EXHIBIT 20.3
                                                                   ------------

MANAGEMENT'S DISCUSSION AND ANALYSIS


ADVISORIES

MANAGEMENT'S  DISCUSSION  AND ANALYSIS  ("MD&A") IS INTENDED TO PROVIDE BOTH AN
HISTORICAL AND PROSPECTIVE VIEW OF OUR ACTIVITIES.  THE MD&A WAS PREPARED AS AT
MARCH 24, 2008, AND SHOULD BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE YEAR ENDED DECEMBER 31, 2007 AND
THE ADVISORIES SET OUT BELOW. THE CONSOLIDATED  FINANCIAL  STATEMENTS HAVE BEEN
PREPARED IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED  ACCOUNTING  PRINCIPLES
("GAAP").  A  RECONCILIATION  TO  U.S.  GAAP  IS  INCLUDED  IN  NOTE  21 TO THE
CONSOLIDATED FINANCIAL STATEMENTS.

FORWARD LOOKING STATEMENTS

CERTAIN   INFORMATION   REGARDING  THE  COMPANY  CONTAINED  HEREIN  CONSTITUTES
FORWARD-LOOKING    INFORMATION   AND   STATEMENTS   AND   FINANCIAL    OUTLOOKS
(COLLECTIVELY,  "FORWARD-LOOKING  STATEMENTS")  UNDER THE MEANING OF APPLICABLE
SECURITIES  LAWS,  INCLUDING  CANADIAN  SECURITIES   ADMINISTRATORS'   NATIONAL
INSTRUMENT  51-102  CONTINUOUS  DISCLOSURE  OBLIGATIONS  AND THE UNITED  STATES
PRIVATE SECURITIES  LITIGATION REFORM ACT OF 1995.  FORWARD-LOOKING  STATEMENTS
INCLUDE  ESTIMATES,  PLANS,  EXPECTATIONS,  OPINIONS,  FORECASTS,  PROJECTIONS,
GUIDANCE,  OR OTHER  STATEMENTS  THAT  ARE NOT  STATEMENTS  OF FACT,  INCLUDING
STATEMENTS REGARDING (I) CASH FLOW AND CAPITAL AND OPERATING EXPENDITURES, (II)
EXPLORATION,  DRILLING,  COMPLETION,  AND PRODUCTION MATTERS,  (III) RESULTS OF
OPERATIONS,  (IV)  FINANCIAL  POSITION,  AND (V) OTHER RISKS AND  UNCERTAINTIES
DESCRIBED  FROM TIME TO TIME IN THE REPORTS AND  FILINGS  MADE BY COMPTON  WITH
SECURITIES   REGULATORY   AUTHORITIES.   ALTHOUGH  COMPTON  BELIEVES  THAT  THE
ASSUMPTIONS  UNDERLYING,  AND EXPECTATIONS  REFLECTED IN, SUCH  FORWARD-LOOKING
STATEMENTS ARE REASONABLE,  IT CAN GIVE NO ASSURANCE THAT SUCH  ASSUMPTIONS AND
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. THERE ARE MANY FACTORS THAT COULD
CAUSE  FORWARD-LOOKING  STATEMENTS  NOT  TO BE  CORRECT,  INCLUDING  RISKS  AND
UNCERTAINTIES INHERENT IN THE COMPANY'S BUSINESS.  THESE RISKS INCLUDE, BUT ARE
NOT LIMITED  TO:  CRUDE OIL AND NATURAL  GAS PRICE  VOLATILITY,  EXCHANGE  RATE
FLUCTUATIONS,  AVAILABILITY OF SERVICES AND SUPPLIES, OPERATING HAZARDS, ACCESS
DIFFICULTIES AND MECHANICAL FAILURES, WEATHER RELATED ISSUES,  UNCERTAINTIES IN
THE ESTIMATES OF RESERVES AND IN  PROJECTION OF FUTURE RATES OF PRODUCTION  AND
TIMING  OF  DEVELOPMENT  EXPENDITURES,  GENERAL  ECONOMIC  CONDITIONS,  AND THE
ACTIONS  OR  INACTIONS   OF   THIRD-PARTY   OPERATORS,   AND  OTHER  RISKS  AND
UNCERTAINTIES  DESCRIBED FROM TIME TO TIME IN THE REPORTS AND FILINGS MADE WITH
SECURITIES REGULATORY AUTHORITIES BY COMPTON. STATEMENTS RELATING TO "RESERVES"
AND "RESOURCES" ARE DEEMED TO BE  FORWARD-LOOKING  STATEMENTS,  AS THEY INVOLVE
THE IMPLIED ASSESSMENT,  BASED ON ESTIMATES AND ASSUMPTIONS,  THAT THE RESERVES
AND RESOURCES DESCRIBED EXIST IN THE QUANTITIES PREDICTED OR ESTIMATED, AND CAN
BE PROFITABLY PRODUCED IN THE FUTURE.

THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE MADE AS OF THE DATE OF THIS
MD&A  SOLELY FOR THE PURPOSE OF  GENERALLY  DISCLOSING  COMPTON'S  VIEWS OF ITS
PROSPECTIVE   ACTIVITIES.   COMPTON  MAY,  AS   CONSIDERED   NECESSARY  IN  THE
CIRCUMSTANCES,  UPDATE OR REVISE THE FORWARD-LOOKING  STATEMENTS,  WHETHER AS A
RESULT OF NEW INFORMATION,  FUTURE EVENTS,  OR OTHERWISE,  BUT COMPTON DOES NOT
UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME, EXCEPT AS REQUIRED
BY LAW. COMPTON CAUTIONS READERS THAT THE FORWARD-LOOKING STATEMENTS MAY NOT BE
APPROPRIATE  FOR  PURPOSES  OTHER THAN THEIR  INTENDED  PURPOSES AND THAT UNDUE
RELIANCE SHOULD NOT BE PLACED ON ANY FORWARD-LOOKING  STATEMENT.  THE COMPANY'S
FORWARD-LOOKING  STATEMENTS  ARE EXPRESSLY  QUALIFIED IN THEIR ENTIRETY BY THIS
CAUTIONARY STATEMENT.

NON-GAAP FINANCIAL MEASURES

INCLUDED IN THE MD&A AND  ELSEWHERE IN THIS REPORT ARE  REFERENCES TO FINANCIAL
MEASURES  COMMONLY  USED IN THE OIL AND GAS INDUSTRY,  INCLUDING  ADJUSTED CASH
FLOW FROM OPERATIONS AND ADJUSTED NET EARNINGS FROM OPERATIONS. THESE FINANCIAL
MEASURES ARE NOT DEFINED BY CANADIAN GENERALLY ACCEPTED  ACCOUNTING  PRINCIPLES
("GAAP")  AND  THEREFORE  ARE  REFERRED TO AS NON-GAAP  MEASURES.  THE NON-GAAP
MEASURES USED BY THE COMPANY MAY NOT BE COMPARABLE TO SIMILAR MEASURES PROVIDED
BY OTHER COMPANIES. WE USE THESE NON-GAAP MEASURES TO EVALUATE OUR PERFORMANCE.


<PAGE>

ADJUSTED CASH FLOW FROM OPERATIONS  SHOULD NOT BE CONSIDERED AN ALTERNATIVE TO,
OR MORE MEANINGFUL  THAN,  CASH PROVIDED BY OPERATING,  INVESTING AND FINANCING
ACTIVITIES OR NET EARNINGS AS DETERMINED IN ACCORDANCE  WITH CANADIAN  GAAP, AS
AN  INDICATOR  OF  OUR  PERFORMANCE  OR  LIQUIDITY.  ADJUSTED  CASH  FLOW  FROM
OPERATIONS  IS USED BY US TO  EVALUATE  OPERATING  RESULTS  AND OUR  ABILITY TO
GENERATE CASH TO FUND FUTURE GROWTH THROUGH CAPITAL INVESTMENT.

ADJUSTED NET EARNINGS FROM OPERATIONS REPRESENTS NET EARNINGS EXCLUDING CERTAIN
ITEMS THAT ARE LARGELY  NON-OPERATIONAL  IN NATURE AND SHOULD NOT BE CONSIDERED
AN  ALTERNATIVE  TO, OR MORE  MEANINGFUL  THAN,  NET EARNINGS AS  DETERMINED IN
ACCORDANCE WITH CANADIAN GAAP. ADJUSTED NET EARNINGS FROM OPERATIONS IS USED BY
US TO FACILITATE COMPARABILITY OF EARNINGS BETWEEN PERIODS.

