| /s/ T.S. Granger                        | /s/ C.W. Leigh Cassidy       |
|-----------------------------------------|------------------------------|
| T.S. Granger, P.Eng.                    | C.W. Leigh Cassidy, CA CFA   |
| President & Chief Executive Officer | Vice President Finance & |
|                                    | Chief Financial Officer      |

----

| Calgary, Canada   | /s/ ‘Grant Thornton LLP’ |
|-------------------|--------------------------------------|
| February 24, 2011 | Chartered Accountants                |

----

----

| Calgary, Canada   | /s/ ‘Grant Thornton LLP’ |
|-------------------|--------------------------------------|
| February 24, 2011 | Chartered Accountants                |

----

----

----

| As at December 31,                              |   | 2010   |      |   | 2009   |   |
|-------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                            |   |   |      |   |   |   |
| Assets                                          |   |   |      |   |   |   |
|                                            |   |   |      |   |   |   |
| Current                                         |   |   |      |   |   |   |
| Accounts receivable                             |   | $      | 29,515    |   |   | $      | 37,389 |   |
| Risk management asset, note 14(b)               |   |   | 8,041     |   |   |   | 198 |   |
| Other current assets                            |   |   | 4,812     |   |   |   | 14,287 |   |
| Future income taxes, note 16                    |   |   | 31        |   |   |   | 12 |   |
|                                            |   |   |      |   |   |   |   |   |
|                                            |   |   | 42,399    |   |   |   | 51,886 |   |
|                                            |   |   |      |   |   |   |   |   |
| Property and equipment, note 3                  |   |   | 1,339,310 |   |   |   | 1,944,196 |   |
| Other assets                                    |   |   | 805       |   |   |   | 679 |   |
|                                            |   |   |      |   |   |   |   |   |
|                                            |   | $      | 1,382,514 |   |   | $      | 1,996,761 |   |
|                                            |   |   |      |   |   |   |   |   |
| Liabilities                                     |   |   |      |   |   |   |   |   |
| Current                                         |   |   |      |   |   |   |   |   |
| Accounts payable                                |   | $      | 55,512    |   |   | $      | 58,970 |   |
| Credit facility, note 4                         |   |   | 145,584   |   |   |   | 107,183 |   |
| Senior term notes, note 5                       |   |   | 44,757    |   |   |   | - |   |
| Risk management liability, note 14(b)           |   |   | 116       |   |   |   | 94 |   |
| MPP term financing, note 6                      |   |   | 11,098    |   |   |   | 4,601 |   |
| Future income taxes, note 16                    |   |   | 2,131     |   |   |   | 58 |   |
|                                            |   |   |      |   |   |   |   |   |
|                                            |   |   | 259,198   |   |   |   | 170,906 |   |
|                                            |   |   |      |   |   |   |   |   |
| Senior term notes, note 5                       |   |   | 192,455   |   |   |   | 461,741 |   |
| Risk management liability, note 14(b)           |   |   | -         |   |   |   | 1,331 |   |
| MPP term financing, note 6                      |   |   | 34,522    |   |   |   | 46,807 |   |
| Asset retirement obligations, note 8            |   |   | 60,551    |   |   |   | 41,812 |   |
| Future income taxes, note 16                    |   |   | 165,569   |   |   |   | 277,728 |   |
|                                            |   |   |      |   |   |   |   |   |
|                                            |   |   | 712,295   |   |   |   | 1,000,325 |   |
|                                            |   |   |      |   |   |   |   |   |
| Non-controlling interest, note 6                |   |   | 6,184     |   |   |   | 4,199 |   |
|                                            |   |   |      |   |   |   |   |   |
| Shareholders’ equity                      |   |   |      |   |   |   |   |   |
| Capital stock, note 9                           |   |   | 386,714   |   |   |   | 386,706 |   |
| Share purchase warrants, note 9(c)              |   |   | 13,800    |   |   |   | 13,800 |   |
| Contributed surplus, note 11(b)                 |   |   | 38,748    |   |   |   | 36,104 |   |
| Retained earnings                               |   |   | 224,773   |   |   |   | 555,627 |   |
|                                            |   |   |      |   |   |   |   |   |
|                                            |   |   | 664,035   |   |   |   | 992,237 |   |
| Commitments and contingent liabilities, note 19 |   |   |      |   |   |   |   |   |
| Subsequent event, note 19(c)                    |   |   |      |   |   |   |   |   |
|                                            |   | $      | 1,382,514 |   |   | $      | 1,996,761 |   |

| /s/ M.F. Belich, Q.C. (signed) | /s/ J. Stephens Allan, C.A. (signed) |
|--------------------------------|--------------------------------------|
| Director                       | Director                             |

----

----

----

| Years ended December 31,                                  |   | 2010   |     |   | 2009   |   |    | 2008   |   |
|-----------------------------------------------------------|--------|--------|----------|--------|--------|--------|---------|--------|--------|
|                                                      |   |   |     |   |   |   |    |   |   |
| Revenue                                                   |   |   |     |   |   |   |    |   |   |
| Oil and natural gas revenues                              |   | $      | 216,069  |   |   | $      | 227,876 |   |   | $ | 610,298 |   |
| Royalties                                                 |   |   | (30,042  | )      |   |   | (27,674 | )      |   |   | (119,924 | ) |
|                                                      |   |   | 186,027  |   |   |   | 200,202 |   |   |   | 490,374 |   |
| Expenses                                                  |   |   |     |   |   |   |    |   |   |   |   |   |
| Operating                                                 |   |   | 66,134   |   |   |   | 84,554  |   |   |   | 112,723 |   |
| Transportation                                            |   |   | 6,901    |   |   |   | 7,759   |   |   |   | 9,860 |   |
| Administrative                                            |   |   | 22,702   |   |   |   | 28,611  |   |   |   | 31,015 |   |
| Stock-based compensation, note 11(d)                      |   |   | 3,662    |   |   |   | 4,147   |   |   |   | 9,574 |   |
| Interest and finance charges, note 12                     |   |   | 48,709   |   |   |   | 56,886  |   |   |   | 60,911 |   |
| Foreign exchange and other (gains) losses,note 13         |   |   | (28,885  | )      |   |   | (84,810 | )      |   |   | 113,782 |   |
| Risk management gain, note 14(c)                          |   |   | (21,165  | )      |   |   | (20,473 | )      |   |   | (21,539 | ) |
| Depletion and depreciation, note 3                        |   |   | 502,878  |   |   |   | 134,710 |   |   |   | 157,973 |   |
| Accretion of asset retirement obligations, note 8         |   |   | 4,264    |   |   |   | 3,242   |   |   |   | 3,142 |   |
| Other expenses, note 17                                   |   |   | 19,873   |   |   |   | 4,816   |   |   |   | 35,490 |   |
| Goodwill written-off                                      |   |   | -        |   |   |   | 9,933   |   |   |   | - |   |
|                                                      |   |   | 625,073  |   |   |   | 229,375 |   |   |   | 512,931 |   |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Earnings (loss) before taxes and non-controlling interest |   |   | (439,046 | )      |   |   | (29,173 | )      |   |   | (22,557 | ) |
| Income taxes, note 16                                     |   |   |     |   |   |   |    |   |   |   |   |   |
| Current                                                   |   |   | 10       |   |   |   | 94      |   |   |   | 36 |   |
| Future                                                    |   |   | (110,187 | )      |   |   | (24,196 | )      |   |   | 14,788 |   |
|                                                      |   |   | (110,177 | )      |   |   | (24,102 | )      |   |   | 14,824 |   |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Earnings (loss) before non-controlling interest           |   |   | (328,869 | )      |   |   | (5,071  | )      |   |   | (37,381 | ) |
| Non-controlling interest, note 6                          |   |   | 1,985    |   |   |   | 3,259   |   |   |   | 5,622 |   |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Net earnings (loss) and comprehensive income              |   | $      | (330,854 | )      |   | $      | (8,330  | )      |   | $ | (43,003 | ) |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Net earnings (loss) per share, note 10                    |   |   |     |   |   |   |    |   |   |   |   |   |
| Basic                                                     |   | $      | (1.26    | )      |   | $      | (0.05   | )      |   | $ | (0.33 | ) |
| Diluted                                                   |   | $      | (1.26    | )      |   | $      | (0.05   | )      |   | $ | (0.33 | ) |

----

----

| Years ended December 31,             |   | 2010   |     |   | 2009   |   |    | 2008   |   |
|--------------------------------------|--------|--------|----------|--------|--------|--------|---------|--------|--------|
|                                 |   |   |     |   |   |   |    |   |   |
| Retained earnings, beginning of year |   | $      | 555,627  |   |   | $      | 563,957 |   |   | $ | 609,852 |   |
| Net earnings (loss)                  |   |   | (330,854 | )      |   |   | (8,330  | )      |   |   | (43,003 | ) |
| Premium on redemption of shares      |   |   | -        |   |   |   | -       |   |   |   | (2,892 | ) |
|                                 |   |   |     |   |   |   |    |   |   |   |   |   |
| Retained earnings, end of year       |   | $      | 224,773  |   |   | $      | 555,627 |   |   | $ | 563,957 |   |

