes (BOE)                             450,616     450,814
Gross production revenue                          $    47.81  $    44.93
Royalties                                              (4.32)      (2.76)
Field operating costs                                 (15.79)     (16.12)
-------------------------------------------------------------------------
Field netback                                          27.70       26.05
General and administrative                             (1.75)      (2.43)
Interest and taxes                                     (1.99)      (2.17)
-------------------------------------------------------------------------
Cash netback                                      $    23.96  $    21.45
-------------------------------------------------------------------------



Related Party Transactions

The Company owns 689,682 (December 31, 2008 - 689,682) common shares of Comaplex Minerals Corp. ("Comaplex") which have a fair market value as of September 30, 2009 of $3,386,000 (December 31, 2008 - $2,131,000). Comaplex is a publicly traded mineral company on the Toronto Stock Exchange. The Company's ownership in Comaplex represents approximately 1.2 percent of the issued and outstanding common shares of Comaplex. In addition, Comaplex owns 204,633 (December 31, 2008 - 204,633) common shares in the Company. The Company has common directors and management with Comaplex.

Comaplex paid a management fee to the Company of $248,000 (2008 - $248,000). Comaplex also shares office rental costs and reimburses the Company for costs related to employee benefits and office materials. Services provided by the Company include executive services (chief executive officer, president and vice president, finance duties), accounting services, oil and gas administration and office administration. All services performed are charged at estimated fair value. At September 30, 2009, Comaplex owed the Company $75,000 (December 31, 2008 - $56,000).

As of September 30, 2009, Comaplex has loaned the Company $12,000,000 (December 31, 2008 - Nil). The loan is unsecured and until June 30, 2009 the Company paid interest at Canadian chartered bank prime plus one quarter of a percent and it has no set repayment terms. Effective July 1, 2009, the interest rate was reduced to Canadian chartered bank prime less .25 percent. The reduction in rate was due to the lowering of the Company's bank interest rate with its banking syndicate resulting from an improved debt to cash flow ratio (see Interest Expense and Liquidity and Capital Resources sections) and since the benefits of this loan are shared with Comaplex, the interest rate was reduced accordingly.

Interest paid on this loan during the first nine months of 2009 was $134,000. This results in being a substantial benefit to Bonterra and to Comaplex. The interest paid to Comaplex by Bonterra is substantially lower than bank interest and for Comaplex the interest earned is substantially higher than Comaplex would receive by investing in bank instruments such as BA's or GIC's.

The Company also has a management agreement with Pine Cliff Energy Ltd. (Pine Cliff). Pine Cliff has common directors and management with the Company. Pine Cliff trades on the TSX Venture Exchange. Pine Cliff paid a management fee to the Company of $90,000 (2008 - $178,000). Services provided by the Company include executive services (CEO, president and vice president, finance duties), accounting services, oil and gas administration and office administration. All services performed are charged at estimated fair value. The Company has no share ownership in Pine Cliff. As at September 30, 2009, the Company had an account receivable from Pine Cliff of $1,000 (December 31, 2008 - $1,000).

As of September 30, 2009, the Company's CEO and major shareholder has loaned the Company $10,000,000 (December 31, 2008 - $6,000,000). The loan is unsecured, bears interest at Canadian chartered bank prime and has no set repayment terms. Effective July 1, 2009, the interest rate was also decreased to Canadian chartered bank prime less .25 percent. Interest paid on this loan during the first nine months of 2009 was $152,000. This loan results in being a substantial benefit to Bonterra and to the CEO. The interest paid to the CEO by Bonterra is substantially lower than bank interest and for the CEO the interest earned is substantially higher than the CEO would receive by investing in bank instruments such as BA's or GIC's. Subsequent to quarter end, the Company's CEO made a further loan of $1,500,000 under the same terms and conditions.

The Company's bank agreement requires that the loans to Comaplex and the Company's CEO can only be repaid should the Company have sufficient available borrowing limits under the Company's credit facility.

Liquidity and Capital Resources

During the first nine months of 2009, the Company incurred capital costs of $22,616,000 (2008 - $15,002,000). The Company drilled two (1.36 net) horizontal oil wells, five (4.75 net) vertical Cardium oil wells and commenced drilling of a third (0.68) horizontal oil well for total drilling costs of approximately $6,600,000 net of drilling credits of $1,741,000 million (see below). In addition Bonterra acquired and paid $4,746,000 for mineral rights in the Pembina area of Alberta.

On July 2, 2009, Bonterra completed its acquisition of Cobalt. The Company issued 201,438 common shares and assumed $2,856,000 of negative working capital and incurred approximately $170,000 in acquisition costs for a total calculated accounting cost of $7,105,000. This acquisition resulted in acquiring an additional 40 BOE per day of production as well as increasing the Company's working interest in approximately 11 sections of land with potential Cardium horizontal locations in the Pembina area of Alberta.

During the first nine months of 2009, Bonterra also participated in drilling a number of smaller interest natural gas wells for total costs of approximately $1,000,000 and spent approximately $1,300,000 on completion and tie in costs in respect to wells drilled in Q4 2008. The balance of the capital expenditures related to various capital projects ranging from pipeline tie-ins to maximizing natural gas production to various battery upgrades to enhance overall production from existing wells.

The government of Alberta has recently announced drilling incentives and royalty reductions in respect of wells drilled after April 1, 2009 and prior to March 31, 2011. The Company is planning to maximize the crown royalty credits available under the new drilling incentive program which will result in a substantial reduction of capital costs on a per well basis.

The Company currently has plans to spend an estimated $22,000,000 (net of drilling incentives) in 2009 (approximately $10,000,000 in the fourth quarter) on development of its oil and gas properties. Land acquisitions and property or corporate acquisitions estimated to be $13,000,000 (including the Cobalt acquisition) will bring the total to approximately $35,000,000. With the recent finalizing of the Crown royalty credit program by the Alberta government, the Company plans on contracting a second drill rig in mid November for drilling additional horizontal Pembina Cardium oil wells.

