----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

| ·   | converted from a trust to a value oriented exploration and production corporation; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | further de-levered the balance sheet with a well timed sale of sour gas assets and completed an equity issue; |
|--------------------|---------------------------------------------------------------------------------------------------------------|

| ·   | invested over 20% of our capital budget on lands for our emerging light oil resource plays in the Halkirk/Alliance Viking and Lochend Cardium areas; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | became very active with the drill bit in Canada in the second half of the year proving up our Viking and Cardium light oil resource plays; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | increased our reserves booking year over year; and |
|--------------------|----------------------------------------------------|

| ·   | executed efficiently on our capital program with proved plus probable reserves finding and development costs of $10.19/boe in 2010. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | resolved our farm-out issues with our bankrupt partner in Oklahoma, freeing us to move forward on the Hunton liquids rich natural gas resource drilling play on our own; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | re-financed an $80 million debt maturity which was due at the end of 2011. |
|--------------------|----------------------------------------------------------------------------|

----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

|                                                                                                                        |   | Three months endedDecember 31 |    |   |   |   |    | Year endedDecember 31 |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|--------|--------|--------|---------|-----------------------|--------|
| 2010 Financial and Operations Summary(in thousands except for volumes, percentages and  per unit and boe amounts) |   | 2010                          |    |   | 2009   |   |    | Change                |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| FINANCIAL                                                                                                                   |   |                          |    |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |
| Revenue before mark-to-market adjustment (1)                                                                                |   |                          | 34,704  |   |   |   | 37,055  |                  |   |   | (6 | %) |   |   | 143,713 |   |   |   | 140,506 |   |   |   | 2 | % |
| Funds from operations (1)                                                                                                   |   |                          | 9,338   |   |   |   | 11,803  |                  |   |   | (21 | %) |   |   | 46,640 |   |   |   | 46,645 |   |   |   | 0 | % |
|   Per share – basic (2) (3) ($)                                                                             |   |                          | 0.34    |   |   |   | 0.55    |                  |   |   | (38 | %) |   |   | 1.90 |   |   |   | 2.22 |   |   |   | (14 | %) |
|   Per share – diluted (2) (3) ($)                                                                           |   |                          | 0.34    |   |   |   | 0.55    |                  |   |   | (38 | %) |   |   | 1.90 |   |   |   | 2.22 |   |   |   | (14 | %) |
| Net income (loss)                                                                                                           |   |                          | (19,557 | )      |   |   | (8,939  | )                     |   |   | 119 | % |   |   | (34,536 | ) |   |   | (41,282 | ) |   |   | (16 | %) |
|   Per share – basic (2) (3) ($)                                                                             |   |                          | (0.71   | )      |   |   | (0.42   | )                     |   |   | 69 | % |   |   | (1.40 | ) |   |   | (1.95 | ) |   |   | (28 | %) |
|   Per share – diluted (2) (3) ($)                                                                           |   |                          | (0.71   | )      |   |   | (0.42   | )                     |   |   | 69 | % |   |   | (1.40 | ) |   |   | (1.95 | ) |   |   | (28 | %) |
| Total assets                                                                                                                |   |                          | 427,754 |   |   |   | 462,272 |                  |   |   |   |   |   |   | 427,754 |   |   |   | 462,272 |   |   |   |   |   |
| Working capital (deficit) including long-term debt (4)                                                                      |   |                          | (36,743 | )      |   |   | (52,642 | )                     |   |   |   |   |   |   | (36,743 | ) |   |   | (52,642 | ) |   |   |   |   |
| Convertible debentures                                                                                                      |   |                          | 117,019 |   |   |   | 114,863 |                  |   |   |   |   |   |   | 117,019 |   |   |   | 114,863 |   |   |   |   |   |
| Shareholders’ equity                                                                                                  |   |                          | 213,512 |   |   |   | 219,046 |                  |   |   |   |   |   |   | 213,512 |   |   |   | 219,046 |   |   |   |   |   |
| SHARES OUTSTANDING                                                                                                          |   |                          |    |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares outstanding – basic (2) (3) (000s)                                                                             |   |                          | 27,692  |   |   |   | 21,610  |                  |   |   |   |   |   |   | 24,595 |   |   |   | 21,119 |   |   |   |   |   |
| Shares outstanding – diluted (2) (3) (000s)                                                                           |   |                          | 27,692  |   |   |   | 21,610  |                  |   |   |   |   |   |   | 24,595 |   |   |   | 21,119 |   |   |   |   |   |
| Shares outstanding at period end (3) (000s)                                                                                 |   |                          | 27,710  |   |   |   | 21,701  |                  |   |   |   |   |   |   | 27,710 |   |   |   | 21,701 |   |   |   |   |   |
| OPERATIONS                                                                                                                  |   |                          |    |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average daily production                                                                                                    |   |                          |    |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Oil (bbls per day)                                                                                              |   |                          | 2,501   |   |   |   | 2,530   |                  |   |   | (1 | %) |   |   | 2,481 |   |   |   | 2,779 |   |   |   | (11 | %) |
|   NGL (bbls per day)                                                                                              |   |                          | 2,373   |   |   |   | 2,749   |                  |   |   | (14 | %) |   |   | 2,491 |   |   |   | 2,156 |   |   |   | 16 | % |
|   Gas (mcf per day)                                                                                               |   |                          | 22,529  |   |   |   | 25,815  |                  |   |   | (13 | %) |   |   | 24,878 |   |   |   | 29,657 |   |   |   | (16 | %) |
|   Total (boe per day)                                                                                             |   |                          | 8,629   |   |   |   | 9,582   |                  |   |   | (10 | %) |   |   | 9,118 |   |   |   | 9,878 |   |   |   | (8 | %) |
| Average sales price                                                                                                         |   |                          |    |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Oil ($ per bbl)                                                                                                 |   |                          | 70.03   |   |   |   | 70.83   |                  |   |   | (1 | %) |   |   | 70.25 |   |   |   | 62.86 |   |   |   | 12 | % |
|   NGL ($ per bbl)                                                                                                 |   |                          | 45.00   |   |   |   | 41.63   |                  |   |   | 8 | % |   |   | 42.44 |   |   |   | 32.17 |   |   |   | 32 | % |
|   Gas ($ per mcf)                                                                                                 |   |                          | 4.23    |   |   |   | 4.23    |                  |   |   | 0 | % |   |   | 4.57 |   |   |   | 4.75 |   |   |   | (4 | %) |
| Cash flow netback (1) ($ per boe)                                                                                           |   |                          |    |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Revenue (5)                                                                                                     |   |                          | 43.71   |   |   |   | 42.04   |                  |   |   | 4 | % |   |   | 43.18 |   |   |   | 38.97 |   |   |   | 11 | % |
|   Royalties                                                                                                       |   |                          | 8.77    |   |   |   | 9.70    |                  |   |   | (10 | %) |   |   | 8.81 |   |   |   | 7.37 |   |   |   | 20 | % |
|   Production expenses                                                                                             |   |                          | 10.67   |   |   |   | 10.25   |                  |   |   | 4 | % |   |   | 10.76 |   |   |   | 10.88 |   |   |   | (1 | %) |
|   Transportation expenses                                                                                         |   |                          | 0.79    |   |   |   | 0.59    |                  |   |   | 34 | % |   |   | 0.71 |   |   |   | 0.70 |   |   |   | 1 | % |
|   Operating netback                                                                                               |   |                          | 23.48   |   |   |   | 21.50   |                  |   |   | 9 | % |   |   | 22.90 |   |   |   | 20.02 |   |   |   | 14 | % |
|   General and administrative                                                                                      |   |                          | 7.93    |   |   |   | 4.86    |                  |   |   | 63 | % |   |   | 5.78 |   |   |   | 4.36 |   |   |   | 33 | % |
|   Cash interest expense                                                                                           |   |                          | 3.56    |   |   |   | 2.92    |                  |   |   | 22 | % |   |   | 3.40 |   |   |   | 2.66 |   |   |   | 28 | % |
|   Other cash costs (6)                                                                                            |   |                          | 0.23    |   |   |   | 0.34    |                  |   |   | (32 | %) |   |   | (0.29 | ) |   |   | 0.06 |   |   |   | (100 | %) |
|   Cash flow netback                                                                                               |   |                          | 11.76   |   |   |   | 13.38   |                  |   |   | (12 | %) |   |   | 14.01 |   |   |   | 12.94 |   |   |   | 8 | % |

| (1) | Revenues before mark-to-market adjustment, funds from operations and cash flow netback are non-GAAP financial measures.  Please refer to “Revenues” and “Non-GAAP Financial Measures”. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Weighted average shares outstanding.  See Note 10 in Notes to Financial Statements. |
|-----|-----------------------------------------------------------------------------------------------|

| (3) | Restated to reflect the three for one exchange of trust units for common shares. |
|-----|----------------------------------------------------------------------------------|

| (4) | Working capital (deficit) including long-term debt is a non-GAAP term and includes total bank debt, current assets and current liabilities (excluding deferred revenues, future income taxes and unrealized gains and losses on commodity contracts). |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Price received excludes unrealized mark-to-market gain or loss. |
|-----|-----------------------------------------------------------------|