----

----

----

| Years ended December 31,                             |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                                 |   |   |     |   |   |   |     |   |   |
| Operating activities                                 |   |   |     |   |   |   |     |   |   |
| Net earnings (loss)                                  |   | $      | (330,854 | )      |   | $      | (8,330   | )      |   | $ | (43,003 | ) |
| Stock-based compensation                             |   |   | 2,647    |   |   |   | 2,921    |   |   |   | 8,826 |   |
| Unrealized foreign exchange and other (gains) losses |   |   | (19,361  | )      |   |   | (80,100  | )      |   |   | 106,425 |   |
| Unrealized risk management (gain) loss               |   |   | (9,151   | )      |   |   | 9,510    |   |   |   | (2,546 | ) |
| Depletion and depreciation                           |   |   | 502,878  |   |   |   | 134,710  |   |   |   | 157,973 |   |
| Interest, financing charges and other                |   |   | 5,339    |   |   |   | (1,123   | )      |   |   | 7,422 |   |
| Accretion of asset retirement obligations            |   |   | 4,264    |   |   |   | 3,242    |   |   |   | 3,142 |   |
| Asset retirement expenditure                         |   |   | (14,647  | )      |   |   | (4,387   | )      |   |   | (2,768 | ) |
| Future income taxes                                  |   |   | (110,187 | )      |   |   | (24,196  | )      |   |   | 14,788 |   |
| Goodwill written-off                                 |   |   | -        |   |   |   | 9,933    |   |   |   | - |   |
| Non-controlling interest                             |   |   | 1,985    |   |   |   | 3,259    |   |   |   | 5,622 |   |
|                                                 |   |   | 32,913   |   |   |   | 45,439   |   |   |   | 255,881 |   |
| Change in non-cash working capital, note 18          |   |   | 8,191    |   |   |   | (16,605  | )      |   |   | 44,350 |   |
|                                                 |   |   |     |   |   |   |     |   |   |   |   |   |
|                                                 |   |   | 41,104   |   |   |   | 28,834   |   |   |   | 300,231 |   |
|                                                 |   |   |     |   |   |   |     |   |   |   |   |   |
| Financing activities                                 |   |   |     |   |   |   |     |   |   |   |   |   |
| Issuance of senior term notes                        |   |   | 242,054  |   |   |   | -        |   |   |   | - |   |
| Extinguishment of senior term notes                  |   |   | (449,123 | )      |   |   | -        |   |   |   | - |   |
| Credit facility draw (repayment)                     |   |   | 39,821   |   |   |   | (182,218 | )      |   |   | (109,025 | ) |
| Proceeds from share issuances, net                   |   |   | 5        |   |   |   | 159,890  |   |   |   | 7,267 |   |
| MPP term financing repayment                         |   |   | (5,788   | )      |   |   | (3,592   | )      |   |   | - |   |
| Distributions to partner                             |   |   | -        |   |   |   | (3,822   | )      |   |   | (9,172 | ) |
| Repurchase of common shares                          |   |   | -        |   |   |   | (200     | )      |   |   | (8,846 | ) |
|                                                 |   |   | (173,031 | )      |   |   | (29,942  | )      |   |   | (119,776 | ) |
| Investing activities                                 |   |   |     |   |   |   |     |   |   |   |   |   |
| Property and equipment additions                     |   |   | (42,729  | )      |   |   | (53,344  | )      |   |   | (325,530 | ) |
| Acquisition of leased property                       |   |   | (3,580   | )      |   |   | (14,973  | )      |   |   | - |   |
| Property acquisitions                                |   |   | -        |   |   |   | (304     | )      |   |   | (10,940 | ) |
| Property dispositions                                |   |   | 152,992  |   |   |   | 9,241    |   |   |   | 202,892 |   |
| Royalty dispositions                                 |   |   | 23,469   |   |   |   | 77,816   |   |   |   | - |   |
| Change in non-cash working capital, note 18          |   |   | 1,775    |   |   |   | (21,220  | )      |   |   | (51,650 | ) |
|                                                 |   |   |     |   |   |   |     |   |   |   |   |   |
|                                                 |   |   | 131,927  |   |   |   | (2,784   | )      |   |   | (185,228 | ) |
|                                                 |   |   |     |   |   |   |     |   |   |   |   |   |
| Change in cash                                       |   |   | -        |   |   |   | (3,892   | )      |   |   | (4,773 | ) |
|                                                 |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash, beginning of year                              |   |   | -        |   |   |   | 3,892    |   |   |   | 8,665 |   |
|                                                 |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash, end of year                                    |   | $      | -        |   |   | $      | -        |   |   | $ | 3,892 |   |

----

----

----

| 1.  | BASIS OF PRESENTATION |
|----------|-----------------------|

| 2.  | SIGNIFICANT ACCOUNTING POLICIES |
|----------|---------------------------------|

| (a)  | Measurement uncertainty |
|-----------|-------------------------|

----

| (b)  | Property and equipment |
|-----------|------------------------|

|   | (i)  | Capitalized costs |
|--------|-----------|-------------------|

|   | (ii)  | Depletion and depreciation |
|--------|------------|----------------------------|

|   | (iii)  | Impairment test |
|--------|-------------|-----------------|

|   | (iv)  | Asset retirement obligations |
|--------|------------|------------------------------|

----

| (c)  | Goodwill |
|-----------|----------|

| (d)  | Financial instruments and derivatives |
|-----------|---------------------------------------|

----

| (e)  | Joint operations |
|-----------|------------------|

| (f)  | Per share amounts |
|-----------|-------------------|

| (g)  | Income taxes |
|-----------|--------------|

| (h)  | Revenue recognition |
|-----------|---------------------|

| (i)  | Stock-based compensation plan |
|-----------|-------------------------------|

| (j)  | Restricted share unit plan |
|-----------|----------------------------|

| (k)  | Foreign currency translation |
|-----------|------------------------------|

----

| (l)  | Defined benefit pension plan |
|-----------|------------------------------|

| (m)  | Cash and cash equivalents |
|-----------|---------------------------|

| (n)  | International Financial Reporting Standards (“IFRS”) |
|-----------|------------------------------------------------------------------|

| 3.  | PROPERTY AND EQUIPMENT |
|----------|------------------------|

|    As at December 31, 2010      |   |   Cost |      |   | Accumulateddepletionanddepreciation |   |       |   Net |   |
|------------------------------------------------|--------|------------------|-----------|--------|-------------------------------------|--------|------------|-----------------|--------|
|                                           |   |             |      |   |                                |   |       |            |   |
| Exploration and development costs              |   | $                | 2,084,456 |   |                                | $      | (1,296,926 | )               |   | $ | 787,530 |   |
| Production equipment and processing facilities |   |             | 711,616   |   |                                |   | (196,237   | )               |   |   | 515,379 |   |
| Future asset retirement costs                  |   |             | 33,148    |   |                                |   | (7,292     | )               |   |   | 25,856 |   |
| Office leaseholds and equipment                |   |             | 23,993    |   |                                |   | (13,448    | )               |   |   | 10,545 |   |
|                                           |   |             |      |   |                                |   |       |            |   |   |   |   |
|                                           |   | $                | 2,853,213 |   |                                | $      | (1,513,903 | )               |   | $ | 1,339,310 |   |

|  As at December 31, 2009                  |   | Cost   |      |   | Accumulateddepletionanddepreciation |   |       | Net    |   |
|------------------------------------------------|--------|--------|-----------|--------|-------------------------------------|--------|------------|--------|--------|
|                                           |   |   |      |   |                                |   |       |   |   |
| Exploration and development costs              |   | $      | 2,184,035 |   |                                | $      | (829,162   | )      |   | $ | 1,354,873 |   |
| Production equipment and processing facilities |   |   | 728,386   |   |                                |   | (165,109   | )      |   |   | 563,277 |   |
| Future asset retirement costs                  |   |   | 18,672    |   |                                |   | (6,182     | )      |   |   | 12,490 |   |
| Office leaseholds and equipment                |   |   | 24,128    |   |                                |   | (10,572    | )      |   |   | 13,556 |   |
|                                           |   |   |      |   |                                |   |       |   |   |   |   |   |
|                                           |   | $      | 2,955,221 |   |                                | $      | (1,011,025 | )      |   | $ | 1,944,196 |   |

----

| Years ended December 31,                |   | 2010   |    |   | 2009   |   |
|-----------------------------------------|--------|--------|---------|--------|--------|--------|
|                                    |   |   |    |   |   |   |
| Future capital expenditures             |   | $      | 171,000 |   |   | $      | 152,700 |   |
| Undeveloped properties                  |   |   | (69,100 | )      |   |   | (69,900 | ) |
| Estimated salvage values                |   |   | (97,800 | )      |   |   | (124,500 | ) |
|                                    |   |   |    |   |   |   |   |   |
| Total net additional (deductible) costs |   | $      | 4,100   |   |   | $      | (41,700 | ) |

|    As at December 31, 2010 |   | NaturalGas(AECO C)$ per MMbtu |   |   | Crude Oil(Edmontonpar 40 API)$ per bbl |   |   |  NGL$ per bbl |   |
|-------------------------------------------|--------|-------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------|--------|
|                                      |   |                          |   |   |                                   |   |   |               |   |
| 2011                                      |   |                          | 4.16   |   |                                   |   | 86.22  |               |   |   | 90.54 |   |
| 2012                                      |   |                          | 4.74   |   |                                   |   | 89.29  |               |   |   | 91.96 |   |
| 2013                                      |   |                          | 5.31   |   |                                   |   | 90.92  |               |   |   | 92.74 |   |
| 2014                                      |   |                          | 5.77   |   |                                   |   | 96.19  |               |   |   | 94.82 |   |
| Approximate % increase thereafter         |   |                          | 2.0    | %      |                                   |   | 2.0    | %                  |   |   | 2.0 | % |

| 4.  | CREDIT FACILITY |
|----------|-----------------|

| As at December 31,                   |   | 2010   |    |   | 2009   |   |
|--------------------------------------|--------|--------|---------|--------|--------|--------|
|                                 |   |   |    |   |   |   |
| Authorized credit facility           |   | $      | 170,000 |   |   | $      | 220,000 |   |
|                                 |   |   |    |   |   |   |   |   |
| Prime rate loans                     |   | $      | -       |   |   | $      | 37,000 |   |
| Bankers’ acceptance term loans |   |   | 144,700 |   |   |   | 70,000 |   |
| Prime rate revolving credit          |   |   | 2,576   |   |   |   | 1,462 |   |
| Unamortized transaction costs        |   |   | (1,692  | )      |   |   | (1,279 | ) |
|                                 |   |   |    |   |   |   |   |   |
| Advances under the credit facility   |   | $      | 145,584 |   |   | $      | 107,183 |   |
|                                 |   |   |    |   |   |   |   |   |