Subsequent to September 30, 2009, the Company entered into a purchase and sale agreement to divest of a portion of its Shaunavon oil production to Eagle Rock Exploration Ltd. (Eagle Rock) (TSXV: ERX). The proceeds of disposition consist of $24,000,000 cash and 30,769,200 common shares in Eagle Rock (representing approximately 4.2 percent of the outstanding common shares of the company). The disposition closed on November 6, 2009. These funds will be used to accelerate the development of the Company's horizontal Pembina Cardium oil play.

Bonterra anticipates funding the 2009 capital program out of cash flow, the Company's line of credit, its recent equity issue and proceeds from the above mentioned sale. Effective April 29, 2009, the Company entered into a new bank facility. The new facility consists of a $100,000,000 syndicated revolving credit facility and a $20,000,000 non-syndicated revolving credit facility. At September 30, 2009, the Company's bank loan was $81,386,000 (December 31, 2008 - $93,235,000). The terms of the new facility provides that the loan is revolving until April 28, 2011, is subject to annual review and has no fixed payment requirements.

Subject to commodity prices and regulatory policies such as the Alberta competition review, Bonterra is projecting 2010 capital expenditures of $40,000,000 to $50,000,000.



The following is a list of the material bank covenants:

1)  The Company is required to not exceed $120,000,000 in consolidated
    debt (includes negative working capital but excludes debt to related
    parties). As of September 30, 2009 the Company had consolidated debt
    of $73,841,000.

2)  Dividends paid in any quarter shall not exceed 80 percent of the
    average of the previous four quarters' cash flow as defined under
    GAAP. During the quarter Bonterra paid $7,781,000 in dividends. This
    compares to $9,839,000 that was allowed under the bank covenant.
    During the third quarter the Company received a waiver of this
    requirement for the fourth quarter and instead is restricted to
    paying no more than the lesser of 80 percent of quarter four cash
    flow or $10,000,000.



Additional information relating to the Company may be found on www.sedar.com or visit our website at www.bonterraenergy.com.

The following consolidated financial statements and notes to the consolidated financial statements have been provided for further details.



CONSOLIDATED BALANCE SHEETS

As at September 30, 2009 and December 31, 2008
(unaudited)

($ 000)                                                 2009        2008
-------------------------------------------------------------------------
Assets
Current
  Restricted term deposit                                  -          20
  Accounts receivable (Note 11)                       11,175      11,753
  Crude oil inventory                                    492         845
  Prepaid expenses                                     3,910       4,222
  Future income tax asset (Note 8)                     9,405       2,669
  Investments in related party (Note 3)                3,386       2,131
-------------------------------------------------------------------------
                                                      28,368      21,640
-------------------------------------------------------------------------
Restricted cash (Note 4)                               1,012       1,252
Future income tax asset (Note 8)                      78,448      85,416
Property and Equipment (Note 5)
  Petroleum and natural gas properties
   and related equipment                             255,301     232,685
  Accumulated depletion and depreciation             (89,586)    (75,692)
-------------------------------------------------------------------------
Net Property and Equipment                           165,715     156,993
-------------------------------------------------------------------------
                                                     273,543     265,301
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current
  Accounts payable and accrued liabilities            12,700      23,888
  Due to related parties (Note 6)                     22,000       6,000
  Deferred credit (Note 8)                             8,123       2,305
  Short-term bank debt (Note 7)                            -      13,325
-------------------------------------------------------------------------
                                                      42,823      45,518
Long-term bank debt (Note 7)                          81,386      79,910
Deferred credit (Note 8)                              56,421      64,758
Asset retirement obligations                          18,888      18,338
-------------------------------------------------------------------------
                                                     199,518     208,524
-------------------------------------------------------------------------
Shareholders' Equity (Note 9)
  Share capital                                      119,954      99,530
  Contributed surplus                                  3,253       2,542
-------------------------------------------------------------------------
                                                     123,207     102,072
-------------------------------------------------------------------------
  Deficit                                            (51,680)    (46,715)
  Accumulated other comprehensive income (Note 10)     2,498       1,420
-------------------------------------------------------------------------
                                                     (49,182)    (45,295)
-------------------------------------------------------------------------
Total Shareholders' Equity                            74,025      56,777
-------------------------------------------------------------------------
                                                     273,543     265,301
-------------------------------------------------------------------------
-------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the periods ended
 September 30 (unaudited)         Three Months            Nine Months
($ 000)                         2009        2008        2009        2008
-------------------------------------------------------------------------
Unitholders' equity,
 beginning of period
 (Note 1)                          -      46,612           -      44,218
Shareholders' equity,
 beginning of period
 (Note 1)                     72,332           -      56,777           -
Comprehensive income
 for the period                6,055      20,801      17,505      44,353
Net capital contributions      3,181         903      20,424       5,393
Stock-based compensation         243         273         711         835
Dividends declared            (7,781)          -     (21,392)          -
Distributions declared             -     (10,966)          -     (37,176)
-------------------------------------------------------------------------
Unitholders' Equity,
 End of Period                     -      57,623           -      57,623
-------------------------------------------------------------------------
Shareholders' Equity,
 End of Period                74,025           -      74,025           -
-------------------------------------------------------------------------
-------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