----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

|                                       |   | 2010   |    |   | 2009   |   |
|--------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                       |   |   | Q4      |   |   |   | Q3 |   |   |   | Q2 |   |   |   | Q1 |   |   |   | Q4 |   |   |   | Q3 |   |   |   | Q2 |   |   |   | Q1 |   |
| Revenues before mark-to-market adjustments |   |   | 34,704  |   |   |   | 34,267 |   |   |   | 35,689 |   |   |   | 39,053 |   |   |   | 37,055 |   |   |   | 30,354 |   |   |   | 31,208 |   |   |   | 41,889 |   |
| Funds from operations                      |   |   | 9,338   |   |   |   | 11,402 |   |   |   | 11,357 |   |   |   | 14,543 |   |   |   | 11,803 |   |   |   | 8,366 |   |   |   | 8,561 |   |   |   | 17,915 |   |
| Loss before taxes                          |   |   | (10,808 | )      |   |   | (11,042 | ) |   |   | (11,352 | ) |   |   | (1,920 | ) |   |   | (8,930 | ) |   |   | (13,259 | ) |   |   | (23,823 | ) |   |   | (12,864 | ) |
| Loss                                       |   |   | (19,557 | )      |   |   | (7,976 | ) |   |   | (4,066 | ) |   |   | (2,937 | ) |   |   | (8,939 | ) |   |   | (9,462 | ) |   |   | (14,383 | ) |   |   | (8,498 | ) |
| Loss per share basic(1) ($)                |   |   | (0.71   | )      |   |   | (0.29 | ) |   |   | (0.19 | ) |   |   | (0.14 | ) |   |   | (0.42 | ) |   |   | (0.45 | ) |   |   | (0.69 | ) |   |   | (0.42 | ) |
| Loss per share diluted (1) ($)             |   |   | (0.71   | )      |   |   | (0.29 | ) |   |   | (0.19 | ) |   |   | (0.14 | ) |   |   | (0.42 | ) |   |   | (0.45 | ) |   |   | (0.69 | ) |   |   | (0.42 | ) |

|                                                              |   | Three months ended |    |   | Year ended  |   |
|-------------------------------------------------------------------|--------|--------------------|---------|--------|-------------|--------|
|  (in thousands of Canadian dollars)                          |   | December 31        |    |   | December 31 |   |
|                                                              | 2010   |               |    | 2009   |        |   | 2010 |   |   | 2009 |   |
| Revenues                                                          |   |               |    |   |        |   |   |   |   |   |   |   |
| Oil and natural gas                                               |   |               | 33,268  |   |        |   | 36,291 |   |   |   | 137,675 |   |   |   | 124,611 |   |
| Realized gain on commodity contracts                              |   |               | 1,436   |   |        |   | 764 |   |   |   | 6,038 |   |   |   | 15,895 |   |
| Unrealized gain/(loss) on commodity contracts                     |   |               | (3,632  | )      |        |   | (1,271 | ) |   |   | (912 | ) |   |   | (13,678 | ) |
| Royalties                                                         |   |               | (6,963  | )      |        |   | (8,549 | ) |   |   | (29,330 | ) |   |   | (26,570 | ) |
|                                                              |   |               | 24,109  |   |        |   | 27,235 |   |   |   | 113,471 |   |   |   | 100,258 |   |
| Expenses                                                          |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Production                                                        |   |               | 8,469   |   |        |   | 8,948 |   |   |   | 35,826 |   |   |   | 39,659 |   |
| Transportation                                                    |   |               | 629     |   |        |   | 523 |   |   |   | 2,370 |   |   |   | 2,519 |   |
| General and administrative                                        |   |               | 6,298   |   |        |   | 4,287 |   |   |   | 19,227 |   |   |   | 15,707 |   |
| Recovery of receivables                                           |   |               | -       |   |        |   | (2,110 | ) |   |   | - |   |   |   | (2,110 | ) |
| Interest expense                                                  |   |               | 3,393   |   |        |   | 3,099 |   |   |   | 13,538 |   |   |   | 11,461 |   |
| Share-based compensation expense                                  |   |               | 602     |   |        |   | 689 |   |   |   | 3,636 |   |   |   | 3,580 |   |
| Depletion, depreciation and accretion                             |   |               | 15,389  |   |        |   | 19,597 |   |   |   | 75,286 |   |   |   | 86,877 |   |
| Foreign exchange (gain) loss                                      |   |               | 137     |   |        |   | 1,132 |   |   |   | (1,290 | ) |   |   | 1,441 |   |
|                                                              |   |               | 34,917  |   |        |   | 36,165 |   |   |   | 148,593 |   |   |   | 159,134 |   |
| Loss before income taxes                                          |   |               | (10,808 | )      |        |   | (8,930 | ) |   |   | (35,122 | ) |   |   | (58,876 | ) |
|                                                              |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Income taxes                                                      |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                           |   |               | 95      |   |        |   | - |   |   |   | 693 |   |   |   | - |   |
|     Future taxes reduction                    |   |               | 8,654   |   |        |   | 9 |   |   |   | (1,279 | ) |   |   | (17,594 | ) |
|                                                              |   |               | 8,749   |   |        |   | 9 |   |   |   | (586 | ) |   |   | (17,594 | ) |
|                                                              |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Loss                                                              |   |               | (19,557 | )      |        |   | (8,939 | ) |   |   | (34,536 | ) |   |   | (41,282 | ) |
|                                                              |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Cash Flow from Operations                                         |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Loss                                                              |   |               | (19,557 | )      |        |   | (8,939 | ) |   |   | (34,536 | ) |   |   | (41,282 | ) |
| Depletion, depreciation and accretion                             |   |               | 15,389  |   |        |   | 19,597 |   |   |   | 75,286 |   |   |   | 86,877 |   |
| Future taxes (reduction)                                          |   |               | 8,654   |   |        |   | 9 |   |   |   | (1,279 | ) |   |   | (17,594 | ) |
| Unrealized commodity contracts loss                               |   |               | 3,632   |   |        |   | 1,182 |   |   |   | 912 |   |   |   | 14,127 |   |
| Foreign exchange loss                                             |   |               | 54      |   |        |   | 850 |   |   |   | 383 |   |   |   | 1,159 |   |
| Share-based compensation                                          |   |               | 602     |   |        |   | 689 |   |   |   | 3,636 |   |   |   | 3,580 |   |
| Non-cash interest expense on convertible debentures               |   |               | 564     |   |        |   | 525 |   |   |   | 2,238 |   |   |   | 1,888 |   |
| Cash paid on asset retirement obligations                         |   |               | (299    | )      |        |   | (1,576 | ) |   |   | (1,589 | ) |   |   | (2,533 | ) |
|                                                              |   |               | 9,039   |   |        |   | 12,337 |   |   |   | 45,051 |   |   |   | 46,222 |   |
|     Changes in non-cash working capital items |   |               | 1,302   |   |        |   | 6,348 |   |   |   | (10,615 | ) |   |   | 5,248 |   |
|     Cash from operating activities            |   |               | 10,341  |   |        |   | 18,685 |   |   |   | 34,436 |   |   |   | 51,470 |   |

| Production                          |   |
|-------------------------------------|--------|
|                                |   | Three months ended December 31 |   |   |   |   |   | Year ended December 31 |   |   |   |   |
|                                | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Daily sales volumes – average |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil (bbls per day)                  |   |   | 2,501 |   |   |   | 2,530 |   |   |   | (1 | %) |   |   | 2,481 |   |   |   | 2,779 |   |   |   | (11 | %) |
| NGL (bbls per day)                  |   |   | 2,373 |   |   |   | 2,749 |   |   |   | (14 | %) |   |   | 2,491 |   |   |   | 2,156 |   |   |   | 16 | % |
| Natural gas (mcf per day)           |   |   | 22,529 |   |   |   | 25,815 |   |   |   | (13 | %) |   |   | 24,878 |   |   |   | 29,657 |   |   |   | (16 | %) |
| Total (boe per day)                 |   |   | 8,629 |   |   |   | 9,582 |   |   |   | (10 | %) |   |   | 9,118 |   |   |   | 9,878 |   |   |   | (8 | %) |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales volumes mix by product        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                                 |   |   | 29 | % |   |   | 26 | % |   |   |   |   |   |   | 27 | % |   |   | 28 | % |   |   |   |   |
| NGL                                 |   |   | 28 | % |   |   | 29 | % |   |   |   |   |   |   | 27 | % |   |   | 22 | % |   |   |   |   |
| Natural gas                         |   |   | 43 | % |   |   | 45 | % |   |   |   |   |   |   | 46 | % |   |   | 50 | % |   |   |   |   |
|                                |   |   | 100 | % |   |   | 100 | % |   |   |   |   |   |   | 100 | % |   |   | 100 | % |   |   |   |   |

| ·   | 6 (5.6 net) Alliance horizontal oil wells; |
|--------------------|--------------------------------------------|

| ·   | 5 (4.3 net) Cardium horizontal oil wells; |
|--------------------|-------------------------------------------|

| ·   | 3 (2.3 net) Provost Dina PPP horizontal oil wells; |
|--------------------|----------------------------------------------------|

| ·   | 2 (2.0 net) Princess horizontal oil wells; |
|--------------------|--------------------------------------------|

| ·   | 2 (0.8 net) Circus Viola horizontal oil wells; |
|--------------------|------------------------------------------------|

| ·   | 1 (1.0 net) Primate oil well; |
|--------------------|-------------------------------|