----

| 5.  | SENIOR TERM NOTES |
|----------|-------------------|

| As at December 31,                                 |   | 2010   |    |   | 2009   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                               |   |   |    |   |   |   |
| US$193.5 million, 10.00% due September 15, 2017(1) |   | $      | 192,455 |   |   | $      | - |   |
| US$45.0 million, 10.00% due September 15, 2011(1)  |   |   | 44,757  |   |   |   | - |   |
| US$450.0 million, 7.625% due December 1, 2013      |   |   | -       |   |   |   | 470,970 |   |
| Unamortized transaction costs                      |   |   | -       |   |   |   | (9,229 | ) |
|                                               |   |   |    |   |   |   |   |   |
| Carrying value                                     |   | $      | 237,212 |   |   | $      | 461,741 |   |
|                                               |   |
| Current                                            |   | $      | 44,757  |   |   | $      | - |   |
| Non-current                                        |   |   | 192,455 |   |   |   | 461,741 |   |
|                                               |   |   |    |   |   |   |   |   |
| Senior Term Notes                                  |   | $      | 237,212 |   |   | $      | 461,741 |   |

| (1) | Arrangement transaction costs of $10.8 million have been expensed and reduce the gain recognized on the 2013 Senior Term Notes extinguished |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a)  | US$193.5 million 10% notes due September 15, 2017 (the “2017 Senior Notes”); |
|--------|-----------|------------------------------------------------------------------------------------------|

|   | (b)  | US$45.0 million 10% notes due September 15, 2011 (the “2011 Mandatory Convertible Notes”); and |
|--------|-----------|------------------------------------------------------------------------------------------------------------|

|   | (c)  | US$184.5 million of cash, in part funded by a draw of $145.0 million from the Facility. |
|--------|-----------|-----------------------------------------------------------------------------------------|

| 2013 Senior Term Notes           | 8.15%  |   |
|----------------------------------|--------|--------|
|                             |   |   |
| 2011 Mandatory Convertible Notes | 10.00% |   |
|                             |   |   |
| 2017 Senior Term Notes           | 10.00% |   |

| October 18, 2010 to September 14, 2014   | 110.00% |   |
|------------------------------------------|---------|--------|
|                                     |    |   |
| September 15, 2014 to September 14, 2015 | 105.00% |   |
|                                     |    |   |
| September 15, 2015 to September 14, 2016 | 102.50% |   |
|                                     |    |   |
| September 15, 2016 to maturity           | 100.00% |   |

|   | (a)  | Prior to maturity: |
|--------|-----------|--------------------|

|   | (i)  | for cash; |
|--------|-----------|-----------|

----

|   | (ii)  | in whole or in part by application of the net proceeds of equity offerings; or |
|--------|------------|--------------------------------------------------------------------------------|

|   | (iii)  | at the option of the Corporation by conversion into the common shares of the Corporation based on a share price equal to 95% of the volume weighted average trading price per common share on the Toronto Stock Exchange for the 20 consecutive trading days ending on the third business day prior to the redemption date (the “Current Market Price”). |
|--------|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b)  | At maturity on September 15, 2011 by exchange of the principal amount plus accrued and unpaid interest with Common Shares of the Corporation, at the Current Market Price, for an equivalent amount. |
|--------|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6.  | MPP TERM FINANCING AND NON-CONTROLLING INTEREST |
|----------|-------------------------------------------------|

|   | (a)  | Compton’s management of the midstream facility; |
|--------|-----------|-------------------------------------------------------|

|   | (b)  | the payment by Compton to MPP of a base processing fee and the reimbursement of MPP’s net out-of-pocket costs; |
|--------|-----------|----------------------------------------------------------------------------------------------------------------------|

|   | (c)  | the dedication of Compton’s production and reserves from the defined area through the facilities; and |
|--------|-----------|-------------------------------------------------------------------------------------------------------------|

|   | (d)  | an option granted to Compton to purchase the MPP partnership at a predetermined amount on April 30, 2014. |
|--------|-----------|-----------------------------------------------------------------------------------------------------------|

| As at December 31,                                |   | 2010   |   |   | 2009   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |
| Non-controlling interest, beginning of year       |   | $      | 4,199  |   |   | $      | 59,762 |   |
| Earnings attributable to non-controlling interest |   |   | 1,985  |   |   |   | 3,259 |   |
| Distributions to limited partner                  |   |   | -      |   |   |   | (3,822 | ) |
| MPP term financing                                |   |   | -      |   |   |   | (55,000 | ) |
|                                              |   |   |   |   |   |   |   |   |
| Non-controlling interest, end of year             |   | $      | 6,184  |   |   | $      | 4,199 |   |

----

| As at December 31,                       |   | 2010   |   |   | 2009   |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                     |   |   |   |   |   |   |
| Present value of the base processing fee |   | $      | 19,552 |   |   | $      | 24,287 |   |
| Purchase option                          |   |   | 26,588 |   |   |   | 27,800 |   |
| Unamortized transaction costs            |   |   | (520   | )      |   |   | (679 | ) |
|                                     |   |   |   |   |   |   |   |   |
| MPP term financing                       |   | $      | 45,620 |   |   | $      | 51,408 |   |

| 7.  | CAPITAL STRUCTURE |
|----------|-------------------|

|   | (a)  | ensure the Corporation can meet its financial obligations; |
|--------|-----------|------------------------------------------------------------|

|   | (b)  | maintain an appropriate leverage relative to the risk of Compton’s underlying assets; and |
|--------|-----------|-------------------------------------------------------------------------------------------------|

|   | (c)  | finance internally generated growth and potential acquisitions. |
|--------|-----------|-----------------------------------------------------------------|

----

| As at December 31,                           |   | 2010   |      |   | 2009   |   |
|----------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Working capital (surplus) deficiency(1)      |   | $      | 21,185    |   |   | $      | 7,294 |   |
| Credit facility(2)                           |   |   | 145,584   |   |   |   | 107,183 |   |
| MPP term financing(3)                        |   |   | 45,620    |   |   |   | 51,408 |   |
| Senior term notes(4)                         |   |   | 237,212   |   |   |   | 461,741 |   |
| Total net debt                               |   |   | 449,601   |   |   |   | 627,626 |   |
| Total shareholders’ equity             |   |   | 664,035   |   |   |   | 992,237 |   |
|                                         |   |   |      |   |   |   |   |   |
| Total capitalization                         |   | $      | 1,113,636 |   |   | $      | 1,619,863 |   |
|                                         |   |   |      |   |   |   |   |   |
| Total net debt to total capitalization ratio |   |   | 40.4      | %      |   |   | 38.7 | % |

| (1)   Adjusted working capital excludes risk management, future income taxes, current MPP term financing and Facility(2)   Includes unamortized transaction costs of $1,692 (2009 – $1,279)(3)   Includes unamortized financing fees of $520 (2009 – $679)(4)   Includes unamortized original issue discount and related transaction costs of $nil (2009 – $9,229) |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| As at December 31,                             |   | 2010   |     |   | 2009   |   |
|------------------------------------------------|--------|--------|----------|--------|--------|--------|
|                                           |   |   |     |   |   |   |
| Total net debt                                 |   | $      | 449,601  |   |   | $      | 627,626 |   |
|                                           |   |   |     |   |   |   |   |   |
|                                           |   |   |     |   |   |   |   |   |
| 12 months ended December 31,                   |   |   | 2010     |   |   |   | 2009 |   |
|                                           |   |   |     |   |   |   |   |   |
| Net earnings (loss)                            |   | $      | (330,854 | )      |   | $      | (8,330 | ) |
| Add (deduct)                                   |   |   |     |   |   |   |   |   |
| Interest and finance charges                   |   |   | 48,709   |   |   |   | 56,886 |   |
| Income taxes                                   |   |   | (110,177 | )      |   |   | (24,102 | ) |
| Depletion and depreciation                     |   |   | 502,878  |   |   |   | 134,710 |   |
| Accretion of asset retirement obligations      |   |   | 4,264    |   |   |   | 3,242 |   |
| Unrealized foreign exchange and (gains) losses |   |   | (4,842   | )      |   |   | (80,100 | ) |
| Unrealized risk management (gains) losses      |   |   | (9,151   | )      |   |   | 9,510 |   |
| Other expenses                                 |   |   | 19,873   |   |   |   | 4,816 |   |
| Goodwill written-off                           |   |   | -        |   |   |   | 9,933 |   |
|                                           |   |   |     |   |   |   |   |   |
| Adjusted EBITDA                                |   | $      | 120,700  |   |   | $      | 106,565 |   |
|                                           |   |   |     |   |   |   |   |   |
| Total net debt to Adjusted EBITDA              |   |   | 3.7      | x      |   |   | 5.9 | x |

| 8.  | ASSET RETIREMENT OBLIGATIONS |
|----------|------------------------------|

| As at December 31,                              |   | 2010   |    |   | 2009   |   |
|-------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                            |   |   |    |   |   |   |
| Asset retirement obligations, beginning of year |   | $      | 41,812  |   |   | $      | 34,281 |   |
| Obligations incurred                            |   |   | 5,334   |   |   |   | 285 |   |
| Obligations settled and disposed                |   |   | (11,873 | )      |   |   | (9 | ) |
| Accretion expense                               |   |   | 4,264   |   |   |   | 3,242 |   |
| Revision of estimate                            |   |   | 21,014  |   |   |   | 4,013 |   |
|                                            |   |   |    |   |   |   |   |   |
| Asset retirement obligations, end of year       |   | $      | 60,551  |   |   | $      | 41,812 |   |