For the periods ended
 September 30 (unaudited)         Three Months            Nine Months
($000, except $ per Share)      2009        2008        2009        2008
-------------------------------------------------------------------------
Revenue
  Oil and gas sales           20,965      37,174      60,766     107,446
  Loss on risk management
   contracts - cash                -      (2,948)          -      (8,329)
  Gain on risk management
   contracts - non-cash            -       8,066           -       1,041
  Royalties                   (1,945)     (4,657)     (5,071)    (14,320)
  Interest and other               3           7          63          29
-------------------------------------------------------------------------
                              19,023      37,642      55,758      85,867
-------------------------------------------------------------------------
Expenses
  Production costs             6,585       6,148      20,978      18,554
  General and administrative     788         845       2,835       2,577
  Interest on debt               815         545       2,556       1,994
  Reorganization costs             -         752           -         752
  Stock-based compensation       243         273         711         835
  Depletion, depreciation
   and accretion               5,191       3,601      14,714      10,611
-------------------------------------------------------------------------
                              13,622      12,164      41,794      35,323
-------------------------------------------------------------------------
Earnings Before Taxes          5,401      25,478      13,964      50,544
-------------------------------------------------------------------------
Taxes (Recovery)
  Current                         82         128         480         381
  Future                        (471)      4,225      (2,943)      5,322
-------------------------------------------------------------------------
                                (389)      4,353      (2,463)      5,703
-------------------------------------------------------------------------
Net Earnings for the Period    5,790      21,125      16,427      44,841
Deficit, beginning of
 period                      (49,689)    (54,037)    (46,715)    (51,543)
Dividends declared            (7,781)          -     (21,392)          -
Distributions declared             -     (10,965)          -     (37,175)
-------------------------------------------------------------------------
Deficit, End of Period       (51,680)    (43,877)    (51,680)    (43,877)
-------------------------------------------------------------------------
Net Earnings Per Share
 - Basic (Note 9)               0.31        1.23        0.92        2.63
-------------------------------------------------------------------------
Net Earnings Per Share
 - Diluted (Note 9)             0.31        1.22        0.92        2.61
-------------------------------------------------------------------------
-------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Periods Ended
 September 30 (unaudited)         Three Months            Nine Months
($ 000, except $ per Share)     2009        2008        2009        2008
-------------------------------------------------------------------------
Net Earnings for the Period    5,790      21,125      16,427      44,841
Unrealized gains and losses
 on investments (net of
 Income taxes; Three months
 ended 2009 - 44, 2008 -
 (56); Nine months ended
 2009 - 178, 2008 - (78))        260        (324)      1,078        (488)
-------------------------------------------------------------------------
Other Comprehensive Income
 (Loss)                          260        (324)      1,078        (488)
-------------------------------------------------------------------------
Comprehensive Income           6,050      21,801      17,505      44,353
-------------------------------------------------------------------------
Comprehensive Income Per
 Share - Basic (Note 9)         0.32        1.21        0.98        2.60
-------------------------------------------------------------------------
Comprehensive Income Per
 Share - Diluted (Note 9)       0.32        1.21        0.98        2.59
-------------------------------------------------------------------------
-------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS

For the periods ended
 September 30 (unaudited)         Three Months            Nine Months
($000)                          2009        2008        2009        2008
-------------------------------------------------------------------------
Operating Activities
  Net earnings for the
   period                      5,790      21,125      16,427      44,841
  Items not affecting cash
    Gain on risk management
     contracts - non-cash          -      (8,066)          -      (1,041)
    Stock-based compensation     243         273         711         835
    Depletion, depreciation
     and accretion             5,191       3,601      14,714      10,611
    Future income taxes         (471)      4,225      (2,943)      5,322
-------------------------------------------------------------------------
                              10,753      21,158      28,909      60,568
-------------------------------------------------------------------------
  Change in non-cash
   working capital
    Accounts receivable          420       2,901       1,620      (1,936)
    Crude oil inventory           30          12         329          99
    Prepaid expenses             640          76         394        (971)
    Accounts payable and
     accrued liabilities      (2,589)       (940)     (5,999)      4,102
  Restricted cash                235           -         240           -
  Asset retirement
   obligations settled          (139)       (715)       (268)     (2,628)
-------------------------------------------------------------------------
                              (1,403)      1,334      (3,684)     (1,334)
-------------------------------------------------------------------------
Cash Provided by
 Operating Activities          9,350      22,492      25,225      59,234
-------------------------------------------------------------------------
Financing Activities
  Increase (decrease)
   in debt                     7,612      (4,135)    (14,050)     (8,577)
  Due to related parties           -           -      16,000           -
  Issue of shares pursuant
   to private placement            -           -      17,996           -
  Share issue costs              (35)          -      (1,046)          -
  Stock option proceeds            -         903           -       5,393
  Dividends                   (7,781)          -     (21,392)          -
  Unit distributions               -     (16,439)          -     (40,899)
-------------------------------------------------------------------------
Cash Used in Financing
 Activities                     (204)    (19,671)     (2,492)    (44,083)
-------------------------------------------------------------------------
Investing Activities
  Property and equipment
   expenditures              (10,501)     (6,038)    (15,457)    (15,002)
  Restricted term deposit          -           -          20           -
  Change in non-cash
   working capital
    Accounts receivable       (1,742)          -      (1,742)          -
    Accounts payable and
     accrued liabilities       3,097       3,217      (5,554)       (149)
-------------------------------------------------------------------------
Cash Used in Investing
 Activities                   (9,146)     (2,821)    (22,733)    (15,151)
-------------------------------------------------------------------------
Net Cash Inflow                    -           -           -           -
Cash, beginning of period          -           -           -           -
-------------------------------------------------------------------------
Cash, End of Period                -           -           -           -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Interest Paid               833         545       2,520       1,994
Cash Taxes Paid                  349         109         541         477



NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Periods Ended September 30, 2009 and 2008 (unaudited)

1. CHANGE OF ORGANIZATION

On November 12, 2008, Bonterra Energy Income Trust (the "Trust") converted to Bonterra Oil & Gas Ltd. (the "Company" or the "Trust") through a reverse takeover of the Trust by SRX Post Holdings Inc. (SRX). In conjunction with the reorganization, the Trust acquired all of the issued and outstanding shares of Silverwing Energy Inc. (Silverwing).Concurrently, all of the Company's subsidiaries, including Silverwing were amalgamated into Bonterra Energy Corp., a wholly owned subsidiary of the Company.

Prior to the Arrangement on November 12, 2008, the consolidated financial statements included the accounts of the Trust and its subsidiaries. After giving effect to the Arrangement, the consolidated financial statements have been prepared on a continuity of interests basis, which recognizes Bonterra Oil & Gas Ltd. as the successor entity to the Trust. The continuity of interest basis requires that the 2008 comparative consolidated financial statement figures presented prior to the reorganization are those previously presented by the Trust.

2. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and methods of application followed in the preparation of the interim consolidated financial statements are the same as those followed in the preparation of Bonterra's 2008 annual consolidated financial statements except as described below. These interim consolidated financial statements do not include all disclosures required for annual consolidated financial statements. The interim consolidated financial statements as presented should be read in conjunction with the 2008 annual consolidated financial statements. In February 2008, the Canadian Institute of Chartered Accountants (CICA) issued Section 3064, "Goodwill and intangible assets", replacing Section 3062, "Goodwill and other intangible assets" and Section 3450, "Research and development costs". Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section is applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standards for its fiscal year beginning January 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-orientated enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.