USE OF BOE EQUIVALENTS

THE OIL AND NATURAL GAS  INDUSTRY  COMMONLY  EXPRESSES  PRODUCTION  VOLUMES AND
RESERVES  ON A BARREL OF OIL  EQUIVALENT  ("BOE")  BASIS  WHEREBY  NATURAL  GAS
VOLUMES ARE CONVERTED AT THE RATIO OF SIX THOUSAND  CUBIC FEET TO ONE BARREL OF
OIL.  THE  INTENTION IS TO SUM OIL AND NATURAL GAS  MEASUREMENT  UNITS INTO ONE
BASIS FOR IMPROVED  MEASUREMENT OF RESULTS AND COMPARISONS  WITH OTHER INDUSTRY
PARTICIPANTS.  WE USE THE 6:1  BOE  MEASURE  WHICH  IS THE  APPROXIMATE  ENERGY
EQUIVALENCY  OF THE TWO  COMMODITIES  AT THE BURNER TIP.  HOWEVER,  BOES DO NOT
REPRESENT A VALUE  EQUIVALENCY  AT THE PLANT GATE WHERE WE SELL OUR  PRODUCTION
VOLUMES AND THEREFORE MAY BE A MISLEADING MEASURE IF USED IN ISOLATION.



RESULTS OF OPERATIONS

2007 SUMMARY

o    Drilled 322 gross (266 net) wells with a 97% success rate.

o    Achieved annual average production of 31,326 boe/d.

o    Generated  adjusted cash flow from operations of $196.2 million,  or $1.48
     per diluted share.

o    Adjusted net earnings from operations for the year were $21.3 million.

o    Net earnings for the year were $129.2 million.


                                       2
<PAGE>

ADJUSTED CASH FLOW FROM OPERATIONS AND NET EARNINGS

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Years ended December 31,                                   2007          2006          2005
-------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>           <C>
Adjusted cash flow from operations (1) ($000S)      $   196,194   $   256,305   $   278,112
Per share: basic                                    $      1.52   $      2.01   $      2.21
           diluted                                  $      1.48   $      1.92   $      2.11
Net earnings ($000S)                                $   129,266   $   127,426   $    81,326
Per share: basic                                    $      1.00   $      1.00   $      0.65
           diluted                                  $      0.98   $      0.95   $      0.62
-------------------------------------------------------------------------------------------
</TABLE>
(1)  Adjusted cash flow from  operations is a non-GAAP term that represents net
     earnings  adjusted for non-cash items. We consider adjusted cash flow from
     operations to be a key financial measure as it demonstrates our ability to
     generate the cash flow  necessary to fund future  growth  through  capital
     investment.  Adjusted cash flow from  operations  may not be comparable to
     similar measures presented by other companies.

<TABLE>
<CAPTION>
     Adjusted cash flow from operations
              ---------------------------------------------------------------------------

                  Years  ended  December  31,              2007         2006         2005
                       ($000s)
              ---------------------------------------------------------------------------
              <S>                                     <C>          <C>          <C>
              Net earnings                            $ 129,266    $ 127,426    $  81,326

                  Amortization of                         3,417        1,996        2,190
                   deferred charges and
                   other

                  Tender costs                               --           --       20,750

                   Depletion and                        151,411      143,057      105,504
                   depreciation

                   Accretion of asset                     2,718        2,257        1,975
                   retirement obligations

                   Unrealized foreign                   (79,740)        (665)      (7,808)
                   exchange (gain)

                   Future income taxes                  (26,452)      (3,636)      52,317

                   Unrealized risk                        5,467      (27,522)      10,171
                   management (gain) loss

                   Stock-based                            8,416        9,121        5,903
                   compensation

                   Asset retirement                      (4,441)      (2,352)        (749)
                   expenditures

                   Non-controlling                        6,132        6,623        6,533
                   interest

                   Adjusted cash flow from            $ 196,194    $ 256,305    $ 278,112
                   operations
              ---------------------------------------------------------------------------
</TABLE>
                                       3

<PAGE>

Adjusted cash flow from operations declined in 2007 from the prior year's level
by  approximately  $60  million.  The major  causes of the  decline  were a $25
million reduction in realized risk management gains, a reduction of $19 million
in revenue after  royalties,  and increases in general and  administrative  and
interest  expenses.  Additionally,  at the end of the third quarter of 2007, we
closed the sale of our conventional  light oil asset at Worsley,  which reduced
production,  adjusted cash flow from operations, and net income accordingly for
the last three months of the year as compared to the prior year.

Net earnings for the year increased by  approximately  $2 million over 2006 and
benefited from a foreign  exchange gain of $79 million and a $26 million future
income tax recovery.


ADJUSTED NET EARNINGS FROM OPERATIONS

Adjusted net earnings from operations is a non-GAAP measure that represents net
earnings adjusted for certain items of a  non-operational  and non-cash nature.
We evaluate our  performance  on adjusted net earnings  from  operations  which
eliminates these non-operational items that can introduce a level of volatility
to net earnings determined in accordance with GAAP.

The following reconciliation  identifies the after-tax effects of certain items
of non-operational nature that are included in our financial results.  Adjusted
net  earnings  from  operations  may  not be  comparable  to  similar  measures
presented by other companies.


                                       4
<PAGE>

<TABLE>
<CAPTION>
SUMMARY OF ADJUSTED NET EARNINGS FROM OPERATIONS (1)

-----------------------------------------------------------------------------------------------------
  Years ended December 31, ($000s, except per share amounts)          2007         2006         2005
-----------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>          <C>
  Net earnings, as reported                                      $ 129,266    $ 127,426    $  81,326
  Non-operational items, after tax
    Unrealized foreign exchange (gain)                             (66,934)        (550)      (6,339)
    Unrealized risk management (gain) loss                           3,711      (18,027)       6,345
    Stock-based compensation                                         5,713        5,974        3,682
    Tender costs on repurchase of 9.90% notes                           --           --       14,414
    Future income tax recovery due to income tax rate reductions   (50,470)     (49,655)      (5,764)
-----------------------------------------------------------------------------------------------------
  Adjusted net earnings from operations                          $  21,286    $  65,168    $  93,664
  Per share:  basic                                              $    0.17    $    0.51    $    0.75
              diluted                                            $    0.16    $    0.49    $    0.71
-----------------------------------------------------------------------------------------------------
</TABLE>
(1)  Adjusted  net  earnings  from  operations  was  referred  to as  Operating
     Earnings in prior years.

<TABLE>
<CAPTION>
REVENUE

--------------------------------------------------------------------------------------------------------
Years ended December 31,                                               2007          2006          2005
--------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>
AVERAGE PRODUCTION
  Natural gas (MMCF/D)                                                  145           142           131
  Liquids (BBLS/D)                                                    7,166         9,516         7,646
--------------------------------------------------------------------------------------------------------
  Total (BOE/D)                                                      31,326        33,187        29,424

BENCHMARK PRICES
  NYMEX (U.S.$/MMBTU)                                           $      6.86   $      7.26   $      8.55
  AECO ($/GJ)
     Monthly index                                              $      6.27   $      6.21   $      8.04
     Daily index                                                $      6.11   $      6.19   $      8.27
  WTI (U.S.$/BBL)                                               $     72.37   $     66.22   $     56.56
  Edmonton par ($/BBL)                                          $     76.23   $     72.77   $     68.72

REALIZED PRICES
  Natural gas ($/MCF)                                           $      6.33   $      6.32   $      8.36
  Liquids ($/BBL)                                                     62.28         59.09         56.47
--------------------------------------------------------------------------------------------------------
  Total ($/BOE)                                                 $     43.82   $     44.65   $     52.54

REVENUE ($000S)
  Natural gas                                                   $   334,920   $   327,629   $   398,543
  Liquids                                                           166,067       213,208       165,698
--------------------------------------------------------------------------------------------------------
  Total                                                         $   500,987   $   540,837   $   564,241
--------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
SUMMARY OF REVENUE INCREASES FROM PRODUCTION AND PRICING

--------------------------------------------------------------------------------------------------------
 ($000s)                                                        Natural Gas       Liquids         Total
                                                                    Revenue       Revenue       Revenue
--------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>           <C>
Reported 2006 revenue                                              $327,629      $213,208      $540,837
Change in production volumes                                          7,291       (49,875)      (42,584)
Change in prices                                                         --         2,734         2,734
--------------------------------------------------------------------------------------------------------
REPORTED 2007 REVENUE                                              $334,920      $166,067      $500,987
--------------------------------------------------------------------------------------------------------
</TABLE>

                                       5
<PAGE>

Overall  production  in 2007 fell 6% from the prior  year.  Natural gas volumes
increased 2%, while  liquids  production  decreased 25% from 2006 volumes.  The
significant  reduction in our year over year liquids volumes is attributable to
natural  declines and the sale of our  conventional  light oil asset,  Worsley.
This transaction closed at the end of the third quarter of 2007.

We market the majority of our natural gas  production  through a combination of
daily and monthly  indexed  contracts and  aggregator  contracts.  During 2007,
approximately  10% of our natural gas production  remained  committed to longer
term  aggregator  contracts  which  realized  a price  that  was,  on  average,
$0.75/mcf less than that received on non-aggregator volumes.

Our crude oil sales are priced based upon  Edmonton  postings and are typically
sold on 30 day  evergreen  arrangements.  Natural gas liquids are bid out on an
annual basis to obtain the most favourable  pricing.  We sell our crude oil and
natural gas liquids  primarily  to  refineries  and  marketers of crude oil and
natural gas liquids.