----

| 9.  | CAPITAL STOCK |
|----------|---------------|

| (a)  | Authorized |
|-----------|------------|

| (b)  | Issued and outstanding |
|-----------|------------------------|

| As at December 31,                     |   | 2010           |    |   | 2009         |   |
|----------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                   |   | NumberofShares |    |   |  Amount |   |   | NumberofShares |   |   |  Amount |   |
|                                   |   |           |    |   |         |   |   |   |   |   |   |   |
| Common shares outstanding,             |   |           |    |   |         |   |   |   |   |   |   |   |
| beginning of year                      |   |           | 263,573 |   |         | $      | 386,706 |   |   |   | 125,760 |   |   | $ | 237,703 |   |
| Shares issued under public offering(1) |   |           | -       |   |         |   | - |   |   |   | 138,000 |   |   |   | 149,357 |   |
| Shares issued for services             |   |           | -       |   |         |   | - |   |   |   | - |   |   |   | - |   |
| Shares issued under stock option plan  |   |           | 6       |   |         |   | 8 |   |   |   | - |   |   |   | - |   |
| Shares repurchased                     |   |           | -       |   |         |   | - |   |   |   | (187 | ) |   |   | (354 | ) |
|                                   |   |           |    |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Common shares outstanding,             |   |           |    |   |         |   |   |   |   |   |   |   |   |   |   |   |
| end of year                            |   |           | 263,579 |   |         | $      | 386,714 |   |   |   | 263,573 |   |   | $ | 386,706 |   |

|   | (1)  | Net of share issue costs of $12.7 million, and $13.8 million ascribed to the value of the share purchase warrants, less future income tax benefits of $3.3 million |
|--------|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c)  | Share purchase warrants |
|-----------|-------------------------|

| (d)  | Mandatory convertible notes |
|-----------|-----------------------------|

| (e)  | Shareholder rights plan |
|-----------|-------------------------|

----

| 10.  | PER SHARE AMOUNTS |
|-----------|-------------------|

| Years ended December 31,       |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|--------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                           |   |   |    |   |   |   |    |   |   |
| Weighted average common shares |   |   |    |   |   |   |    |   |   |
| outstanding – basic      |   |   | 263,579 |   |   |   | 158,846 |   |   |   | 129,500 |   |
| Effect of stock options        |   |   | 6       |   |   |   | 327     |   |   |   | 2,531 |   |
|                           |   |   |    |   |   |   |    |   |   |   |   |   |
| Weighted average common shares |   |   |    |   |   |   |    |   |   |   |   |   |
| outstanding - diluted          |   |   | 263,585 |   |   |   | 159,173 |   |   |   | 132,031 |   |

| 11.  | STOCK-BASED COMPENSATION PLANS |
|-----------|--------------------------------|

| (a)  | Stock option plan |
|-----------|-------------------|

| As at December 31,             |   | 2010               |   |   | 2009                         |   |
|--------------------------------|--------|--------------------|--------|--------|------------------------------|--------|
|                           |   |  Stockoptions |   |   | Weightedaverageexerciseprice |   |   |  Stockoptions |   |   | Weightedaverageexerciseprice |   |
|                           |   |               |   |   |                         |   |   |   |   |   |   |   |
| Outstanding, beginning of year |   |               | 10,750 |   |                         | $      | 4.66 |   |   |   | 11,131 |   |   | $ | 8.07 |   |
| Granted                        |   |               | 7,851  |   |                         | $      | 0.97 |   |   |   | 5,981 |   |   | $ | 1.11 |   |
| Exercised                      |   |               | (6     | )      |                         | $      | 0.86 |   |   |   | - |   |   | $ | - |   |
| Forfeited                      |   |               | (3,555 | )      |                         | $      | 3.53 |   |   |   | (6,362 | ) |   | $ | 7.29 |   |
|                           |   |               |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding, end of year       |   |               | 15,040 |   |                         | $      | 2.50 |   |   |   | 10,750 |   |   | $ | 4.66 |   |
|                           |   |               |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable, end of year       |   |               | 4,378  |   |                         | $      | 5.52 |   |   |   | 4,001 |   |   | $ | 8.50 |   |

----

|                                 |          |   | Outstanding options               |   |   | Exercisable options                             |   |
|--------------------------------------|---------------|--------|-----------------------------------|--------|--------|-------------------------------------------------|--------|
|   Range of exercise prices |          |   |  Number ofoptionsoutstanding |   |   | Weightedaverageremainingcontractuallife (years) |   |   | Weightedaverageexerciseprice |   |   |  Numberoptionsoutstanding |   |   | Weightedaverageexerciseprice |   |
| $                                    | 0.79 - $1.00  |   |                              |   | 8,816  |                                            |   |   | 3.9 |   |   | $ | 0.95 |   |   |   | 597 |   |   | $ | 0.90 |   |
| $                                    | 1.01 - $2.00  |   |                              |   | 3,675  |                                            |   |   | 3.6 |   |   | $ | 1.24 |   |   |   | 1,481 |   |   | $ | 1.19 |   |
| $                                    | 2.01 - $3.00  |   |                              |   | 8      |                                            |   |   | 0.7 |   |   | $ | 2.98 |   |   |   | 8 |   |   | $ | 2.98 |   |
| $                                    | 3.01 - $4.00  |   |                              |   | 259    |                                            |   |   | 1.0 |   |   | $ | 3.87 |   |   |   | 259 |   |   | $ | 3.87 |   |
| $                                    | 4.01 - $17.15 |   |                              |   | 2,282  |                                            |   |   | 1.0 |   |   | $ | 10.33 |   |   |   | 2,033 |   |   | $ | 10.25 |   |
|                                 |          |   |                              |   |   |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                 |          |   |                              |   | 15,040 |                                            |   |   | 3.3 |   |   | $ | 2.50 |   |   |   | 4,378 |   |   | $ | 5.52 |   |

| Years ended December 31,                       |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                           |   |   |   |   |   |   |   |   |   |
| Weighted average fair value of options granted |   | $      | 0.32   |   |   | $      | 0.47   |   |   | $ | 1.20 |   |
| Risk-free interest rate                        |   |   | 2.3    | %      |   |   | 1.7    | %      |   |   | 2.3 | % |
| Expected life (years)                          |   |   | 5.0    |   |   |   | 2.8    |   |   |   | 3.5 |   |
| Expected volatility                            |   |   | 60.0   | %      |   |   | 60.4   | %      |   |   | 53.2 | % |

| As at December 31,                       |   | 2010   |   |   | 2009   |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                     |   |   |   |   |   |   |
| Contributed surplus, beginning of year   |   | $      | 36,104 |   |   | $      | 33,030 |   |
| Stock-based compensation expense         |   |   | 2,647  |   |   |   | 2,921 |   |
| Stock options exercised                  |   |   | (3     | )      |   |   | - |   |
| Excess of book value over purchase price |   |   |   |   |   |   |   |   |
| on normal course issuer bid              |   |   | -      |   |   |   | 153 |   |
|                                     |   |   |   |   |   |   |   |   |
| Contributed surplus, end of year         |   | $      | 38,748 |   |   | $      | 36,104 |   |

| (c)  | Restricted share unit plan |
|-----------|----------------------------|

----

| (d)  | Stock-based compensation expense |
|-----------|----------------------------------|

| Years ended December 31,       |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                           |   |   |   |   |   |   |   |   |   |
| Stock option plan              |   | $      | 2,647  |   |   | $      | 2,921  |   |   | $ | 8,826 |   |
| Share appreciation rights plan |   |   | -      |   |   |   | -      |   |   |   | (970 | ) |
| Employee share purchase plan   |   |   | 1,015  |   |   |   | 1,226  |   |   |   | 1,718 |   |
|                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   | $      | 3,662  |   |   | $      | 4,147  |   |   | $ | 9,574 |   |

| 12.  | INTEREST AND FINANCE CHARGES |
|-----------|------------------------------|

| Years ended December 31,           |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                               |   |   |   |   |   |   |   |   |   |
| Interest on bank debt, net         |   | $      | 4,424  |   |   | $      | 11,268 |   |   | $ | 20,280 |   |
| Interest on senior term notes      |   |   | 34,716 |   |   |   | 41,032 |   |   |   | 38,228 |   |
| Other finance charges              |   |   | 9,569  |   |   |   | 4,586  |   |   |   | 2,403 |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest and finance charges |   | $      | 48,709 |   |   | $      | 56,886 |   |   | $ | 60,911 |   |

| 13.  | FOREIGN EXCHANGE AND OTHER (GAINS) LOSSES |
|-----------|-------------------------------------------|

| Years ended December 31,                                   |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Foreign exchange on translation of US$ debt                |   | $      | (4,842  | )      |   | $      | (80,100 | )      |   | $ | 106,425 |   |
| Foreign exchange and gain on extinguishment of US$ debt(1) |   |   | (23,299 | )      |   |   | -       |   |   |   | - |   |
| Other foreign exchange                                     |   |   | 1,117   |   |   |   | (2,779  | )      |   |   | (82 | ) |
| Other (gains) losses                                       |   |   | (1,861  | )      |   |   | (1,931  | )      |   |   | 7,439 |   |
|                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Foreign exchange and other (gains) losses                  |   | $      | (28,885 | )      |   | $      | (84,810 | )      |   | $ | 113,782 |   |

| (1)  | Includes a settlement gain of $9.0 million relating to the extinguishment of Senior Term Notes |
|-----------|------------------------------------------------------------------------------------------------|

| 14.  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
|-----------|-------------------------------------------|

----

| (a)  | Fair value of financial assets and liabilities |
|-----------|------------------------------------------------|

| As at December 31,             |   | 2010           |    |   | 2009      |   |
|--------------------------------|--------|----------------|---------|--------|-----------|--------|
|                           |   | CarryingAmount |    |   | FairValue |   |   | CarryingAmount |   |   | FairValue |   |
| Financial assets               |   |           |    |   |      |   |   |   |   |   |   |   |
| Held for trading               |   |           |    |   |      |   |   |   |   |   |   |   |
| Other current assets(1)        |   | $              | 4,812   |   |      | $      | 4,812 |   |   | $ | 14,287 |   |   | $ | 14,287 |   |
| Risk management assets(2)      |   | $              | 8,041   |   |      | $      | 8,041 |   |   | $ | 198 |   |   | $ | 198 |   |
| Loans and receivables          |   |           |    |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable            |   | $              | 29,515  |   |      | $      | 29,515 |   |   | $ | 37,389 |   |   | $ | 37,389 |   |
|                           |   |           |    |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities          |   |           |    |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Held for trading               |   |           |    |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Risk management liabilities(2) |   | $              | 116     |   |      | $      | 116 |   |   | $ | 1,425 |   |   | $ | 1,425 |   |
| Other financial liabilities    |   |           |    |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Accounts payable               |   | $              | 55,512  |   |      | $      | 55,512 |   |   | $ | 58,970 |   |   | $ | 58,970 |   |
| Credit facility                |   | $              | 145,584 |   |      | $      | 147,276 |   |   | $ | 107,183 |   |   | $ | 108,462 |   |
| MPP term financing(2)          |   | $              | 45,620  |   |      | $      | 46,140 |   |   | $ | 51,408 |   |   | $ | 52,087 |   |
| Senior term notes              |   | $              | 237,212 |   |      | $      | 202,810 |   |   | $ | 461,741 |   |   | $ | 362,647 |   |

|   | (1)  | Includes royalty deposits and marketable securities |
|--------|-----------|-----------------------------------------------------|

|   | (2)  | Includes current and long term |
|--------|-----------|--------------------------------|

|   | (b)  | Risk management assets and liabilities |
|--------|-----------|----------------------------------------|

|   | (i)  | Net risk management positions |
|--------|-----------|-------------------------------|

| As at December 31,           |   | 2010   |   |   | 2009   |   |
|------------------------------|--------|--------|--------|--------|--------|--------|
| Unrealized gain              |   |   |   |   |   |   |
| Current asset                |   | $      | 8,041  |   |   | $      | 198 |   |
| Unrealized loss              |   |   |   |   |   |   |   |   |
| Current liability            |   |   | (116   | )      |   |   | (94 | ) |
| Non-current liability        |   |   | -      |   |   |   | (1,331 | ) |
|                         |   |   |   |   |   |   |   |   |
| Total unrealized gain (loss) |   | $      | 7,925  |   |   | $      | (1,227 | ) |