The adoption of this Standard did not have an impact on the Consolidated Financial Statements. In January 2009, the CICA issued EIC-173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". The EIC provides guidance on how to take into account credit risk of an entity and counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. This standard is effective for the Company's fiscal periods ending on or after January 20, 2009 with retrospective application. The application of this EIC did not have a material effect on the Company's Consolidated Financial Statements. In December 2008, the CICA issued Section 1582, "Business Combinations", which will replace former guidance on business combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011 with earlier adoption permitted. The Company is currently evaluating the impact of this change on its Consolidated Financial Statements.

In December 2008, the CICA issued Sections 1601, "Consolidated Financial Statements", and 1602, "Non-controlling Interests", which replaces existing Section 1600. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier adoption permitted. These standards currently do not impact the Company as it has full controlling interest of all of its subsidiaries.

Recent Accounting Pronouncements

The Accounting Standards Board has confirmed that the convergence of Canadian GAAP with International Financial Reporting Standards (IFRS) will be effective January 1, 2011. The Company has performed an initial scoping process in order to ensure successful implementation within the required timeframe. The impact on the Company's consolidated financial statements is not reasonably determinable at this time. Key information will be disclosed as it becomes available during the transition period. In June 2009, the CICA issued amendments to CICA Handbook Section 3862, "Financial Instruments - Disclosures". The amendments include enhanced disclosures related to the fair value of financial instruments and the liquidity risk associated with financial instruments. The amendments will be effective for annual financial statements for fiscal years ending after September 30, 2009. The amendments are consistent with recent amendments to financial instrument disclosure standards in IFRS. The Company will include these additional disclosures in its annual consolidated financial statements for the year ending December 31, 2009.

3. INVESTMENT IN RELATED PARTY

The investment consists of 689,682 (December 31, 2008 - 689,682) common shares of Comaplex Minerals Corp. (Comaplex), a company with common directors and management with the Company and its subsidiaries. The investment is recorded at fair market value. The common shares trade on the Toronto Stock Exchange under the symbol CMF. The investment represents less than one and a half percent ownership in the outstanding shares of Comaplex.

4. RESTRICTED CASH

An escrow account was held by Silverwing prior to its acquisition by the Company. The escrow account was created to support eligible expenditures related to a farm-in agreement. The Company may access the funds upon completion and tie-in or abandonment and reclamation of 22 wells. The funds are administered by the farmors' legal counsel. The funds in the escrow account are invested in interest bearing term deposits. During the third quarter the Company applied for a $250,000 reduction in the escrow account due to the abandonment of 5 wells. This amount is included in accounts receivable and was received subsequent to the end of the quarter.



5.  PROPERTY AND EQUIPMENT

                            September 30, 2009         December 31, 2008
-------------------------------------------------------------------------
                                   Accumulated               Accumulated
                                     Depletion                 Depletion
                                           and                       and
($ 000)                    Cost   Depreciation       Cost   Depreciation
-------------------------------------------------------------------------
Undeveloped land          7,288              -      2,295              -
Petroleum and natural
 gas properties and
 related equipment      246,566         88,606    229,136         74,844
Furniture, equipment
 and other                1,447            980      1,254            848
-------------------------------------------------------------------------
                        255,301         89,586    232,685         75,692
-------------------------------------------------------------------------



On July 2, 2009, the Company acquired all of the issued common shares of Cobalt Energy Ltd. (Cobalt) for consideration of 201,438 common shares at a value of $15.92 per common share plus the assumption of $2,856,000 of negative working capital for total consideration of $6,063,000. Results of Cobalt's operations have been included in the consolidated financial statements commencing from that date. The acquisition was accounted for using the purchase method and the purchase price was allocated to the fair value of the assets acquired and the liabilities assumed as follows:



Cost of acquisition (000's)
  Value of common stock                 $3,207
  Acquisition costs                        170
                                       --------
                                        $3,377
                                       --------
                                       --------
Allocation of purchase price:
  Property and equipment                $7,105
  Future income tax liability             (748)
  Working capital deficiency            (2,856)
  Asset retirement obligations            (124)
                                       --------
                                        $3,377
                                       --------
                                       --------



6. DUE TO RELATED PARTIES

As of September 30, 2009, the Company's CEO and major shareholder has loaned the Company $10,000,000 (December 31, 2008 - $6,000,000). The loan is unsecured, bears interest at Canadian chartered bank prime and has no set repayment terms but is payable on demand. Effective July 1, 2009 the interest rate was decreased to Canadian chartered bank prime less .25 percent. The interest rate was decreased to keep the loan rate at approximately two percent below the Company's bank financing rate. Interest paid on this loan during the nine months of 2009 was $152,000. Subsequent to quarter end, the Company's CEO made a further loan of $1,500,000 under the same terms and conditions.

As of September 30, 2009, Comaplex has loaned the Company $12,000,000 (December 31, 2008 - Nil). The loan is unsecured, bears interest at Canadian chartered bank prime plus one quarter of a percent and has no set repayment terms but is payable on demand. Effective July 1, 2009 the interest rate was decreased to Canadian chartered bank prime less .25 percent. The interest rate was decreased to keep the loan rate at approximately two percent below the Company's bank financing rate. Interest paid on this loan during the nine months of 2009 was $134,000. The Company's bank agreement requires that the above loans can only be repaid should the Company have sufficient available borrowing limits under the Company's credit facility.

Please refer to notes 3 and 11 for additional related party transactions.