Periodically  we enter into  financial  instrument  contracts to hedge  against
price  volatility.  This activity is fully disclosed in the Risk Management and
Financial  Instrument  sections of this MD&A.  Realized  commodity  prices,  as
reported in the MD&A, are before any hedging gains or losses.

<TABLE>
<CAPTION>
ROYALTIES

--------------------------------------------------------------------------------------------------------
Years ended December 31,  ($000s, except where noted)                  2007          2006          2005
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>           <C>
Crown royalties                                                     $86,850      $100,230      $105,827
Other royalties                                                      15,828        23,447        26,890
--------------------------------------------------------------------------------------------------------
Net royalties                                                      $102,678      $123,677      $132,717

Percentage of revenues                                                20.5%         22.9%         23.5%
--------------------------------------------------------------------------------------------------------
</TABLE>

Royalties  are paid to various  government  entities and other land and mineral
rights  owners.  Virtually  all Crown  royalties  are paid to the  province  of
Alberta  which has a royalty  structure  based upon  commodity  prices and well
productivity,  with  higher  prices  and well  productivity  attracting  higher
royalty rates. Our royalty rate in 2007, as a percentage of revenue,  decreased
from 2006 as a result of the  increased  contribution  from lower  productivity
wells to total production.

We anticipate 2008 royalty rates will remain  relatively  consistent with prior
years; however,  significant changes to the Alberta royalty structure may occur
in 2009 as a result of the recent Alberta royalty review,  the final results of
which are yet to be announced.

<TABLE>
<CAPTION>
OPERATING EXPENSES

--------------------------------------------------------------------------------------------------------
Years ended December 31,                                               2007          2006          2005
----------------------------------------------------------------------------- ------------ -------------
<S>                                                                <C>           <C>            <C>
Operating expenses ($000S)                                         $101,478      $102,643       $73,164
Operating expenses per boe ($/BOE)                                   $ 8.88        $ 8.47        $ 6.81
----------------------------------------------------------------------------- ------------ -------------
</TABLE>

Year over year operating costs remained constant.  However,  when measured on a
$/boe basis,  2007  operating  expenses  increased by 5% when compared to 2006.
Specific  increases  of note  include  salaries  for field  staff and  contract
operators and rising  electricity  prices.  Additionally,  fourth  quarter 2007
operating  costs  included  significant  lease  repair  and  maintenance  costs
associated with assets acquired during the last half of the year.

                                       6
<PAGE>

In prior years,  operating  costs were  reported net of third party  processing
fees.  Commencing in 2007, third party processing income is included in revenue
and not netted against  operating  expenses.  2006 and 2005 operating  expenses
have been reclassified accordingly.

With  the  current  reduced  level  of  activity  in the  industry,  we are now
beginning  to see  indications  that  cost  inflation  is  moderating.  With an
increased  emphasis on cost controls,  we anticipate 2008 operating costs, on a
unit of production basis, will remain similar to those experienced in 2007.



                                       7
<PAGE>

<TABLE>
<CAPTION>
TRANSPORTATION EXPENSES

--------------------------------------------------------------------------------------------------------
Years ended December 31,                                                 2007         2006          2005
--------------------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>           <C>
Transportation costs ($000S)                                          $12,615      $12,564       $10,858
Transportation costs per boe ($/BOE)                                    $1.10       $ 1.04        $ 1.01
--------------------------------------------------------------------------------------------------------
</TABLE>

We incur charges for the transportation of our production from the wellhead to
the point of sale. Pipeline tariffs and trucking rates for liquids are primarily
dependent upon production location and distance from the sales point. Regulated
pipelines transport natural gas within Alberta at tolls approved by the
government.

2007  transportation  expense remained  relatively  constant with that of 2006.
However,  with  the  closing  of the  sale of our  conventional  oil  property,
Worsley,  at the  end  of  the  third  quarter  of  2007,  our  fourth  quarter
transportation expense fell to $0.55/boe, as our oil trucking requirements were
reduced significantly.

<TABLE>
<CAPTION>
GENERAL AND ADMINISTRATIVE EXPENSES

--------------------------------------------------------------------------------------------------------
  Years ended December 31,  ($000s, except where noted)                       2007       2006       2005
--------------------------------------------------------------------------------------------------------
<S>                                                                        <C>        <C>        <C>
  General and administrative expenses                                      $41,633    $38,321    $34,638
  Capitalized general and administrative expenses                          (7,470)    (9,625)    (11,158)
  Operator recoveries                                                      (2,835)    (2,465)     (2,257)
--------------------------------------------------------------------------------------------------------
  Total general and administrative expenses                                $31,328    $26,231    $21,223

  General and administrative per boe ($/BOE)                                $ 2.74     $ 2.17     $ 1.98
--------------------------------------------------------------------------------------------------------
</TABLE>

Employee costs  associated  with increased  personnel  levels,  together with a
general  increase in  remuneration  necessary  to attract and retain  qualified
personnel in a very  competitive  industry,  were the main  contributors to the
increase  in general  and  administrative  expenses  in 2007.  Other  increases
included  insurance and costs  associated  with ongoing  regulatory  compliance
requirements.  Additionally,  increased  expenses  associated  with  additional
office space were incurred as a result of corporate acquisitions.  During 2007,
we incurred direct expenses  totaling  approximately  $1.5 million  relating to
compliance  requirements  pursuant to the U.S.  Sarbanes-Oxley  Act of 2002 and
Canadian Multilateral Instrument 52-109.

General  and  administrative  expenses  in  2008  will  be  impacted  by  costs
associated  with  current  shareholder  activism  activities.  Such  costs will
include  additional  legal  fees,  advisory  fees and  expenses,  and  employee
retention costs.  Such costs are expected to be approximately  $22 million,  as
discussed in the Outlook and  Guidance  section of this MD&A and Note 20 to the
financial statements.

<TABLE>
<CAPTION>
INTEREST AND FINANCE CHARGES

------------------------------------------------------------------------------------------------------------
Years ended December 31, ($000s, except where noted)                      2007           2006          2005
------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>           <C>
Interest on bank debt, net                                             $22,476        $14,243       $11,520
Interest on Senior Notes                                                38,345         35,880        20,912
------------------------------------------------------------------------------------------------------------
Interest expense                                                       $60,821        $50,123       $32,432
Finance charges                                                          2,672          3,952         2,519
------------------------------------------------------------------------------------------------------------
Total interest and finance charges                                     $63,493        $54,075       $34,951
------------------------------------------------------------------------------------------------------------
Total interest and finance charges per boe ($/BOE)                      $ 5.55         $ 4.47        $ 3.25
------------------------------------------------------------------------------------------------------------
</TABLE>

                                       8
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Weighted average annual debt ($000s, except where noted)                  2007          2006           2005
------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>             <C>
Bank debt                                                             $348,216      $254,476        $228,381
Effective interest rate                                                  6.46%         5.60%           4.23%

Senior notes (US$)                                                    $450,000      $412,802        $179,583
Effective interest rate                                                  7.63%         7.64%           9.50%
------------------------------------------------------------------------------------------------------------
</TABLE>

Interest  expenses  relating to bank debt in 2007 increased from the prior year
as a result of increased  borrowings  incurred to fund our 2007 capital program
and overall floating interest rate increases.

<TABLE>
<CAPTION>
NETBACKS

-----------------------------------------------------------------------------------------------------------
 YEARS ENDED DECEMBER 31, ($/BOE)                                              2007       2006       2005
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>        <C>         <C>
 Realized price                                                             $ 43.82    $ 44.65     $52.54
 Realized commodity hedge gain (loss)                                          1.68       3.24      (0.90)
 Royalties                                                                    (8.98)    (10.21)    (12.36)
 Operating expenses                                                           (8.88)     (8.47)     (6.81)
 Transportation                                                               (1.10)     (1.04)     (1.01)
-----------------------------------------------------------------------------------------------------------
 FIELD OPERATING NETBACK                                                    $ 26.54    $ 28.17     $31.46
-----------------------------------------------------------------------------------------------------------

 General and administrative                                                   (2.74)     (2.17)     (1.98)
 Interest                                                                     (5.55)     (4.47)     (3.25)
 Current taxes                                                                    -          -      (0.47)
-----------------------------------------------------------------------------------------------------------
 CASH FLOW NETBACK                                                          $ 18.25    $ 21.53     $25.76
-----------------------------------------------------------------------------------------------------------
</TABLE>


RISK MANAGEMENT

Our financial  results are impacted by external  market risks  associated  with
fluctuations in commodity prices, interest rates, and the Canadian/U.S.  dollar
exchange  rate.  We  utilize  various  financial  instruments  for  non-trading
purposes to manage and  mitigate our  exposure to these  risks.  Our  financial
instruments  are not  designated  for hedge  accounting,  and  accordingly  are
recorded at fair value on the  consolidated  balance  sheets,  with  subsequent
changes recognized in consolidated net earnings and other comprehensive income.