----

|   | (ii)  | Net fair value of commodity positions |
|--------|------------|---------------------------------------|

| Commodity                              |   | Term                    |   | NotionalVolume |   | AveragePrice     |   | Mark-to-MarketGain (Loss) |
|----------------------------------------|--------|-------------------------|--------|----------------|--------|------------------|--------|---------------------------|
| Natural Gas                            |   |                    |   |           |   |             |   |                      |   |
| Collar                                 |   | Jul./09 – Jun./11 |   | 30,250 GJ/d    |   | $4.52 - $7.02/GJ |   | $                         | 5,378 |
| Collar                                 |   | Jul./09 – Oct./11 |   | 10,000 GJ/d    |   | $4.50 - $7.00/GJ |   |                      | 2,663 |
| Electricity                            |   |                    |   |           |   |             |   |                      |   |
| Swap                                   |   | Jan./10 – Dec./11 |   | 84 MWh/d       |   | $50.74/MWh       |   |                      | (63) |
|                                   |   |                    |   |           |   |             |   |                      | 7,978 |
| CurrencyUS Dollar Swap                 |   | March 15, 2011          |   | $9.8 million   |   | $1.00            |   |                      | (53) |
|                                   |   |                    |   |           |   |             |   |
| Total unrealized commodity gain (loss) |   |                    |   |           |   | $                | 7,925  |

| Type                   |   | Term                    |   | Volume         |   | AveragePrice      |
|------------------------|--------|-------------------------|--------|----------------|--------|-------------------|
| Commodity              |   |                    |   |           |   |              |
| Natural Gas Swap       |   | Apr./11 – Oct./11 |   | 15,000 MMBtu/d |   | USD $4.64/MMBtu   |
| NYMEX basis            |   | Apr./11 – Oct./11 |   | 15,000 MMBtu/d |   | USD ($0.64)/MMBtu |
|                   |   |                    |   |           |   |              |
| CurrencyUS Dollar Swap |   | Sept. 15, 2011          |   | $9.7 million   |   | $1.00             |

| (c)  | Risk management gains and losses |
|-----------|----------------------------------|

|  Years ended December 31,  |   | CommodityContracts |    |   | ForeignCurrency |   |   | 2010Total |   |   | 2009Total |   |   | 2008Total |    |
|---------------------------------|--------|--------------------|---------|--------|-----------------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|---------|
|                            |   |               |    |   |            |   |   |      |   |   |      |   |   |      |    |
| Unrealized change in fair value |   | $                  | (9,204  | )      |            | $      | 53     |      |   | $      | (9,151    | )      |   | $         | 9,510   |   |   | $ | (2,546 | ) |
| Realized cash settlements       |   |               | (12,014 | )      |            |   | -      |      |   |   | (12,014   | )      |   |      | (29,983 | ) |   |   | (18,993 | ) |
|                            |   |               |    |   |            |   |   |      |   |   |      |   |   |      |    |   |   |   |   |   |
| Total (gain) loss               |   | $                  | (21,218 | )      |            | $      | 53     |      |   | $      | (21,165   | )      |   | $         | (20,473 | ) |   | $ | (21,539 | ) |

| (d)  | Risk associated with financial assets and liabilities |
|-----------|-------------------------------------------------------|

|   | (i)  | Market risk |
|--------|-----------|-------------|

----

----

| 15.  | DEFINED BENEFIT PENSION PLAN |
|-----------|------------------------------|

| As at December 31,                                             |   | 2010   |   |   | 2009   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Accrued benefit obligation                                     |   |   |   |   |   |   |
| Accrued benefit obligation – beginning of year           |   | $      | 7,343  |   |   | $      | 6,087 |   |
| Current service cost                                           |   |   | 222    |   |   |   | 151 |   |
| Interest cost                                                  |   |   | 489    |   |   |   | 455 |   |
| Benefits paid                                                  |   |   | (275   | )      |   |   | (526 | ) |
| Employee contributions                                         |   |   | 93     |   |   |   | 93 |   |
| Actuarial (gain) loss                                          |   |   | 1,301  |   |   |   | 1,082 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Accrued benefit obligation – end of year                 |   | $      | 9,173  |   |   | $      | 7,343 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Fair value of plan assets                                      |   |   |   |   |   |   |   |   |
| Fair value of plan assets – beginning of year            |   | $      | 7,457  |   |   | $      | 6,030 |   |
| Employee contributions                                         |   |   | 93     |   |   |   | 93 |   |
| Employer contributions                                         |   |   | 354    |   |   |   | 517 |   |
| Benefits paid                                                  |   |   | (275   | )      |   |   | (526 | ) |
| Actual return on plan assets                                   |   |   | 1,017  |   |   |   | 1,343 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Fair value of plan assets – end of year                  |   | $      | 8,646  |   |   | $      | 7,457 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Accrued benefit asset                                          |   |   |   |   |   |   |   |   |
| Funded status – plan assets less than benefit obligation |   | $      | (527   | )      |   | $      | 114 |   |
| Unamortized net actuarial (gain) loss                          |   |   | 840    |   |   |   | 5 |   |
| Unamortized past service costs                                 |   |   | 516    |   |   |   | 585 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Accrued benefit asset, included in other assets(1)             |   | $      | 829    |   |   | $      | 704 |   |

| (1)  | Included as a component of other long term assets |
|-----------|---------------------------------------------------|

----

| Years ended December 31,                       |   | 2010   |   |   | 2009   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                           |   |   |   |   |   |   |
| Current service cost                           |   | $      | 206    |   |   | $      | 151 |   |
| Interest on accrued benefit obligation         |   |   | 489    |   |   |   | 455 |   |
| Interest on assets                             |   |   | (551   | )      |   |   | (423 | ) |
| Amortization of past service cost              |   |   | 69     |   |   |   | 69 |   |
|                                           |   |   |   |   |   |   |   |   |
| Pension expense, included in operating expense |   | $      | 213    |   |   | $      | 252 |   |

| Years ended December 31,                              |   | 2010     |   |   | 2009     |   |
|-------------------------------------------------------|--------|----------|--------|--------|----------|--------|
|                                                  |   |     |   |   |     |   |
| Discount rate                                         |   |     | 5.50   | %      |     |   | 6.50 | % |
| Expected rate of return on assets                     |   |     | 7.00   | %      |     |   | 7.25 | % |
| Rate of compensation increase                         |   |     | 3.00   | %      |     |   | 3.00 | % |
| Average remaining service period of covered employees |   | 16 years |   |   | 16 years |   |

----

| 16.  | INCOME TAXES |
|-----------|--------------|

| (a)   | The following table reconciles income taxes calculated at the Canadian statutory rate with actual income taxes: |
|-----------------|-----------------------------------------------------------------------------------------------------------------|

| Years ended December 31,                                  |   | 2010   |     |   | 2009   |   |    | 2008   |   |
|-----------------------------------------------------------|--------|--------|----------|--------|--------|--------|---------|--------|--------|
|                                                      |   |   |     |   |   |   |    |   |   |
| Earnings (loss) before taxes and non-controlling interest |   | $      | (439,046 | )      |   | $      | (29,173 | )      |   | $ | (22,557 | ) |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Canadian statutory rates                                  |   |   | 28       | %      |   |   | 29.0    | %      |   |   | 29.5 | % |
| Expected income taxes                                     |   | $      | (122,933 | )      |   | $      | (8,460  | )      |   | $ | (6,654 | ) |
| Effect on taxes resulting from:                           |   |   |     |   |   |   |    |   |   |   |   |   |
| Non-deductible stock-based compensation                   |   |   | 1,025    |   |   |   | 845     |   |   |   | 2,611 |   |
| Effect of tax rate changes and temporary                  |   |   |     |   |   |   |    |   |   |   |   |   |
| differences recorded at future rates                      |   |   | 8,648    |   |   |   | (4,953  | )      |   |   | 1,870 |   |
| Non-taxable capital (gains) losses                        |   |   | (261     | )      |   |   | (11,896 | )      |   |   | 14,260 |   |
| Goodwill write-down                                       |   |   | -        |   |   |   | 2,881   |   |   |   | - |   |
| Other                                                     |   |   | 3,344    |   |   |   | (2,519  | )      |   |   | 2,737 |   |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Provision for income taxes                                |   | $      | (110,177 | )      |   | $      | (24,102 | )      |   | $ | 14,824 |   |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| Current                                                   |   | $      | 10       |   |   | $      | 94      |   |   | $ | 36 |   |
| Future                                                    |   |   | (110,187 | )      |   |   | (24,196 | )      |   |   | 14,788 |   |
|                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
|                                                      |   | $      | (110,177 | )      |   | $      | (24,102 | )      |   | $ | 14,824 |   |