7. BANK DEBT

As of September 30, 2009, the Company has a bank facility consisting of a $100,000,000 syndicated and $20,000,000 non-syndicated revolving credit facility (December 31, 2008 - $80,000,000 syndicated and $20,000,000 non-syndicated demand credit facility). This new facility became effective April 29, 2009, when the Company agreed to new terms and conditions. Amounts drawn under the facility at September 30, 2009 was $81,386,000 (December 31, 2008 - $93,235,000). The interest rate on the outstanding debt as of September 30, 2009 was 4.25 percent on the Company's Canadian prime rate loan. Effective October 1, 2009 the interest was reduced to 4.00 percent due to the improvement in the Company's debt to cash flow ratio (see below). The term of the new facility provides that the loan is revolving until April 28, 2011, is subject to annual review and has no fixed payment requirements.

The amount available for borrowing under the credit facilities is reduced by outstanding letters of credit. Letters of credit totaling $285,000 were issued at September 30, 2009 (December 31, 2008 - $525,000). Security for the credit facilities consists of various fixed and floating demand debentures totaling $200,000,000 over all of the Company's assets, and a general security agreement with first ranking over all personal and real property.



The interest rate on the new credit facility is calculated as follows:

-------------------------------------------------------------------------
                     Level I   Level II  Level III   Level IV    Level V
-------------------------------------------------------------------------
Consolidated Total
 Funded Debt(1) to                 Over       Over       Over
 Consolidated Cash     Under   1.0:1 to   1.5:1 to   2.0:1 to       Over
 flow Ratio            1.0:1      1.5:1      2.0:1      2.5:1      2.5:1
-------------------------------------------------------------------------
Canadian Prime Rate
 Plus(2)                 125        150        175        200        250
-------------------------------------------------------------------------
Bankers' Acceptances
 Rate Plus(2)            275        300        325        350        400
-------------------------------------------------------------------------
(1) Consolidated total funded debt excludes related party amounts but
    includes working capital.
(2) Numbers in table represent basis points.



The consolidated total funded debt to consolidated cash flow ratio shall be adjusted effective as of the first day of the next fiscal quarter following the end of each fiscal quarter, with each such adjustment to be effective until the next such adjustment.



The following is a list of the material covenants:

-   The Company is required to not exceed $120,000,000 in consolidated
    debt (includes negative working capital but excludes debt to related
    parties).
-   Dividends paid in any quarter shall not exceed 80 percent of the
    average of the previous four quarters' cash flow as defined under
    GAAP. During the third quarter the Company received a waiver of this
    requirement for the fourth quarter and instead is restricted to
    paying no more than the lesser of 80 percent of quarter four cash
    flow or $10,000,000.


8.  TAXES

The Company has recorded a future income tax asset related to assets and
liabilities and related tax amounts:

                                               September 30  December 31
($ 000)                                                2009         2008
-------------------------------------------------------------------------
Future tax liability related to investments:           (369)        (212)
Future tax liability related to property
 and equipment:                                      (6,193)      (7,097)
Future tax asset related to asset retirement
 obligations:                                         4,751        4,593
Futures tax asset related to finance costs:           1,012        1,134
Future tax asset related to corporate tax
 losses and SR&ED claims:                            79,247       86,998
-------------------------------------------------------------------------
Future Tax Asset - Long-term                         78,448       85,416
-------------------------------------------------------------------------
Current portion of future income tax asset
 related to corporate Tax losses and SR& ED claims:   9,405        2,669
-------------------------------------------------------------------------
Future Tax Asset - Current                            9,405        2,669
-------------------------------------------------------------------------



As a result of the reorganization, the Company recorded a deferred credit relating to the difference between the future income tax asset generated on the reorganization and the amount of the cash payment made to SRX immediately before the reorganization. This credit is being amortized on the same basis as the related future income tax asset.



A reconciliation of the deferred credit is as follows:

($ 000)
-------------------------------------------------------------------------
Amount recorded on reorganization                                 71,303
Amortized in 2008                                                 (4,240)
-------------------------------------------------------------------------
Balance as of December 31, 2008                                   67,063
Amortized in first nine months of 2009                            (2,518)
-------------------------------------------------------------------------
Balance as of September 30, 2009                                  64,545
-------------------------------------------------------------------------
Current portion                                                    8,123
Long-term portion                                                 56,421
-------------------------------------------------------------------------
                                                                  64,545
-------------------------------------------------------------------------



The Company and its subsidiaries have the following federal tax pools, which may be used to reduce taxable income in future years, limited to the applicable rates of utilization:



($ 000)                               Rate of Utilization (%)     Amount
-------------------------------------------------------------------------
Undepreciated capital costs                           20-100      22,638
Eligible capital expenditures                              7       7,501
Share issue costs                                         20       4,064
Canadian oil and gas property expenditures                10      29,180
Canadian development expenditures                         30      54,112
Canadian exploration expenditures                        100      11,390
SR&ED expenditures                                       100      80,357
Income tax losses carried forward(1)                     100     278,163
-------------------------------------------------------------------------
                                                                 487,405
-------------------------------------------------------------------------

(1) Income tax losses carried forward expire in the following years;
    2013 - $1,069,000, 2024 - $3,347,000, 2025 - $7,532,000, 2026 -
    $104,019,000, 2027 - $117,436,000, 2028 - $34,726,000, 2029 -
    $10,034,000. The Company has used $28,346,000 of its 2026 provincial
    tax loss to shelter provincial income.



The Company has $22,284,000 of investment tax credits (ITC) that expire in the following years; 2010 - $1,142,000, 2011 - $4,667,000, 2012 - $3,909,000, 2013 - $3,155,000, 2014 - $1,995,000, 2015 - $2,257,000, 2016 - $2,405,000, 2017 - $2,009,000, 2018 - $745,000. The current tax provision incorporates the claim of $5,386,000 ITC's against federal taxes payable.

The amount and timing of reversals of temporary differences will also depend on the Company's future operating results, and acquisitions and dispositions of assets and liabilities. A significant change in any of the preceding assumptions could materially affect the Company's estimate of the future income tax asset.

9. SHAREHOLDERS' EQUITY

Authorized

The Company is authorized to issue an unlimited number of common shares
without nominal or par value.



