Equity Strategy October 19, 2007:

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The energy markets have been very volatile over the past few months as crude oil surges higher to set a new all time high price of nearly $90.00 a barrel. Supply concerns due to increased political uncertainty in the Middle East were once again the driving force behind the price increases. Reaching new highs has increased talk of crude oil reaching the previously unheard of price of $100.00 a barrel. The recent surge in price has not yet been fully reflected in the price of oil products such as heating oil and gasoline. It could be a very expensive winter for North American businesses and home owners using oil fired furnaces.

Over the past couple of months heating oil is up about 14% while gasoline and natural gas are up only 7%, as the new higher level of crude prices starts to impact the energy market look for increase in heating oil prices to continue to out pace other products as winter approaches. Surging crude oil and heating oil prices will start to make natural gas look like a real bargain and that is likely to entice consumers to make the switch to gas.

The price of natural gas has a seasonal trend to it and is influenced by general whether conditions. If this winter is colder than the past couple of winters which is often the prediction in a La Nina year natural gas demand could increase significantly over the next few months.

Natural gas appears to be in a position to make a sustained move higher as the price of competing products increases at a faster pace. The price of natural gas has lagged other energy products due to excess inventory that has built up since the last price surge after hurricane Katrina. This creates an opportunity for Canadian natural gas producers to ship higher volumes at higher prices over the coming quarters.

There are several companies that look attractive at current levels given the potential for higher prices going forward. Anderson Energy Ltd. (AXL-T) is a natural gas focused energy company with approximately 85% of annual production attributable to gas. The company operates in three main areas Central Alberta 110 kilometers (km) north of Calgary, North Central Alberta with in a radius of 100 km of Edmonton and in North Eastern BC 145 to 160 km north and east of Fort St. John.

Anderson average production is approximately 4,400 barrel of oil equivalent per day (Boe/d) in the second quarter up 6% from a year ago. The company had cash flow for the quarter of $9 million or 15 cents per share. The company reports proven reserves of 89.8 Billion cubic feet (Bcf), proven and probable 139.3 Bcf of natural gas.

Paramount Resources Ltd. (POU-T) natural gas accounts for approximately 85% of the total annual production. The company operates in five main areas, the Northwest Territories/Northeast BC, Northwest Alberta, Grande Prairie, West Kaybob and Southwest Alberta-Montana-North Dakota.

The company averages approximately 18,400 Boe/d up slightly from a year ago mainly from the west Kaybob region. The company reported cash flow for the first half of 2007 of $60.9 million and cash available as at June 30, 2007 of $775 million. The company is generating strong cash flow even with the current low prices and the strong cash position offers considerable flexibility regarding adding reserves and production by acquisition.

Crew Energy Inc. (CR-T) is leveraged to natural gas which accounts for 84% of total annual production. The company operates in two main areas North Core located in Northeastern BC with the main Laprise operations 150 kilometers northwest of Fort St. John. The Plains Core which encompasses operations in Edson, Ferrier, Viking-Kinsell & Plain Lake and the Wimborne-Drumheller operating units.

The company is currently producing approximately 9250 Boe/d and is forecasting that to increase to 11,500-12,500 by year end. Crew Energy reported strong second quarter cash flow of $20.9 million or 46 cents per share nearly double that of the previous year.

Storm Exploration Inc. (SEO-T) reports 91% of total production from natural gas.  The company produces approximately 6,100 Boe/d from three main operating areas. The Peace River Arch in Northeast BC into Northwest Alberta, Red Earth in North central Alberta and Cabin/Kotcho/Junior in Northeast BC.

The company reported a strong increase in second quarter cash flow up 26% from a year earlier to $12.9 million or 29 cents per share.

These natural gas producers have a proven track record of being able to whether a soft market and in most cases use these periods of weakness to expand by making strategic acquisitions. The natural gas commodity price has remained low over the past two years, as the increase in crude oil forces up the price of heating oil natural gas demand will benefit pushing the commodity price higher.

All of the companies mentioned are trading well down from their 52 week highs and offer reasonable value for long term investors willing to accept the price volatility associated with this sector of the energy market.