| (b)  | Future income taxes are classified on the balance sheet as: |
|-----------|-------------------------------------------------------------|

| As at December 31,                 |   | 2010   |    |   | 2009   |   |
|------------------------------------|--------|--------|---------|--------|--------|--------|
|                               |   |   |    |   |   |   |
| Current asset                      |   | $      | (31     | )      |   | $      | (12 | ) |
| Current liability                  |   |   | 2,131   |   |   |   | 58 |   |
| Non-current liability              |   |   | 165,569 |   |   |   | 277,728 |   |
|                               |   |   |    |   |   |   |   |   |
| Net future income tax liability(1) |   | $      | 167,669 |   |   | $      | 277,774 |   |

|   | (1)  | Future income taxes of $3.3 million have been presented net in equity for the impact of share issuance costs |
|--------|-----------|--------------------------------------------------------------------------------------------------------------|

| As at December 31,                             |   | 2010   |    |   | 2009   |   |
|------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                           |   |   |    |   |   |   |
| Future income tax liabilities                  |   |   |    |   |   |   |
| Property and equipment in excess of tax values |   | $      | 204,104 |   |   | $      | 255,982 |   |
| Timing of partnership items                    |   |   | -       |   |   |   | 44,183 |   |
| Foreign exchange gain on long-term debt        |   |   | 605     |   |   |   | 5,298 |   |
| Other                                          |   |   | 2,641   |   |   |   | - |   |
| Future income tax assets                       |   |   |    |   |   |   |   |   |
| Non-capital losses carried forward             |   |   | (17,345 | )      |   |   | (12,481 | ) |
| Attributed Canadian royalty income             |   |   | (2,729  | )      |   |   | (2,729 | ) |
| Asset retirement obligations                   |   |   | (15,230 | )      |   |   | (10,454 | ) |
| Other                                          |   |   | (4,377  | )      |   |   | (2,025 | ) |
|                                           |   |   |    |   |   |   |   |   |
| Net future income tax liability                |   | $      | 167,669 |   |   | $      | 277,774 |   |

----

| 17.  | OTHER EXPENSES |
|-----------|----------------|

| Years ended December 31,      |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Terminated office lease costs |   | $      | 14,326 |   |   | $      | -      |   |   | $ | - |   |
| Strategic review costs        |   |   | -      |   |   |   | 2,550  |   |   |   | 35,490 |   |
| Restructuring costs           |   |   | 5,547  |   |   |   | 2,266  |   |   |   | - |   |
|                          |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   | $      | 19,873 |   |   | $      | 4,816  |   |   | $ | 35,490 |   |

| 18.  | SUPPLEMENTAL CASH FLOW INFORMATION |
|-----------|------------------------------------|

| Years ended December 31,                     |   | 2010   |   |   | 2009   |   |    | 2008   |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
|                                         |   |   |   |   |   |   |    |   |   |
| Accounts receivable and other current assets |   | $      | 13,518 |   |   | $      | 27,636  |   |   | $ | 18,204 |   |
| Accounts payable                             |   |   | (3,552 | )      |   |   | (65,461 | )      |   |   | (25,504 | ) |
|                                         |   |   |   |   |   |   |    |   |   |   |   |   |
|                                         |   | $      | 9,966  |   |   | $      | (37,825 | )      |   | $ | (7,300 | ) |
| Net change in non-cash working capital       |   |   |   |   |   |   |    |   |   |   |   |   |
| Relating to:                                 |   |   |   |   |   |   |    |   |   |   |   |   |
| Operating activities                         |   | $      | 8,191  |   |   | $      | (16,605 | )      |   | $ | 44,350 |   |
| Investing activities                         |   |   | 1,775  |   |   |   | (21,220 | )      |   |   | (51,650 | ) |
|                                         |   |   |   |   |   |   |    |   |   |   |   |   |
|                                         |   | $      | 9,966  |   |   | $      | (37,825 | )      |   | $ | (7,300 | ) |

----

| Years ended December 31,  |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|---------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                      |   |   |   |   |   |   |   |   |   |
| Interest paid             |   | $      | 47,868 |   |   | $      | 56,041 |   |   | $ | 60,278 |   |
|                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Current income taxes paid |   | $      | -      |   |   | $      | 45     |   |   | $ | 44 |   |

| 19.  | COMMITMENTS AND CONTINGENT LIABILITIES |
|-----------|----------------------------------------|

| (a)  | Commitments |
|-----------|-------------|

|               |   | 2011   |    |   | 2012   |   |   | 2013   |   |   | 2014   |   |   | 2015   |   |   | Thereafter |   |
|--------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|
|               |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |
| Credit facility    |   | $      | 147,276 |   |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |       | $      | - |   |   | $ | - |   |
| Senior term notes  |   |   | 44,757  |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |       |   | - |   |   |   | 192,455 |   |
| MPP term financing |   |   | 15,575  |   |   |   | 9,592  |   |   |   | 9,592  |   |   |   | 23,802 |   |       |   | - |   |   |   | - |   |
| Accounts payable   |   |   | 55,512  |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |       |   | - |   |   |   | - |   |
| Operating leases   |   |   | 719     |   |   |   | 806    |   |   |   | -      |   |   |   | -      |   |       |   | - |   |   |   | - |   |
| Office facilities  |   |   | 1,893   |   |   |   | 1,938  |   |   |   | 2,001  |   |   |   | 2,001  |   |       |   | 2,046 |   |   |   | 5,449 |   |
|               |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |
|               |   | $      | 265,732 |   |   | $      | 12,336 |   |   | $      | 11,593 |   |   | $      | 25,803 |   |       | $      | 2,046 |   |   | $ | 197,904 |   |

| (b)  | Legal proceedings |
|-----------|-------------------|

| (c)  | Subsequent event |
|-----------|------------------|

----

| 20. | RECLASSIFICATION |
|-----|------------------|

| 21.  | UNITED STATES ACCOUNTING PRINCIPLES AND REPORTING |
|-----------|---------------------------------------------------|

| For the years ended December 31,          |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|-------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                      |   |   |     |   |   |   |     |   |   |
| Net earnings (loss) for year, as reported |   | $      | (330,854 | )      |   | $      | (8,330   | )      |   | $ | (43,003 | ) |
| Adjustments                               |   |   |     |   |   |   |     |   |   |   |   |   |
| Deferred financing costs, net, note (c)   |   |   | 4,894    |   |   |   | -        |   |   |   | - |   |
| Depletion and depreciation, net, note (a) |   |   | 76,617   |   |   |   | 39,819   |   |   |   | (21,806 | ) |
| Business combination, net, note (e)       |   |   | -        |   |   |   | 201      |   |   |   | - |   |
| Ceiling test write-down, net, note (a)    |   |   | 252,883  |   |   |   | (489,272 | )      |   |   | (566,441 | ) |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Net earnings (loss) – US GAAP       |   | $      | 3,490    |   |   | $      | (457,582 | )      |   | $ | (631,250 | ) |

----

| For the years ended December 31,                     |   | 2010   |    |   | 2009   |   |     | 2008   |   |
|------------------------------------------------------|--------|--------|---------|--------|--------|--------|----------|--------|--------|
|                                                 |   |   |    |   |   |   |     |   |   |
|                                                 |   |   |    |   |   |   |     |   |   |
| Revenue, net of royalties                            |   | $      | 186,027 |   |   | $      | 200,202  |   |   | $ | 490,374 |   |
| Expenses                                             |   |   |    |   |   |   |     |   |   |   |   |   |
| Operating                                            |   |   | 66,134  |   |   |   | 84,554   |   |   |   | 112,723 |   |
| Transportation                                       |   |   | 6,901   |   |   |   | 7,759    |   |   |   | 9,860 |   |
| Other expenses                                       |   |   | 19,873  |   |   |   | 4,816    |   |   |   | 35,490 |   |
| Administrative                                       |   |   | 22,702  |   |   |   | 28,611   |   |   |   | 31,015 |   |
| Interest and finance charges                         |   |   | 48,709  |   |   |   | 56,886   |   |   |   | 60,911 |   |
| Depletion and depreciation, note (a)                 |   |   | 63,609  |   |   |   | 733,983  |   |   |   | 942,301 |   |
| Foreign exchange and other (gains) losses, note (c)  |   |   | (35,448 | )      |   |   | (84,810  | )      |   |   | 113,782 |   |
| Accretion of asset retirement obligations            |   |   | 4,264   |   |   |   | 3,242    |   |   |   | 3,142 |   |
| Stock-based compensation, note (f)                   |   |   | 3,662   |   |   |   | 4,147    |   |   |   | 9,574 |   |
| Risk management gain                                 |   |   | (21,165 | )      |   |   | (20,473  | )      |   |   | (21,539 | ) |
| Goodwill written-off, note (e)                       |   |   | -       |   |   |   | 9,774    |   |   |   | - |   |
| Earnings (loss) before taxes and                     |   |   |    |   |   |   |     |   |   |   |   |   |
| non-controlling interest                             |   |   | 61,786  |   |   |   | (628,287 | )      |   |   | (806,885 | ) |
| Income tax expense (recovery), notes (a)(c)(e)       |   |   | 1,311   |   |   |   | (173,964 | )      |   |   | (181,257 | ) |
| Non-controlling interest                             |   |   | 1,985   |   |   |   | 3,259    |   |   |   | 5,622 |   |
|                                                 |   |   |    |   |   |   |     |   |   |   |   |   |
| Net earnings (loss) – US GAAP                  |   | $      | 3,490   |   |   | $      | (457,582 | )      |   | $ | (631,250 | ) |
|                                                 |   |   |    |   |   |   |     |   |   |   |   |   |
| Net earnings (loss) per common share – US GAAP |   |   |    |   |   |   |     |   |   |   |   |   |
| Basic                                                |   | $      | 0.01    |   |   | $      | (2.88    | )      |   | $ | (4.87 | ) |
| Diluted                                              |   | $      | 0.01    |   |   | $      | (2.87    | )      |   | $ | (4.78 | ) |

|  For the years ended December 31, |   | 2010   |   |   | 2009   |   |     | 2008   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|----------|--------|--------|
|                                   |   |   |   |   |   |   |     |   |   |
| Net earnings (loss) – US GAAP    |   | $      | 3,490  |   |   | $      | (457,582 | )      |   | $ | (631,250 | ) |
| Defined benefit pension plan, note (d) |   |   | (574   | )      |   |   | (71      | )      |   |   | 434 |   |
|                                   |   |   |   |   |   |   |     |   |   |   |   |   |
| Comprehensive income (loss)            |   | $      | 2,917  |   |   | $      | (457,653 | )      |   | $ | (630,816 | ) |

|  As at December 31,               |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                   |   |   |   |   |   |   |   |   |   |
| Balance, beginning of year             |   | $      | (463   | )      |   | $      | (392   | )      |   | $ | (826 | ) |
| Defined benefit pension plan, note (d) |   |   | (574   | )      |   |   | (71    | )      |   |   | 434 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, end of year                   |   | $      | (1,037 | )      |   | $      | (463   | )      |   | $ | (392 | ) |