| ·   | 1 (0.8 net) Twin Cities/Central Dolomite liquids-rich natural gas well; and |
|--------------------|-----------------------------------------------------------------------------|

| ·   | 2 (2.0 net) dry holes. |
|--------------------|------------------------|

| Production by Geographic Area       |   |
|-------------------------------------|--------|
|                                |   | Three months endedDecember 31, 2010 |   |   | Year endedDecember 31, 2010 |   |
|                                | Canada |   |   | U.S. |   |   | Total |   |   | Canada |   |   | U.S. |   |   | Total |   |
| Daily sales volumes – average |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil (bbls per day)                  |   |   | 2,223 |   |   |   | 278 |   |   |   | 2,501 |   |   |   | 2,201 |   |   |   | 280 |   |   |   | 2,481 |   |
| NGL (bbls per day)                  |   |   | 70 |   |   |   | 2,303 |   |   |   | 2,373 |   |   |   | 224 |   |   |   | 2,267 |   |   |   | 2,491 |   |
| Natural gas (mcf per day)           |   |   | 7,583 |   |   |   | 14,946 |   |   |   | 22,529 |   |   |   | 9,936 |   |   |   | 14,942 |   |   |   | 24,878 |   |
| Total (boe per day)                 |   |   | 3,557 |   |   |   | 5,072 |   |   |   | 8,629 |   |   |   | 4,081 |   |   |   | 5,037 |   |   |   | 9,118 |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales volumes mix by product        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                                 |   |   | 62 | % |   |   | 5 | % |   |   |   |   |   |   | 54 | % |   |   | 6 | % |   |   |   |   |
| NGL                                 |   |   | 2 | % |   |   | 46 | % |   |   |   |   |   |   | 5 | % |   |   | 45 | % |   |   |   |   |
| Natural gas                         |   |   | 36 | % |   |   | 49 | % |   |   |   |   |   |   | 41 | % |   |   | 49 | % |   |   |   |   |
|                                |   |   | 100 | % |   |   | 100 | % |   |   |   |   |   |   | 100 | % |   |   | 100 | % |   |   |   |   |

| Pricing Benchmarks                     |   |
|----------------------------------------|--------|
|                                   |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                   | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| WTI (US$ per bbl)                      |   |   | 85.17 |   |   |   | 76.19 |   |   |   | 12 | % |   |   | 79.53 |   |   |   | 61.80 |   |   |   | 29 | % |
| Average exchange rate: US$ to Cdn$1.00 |   |   | 0.99 |   |   |   | 0.94 |   |   |   | 5 | % |   |   | 0.97 |   |   |   | 0.88 |   |   |   | 10 | % |
| WTI (Cdn$ per bbl)                     |   |   | 86.02 |   |   |   | 80.76 |   |   |   | 7 | % |   |   | 81.92 |   |   |   | 70.45 |   |   |   | 16 | % |
| Edmonton Light                         |   |   | 80.33 |   |   |   | 76.56 |   |   |   | 5 | % |   |   | 77.48 |   |   |   | 65.98 |   |   |   | 17 | % |
| Propane, Conway, KS (US$/bbl)          |   |   | 51.01 |   |   |   | 45.94 |   |   |   | 11 | % |   |   | 47.24 |   |   |   | 33.90 |   |   |   | 39 | % |
| NYMEX (US$ per mmbtu)                  |   |   | 3.81 |   |   |   | 4.27 |   |   |   | (11 | %) |   |   | 4.42 |   |   |   | 4.04 |   |   |   | 9 | % |
| NYMEX (US$ per mcf) (1)                |   |   | 3.94 |   |   |   | 4.42 |   |   |   | (11 | %) |   |   | 4.57 |   |   |   | 4.18 |   |   |   | 9 | % |
| AECO daily index (Cdn$ per GJ)         |   |   | 3.43 |   |   |   | 4.26 |   |   |   | (19 | %) |   |   | 3.79 |   |   |   | 3.74 |   |   |   | 1 | % |
| AECO daily index (Cdn$ per mcf) (2)    |   |   | 3.50 |   |   |   | 4.34 |   |   |   | (19 | %) |   |   | 3.86 |   |   |   | 3.81 |   |   |   | 1 | % |

| (1)   | Conversion rate of 1.0350 mmbtu per mcf. |
|-----------------|------------------------------------------|

| (2)   | Conversion rate of 1.0194 GJ per mcf. |
|-----------------|---------------------------------------|

| Average Commodity Prices Received                                    |   |                           |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|--------|--------|--------|--------|-----------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                 |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                 | 2010   |                           |   | 2009   |   |   | Change |                  |   | 2010   |   |   | 2009   |   |   | Change |   |
| Oil (1) (Cdn$ per bbl)                                               |   |                           | 70.07  |   |   |   | 69.81  |                  |   |   | 0      | %      |   |   | 68.82  |   |   |   | 58.47 |   |   |   | 18 | % |
| Oil commodity contract settlements (Cdn$ per bbl)                    |   |                           | (0.04  | )      |   |   | 1.02   |                  |   |   | (104   | %)     |   |   | 1.43   |   |   |   | 4.39 |   |   |   | (67 | %) |
| Combined oil (1) (Cdn$ per bbl)                                      |   |                           | 70.03  |   |   |   | 70.83  |                  |   |   | (1     | %)     |   |   | 70.25  |   |   |   | 62.86 |   |   |   | 12 | % |
| NGL (Cdn$ per bbl)                                                   |   |                           | 45.00  |   |   |   | 41.63  |                  |   |   | 8      | %      |   |   | 42.44  |   |   |   | 32.17 |   |   |   | 32 | % |
| Natural gas (Cdn$ per mcf)                                           |   |                           | 3.53   |   |   |   | 4.01   |                  |   |   | (12    | %)     |   |   | 4.05   |   |   |   | 3.69 |   |   |   | 10 | % |
| Natural gas commodity contract settlements  (Cdn$ per mcf) |   |                           | 0.70   |   |   |   | 0.22   |                  |   |   | 218    | %      |   |   | 0.52   |   |   |   | 1.06 |   |   |   | (51 | %) |
| Combined natural gas (Cdn$ per mcf)                                  |   |                           | 4.23   |   |   |   | 4.23   |                  |   |   | 0      | %      |   |   | 4.57   |   |   |   | 4.75 |   |   |   | (4 | %) |
| Total (2) (Cdn$ per boe)                                             |   |                           | 43.71  |   |   |   | 42.04  |                  |   |   | 4      | %      |   |   | 43.18  |   |   |   | 38.97 |   |   |   | 11 | % |

| (1) | Includes sulphur revenue. |
|-----|---------------------------|

| (2) | Price received excludes unrealized mark-to-market gain or loss on commodity contracts. |
|-----|----------------------------------------------------------------------------------------|

| Revenues (in thousands of Canadian dollars except for percentages) |   |
|--------------------------------------------------------------------|--------|
|                                                               |   | Three months ended December 31 |   |   |   |   |   | Year ended December 31 |   |   |   |   |
|                                                               | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Oil                                                                |   |   | 16,124 |   |   |   | 16,248 |   |   |   | (1 | %) |   |   | 62,306 |   |   |   | 59,307 |   |   |   | 5 | % |
| NGL                                                                |   |   | 9,827 |   |   |   | 10,528 |   |   |   | (7 | %) |   |   | 38,579 |   |   |   | 25,313 |   |   |   | 52 | % |
| Natural gas                                                        |   |   | 7,317 |   |   |   | 9,515 |   |   |   | (23 | %) |   |   | 36,790 |   |   |   | 39,991 |   |   |   | (8 | %) |
| Realized gain on commodity contracts                               |   |   | 1,436 |   |   |   | 764 |   |   |   | 88 | % |   |   | 6,038 |   |   |   | 15,895 |   |   |   | (62 | %) |
| Revenue before mark-to-market adjustments (1)                      |   |   | 34,704 |   |   |   | 37,055 |   |   |   | (6 | %) |   |   | 143,713 |   |   |   | 140,506 |   |   |   | 2 | % |
| Unrealized mark-to-market gain (loss) on commodity contracts       |   |   | (3,632 | ) |   |   | (1,271 | ) |   |   | 186 | % |   |   | (912 | ) |   |   | (13,678 | ) |   |   | (93 | %) |
| Oil and natural gas revenues                                       |   |   | 31,072 |   |   |   | 35,784 |   |   |   | (13 | %) |   |   | 142,801 |   |   |   | 126,828 |   |   |   | 13 | % |