Financial   instruments  utilized  to  manage  risk  are  subject  to  periodic
settlements throughout the term of the instruments. Such settlements may result
in a gain or loss,  which is recognized as a realized risk  management  gain or
loss at the time of settlement.

The mark-to-market values of financial instruments  outstanding at the end of a
reporting  period  reflect  the values of the  instruments  based  upon  market
conditions  existing  as of that  date.  Any  change in the fair  values of the
instruments from that determined at the end of the previous reporting period is
recognized as an  unrealized  risk  management  gain or loss.  Unrealized  risk
management  gains or losses may or may not be  realized in  subsequent  periods
depending  upon  subsequent  moves in  commodity  prices,  interest  rates,  or
exchange rates affecting the financial instruments.

                                       9
<PAGE>

<TABLE>
<CAPTION>
Risk management gains and losses recognized in 2007 are outlined below.

--------------------------------------------------------------------------------------------------------
Year ended December 31,  ($000s)                                        2007           2006        2005
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>           <C>
Commodity contracts
   Realized (gain) loss                                             $(19,220)      $(39,217)     $9,663
   Unrealized (gain) loss                                             20,834        (25,775)      5,136
Foreign currency contracts
   Realized (gain) loss                                                7,739          3,018        (532)
   Unrealized (gain) loss                                            (15,367)        (1,747)      5,035
--------------------------------------------------------------------------------------------------------
Total risk management (gain) loss                                    $(6,014)      $(63,721)    $19,302
--------------------------------------------------------------------------------------------------------

Realized (gain) loss                                                $(11,481)      $(36,199)     $9,131
Unrealized (gain) loss                                                 5,467        (27,522)     10,171
--------------------------------------------------------------------------------------------------------
Total risk management (gain) loss                                    $(6,014)      $(63,721)    $19,302
--------------------------------------------------------------------------------------------------------

<CAPTION>
DEPLETION AND DEPRECIATION

--------------------------------------------------------------------------------------------------------
  Years ended December 31,                                              2007           2006        2005
--------------------------------------------------------------------------------------------------------
  <S>                                                               <C>            <C>         <C>
  Total depletion and depreciation ($000S)                          $151,411       $143,057    $105,504
  Depletion and depreciation per boe ($/BOE)                         $ 13.24        $ 11.81     $  9.82
--------------------------------------------------------------------------------------------------------
</TABLE>

Accelerated  capital  programs  and  competition  throughout  the  oil  and gas
industry  during the current and prior years  increased the demand and costs of
goods and  services.  This  increase in costs is reflected  in higher  finding,
development, and on-stream costs which in turn, have resulted in an increase in
depletion  and  depreciation  rates  on a boe  basis  in the  current  year  in
comparison to prior periods.


FOREIGN EXCHANGE

The foreign exchange gain recognized on the consolidated statements of earnings
results  primarily from the translation of our U.S. dollar  denominated  Senior
Notes into Canadian  dollars.  The Senior Notes are  translated and recorded in
the financial  statements at the year end exchange rate,  with any  differences
from prior measurements being recognized as an unrealized foreign exchange gain
or loss.

In 2007, we entered into foreign  currency  exchange  contracts  related to our
$450 million of U.S. dollar  denominated Senior Notes. The notes were issued in
2005 and 2006 and are due in 2013.  The  strengthening  of the Canadian  dollar
against that of the U.S.  resulted in the Company  recognizing  the  unrealized
foreign exchange gain referred to in the preceding paragraph. On October 26 and
31,  2007 we entered  into  foreign  exchange  forward  contracts  to  purchase
U.S.$450  million  for C$436  million,  as at December 1, 2010 being the second
call date on the notes. These contracts effectively crystallize a total foreign
exchange gain of approximately $91.7 million.

On November 22,  2005,  pursuant to a tender  offer,  we  repurchased  U.S.$158
million  of  the  9.90%  Senior  Notes  issued  in  2002.  As a  result  of the
repurchase,  we crystallized $62 million of the accumulated  unrealized foreign
exchange  gains  in  2005  that  had  previously   been   recognized  with  the
strengthening of the Canadian dollar subsequent to the note issuance.

                                      10
<PAGE>

<TABLE>
<CAPTION>
STOCK-BASED COMPENSATION

-----------------------------------------------------------------------------------------------
         Years ended December 31,                             2007           2006         2005
-----------------------------------------------------------------------------------------------
         <S>                                               <C>            <C>          <C>
         Options granted (000S)                              2,074          2,228        2,930

         Weighted average fair value of                     $ 4.23         $ 6.90        $5.45
              options granted ($/SHARE)

         Stock-based compensation expense                  $11,034        $10,488       $5,903
              recognized ($000S)
-----------------------------------------------------------------------------------------------
</TABLE>

We have a stock option plan for employees, officers, and directors. The plan is
designed to attract,  motivate, and retain outstanding individuals and to align
their success with that of our shareholders.  The fair value of options granted
is estimated on the date of grant using the Black-Scholes  option pricing model
and the associated compensation expense is recognized over the vesting period.

During 2006, in recognition of the shortage of, and competition for,  qualified
personnel within the oil and gas industry in Western Canada,  we implemented an
Employee Retention Program in July 2006 for our existing  employees,  excluding
officers  and  directors.  Pursuant  to the  program,  and based  upon  various
conditions  existing  on  July 1,  2007,  including  the  market  value  of the
Company's shares, we incurred additional  compensation expense of $4.0 million.
For the years ended December 31, 2006 and 2007, we recognized  $1.4 million and
$2.6  million  respectively  in  stock-based  compensation  in relation to this
program.


INCOME TAXES

Income taxes are recorded  using the  liability  method of  accounting.  Future
income taxes are calculated based on the difference  between the accounting and
income tax basis of an asset or liability.  The classification of future income
taxes between current and non-current is based upon the  classification  of the
liabilities  and assets to which the  future  income tax  amounts  relate.  The
classification  of a future  income tax amount as current does not imply a cash
settlement of the amount within the following twelve month period.

CURRENT INCOME TAXES

No current income taxes were incurred in 2007 and 2006 primarily as a result of
the elimination of federal capital tax effective January 1, 2006. Current taxes
of $5 million  in 2005,  in  addition  to capital  taxes,  included  $3 million
related to the  resolution of a Notice of Objection with respect to a corporate
acquisition in a prior tax period.  As a result of the  reassessment  resulting
from  resolution  of the Notice of  Objection,  $7  million  of tax  deductible
exploration  expenses  denied to the  acquired  corporation  were  added to our
income tax pools as a positive offset to incurring the current  liability.  The
resolution  of this matter did not impact our total  future  income tax expense
for 2006.

FUTURE INCOME TAXES

Future  income  taxes in 2007  included a $50  million  recovery as a result of
reductions in the federal corporate tax rates, which were enacted in the second
and fourth  quarter of 2007.  The  federal tax rate is to be reduced by 1.0% in
2008, 1.0% in 2009, 1.0% in 2010, 2.0% in 2011, and 3.5% in 2012.  Future taxes
in 2006 also  included a $50 million  recovery as a result of reductions in the
federal  and  Alberta  corporate  tax rates,  which were  enacted in the second
quarter of 2006.

                                      11
<PAGE>

CORPORATE TAX RATES

----------------------------------------------------------------------------
   Years ended December 31,                     2007       2006       2005
----------------------------------------------------------------------------

   Statutory rate                              32.1%      34.5%      37.6%

   Effective rate                            (24.3)%     (2.8)%      39.5%
----------------------------------------------------------------------------

A  reconciliation  of our effective tax rate to the statutory rate may be found
in Note 16a to the consolidated financial statements.



                                      12
<PAGE>

TAX POOLS

<TABLE>
<CAPTION>
The following table summarizes our estimated tax pool balances by
classification.

----------------------------------------------------------------------------------------------------------
                                                                               AVAILABLE       MAXIMUM
                                                                                BALANCE         ANNUAL
As at January 1, 2008                                                           ($000S)       DEDUCTION
----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>
Canadian exploration expense and non-capital losses                            $360,500         100%
Canadian development expense                                                    367,241          30%
Canadian oil and natural gas property expense                                    74,070          10%
Undepreciated capital cost and financing costs                                  316,151         ~25%
----------------------------------------------------------------------------------------------------------
Total                                                                        $1,117,962
----------------------------------------------------------------------------------------------------------
</TABLE>

A  significant  portion of our taxable  income is  generated  by a wholly owned
partnership.  Consolidated  earnings  before  income taxes include $149 million
(2006 - $259  million)  of  partnership  earnings  that will be included in the
following  year's income for income tax  purposes.  Future income taxes include
$44 million  (2006 - $83 million) as a result of this  deferral of  partnership
earnings.

Based upon planned  capital  expenditure  programs and current  commodity price
assumptions,  it appears we will not incur current  income taxes until at least
2010.