----

| As at December 31,                         |   | 2010       |      |   | 2009    |   |
|--------------------------------------------|--------|------------|-----------|--------|---------|--------|
|                                       |   | Asreported |      |   | US GAAP |   |   | Asreported |   |   | US GAAPrestated |   |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |
| Assets                                     |   |       |      |   |    |   |   |   |   |   |   |   |
| Current assets, note (c)                   |   | $          | 42,399    |   |    | $      | 44,254 |   |   | $ | 51,886 |   |   | $ | 51,886 |   |
| Property and equipment, note (a)           |   |       | 1,339,310 |   |    |   | 384,217 |   |   |   | 1,944,196 |   |   |   | 549,834 |   |
| Other assets, notes (c)(d)                 |   |       | 805       |   |    |   | 5,203 |   |   |   | 679 |   |   |   | 8,730 |   |
| Future income taxes, notes (a)(c)          |   |       | -         |   |    |   | 72,698 |   |   |   | - |   |   |   | 71,343 |   |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | $          | 1,382,514 |   |    | $      | 506,372 |   |   | $ | 1,996,761 |   |   | $ | 681,793 |   |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and shareholders’ equity |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                        |   | $          | 259,198   |   |    | $      | 259,690 |   |   | $ | 170,906 |   |   | $ | 170,906 |   |
| Long-term debt, note (c)                   |   |       | 192,455   |   |    |   | 192,455 |   |   |   | 461,741 |   |   |   | 469,703 |   |
| Asset retirement obligations               |   |       | 60,551    |   |    |   | 60,551 |   |   |   | 41,812 |   |   |   | 41,812 |   |
| Risk management loss                       |   |       | -         |   |    |   | - |   |   |   | 1,331 |   |   |   | 1,331 |   |
| Unfunded pension liability, note (d)       |   |       | -         |   |    |   | 526 |   |   |   | - |   |   |   | - |   |
| MPP term financing, note (g)               |   |       | 34,522    |   |    |   | 41,226 |   |   |   | 46,807 |   |   |   | 51,685 |   |
| Future income taxes, notes (a)(c)          |   |       | 165,569   |   |    |   | - |   |   |   | 277,728 |   |   |   | - |   |
| Non-controlling interest, note (g)         |   |       | 6,184     |   |    |   | - |   |   |   | 4,199 |   |   |   | - |   |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |       | 718,479   |   |    |   | 554,448 |   |   |   | 1,004,524 |   |   |   | 735,437 |   |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Capital stock, note (b)                    |   |       | 386,714   |   |    |   | 416,701 |   |   |   | 386,706 |   |   |   | 416,693 |   |
| Share purchase warrants                    |   |       | 13,800    |   |    |   | 13,800 |   |   |   | 13,800 |   |   |   | 13,800 |   |
| Contributed surplus                        |   |       | 38,748    |   |    |   | 38,748 |   |   |   | 36,104 |   |   |   | 36,104 |   |
| Retained earnings (deficit)                |   |       | 224,773   |   |    |   | (516,288 | ) |   |   | 555,627 |   |   |   | (519,778 | ) |
| Accumulated other comprehensive            |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
| income (loss), note (d)                    |   |       | -         |   |    |   | (1,037 | ) |   |   | - |   |   |   | (463 | ) |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |       | 664,035   |   |    |   | (48,076 | ) |   |   | 992,237 |   |   |   | (53,644 | ) |
|                                       |   |       |      |   |    |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | $          | 1,382,514 |   |    | $      | 506,372 |   |   | $ | 1,996,761 |   |   | $ | 681,793 |   |

----

| For the years ended December 31,          |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|-------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                      |   |   |     |   |   |   |     |   |   |
| Operating activities                      |   |   |     |   |   |   |     |   |   |
| Net earnings (loss)                       |   | $      | 3,490    |   |   | $      | (457,582 | )      |   | $ | (631,250 | ) |
| Amortization and other                    |   |   | 5,342    |   |   |   | (1,123   | )      |   |   | 7,422 |   |
| Depletion and depreciation                |   |   | 63,609   |   |   |   | 733,983  |   |   |   | 942,301 |   |
| Accretion of asset retirement obligations |   |   | 4,264    |   |   |   | 3,242    |   |   |   | 3,142 |   |
| Unrealized foreign exchange (gain) loss   |   |   | (25,924  | )      |   |   | (80,100  | )      |   |   | 106,425 |   |
| Future income taxes                       |   |   | 1,301    |   |   |   | (174,058 | )      |   |   | (181,293 | ) |
| Unrealized risk management (gain) loss    |   |   | (9,151   | )      |   |   | 9,510    |   |   |   | (2,546 | ) |
| Other                                     |   |   | (10,018  | )      |   |   | 1,793    |   |   |   | 11,680 |   |
| Goodwill                                  |   |   | -        |   |   |   | 9,774    |   |   |   | - |   |
| Change in non-cash working capital        |   |   | 8,191    |   |   |   | (16,605  | )      |   |   | 44,350 |   |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash from operating activities            |   |   | 41,104   |   |   |   | 28,834   |   |   |   | 300,231 |   |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash from financing activities            |   |   | (173,031 | )      |   |   | (29,942  | )      |   |   | (119,776 | ) |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash from investing activities            |   |   | 131,927  |   |   |   | (2,784   | )      |   |   | (185,228 | ) |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Change in cash                            |   |   | -        |   |   |   | (3,892   | )      |   |   | (4,773 | ) |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash, beginning of year                   |   |   | -        |   |   |   | 3,892    |   |   |   | 8,665 |   |
|                                      |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash, end of year                         |   | $      | -        |   |   | $      | -        |   |   | $ | 3,892 |   |

| (a)  | Full cost accounting |
|-----------|----------------------|

----

| (b)  | Future income taxes |
|-----------|---------------------|

| As at December 31,                          |   | 2010   |    |   | 2009   |   |
|---------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                        |   |   |    |   |   |   |
| Future income tax liabilities               |   |   |    |   |   |   |
| Timing of partnership items                 |   | $      | -       |   |   | $      | 44,183 |   |
| Foreign exchange gain on long-term debt     |   |   | 605     |   |   |   | 5,298 |   |
| Other                                       |   |   | 2,641   |   |   |   | - |   |
| Future income tax assets                    |   |   |    |   |   |   |   |   |
| Non-capital losses carried forward          |   |   | (17,345 | )      |   |   | (12,481 | ) |
| Property and equipment less than tax values |   |   | (33,671 | )      |   |   | (93,089 | ) |
| Attributed Canadian royalty income          |   |   | (2,729  | )      |   |   | (2,729 | ) |
| Asset retirement obligations                |   |   | (15,230 | )      |   |   | (10,454 | ) |
| Other                                       |   |   | (4,377  | )      |   |   | (2,025 | ) |
|                                        |   |   |    |   |   |   |   |   |
| Future income taxes                         |   | $      | (70,106 | )      |   | $      | (71,297 | ) |
|                                        |   |   |    |   |   |   |   |   |
| Net future income taxes, less               |   | $      | (70,106 | )      |   | $      | (71,297 | ) |
| Current portion, net                        |   |   | 2,592   |   |   |   | 46 |   |
| Non-current future income taxes             |   | $      | (72,698 | )      |   | $      | (71,343 | ) |

| (c) | Deferred financing charges |
|-----|----------------------------|

| (d)  | Defined benefit pension plan |
|-----------|------------------------------|

----

| (e)  | Business combination |
|-----------|----------------------|

| (f)  | Share based payments |
|-----------|----------------------|

| (g)  | MPP term financing |
|-----------|--------------------|

| (h)  | Receivable and payable amounts |
|-----------|--------------------------------|

| As at December 31,                          |   | 2010   |   |   | 2009   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                        |   |   |   |   |   |   |
| Accounts receivable includes the following: |   |   |   |   |   |   |
| Revenue receivable                          |   | $      | 1,280  |   |   | $      | 1,453 |   |
| Joint interest receivable                   |   |   | 4,894  |   |   |   | 6,540 |   |
| Accruals                                    |   |   | 22,704 |   |   |   | 28,038 |   |
| Other receivables                           |   |   | 637    |   |   |   | 1,358 |   |
|                                        |   |   |   |   |   |   |   |   |
|                                        |   | $      | 29,515 |   |   | $      | 37,389 |   |
|                                        |   |   |   |   |   |   |   |   |
| Accounts payable includes the following:    |   |   |   |   |   |   |   |   |
| Trade payables                              |   | $      | 6,269  |   |   | $      | 6,400 |   |
| Royalties payable                           |   |   | 713    |   |   |   | 1,363 |   |
| Accruals                                    |   |   | 48,116 |   |   |   | 51,065 |   |
| Other payables                              |   |   | 414    |   |   |   | 142 |   |
|                                        |   |   |   |   |   |   |   |   |
|                                        |   | $      | 55,512 |   |   | $      | 58,970 |   |

| (i)  | Recent accounting pronouncements |
|-----------|----------------------------------|