| Revenues by Geographic Area (in thousands of Canadian dollars) |   |                                |
|----------------------------------------------------------------|--------|-------------------------------------|
|                                                           |   | Three months endedDecember 31, 2010 |   |   | Year endedDecember 31, 2010 |   |   |
|                                                           | Canada |                                |   | U.S. |   |   | Total |   |   | Canada |   |   | U.S. |   |   | Total |
| Oil                                                            |   |                                | 13,989 |   |   |   | 2,135 |   |   |   | 16,124 |   |   |   | 54,267 |   |   |   | 8,039 |   |   |   | 62,306 |   |
| NGL                                                            |   |                                | 49 |   |   |   | 9,778 |   |   |   | 9,827 |   |   |   | 4,053 |   |   |   | 34,526 |   |   |   | 38,579 |   |
| Natural gas                                                    |   |                                | 2,726 |   |   |   | 4,591 |   |   |   | 7,317 |   |   |   | 15,347 |   |   |   | 21,443 |   |   |   | 36,790 |   |
| Realized gain on commodity contracts                           |   |                                | 180 |   |   |   | 1,256 |   |   |   | 1,436 |   |   |   | 1,917 |   |   |   | 4,121 |   |   |   | 6,038 |   |
| Revenue before unrealized mark-to-market adjustments (1)       |   |                                | 16,944 |   |   |   | 17,760 |   |   |   | 34,704 |   |   |   | 75,584 |   |   |   | 68,129 |   |   |   | 143,713 |   |
| Unrealized mark-to-market gain (loss) on commodity contracts   |   |                                | (3,808 | ) |   |   | 176 |   |   |   | (3,632 | ) |   |   | (1,635 | ) |   |   | 723 |   |   |   | (912 | ) |
| Oil and natural gas revenues                                   |   |                                | 13,136 |   |   |   | 17,936 |   |   |   | 31,072 |   |   |   | 73,949 |   |   |   | 68,852 |   |   |   | 142,801 |   |

| (1)   |  Non–GAAP measure. |
|-----------------|-------------------------------|

| Derivative Instrument        | Commodity | Price (2)                                                | Volume per day (2)     | Period                                    |
|------------------------------|-----------|----------------------------------------------------------|------------------------|-------------------------------------------|
| Fixed                        | Gas       | 5.45 ($/GJ)(5.56 ($/mcf))                                | 1,000 GJ(981 mcf)      | March 1, 2010 – February 28, 2011   |
| Fixed                        | Gas       | 4.48 (US$/mmbtu)(4.64 US$/mcf)                           | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –October 31, 2011     |
| Fixed                        | Gas       | 4.53 (US$/mmbtu)(4.69 US$/mcf)                           | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –October 31, 2011     |
| Fixed                        | Gas       | 4.50 (US$/mmbtu)(4.66 US$/mcf)                           | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –March 31, 2012       |
| Fixed Basis Differential (1) | Gas       | Differential Fixed @ $0.33 US$/mmbtu($0.34 US$/mcf) | 5,000 mmbtu(4,831 mcf) | April 1, 2011 –October 31, 2011     |
|                         |      |                                                     |                   |                                      |
| Fixed                        | Oil       | 89.66 ($/bbl)                                            | 200 bbl                | January 1, 2011 – December 31, 2011 |
| Fixed                        | Oil       | 90.00 ($/bbl)                                            | 200 bbl                | January 1, 2011 – December 31, 2011 |
| Fixed                        | Oil       | 93.00 ($/bbl)                                            | 200 bbl                | January 1, 2011 – December 31, 2011 |
| Fixed                        | Oil       | 94.00 ($/bbl)                                            | 200 bbl                | January 1, 2011 – December 31, 2011 |
| Fixed                        | Oil       | 94.60 ($/bbl)                                            | 200 bbl                | January 1, 2011 – December 31, 2011 |

| (1)   | NYMEX / Southern Star (Oklahoma) basis differential. |
|-----------------|------------------------------------------------------|

| (2)   |      Conversion rates of 1.0350 mmbtu per mcf and 1.0194 GJ per mcf. |
|-----------------|-----------------------------------------------------------------------------------------------|

| Type of contract | Commodity | Price (1)                 | Volume per day (1) | Period                                  |
|------------------|-----------|---------------------------|--------------------|-----------------------------------------|
| Fixed Sale       | Gas       | 5.48 ($/GJ)(5.59 ($/mcf)) | 1,000 GJ(981 mcf)  | March 1, 2010 – February 28, 2011 |

| (1)   | Conversion rates of 1.0194 GJ per mcf. |
|-----------------|----------------------------------------|

| Type of contract | Commodity | Price (1)                      | Volume per day (1)     | Period                                    |
|------------------|-----------|--------------------------------|------------------------|-------------------------------------------|
| Fixed            | Gas       | 4.60 (US$/mmbtu)(4.76 US$/mcf) | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –October 31, 2011     |
| Fixed            | Gas       | 4.75 (US$/mmbtu)(4.92 US$/mcf) | 2,000 mmbtu(1,932 mcf) | February 1, 2011 –December 31, 2011 |
| Fixed            | Gas       | 4.83 (US$/mmbtu)(5.00 US$/mcf) | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –March 31, 2012       |
| Fixed            | Gas       | 4.95 (US$/mmbtu)(5.12 US$/mcf) | 2,000 mmbtu(1,932 mcf) | January 1, 2012 –December 31, 2012  |
| Fixed            | Oil       | 98.40 ($/bbl)                  | 200 bbl                | April 1, 2011 – December 31, 2011   |
| Fixed            | Oil       | 100.00 ($/bbl)                 | 200 bbl                | January 1, 2012 – December 31, 2012 |
| Fixed            | Oil       | 101.05 ($/bbl)                 | 200 bbl                | January 1, 2012 – December 31, 2012 |

| (1)   | Conversion rates of 1.0350 mmbtu per mcf. |
|-----------------|-------------------------------------------|

| Royalties (in thousands of Canadian dollars except for percentages and per boe amounts) |   |
|-----------------------------------------------------------------------------------------|--------|
|                                                                                    |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                    | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Royalties                                                                               |   |   | 6,963 |   |   |   | 8,549 |   |   |   | (19 | %) |   |   | 29,330 |   |   |   | 26,570 |   |   |   | 10 | % |
| As a percentage of revenues before mark-to-market adjustments                           |   |   | 20 | % |   |   | 23 | % |   |   |   |   |   |   | 20 | % |   |   | 19 | % |   |   |   |   |
| Royalties per boe ($)                                                                   |   |   | 8.77 |   |   |   | 9.70 |   |   |   | (10 | %) |   |   | 8.81 |   |   |   | 7.37 |   |   |   | 20 | % |

| Royalties by Geographic Area (in thousands of Canadian dollars except for percentages and per boe amounts) |   |
|-----------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                            |   | Three months ended December 31, 2010 |   |   | Year endedDecember 31, 2010 |   |
|                                                                                                            | Canada |   |   | U.S. |   |   | Canada |   |   | U.S. |   |
| Royalties                                                                                                       |   |   | 2,989 |   |   |   | 3,974 |   |   |   | 13,890 |   |   |   | 15,440 |   |
| As a percentage of revenues before mark-to-market adjustments                                                   |   |   | 17 | % |   |   | 22 | % |   |   | 18 | % |   |   | 23 | % |
| Royalties per boe ($)                                                                                           |   |   | 9.13 |   |   |   | 8.52 |   |   |   | 9.32 |   |   |   | 8.40 |   |

| Production Expense (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|-----------------------------------------------------------------------------------------------|--------|
|                                                                                          |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                          | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Production expense                                                                            |   |   | 8,469 |   |   |   | 8,948 |   |   |   | (5 | %) |   |   | 35,826 |   |   |   | 39,659 |   |   |   | (10 | %) |
| Non-cash gain (loss) from power contracts                                                     |   |   | - |   |   |   | 89 |   |   |   | (100 | %) |   |   | - |   |   |   | (449 | ) |   |   | (100 | %) |
| Cash production costs                                                                         |   |   | 8,469 |   |   |   | 9,037 |   |   |   | (6 | %) |   |   | 35,826 |   |   |   | 39,210 |   |   |   | (9 | %) |
| Production expense per boe ($)                                                                |   |   | 10.67 |   |   |   | 10.15 |   |   |   | 5 | % |   |   | 10.76 |   |   |   | 11.00 |   |   |   | (2 | %) |
| Non-cash gain (loss) from power contracts per boe ($)                                         |   |   | - |   |   |   | 0.10 |   |   |   | (100 | %) |   |   | - |   |   |   | (0.12 | ) |   |   | (100 | %) |
| Cash production costs per boe ($)                                                             |   |   | 10.67 |   |   |   | 10.25 |   |   |   | 4 | % |   |   | 10.76 |   |   |   | 10.88 |   |   |   | (1 | %) |

| Production Expense by Geographic Area (in thousands except for per boe amounts) |   |
|---------------------------------------------------------------------------------|--------|
|                                                                            |   | Three months ended December 31, 2010 |   |   | Year endedDecember 31, 2010 |   |
|                                                                            | Canada |   |   | U.S. |   |   | Canada |   |   | U.S. |   |
| Cash production costs                                                           |   |   | 5,669 |   |   |   | 2,800 |   |   |   | 25,364 |   |   |   | 10,462 |   |
| Cash production costs per boe ($)                                               |   |   | 17.32 |   |   |   | 6.00 |   |   |   | 17.03 |   |   |   | 5.69 |   |

| Transportation Expense (in thousands of Canadian dollars except for percentages and per boe amounts) |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                                 | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Transportation expense                                                                               |   |   | 629 |   |   |   | 523 |   |   |   | 20 | % |   |   | 2,370 |   |   |   | 2,519 |   |   |   | (6 | %) |
| Transportation expense per boe ($)                                                                   |   |   | 0.79 |   |   |   | 0.59 |   |   |   | 34 | % |   |   | 0.71 |   |   |   | 0.70 |   |   |   | 1 | % |