<TABLE>
<CAPTION>
SUMMARY OF CAPITAL EXPENDITURES

----------------------------------------------------------------------------------------------------------
Years ended December 31,                      2007                    2006                    2005
----------------------------------------------------------------------------------------------------------
                                         ($000S)         %       ($000s)         %       ($000s)      %
----------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>       <C>           <C>       <C>          <C>
Drilling and completions                  $226,789      59        $294,197      60        $318,502     66
Land and seismic                            47,528      12          59,905      12          55,469     11
Facilities                                 111,215      29         137,409      28         109,729     23
----------------------------------------------------------------------------------------------------------
Sub-total                                 $385,532     100        $491,511      100       $483,700    100
Corporate acquisitions                     131,380                      --                      --
Acquisitions and divestments, net        (229,391)                  34,394                  28,575
----------------------------------------------------------------------------------------------------------
Sub-total                                 $287,521                $525,905                $512,275
MPP                                          4,796                     (31)                  1,261
----------------------------------------------------------------------------------------------------------
Total capital expenditures                $292,317                $525,874                $513,536
----------------------------------------------------------------------------------------------------------
</TABLE>

Capital spending in 2007 was directed towards the continued  development of our
core natural gas resource plays in southern and central Alberta.  Overall, 2007
capital spending,  before acquisitions and divestitures,  decreased by 22% when
compared to 2006. This reduction  reflects the fewer number of wells drilled in
2007 versus the prior year as well as an overall  reduction in certain  service
costs  in 2007 as  compared  to 2006.  We  drilled  6%  fewer  wells in 2007 as
compared to 2006, and drilling and  completions  expenditures  declined by 23%,
which implies an overall reduction in service costs of approximately 17%. Lower
spending on land and seismic and facilities  during 2007 also reflect the lower
level of activity as compared to 2006.

During 2007,  we pursued our strategy of divesting of non-focus  assets and the
redeployment  of the proceeds  into our focus area natural gas plays  including
strategic acquisitions. We closed non-core property divestments,  including our
conventional  light oil  property at Worsley,  for total net proceeds of $303.1
million.  We also  added  to our  core  areas  through  a  series  of  property
acquisitions  that totaled  approximately  $73.7  million,  resulting in $229.4
million  property  divestments  net  of  acquisitions.  Through  two  corporate
acquisitions,  Stylus Energy Inc. and WIN Energy Corporation,  we significantly
expanded our presence in southern  Alberta and the Foothills in 2007 at a total
cost of $131.4 million.

                                      13
<PAGE>

During the second  quarter of 2007,  we undertook a major two week  maintenance
turn around at the  Mazeppa gas plant.  This  scheduled  maintenance,  which is
necessary  every three years,  accounts for the increased  capital  spending at
Mazeppa when compared to 2006 and 2005.

Capital expenditures,  before acquisitions and divestitures,  in 2006 increased
only  marginally  from 2005;  however,  they  reflect  overall  cost  inflation
experienced  in the  industry  during  the year.  We drilled a total of 274 net
wells in 2006 at an average  cost, to drill and  complete,  of  $1,074,000  per
well.  In contrast,  we drilled 334 net wells during 2005 at an average cost of
$954,000 per well. Although not an entirely comparable analysis,  as the mix of
shallow, deep, and oil wells affected this comparison, this represented a 12.6%
increase in drilling  and  completion  costs,  on a per well basis,  in 2006 as
compared to 2005.

Spending on production facilities increased $27.7 million in 2006 over 2005 and
comprised 28% of our total capital program, before acquisitions and divestments
as compared to 23% in 2005.  Although we deferred a portion of our initial 2006
drilling  program in deference to lower commodity  prices and the  inflationary
cost environment, we continued with the majority of our planned expenditures in
2006 relating to equipment and facilities.

LIQUIDITY AND CAPITAL RESOURCES

--------------------------------------------------------------------------------
   As at December 31,  ($000s,                 2007          2006         2005
        except where noted)
--------------------------------------------------------------------------------

   Working capital deficiency (1)           $39,215       $23,163      $62,116
   Bank debt                                398,426       328,000      177,900
   Senior term notes                        433,762       524,385      357,640
--------------------------------------------------------------------------------
   Total indebtedness                      $871,403      $875,548     $597,656

--------------------------------------------------------------------------------
   Shareholders' equity                    $869,956      $734,124     $596,336

   Debt to adjusted cash flow from              4.2           3.4          2.2
        operations (2)
   Debt to book capitalization                  49%           54%          50%
   Debt to market capitalization                41%           39%          22%
--------------------------------------------------------------------------------
   1. Excludes  unrealized risk  management  items net of related future income
      taxes.
   2. Based on trailing 12 month adjusted cash flow from operations.

SENIOR TERM NOTES

The Senior Notes are repayable in U.S.  dollars for 2007 and are carried on the
balance sheet at their  Canadian  dollar  equivalent  less related  unamortized
transaction costs. The 2005 and 2006 comparative amounts have not been adjusted

                                      14
<PAGE>

to  reflect  new  accounting  treatment.  The  Canadian  dollar  equivalent  is
determined based upon the Canadian/U.S. dollar exchange rate at December 31.

During the fourth  quarter of 2007, we entered into foreign  currency  exchange
contracts to purchase  US$450 million for C$436 million as at December 1, 2010,
being the second  call date on the Senior  Notes.  The Senior  Notes are due on
December 1, 2013. The foreign exchange  contracts  effectively fix the Canadian
dollar repayment amount of the Senior Notes at $436 million through to December
1. 2010 and  crystallized an unrealized  foreign exchange gain of approximately
$91.7 million.

The carrying value of the Senior Notes will continue to vary in relation to the
Canadian/U.S.  dollar  exchange  rate  and  any  resulting  unrealized  foreign
exchange  gains or losses will be  recognized.  The  variance  in the  carrying
amount of the notes will largely be offset by the  mark-to-market  value of the
foreign exchange contracts. Effectively,  unrealized foreign exchange gains and
losses  resulting  from  translation  of the notes will be offset by unrealized
gains and losses on the foreign  exchange  contracts until December 2, 2010. At
December 31, 2007 an accumulated gain of $14.1 million has been recorded on the
foreign  exchange  contracts as outlined in Note  17(a)(iii)  to the  financial
statements.

BANK DEBT

Bank  debt  is  comprised  of a  syndicated  credit  facility  with  a  current
authorized  limit of $500 million.  The facility is a borrowing  based facility
with the borrowing  base being  determined  based upon year end  reserves.  The
facility is subject to review  annually  prior to the  renewal  date of July 4,
2008. We do not  anticipate  any reduction to the borrowing base and authorized
credit facility amount given the increase in 2007 reserves over 2006.

Our corporate debt is structured to provide us with financial  flexibility.  Of
our  existing  debt,  50% consists of Senior Notes that are not due until 2013,
giving us the ability to draw on our senior secured credit facilities to assist
in funding our planned 2008 capital program.

We have identified a number of non-core properties for disposition during 2008.
We  anticipate   the  proceeds  from  the  sale  of  these   properties  to  be
approximately  $250  million.  Initially,  the  proceeds so  generated  will be
applied to reduce our outstanding bank debt. Additionally, the authorized limit
of $500 million may be reduced to recognize the  reduction in reserves  related
to these dispositions.  Any such potential change is expected to be minimal due
to 2007 reserve additions.

We believe internally generated adjusted cash flow from operations and proceeds
from planned  property  dispositions  will be more than  sufficient to fund our
planned  2008  capital  program.  Excess  funds  will be used  to  reduce  bank
indebtedness.


CONTRACTUAL OBLIGATIONS

As part of normal  business,  we have  entered into  arrangements  and incurred
obligations that will impact our future operations and liquidity, some of which
are reflected as  liabilities in the  consolidated  financial  statements.  The
following table summarizes our contractual obligations as at December 31, 2007.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                              PAYMENTS DUE BY PERIOD
                                        LESS THAN 1                               AFTER 5
($000s)                                     YEAR      1-3 YEARS   4-5 YEARS         YEARS          TOTAL
----------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>         <C>           <C>           <C>
Bank debt                                    --        $400,000          --            --        $400,000
Senior term notes                            --              --    $436,388            --         436,388
Operating leases                         $3,811           3,830          --            --           7,641
Office facilities                         4,351          16,565       5,569       $33,414          59,899
MPP partnership distributions             9,172           3,057          --                        12,229
Asset retirement obligation               2,818           3,910       7,203       232,631         246,562
----------------------------------------------------------------------------------------------------------
Total                                   $20,152        $427,362    $449,160      $266,045      $1,162,719
----------------------------------------------------------------------------------------------------------
</TABLE>

                                      15
<PAGE>

We have the ability and the  intention  to extend the term of our bank debt and
therefore  repayment  of the  facility,  although  included in the  schedule of
contractual obligations, is not expected to occur.

OUTLOOK AND GUIDANCE FOR 2008

The following  section  summarizes our plans and guidance for 2008 as announced
in a news  release  dated  January  23,  2008.  We  believe  our  budget  to be
achievable, however, certain events more fully described under "Recent Events",
will impact our 2008 operations.