|   | (i)  | In 2010, the Corporation adopted, for US GAAP purposes, ASC Topic 810, “Consolidation”.  The revised standard changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated.  The statement also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and requires enhanced disclosures about an enterprise’s involvement in a variable interest entity.  The standard is effective at the beginning of the first annual reporting period after November 15, 2009.  The adoption of this standard has had no material impact on the consolidated financial statements. |
|--------|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (A)  | Net Proved Oil and Natural Gas Reserves |
|-----------|-----------------------------------------|

| Years ended December 31,          |   | 2010                       |   |   | 2009       |   |    | 2008                       |   |
|-----------------------------------|--------|----------------------------|--------|--------|------------|--------|---------|----------------------------|--------|
|                              |   | Crude oil& NGL’s |   |   | NaturalGas |   |    | Crude oil& NGL’s |   |   | NaturalGas |   |   | Crude oil& NGL’s |   |   | NaturalGas |   |
|                              |   | (mbbls)                    |   |   | (mmcf)     |   |    | (mbbls)                    |   |   | (mmcf) |   |   | (mbbls) |   |   | (mmcf) |   |
|                              |   |                       |   |   |       |   |    |                       |   |   |   |   |   |   |   |   |   |   |
| Balance, beginning of year        |   |                       | 8,522  |   |       |   | 326,878 |                       |   |   | 11,417 |   |   |   | 529,204 |   |   |   | 20,886 |   |   |   | 602,981 |   |
| Revisions of previous estimates   |   |                       | (305   | )      |       |   | (47,803 | )                          |   |   | (1,015 | ) |   |   | (132,051 | ) |   |   | (3,961 | ) |   |   | (68,793 | ) |
| Extensions, discoveries and       |   |                       |   |   |       |   |    |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| other additions                   |   |                       | 463    |   |       |   | 17,221  |                       |   |   | 123 |   |   |   | 8,057 |   |   |   | 1,213 |   |   |   | 64,467 |   |
| Acquisitions of minerals in place |   |                       | -      |   |       |   | -       |                       |   |   | - |   |   |   | - |   |   |   | 41 |   |   |   | 1,923 |   |
| Dispositions of minerals in place |   |                       | (1,586 | )      |       |   | (37,196 | )                          |   |   | (1,127 | ) |   |   | (42,258 | ) |   |   | (5,383 | ) |   |   | (29,147 | ) |
| Production                        |   |                       | (715   | )      |       |   | (29,185 | )                          |   |   | (876 | ) |   |   | (36,074 | ) |   |   | (1,379 | ) |   |   | (42,227 | ) |
|                              |   |                       |   |   |       |   |    |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, end of year              |   |                       | 6,379  |   |       |   | 229,915 |                       |   |   | 8,522 |   |   |   | 326,878 |   |   |   | 11,417 |   |   |   | 529,204 |   |
|                              |   |                       |   |   |       |   |    |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved developed reserves         |   |                       |   |   |       |   |    |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, beginning of year        |   |                       | 7,787  |   |       |   | 285,273 |                       |   |   | 10,169 |   |   |   | 404,095 |   |   |   | 17,829 |   |   |   | 452,871 |   |
| Balance, end of year              |   |                       | 4,981  |   |       |   | 181,330 |                       |   |   | 7,787 |   |   |   | 285,273 |   |   |   | 10,169 |   |   |   | 404,095 |   |

| Proved undeveloped reserves |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|
| Balance, beginning of year  |   |   | 735    |   |   |   | 41,605 |   |   |   | 1,248  |   |   |   | 125,109 |   |   |   | 3,056 |   |   |   | 150,110 |   |
| Balance, end of year        |   |   | 1,398  |   |   |   | 48,585 |   |   |   | 735    |   |   |   | 41,605  |   |   |   | 1,248 |   |   |   | 125,109 |   |

| (B)  | Capitalized Costs Related to Oil and Natural Gas Processing Activities |
|-----------|------------------------------------------------------------------------|

| As at December 31,                     |   | 2010                               |       |   | 2009   |   |
|----------------------------------------|--------|------------------------------------|------------|--------|--------|--------|
|                                   |   | (in thousands of Canadian dollars) |       |
|                                   |   |                               |       |   |   |   |
| Proved properties                      |   | $                                  | 2,244,673  |   |   | $      | 2,654,789 |   |
| Unproved properties:                   |   |                               |       |   |   |   |   |   |
| Acquisition                            |   |                               | 115,551    |   |   |   | 119,319 |   |
| Exploration                            |   |                               | 104,291    |   |   |   | 101,155 |   |
| Accumulated depletion and depreciation |   |                               | (1,125,205 | )      |   |   | (992,188 | ) |
|                                   |   |                               |       |   |   |   |   |   |
|                                   |   | $                                  | 1,339,310  |   |   | $      | 1,883,075 |   |

----

| Years ended December 31,                   |   | 2010                               |     |   | 2009   |   |    | 2008   |   |
|--------------------------------------------|--------|------------------------------------|----------|--------|--------|--------|---------|--------|--------|
|                                       |   | (in thousands of Canadian dollars) |     |
|                                       |   |                               |     |   |   |   |    |   |   |
| Acquisition costs (net of disposition)     |   |                               |     |   |   |   |    |   |   |
| Proved properties                          |   | $                                  | (152,992 | )      |   | $      | (86,753 | )      |   | $ | (192,934 | ) |
| Unproved properties                        |   |                               | (3,768   | )      |   |   | 969     |   |   |   | (41,228 | ) |
| Development costs                          |   |                               |     |   |   |   |    |   |   |   |   |   |
| Development of proved undeveloped reserves |   |                               | 21,988   |   |   |   | 50,258  |   |   |   | 195,459 |   |
| Other                                      |   |                               | -        |   |   |   | (1,873  | )      |   |   | 148,568 |   |
| Exploration costs                          |   |                               | 4,620    |   |   |   | 18,963  |   |   |   | 23,451 |   |
|                                       |   |                               |     |   |   |   |    |   |   |   |   |   |
| Total costs incurred                       |   | $                                  | (130,152 | )      |   | $      | (18,436 | )      |   | $ | 133,316 |   |

| (C) | Standardized Measure of Discounted Future Net Cash Flows and Changes in the Summary of Discounted Cash Flows |
|-----|--------------------------------------------------------------------------------------------------------------|

| Years ended December 31,                    |   | 2010                               |      |   | 2009   |   |       | 2008   |   |
|---------------------------------------------|--------|------------------------------------|-----------|--------|--------|--------|------------|--------|--------|
|                                        |   | (in thousands of Canadian dollars) |      |
|                                        |   |                               |      |   |   |   |       |   |   |
| Future cash inflows                         |   | $                                  | 1,447,096 |   |   | $      | 1,903,420  |   |   | $ | 3,695,769 |   |
| Future production costs                     |   |                               | (642,082  | )      |   |   | (1,031,097 | )      |   |   | (1,598,944 | ) |
| Future development costs                    |   |                               | (158,298  | )      |   |   | (91,530    | )      |   |   | (285,452 | ) |
|                                        |   |                               |      |   |   |   |       |   |   |   |   |   |
| Future net cash flows                       |   |                               | 676,716   |   |   |   | 780,793    |   |   |   | 1,811,373 |   |
| Income taxes                                |   |                               | -         |   |   |   | -          |   |   |   | (192,809 | ) |
|                                        |   |                               |      |   |   |   |       |   |   |   |   |   |
| Total undiscounted future net cash flows    |   |                               | 676,716   |   |   |   | 780,793    |   |   |   | 1,618,564 |   |
| 10% annual discount for estimated timing of |   |                               |      |   |   |   |       |   |   |   |   |   |
| cash inflows                                |   |                               | (331,211  | )      |   |   | (387,389   | )      |   |   | (842,453 | ) |
|                                        |   |                               |      |   |   |   |       |   |   |   |   |   |
| Standardized measure of discounted          |   |                               |      |   |   |   |       |   |   |   |   |   |
| future net cash flows                       |   | $                                  | 345,505   |   |   | $      | 393,404    |   |   | $ | 776,111 |   |

----

| Years ended December 31,                                                            |   | 2010                               |     |   | 2009   |   |     | 2008   |   |
|-------------------------------------------------------------------------------------|--------|------------------------------------|----------|--------|--------|--------|----------|--------|--------|
|                                                                                |   | (in thousands of Canadian dollars) |     |
|                                                                                |   |                               |     |   |   |   |     |   |   |
| Beginning of year                                                                   |   | $                                  | 393,404  |   |   | $      | 776,111  |   |   | $ | 1,358,425 |   |
| Sales of production, net of production costs                                        |   |                               | (101,951 | )      |   |   | (102,421 | )      |   |   | (360,246 | ) |
| Net change in sales prices, net of production costs                                 |   |                               | (76,089  | )      |   |   | (335,943 | )      |   |   | (606,466 | ) |
| Extensions, discoveries and additions                                               |   |                               | 31,283   |   |   |   | 16,852   |   |   |   | 68,199 |   |
| Changes in estimated future development costs                                       |   |                               | (123,059 | )      |   |   | (1,095   | )      |   |   | 83,174 |   |
| Development costs incurred during the period which reduced future development costs |   |                               | 44,745   |   |   |   | 29,034   |   |   |   | 244,579 |   |
|                                                                                |   |                               |     |   |   |   |     |   |   |   |   |   |
| Revisions in quantity estimates                                                     |   |                               | (217,243 | )      |   |   | 19,386   |   |   |   | (125,668 | ) |
| Accretion of discount                                                               |   |                               | 39,341   |   |   |   | 81,150   |   |   |   | 153,239 |   |
| Purchase of reserves                                                                |   |                               | -        |   |   |   | -        |   |   |   | 4,863 |   |
| Sales of reserves                                                                   |   |                               | 109,428  |   |   |   | (100,837 | )      |   |   | 148,740 |   |
| Net change in income tax                                                            |   |                               | -        |   |   |   | 35,820   |   |   |   | 138,145 |   |
| Changes in production rates (timing) and other                                      |   |                               | 245,646  |   |   |   | (24,653  | )      |   |   | (330,873 | ) |
|                                                                                |   |                               |     |   |   |   |     |   |   |   |   |   |
| Standardized measure, end of year                                                   |   | $                                  | 345,505  |   |   | $      | 393,404  |   |   | $ | 776,111 |   |

----