| General and Administrative Expense (in thousands of Canadian dollars except for percentages and per boe amounts) |   |
|------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                             |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                                             | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Gross G&A expense                                                                                            |   |   | 7,693 |   |   |   | 5,137 |   |   |   | 50 | % |   |   | 24,392 |   |   |   | 20,103 |   |   |   | 21 | % |
| Capitalized                                                                                                      |   |   | (95 | ) |   |   | (299 | ) |   |   | (68 | %) |   |   | (1,530 | ) |   |   | (1,153 | ) |   |   | 33 | % |
| Recoveries                                                                                                       |   |   | (1,300 | ) |   |   | (551 | ) |   |   | 136 | % |   |   | (3,635 | ) |   |   | (3,243 | ) |   |   | 12 | % |
| G&A expense                                                                                                  |   |   | 6,298 |   |   |   | 4,287 |   |   |   | 47 | % |   |   | 19,227 |   |   |   | 15,707 |   |   |   | 22 | % |
| G&A expense per boe ($)                                                                                      |   |   | 7.93 |   |   |   | 4.86 |   |   |   | 63 | % |   |   | 5.78 |   |   |   | 4.36 |   |   |   | 33 | % |

| Interest Expense (in thousands of Canadian except for percentages and per boe amounts) |   |
|----------------------------------------------------------------------------------------|--------|
|                                                                                   |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                   | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Cash interest expense on long-term debt                                                |   |   | 461 |   |   |   | 713 |   |   |   | (35 | %) |   |   | 2,364 |   |   |   | 2,814 |   |   |   | (16 | %) |
| Cash interest expense on convertible debentures                                        |   |   | 2,398 |   |   |   | 2,403 |   |   |   | 0 | % |   |   | 9,684 |   |   |   | 9,719 |   |   |   | 0 | % |
| Cash interest income                                                                   |   |   | (30 | ) |   |   | (542 | ) |   |   | (94 | %) |   |   | (748 | ) |   |   | (2,960 | ) |   |   | (75 | %) |
| Subtotal cash interest expense                                                         |   |   | 2,829 |   |   |   | 2,574 |   |   |   | 10 | % |   |   | 11,300 |   |   |   | 9,573 |   |   |   | 18 | % |
| Non-cash interest expense on convertible debentures                                    |   |   | 564 |   |   |   | 525 |   |   |   | 7 | % |   |   | 2,238 |   |   |   | 1,888 |   |   |   | 19 | % |
| Total interest expense                                                                 |   |   | 3,393 |   |   |   | 3,099 |   |   |   | 9 | % |   |   | 13,538 |   |   |   | 11,461 |   |   |   | 18 | % |
| Cash interest expense per boe on long-term debt ($)                                    |   |   | 0.58 |   |   |   | 0.81 |   |   |   | (28 | %) |   |   | 0.71 |   |   |   | 0.78 |   |   |   | (9 | %) |
| Cash interest expense per boe on convertible debentures ($)                            |   |   | 3.02 |   |   |   | 2.73 |   |   |   | 11 | % |   |   | 2.91 |   |   |   | 2.70 |   |   |   | 8 | % |
| Cash interest income per boe ($)                                                       |   |   | (0.04 | ) |   |   | (0.62 | ) |   |   | (94 | %) |   |   | (0.22 | ) |   |   | (0.82 | ) |   |   | (73 | %) |
| Total cash interest expense per boe ($)                                                |   |   | 3.56 |   |   |   | 2.92 |   |   |   | 22 | % |   |   | 3.40 |   |   |   | 2.66 |   |   |   | 28 | % |

| Share-Based Compensation Expense (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                        |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                                        | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Gross share-based compensation expense                                                                      |   |   | 675 |   |   |   | 690 |   |   |   | (2 | %) |   |   | 3,934 |   |   |   | 3,843 |   |   |   | 2 | % |
| Capitalized                                                                                                 |   |   | (73 | ) |   |   | (1 | ) |   |   | 100 | % |   |   | (298 | ) |   |   | (263 | ) |   |   | 13 | % |
| Share-based compensation expense                                                                            |   |   | 602 |   |   |   | 689 |   |   |   | (13 | %) |   |   | 3,636 |   |   |   | 3,580 |   |   |   | 2 | % |
| Share-based compensation expense per boe ($)                                                                |   |   | 0.76 |   |   |   | 0.78 |   |   |   | (3 | %) |   |   | 1.09 |   |   |   | 0.99 |   |   |   | 10 | % |

| Depletion, Depreciation and Accretion (in thousands of Canadian dollars except for percentages and per boe amounts) |   |
|---------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                |   | Three months endedDecember 31 |   |   |   |   |   | Year ended December 31 |   |   |   |   |
|                                                                                                                | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| DD&A                                                                                                            |   |   | 15,389 |   |   |   | 19,597 |   |   |   | (21 | %) |   |   | 75,286 |   |   |   | 86,877 |   |   |   | (13 | %) |
| DD&A per boe ($)                                                                                                |   |   | 19.38 |   |   |   | 22.23 |   |   |   | (13 | %) |   |   | 22.62 |   |   |   | 24.10 |   |   |   | (6 | %) |

| Cash Flow Netback (in thousand of Canadian dollars, except for per share and per boe amounts) |   |
|-----------------------------------------------------------------------------------------------|--------|
|                                                                                          |   | Three months endedDecember 31 |   |   | Year endedDecember 31 |   |
|                                                                                          | 2010   |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Loss                                                                                          |   |   | (19,557 | ) |   |   | (8,939 | ) |   |   | (34,536 | ) |   |   | (41,282 | ) |
| Future income taxes (reduction)                                                               |   |   | 8,654 |   |   |   | 9 |   |   |   | (1,279 | ) |   |   | (17,594 | ) |
| Foreign exchange loss                                                                         |   |   | 54 |   |   |   | 850 |   |   |   | 383 |   |   |   | 1,159 |   |
| Depletion, depreciation and accretion                                                         |   |   | 15,389 |   |   |   | 19,597 |   |   |   | 75,286 |   |   |   | 86,877 |   |
| Non-cash interest expense                                                                     |   |   | 564 |   |   |   | 525 |   |   |   | 2,238 |   |   |   | 1,888 |   |
| Share based compensation expense                                                              |   |   | 602 |   |   |   | 689 |   |   |   | 3,636 |   |   |   | 3,580 |   |
| Unrealized mark-to-market loss (gain) on commodity contracts                                  |   |   | 3,632 |   |   |   | 1,182 |   |   |   | 912 |   |   |   | 14,127 |   |
| Provision for non-recoverable receivables                                                     |   |   | - |   |   |   | (2,110 | ) |   |   | - |   |   |   | (2,110 | ) |
| Funds from operations                                                                         |   |   | 9,338 |   |   |   | 11,803 |   |   |   | 46,640 |   |   |   | 46,645 |   |
| Total volume (mboe)                                                                           |   |   | 794 |   |   |   | 882 |   |   |   | 3,328 |   |   |   | 3,605 |   |
| Cash flow netback (non-GAAP) ($ per boe)                                                      |   |   | 11.76 |   |   |   | 13.38 |   |   |   | 14.01 |   |   |   | 12.94 |   |

| Funds from Operations (in thousands of Canadian dollars) |   |
|----------------------------------------------------------|--------|
|                                                     |   | Three months endedDecember 31 |   |   | Year endedDecember 31 |   |
|                                                     | 2010   |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Cash provided by operating activities                    |   |   | 10,341 |   |   |   | 22,853 |   |   |   | 34,436 |   |   |   | 51,470 |   |
| Changes in non-cash working capital items                |   |   | (1,302 | ) |   |   | (10,516 | ) |   |   | 10,615 |   |   |   | (5,248 | ) |
| Asset retirement costs incurred                          |   |   | 299 |   |   |   | 1,576 |   |   |   | 1,589 |   |   |   | 2,533 |   |
| Provision for non-recoverable receivables                |   |   | - |   |   |   | (2,110 | ) |   |   | - |   |   |   | (2,110 | ) |
| Funds from operations                                    |   |   | 9,338 |   |   |   | 11,803 |   |   |   | 46,640 |   |   |   | 46,645 |   |

| Capital Expenditures (in thousands of Canadian dollars except for percentages) |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                           | 2010   |   |   | 2009 |   |   | Change |   |   | 2010 |   |   | 2009 |   |   | Change |   |
| Capital expenditures                                                           |   |   | 25,453 |   |   |   | 4,815 |   |   |   | 100 | % |   |   | 77,678 |   |   |   | 22,206 |   |   |   | 250 | % |
| Acquisition funded by trust unit issuance                                      |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,720 |   |   |   | (100 | %) |
| Capital expenditures to be recovered                                           |   |   | - |   |   |   | 103 |   |   |   | (100 | %) |   |   | - |   |   |   | 1,744 |   |   |   | (100 | %) |
| Amounts recovered under agreement                                              |   |   | - |   |   |   | (2,592 | ) |   |   | (100 | %) |   |   | (3,503 | ) |   |   | (11,004 | ) |   |   | (68 | %) |
| Dispositions                                                                   |   |   | (40 | ) |   |   | - |   |   |   | 100 | % |   |   | (26,272 | ) |   |   | - |   |   |   | 100 | % |
| Total                                                                          |   |   | 25,413 |   |   |   | 2,326 |   |   |   | 100 | % |   |   | 47,903 |   |   |   | 15,666 |   |   |   | 206 | % |

| ·   | $17.8 million on property and facility acquisitions; |
|--------------------|------------------------------------------------------|