SUMMARY OF 2008 GUIDANCE

--------------------------------------------------------------------------------
                                                           2008 BUDGET RANGE
--------------------------------------------------------------------------------

Capital expenditures ($MILLIONS)                                 $410
Gross wells                                                       350
Average production - total boe/d                            36,000 - 37,000
Adjusted cash flow from operations ($MILLIONS)                $245 - $255
--------------------------------------------------------------------------------

Our 2008  projected  adjusted  cash  flow  from  operations  is based  upon the
following pricing assumptions:

--------------------------------------------------------------------------------
                                             BENCHMARK               REALIZED
--------------------------------------------------------------------------------

Natural gas                              AECO Cdn $6.98/mcf       Cdn $6.95/mcf
Crude oil ($/bbl)                       WTI U.S. $81.00/bbl       Cdn $72.75bbl
--------------------------------------------------------------------------------

The average Canadian/U.S. exchange rate is budgeted at $1.00 U.S. = $1.00 Cdn.

Concurrent with  strengthening  commodity prices during the first part of 2008,
we have  systematically  entered into a number of commodity  hedge contracts as
summarized in the Risk  Management  section of this MD&A and Note 17(a) (ii) to
the  financial  statements.  The effect of these  contracts  is an  increase in
projected  2008 cash flow of $10.8  million from the amount noted above.  It is
our intent to hedge  approximately 50% of our gross production forward 12 to 18
months.

CASH FLOW SENSITIVITIES FOR 2008

--------------------------------------------------------------------------------
   ($millions) Change in Cash Flow
--------------------------------------------------------------------------------

   Change of Cdn $0.25/mcf in the benchmark AECO natural gas price         $14.0
   Change of U.S. $1.00/bbl in the benchmark WTI oil price                  $0.4
--------------------------------------------------------------------------------

In the  event  of  significant  changes  in  commodity  prices,  operating  and
exploration  costs,  or an  overall  change in  general  economic  or  industry
conditions,   we  can  readily  amend  our  capital   expenditure   program  as
appropriate.

                                      16
<PAGE>

RECENT EVENTS

In response to concerns raised by a major shareholder of Compton,  the Board of
Directors of the Company,  as  announced in a news release  dated  February 27,
2008 will conduct a formal review of the Company's business plans and strategic
alternatives.  This will include exploring potential asset divestments,  equity
alternatives,  strategic alliances, joint venture opportunities,  mergers, or a
corporate  transaction.   In  the  aforementioned  news  release,  the  Company
cautioned  shareholders  that there is no assurance that the review will result
in any specific transaction and no timetable had been set for its completion.

The Company has  estimated  that during 2008 direct  costs and costs  resulting
from the process associated with shareholder activism will be approximately $22
million.  Such costs will  include  additional  legal fees,  advisory  fees and
expenses,  and employee  retention  costs.  Such costs will be included in 2008
general and administrative  expenses and will reduce cash flow from operations.
Depending  upon the outcome of the process the Company  could incur  additional
cash  outlays  relating  to  change of  control  provisions  applicable  to the
Company's Senior Notes, Mazeppa Processing Partnership  arrangements,  employee
contracts, and additional advisory and legal fees.

At this stage,  we are unable to predict the outcome of the review  process and
the  direction  that Compton may  ultimately  take. As events  unfold,  we will
provide complete and timely updates.


ADDITIONAL DISCLOSURES

CONTROLS AND PROCEDURES

With respect to disclosure  controls and procedures  and internal  control over
financial reporting, we are required to comply with the U.S. Sarbanes-Oxley Act
of  2002  and  Canadian  Multilateral   Instrument  52-109,   Certification  of
Disclosure  in  Issuers'  Annual and Interim  Filings.  These  regulations  are
substantially the same.  However,  the most significant  difference is the U.S.
requirement for the registered public accounting firm that audits our financial
statements,  included in our annual report,  to issue an attestation  report on
our  internal  control  over  financial  reporting.  There is no  corresponding
Canadian attestation requirement.

There are certain  procedural  and  wording  differences  between the U.S.  and
Canadian  certifications.  We have  chosen  to file the  form of  certification
pursuant to Section 302 of the Sarbanes-Oxley Act with the U.S.  Securities and
Exchange  Commission  ("SEC")  and Form  52-109  F1,  Certification  of  Annual
Filings, with the Canadian Securities Administrators ("CSA").

We have  complied  with both the U.S. and Canadian  requirements  in respect of
disclosure   controls  and  procedures  and  internal  control  over  financial
reporting and our report is below.


                                      17
<PAGE>

MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The term "disclosure controls and procedures" is defined,  under Rule 13a-15(d)
of the U.S.  Exchange Act of 1934,  as controls and other  procedures  that are
designed to ensure both non-financial and financial  information required to be
disclosed by us in our periodic reports is recorded, processed, summarized, and
reported within the time periods required,  and this information is accumulated
and  communicated  to  management  as  appropriate,  to allow timely  decisions
regarding  required  disclosures.  The  definition of  disclosure  controls and
procedures  with  respect  to  Canadian   Multilateral   Instrument  52-109  is
substantially the same.

As indicated in our certifications  filed with the SEC and CSA, we completed an
evaluation of the  effectiveness  of the design and operation of our disclosure
controls and procedures as of December 31, 2007, under the supervision and with
the  participation  of our  Management,  including  our  President & CEO and VP
Finance & CFO. Based upon our evaluation,  we concluded our disclosure controls
and procedures were effective.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management,  including our President & CEO and VP Finance & CFO, is responsible
for  establishing  and  maintaining  adequate  internal  control over financial
reporting.  The term "internal  control over  financial  reporting" is defined,
under  both  Rule  13a-15(f)  of the U.S.  Exchange  Act of 1934  and  Canadian
Multilateral  Instrument  52-109,  as  processes  designed  by,  or  under  the
supervision of, our principal executive and principal  financial officers,  and
effected by our board of directors,  management and other personnel, to provide
reasonable  assurance  regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes in accordance
with GAAP. These controls would include policies and procedures that:

1.    Pertain to the  maintenance  of our records,  that  accurately and fairly
      reflect the transactions affecting, and dispositions of, our assets;

2.    Provide reasonable assurance that transactions are recorded to be able to
      prepare our financial  statements in accordance  with GAAP,  and that our
      receipts and expenditures are made only in accordance with authorizations
      of our management and directors; and

3.    Provide reasonable  assurance regarding prevention or timely detection of
      unauthorized acquisition,  use, or disposition of our assets, which could
      have a material effect on our financial statements.

We completed an evaluation of the  effectiveness of the design and operation of
our internal control over financial  reporting under the supervision,  and with
the  participation,  of our  Management,  including  our President & CEO and VP
Finance & CFO. We conducted our evaluation of the effectiveness of our internal
control over  financial  reporting  based on the Internal  Control - Integrated
Framework,  issued by the Committee of Sponsoring Organizations of the Treadway
Commission,  also known as COSO. Based upon our evaluation,  we have concluded,
as of  December  31,  2007,  internal  control  over  financial  reporting  was
effective.

The  effectiveness of internal control over financial  reporting as of December
31,  2007 was  audited  by  Grant  Thornton  LLP,  Chartered  Accountants,  the
independent  registered public accounting firm, which also audits our financial
statements.  They have  issued  their  Independent  Auditors'  Report  which is
included in this Annual Report.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the  quarter  ended  March 31,  2007,  we made two  material  changes to
internal  control over financial  reporting.  On March 1, 2007 we converted our

                                      18
<PAGE>

production accounting and royalty management information systems. These changes
were  implemented  to  improve  both  operational   efficiencies  and  internal
controls.  These  conversions  were not due to any identified  internal control
weaknesses.

During the quarter  ended  December  31, 2007,  we made one material  change to
internal control over financial reporting.  On October 15, 2007, we implemented
our  substantially  re-engineered  capital  expenditure  approval  and tracking
business process. This included improved policies and procedures as well as new
workflow  software to support those  policies and  procedures.  This change was
implemented  to improve  operational  effectiveness  and  efficiency as well as
remediate internal control deficiencies.

These  changes  were  subject to our  change  management  procedures  which are
effective.

There  were no other  changes  during  the year ended  December  31,  2007 that
materially  affected,  or are  reasonably  likely  to  materially  affect,  our
internal control over financial reporting.


CRITICAL ACCOUNTING ESTIMATES

Accounting estimates require us to make assumptions  regarding matters that are
uncertain  at the time the  estimate is made and may have a material  impact on
our  financial  condition.  A  comprehensive   discussion  of  our  significant
accounting  policies  may be  found  in  Note 1 to the  consolidated  financial
statements.

OIL AND NATURAL GAS RESERVES

The  independent  petroleum  engineering  and  geological  consulting  firm  of
Netherland,  Sewell & Associates, Inc. evaluated and reported on 96% of our oil
and natural gas reserves. The remainder was internally evaluated.