                                                                  Amount
Issued                                                Number      ($ 000)
-------------------------------------------------------------------------
Common Shares
Balance, January 1, 2009                          17,257,603      99,530
Issued pursuant to private placement               1,068,000      17,996
Issued on acquisition of Cobalt                      201,438       3,207
Issue costs for private placement                          -      (1,046)
Future tax effect of share issue costs                     -         267
-------------------------------------------------------------------------
Balance, September 30, 2009                       18,527,041     119,954
-------------------------------------------------------------------------



The Company is authorized to issue an unlimited number of Class "A" redeemable Preferred Shares and an unlimited number of Class "B" Preferred Shares. There are currently no outstanding Class "A" redeemable preferred shares or Class "B" preferred shares.

On May 27, 2009, the Company completed a private placement for 1,068,000 common shares at a price of $16.85 per common share for aggregate proceeds of $17,996,000. The Company paid a commission of five percent of the gross proceeds ($900,000) plus additional share issue costs of $111,000.

On July 2, 2009, the Company acquired all of the issued common shares of Cobalt Energy Ltd. (Cobalt) for consideration of 201,438 common shares at a value of $15.92 per common share. The Company incurred costs of $35,000 in relation to the issuance of these shares.

The number of common shares (2008 numbers based on units) used to calculate diluted net earnings per share (2008 earnings per unit) for the three and nine month periods ended September 30 is as follows:



                                  Three Months            Nine Months
                                2009        2008        2009        2008
-------------------------------------------------------------------------
Basic shares/units
 outstanding              18,524,851  17,025,803  17,821,584  16,982,068
Dilutive effect of
 share/unit options          217,416     185,533       5,270     102,363
-------------------------------------------------------------------------
Diluted shares/units
 outstanding              18,742,267  17,211,336  17,826,854  17,084,431
-------------------------------------------------------------------------


A summary of the changes during the first nine months of the Company's
contributed surplus is presented below:

Contributed surplus ($ 000)                          2009           2008
-------------------------------------------------------------------------
Balance, beginning of period                        2,542          2,140
Stock-based compensation expensed (non-cash)          711            562
Stock-based options exercised (non-cash)                -           (448)
-------------------------------------------------------------------------
Balance, end of period                              3,253          2,254
-------------------------------------------------------------------------


The deficit balance is composed of the following items:

                                             September 30,  September 30,
($ 000)                                              2009           2008
-------------------------------------------------------------------------
Accumulated earnings                              224,609        197,597
Accumulated cash dividends/distributions         (276,289)      (241,474)
-------------------------------------------------------------------------
Deficit                                           (51,680)       (43,877)
-------------------------------------------------------------------------



The Company provides an option plan for its directors, officers, employees and consultants. Under the plan, the Company may grant options for up to 1,852,704 (December 31, 2008 - 1,725,760) common shares. The exercise price of each option granted equals the market price of the common shares on the date of grant and the option's maximum term is five years.

A summary of the status of the Company's stock option plan as of September 30, 2009 and December 31, 2008, and changes during the nine month and twelve month periods ended on those dates is presented below:



                              September 30, 2009       December 31, 2008
-------------------------------------------------------------------------
                                        Weighted-               Weighted-
                                         Average                 Average
                                        Exercise                Exercise
                             Options       Price     Options       Price
-------------------------------------------------------------------------
Outstanding at beginning
 of period                 1,390,500    $  20.50           -    $      -
Options granted               33,000       14.90   1,390,500       20.50
-------------------------------------------------------------------------
Outstanding at end of
 period                    1,423,500    $  20.37   1,390,500    $  20.50
-------------------------------------------------------------------------
Options exercisable at
 end of period                     -    $      -           -    $      -
-------------------------------------------------------------------------


The following table summarizes information about options outstanding at
September 30, 2009:

                        Options Outstanding         Options Exercisable
-------------------------------------------------------------------------
                              Weighted-
                               Average   Weighted-              Weighted-
Range of           Number    Remaining    Average       Number   Average
Exercise      Outstanding  Contractual   Exercise  Exercisable  Exercise
Prices         At 9/30/09         Life      Price   at 9/30/09     Price
-------------------------------------------------------------------------
$14.90             33,000    3.3 years     $14.90            -     $   -
 20.50          1,390,500    3.1 years      20.50            -         -
-------------------------------------------------------------------------
$14.90-20.50    1,423,500    3.1 years     $20.37            -     $   -
-------------------------------------------------------------------------



The Company records compensation expense over the vesting period based on the fair value of options granted to employees, directors and consultants. The Company granted 33,000 stock options with an estimated fair value of $52,000 ($1.56 per option) using the Black-Scholes option pricing model with the following key assumptions:



                                                        2009        2008
-------------------------------------------------------------------------
Weighted-average risk free interest rate (%)             1.4         2.2
Expected life (years)                                    3.0         3.5
Weighted-average volatility (%)                         33.0        31.3
Dividend yield 2009 and 2008                  based on the percentage of
                                              dividends or distributions
                                              paid during the period
                                              granted
-------------------------------------------------------------------------


10. ACCUMULATED OTHER COMPREHENSIVE INCOME
                                                       Other
                                                      Compre-
                                       January 1,    hensive   September
($ 000)                                     2009      Income    30, 2009
-------------------------------------------------------------------------
Unrealized gains on available-for-
 sale financial assets (net of tax)        1,420       1,078       2,498
------------------------------------------------------------------------- 
                                                       Other
                                                      Compre-
                                                     hensive
                                       January 1,     Income    December
($ 000)                                     2008       (Loss)   31, 2008
-------------------------------------------------------------------------
Unrealized gains (losses) on
 available-for-sale financial
 assets (net of tax)                       3,031      (1,611)      1,420
-------------------------------------------------------------------------



11. RELATED PARTY TRANSACTIONS

The Company received a management fee from Comaplex of $248,000 (2008 - $248,000) for management services and office administration. This fee has been included as a recovery in general and administrative expenses. As at September 30, 2009, the Company had an account receivable from Comaplex of $75,000 (December 31, 2008 - $56,000).

The Company received a management fee from Pine Cliff Energy Ltd. (Pine Cliff) of $90,000 (2008 - $178,000) for management services and office administration. This fee has been included as a recovery in general and administrative expenses. As at September 30, 2009 the Company had an account receivable from Pine Cliff of $1,000 (December 31, 2008 - $1,000).