| ·   | $30.6 million on wells, drilling and workovers; |
|--------------------|-------------------------------------------------|

|   | · | $9.7 million on land and seismic acquisition; |
|--------|--------|-----------------------------------------------|

|   | · | $4.3 million facilities and other equipment maintenance; and |
|--------|--------|--------------------------------------------------------------|

|   | · | $1.4 million related to the capitalization of certain G&A costs identified as attributable to exploration and development activities. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $5.6 million on acquiring additional working interest in wells from non-operated working interest partners; |
|--------------------|-------------------------------------------------------------------------------------------------------------|

| ·   | $4.2 million related to wells, drilling and workovers; |
|--------------------|--------------------------------------------------------|

| ·   | $1.3 million on acquisitions of land for future development in Oklahoma; |
|--------------------|--------------------------------------------------------------------------|

| ·   | $1.7 million on capital enhancements; |
|--------------------|---------------------------------------|

| ·   | $0.6 million on inventory and other assets; and |
|--------------------|-------------------------------------------------|

| ·   | $0.5 million related to the capitalization of certain G&A costs identified as attributable to exploration and development activities. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| Financial Instrument – Liability     |   |
|--------------------------------------------|--------|
| (in thousands of Canadian dollars)         |   | 2011 |   |   | 2012 |   |   | 2013 |   |   |   | 2014 – 2015 |   |   | Total |   |
| Long-term debt (1)                         |   |   | - |   |   |   | 24,865 |   |   |   | - |   |   |   | - |   |   |   | 24,865 |   |
| Interest on long-term debt (2)             |   |   | 748 |   |   |   | 374 |   |   |   | - |   |   |   | - |   |   |   | 1,122 |   |
| Convertible debentures                     |   |   | 80,127 |   |   |   | 39,648 |   |   |   | - |   |   |   | - |   |   |   | 119,775 |   |
| Interest on convertible debentures (3)     |   |   | 9,681 |   |   |   | 1,635 |   |   |   | - |   |   |   | - |   |   |   | 11,316 |   |
| Accounts payable & accrued liabilities |   |   | 31,321 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 31,321 |   |
| Due to JV Participant                      |   |   | 10,046 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 10,046 |   |
| Commodity contracts                        |   |   | 743 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 743 |   |
| Office leases (4)                          |   |   | 1,787 |   |   |   | 1,232 |   |   |   | 1,188 |   |   |   | 2,190 |   |   |   | 6,397 |   |
| Vehicle and other operating leases         |   |   | 250 |   |   |   | 71 |   |   |   | 10 |   |   |   | 4 |   |   |   | 335 |   |
| Total obligations                          |   |   | 134,703 |   |   |   | 67,825 |   |   |   | 1,198 |   |   |   | 2,194 |   |   |   | 205,920 |   |

|                                                                |   | December 31, 2010 |    |   | December 31, 2009 |   |
|---------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|
| Capitalization (in thousand of Canadian dollars except percentages) |   | Amount            |    |   | %                 |   |   | Amount |   |   | % |   |
| Long-term debt                                                      |   |              | 24,865  |   |              |   | 8 | % |   |   | 70,000 |   |   |   | 24 | % |
| Working capital deficit (surplus)(1) excluding long-term debt       |   |              | 11,878  |   |              |   | 4 | % |   |   | (28,554 | ) |   |   | (10 | %) |
| Working capital deficit (1) including long-term debt                |   |              | 36,743  |   |              |   | 12 | % |   |   | 41,446 |   |   |   | 14 | % |
| Convertible debentures                                              |   |              | 117,019 |   |              |   | 36 | % |   |   | 114,863 |   |   |   | 39 | % |
| Shares issued, at market (2)                                        |   |              | 169,584 |   |              |   | 52 | % |   |   | 141,499 |   |   |   | 47 | % |
| Total capitalization                                                |   |              | 323,347 |   |              |   | 100 | % |   |   | 297,808 |   |   |   | 100 | % |

| (1) | Working capital excludes deferred revenues, unrealized gains and losses on commodity contracts and future income taxes. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

| (2) | The market price of Equal’s shares on December 31, 2010 was $6.12 per share (December 31, 2009 – $6.54 per share per share restated for the three trust unit for one share exchange). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | As at             |   |
|------------------------------------------------------|--------|-------------------|--------|
| (in thousands of Canadian dollars except for ratios) |   | December 31, 2010 |   |   | December 31, 2009 |   |
| Interest coverage (1):                               |   |              |   |   |   |   |
| Cash flow over the prior four quarters               |   |              | 58,688 |   |   |   | 61,288 |   |
| Interest expenses over the prior four quarters       |   |              | 12,048 |   |   |   | 12,533 |   |
| Interest coverage ratio                              |   | 4.87 : 1.00       |   |   | 4.89 : 1.00 |   |

| (1) | These amounts are defined terms within the credit agreements. |
|-----|---------------------------------------------------------------|

|                                               |   | As at             |    |
|----------------------------------------------------|--------|-------------------|---------|
| Working Capital (in thousands of Canadian dollars) |   | December 31, 2010 |    |   | December 31, 2009 |   |
| Working capital (deficit) (1)                      |   |              | (11,878 | ) |   |   | 28,544 |   |

| (1) | Working capital excludes deferred revenues, commodity contracts and future income taxes. |
|-----|------------------------------------------------------------------------------------------|

|   | · | ENT.DB – $27.75.  Each $1,000 principal amount of ENT.DB debentures is convertible into approximately 36.04 Equal shares.  Mature on December 31, 2011. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | ENT.DB.A – $20.40.  Each $1,000 principal amount of ENT.DB.A debentures is convertible into approximately 49.02 Equal shares.  Mature on June 30, 2012. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   Year   |  WTI Oil($U.S./bbl) | Edmonton LightCrude Oil($Cdn/bbl) | AECO Gas($Cdn/MMBtu) | Henry Hub($U.S./Mmbtu) | ForeignExchangeRate (US$/CAD) |
|--------------------|--------------------------|-----------------------------------|----------------------|------------------------|-------------------------------|
| 2011               | 85.00                    | 84.20                             | 4.25                 | 4.55                   | 0.975                         |
| 2012               | 87.70                    | 88.40                             | 4.90                 | 5.30                   | 0.975                         |
| 2013               | 90.50                    | 91.80                             | 5.40                 | 5.75                   | 0.975                         |
| 2014               | 93.40                    | 94.80                             | 5.90                 | 6.30                   | 0.975                         |
| 2015               | 96.30                    | 97.70                             | 6.35                 | 6.80                   | 0.975                         |
| 2016               | 99.40                    | 100.90                            | 6.75                 | 7.35                   | 0.975                         |
| EscalateThereafter | Average2% per year       | Average2% per year                | Average2% per year   | Average2% per year     | 0.975                         |

|                        |   | Proved |   |   | Probable |   |   | Total  |   |
|-----------------------------|--------|--------|--------|--------|----------|--------|--------|--------|--------|
| December 31, 2008           |   |   | 19,636 |   |     |   | 7,264  |   |   |   | 26,900 |   |
| Discoveries and extensions  |   |   | 128    |   |     |   | 31     |   |   |   | 159 |   |
| Purchases                   |   |   | 860    |   |     |   | 45     |   |   |   | 905 |   |
| Production                  |   |   | (3,605 | )      |     |   | -      |   |   |   | (3,605 | ) |
| Revision of prior estimates |   |   | 5,319  |   |     |   | 1,568  |   |   |   | 6,887 |   |
| December 31, 2009           |   |   | 22,338 |   |     |   | 8,908  |   |   |   | 31,246 |   |
| Discoveries and extensions  |   |   | 2,166  |   |     |   | 1,002  |   |   |   | 3,168 |   |
| Purchases                   |   |   | 682    |   |     |   | 243    |   |   |   | 925 |   |
| Dispositions                |   |   | (803   | )      |     |   | (623   | )      |   |   | (1,426 | ) |
| Production                  |   |   | (3,328 | )      |     |   | -      |   |   |   | (3,328 | ) |
| Revision of prior estimates |   |   | 4,797  |   |     |   | (3,467 | )      |   |   | 1,330 |   |
| December 31, 2010           |   |   | 25,852 |   |     |   | 6,063  |   |   |   | 31,915 |   |