The  estimation  of reserves is a subjective  process.  Forecasts  are based on
engineering  data,  projected  future  rates of  production,  and the timing of
future  expenditures,  all of which are subject to numerous  uncertainties  and
various  interpretations.  We expect that our estimates of reserves will change
with  updated  information  from the results of future  drilling,  testing,  or
production  levels.  Such  revisions  could be  upwards or  downwards.  Reserve
estimates  have  a  material  impact  on  depletion  and  depreciation,   asset
retirement obligations,  and impairment costs, all of which could possibly have
a material impact on our consolidated net earnings.

DEPLETION

Capitalized costs and estimated future expenditures to develop proved reserves,
including abandonment costs, are depleted based on the proportion of proved oil
and natural gas reserves  produced  during the year compared to estimated total
proved  reserves.  Investments  in unproved  properties  and major  development
projects are not amortized until proved  reserves  associated with the projects
can  be  determined  or  until  impairment  occurs.  If it is  determined  that
properties  are  impaired,  the  amount  of  the  impairment  is  added  to the
capitalized costs to be amortized.

In 2007, we incurred $151 million of depletion and depreciation.  If our proved
reserves were to increase by 5%, our depletion and  depreciation  expense would
decrease by $1.8 million and consolidated net earnings after tax would increase
by $1.4 million.  If our proved  reserves were to decrease by 5%, our depletion
and  depreciation  expense would increase by $2.0 million and  consolidated net
earnings after tax would decrease by $1.5 million.

IMPAIRMENT

In applying the full cost method of  accounting,  we  periodically  calculate a
ceiling or  limitation on the amount that property and equipment may be carried
for  on  the  consolidated   balance  sheets.   An  impairment  exists  if  the
undiscounted  future net cash flows from proved  reserves  at future  commodity
prices plus the cost of undeveloped  properties is less than the carrying value

                                      19
<PAGE>

of  the  capitalized  costs.  As at  December  31,  2007,  the  ceiling  amount
calculated  was $2.4  billion  (2006 - $2.7  billion) in excess of the carrying
value of the costs capitalized.

If an impairment is found to exist, the impaired properties are written down to
their fair value.  The fair value of the assets is  calculated  based on future
net cash flows from proved plus  probable  reserves,  discounted at a risk free
interest  rate using  future  commodity  prices,  plus the cost of  undeveloped
properties.  An  impairment  may  result in a  material  loss for a  particular
period;  however, future depletion and depreciation expense would be reduced as
a result.

Assumptions  about reserves and future prices are required to calculate  future
net cash flows. The assumptions  made to estimate  reserves have been discussed
above. There is significant  uncertainty regarding forecasting future commodity
prices due to economic and political  uncertainties.  Future prices are derived
from a  consensus  of price  forecasts  among  recognized  reserve  evaluators.
Estimates  of future cash flows  assume a long term price  forecast and current
operating costs per boe plus an inflation factor.

It is  difficult  to  determine  and assess the impact of a decrease  in proved
reserves on impairment.  The  relationship  between  reserve  estimates and the
estimated  undiscounted cash flows, and the nature of the  property-by-property
impairment  test is  complex.  As a result,  it is not  possible  to  provide a
reasonable  sensitivity analysis of the impact that a reserve estimate decrease
would have on impairment.  No material  downward  revisions to our reserves are
anticipated.

ASSET RETIREMENT OBLIGATION

We recognize the fair value of estimated  asset  retirement  obligations on the
consolidated  balance  sheet when a  reasonable  estimate  of fair value can be
made. Asset retirement  obligations  include those legal  obligations  where we
will be  required  to retire  tangible  long term  assets  such as well  sites,
pipelines,  and facilities.  The asset  retirement cost, equal to the initially
estimated fair value of the asset retirement obligation, is capitalized as part
of the cost of the related long term assets.  Increases in the asset retirement
obligations  resulting  from the passage of time are  recorded as  accretion of
asset retirement obligations in the consolidated statement of earnings. Amounts
recorded for asset retirement obligations are subject to uncertainty associated
with the method,  timing,  and extent of future retirement  activities.  Actual
payments to settle the obligations may differ from estimated amounts.

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2008, the Company will adopt the following CICA Handbook Sections:

a.    Section 3031,  "INVENTORIES"  which replaces the existing  standard.  The
      requirements  include  the  consistent  grouping  of like  assets and the
      application of the  first-in-first-out  or weighted  average cost formula
      methodologies.

b.    Section 1400,  "GENERAL  STANDARDS OF FINANCIAL  STATEMENT  PRESENTATION"
      which requires assessing and disclosing the Company's ability to continue
      as a going concern.

c.    Section 3862,  "FINANCIAL  INSTRUMENTS -  DISCLOSURES"  and Section 3863,
      "FINANCIAL INSTRUMENTS - PRESENTATION".  These new standards will require
      increased disclosure of financial instruments with particular emphasis on
      the  risks   associated  with  recognized  and   unrecognized   financial
      instruments and how those risks are managed.

d.    Section 1535, "CAPITAL DISCLOSURES",  requiring disclosure of information
      about an entity's capital and the objectives, policies, and processes for
      managing capital.

The adoption of these  standards  is not expected to have a material  impact on
the Company's consolidated financial statements.

                                      20
<PAGE>

On January 1, 2009 the Company will be required to adopt CICA Handbook  Section
3064,  "INTANGIBLE  ASSETS".  The new  section  established  standards  for the
recognition,  measurement, and disclosure of goodwill and intangible assets and
replaces the existing  Handbook  Section 3062,  "GOODWILL AND OTHER  INTANGIBLE
ASSETS" and Section 3450,  "RESEARCH AND DEVELOPMENT COSTS".  Intangible assets
associated  with the  exploration  and  development  of oil and gas  assets are
specifically  excluded  under the new standard.  The Company is evaluating  the
implications  of  this  adoption,   but  expects  no  material  impact  on  the
consolidated financial statements.

On January 10, 2006, the CICA Accounting  Standards  Board ("AcSB")  ratified a
new  strategic  plan  that  would see the  convergence  of  Canadian  Generally
Accepted Accounting Principles ("GAAP") with International  Financial Reporting
Standards  ("IFRS")  within  5 years.  In March  2007,  the  AcSB  released  an
"IMPLEMENTATION PLAN FOR INCORPORATING IFRSS INTO CANADIAN GAAP", which assumed
a convergence date of January 1, 2011. The AcSB confirmed this date in February
2008.  The  Company  continues  to  monitor  and  assess  the  consequences  of
convergence  on the  consolidated  financial  statements  as they  could have a
material impact.

RISK MANAGEMENT

Our  operations  are  subject  to risks  inherent  to the oil and  natural  gas
industry. We are exposed to financial risks including fluctuations in commodity
prices,  currency exchange rates,  interest rates, credit ratings, and changing
expenditure costs due to shifts in market conditions. We take specific measures
to manage these risks,  particularly  those  impacting  adjusted cash flow from
operations.

A more  detailed  discussion  of risk  factors is  presented in our most recent
Annual  Information  Form, filed with securities  regulatory  authorities on or
before March 31, 2008 on WWW.SEDAR.COM.

COMMODITY PRICE RISK MANAGEMENT

We enter into commodity price contracts to actively manage risk associated with
price volatility to protect adjusted cash flow from operations required to fund
our capital  program.  We use fixed price and costless collar contracts as well
as balancing  physical and financial  contracts in terms of volumes,  timing of
performance,  and delivery  obligations  to manage risk. Net open positions may
exist  or may be  established  to take  advantage  of  market  conditions.  Net
earnings for the year ended December 31, 2007,  include realized and unrealized
loss of $1.6 million (2006 - $65.0 million gain) on these transactions.

The following table outlines  commodity hedge transactions in place at December
31, 2007 together with transactions entered into subsequent to the year end:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
COMMODITY                     TERM                   AMOUNT               AVERAGE PRICE           INDEX
---------------------------------------------------------------------------------------------------------
<S>               <C>                              <C>                   <C>                      <C>
Natural gas
  Collar          Nov. 2007 - March 2008            9,524 mcf/d          $8.27 - $10.50            AECO
  Collar          April 2008 - Oct. 2008           52,381 mcf/d          $7.33 - $8.48             AECO
  Fixed           April 2008 - Oct. 2008           19,048 mcf/d              $7.86                 AECO
  Collar          Nov. 2008 - March 2009           28,571 mcf/d          $8.40 - $10.00            AECO
  Fixed           Nov. 2008 - March 2009            9,524 mcf/d              $8.51                 AECO

Crude oil
  Fixed           March 2008 - Dec. 2008           1,000 bbls/d          U.S.$93.00/bbl            WTI
---------------------------------------------------------------------------------------------------------
</TABLE>


FOREIGN CURRENCY EXCHANGE RATE RISK MANAGEMENT

Our  7.625%  Senior  Notes  due  December  1,  2013  and  semi-annual  interest
obligations thereon are payable in U.S. dollars. Accordingly, we are exposed to
fluctuations in the exchange rate between the Canadian and the U.S. dollar.  To

                                      21
<PAGE>

manage  this  risk we  entered  into a series  of  foreign  exchange  contracts
relating to the principle amount of the Notes, effectively fixing the liability
at $436  million  Canadian  through to December 1, 2010,  being the second call
date on the Notes.  Additionally,  we entered into a series of foreign exchange
contracts  relating  to the  interest  obligations  associated  with the  Notes
through to December 1, 2010.

