OPERATIONS REVIEW

The following operations review is consistent with our outlook as per our “2009 Annual Information Form - March 23, 2010” which can be found in the “Investors” section of this website.

Oil and Natural Gas Properties

The following is a description of our principal oil and natural gas properties on production or under development as at December 31, 2009.  The term "net", when used to describe our share of production, means the total of our working interest share before deduction of royalties owned by others. Reserve amounts are stated, before deduction of royalties, at December 31, 2009, based on December 31, 2009 forecast price and cost assumptions.  Unless otherwise specified, gross and net acres and well count information are as at December 31, 2009.  The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

Our major properties are concentrated in three regions within Alberta, British Columbia and Saskatchewan.  Each region offers a large undeveloped land base, a vast seismic database, and significant ownership and operatorship in production facilities.

MAJOR PROPERTIES
NORTHERN REGION	CURRENT PRODUCTION	UNDEVELOPED LAND	GROSS RESERVES	2010 DRILLING PROGRAM
	(boe/d)	(net acres)	(MMboe)	(# of locations)
North Peace River	6,300	257,273	17.5	2
British Columbia	9,700	226,016	45.3	9
Total Northern Region	16,000	483,289	62.8	11

Northern Region

The Northern Region represents approximately 30% of our current natural gas production and 18% of our oil and liquids production. This production is from zones in the Mississippian, Triassic and Cretaceous aged formations. In 2009, we invested $5.6 million to expand its land position in this region.

Production from this area flows mainly through our 30 owned and operated compression facilities. Our average working interest in these facilities is approximately 87%. Production from the area is largely weighted to natural gas resulting in a low cost structure with ample capacity to add incremental production efficiently. In 2009, production from the Northern Region averaged 74,201 Mcf/d of natural gas and 4,292 bbls/d of oil and liquids for a total of 16,659 boe/d. We also own 483,289 net acres of prospective undeveloped land in the region with an average working interest of approximately 74%.

The Northern Region includes a diversified property base, primarily operated by us, which in 2009 collectively accounted for:

British Columbia – All properties are geographically located within a 200 mile radius of Fort St. John, British Columbia. As virtually all natural gas produced in this area of North East British Columbia is processed and shipped to market by Spectra Energy Midstream, we do not own direct interests in natural gas processing plants. Our British Columbia assets currently produces 9,700 boe/d, a rate that has remained stable over the past four years.

North Peace River - Our North Peace River district located north of Grande Prairie is 73% natural gas weighted and almost entirely operated by Bonavista. In 2009 we drilled four wells: three were cased as natural gas wells and one as an oil well. In 2010, we anticipate spending $12.8 million where we will drill two horizontal oil wells and focus incremental spending on facility optimization and consolidation which will in turn, lower operating costs and enhance long-term profitability.

Western Region

The Western Region represents approximately 57% of our current natural gas production and 45% of our oil and liquids production. Production originates from multiple formations as deep as the Wabamum formation in the Olds area and as shallow as the Edmonton sands in the Sylvan Lake area. Throughout 2009, we have continued to focus on medium to deep oil and liquids rich natural gas productive formations by drilling 51 wells, 33 of which where drilled utilizing horizontal multi-stage stimulation technology.

Production from the Western Region in 2009 averaged 81,220 MMcf/d of natural gas and 8,317 bbls/d of light oil and liquids for a total of 21,854 boe/d. During 2009, we invested $840.5 million of capital in the Western Region including $714.3 million directed toward property acquisitions and dispositions, and $126.2 million on development activities. This exploration and development program resulted in 37 natural gas wells and 13 oil wells for an overall success rate of 98%.

The Western Region includes a balanced portfolio of both oil and natural gas, primarily operated by us, which in 2009 collectively accounted for:

In 2010, we plan capital expenditures of $232 million in the Western Region. This includes an 80 well drilling program of which 85% will utilize horizontal multi-stage stimulation technology capitalizing our success with these techniques over the past year. With this capital spending, we anticipate production additions of approximately 13,500 boe/d. In 2010, we expect the average production to be 33,500 boe/d for this region.

Major Properties

North Central – In 2010, we expect to drill three wells in the Whitecourt area.  This area presents opportunity in the form of low recovery, heterogeneous reservoirs amenable to the application of horizontal development.  We currently produce 1,800 boe/d in this area.

Central Area – In the third quarter of 2009 we acquired approximately 11,000 boe/d: a low decline, low cost, opportunity rich asset with operatorship of a significant gathering and facility infrastructure facilitating timely and cost effective future production additions.  Over the past few years, we have amassed a large concentrated land position in this multi-zone area characterized by large heterogeneous reservoirs with in general, low recoveries to date.  The area is accessible year-round and is in close proximity to service providers offering the opportunity to maintain our existing low-cost structure.  This acquisition, coupled with our development activities over the past year, has resulted in production of approximately 21,500 boe/d currently.  In 2010, we will spend $164.3 million on development activities, drilling 56 wells of which 98% will be horizontal in nature.

The Eastern Region represents approximately 13% of our current natural gas production, 100% of our heavy oil production, and 42% of our total oil and liquids production. Natural gas and heavy oil production is derived from a multitude of Upper and Lower Cretaceous sands.

Production from the Eastern Region in 2009 averaged 35,469 MMcf/d of natural gas, 5,447 bbls per day of heavy oil and 5,428 bbls per day of light and medium oil, for a total of 16,786 boe/d. We operate 24 natural gas and oil facilities in the Eastern Region.

During 2009, we invested $49.5 million in the Eastern Region. This investment included the drilling of 55 wells with a 98% success rate, resulting in 13 natural gas wells, 27 medium gravity wells and 14 heavy oil wells. At December 31, 2009, undeveloped land in the area was 303,764 net acres, with an average working interest of 65%.

The Eastern Region in 2009 collectively accounted for:

In 2010, we plan to invest $43 million in the Eastern Region to drill 31 wells. The low risk nature of the area creates a high degree of certainty with these drilling prospects. The Eastern Region is forecasted to average 13,600 boe/d in 2010 with this level of capital activity.

Major Properties

Heavy Oil – We have been operating in the Lloydminster area for nine years. In 2010, we plan to spend $18.9 million drilling 15 wells and performing numerous recompletions and workovers. We anticipate production to remain stable at approximately 4,800 boe/d throughout 2010.

Provost – The greater Provost area accounts for 20% of the Eastern Region's production. This stable natural gas and crude oil production is currently producing 2,800 boe/d and is derived primarily from the shallow Cretaceous sands prevalent throughout the area. We operate or have an interest in several natural gas facilities and pipeline gathering systems in the area, resulting in low cost reserve and production additions in 2010 and beyond. In 2010, we plan to spend $12 million, drilling 12 oil wells utilizing horizontal multi-stage stimulation technology to enhance the recovery of existing oil pools throughout the area.

North East – Current production from the Beacon Hills area is 2,100 boe/d comprised exclusively of sweet, shallow natural gas production.

Southern – Our Barons oil pool in Lethbridge continues to produce 1,400 bbl/d of light 39° API oil under a secondary recovery scheme which is resulting in low production declines. At our Manyberries property, as our waterflood programs are optimized we anticipate long term stable production with up to 40% of the original oil in place estimated for ultimate recovery from these pools. In 2010, we expect to spend $11 million in this Southern area to drill a total of four oil wells. We currently produce approximately 4,150 boe/d in this area.

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