|                                                                                 |   | Years Ended December 31 |   |   | 3-Year |   |
|--------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|--------|--------|
| (in $/boe, except for capital expenditures, FDC and reserves which are in thousands) |   | 2010                    |   |   | 2009   |   |   | 2008 |   |   | Average |   |
| Capital expenditures (1)                                                             |   |                    | 54,522 |   |   |   | 16,445 |   |   |   | 37,054 |   |   |   | 36,687 |   |
| Future Development CostsProved                                                       |   |                    | 63,094 |   |   |   | 64,811 |   |   |   | 36,108 |   |   |   | 54,671 |   |
| Proved Plus Probable                                                                 |   |                    | 87,762 |   |   |   | 100,678 |   |   |   | 50,025 |   |   |   | 79,488 |   |
| Reserves (2)                                                                         |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved reserves added in the year (mboe)                                             |   |                    | 6,963  |   |   |   | 5,447 |   |   |   | 4,412 |   |   |   | 5,607 |   |
| Probable reserves added in the year (mboe)                                           |   |                    | (2,465 | )      |   |   | 1,599 |   |   |   | (428 | ) |   |   | (431 | ) |
| Proved plus probable reserves added in the year  (mboe)                    |   |                    | 4,498  |   |   |   | 7,046 |   |   |   | 3,984 |   |   |   | 5,176 |   |
|                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| F&D costs (excluding FDC)                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved reserves ($/boe)                                                              |   |                    | 7.83   |   |   |   | 3.02 |   |   |   | 8.40 |   |   |   | 6.54 |   |
| Proved plus probable reserves ($/boe)                                                |   |                    | 12.12  |   |   |   | 2.33 |   |   |   | 9.30 |   |   |   | 7.09 |   |
|                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| F&D costs (including FDC)                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved reserves ($/boe)                                                              |   |                    | 8.03   |   |   |   | 9.17 |   |   |   | 6.61 |   |   |   | 8.04 |   |
| Proved plus probable reserves ($/boe)                                                |   |                    | 10.19  |   |   |   | 10.21 |   |   |   | 6.44 |   |   |   | 9.20 |   |
|                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recycle ratios                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating netbacks ($/boe) (3)                                                       |   |                    | 22.90  |   |   |   | 20.02 |   |   |   | 36.87 |   |   |   | 26.83 |   |
| Operating recycle ratio (based on proved plus probable reserves including FDC)       |   |                    | 2.2    |   |   |   | 2.0 |   |   |   | 5.7 |   |   |   | 3.0 |   |
| Corporate netbacks ($/boe) (4)                                                       |   |                    | 14.01  |   |   |   | 12.94 |   |   |   | 28.52 |   |   |   | 18.75 |   |
| Corporate recycle ratio (based on proved plus probable finding costs including FDC)  |   |                    | 1.4    |   |   |   | 1.3 |   |   |   | 4.4 |   |   |   | 2.1 |   |

| (1)   | Excludes acquisitions. |
|-----------------|------------------------|

| (2)   | Includes revisions and excludes acquisitions. |
|-----------------|-----------------------------------------------|

| (3)   | Operating netbacks are production revenue less royalties and operating expenses. |
|-----------------|----------------------------------------------------------------------------------|

| (4)   | Corporate netbacks are production revenue less royalties, operating expenses, G&A, interest expense and other cash costs. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------|

|                        |   | Light/ |   |   |   |   |   |   |   |   |    |   |   |   |   |   | Net Present Value     |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|-----------------------|--------|
|                        |   | Medium |   |   | Heavy  |   |   |   |   |   | Natural |   |   |   |   |   | Before Income Tax ($) |   |
|                        |   | Oil    |   |   | Oil    |   |   | NGL    |   |   | Gas     |   |   | Total  |   |   |                  |   |   |   |   |   |   |   |
|                        |   | (mbbl) |   |   | (mbbl) |   |   | (mbbl) |   |   | (mmcf)  |   |   | (mboe) |   |   |                  | 0      | % |   |   | 5 | % |   |   | 10 | % |
| Canadian Assets             |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Proved Producing            |   |   | 2,375  |   |   |   | 451    |   |   |   | 102     |   |   |   | 9,072  |   |                  |   | 4,440 |   |   |   | 121,639 |   |   |   | 101,841 |   |   |   | 88,843 |   |
| Proved Non-Producing        |   |   | 50     |   |   |   | -      |   |   |   | 6       |   |   |   | 324    |   |                  |   | 110 |   |   |   | (3,279 | ) |   |   | (3,001 | ) |   |   | (2,694 | ) |
| Proved Undeveloped          |   |   | 795    |   |   |   | 120    |   |   |   | 43      |   |   |   | 3,285  |   |                  |   | 1,506 |   |   |   | 45,579 |   |   |   | 28,236 |   |   |   | 18,342 |   |
| Total Proved                |   |   | 3,220  |   |   |   | 571    |   |   |   | 151     |   |   |   | 12,681 |   |                  |   | 6,056 |   |   |   | 163,939 |   |   |   | 127,076 |   |   |   | 104,491 |   |
| Total Probable              |   |   | 1,451  |   |   |   | 323    |   |   |   | 108     |   |   |   | 12,516 |   |                  |   | 3,968 |   |   |   | 114,722 |   |   |   | 68,194 |   |   |   | 45,805 |   |
| Total Proved & Probable |   |   | 4,671  |   |   |   | 894    |   |   |   | 259     |   |   |   | 25,197 |   |                  |   | 10,024 |   |   |   | 278,661 |   |   |   | 195,270 |   |   |   | 150,296 |   |
| United States Assets        |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved Producing            |   |   | 645    |   |   |   | -      |   |   |   | 5,586   |   |   |   | 38,474 |   |                  |   | 12,643 |   |   |   | 372,726 |   |   |   | 269,772 |   |   |   | 208,631 |   |
| Proved Non-Producing        |   |   | -      |   |   |   | -      |   |   |   | 100     |   |   |   | 575    |   |                  |   | 196 |   |   |   | 5,249 |   |   |   | 3,723 |   |   |   | 2,767 |   |
| Proved Undeveloped          |   |   | -      |   |   |   | -      |   |   |   | 2,950   |   |   |   | 24,045 |   |                  |   | 6,957 |   |   |   | 179,687 |   |   |   | 115,517 |   |   |   | 76,239 |   |
| Total Proved                |   |   | 645    |   |   |   | -      |   |   |   | 8,636   |   |   |   | 63,094 |   |                  |   | 19,796 |   |   |   | 557,662 |   |   |   | 389,012 |   |   |   | 287,637 |   |
| Total Probable              |   |   | 3      |   |   |   | -      |   |   |   | 983     |   |   |   | 6,651  |   |                  |   | 2,095 |   |   |   | 62,916 |   |   |   | 42,943 |   |   |   | 31,080 |   |
| Total Proved & Probable |   |   | 648    |   |   |   | -      |   |   |   | 9,619   |   |   |   | 69,745 |   |                  |   | 21,891 |   |   |   | 620,578 |   |   |   | 431,955 |   |   |   | 318,717 |   |
| Consolidated Assets         |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved Producing            |   |   | 3,020  |   |   |   | 451    |   |   |   | 5,688   |   |   |   | 47,546 |   |                  |   | 17,083 |   |   |   | 494,365 |   |   |   | 371,613 |   |   |   | 297,474 |   |
| Proved Non-Producing        |   |   | 50     |   |   |   | -      |   |   |   | 106     |   |   |   | 899    |   |                  |   | 306 |   |   |   | 1,970 |   |   |   | 722 |   |   |   | 73 |   |
| Proved Undeveloped          |   |   | 795    |   |   |   | 120    |   |   |   | 2,993   |   |   |   | 27,330 |   |                  |   | 8,463 |   |   |   | 225,266 |   |   |   | 143,753 |   |   |   | 94,581 |   |
| Total Proved                |   |   | 3,865  |   |   |   | 571    |   |   |   | 8,787   |   |   |   | 75,775 |   |                  |   | 25,852 |   |   |   | 721,601 |   |   |   | 516,088 |   |   |   | 392,128 |   |
| Total Probable              |   |   | 1,454  |   |   |   | 323    |   |   |   | 1,091   |   |   |   | 19,167 |   |                  |   | 6,063 |   |   |   | 177,638 |   |   |   | 111,137 |   |   |   | 76,885 |   |
| Total Proved & Probable |   |   | 5,319  |   |   |   | 894    |   |   |   | 9,878   |   |   |   | 94,942 |   |                  |   | 31,915 |   |   |   | 899,239 |   |   |   | 627,225 |   |   |   | 469,013 |   |

| (1)   | The U.S. reserve report was converted to Canadian dollars using the Bank of Canada noon rate on December 31, 2010 of CAD$0.9946/US$1.00. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------|

| Outstanding Share Data as at                        |   | March 22, 2011 |       |   | December 31, 2010 |   |       | December 31, 2009(1) |   |
|-----------------------------------------------------|--------|----------------|------------|--------|-------------------|--------|------------|----------------------|--------|
| Shares                                              |   |           | 27,730,184 |   |              |   | 27,709,859 |                 |   |   | 21,700,896 |   |
| Share options                                       |   |           | 959,924    |   |              |   | 1,058,152  |                 |   |   | 235,331 |   |
| Restricted shares                                   |   |           | 464,578    |   |              |   | 507,759    |                 |   |   | 534,730 |   |
| 6.75% Convertible debentures ($1,000 per debenture) |   |           | 45,000     |   |              |   | -          |                 |   |   | - |   |
| 8.0% Convertible debentures ($1,000 per debenture)  |   |           | -          |   |              |   | 80,127     |                 |   |   | 80,210 |   |
| 8.25% Convertible debentures ($1,000 per debenture) |   |           | 39,580     |   |              |   | 39,648     |                 |   |   | 39,648 |   |