We are also exposed to  fluctuations  in the exchange rate between the Canadian
dollar  and the  U.S.  dollar.  Commodity  prices  are  based  on  U.S.  dollar
benchmarks  that  result  in  our  realized  price  being   influenced  by  the
Canadian/U.S.  currency  exchange rate.  Should the Canadian dollar  strengthen
compared  to the U.S.  dollar  we will  experience  a  negative  effect  on net
earnings.  Conversely,  should the Canadian  dollar weaken compared to the U.S.
dollar we will experience a positive effect on net earnings.

INTEREST RATE RISK MANAGEMENT

We are exposed to  fluctuations in interest rates on corporate  borrowings.  To
manage  this risk we attempt to achieve a balance  between  fixed and  floating
interest rate debt  instruments.  Our Senior Notes bear a fixed interest charge
of 7.625% and our borrowings under are syndicate credit facility incur floating
rate interest  charges.  At year end  approximately  52% of our total corporate
debt incurred  fixed rate interest  charges and the balance  incurred  floating
rate charges.

Concurrent  with the closing of our 9.90% Senior Notes offering in May of 2002,
we entered into a cross currency  interest rate swap. The swap, which converted
fixed rate U.S. dollar interest  obligations into floating rate Canadian dollar
interest  obligations,  was entered into to fix the  exchange  rate on interest
payments and take advantage of lower floating  interest rates. On repurchase of
the majority of 9.90% Senior Notes in November 2005, we elected not to collapse
the swap and incur the then associated  costs of $12 million.  The swap remains
outstanding  and at December  31,  2007,  we valued the  liability  relating to
future  unrealized  losses on the swap  arrangement to be $10.4 million (2006 -
$11 million) determined on a mark-to-market basis. The loss associated with the
swap has resulted  primarily  from the  strengthening  of the Canadian  dollar.
Should the Canadian dollar continue to increase  against the U.S.  dollar,  the
loss could  increase  further;  alternatively  if the  Canadian  dollar were to
weaken the loss would be reduced.  Cash  settlements  of the swap positions are
made semi-annually and losses realized will be recorded over the remaining term
of the swap agreement which expires in May 2009.

SELECTED QUARTERLY INFORMATION

The following tables set out selected quarterly  financial  information for the
last two fiscal years.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                            THREE MONTHS ENDED                  YEAR ENDED
-------------------------------------------------------------------------------------------------------------------
                                                MARCH 31,      JUNE 30,     SEPT. 30,       DEC. 31,       DEC. 31,
($000s, except where noted)                       2007          2007          2007            2007          2007
-------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>            <C>            <C>
Average production (BOE/D)                         33,316        28,918        30,440         32,646         31,326
Average pricing ($/BOE)                       $     46.98   $     47.94   $     38.56    $     41.94    $     43.82

Total revenue                                 $   140,877   $   126,171   $   107,980    $   125,959    $   500,987
Adjusted cash flow from operations            $    68,783   $    48,582   $    33,133    $    45,696    $   196,194
Per share: basic                              $      0.53   $      0.38   $      0.26    $      0.35    $      1.52
           diluted                            $      0.52   $      0.36   $      0.25    $      0.35    $      1.48

Adjusted net earnings from operations         $    17,933   $     7,364   $    (1,994)   $    (2,017)   $    21,286

Net earnings (loss)                           $    13,719   $    45,307   $    19,782    $    50,457    $   129,266

Per share: basic                              $      0.11   $      0.35   $      0.15    $      0.39    $      1.00
           diluted                            $      0.10   $      0.34   $      0.15    $      0.38    $      0.98
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      22
<PAGE>

September and October of 2007 were our busiest  drilling months on record since
Company inception. These high activity levels generated production growth of 7%
from the third quarter to the fourth quarter of 2007.  Strengthening  commodity
prices together with increased production volumes resulted in a 17% increase in
fourth quarter revenue and a 38% increase in adjusted cash flow from operations
over the third quarter of 2007.  Revenue and net earnings were lower during the
third quarter of 2007 due primarily to lower realized prices.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                            Three Months Ended                  Year Ended
-------------------------------------------------------------------------------------------------------------------
                                                March 31,      June 30,     Sept. 30,      Dec. 31,       Dec. 31,
($000s, except where noted)                       2006          2006          2006          2006           2006
-------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>           <C>            <C>
Average production (BOE/D)                         34,029        32,645        32,843        33,245         33,187
Average pricing ($/BOE)                       $     48.58   $     45.37   $     42.03   $     42.60    $     44.65

Total revenue                                 $   148,779   $   134,778   $   126,991   $   130,289    $   540,837
Adjusted cash flow from operations            $    73,596   $    67,326   $    60,120   $    55,263    $   256,305
Per share: basic                              $      0.58   $      0.53   $      0.47   $      0.43    $      2.01
           diluted                            $      0.55   $      0.50   $      0.45   $      0.42    $      1.92

Adjusted net earnings from operations         $    22,249   $    17,947   $    13,150   $    11,822    $    65,168

Net earnings (loss)                           $    38,002   $    68,744   $    30,717   $   (10,037)   $   127,426
Per share: basic                              $      0.30   $      0.54   $      0.24   $     (0.08)   $      1.00
           diluted                            $      0.28   $      0.51   $      0.23   $     (0.08)   $      0.95
-------------------------------------------------------------------------------------------------------------------
</TABLE>

During the second  half of 2006,  lower  realized  commodity  prices from those
experienced during the first half of the year resulted in reduced revenue, cash
flow, and adjusted net earnings from  operations.  Production  increases in the
third and fourth  quarter  were more than offset by the  reduction in commodity
prices.  The negative effect of lower commodity prices on cash flow was reduced
by realized gains of $36 million from risk management activities.  Net earnings
for the nine months  ended  September  30, 2006  benefited  from an  unrealized
foreign  exchange gain of $19.1 million,  after tax, and an income tax recovery
of $35  million.  Net earnings in the fourth  quarter were  negative due to the
reversal of unrealized  foreign  exchange gains recorded in prior quarters,  as
the result of the weakening of the Canadian dollar compared to the U.S. dollar.

<TABLE>
<CAPTION>
SELECTED ANNUAL INFORMATION

---------------------------------------------------------------------------------------------------------
Years ended December 31, ($000s)                                       2007          2006          2005
---------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>            <C>
Total revenue                                                    $  500,987    $  540,837     $  564,241
Net earnings                                                     $  129,266    $  127,426     $   81,326
Per share: basic                                                 $     1.00    $     1.00     $     0.65
           diluted                                               $     0.98    $     0.95     $     0.62
Total assets                                                     $2,254,587    $2,145,472     $1,758,098
Total long term financial liabilities                            $  832,188    $  852,385     $  535,540
---------------------------------------------------------------------------------------------------------
</TABLE>

Total  revenue in 2007 was lower than 2006 due to lower oil prices and slightly
lower  production  volumes arising from the disposition of our conventional oil
asset Worsley.

                                      23
<PAGE>

Total  revenue  in 2006 was  marginally  lower  than  2005  with  increases  in
production being more than offset by reduced commodity prices.  Net earnings in
2006 increased $46.1 million over 2005 primarily as a result of risk management
gains that offset the reduction in revenue and increases in expenses. Long term
financial  obligation  in 2006  increased  over 2005 as a result  of  increased
borrowings to fund the capital programs.


TRADING AND SHARE STATISTICS

As at March 10,  2008 there were  129,194,721  common  shares  outstanding  and
12,314,907 stock options.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                           2007                     2006                   2005(1)
                                                     TSX          NYSE         TSX        NYSE         TSX        NYSE
                                                   ($Cdn)        ($US)        ($Cdn)     ($US)       ($Cdn)       ($US)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>         <C>         <C>         <C>
Average daily trading volume (000S)                485,027      213,044      545,489     115,450     736,416     138,288
Share price ($/SHARE)
  High                                              $13.19     US$12.16       $19.24    US$16.74      $18.66    US$16.11
  Low                                               $ 7.40     US$ 7.70       $10.20    US$ 9.04       $9.80    US$14.15
  Close                                             $ 9.14      US$9.20       $10.65    US$ 9.12      $17.10    US$14.65
Market capitalization at December 31 ($000S)             $1,179,958               $1,368,557             $2,176,197
Shares outstanding (000S)                                   129,098                  128,503                127,263
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Trading on the New York Stock Exchange commenced December 5, 2005.

FURTHER INFORMATION

Additional  information,   including  our  Annual  Information  Form,  will  be
available by month end on the Canadian  Securities  Administrators'  System for
Electronic Document Analysis and Retrieval ("SEDAR") at WWW.SEDAR.COM.



                                      24