12. FINANCIAL AND CAPITAL RISK MANAGEMENT

Financial Risk Factors
----------------------

The Company undertakes transactions in a range of financial instruments
including:
-   Receivables
-   Payables
-   Common share investments
-   Due to related parties
-   Bank loans
-   Derivatives



The Company's activities result in exposure to a number of financial risks including market risk (commodity price risk, interest rate risk, foreign exchange risk, credit risk, and liquidity risk). The Company's overall risk management program seeks to mitigate these risks and reduce the volatility on the Company's financial performance. Financial risk management is carried out by senior management under the direction of the Directors of the Company. The Company enters into various risk management contracts in accordance with Board approval to manage the Company's exposure to commodity price fluctuations. Currently no risk management agreements are in place. The Company does not speculatively trade in risk management contracts. The Company's risk management contracts are entered into to manage the risks relating to commodity prices from its business activities.

Capital Risk Management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns to its shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends, the percentage of return of capital or issue new shares.

The Company monitors capital on the basis of the ratio of debt to cash flow. This ratio is calculated using each quarter end net debt (total debt adjusted for working capital) and divided by the preceding twelve months cash flow. The combination of the Trust reorganization and the acquisitions of Silverwing in 2008 and Cobalt in 2009 resulted in the Company increasing its debt resulting in an increased debt to cash flow ratio. During the second quarter of 2009, the Company completed a private placement for net proceeds of $16,985,000 thereby reducing its level of indebtedness. The Company has also entered into a purchase and sale agreement for the disposal of certain non-core producing assets which closed subsequent to quarter end (see Note 14) that will provide additional cash proceeds of $24,000,000. The Company believes that a debt level of approximately one and a half year's cash flow is an appropriate level to allow it to take advantage in the future of either acquisition opportunities or to provide flexibility to develop its undeveloped resources by horizontal or vertical drill programs.

The following section (a) of this note provides a summary of the Company's underlying economic positions as represented by the carrying values, fair values and contractual face values of the Company's financial assets and financial liabilities. The Company's debt to cash flow is also provided. The following section (b) addresses in more detail the key financial risk factors that arise from the Company's activities including its policies for managing these risks.

The following section (c) provides details of the Company's risk management contracts that are used for financial risk management.



    a)  Financial assets, financial liabilities and debt ratio
    The carrying amounts, fair value and face values of the Company's
    financial assets and liabilities are shown in Table 1.

    Table 1
                      As at September 30, 2009   As at December 31, 2008
    ---------------------------------------------------------------------
                      Carrying    Fair    Face  Carrying    Fair    Face
    ($ 000)              Value   Value   Value     Value   Value   Value
    ---------------------------------------------------------------------
    Financial assets
    Restricted term
     deposit                 -       -       -        20      20      20
    Accounts
     receivable         11,175  11,175  11,340    11,753  11,753  11,838
    Investments in
     related party       3,386   3,386     N/A     2,131   2,131     N/A
    Financial
     liabilities
    Accounts payable
     and accrued
     liabilities        12,700  12,700  12,700    23,888  23,888  23,888
    Due to related
     parties            22,000  22,000  22,000     6,000   6,000   6,000
    Short-term bank
     debt                    -       -       -    13,325  13,325  13,325
    Long-term bank
     debt               81,386  81,386  81,386    79,910  79,910  79,910
    ---------------------------------------------------------------------
    The net debt and cash flow figures as of September 30, 2009 are
    presented in Table 2.


    Table 2
    ($ 000)                                           September 30, 2009
    ---------------------------------------------------------------------
    Long-term bank debt                                           81,386
    Accounts payable and accrued liabilities                      12,700
    Due to related parties                                        22,000
    Current assets(1)                                            (18,963)
    ---------------------------------------------------------------------
    Net Debt                                                      97,123
    ---------------------------------------------------------------------
    Cash flow from operations(2)                                  35,561
    ---------------------------------------------------------------------
    Net debt to cash flow from operations                           2.73
    ---------------------------------------------------------------------
    (1) Current assets include accounts receivable, crude oil inventory,
        prepaid expenses and investment in related party.
    (2) Cash flow from operations includes net earnings over the past
        twelve months less adjustment for non-cash (gain) loss on risk
        management contracts, stock-based compensation, depletion,
        depreciation and accretion, future income taxes, changes in non-
        cash working capital items, restricted cash recovered and asset
        retirement obligations settled.


    b)  Risks and mitigations
    Market risk is the risk that the fair value or future cash flow of
    the Company's financial instruments will fluctuate because of changes
    in market prices. Components of market risk to which the Company is
    exposed are discussed below.


    Commodity price risk
    --------------------
    The Company's principal operation is the production and sale of crude
    oil, natural gas and natural gas liquids. Fluctuations in prices of
    these commodities directly impact the Company's performance and
    ability to continue with its dividends.

    The Company had used various risk management contracts to set price
    parameters for a portion of its production. The Board of Directors
    and management decided that at least in the near term it will
    discontinue the use of commodity price agreements. The Company will
    assume full risk in respect of commodity prices.

    Sensitivity Analysis

    Commodity prices have fluctuated significantly over the recent past.
    The following table updates the annual cash flow sensitivity for
    movements in the commodity prices of $1 U.S. WTI for crude oil, $0.10
    per MCF AECO for natural gas and $0.01 fluctuation in exchange rates.

                                                               Cash Flow
    ---------------------------------------------------------------------
    U.S. $1.00 per barrel                                      $ 870,000
    Canadian $0.10 per MCF                                     $ 289,000
    Change of Canadian $0.01/U.S. $ exchange rate              $ 593,000
    ---------------------------------------------------------------------

    Interest rate risk
    ------------------

    Interest rate risk refers to the risk that the value of a financial
    instrument or cash flows associated with the instrument will
    fluctuate due to changes in market interest rates. Interest rate risk
    arises from interest bearing financial assets and liabilities that
    the Company uses. The principal exposure of the Company is on its
    bank borrowings and related party debts which have variable interest
    rates which gives rise to a cash flow interest rate risk.
    The Company's debt includes a bank credit facility of $120,000,000
    consisting of a revolving line of credit and $22,000,000 due to
    related parties. The borrowings under these facilities are at bank
    prime plus or minus various percentages as well as by means of
    bankers' acceptances (BA's) within Bonterra's credit facility. The
    Company manages its exposure to interest rate risk through entering
    into various term lengths on its BA's but in no circumstances do the
    terms exceed six months.