| ·   | Property, Plant and Equipment (‘‘PP&E’’) – Equal will apply the exemption that allows entities that follow the Canadian GAAP full cost accounting guideline to allocate their historic net PP&E to Cash Generating Units (‘‘CGU’s’’) on the date of transition.  Equal has allocated the PP&E into five Cash Generating Units (“CGUs”) in Canada and one CGU in the United States, based on proved plus probable reserve volumes as at January 1, 2010. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Business Combinations – IFRS 1 provides an optional exemption to the requirement to retroactively restate any past business combinations recorded under Canadian GAAP.  Equal will apply this exemption and therefore will not be retroactively restating past business combinations. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Borrowing Costs – Equal will apply the IFRS 1 exemption which allows an entity to be exempt from capitalizing interest on qualifying assets where active development commenced before January 1, 2010. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Cumulative Translation Adjustment (‘‘CTA’’) – IFRS 1 provides an optional exemption to the requirement to retroactively restate CTA and allows entities to set CTA to zero at the date of transition.  Equal will apply this exemption and set CTA to zero at January 1, 2010 which will result in an increase to the accumulated deficit of approximately $22.5 million. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Exploration and Evaluation (“E&E”) expenditures – Upon transition to IFRS, Equal will reclassify all E&E expenditures that are currently recognized as PP&E to E&E assets.  This consists of the carrying value of certain undeveloped land that relates to exploration properties.  E&E assets will not be amortized and must be assessed for impairment when indicators suggest the possibility of impairment as well as upon transition to PP&E.  Equal has identified approximately $4.8 million of its property, plant and equipment that meets the criteria to be classified as E&E in the opening balance sheet prepared under IFRS as at January 1, 2010. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Impairment of PP&E assets – Canadian GAAP generally uses a two-step approach to impairment testing; first comparing asset carrying values with undiscounted future cash flows to determine whether an impairment exists, and then measuring impairment by comparing asset carrying values to their fair value (which is calculated using discounted cash flows).  Under Canadian GAAP, Equal includes all assets in one of two full cost pools, being Canada and the United States. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Calculation of depletion expense for PP&E assets – Upon transition to IFRS, Equal has the option to calculate depletion using a reserve base of proved reserves or proved plus probable reserves, as compared to the Canadian GAAP method of calculating depletion using proved reserves only.  Equal plans to determine its depletion expense using proved plus probable reserves as its depletion base. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Equal’s former trust indenture – Under IFRS, prior to Equal converting to a corporate structure from a trust structure, Equal’s former trust indenture required that its unitholders’ capital be classified as long-term debt on the balance sheet.  Under Canadian GAAP, the unitholders’ capital was classified as equity.  At January 1, 2010, unitholders’ capital of $674.1 million is classified as long-term debt. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Unit issue costs – Under IFRS, since Equal’s former trust units were classified as long-term debt, the unit issue costs are amortized over the period of the debt.  At January 1, 2010, unitholders’ capital was increased by $8.8 million to reflect the amortization of the unit issue costs with the offset recorded to opening retained earnings (accumulated deficit). |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Equity-based compensation – Under IFRS, as a result of the trust structure, the Company is required to record its equity-based compensation plans as if they were liability-settled.  As such, under IFRS, the liability is re-valued at each balance sheet date.  Under Canadian GAAP, the equity-based compensation was recorded using the equity-settled method.  At January 1, 2010, the equity-based compensation liability was $1.9 million to reflect the value of Equal’s long-term incentive plans and the $11.1 million contributed surplus balance was eliminated with the offsets recorded in opening retained earnings (accumulated deficit). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Convertible debentures – Under IFRS, since Equal’s former trust indenture requires it to record its unitholders’ capital as a long-term liability, it is required to revalue the convertible debentures at each balance sheet date to their fair value.  Under Canadian GAAP, the convertible debentures were bifurcated between their liability and equity components with the liability components subsequently accreted to their face value at maturity.  At January 1, 2010, Equal’s convertible debentures will decrease $0.1 million to $114.8 million as the liabilities are revalued to reflect their fair values and the $4.0 million equity component of the convertible debentures is eliminated with the offsets recorded to opening retained earnings (accumulated deficit). |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Asset retirement obligation – Under IFRS, Equal is required to revalue its entire liability for asset retirement costs at each balance sheet date using a current liability-specific discount rate, which can generally be interpreted to mean the current risk-free rate of interest.  Under Canadian GAAP, obligations are discounted using a credit-adjusted risk-free rate and, once recorded, the asset retirement obligation is not adjusted for future changes in discount rates.  At January 1, 2010, Equal’s total of its asset retirement obligations will increase $3.9 million to $25.0 million as the liability is revalued to reflect the estimated risk free rate of interest at that time of 4.08% with the offset recorded to opening retained earnings (accumulated deficit). |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Deferred taxes – Under IFRS, entities that are subject to different tax rates on distributed and undistributed income must calculate deferred taxes using the undistributed profits rate.  As a result of using the undistributed profits rate and other IFRS adjustments, Equal will record a reduction in its deferred tax liability of $14.6 million upon transition to IFRS with the offset recorded to opening retained earnings (accumulated deficit). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ($ millions)                 |   | Canadian GAAP |   |   | IFRS Adjustments |   |   | IFRS   |   |
|------------------------------|--------|---------------|--------|--------|------------------|--------|--------|--------|--------|
| Current assets               |   |          | 57.5   |   |             |   | -      |   |   |   | 57.5 |   |
| Long-term assets             |   |          | 404.8  |   |             |   | (41.4  | )      |   |   | 363.4 |   |
| Total assets                 |   |          | 462.3  |   |             |   | (41.4  | )      |   |   | 420.9 |   |
|  Current liabilities    |   |          | 28.8   |   |             |   | (0.1   | )      |   |   | 28.7 |   |
| Long-term liabilities        |   |          | 214.5  |   |             |   | 675.2  |   |   |   | 889.7 |   |
| Equity                       |   |          | 219.0  |   |             |   | (716.5 | )      |   |   | (497.5 | ) |
| Total liabilities and equity |   |          | 462.3  |   |             |   | (41.4  | )      |   |   | 420.9 |   |

| ·   | Internal controls over financial reporting (“ICFR”) – Equal is currently in the process of reviewing its ICFR documentation and is identifying instances where controls must be amended or added in order to address the accounting policy changes required under IFRS.  No material changes in control procedures are expected as a result of transition to IFRS. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Disclosure controls and procedures – Equal has assessed the impact of transition to IFRS on its disclosure controls and procedures and has not identified any material changes required in its control environment.  It is expected that there will be increased note disclosure around certain financial statement items than what is currently required under Canadian GAAP.  Equal is currently drafting its IFRS note disclosure in accordance with current IFRS standards and continues to monitor requirements put forth by the IASB in discussion papers and exposure drafts for future disclosure requirements.  Throughout the transition process, Equal has carefully considered its stakeholders’ information requirements and will continue to ensure that adequate and timely information is provided to meet these needs. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Business activities – Equal has been cognizant of the upcoming transition to IFRS and based on the changes to Equal’s accounting policies, no issues are expected to arise with the existing debt covenants and related agreements. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | IT systems – Equal has completed the accounting system updates required in order to prepare for IFRS reporting.  The modifications were not significant, however, deemed critical in order to allow for reporting of both Canadian GAAP and IFRS statements in 2010 as well as the modifications required to track PP&E and E&E expenditures at a more granular level of detail for IFRS reporting. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated revenues, royalties and operating costs on production as at a specific reporting date but for which actual revenues and costs have not yet been received; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated capital expenditures on projects that are in progress; |
|--------------------|------------------------------------------------------------------|

| ·   | estimated depletion, depreciation and accretion that are based on estimates of oil and gas reserves that Equal expects to recover in the future; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated fair values of derivative contracts that are subject to fluctuation depending upon the underlying commodity prices; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated value of asset retirement obligations that are dependent upon estimates of future costs and timing of expenditures; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | outcome of the settlement with the Joint Venture Participant; and |
|--------------------|-------------------------------------------------------------------|

| ·   | estimated future recoverable value of property, plant and equipment. |
|--------------------|----------------------------------------------------------------------|

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| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

| AECO         | a storage and pricing hub for Canadian natural gas market |   | mcf per day   | thousands of cubic feet of natural gas per day               |
|--------------|-----------------------------------------------------------|--------|---------------|--------------------------------------------------------------|
| bbl or bbls  | barrels of oil                                            |   | mmbtu         | millions of British Thermal Shares                           |
| bbls per day | barrels of oil per day                                    |   | mmbtu per day | millions of British Thermal Shares per day                   |
| boe          | barrels of oil equivalent (6 mcf equivalent to 1 bbl)     |   | mmcf          | millions of cubic feet of natural gas                        |
| boe per day  | barrels of oil equivalent per day                         |   | Mwh           | megawatt-hour                                                |
| Cdn$         | Canadian dollars                                          |   | NGL           | natural gas liquids (ethane, propane, butane and condensate) |
| FD&A     | Finding Development & Acquisition Costs               |   | NI 51-101     | National Instrument 51-101                                   |
| FDC          | Future Development Costs                                  |   | NYMEX         | New York Mercantile Exchange                                 |
| GAAP         | Canadian Generally Accepted Accounting Principles         |   | Q1            | first quarter of the year - January 1 to March 31            |
| GJ           | Gigajoule                                                 |   | Q2            | second quarter of the year - April 1 to June 30              |
| GORR         | Gross overriding royalty                                  |   | Q3            | third quarter of the year - July 1 to September 30           |
| LNG          | Liquefied Natural Gas                                     |   | Q4            | fourth quarter of the year - October 1 to December 31        |
| mbbl         | thousand barrels of oil                                   |   | US$           | United States dollars                                        |
| mboe         | thousands of barrels of oil equivalent                    |   | WTI           | West Texas Intermediate (oil reference price)                |
| mcf          | thousand cubic feet of natural gas                        |   |          |                                                         |

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