    Sensitivity Analysis

    Based on historic movements and volatilities in the interest rate
    markets and management's current assessment of the financial markets,
    the Company believes that a one percent variation in the Canadian
    prime interest rate is reasonably possible over a 12-month period. No
    income tax effect has been calculated as the Company is expected to
    be non-taxable until January 1, 2018.

    A one percent change in the Canadian prime rate would increase or
    decrease annual cash flow by $1,034,000.

    Foreign exchange risk
    ---------------------

    The Company has no foreign operations and currently sells all its
    product sales in Canadian currency. The Company however is exposed to
    currency risk in that crude oil is priced in U.S. currency then
    converted to Canadian currency. The Company currently has no
    outstanding currency risk management agreements. The Board of
    Directors and management recently decided that at least in the near
    term it will not enter into any currency price agreements. The
    Company will assume full risk in respect of foreign exchange
    fluctuations.

    Credit risk
    -----------

    Credit risk is the risk that a contracting party will not complete
    its obligations under a financial instrument and cause the Company to
    incur a financial loss. The Company is exposed to credit risk on the
    carrying value of all financial assets included on the balance sheet.
    To help mitigate this risk:

       -  The Company only enters into material agreements with credit
          worthy counterparties. These include major oil and gas
          companies or major Canadian chartered banks;
       -  Agreements for product sales are primarily on 30 day renewal
          terms; and
       -  Investments are generally only with companies that have common
          management with the Company.

    Of the accounts receivable balance at September 30, 2009
    ($11,175,000) and December 31, 2008 ($11,753,000), 87 (2008 - 82)
    percent relates to product sales with international oil and gas
    companies or receivables from the Canadian Federal or Provincial
    Governments.

    The Company assesses quarterly if there has been any impairment of
    the financial assets of the Company. During the quarter ended
    September 30, 2009, there was no impairment provision required on any
    of the financial assets other than certain accounts receivable (see
    below). The Company does have a credit risk exposure as the majority
    of the Company's accounts receivable are with counterparties having
    similar characteristics. Payments from the Company's largest accounts
    receivable counterparties have consistently been received within 30
    days. The Sales agreements with these parties are cancellable with 30
    days notice.

    At September 30, 2009, approximately $345,000 or 3.1 percent of the
    Company's total accounts receivable are aged over 120 days and
    considered past due. The majority of these accounts are due from
    various joint venture partners. The Company actively monitors past
    due accounts and takes the necessary actions to expedite collection,
    which can include withholding production or net paying when the
    accounts are with joint venture partners. Should the Company
    determine that the ultimate collection of a receivable is in doubt,
    it will provide the necessary provision in its allowance for doubtful
    accounts with a corresponding charge to earnings. If the Company
    subsequently determines an account is uncollectable, the account is
    written off with a corresponding charge to the allowance account. The
    Company's allowance for doubtful accounts balance at September 30,
    2009 is $165,000 (December 31, 2008 - $85,000). There were no
    accounts written off during the period.

    The carrying value of accounts receivable approximates their fair
    value due to the relatively short periods to maturity on this
    instrument. The maximum exposure to credit risk is represented by the
    carrying amount on the balance sheet. There are no material financial
    assets that the Company considers past due.

    Liquidity risk
    --------------
    Liquidity risk includes the risk that, as a result of Company's
    operational liquidity requirements:
       -  The Company will not have sufficient funds to settle a
          transaction on the due date;
       -  The Company will not have sufficient funds to continue with its
          dividends;
       -  The Company will be forced to sell assets at a value which is
          less than what they are worth; or
       -  The Company may be unable to settle or recover a financial
          asset at all.
    To help reduce these risks the Company:
       -  Maintains a portfolio of high-quality, long reserve life oil
          and gas assets.
    The Company has the following maturity schedule for its financial
    liabilities:

                                               Payments Due by Period
    ---------------------------------------------------------------------
                         Recognized on        Less
                             Financial        than        2-3        4-5
    ($ 000)                 Statements      1 year      years      years
    ---------------------------------------------------------------------
    Accounts payable and         Yes -
     accrued liabilities     Liability      12,700          -          -
    Due to related               Yes -
     parties                 Liability      22,000          -          -
    Long-term                    Yes -
     bank debt               Liability           -     81,386          -
    Office leases                   No         792      1,451        594
    ---------------------------------------------------------------------
    Total                                   35,492     82,837        594
    ---------------------------------------------------------------------
    c)  Risk management contracts
    The Company currently has no outstanding risk management contracts:

13. SUBSEQUENT EVENT - DIVIDENDS

Subsequent to September 30, 2009, the Company declared a dividend of
$0.16 per common share payable on October 30, 2009 to shareholders
of record on October 15, 2009 and a dividend of $0.16 per common share
payable on November 30, 2009 to shareholders of record on November 16,
2009.

14. SUBSEQUENT EVENT - DISPOSITION
Subsequent to September 30, 2009, the Company entered into a purchase and
sale agreement to divest of a portion of its Shaunavon oil production to
Eagle Rock Exploration Ltd. (Eagle Rock) (TSXV: ERX). The proceeds of
disposition consist of $24,000,000 cash and 30,769,200 common shares in
Eagle Rock (representing approximately 4.2 percent of the outstanding
common shares of that company). The disposition closed on November 6.



%SEDAR: 00003132E


FOR FURTHER INFORMATION PLEASE CONTACT:

Bonterra Oil & Gas Ltd.
George F. Fink
CEO
(403) 262-5307
(403) 265-7488


Bonterra Oil & Gas Ltd.
Garth E. Schultz
Vice President, Finance and CFO
(403) 262-5307
(403) 265-7488

Bonterra Oil & Gas Ltd.
Kirsten Kulyk
Manager, Investor Relations
(403) 262-5307
(403) 265-7488
info@bonterraenergy.com
www.bonterraenergy.com

 

 
© 2018 Bonterra